MECHANICAL ENGINEERING

DEPARTMENT

Industrial Organization
MDP412

Prof. Dr. Attia Gomaa & Dr. Sayed Zayan 1st Term 2023/2024
Topics: Part I: Dr. Sayed Zayan (Operations Planning)
1)Introduction to Operations Management
2)Forecasting
3)Aggregate Planning
4)Material Requirement planning (MRP)
5)Operations Scheduling
6)Case studies
Part II: Prof. Dr. Attia Gomaa (Operations Control)
1) Quality Control
2) Total Quality Control
3) ISO9001:2015
4) Lean Six Sigma Approach
5) Key Performance Indicators (KPIs)
6) Case Studies
Evaluation:
Final Exam. 80 pts
Mid term Exam. 20 pts
Semester work:
Report & Oral Exam. 10 pts
Quizzes. 5 pts
Assignments. 5 pts
Attendance. 5 pts
Total = 125 pts
References:
1) Stevenson W.J.
“Operations Management”
14th ed., 2021 by McGraw-Hill Edu.
2) Jacobs F.R. & Chase R.B.
“ Operations and Supply Chain Management”
15th ed., 2018 by McGraw-Hill Edu.
3) Nahmias S. and Olsen T.L.
“Production and Operation Analysis”
7th ed., 2015 by Waveland Press, Inc, USA
Lecture 1: Introduction to Industrial Organization
Definitions:
 Organizations are created to provide goods and services to
the public.
 Goods refer to manufactured, assembled, and processed
items. Goods are tangibles that can be produced before their
actual use and they can be inventoried.
 Services, on the other hand, are intangibles that cannot be
inventoried. Services are provided at the time when the
customers need them.
 The study of Industrial Organization (or Production
Management or Production/Operations Management or
Operations Management) is the study of operations and
processes leading to the creation of goods and services.
Definitions
 Operations Management (OM) is the business function that
plans, organizes, coordinates, and controls the resources
needed to produce a company’s goods and services.
 Operations Management is a systematic approach to
addressing issues in the transformation process that converts
inputs into useful, revenue-generating outputs.
Definitions
Supply chain management deals with managing the flow of
materials, information, and money across multiple organizations
from the suppliers to operations to distribution to the final
customer, along with reverse flows. The entire supply chain is
included from the raw materials through suppliers, factories,
warehouses, and retailers to the ultimate customer.
Scope of production and operations management
A Framework for Managing Operations
What Do Operations Managers Do?
❑ Forecasting: predict the future demand for raw materials,
finished goods, and services.
❑ Supply chain management: manage the flow of materials,
information, people, and money from suppliers to customers.
❑ Facility layout and design: determine the best configuration of
machines, storage, offices, and departments to provide the
highest levels of efficiency and customer satisfaction.
❑ Technology selection: use technology to improve productivity
and respond faster to customers.
❑ Quality management: ensure that goods, services, and
processes will meet customer expectations and requirements.
❑ Purchasing: coordinate the acquisition of materials, supplies, and
services.
❑ Resource and capacity management: ensure that the right
amount of resources (labor, equipment, materials, and
information) is available when needed.
What Do Operations Managers Do?
❑ Process design: select the right equipment, information, and
work methods to produce high-quality goods and services
efficiently.
❑ Job design: decide the best way to assign people to work
tasks and job responsibilities.
❑ Service encounter design: determine the best types of
interactions between service providers and customers, and
how to recover from service upsets.
❑ Scheduling: determine when resources such as employees
and equipment should be assigned to work.
❑ Sustainability: decide the best way to manage the risks
associated with products and operations to preserve
resources for future generations.
Types of Performance Measures
Organizational performance measures can be classified
into several important categories:
▶▶ Financial
▶▶ Customer and market
▶▶ Quality
▶▶ Time
▶▶ Flexibility
▶▶ Innovation and learning
▶▶ Productivity and operational efficiency
▶▶ Sustainability
Types of Performance Measures
Definition of Productivity
Productivity is formally defined by Organization of European
Economic Cooperation (OEEC) as:
 Productivity is the quotient (ratio) obtained by dividing
output by one of the factors of production. Thus, it is
possible to speak productivity of capital, investment or raw
materials according to whether output is being considered
in relation to capital, investment or raw materials, etc.
 Productivity is the quantitative relation between what we
produce and what we use as a resource to produce them,
i.e. arithmetic ratio of amount produced (output) to the
amount of resources (input). Productivity can be expressed
as:
Example
company produces 160 kg of plastic molded parts of acceptable
quality by consuming 200 kg of raw materials for a particular period.
For the next period, the output is doubled (320 kg) by consuming
420 kg of raw material and for the third period, the output is
increased to 400 kg by consuming 400 kg of raw material.
During the first year, production is 160 kg

For the second year, production is increased by 100%

For third period, production is increased by 150%

Difference between Productivity and Production
Production and productivity are different terms and carry different
meaning. It is wrong to assume that higher production will always
lead to higher productivity or vice-versa.
 Production is related to the activity of producing goods or service.
It is a process (or system) of converting input into some useful,
value-added output.
 Productivity is related to the efficient utilization of input resources
into produced output in the form of value-added goods or services.

Production is a measure of output produced. The emphasis ‫التركيز‬is

NOT on how well the input-resources are utilized.
Productivity, on the other hand, puts emphasis on the ratio of output
produced to the input used. Its focus is on how well the input resource
is used for conversion into output.
Example
A company is manufacturing 24,000 components per month
by employing 100 workers in 8-hour shift. The company gets
additional order from government to supply additional 6,000
components. The management decides to employ additional
workers. What will be production and productivity level when
the number of additional workers employed are: (i) 30 (ii) 25
Solution:
Present production = = 24,000 components
Example
With increased order :
Production =24,000 + 6,000 = 30,000 components
(i) When additional 30 workers are hired

(ii) When additional 25 workers are hired

Productivity, Efficiency and Effectiveness
Efficiency: It is the ratio of actual output attained to the standard
expected output. It is the ratio of output to standard output
expected. Therefore, efficiency indicates a measure of how well
the resources are utilized to accomplish a target or result.
Efficiency may be calculated using the following formula:
Efficiency = Output/Standard output
Efficiency can be defined as doing things right. Operational efficiency refers
to a ratio of outputs to inputs (like land, capital, labor, etc.)

Effectiveness
It is the degree of accomplishment of the objectives that is: How well a set of
targets or results are accomplished? How well are the resources utilized?
Effectiveness is obtaining the desired results. It may reflect output quantities,
perceived quality or both. Effectiveness can also be defined as doing
the right things.
Productivity, Efficiency and Effectiveness

Productivity, efficiency and effectiveness related to a production system

Productivity, Efficiency and Effectiveness
 Productivity is an integration of both efficiency and
effectiveness.
 It indicates a combined effect resource utilization (i.e.,
efficiency) and performance (i.e., effectiveness).
 The combined effect of efficiency and effectiveness is used
in defining a term called productivity index:
Indices of productivity
Partial Productivity
Partial productivity is defined on the basis of the class of the
input being considered. For example, if the labor is increased
by 18% during last financial year, its effect on the increased
output is represented by productivity. Similarly, capital
productivity, material productivity, etc., may be defined
Indices of productivity
Total Factor Productivity (Multifactor Productivity):
The Total Factor Productivity (TFP) measure could be

It is the ratio of net output to 'the sum of labor and capital inputs. Thus,

Total Productivity
It is the ratio of total output to the sum of all input factors
Factor productivity index:
American Productivity Center (APC) has suggested a general approach to
the measurement of factor productivity. The APC model is a plant level
productivity measure obtained by combining the data from various factors.
The formula used in this model is as follows:

Where subscripts 1 and 2 indicate base and current periods, Q and I =

output and input quantities and P and C stand for output price and input
cost respectively. Clearly the above relationship is designed to tie-in with a
firm’s financial accounting system and to relate current-price- weighted
output and input data to a base period.
Price Recovery Index:
In a period of inflation, another index is found to be useful and
this is known as price recovery index. This index is expressed
as:

This index shows the extent to which the firm has succeeded in
absorbing cost increases to combat inflation.
Concept of cost effectiveness:
Cost effectiveness is measured by the capacity of a business
firm to produce a commodity at lower cost or by its success in
achieving cost reduction through improved efficiency of
operations or more effective utilization of its existing resources.

A cost effectiveness index reflects “how costs for the current

period compare with the cost relationship established for the
base period.”

It is to be noted that
Cost Effectiveness Index= factor productivity index x price
recovery index
Reasons for Lower Productivity
There are various reasons of poor productivity. Some of them are mentioned as follows:
1. Poor production planning and control
2. Low motivation of people
3. Lack of coordination
4. Unavailability of right tools, material and human force
5. Poor product design
6. Lack of standardization
7. Poor working environment
8. Non-standard methods of working
9. No accountability for loss of production
10. Government rules and regulations
11. Old age of plant and equipments
12. Weak R & D
Ways to Improve Productivity
The productivity of any system can be improved either by proper use of
resources or by effective utilization of the system or its processes. Some
action plans for productivity improvement are listed below:
Machine
1. Manual labor is replaced by machines
2. Reliable machines
3. Automation.
Management
1. Motivated workforce
2. Better planning and coordination
3. Effective control over the system.
Ways to Improve Productivity
Process
1. Computerization of the system
2. Use of Management Information System (MIS)
3. Improvement in scheduling
4. Better material flow
5. Fast and accurate retrieval of parts.
Work design
1. Improved job design
2. Better work method
3. On-job training.
Work environment
1. Better lighting and illumination
2. Better ventilation
3. Safe workplace
4. Total quality management (TQM).
Ways to Improve Productivity
Program
1. Quality circle
2. Suggestion scheme
3. Incentive scheme
4. Revise pay or policy.
Technology
1) Acquiring new technology such as Electro-Chemical Machining
(ECM), etc.
2) Acquiring automated assembly line, for example, Surface-
Mounting Technology (SMT) for printed circuit board assembly unit.
3) Acquiring computer-controlled machines, such as Computer
Numerical Control (CNC) or Direct Numerical Control (DNC).
4) Using Automated Guided Vehicle (AGV) for material
transportation.
Ways to Improve Productivity
Manufacturing strategy
1) Changing the manufacturing system from functional to a cellular
layout if it is a batch production unit.
2) Adopting stockless production strategy and JIT framework in the
production unit.
3) Keeping the workplace clean and environment-friendly (also
termed as green-production system).
4) Opting for total change in the process/product or strategy if the
system is not working properly (also known as Business Process Re-
engineering or BPR).
External environment
1. Better political stability
2. Boosting economy and purchasing capacity of buyers
3. Globalization and open market economy