INDUSTRIAL ENGINEERING

Syllabus
INDUSTRIAL ENGINEERING AND PRODUCTIVITY (04 Hours)
Introduction, history, objectives, organization structure, scope, Productivity, factors
influencing productivity, Productivity measurement, causes of low productivity and
techniques of their elimination, Introduction to advance industrial engineering techniques.
WORK STUDY AND ERGONOMICS (10 Hours) History, Scope, Objectives, Overview, Method
study Objectives and procedure, Micro motion study, Method study tools, Time study
procedure, Performance rating, Allowances, Predetermined Motion Time Systems (PMTS),
Work Sampling, Ergonomics, Work science, Design factors, Effect of environment, Man-
Machine System, Workload and Fatigues.
PLANT LOCATION AND LAYOUT (07 Hours) Factors affecting location decisions, Methods of
evaluating location alternative, Layout types, Work cells, Repetitive and product-oriented
layout, Computerized layout design procedure
FORECASTING (06 Hours)
Steps, qualitative and quantitative approaches, Monitoring and controlling forecast,
Forecasting in service sector
INVENTORY CONTROL (07 Hours)
Managing inventory, Inventory models for independent demand, Probabilistic
models and safety stock, Single period model, Fixed period model
PRODUCTION PLANNING AND CONTROL (PPC) (04 Hours)
Production Systems, Job, Batch, Mass and Continuous production system,
Objectives of PPC, Functions of PPC
HUMAN RESOURCE MANAGEMENT (04 Hours) Functions of Human Resource
Manager, Training and development, Job evaluation and Merit rating, Wage and
Wage Incentives, Grievance handling, Discipline and welfare
 What is Industrial Engineering?

The focus of Industrial Engineering is how to improve processes or design things that are
more efficient and waste less money, time, raw resources, man-power and energy while
following safety standards and regulations. Industrial engineers may use knowledge of
Math's, Physics but also Social Sciences to analyze, design, predict and evaluate the results
and roadblocks of processes and devices.
 Historical Development of Industrial
Engineering
• Pre Industrial Revolution Era
• Industrial Revolution
• Scientific Management Phase
• Operations Research
• Automation And Computer Integrated
Manufacturing Phase
 Industrial revolution
• Industrial Revolution, in modern history,
the process of change from handicraft
economy to one dominated by industry and
machine manufacturing. These technological
changes introduced novel ways of working
and living and fundamentally transformed
society. This process began in Britain in the
18th century and from there spread to other
parts of the world.
 Industrial Revolution
• The main features involved in the Industrial Revolution were
technological, socioeconomic, and cultural. The technological
changes included the following: (1) the use of new basic materials,
chiefly iron and steel, (2) the use of new energy sources, including
both fuels and motive power, such as coal, the steam engine,
electricity, petroleum, and the internal-combustion engine, (3) the
invention of new machines, such as the spinning jenny and the
power loom that permitted increased production with a smaller
expenditure of human energy, (4) a new organization of work
known as the factory system, which entailed increased division of
labour and specialization of function, (5) important developments
in transportation and communication, including the steam
locomotive, steamship, automobile, airplane, telegraph, and radio,
and (6) the increasing application of science to industry.
 Cont..
• These technological changes made possible a tremendously
increased use of natural resources and the mass production of
manufactured goods.
 Cont..
• The Industrial Revolution was the transition to
new manufacturing processes in Great Britain,
continental Europe, and the United States, that
occurred during the period from around 1760 to
about 1820–1840.
• With each of these three advancements—the
steam engine, the age of science and mass
production, and the rise of digital
technology—the world around us
fundamentally changed.
 Cont..
• This process of change (or transition) from a
handicraft economy to a manufacturing
industry that uses machines and new
technologies is what is referred to as
the Industrial Revolution.
 • The revolution of industry 5.0 means that humans
Cont.. and machines are working together, improving the
efficiency of industrial production.
Cont..
 Introduction
• Industrial Engineering is concerned with the
design, improvement and installation of
integrated systems of men materials and
equipment.
• It draws upon specialized knowledge and skill in
the Mathematical, Physical and Social Sciences
together with the principles and methods of
engineering analysis and design to specify,
predict and evaluate the results to be obtained
from such systems.
 Development
Division of labour (Smith, 1776)
• Standardized parts (Whitney, 1800)
• Scientific management (Taylor, 1881)
• Coordinated assembly line (Ford 1913)
• Gantt charts (Gantt, 1916)
• Motion study (the Gilbreths, 1922)
• Quality control (Shewhart, 1924)
• CPM/PERT (Dupont, 1957)
• MRP (Orlicky, 1960)
• CAD
• Flexible manufacturing systems (FMS)
• Computer integrated manufacturing (CIM)
Scientific management theory is a method of improving efficiency in the workforce.

Contributions of researchers in the field of Industrial Engineering is discussed as

follows:
1.Frederick W. Taylor (1856-1915):
1. Scientific Management: Taylor is often referred to as the father of
scientific management. He emphasized the systematic study of work
processes to improve efficiency. His work laid the foundation for time-and-
motion studies and the application of scientific principles to industrial tasks.
2.Frank and Lillian Gilbreth (1868-1924; 1878-1972):
1. Motion Study: The Gilbreths developed motion study techniques, focusing
on reducing unnecessary motions and improving worker efficiency. Their
work led to the development of ergonomic design principles and modern
industrial engineering techniques.
3.Henry Gantt (1861-1919):
1. Gantt Chart: Henry Gantt developed the Gantt chart, a visual tool used for
scheduling and tracking project progress. His contribution revolutionized
project management and scheduling in various industries.
4. Walter A. Shewhart (1891-1967):
1. Statistical Quality Control: Shewhart is known for his work on statistical quality
control and the development of control charts. His methods provided a systematic
approach to quality improvement and laid the foundation for modern quality control
techniques.
5. W. Edwards Deming (1900-1993):
2. Total Quality Management (TQM): Deming introduced the concept of TQM and
emphasized the importance of continuous improvement, customer focus, and statistical
methods in achieving quality excellence. His teachings had a profound impact on
quality management practices worldwide.
6. Eliyahu M. Goldratt (1947-2011):
3. Theory of Constraints: Goldratt developed the Theory of Constraints (TOC), a
management philosophy that focuses on identifying and managing bottlenecks in
processes to improve overall system performance. His work has been influential in
operations management and business strategy.
7. James P. Womack, Daniel T. Jones, and Daniel Roos:
4. Lean Manufacturing: These researchers are credited with popularizing the concept of
lean manufacturing, which aims to maximize customer value while minimizing waste.
Their work, based on the Toyota Production System, has had a significant impact on
manufacturing and process improvement methodologies.
8. John D. Lee:
5. Human Factors Engineering: Lee's contributions to human factors engineering have
helped in designing systems that are more user-friendly and efficient. His research
focuses on understanding human capabilities and limitations to improve system design
and performance.
 Objectives
The basic objective of industrial engineering :
Enhance the productivity.
Eliminate waste and non-value-added activities.
Improve the effective utilization of resources.
 Tools and techniques to improve
productivity
Following tools and techniques are used to improve productivity of the
organization by optimum utilization of resources.
1- Method Study
2- Time Study (Work Measurement)
3- Motion Economy
4- Financial and Non-Financial Incentives
5- Value Analysis
6- Production, Planning and Control
7- Inventory Control
8- Job Evaluation
9- Material Handling Analysis
10-Ergonomics (Human Engineering)
11- System Analysis
12- Operations Research Techniques
 Organization and Organizational Structure
 Organization are the set of people who work together to
achieve shared goal.
 Organizational management helps to extract the best out of
each employee so that they accomplish the task within given
time frame
 An organizational structure is a system that outlines how
certain activities are directed in order to achieve the goals of
an organization.
 These activities can include rules, roles, and responsibilities.
 The organizational structure also determines how information
flows between levels within the company.
 Productivity
• Productivity is the relationship between the
outputs generated from a system and the inputs
that are used to create those outputs.
Productivity = Output produced/Input used
The ratio between the volume of output and corresponding volume
of labour input indices and the corresponding volume of labour
input as measured employment indices.

Productivity refers to the physical relationship between the quantity

produced (output) and the quantity of resources used in the course of
production (input).
1. Production: Production refers to the process of creating goods and services using
various inputs such as labor, capital, materials, and technology. It involves
transforming inputs into outputs that satisfy consumer needs and wants.
Example: manufacturing, farming, mining, construction, and service provision.
It involves the combination of factors of production (land, labor, capital, and
entrepreneurship) to produce goods and services.

2. Productivity: Productivity measures the efficiency with which inputs are

converted into outputs. It is a ratio of output to input, indicating the amount of goods
or services produced per unit of input.
Productivity can be measured at various levels, such as:
1. Labor Productivity: Output per worker or output per hour worked.
2. Capital Productivity: Output per unit of capital or investment.
3. Total Factor Productivity (TFP): Output per unit of combined inputs
(labor, capital, materials, etc.).
 Cont..
• A measure of the efficiency of a person, factory, system etc.
In converting input useful output.

Calculation of productivity:
 Labour productivity=Total Product output/Labour Input
 Material productivity=Total Product output/Material Input
 Capital productivity=output/Capital Input
 Total Factor productivity=Net output/(Labour+ Capital) Input
High productivity refers to doing the work in a shortest possible
time with least expenditure on inputs without sacrificing quality and
with minimum wastage of resources.
 Productivity Measurement
• The measurement of productivity can be quite direct. Such is the case when productivity
is measured by labor-hours per ton of a specific type of steel. Although labor-hours is a
common measure of input, other measures such as capital (dollars invested), materials
(tons of ore), or energy (kilowatts of electricity) can be used. An example of this can be
summarized in the following equation:
• Productivity = Units produced/Input used:
For example, if units produced = 1,000 and labor-hours used is 250, then:
Single@factor productivity = Units produced/Labor hours used
=1,000/250 = 4 units per labor

• The use of just one resource input to measure productivity, as shown in above Equation
is known as single-factor productivity . However, a broader view of productivity is
multifactor productivity, which includes all inputs (e.g., capital, labor, material, energy).
Multifactor productivity is also known as total factor productivity.
• Multifactor productivity is calculated by combining the input units as shown here:
Multifactor productivity =Output/Labor + Material + Energy + Capital + Miscellaneous
• Mark's Ceramics spent $4000 on a new kiln last year, in the belief that it would cut
energy usage 25% over the old kiln. This kiln is an oven that turns "greenware" into
finished pottery. Mark is concerned that the new kiln requires extra labor hours for
its operation. Mark wants to check the energy savings of the new oven, and also to
look over other measures of their productivity to see if the change really was
beneficial. Mark has the following data to work with:
 Numerical
A firm cleans chemical tank cars in the Bay St. Louis area. With standard equipment,
the firm typically cleaned 70 chemical tank cars per month. They utilized 10 gallons of
solvent, and two employees worked 20 days per month, 8 hours a day. The company
decided to switch to a larger cleaning machine. Last April, they cleaned 60 tank cars in
only 15 days. They utilized 12 gallons of solvent, and the two employees worked 6
hours a day.
•1. What was their productivity with the standard equipment?
•2. What is their productivity with the larger machine?
•3. What is the change in productivity?
Martin Manufacturing has implemented several programs to improve its productivity.
They have asked you to evaluate the firm's productivity by comparing this year's
performance with last year's. The following data are available:
 Cont..
• Productivity can be Increased
• 1. When production is increased without increase in inputs.
• 2. The same production with decrease in inputs.
• 3. The rate of increase in output is more compared to rate of increase in input.
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.

Problem 1: During the first year, production is 160 kg

Output 160, Intput 200 Productivity = = 0.8 or 80%
For the second year, production is increased by 100%
Output = 320 , Input 420 Productivity = 0.76 or 76% 4,
For third period, production is increased by 150%
Output = 400, Input 400 Productivity = 1.0 i.e. 100%

Comments: From the above illustration, it is clear that, for second period, though
production has doubled, productivity has decreased from 80% to 76%, for third, period
production is increased by 150% and correspondingly productivity increased from 80%
to 100%. Thus, Increase in production may or may not increase Productivity.
Problem 2: Munson Performance Auto, Inc., modifies 375 autos per year. The
manager, Adam Munson, is interested in obtaining a measure of overall
performance. He has asked you to provide him with a multifactor measure of last
year’s performance as a benchmark for future comparison. You have assembled the
following data. Resource inputs were labor, 10,000 hours; 500 suspension and
engine modification kits; and energy, 100,000 kilowatt-hours. Average labor cost last
year was $20 per hour, kits cost $1,000 each, and energy costs were $3 per kilowatt-
hour. What do you tell Mr. Munson?

Problem 3: Lake Charles Seafood makes 500 wooden packing boxes for fresh
seafood per day, working in two 10-hour shifts. Due to increased demand, plant
managers have decided to operate three 8-hour shifts instead. The plant is now able
to produce 650 boxes per day.
(i) Calculate the company’s productivity before the change in work rules and after the
change.
(ii) What is the percentage increase in productivity?
(iii) If production is increased to 700 boxes per day, what is the new productivity?
 Problem 4: The Miami Central Hotel has 400 rooms. Every day, the housekeepers
clean any room that was occupied the night before. If a guest is checking out of the
hotel, the housekeepers give the room a thorough cleaning to get it ready for the
next guest. This takes 30 minutes. If a guest is staying another night, the
housekeeper only “refreshes” the room, which takes 15 minutes.
Each day, each housekeeper reports for her 6-hour shift, then prepares her cart.
She pushes the cart to her floor and begins work. She usually has to restock the
cart once per day; then she pushes it back to the storeroom at the end of the day
and delivers dirty laundry, etc. Here is a timetable:
(i) Arrive at work and stock cart (0.10 hrs).
(ii) Pushcart to floor (0.10 hrs).
(iii) Take morning break (0.33 hrs).
(iv) Stop for lunch (0.50 hrs).
(v) Restock cart (0.30 hrs).

(vi) Take afternoon break (0.33 hrs).

(vii) Pushcart back to laundry and store items (0.33 hrs).
Last night, the hotel was full (all 400 rooms were occupied). People are checking
out of 200 rooms. Their rooms will need to be thoroughly cleaned. The other 200
rooms will need to be refreshed.
(i) How many minutes per day of actual room cleaning can each housekeeper
do?
(ii) How many minutes of room cleaning will the Miami Central Hotel need today?
(iii) How many housekeepers will be needed to clean the hotel today?
(iv) If all the guests checked out this morning, how many housekeepers would be
needed to clean the 400 rooms?
 Cont..
Problem 5: The following information regarding the output
produced and inputs consumed for a particular time period for a
particular company given below:
Output = Rs 10,000.
Human input = Rs 3,000.
Material input = Rs 2000.
Capital input = Rs 3000.
Energy input = Rs 1000.
Other misc. input = Rs 500.
The values are in terms of base year rupee value. Compute various
productivity indices

34
 Productivity Index
Productivity Index measures is the ratio of present productivity to base period
productivity
 FACTORS INFLUENCING PRODUCTIVITY
______________________________________________________________
A. Controllable Factors (Internal Factors)

1. Product factor: In terms of productivity means the extent to which the product meets
output requirements product is judged by its usefulness. The cost benefit factor of a
product can be enhanced by increasing the benefit at the same cost or by reducing cost for
the same benefit.

2. Plant and equipment: These play a prominent role in enhancing the productivity. The
increased availability of the plant through proper maintenance and reduction of idle
time increases the productivity. Productivity can be increased by paying proper attention
to utilisation, age, modernisation, cost, investments etc.

3. Technology: Innovative and latest technology improves productivity to a greater extent.

Automation and information technology helps to achieve improvements in material
handling, storage, communication system and quality control. The various aspects of
technology factors to be considered are:
(i) Size and capacity of the plant,
(ii) Timely supply and quality of inputs,
(iii) Production planning and control,
(iv) Repairs and maintenance,
(v) Waste reduction, and
36
(vi) Efficient material handling system.
 FACTORS INFLUENCING PRODUCTIVITY
______________________________________________________________

4. Material and energy: Efforts to reduce materials and energy consumption brings about
considerable improvement in productivity.
1. Selection of quality material and right material.
2. Control of wastage and scrap.
3. Effective stock control.
4. Development of sources of supply.
5. Optimum energy utilisation and energy savings.

5. Human factors: Productivity is basically dependent upon human competence and

skill. Ability to work effectively is governed by various factors such as education, training,
experience aptitude etc., of the employees. Motivation of employees will influence
productivity.

6. Work methods: Improving the ways in which the work is done (methods) improves
productivity, work study and industrial engineering techniques and training are the areas
which improve the work methods, which in term enhances the productivity.

7. Management style: This influence the organizational design, communication in

organization, policy and procedures. A flexible and dynamic management style is a better
approach to achieve higher productivity.
37
 Cont..
(B) UN-CONTROLLABLE (OR EXTERNAL) FACTORS
1. Structural adjustments: Structural adjustments include both economic and social
changes. Economic changes that influence significantly are:
(a) Shift in employment from agriculture to manufacturing industry,
(b) Import of technology, and
(c) Industrial competitiveness.
Social changes such as women’s participation in the labour force, education, cultural
values, attitudes are some of the factors that play a significant role in the improvement of
productivity.

2. Natural resources: Manpower, land and raw materials are vital to the productivity
improvement.

3. Government and infrastructure: Government policies and programmes are significant

to productivity practices of government agencies, transport and communication power,
fiscal policies (interest rates, taxes) influence productivity to the greater extent.

38
Causes of Low Productivity
Causes of low productivity and techniques of their elimination
 Productivity Improvement Techniques
______________________________________________________________

(A) TECHNOLOGY BASED

Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), and
Computer Integrated Manufacturing Systems (CIMS):

Computer-aided design is a way to digitally create 2D drawings and 3D

models of real-world products—before they're ever manufactured. CAD refers
to design of products, processes or systems with the help of computers. The impact of
CAD on human productivity is significant for the advantages of CAD are:
(a) Speed of evaluation of alternative designs,
(b) Minimization of risk of functioning, and
(c) Error reduction.
41
 Productivity Improvement Techniques
______________________________________________________________

2. Computer Aided Manufacturing (CAM) is the use of software and computer-

controlled machinery to automate a manufacturing process.
(a) Production Planning and Control
(b) Capacity Requirements Planning (CRP), Manufacturing Resources Planning (MRP II)
and Materials Requirement Planning (MRP)
(c) Automated Inspection.

3. Computer integrated manufacturing: CIM combines various technologies like

computer-aided design (CAD) and computer-aided manufacturing (CAM) to
provide an error-free manufacturing process that reduces manual labor and
automates repetitive tasks.
1. Robotics
2. Laser technology
3. Modern maintenance techniques
4. Energy technology
5. Flexible Manufacturing System (FMS)

42
 Productivity Improvement Techniques
______________________________________________________________

(B) EMPLOYEE BASED

1. Financial and non-financial incentives at individual and group level.
2. Employee promotion.
3. Job design, job enlargement, job enrichment and job rotation.
4. Worker participation in decision-making
5. Quality Circles (QC), Small Group Activities (SGA)
6. Personal development

C) MATERAL BASED
1. Material planning and control
2. Purchasing, logistics
3. Material storage and retrieval
4. Source selection and procurement of quality material
5. Waste elimination.

D) PROCESS BASED
1. Methods engineering and work simplification
2. Job design evaluation, job safety
3. Human factors engineering

43
 Productivity Improvement Techniques
______________________________________________________________
(E) PRODUCT BASED
1. Value analysis and value engineering
2. Product diversification
3. Standardisation and simplification
4. Reliability engineering
5. Product mix and promotion.

(F) TASK BASED

1. Management style
2. Communication in the organization
3. Work culture
4. Motivation
5. Promotion group activity

Goods and Services:

44
 Work Study
• The systematic examination of the method of
carrying on activities so as to improve the effective
use of resources and to set up standards of
performance for the activities being carried out.
• Work study may be defined as the analysis of a job
for the purpose of finding the preferred method of
doing it and determining the standard time to
perform it by the preferred (or given) method.
• Work study, therefore, comprises of two areas of
study: method study (motion study) and time study
(work measurement)
 Cont..
• Method study (also sometimes called Work Method Design) is
mostly used to improve the method of doing work. It is
equally applicable to new jobs. When applied to existing jobs
and existing jobs, method study aims to find better methods of
doing the jobs that are economical and safe, require less
human effort, and need shorter make-ready / put-away time.
The better method involves the optimum use of best materials
and appropriate manpower so that work is performed in well
organized manner leading to increased resource utilization,
better quality and lower costs.
• It can therefore be stated that through method study we have a
systematic way of developing human resource effectiveness,
providing high machine and equipment utilization, and making
economical use of materials.
 Cont..
Time study, on the other hand, provides the standard
time, that is the time needed by worker to complete a
job by the standard method. Standard times for different
jobs are necessary for proper estimation of
• manpower, machinery and equipment requirements
• daily, weekly or monthly requirement of materials
• production cost per unit as an input to better make or
buy decision
• labour budgets
• worker's efficiency and make incentive wage payments.
 Objectives
• To analyze the present method of doing a job,
systematically in order to develop a new and better
method.
• To measure the work content of a job by measuring the
time required to do the job for a qualified worker and
hence to establish standard time.
• To increase the productivity by ensuring the best possible
use of human, machine and material resources and to
achieve best quality product/ service at minimum
possible cost.
• To improve efficiency
 Objectives of method study
• To study the existing proposed method of doing any job,
operation or activity.
• To develop an improved method to improve
productivity and to reduce operating costs.
• To reduce excessive material handling or movement and
thereby reduce fatigue to workmen.
• To improve utilization of resources.
• To eliminate wasteful and inefficient motions.
• To standardize work methods or processes, working
conditions , machinery, equipments and tools.
 Advantages of method study

• Work simplification
• Improved working method
• Better product quality
• Improved workplace layout
• Improved equipment design
• Better working conditions
• Better material handling
• Improved workflow
Method study
procedure
 Select
CONSIDERATIONS FOR SELECTION OF METHOD
STUDY
The job should be selected for the method
study based upon the following considerations:
• 1. Economic aspect
• 2. Technical aspect
• 3. Human aspect

Selection of Job
 Cont..
• Economic Aspects: The method study involves cost and time. If sufficient
returns are not attained, the whole exercise will go waste. Thus, the
money spent should be justified by the savings from it.
• Technical Aspects: The method study man should be careful enough to
select a job in which he has the technical knowledge and expertise. A
person selecting a job in his area of expertise is going to do full justice.
• Human Aspects: Human consideration and reactions need to be
accounted for too.
Records
The next step in basic procedure, after selecting the work to be
studied is to record all facts relating to the existing method.
Records are very much useful to make before and after
comparison to assess the effectiveness of the proposed improved
method. The recording techniques are designed to simplify and
standardize the recording work.
Graphical method of recording was originated by Gilberth. In
order to make the presentation of the facts clearly, without any
ambiguity and to enable to grasp them quickly and clearly, it is
useful to use symbols instead of written description.
Symbols for graphical representation
(a) Process Charts
(i) Outline process chart
(ii) Flow process chart(Man type, Material Type and
Equipment type)
(iii) Two handed process type
(iv) Multiple activity chart (Man Machine chart)
(b) Diagrams
(i)Flow diagram (ii) String diagram
(iii) Cycle graph (iv) Chronocycle
(c) Micromotion study
 Process Chart Symbols
• Operation: Indicates the main steps in a process, method or
procedure. Usually the part, material or product concerned
is modified or changed during the operation.
• Inspection: Indicates an inspection for quality and / or
check for quantity.
• Transport: Indicates the movement of workers, materials or
equipment from place to place.
• Temporary Storage or Delay: Indicates a delay in the
sequence of events : for example, work waiting between
consecutive operations, or any object laid aside temporarily
without record until required.
 Cont..
• Permanent Storage: Indicates a controlled storage
in which material is received into or issued from a
store under some form of authorization; or an item
is retained for reference purposes.
• Combined Activities: Indicates a controlled storage
in which material is received into or issued from a
store under some form of authorization; or an item
is retained for reference purposes.
 Cont..
1. Operation
• An operation occurs when an object is intentionally changed in one or more of its characteristics
(physical or chemical). This indicates the main steps in a process, method or procedure.
• An operation always takes the object one stage ahead towards completion.
Examples of operation are:
• Turning, drilling, milling, etc.
• A chemical reaction.
• Welding, brazing and riveting.
• Lifting, loading, unloading.
• Getting instructions from supervisor.
• Taking dictation.

2. Inspection
• An inspection occurs when an object is examined and Compared with standard for quality and quantity.
The inspection examples are:
• Visual observations for finish.
• Count of quantity of incoming material.
• Checking the dimensions.
 Cont..
3. Transportation
• A transport indicates the movement of workers, materials or equipment from one
place to another.
• Ex.— Movement of materials from one work station to another.
• Workers travelling to bring tools.
4. Delay
• Delay (Temporary Storage) A delay occurs when the immediate performance of the
next planned thing does not take place.
• Ex.— Work waiting between consecutive operations.
• Workers waiting at tool cribs.
• Operators waiting for instructions from supervisor.
5. Storage
• A storage occurs when the object is kept in an authorized custody and is protected
against unauthorised removal. For example, materials kept in stores to be
distributed to various work centres.
 RECORDING TECHNIQUES

According to the nature of the job being studied and the purpose for which the record is
required the techniques fall into following categories:
1. Charts.
2. Diagrams.
3. Templates and models.
OPERATION PROCESS CHART: Gives bird's-eye view of process and records
principal (outline process chart) operations and inspecting.

2. FLOW PROCESS CHART : Sequence of activities performed by worker. Sequence

of activities performed on materials. Sequence of activities performed by equipment.

• Man type
• Material type
• Equipment type
3. MULTIPLE ACTIVITY CHART : Charts activities of men and/or machines on a common
time scale.

4. TWO HANDED PROCESS CHART

5. TRAVEL CHART
6. SIMO CHART
Activities performed by worker's two
hands.
Movement of materials and/or men
between departments.
Activities of worker's hands, legs and
other body movements on common time
scale.
Method Study 65
DIAGRAM:
7. FLOW AND STRING DIAGRAMS Path of movement of men and materials.
Charts/Diagram Purpose
OPERATION PROCESS CHART Gives bird's-eye view of process and
(outline process chart) records principal operations and
inspecting.
FLOW PROCESS CHART Sequence of activities performed by worker.
• Man type Sequence of activities performed on
• Material type materials. Sequence of activities performed
• Equipment type by equipment
MULTIPLE ACTIVITY CHART Charts activities of men and/or machines
on a common time scale.
TWO HANDED PROCESS CHART Activities performed by worker's two
hands.
TRAVEL CHART Movement of materials and/or men
between departments.
SIMO CHART Activities of worker's hands, legs and
other body movements on common time
scale.
DIAGRAM:
7. FLOW AND STRING DIAGRAMS Path of movement of men and materials.
8. MODELS AND TEMPLATES Work place layout.
9. CYCLE GRAPH AND CHRONOCYCLE. High speed, short cycle operation recording
 Outline process chart
• An outline process chart is a process chart
which gives an overall view of a process
by recording only the main operations
and sequences in proper sequence.
 Flow process chart
• A flowchart is a picture of the separate steps
of a process in sequential order.
• Flow process chart gives the sequence of flow of work of a product, or any part of
it through the work center or the department recording the events using appropriate
symbols.
Manufacture of the component
Writing a letter
Cont..
Cont..
 Two handed Chart
• It is a detailed process chart in which the activities of
a worker's hands (or limbs) are recorded in their
relationship to one another. The two-handed process
chart is generally used for repetitive activities when
one complete cycle of the work is to be recorded.
Task: To sharp the pencil
 Multiple Activity Chart
• A multiple activity chart is a chart on which the activities of
more than one subject (worker, machine or item of equipment)
are recorded on a common time scale to show their
interrelationship.
 SIMO Charts
• Simultaneous motion cycle chart (SIMO chart) is a recording
technique for micro-motion study. A SIMO chart is often based
on the film analysis(motion picture). This chart uses a common
time to record the motion.
• Therbligs or a group of Therbligs performed by different parts of
the body of one or more operators.
Therblig
SIMO: It is used for graphical presentation of many repetitive operations of short cycles
like component assembly, packaging, inspection, separation of mixed jobs, which involve
quick movements of the hand.
Therbligs refer primarily to motions of human body at the workplace and to the mental
activities associated with it. They permit a much more precise and detailed description of
the work than any other recording techniques.
Micro-motion study involves the following steps:
1. Filming the operation to be studied.
2. Analysis of the data from the films.
3. Making recording of the data
 Diagram
• Flow Diagram
• String Diagram

the string diagram is drawn exactly on a scale while the flow diagram is
plotted approximately on scale.
Cont..
Cont..
 Cycle graph and chrono cycle
• A cycle graph is a record of path of movement usually traced
by a continuous source of light on a photograph. A small
electric bulb is attached to hand, finger or other part of the
body of the operator performing the operation. A photograph is
taken by still camera and the light source shows the path of the
'motion and the path of the photograph is called "cycle graph”.
• The Chronocycle graph is special form of cycle graph in
which the light source is suitably interrupted so that the path
appears as a series of pear-shaped dots the pointed end
indicating the direction of movement and the spacing
indicating the speed of movement.
 Work
Measurement
• Work measurement is
the application of
techniques which is
designed to establish
the time for an
average worker to
carry out a specified
manufacturing task
at a defined level of
performance.1
 Work Measurement

Time is important in work systems because of its economic significance.

Most workers are paid for the time they are on the job.

For any organization to operate efficiently and effectively, it is important to

know how much time should be required to accomplish a given amount of
work.

The terms time study and work measurement are often used
interchangeably. Both are concerned with how much time it should take to
complete a unit of work.
Cont.
Cont..
 Cont..

The objective of these work measurement techniques is to determine a standard

time for the task. Because of its emphasis on time, work measurement is often
called time study.
 CONCEPT OF WORK CONTENT

The amount of work contained in a given job is referred to as work content. For a given job work content is
measured in terms of man-hours or machine-hours.

Work content has two constituents:

Basic Work Content: Which is the minimum time theoretically required to do an operation or job. This cannot
be reduced. Basic work content will result in the following conditions:

• The design and the specification are perfect.

• Process of manufacture is exactly followed.

• No loss of working time due to any of the reasons.

Thus, the basic work content represents an ideal condition which is not possible to achieve.

Excess work content: The actual time required to complete an operation or job is more than the basic time in
practical situations. This additional portion of the work content is called excess work content.
 TECHNIQUES TO REDUCE WORK CONTENT

Management techniques to reduce work content due to product:

Market research/consumer research.

Management techniques to reduce work content due to process or methods:

Process planning, Methods study.

Management techniques to reduce ineffective time due to management:

Materials control, Plant maintenance

Management techniques to reduce ineffective time within control of the

workers: Financial incentives.
 TIME STANDARDS AND HOW THEY ARE DETERMINED

• Most workers are paid on the basis of time. The common work shift
is 8 hours per day, and the worker is paid an hourly rate.
• The standard time for a given task is the amount of time that should
be allowed for an average worker to process one unit using the
standard method and working at a normal pace.
• The standard time includes some additional time, called the
allowance, to provide for the worker’s personal needs, fatigue, and
unavoidable delays during the shift.
• The standard time is sometimes referred to as the allowed time,
because it indicates how much time is allowed for the worker to
process each unit so that by the end of the shift a fair day’s workload
has been accomplished, despite the various interruptions that may
occur.
 Methods to Determine Time Standards

The following methods can be used to determine time standards.

• Estimation
The department foreman or other person familiar with the jobs
performed in the department is asked to judge how much time should be
allowed for the given task.
• Historical records of previous production runs
In this method, the actual times and production quantities from records
of previous identical or similar job orders are used to determine the time
standards.
• Work measurement techniques
Direct Time Study, Predetermined Motion Time Systems, Standard Data
Systems, and Work Sampling. The work measurement techniques are
more time consuming to implement but they are more accurate than
estimation or historical records.
Methods to Determine Time Standards
Cont..
Element
Steps in Making Time Study
Stopwatch time is the basic technique for determining accurate time standards. They are
economical for repetitive type of work. Steps in taking the time study are:
1. Select the work to be studied.
2. Obtain and record all the information available about the job, the operator and the working
conditions likely to affect the time study work.
3. Breakdown the operation into elements. An element is a distinct part of a specified activity
composed of one or more fundamental motions selected for convenience of
observation and timing.
4. Measure the time by means of a stop-watch, taken by the operator to perform each element of
the operation. Either continuous method or snap back method of timing could be used.
5. At the same time, assess the operators effective speed of work relative to the observer's
concept of "Normal" speed. This is called performance rating.
6. Adjust the observed time by rating factor to obtain normal time for each element
7. Add the suitable allowances to compensate for fatigue, personal needs;
contingencies, etc., to give standard time for each element.
8. Compute allowed time for the entire job by adding elemental standard times
considering frequency of occurrence of each element.
9. Make a detailed job description describing the method for which the standard time
is established.
10. Test and review standards where necessary
Time study
Cont..
Normal time: Observed time is not the actual time required to accomplish the work for
operator. It is normalized using the performance rating factor.

Performance rating is an evaluation method that considers the effectiveness operator doing
work. Then it will be applied to obtain the normal time. The performance rating of the worker
is important because it helps to quantify the worker during the operation.
Synthetic Rating: The performance rating under this method is established by
comparing observed time of some of the manual elements with those of known time
values of the elements from predetermined motion and time studies (PMTS).
The procedure is to make the time study in a usual manner and then compare the actual
time for the elements with predetermined time values for the same elements.
A ratio is computed between predetermined time value for the element and actual time
value for the element.
This ratio is the performance index or rating factor for the operator for the particular
element. Performance rating factor, (R) is given by:
Objective Rating: In this method, the operator's speed is rated against a single
standard pace which is independent of job difficulty. The observer merely rates speed of
movement or activity, paying no attention to job itself. After the pace rating is made, an
allowance or a secondary adjustment is added to the pace rating to take care of job
difficulty.
Job difficulty is divided into six classes, and percentage is provided for each of these
factors.
The job difficulties as per the founder of this system—M.E. Mundel have been
categorized into six classes as follows:

1. Amount of body used

2. Foot pedals
3. Bi-manualness
4. Eye-hand coordination
5. Handling requirements
6. Weight
 Skill and Effort Rating: (Bedaux System)

Under this system, the study time engineer observes and judges how fast the
operator performs the motions involved and also his skill. Hence it is called as
“Skill and Effort Rating”. This system was introduced by Charles E. Bedaux in
1916.
The author did not consider time as basis, but he introduced ‘B’ values (the
efficiency of each work element is estimated in ‘B’ values). ‘B’ values represent
a standard minute which contains (i) work component, and (ii) relaxation
component. Only human effort is measured by this system.
 Physiological Evaluation of Performance Level:

Under this method, the performance level of the worker is estimated physiologically.
Many studies have revealed that there is relationship between physical work and
amount of oxygen consumed by the operator. There is change in heart beating rate
depending on the physical work and it is assumed that it is a reliable index to
measure muscular activity.
Thus the oxygen consumed and the heart beat rate depend on the severity of physical
labour. Thus performance level of a worker can be estimated using this correlation
because heart beat rate and oxygen consumption increase when the worker is at
working level. When work ends, recovery begins and the heart rate and oxygen
consumption return to normal resting level.
Elements
Cont..
 Example

work breakdown structure with tasks

Predetermined Motion Time System (PMTS):

• A predetermined motion time system may be defined as

a procedure/method which analyses any manual
activity/human motion in terms of the basic or
fundamental motions required to perform it. Each of
these motions is assigned a predetermined or a
previously established standard time value in such a
manner those times for the individual motions on
addition provides a total time for the performance of the
activity.
 CONT..
• The application of a predetermined time system
needs that the operation being measured
be splitted into basic movements/motions as
called for by the particular system being utilized.
Each system has its own specific rules and
procedures which must be followed exactly.
Methods of determining PMTS
 Work Factor System
 Method Time Measurement
 Basic Motion Time Study
 Motion Time Analysis
 Dimensional Motion time study
Work Factor System
 Method Time Measurement
MTM Fundamental Motions
(a) Eight Basic Motions
Reach, Move, Apply pressure, Turn,
Grasp, Position, Disengage, Release load
(b) Nine Pedal and Trunk Motion
side up step, Turn body, walk, Bend, Stop,
Kneel on One Leg, Kneel on both leg, Foot
Motion, Sit
(c) Two eye Motions
Eye travel time, Eye Focus Time.
 Work-sampling
• Work-sampling is defined as a technique for
determining and predicting the total or the
proportion of the time consumed by a specified
activity.
Some other names of work-sampling are
• Ratio delay study
• Occurrence sampling
• Activity sampling
 No of cycle to be timed
• The simplest way to measure the cycle
time of an assignment is to count the
number of days it spends being worked
on
 A work cycle has been divided into 8 elements and time study has
been conducted. The average observed times for the elements are
given in the following Table:
Element No. 1 2 3 4 5 6 7 8

Element Type M M P M M M M M

Average actual 0.14 0.16 0.30 0.52 0.26 0.45 0.34 0.15
time (minutes)

M = Manually Controlled, P = Power Controlled

Total observed time of work cycle = 2.32 min.
Suppose we select three elements 2, 5 and 8 (These must be manually
controlled elements). By using some PMT system, suppose we determine
the times of these elements as

Elements No. 2 5 8

PMT System times (min) 0.145 0.255 0.145

(a)A time study of a certain service task found an average time of 15 minutes, with a
standard deviation of 5 minutes. These figures were based on a sample of 100
measurements. Is the sample large enough that we are 95% (Z=1.96) confident
that standard time is within ± 5% of its true value?
 Forecasting
• Forecasting may be defined as a technique of
translating past experience into prediction of
things to come.
• Sales forecast is the task of projecting the
future sales of the firm.
Forecasting is the art and science of predicting future events. Forecasting may
involve taking historical data (such as past sales) and projecting them into the
future with a mathematical model. It may be a subjective or an intuitive
prediction (e.g., “this is a great new product and will sell 20% more than the
old one”).
Forecasting Time Horizons
A forecast is usually classified by the future time horizon that it covers. Time horizons
fall into
three categories:
1. Short-range forecast: This forecast has a time span of up to 1 year but is generally
less than 3 months. It is used for planning purchasing, job scheduling, workforce levels,
job assignments, and production levels.
2. Medium-range forecast: A medium-range, or intermediate, forecast generally spans
from 3 months to 3 years. It is useful in sales planning, production planning and
budgeting, cash budgeting, and analysis of various operating plans.
3. Long-range forecast: Generally 3 years or more in time span, long-range forecasts are
used in planning for new products, capital expenditures, facility location or expansion,
and research and development.
Types of Forecasts
Organizations use three major types of forecasts in planning future operations:
1. Economic forecasts address the business cycle by predicting inflation rates, money
supplies, housing starts, and other planning indicatos.

2. Technological forecasts are concerned with rates of technological progress, which can
result in the birth of exciting new products, requiring new plants and equipment.

3. Demand forecasts are projections of demand for a company’s products or services.

Forecasts drive decisions, so managers need immediate and accurate information about real
demand. They need demand-driven forecasts , where the focus is on rapidly identifying and
tracking customer desires. These forecasts may use recent point-of-sale (POS) data,
retailer-generated reports of customer preferences, and any other information that will
help to forecast with the most current data possible.
The forecast is the only
estimate of demand until actual demand becomes known. Forecasts of demand therefore
drive
decisions in many areas.

Steps in the Forecasting System

1. Determine the use of the forecast:
2. Select the items to be forecasted:
3. Determine the time horizon of the forecast:
4. Select the forecasting model(s):
5. Gather the data needed to make the forecast:
6. Make the forecast.
7. Validate and implement the results
Forecasting Approaches:

Qualitative Methods:
Jury of executive opinion : Under this method, the opinions of a group of high-level experts
or managers, often in combination with statistical models, are pooled to arrive at a group
estimate of demand.
Delphi method: There are three different types of participants in this method decision
makers, staff personnel, and respondents. Decision makers usually consist of a group of 5 to
10 experts who will be making the actual forecast. Staff personnel assist decision makers by
preparing, distributing, collecting, and summarizing a series of questionnaires and survey
results. The respondents are a group of people, often located in different places, whose
judgments are valued. This group provides inputs to the decision makers before the forecast
is made.
Sales force composite : In this approach, each salesperson estimates what sales will be in his
or her region. These forecasts are then reviewed to ensure that they are realistic. Then they
are combined at the district and national levels to reach an overall forecast.
Market survey : This method solicits input from customers or potential customers regarding
future purchasing plans. It can help not only in preparing a forecast but also in improving
product design and planning for new products.

The consumer market survey and sales force composite methods can, however, suffer from
overly optimistic forecasts that arise from customer input.
Quantitative Methods
Five quantitative forecasting methods, all of which use historical data, are described in this
chapter. They fall into two categories:
1. Naive approach
2. Moving averages
3. Exponential smoothing
4. Trend projection………………………. Time-series models

5. Linear regression………………………. Associative model

 Time-Series Models: Time-series models predict on the assumption that the future is a
function of the past. In other words, they look at what has happened over a period of
time and use a series of past data to make a forecast. If we are predicting sales of lawn
mowers, we use the past sales for lawn mowers to make the forecasts.

Associative Models : Associative models, such as linear regression, incorporate the

variables or factors that might influence the quantity being forecast. For example, an
associative model for lawn mower sales might use factors such as new housing starts,
advertising budget, and competitors’ prices.

Time-Series Forecasting: A time series is based on a sequence of evenly spaced (weekly,

monthly, quarterly, and so on) data points.
Decomposition of a Time Series
Analyzing time series means breaking down past data into components and then projecting
them forward. A time series has four components:
1. Trend is the gradual upward or downward movement of the data over time. Changes
in income, population, age distribution, or cultural views may account for movement in
trend.
2. Seasonality is a data pattern that repeats itself after a period of days, weeks, months, or
quarters. There are six common seasonality patterns:
3. Cycles are patterns in the data that occur every several years. They are usually tied into
the business cycle and are of major importance in short-term business analysis and planning.
Predicting business cycles is difficult because they may be affected by political events
or by international turmoil.
4. Random variations are “blips” in the data caused by chance and unusual situations. They
follow no discernible pattern, so they cannot be predicted.
Figure 4.1 illustrates a demand over a 4-year period. It shows
Naive Approach
The simplest way to forecast is to assume that demand in the next period will be equal
to demand in the most recent period.

Moving Averages
A moving-average forecast uses a number of historical actual data values to generate a
forecast. Moving averages are useful if we can assume that market demands will stay
fairly steady over time . A 4-month moving average is found by simply summing the
demand during the past 4 months and dividing by 4.
With each passing month, the most recent month’s data are added to the sum of the
previous 3 months’ data, and the earliest month is dropped. This practice tends to
smooth out short-term irregularities in the data series.
Mathematically, the simple moving average (which serves as an estimate of the next
period’s demand) is expressed as:
3-month moving-average forecast, including a forecast for next
January, for shed sales.
If actual sales in December were 18 (rather than 14), what is the new
January forecast?
When a detectable trend or pattern is present, weights can be used to place more emphasis
on recent values. This practice makes forecasting techniques more responsive to changes
because more recent periods may be more heavily weighted. Choice of weights is somewhat
arbitrary because there is no set formula to determine them. Therefore, deciding which
weights to use requires some experience.

A weighted moving average may be expressed mathematically as:

If the assigned weights were 0.50, 0.33, and 0.17 (instead of 3, 2, and 1),
what is the forecast for January’s weighted moving average? Why?
In this particular forecasting situation, you can see that more heavily weighting the latest
month provides a more accurate projection.
Exponential Smoothing
Exponential smoothing is another weighted-moving-average forecasting method. It involves
very little record keeping of past data and is fairly easy to use. The basic exponential
smoothing formula can be shown as follows:

The smoothing constant , a , is generally in the range from .05 to .50 for business
applications. It can be changed to give more weight to recent data (when a is high) or
more weight to past data (when a is low).
High values of a are chosen when the underlying average is likely to change.
Low values of a are used when the underlying average is fairly stable. In picking
a value for the smoothing constant, the objective is to obtain the most accurate
forecast.

Measuring Forecast Error

The overall accuracy of any forecasting model—moving average, exponential
smoothing, or other—can be determined by comparing the forecasted values
with the actual or observed values. If Ft denotes the forecast in period t , and At
denotes the actual demand in period t ,

The forecast error (or deviation) is defined as:

Several measures are used in practice to calculate the overall forecast error. These measures
can be used to compare different forecasting models, as well as to monitor forecasts to ensure
they are performing well. Three of the most popular measures are mean absolute deviation
(MAD), mean squared error (MSE), and mean absolute percent error (MAPE).

Mean Absolute Deviation The first measure of the overall forecast error for a model is
the mean absolute deviation (MAD) . This value is computed by taking the sum of the
absolute values of the individual forecast errors (deviations) and dividing by the
number of periods of data ( n ):
 Mean Squared Error The mean squared error (MSE) is a second way of measuring overall
forecast error. MSE is the average of the squared differences between the forecasted
and observed values. Its formula is:

Mean Absolute Percent Error A problem with both the MAD and MSE is that their
values depend on the magnitude of the item being forecast. If the forecast item is measured
in thousands, the MAD and MSE values can be very large. To avoid this problem, we can
use the mean absolute percent error (MAPE) .
To improve our forecast, let us illustrate a more complex exponential smoothing model,
one that adjusts for trend. The idea is to compute an exponentially smoothed average of
the data and then adjust for positive or negative lag in trend. The new formula is:

With trend-adjusted exponential smoothing, estimates for both the average and the
trend are smoothed. This procedure requires two smoothing constants: a for the
average and b for the trend. We then compute the average and trend each period:
STEP 1: Compute F t , the exponentially smoothed forecast average for period t ,
using
STEP 2: Compute the smoothed trend, T t ,
STEP 3: Calculate the forecast including trend, FIT t , by the formula
This technique fits a trend line to a series of historical data points and then projects the
slope of the line into the future for medium- to long-range forecasts. Several mathematical
trend equations can be developed (for example, exponential and quadratic), but in this
section, we will look at linear (straight-line) trends only.

If we decide to develop a linear trend line by a precise statistical method, we can apply the
least-squares method . This approach results in a straight line that minimizes the sum of
the squares of the vertical differences or deviations from the line to each of the actual
observations.
A least-squares line is described in terms of its y -intercept (the height at which it intercepts
the y -axis) and its expected change (slope). If we can compute the y -intercept and slope, we
can express the line with the following equation:
Seasonal Variations in Data
Seasonal variations in data are regular movements in a time series that relate to recurring
events such as weather or holidays. Demand for winter clothes, for example, peaks during
cold winter months.
Demand for umbrella may be highest in rainy season. Seasonality may be applied to hourly,
daily, weekly, monthly, or other recurring patterns.
Step 1: Find the average historical demand each season (or month in this case) by summing
the demand for that month in each year and dividing by the number of years of data
available. For example, if, in January, we have seen sales of 8, 6, and 10 over the past 3
years, average January demand equals (8 + 6 + 10)/3 = 8 units.
Step 2: Compute the average demand over all months by dividing the total average annual
demand by the number of seasons. For example, if the total average demand for a year is
120 units and there are 12 seasons (each month), the average monthly demand is 120/12 = 10
units.
Step 3: Compute a seasonal index for each season by dividing that month’s historical average
Demand.
Step 4: Estimate next year’s total annual demand.
Step 5: Divide this estimate of total annual demand by the number of seasons, then multiply
it by the seasonal index for each month. This provides the seasonal forecast .
 Monitoring and Controlling Forecasts: One way to monitor forecasts to ensure that they
are performing well is to use a tracking signal.
A tracking signal is a measurement of how well a forecast is predicting actual values.
As forecasts are updated every week, month, or quarter, the newly available demand
data are compared to the forecast values.
The tracking signal is computed as the cumulative error divided by the mean absolute
deviation
(MAD) :

Positive tracking signals indicate that demand is greater than forecast. Negative signals
mean that demand is less than forecast. A good tracking signal—that is, one with a low
cumulative error—has about as much positive error as it has negative error
One MAD is equivalent to approximately .8 standard deviations, ±2 MADs = ± 1.6
standard deviations, ± 3 MADs = ± 2.4 standard deviations, and ± 4 MADs = ± 3.2
standard deviations.
This fact suggests that for a forecast to be “in control,” 89% of the errors are expected to
fall within ± 2 MADs, 98% within ± 3 MADs, or 99.9%
within ± 4 MADs.
Associative Forecasting Methods: Regression and
Correlation Analysis:
Associative forecasting models usually consider several variables that are related to the
quantity being predicted. Once these related variables have been found, a statistical model
is built and used to forecast the item of interest.
This approach is more powerful than the time-series methods that use only the historical
values for the forecast variable.

In statistical modeling, regression analysis is a set of statistical

processes for estimating the relationships between a dependent
variable and one or more independent variables.
Using Regression Analysis for Forecasting
The dependent variables that we want to forecast will still be . But now the

independent variable, x , need no longer be time. We use the equation:

Nodel Construction Company renovates old homes in West Bloomfield, Michigan. Over
time, the company has found that its dollar volume of renovation work is dependent on
the West Bloomfield area payroll. Management wants to establish a mathematical
relationship to help predict sales.
Standard Error of the Estimate: The point estimate is really the mean , or expected value
, of a distribution of possible values of sales.

To measure the accuracy of the regression estimates, we must compute the standard error
of the estimate , Sy, x . This computation is called the standard deviation of the
regression: It measures the error from the dependent variable, y , to the regression line,
rather than to the mean.
Equation (4-14) is a used for computing the standard deviation of an arithmetic mean:
Correlation Coefficients for Regression Lines:

regression lines describe the relationships among variables. The regression equation shows
how one variable relates to the value and changes in another variable.

Another way to evaluate the relationship between two variables is to compute the
coefficient of correlation . This measure expresses the degree or strength of the linear
relationship (but note that correlation does not necessarily imply causality). Usually
identified as r , the coefficient of correlation can be any number between +1 and -1 .Figure
To compute r , we use much of the same data needed earlier to calculate a and b for the
regression line. The rather lengthy equation for r is:

Correlation coefficient is used in to measure how strong a connection

between two variables
Although the coefficient of correlation is the measure most commonly used to describe
the relationship between two variables.

Another measure does exist. It is called the coefficient of determination and is simply the square
of the coefficient of correlation—namely, r 2 . The value of r 2 will always be a positive number
in the range 0 to 1.
The coefficient of determination is the percent of variation in the dependent variable ( y ) that
is explained by the regression equation.
the value of r 2 is .81, indicating that 81% of the total variation is
explained by the regression equation.
Forecasting
Cont..
 Types of Forecasting
• Long term: covers period of 5-10 years
• Shor term: covers a period of 3 month,6
month or one year.
Exponential Smoothing
solution
Least square
Cont..
Cont..
Cont..
Cont..
Cont..
Cont..
Cont..
Cont..
Cont..
Cont..
Cont..
 Cont..
1. The last four weekly values of sales were 80, 100, 105, and 90 units, respectively. The
last four forecasts (for the same four weeks) were 60, 80, 95, and 75 units, respectively.
Calculate the MAD, MSE, and MAPE for these four weeks.
2. Arnold Tofu owns and operates a chain of 12 vegetable protein "hamburger" restaurants
in northern Louisiana. Sales figures and profits for the stores are provided in the table
below. Sales are given in millions of dollars; profits are in hundreds of thousands of
dollars. Calculate a regression line for the data. What is your forecast of profit for a
store with sales of $24 million? $30 million?
Store Profits Sales
1 14 6
2 11 3
3 15 5
4 16 5
5 24 15
6 28 18
7 22 17
8 21 12
9 26 15
10 43 20
11 34 14
12 9 5
 PLANT LOCATION AND LAYOUT
• Factors affecting location decisions, Methods of evaluating location alternative, Layout
types, Work cells, Repetitive and product-oriented layout, Computerized layout design
procedure .

• Different types of industries requires different types of facilities : product industry,

process and service industry
• Optimum utilization of space in factory

• NEED FOR SELECTING A SUITABLE

LOCATION:
• The need for selecting a suitable location arises because of two situations.
1. When starting a new factory.
2. In case of existing factory.
The existing firms will seek new locations in order to expand the capacity or to place
the existing facilities.
 Cont..
• The Facilities location problem is an important strategic level decision making for
an organization. One of the key features of a conversion system (manufacturing
system) is the efficiency with which the product (services) is transferred to the
customers. This fact will include the determination of where to place the plant or
facility.
 Cont..
The increase in demand for the company's products can give rise to following
decisions:
• Whether to expand the existing capacity and facilities.
• Whether to look for new locations for additional facilities.
• Whether to close down existing facilities to take advantage of some new locations.

• PLANT LOCATION PROBLEM

• Identifying A Country, Region, Community, and Site
Factors that influence location decisions are:
 Cont..
• Manufacturing:
Availability of energy and water
Proximity to raw materials
Transportation cost
• Service:
Traffic patterns
Proximity to markets
Location of competitors
 Cont..
• Identifying a Country
A decision maker must understand the benefits and risks as well as the probabilities of them
occurring.
Identifying a Region- 4 major considerations
Location to Raw Materials: The three most important reasons for a firm to locate in a
particular region includes raw materials, peris/wbilihJ, and transportation cost. This
often depends on what business the firm is in.
Location to ·Markets: Profit maximizing firms locate near markets that they want to
serve as part of their competitive strategy. A Geographic information system (GIS) is a
computer based tools for collecting, storing, retrieving, and displaying demographic
data on maps.
Labor Factors: Primary considerations include labor availability, wage rates, productivity,
attitudes towards work, and the impact unions may have.
Other: Climate is sometimes a consideration because bad weather can disrupt operations. Taxes
are also an important factor due to the fact that taxes affect the bottom line in some financial
statements.
 Cont..
• Identifying a Community
There are many important factors for deciding upon the community in which move a
business. They include facilities for education, shopping, recreation and transportation
among many others. From a business standpoint these factors include utilities, taxes, and
environmental regulation.
This refers to the selection of the specific locality within the selected region.
The factors that influence the selection of community are availability of labor,
community attitude, social structure and service facilities.

• IDENTIFYING A SITE
The main considerations in choosing a site are land, transportation, zoning and many
others. When identifying a site I it is important to consider seeing if the company plans
on growing at this location. If so, the firm must consider whether or not location is
suitable for expansion. There are many decisions that go into choosing exactly where a
firm will establish its operations. First, a company must determine the driving factors that
will influence which areas are suitable locations
 Cont..
• LOCATION FACTORS
Location factors involve many factors that influence the revenues, costs or both and
they affect profits.
In general, location factors are grouped into:
1. Market Related Factors: Location of demand and competition.
2. Tangible Cost Factors: Labor, materials, transportation utilities, site cost, taxes,
etc.
3. Intangible Factors: Legal aspects, environmental factors, climate; schools, hospital
and recreational facilities, community attitude, etc.
COMPARISON BETWEEN URBAN AND RURAL LOCATIONS
 FACTORS THAT INFLUENCE THE SELECTION OF PLANT LOCATION

• Availability of Raw Materials

• Proximity to Market
• Infrastructural Facilities
• Government Policy
• Availability of Manpower
• Local Laws, Regulations and Taxation
• Ecological and Environmental Factors
• Competition
• Incentives, Land costs, Subsidies for Backward Areas
• Climatic Conditions
• Political Conditions.
Cont..
Factors affecting location decisions
• Scope of industry
• Type of product
• Volume and type of production
• Material handling
Cont..
What is safety stock. A product has a reorder point of 50 units and it’s carrying
cost/unit per year is Rs. 5, and stockouts are valued at Rs.40 per unit. The following
table shows the historical distribution of demand values observed during the reorder
period. The Optimum no. of orders/year is six.

Demand Probability
30 0.2
40 0.2
50 0.3
60 0.2
70 0.1

Should the firm add safety stock? If so, how much safety stock should be added?
 INVENTORY

Inventory generally refers to the materials in stock. It is also called the idle resource of an
enterprise. Inventories represent those items which are either stocked for sale or they are
in the process of manufacturing or they are in the form of materials which are yet to be
utilized.

The objective of inventory management is to strike a balance between inventory investment and
customer service
Functions of Inventory
Inventory can serve several functions that add flexibility to a firm’s operations. The four
functions
of inventory are:
1. To provide a selection of goods for anticipated customer demand and to separate the firm
from fluctuations in that demand. Such inventories are typical in retail establishments.
2. To decouple various parts of the production process . For example, if a firm’s supplies
fluctuate, extra inventory may be necessary to decouple the production process from suppliers.
3. To take advantage of quantity discounts , because purchases in larger quantities may reduce
the cost of goods or their delivery.
4. To hedge against inflation and upward price changes.
 Types of Inventory
To accommodate the functions of inventory, firms maintain four types of inventories: (1) raw
material inventory, (2) work-in-process inventory, (3) maintenance/repair/operating supply
(MRO) inventory, and (4) finished-goods inventory.

 Raw material inventory: has been purchased but not processed

 Work-in-process (WIP) inventory: is components or raw material that have undergone
some change but are not completed.
 MROs: are inventories devoted to maintenance/repair/operating supplies necessary to
keep machinery and processes productive.
 Finished-goods inventory : is completed product awaiting shipment
INVENTORY CONTROL
Inventory control is a planned approach of determining what to order, when to order
and how much to order and how much to stock so that costs associated with buying and
storing are optimal without interrupting production and sales. Inventory control basically
deals with two problems,
(i) When should an order be placed? (Order level), and (ii) How much should be
ordered? (Order quantity) .
Inventory Models:
Independent vs. Dependent Demand
Inventory control models assume that demand for an item is either independent of
or dependent on the demand for other items.
For example, the demand for refrigerators is independent of the demand for toaster
ovens. However, the demand for toaster oven components is dependent on the
requirements of toaster ovens.

Holding, Ordering, and Setup Costs: Holding costs are the costs associated with
holding or “carrying” inventory over time. Therefore, holding costs also include
obsolescence and costs related to storage, such as insurance, extra staffing, and
interest payments.

Ordering cost includes costs of supplies, forms, order processing, purchasing,

clerical support, and so forth. When orders are being manufactured, ordering costs
also exist, but they are a part of what is called setup costs.

Setup cost is the cost to prepare a machine or process for manufacturing an order.
This includes time and labor to clean and change tools or holders.
Inventory Models for Independent Demand: In this section, we introduce three
inventory models that address two important questions:
when to order and how much to order. These independent demand models are:
1. Basic economic order quantity (EOQ) model
2. Production order quantity model
3. Quantity discount model

INVENTORY CONTROL-TERMINOLOGY
1. Demand: It is the number of items (products) required per unit of time. The demand may
be either deterministic or probabilistic in nature.
2. Order Cycle: The time period between two successive orders is called order cycle.
3. Lead Time: The length of time between placing an order and receipt of items is called lead
time.
4. Safety Stock: It is also called buffer stock or minimum stock. It is the stock or inventory
needed to account for delays in materials supply and to account for sudden increase in demand
due to rush orders.
5. Inventory Turnover: If the company maintains inventories equal to 3 months consumption.
It means that inventory turnover is 4 times a year, i.e., the entire inventory is used up and
replaced 4 times a year.
6. Re-order Level (ROL): It is the point at which the replenishment action is initiated.
When the stock level reaches R.O.L., the order is placed for the item.
7. Re-order Quantity: This is the quantity of material (items) to be ordered at the reorder
level. Normally this quantity equals the economic order quantity.
The Basic Economic Order Quantity (EOQ) Model
The economic order quantity (EOQ) model is one of the most commonly used inventory-
control techniques.
This technique is relatively easy to use but is based on several assumptions:
1. Demand for an item is known, reasonably constant, and independent of decisions for
other items.
2. Lead time—that is, the time between placement and receipt of the order—is known and
consistent.
3. Receipt of inventory is instantaneous and complete. In other words, the inventory from
an order arrives in one batch at one time.
4. Quantity discounts are not possible.
5. The only variable costs are the cost of setting up or placing an order (setup or ordering
cost) and the cost of holding or storing inventory over time (holding or carrying cost).
6. Stockouts (shortages) can be completely avoided if orders are placed at the right time.
The objective of most inventory models is to minimize total costs.
Here, significant costs are setup (or ordering) cost and holding (or carrying) cost. All other
costs, such as the cost of the inventory itself, are constant. Thus, if we minimize the sum of
setup and holding costs, we will also be minimizing total costs.
With the EOQ model, the optimal order quantity will occur at a point where the total
setup cost is equal to the total holding cost.

Q. A company manufactures Product Y. They would like to reduce its inventory cost
by determining the optimal number of units. The annual demand of product is 1,000
units; the setup or ordering cost is $10 per order; and the holding cost per unit per
year is $.50.
INVENTORY
Reorder Points: Now that we have decided how much to order, we will look at the second
inventory question, when to order. Simple inventory models assume that receipt of an order
is instantaneous. In other words, they assume (1) that a firm will place an order when the
inventory level for that particular item reaches zero and (2) that it will receive the ordered
items immediately.

However, the time between placement and receipt of an order, called lead time , or delivery
time, can be as short as a few hours or as long as months. Thus, the when to-order decision
is usually expressed in terms of a reorder point (ROP) —the inventory level at which an order
should be placed
This equation for ROP assumes that demand during lead time and lead time itself are
constant . When this is not the case, extra stock, often called safety stock ( ss ) , should
be added. The reorder point with safety stock then becomes:
Q. An Apple store has a demand (D) for 8,000 iPhones per year. The firm operates a 250-
day working year. On average, delivery of an order takes 3 working days, but has been
known to take as long as 4 days. The store wants to calculate the reorder point without a
safety stock and then with a one-day safety stock.
As mentioned earlier in this section, the total annual variable inventory cost is the
sum of setup and holding costs:
Production Order Quantity Model: This model is applicable under two situations:
(1) when inventory continuously flows or builds up over a period of time after an order
has been placed or
(2) when units are produced and sold simultaneously. Under these circumstances, we take
into account daily production (or inventory-flow) rate and daily demand rate.

Because this model is especially suitable for the production environment, it is commonly
called the production order quantity model . It is useful when inventory continuously
builds up over time, and traditional economic order quantity assumptions are valid.
Q. Nathan Manufacturing, Inc., makes and sells specialty hubcaps for the retail automobile
aftermarket. Nathan’s forecast for its wire-wheel hubcap is 1,000 units next year, with an
average daily demand of 4 units. However, the production process is most efficient at 8 units
per day. So the company produces 8 per day but uses only 4 per day. The company wants to
solve for the optimum number of units per order. ( Note: This plant schedules production of
this hubcap only as needed, during the 250 days per year the shop operates.)[POQ].
Q. Emarpy Appliance is a company that produces all kinds of major appliances. Bud
Banis, the president of Emarpy, is concerned about the production policy for the
company’s bestselling refrigerator. The annual demand has been about 8,000 units
each year, and this demand has been constant throughout the year. The production
capacity is 200 units per day. Each time production starts, it costs the company $120
to move materials into place, reset the assembly line, and clean the equipment. The
holding cost of a refrigerator is $50 per year. The current production plan calls for 400
refrigerators to be produced in each production run. Assume there are 250 working
days per year.

a) What is the daily demand of this product?

b) If the company were to continue to produce 400 units each time production starts,
how many days would production continue?
c) Under the current policy, how many productions runs per year would be required?
What would the annual setup cost be?
d) If the current policy continues, how many refrigerators would be in inventory when
production stops? What would the average inventory level be?
e) If the company produces 400 refrigerators at a time, what would the total annual
setup cost and holding cost be?
f) If Bud Banis wants to minimize the total annual inventory cost, how many
refrigerators should be produced in each production run? How much would this
save the company in inventory costs compared to the current policy of producing
400 in each production run?
 Quantity Discount Models: A quantity discount is simply a reduced price ( P ) for an
item when it is purchased in larger quantities.

The 120 quantity and the 1,500 quantity are called price-break quantities because they
represent the first order amount that would lead to a new lower price. As always,
management must decide when and how much to order.

As with other inventory models, the objective is to minimize total cost. Because the unit cost
for the second discount in Table 12.2 is the lowest, one wants to order 1,500 units. Placing an
order for that quantity, however, even with the greatest discount price, may not minimize total
inventory cost. This is because holding cost increases.
Thus, the major tradeoff when considering quantity discounts is between reduced product
cost and increased holding cost . When we include the cost of the product, the equation for
the total annual inventory cost can be calculated as follows:
we identify all possible order quantities that could be the best solution. we calculate
the total cost of all possible best order quantities, and the least expensive order
quantity is selected.
STEP 1: Starting with the lowest possible purchase price in a quantity discount schedule and
working toward the highest price, keep calculating Q* until the first feasible EOQ is found. The
first feasible EOQ is a possible best order quantity, along with all price-break quantities for all
lower prices.
STEP 2: Calculate the total annual cost TC for each of the possible best order quantities
determined in Step 1. Select the quantity that has the lowest total cost.

Q. Chris Beehner Electronics stocks toy remote control flying drones. Recently, the store has
been offered a quantity discount schedule for these drones. This quantity schedule was shown
in Table 12.2 . Furthermore, setup cost is $200 per order, annual demand is 5,200 units, and
annual inventory carrying charge as a percent of cost, I , is 28%. What order quantity will
minimize the total inventory cost?
Q. The catering manager of La Vista Hotel, Lisa Ferguson, is disturbed by the amount of
silverware she is losing every week. Last Friday night, when her crew tried to set up for a
banquet for 500 people, they did not have enough knives. She decides she needs to
order some more silverware, but wants to take advantage of any quantity discounts her
vendor will offer.
For a small order (2,000 or fewer pieces), her vendor quotes a price of $1.80/piece.
If she orders 2,001–5,000 pieces, the price drops to $1.60/piece.
5,001–10,000 pieces brings the price to $1.40 piece, and
10,001 and above reduces the price to $1.25.
Lisa’s order costs are $200 per order, her annual holding costs are 5%, and the annual
demand is 45,000 pieces. For the best option: What is the optimal order quantity?
What is the annual holding cost?
What is the annual ordering (setup) cost?
What are the annual costs of the silverware itself with an optimal order quantity?
What is the total annual cost, including ordering, holding, and purchasing the silverware?
Probabilistic Models and Safety Stock: The following inventory models apply when
product demand is not known but can be specified by means of a probability distribution.
These types of models are called probabilistic models. Probabilistic models are a real-world
adjustment because demand and lead time won’t always be known and constant.

An important concern of management is maintaining an adequate service level in the face of

uncertain demand. The service level is the complement of the probability of a stockout. For
instance, if the probability of a stockout is 0.05, then the service level is .95. Uncertain
demand raises the possibility of a stockout. One method of reducing stockouts is to hold
extra units in inventory. As we noted earlier such inventory is referred to as safety stock.
Safety stock involves adding a number of units as a buffer to the reorder point.

In inventory management, service level is the expected probability of not hitting a stock-
out during the next replenishment cycle or the probability of not losing sales.
DETERMINING SAFETY STOCK WITH PROBABILISTIC DEMAND AND
CONSTANT LEAD TIME
Q . David Rivera Optical has determined that its reorder point for eyeglass frames is 50 (d * L)
units. Its carrying cost per frame per year is $5, and stockout (or lost sale) cost is $40 per frame.
The store has experienced the following probability distribution for inventory demand during
the lead time (reorder period). The optimum number of orders per year is six.

How much safety stock should David Rivera keep on hand?

SAFETY STOCK WITH PROBABILISTIC
DEMAND

service level as meeting 95% of the demand

(or, conversely,
having stockouts only 5% of the time).
Assuming that demand during lead time (the reorder period) follows a normal curve, only the
mean and standard deviation are needed to define the inventory requirements for any given
service level. Sales data are usually adequate for computing the mean and standard deviation.
Q. First Printing has contracts with legal firms in San Francisco to copy their court
documents. Daily demand is almost constant at 12,500 pages of documents. The
lead time for paper delivery is normally distributed with a mean of 4 days and a
standard deviation of 1 day. A 97% service level is expected. Compute First’s ROP
[Z  1.88 for 97% service level]
Other Probabilistic Models: Equations (12-13) and (12-14) assume that both an estimate of
expected demand during lead times and its standard deviation are available. When data on
lead time demand are not available, the preceding formulas cannot be applied. However,
three other models are available.
We need to determine which model to use for three situations:
1. Demand is variable and lead time is constant
2. Lead time is variable and demand is constant
3. Both demand and lead time are variable

All three models assume that demand and lead time are independent variables
Demand Is Variable and Lead Time Is Constant:
Cost of ordering Rs. 100.
Single-Period Model
A single-period inventory model describes a situation in which one order is placed for a
product. At the end of the sales period, any remaining product has little or no value.
This is a typical problem for Christmas trees, seasonal goods, bakery goods,
newspapers, and magazines. (Indeed, this inventory issue is often called the “newsstand
problem.”) In other words, even though items at a newsstand are ordered weekly or
daily, they cannot be held over and used as inventory in the next sales period.

So our decision is how much to order at the beginning of the period. Because the exact
demand for such seasonal products is never known, we consider a probability
distribution related to demand. If the normal distribution is assumed, and we stocked
and sold an average (mean) of 100 Christmas trees each season, then there is a 50%
chance we would stock out and a 50% chance we would have trees left over.
To determine the optimal stocking policy for trees before the season begins, we also
need to know the standard deviation and consider these two marginal costs:
Q. Chris Ellis’s newsstand, just outside the Smithsonian subway station in Washington,
DC, usually sells 120 copies of the Washington Post each day. Chris believes the sale of
the Post is normally distributed, with a standard deviation of 15 papers. He pays 70 cents
for each paper, which sells for $1.25. The Post gives him a 30-cent credit for each unsold
paper. He wants to determine how many papers he should order each day and the
stockout risk for that quantity.
Fixed-Period ( P ) Systems
The inventory models that we have considered so far are fixed-quantity, or Q , systems . That
is, the same fixed amount is added to inventory every time an order for an item is placed.
We saw that orders are event triggered. When inventory decreases to the reorder point
(ROP), a new order for Q units is placed.
To use the fixed-quantity model, inventory must be continuously monitored. This requires
a perpetual inventory system . Every time an item is added to or withdrawn from inventory;
records must be updated to determine whether the ROP has been reached.
In a fixed-period system (also called a periodic review, or P system ), on the other hand,
inventory is ordered at the end of a given period. Then, and only then, is on-hand
inventory counted. Only the amount necessary to bring total inventory up to a prespecified
target level ( T ) is ordered.
Fixed-period systems have several of the same assumptions as the basic EOQ fixed-
quantity system:
◆ The only relevant costs are the ordering and holding costs.

◆ Lead times are known and constant.

◆ Items are independent of one another.

Managing Inventory: Operations managers establish systems for managing
inventory. In this section, we briefly examine two ingredients of such systems: (1)
how inventory items can be classified (called ABC analysis ) and (2) how accurate
inventory records can be maintained. We will then look at inventory control in the
service sector.
ABC analysis divides on-hand inventory into three classifications on the basis of annual
rupees volume.
we measure the annual demand of each inventory item times the cost per unit . Class A
items are those on which the annual dollar volume is high. Although such items may
represent only about 15% of the total inventory items, they represent 70% to 80% of the
total dollar usage. Class B items are those inventory items of medium annual dollar
volume. These items may represent about 30% of inventory items and 15% to 25% of
the total value. Those with low annual dollar volume are Class C , which may represent
only 5% of the annual dollar volume but about 55% of the total inventory items.
Inventory model with shortages permitted
PRODUCTION PLANNING AND CONTROL (PPC) (04 Hours)

Production Systems, Job, Batch, Mass and

Continuous production system, Objectives of
PPC, Functions of PPC
 Production Systems
• Production is the process by which goods and services are created.
• The production system (facility, equipment's and operating
methods) that a company uses depends upon the type of the
product that is offered to the customer and the strategy that it
employs to serve its customers:
 Job, Batch, Mass and Continuous production system

• Job Production: Job production, where items are made individually,

and each item is finished before the next one is started. Designer
dresses are made using the job production method.
• Batch Production: Batch production, where groups of items are made
together. Each batch is finished before starting the next block of goods.
• Mass Production: Mass production is the manufacturing of large
quantities of standardized products, often using assembly lines or
automation technology.
Cont..
 Objectives of PPC
• Design a system and plan to carry out production.
• To ensure the effective utilization of resources.
• To coordinate various production activities of various
departments.
• To maintain the stock of material.
• To ensure the manufacturing of right product in right
quantity at right time.
• To maintain flexibility in operations.
 Functions of PPC
• Preplanning
• Active planning
• Post Planning
Cont..
Functions of Human Resource Manager:

1. Organizational Planning and development

2. Staffing
3. Induction, Training and development
4. Wage and salary administration
5. Motivations and Incentives
6. Employee welfare services and benefits
7. Employee records
8. Industrial relations and Industrial legislation
9. Personnel research and audit
 Job evaluation
• Job evaluation aims to provide a means of establishing a wage structure acceptable to
both workers and management.
• The process of job evaluation may divide into following stages

• Job Analysis: It is the process of studying and collecting information relating to the
operations and responsibilities of a specific job. The immediate products of this analysis
are job descriptions and job specifications.
• Job description: It is an organized, factual statement of the duties and responsibilities of
a specific job. In brief, it should tell what is to be done, how it is to be done, and why. It is
a standard of function, in that it defines the appropriate and authorized content of a job.
• Job specification: It is a statement of the minimum acceptable human qualities necessary
to perform a job properly. It is a standard of personnel and designates the qualities
required for acceptable performance.
• Job Evaluation: It is a systematic and orderly process of determining the worth of a
Job in relation to other jobs. The objective of this process is to determine the correct
rate of pay.
 OBJECTIVES OF JOB EVALUATION

• To establish a sound wage and salary system by determining the worth of each job
in the factory in relation to various factors like skill required, effort and
responsibility involved
• To eliminate the wage inequalities
• To establish a general wage level for a given factory
• To clearly define the line of authority and responsibility
• To formulate an appropriate and uniform wage structure
• To provide a sound base for recruitment, selection, promotion and transfer of
employees
• To identify the training needs of the employees so as to prepare them for future
positions
• A sound base for individual performance measurement
• To promote a good employee-employer relations
 PROCEDURE FOR JOB EVALUATION

• Identify the job to be evaluated

• Describe and analyze the requirement of job
• Compare the job with pre-identified key jobs and decide
its level or value
• Develop a suitable wage structure for the job.
 Cont..
Job Analysis
• Stage I. Job identification.
• Stage II. Job information collection.
• Stage Ill. Qualification requirements.
Job description comprises three parts:
• Job identification containing the details like job title, department, section, job code,
names of supervisor and other details to identify the job
• Job summary gives the overall picture of the duties performed
• Work performed gives the details of both regular as well as occasional tasks
performed machines and tools used, working conditions and hazards.
 JOB EVALUATION SYSTEMS

• Ranking System: In this system, jobs are ranked in terms of their importance (with
respect to level of duties and responsibilities) from the lowest to the highest. For
ranking job is considered as a whole and it is not broken down into various elements
or tasks. The rank is decided by the committee. This is the easiest and most simple
method.
• Job Classification System: The job classification system is the process of allocating
jobs to grades which are predefined. The grade differences are defined in terms of
differences in the levels of duties, responsibilities and requirements of special skills.
• Factor Comparison Method: It is a qualitative method of job evaluation. This
method involves the Detailed analysis of the jobs which are then ranked in respect of
predetermined jobs. Five factors are considered for evaluation of jobs. They are:
1. Mental effort.
2. Skill requirement.
3. Physical requirement.
4. Responsibility.
5. Working conditions
 Cont..
• Point Rating Method: This the most popular and quantitative method designed by
Merill. R. Lott. This method evaluates jobs based on the carefully selected factors
such as education, experience, physical effort, responsibility for machines and
materials which are common to majority of the jobs.

• MERIT RATING : Job evaluation evaluates the job and the merit rating assess the
worth of a person performing the job. Merit rating is also called the performance
appraisal. It evaluates, controls and reviews the performance. Both job evaluation:
and performance appraisal are aimed at systematically determining the wage rates
paid to the employees.
 DIFFERENCE BEWEEN MERIT RATING AND JOB EVALUATION
Rating or job/Employees: Job ·evaluation is related with the rating of the job whereas
merit rating is a systematic
process or evaluation of the capacities and abilities of the man doing the job.
Purpose: The purpose of the job evaluation is to fix wages for the jobs by considering
certain factors such as skill, responsibility etc. In case of merit rating, the purpose is to
evaluate the employee for the purpose of promotion, training, pay increase or
incentives etc.
Job difference/Individual differences: Job evaluation considers the differences in
jobs whereas merit rating recognizes the individual differences.
Objectives/Subjective Qualities: The type of factors to be considered are objective in
case of job evaluation, whereas in case of merit rating subjective qualities are
considered.
Performance of individual versus job: Job evaluation becomes the basis of
determining wages whereas merit rating is w1dertaken to find out the efficiency of the
individual for doing specific jobs.
Test of worth versus merit: In job evaluation, an attempt is made to know the worth
of a job in terms of certain factors such as responsibility and effort (mental as well as
physical). Merit rating identifies the capacity and capability of an individual for doing
specific job.
Uses: Job evaluation is meant for determining the wages on an employee. On the other
hand, merit rating is utilized for placement and training etc.
 Wage and Wage Incentives

Wages: These are the payments made by the employer to the efforts put in by
the workers towards production. A wage determines the standard of living and it
should represent a fair return for the effort of the worker and also wages should
be able to satisfy the primary and secondary needs of the workers. They should be
enough to provide him a reasonable standard of living.
 FACTORS INFLUENCING WAGE SYSTEM

• It is very much complex to arrive at a wage which may be considered satisfactory

for both workers and management. The various factors that determine the wage
level are:
Labour market, i.e., demand and supply of labour
Legal and statutory restrictions (Minimum Wage Act, Payment of Bonus Act 1965,
Employees Provident Fund, Family Pension Fund Act 1952, Factory Act 1948,
Employees State Insurance Act 1948, Payment of Gratuity Act 1992)
Organization's ability and willingness to pay
Bargaining capacity of the employer and the employees
Prevailing wage structure in the specific sector or industry
Workers skill, knowledge and experience
Wage levels in the specific sector or industry
Cost of living
 Incentives
• American Society of Mechanical Engineers (ASME) defines a wage incentive plan
as"a method of payment which directly relates ·earning to production. A
system which enables workmen to increase their earning by maintaining or
exceeding an established standard of performance.“
• Incentive plans are of two basic types:
1. Financial incentives: These are the rewards paid to the employees efforts in cash.
2. Non-financial incentives: These are non-monetary -incentives (other than cash).
These may include gift items, discount coupons, special holidays, etc.
Cont..
cont..
Cont..
Cont..
 INCENTIVE PLANS

• INCENTIVE PLANS
Differential piece rate system
• (i) Taylor's Differential piece rate system
• (ii) Merrick's Differential piece rate system
Time and piece rate system
• Gantt task and bonus scheme
Premium bonus schemes
• (i) Halsey plan
• (ii) Rowan plan
• (iii) Bedaux plan
Efficiency based plans
• (i) Emerson's efficiency plan
Group incentive· Scheme
• (i) Scanlon Plan
• (ii) Priestman Production Bonus
Cont..
Cont..
Cont..
Cont..