Industrial Organization and Management (INEN 203) PDF

INEN 203 Department of Industrial Engineering INDUSTRIAL ORGANIZATION AND MANAGEMENT ENGR. KATHLEEN N. MACAPAGAL Course Instructor INEN 203 INDUSTRIAL ORGANIZATION AND MANAGEMENT INTRODUCTION TO MANAGEMENT ENGR. KATHLEEN N. MACAPAGAL Course Instructor D...

INEN 203 Department of Industrial Engineering INDUSTRIAL ORGANIZATION AND MANAGEMENT ENGR. KATHLEEN N. MACAPAGAL Course Instructor INEN 203 INDUSTRIAL ORGANIZATION AND MANAGEMENT INTRODUCTION TO MANAGEMENT ENGR. KATHLEEN N. MACAPAGAL Course Instructor Discussion Outline In this lecture, we shall cover the following topics: 1 Definition of Engineer 4 Managerial Roles 2 Definition of Management 5 Function of Managers 3 Managerial Skills 6 Definition of Engineering Management What is an Engineer? Ingenium (Latin) Oxford dictionary Skillful A person who has scientific Talented training and who designs and Natural capacity or clever builds complicated products, invention machines, systems, or structures A person who specializes in a Oxford dictionary branch of engineering. A person who designs, A person who runs or is in builds, or maintains charge of an engine in an engines, machines, or airplane, a ship, etc. public works. What is Management? Directing the actions of a group to achieve a goal in most efficient manner. Getting things done through other people. Process of achieving organizational goals by working with and through people and organizational resources. Management is a purposive activity. It is something that directs group efforts towards the attainment of certain pre-determined goals. It is the process of working with and through others to effectively achieve the goals of the organization, by efficiently using limited resources in the changing world. Of course, these goals may vary from one enterprise to another. Three Levels of Management Senior-most position holders responsible for taking decisions that affect the entire firm, thus impacting the overall growth and development of the organisation. Intermediary between the top-level. management and the lower-level management, and is responsible for effective implementation of plans and objectives set by the top- level management. The bottom-most group of managers in an organisation who are responsible for managing the work of the non- managerial employees of the organisation. Three Levels of Management TOP LEVEL MANAGEMENT President, Executive Vice-Pres, CEO, Project Manager/Coordinator MIDDLE-LEVEL MANAGEMENT Project engineer, division head, etc. FIRST-LINE MANAGEMENT Construction foreman, Supervisor, Section chief Three Levels of Management FIRST LINE MANAGEMENT Directly supervise non-managers. Carry out the plans and objectives of higher management using the personnel & other resources assigned to them. Short-range operating plans governing what will be done tomorrow or next week, assign tasks to their workers, supervise the work that is done and evaluate the performance of workers. Three Levels of Management MIDDLE-LEVEL MANAGEMENT Manage through other managers, Make plans of intermediate range to achieve the long-range goals set by top management, Establish departmental policies, evaluate the performance of subordinate work units & their managers, Provide; Integrating and coordinating function, Orchestrate the decisions & activities of first-line management. Three Levels of Management TOP-LEVEL MANAGEMENT Represent the the whole enterprise, Responsible for defining the character, mission and objectives of the enterprise Establish & review criteria for long-range plans. Evaluate the performance of major departments.  Managerial Skills Interpersonal: Skills related to Technical: Specific dealing with subject related skills others and such as engineering, leading, accounting, etc... motivating or controlling them. Conceptual: Ability to realize the critical factors that will determine as organization' s success or failure. Ability to see the forest in spite of the trees. Managerial Skills Pyramid As a manager moves from supervisory to top management, conceptual skills become more important than technical, but human remain important Managerial Roles WHAT MANAGERS DO? INTERPERSONAL INFORMATIONAL DECISIONAL ROLE ROLE ROLE Figurehead Monitor Entrepreneur Leader Disseminator Disturbance handler Liaison Spokesperson Resource allocator Negotiator Managerial Roles WHAT MANAGERS DO? INTERPESRONAL ROLE - how a manager interacts with other people Figurehead : Outward relationship undertake symbolic duties to represent the organization. Leader: Downward relationship INTERPERSONAL inspire subordinates to their best by acting as ROLE a role model. Figurehead Liaison: Horizontal relationship Leader Network and build relationships with outside Liaison agencies Managerial Roles WHAT MANAGERS DO? INFORMATIONAL ROLE - how a manager exchanges and processes information Monitor role: Access informations relevant in running the organization. Disseminator role: Synthesize and integrate information to be INFORMATIONAL shared with relevant members of the ROLE organization. Monitor Spokesperson: Disseminator Transmit information to people outside the Spokesperson organization. Managerial Roles WHAT MANAGERS DO? DECISIONAL ROLE- how a manager uses information in decision-making Entrepreneur role: Initiates changes, assumes risks, transform ideas into useful products. Disturbance handler role: DECISIONAL Manages and solve crises and challenges. ROLE Resource allocator role: Entrepreneur Manage and optimize organizational Disturbance handler resources. Resource allocator Negotiator role: Negotiator Negotiate business deals for the organization. Main Functions of Managers PLANNING ORGANIZING STAFFING LEADING CONTROLLING Selecting Establishing Keeping Influencing Measuring missions and the structure filled the people to and objectives. for the organization achieve the correcting Requires objective. structure. objective the activities decision making. What is Engineering Management? ENGINEERING MANAGEMENT ENGINEERING MANAGERS It is a specialized form of management required to They use their training and successfully lead engineering or experience to coach, mentor technical personnel and projects and and motivate technical applies to either functional professionals. management or project management. What is Engineering Management? An engineering manager's duties might include: Overseeing the team members and processes associated with engineering and construction projects Providing management and leadership to a team of analysts or industrial engineers. Helping a company or organization identify costs and budget needs for specific projects in their planning stage Delegating tasks and inspecting processes and project results for accuracy and quality What is Engineering Management? What jobs can I get with an engineering management degree? INEN 203 INDUSTRIAL ORGANIZATION AND MANAGEMENT DECISION MAKING ENGR. KATHLEEN N. MACAPAGAL Course Instructor Discussion Outline In this lecture, we shall cover the following topics: 1 WHAT DECISION-MAKING? 2 DECISION MAKING AS A RESPONSIBILITY 3 THREE LEVELS OF DECISION-MAKING 4 THE DECISION-MAKING PROCESS APPROACHES IN SOLVING PROBLEMS 5 6 QUANTITATIVE MODELS FOR DECISION-MAKING What is Decision-Making? Decision making may be defined as "The process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation." Decision-making, according to Nickels and others, "is the heart of all the management functions.” Decision Making as Management Responsibility DE CI E SI U ON S IS RESPONSIBILITY CAPACITY TO MAKE DECISION ID O N EN ISI TI FI C DE MANAGER ED ERROR CORRECTION The Three Levels of Decision-Making Management must strive to choose a decision option as correctly as possible. Since they have that power, they are responsible for whatever outcome their decisions bring. The higher the management level is, the bigger and the more complicated decision- making becomes. Decision Making Process 01 02 03 04 05 06 07 Diagnose Develop Evaluate Analyze Evaluate Make a Implement and Adapt the the Viable Environment Alternatives Alternatives Choice Decision Decision Problem Results Decision Making Process Managers must first realize the 01 Diagnose the Problem need for which a decision is to be Analyze the Environment made. Develop Viable Alternatives Also, if a manager wants to make an intelligent decision, his first Evaluate Alternatives move must be to identify the problem. Make a Choice If the manager fails in this aspect, Implement Decision it is almost impossible to succeed Evaluate and Adapt in the subsequent steps. Decision Results Decision Making Process Diagnose the Problem The environment where the organization 02 Analyze the Environment is situated plays a very significant role in the success or failure of such an organization. Develop Viable Alternatives Components of the Environment (2 major Evaluate Alternatives concerns): Internal environment - refers to Make a Choice organizational activities within a firm that surrounds decision- making. Implement Decision External environment - refers to variables that are outside the Evaluate and Adapt organization and not typically within the Decision Results short-run control of top management. Decision Making Process Diagnose the Problem oftentimes, problems may be solved by any of the solutions offered. The Analyze the Environment best among the alternative solutions 03 must be considered by management. Develop Viable Alternatives This is made possible by using a Evaluate Alternatives procedure with the following steps: a) Prepare a list of alternative solutions. Make a Choice b) Determine the viability of each solutions. Implement Decision c) Revise the list by striking out those Evaluate and Adapt which are not viable. Decision Results Decision Making Process Diagnose the Problem After determining the viability Analyze the Environment of the alternatives and a revised list has been made, an Develop Viable Alternatives evaluation of the remaining 04 alternatives is necessary. Evaluate Alternatives Make a Choice This is important because the next step involves making a Implement Decision choice. Evaluate and Adapt Decision Results Decision Making Process Diagnose the Problem After the alternatives have been Analyze the Environment evaluated, the decision-maker must now be ready to make a choice. Develop Viable Alternatives This is the point where he must be Evaluate Alternatives convinced that all the previous steps were correctly undertaken. Make a Choice 05 To make the selection process easier, Implement Decision the alternatives can be ranked from best to worst on the basis of some Evaluate and Adapt factors like benefit, cost, or risk. Decision Results Decision Making Process Diagnose the Problem It refers to carrying out the Analyze the Environment decision so that the objectives sought will be achieved. Develop Viable Alternatives Evaluate Alternatives To make implementation effective, a plan must be Make a Choice devised. 06 Implement Decision Evaluate and Adapt Decision Results Decision Making Process Diagnose the Problem In implementing the decision, Analyze the Environment the results expected may or may not happen. Develop Viable Alternatives Evaluate Alternatives It is, therefore, important for the manager to use control Make a Choice and feedback mechanisms to ensure results and to provide Implement Decision information for future 07 Evaluate and Adapt decisions. Decision Results Decision Making Process Diagnose the Problem CONTROL refers to actions made to Analyze the Environment ensure that activities performed match the desired activities or goals Develop Viable Alternatives that have been set. FEEDBACK - refers to the process Evaluate Alternatives which requires checking at each stage of the process to assure that the Make a Choice alternatives generated, the criteria used in evaluation, and the solution Implement Decision selected for implementation are 07 Evaluate and Adapt keeping with the goals and objectives Decision Results originally specified. Approaches in Solving Problems In decision-making, the engineer manager is faced with problems which may either be simple or complex. To provide him/her with some guide, he/she must be familiar with the following approaches: Qualitative Evaluation Quantitative Evaluation Approaches in Solving Problems Qualitative Evaluation refers to evaluation of alternatives using intuition and subjective judgment. Managers tend to use the qualitative approach when: Problem is fairly simple. The problem is familiar. The costs involved are not great. Immediate decisions are needed Approaches in Solving Problems Quantitative Evaluation refers to the alternatives using any technique in a group classified as rational and analytical. It is an evaluation method that yields numerical indices gathered primarily from formal (objective) methods of data collection, systematic and controlled observation, and a prescribed research design. Quantitative Models for Decision Making INVENTORY MODELS consists of several types all designed to help the engineer manager make decisions regarding inventory. They are as follows: Economic order quantity model - used to calculate the number of items that should be ordered at one time to minimize the total yearly cost of placing orders and carrying the items in inventory. Production order quantity model - this is and economic order quantity technique applied to production orders. Back order inventory model - this is an inventory model used for planned shortages. Quantity discount model - an inventory model used to minimize the total cost when quantity discounts are offered by suppliers. Quantitative Models for Decision Making QUEUING THEORY It is one that describes how to determine the number of service units that will minimize both customer waiting time and cost of service. The queuing theory is applicable to companies where waiting lines are a common situations. Quantitative Models for Decision Making NETWORK MODELS These are models where large complex tasks are broken into smaller segments that can be managed independently. The most prominent network models are The program evaluation review technique - a technique which enables engineer managers to schedule, monitor, and control large and complex projects by employing three time estimates for each activity. The critical path method - this is a network technique using only one time factor per activity that enables engineer managers to schedule, monitor, and control large and complex projects. Quantitative Models for Decision Making FORECASTING There are instances when engineer managers make decision that will have implications in the future. Forecasting is a decision-making tool used by many businesses to help in budgeting, planning, and estimating future growth. In the simplest terms, forecasting is the attempt to predict future outcomes based on past events and management insight. Quantitative Models for Decision Making REGRESSION ANALYSIS The regression model is a forecasting method that examines the association between two or more variables. It uses date from previous period to predict future events. There are 2 types of regression which are: Simple regression - one independent variable is involved. Multiple regression - two or more independent variables are involved. Quantitative Models for Decision Making SIMULATION It is a model constructed to represent reality, on which conclusions about real-life problems can be used. It is a highly sophisticated tool by means of which the decision maker develops a mathematical model of the system under consideration. Quantitative Models for Decision Making LINEAR PROGRAMMING It is a quantitative technique that is used to produce an optimum solution within the bounds imposed by constraints upon the decision. Linear programming is very useful as a decision making tool when supply and demand limitations at plants, warehouse, or market areas are constraints upon the system. Quantitative Models for Decision Making SAMPLING THEORY It is a quantitative technique where samples of populations are statistically determined to be used for a number of processes, such as quality control and marketing research. When data gathering is expensive, sampling provides an alternative. Sampling, in effect, saves time and money. Quantitative Models for Decision Making STATISTICAL DECISION THEORY It refers to the "rational way to conceptualize, analyze, and solve problems in situations involving limited, or partial information about the decision environment. Statistical decision theory focuses on the investigation of decision making when uncertainty can be reduced by information acquired through experimentation. INEN 203 INDUSTRIAL ORGANIZATION AND MANAGEMENT FUNCTION OF MANAGEMENT ENGR. KATHLEEN N. MACAPAGAL Course Instructor Discussion Outline In this lecture, we shall cover the following topics: 1 7 FUNCTIONS OF MANAGEMENT 2 MANAGEMENT AS AN ART 3 MANAGEMENT AS A SCIENCE 4 MANAGEMENT AND ADMINISTRATION 5 SYSTEMS APPROACH TO MANAGEMENT FUNCTIONS OF MANAGEMENT Planning Staffing Motivating Controlling Organizing Communicating Leading FUNCTIONS OF MANAGEMENT PLANNING determining the long-and short-term objectives (ends) of the institution or unit and the actions (means) that must be taken to achieve these objectives. Purpose of planning It gives direction to the organization. It improves efficiency. It eliminates duplication of efforts. It concentrates resources on important services. It reduces guess work. It improves communication and coordination of activities FUNCTIONS OF MANAGEMENT PLANNING The planning hierarchy: Planning responsibilities are different for managers at each organizational level: Strategic planning Top-level managers, formulate long-term strategic planning to reinforce the firm's mission (the mission clarifies organizational purpose) Strategic plans are specified for five years period or more; but circumstances dictate the planning horizon. FUNCTIONS OF MANAGEMENT PLANNING The planning hierarchy: Tactical planning Middle management is responsible for translating strategies into shorter-term tactics. Tactical plans are often specified in one-year increments. e.g. annual budget. Translating strategic plans into measurable tactical objectives is important because most strategic objective is rather vague. Operational planning Operational planning is accomplished by first- line managers. Operational planning is most concerned with budgets, quotas and schedules. These are refinements of tactical objectives in which work is defined and results are measured in small increments. Time horizon for operational planning is very short. Most plans at this level reflect operational cycles. FUNCTIONS OF MANAGEMENT PLANNING Establish Objectives: Every plan has the primary purpose of helping the organization succeed through effective management. Success is defined as achieving organizational objectives. These are performance targets, he end results that managers seek to achieve. Characteristics of objectives: Well-defined objectives have several characteristics. They are: Specific Measurable Realistic and Challenging Defined time period FUNCTIONS OF MANAGEMENT ORGANIZING Organizing may be defined as the arranging of component parts into functioning wholes. The purpose of organizing is to coordinate activities so that a goal can be achieved. The terms "planning" and "organizing" are often used synonymously. In the managerial, planning is the determination of what is to be accomplished, and organizing is the determination of how it will be accomplished. However, most authors still describe the two processes with considerable overlap. FUNCTIONS OF MANAGEMENT ORGANIZING There are six steps in the organizing process: 01 Establish overall objectives. 02 Formulate supporting objectives, policies and plans. 03 Identify and classify activities necessary to accomplish the objectives. 04 Group the activities in light of the human and material resources available and the best way of using them under the circumstances. 05 Delegate to the head of each group and the authorities necessary to perform the activities. 06 Tie the groups together horizontally and vertically, through authority relationships, and information systems. FUNCTIONS OF MANAGEMENT STAFFING In the simplest terms, staffing in management is 'putting people to jobs'. “Staffing is the function by which managers build an organization through the recruitment, selection, and development of individuals as capable employees" - McFarland Importance of Staffing Filling the Organizational positions Developing competencies to challenges Retaining personnel - professionalism Optimum utilization of the human resources FUNCTIONS OF MANAGEMENT STAFFING Staffing Process Analyzing Manpower requirements: It is making an analysis of work and estimating the manpower requirement to accomplish the same. Recruitment: It is identifying and attracting capable applicants for employment. it ends with the submission of applications by the aspirants. Selection: It is choosing the fit candidates from the applications received in the process of recruitment. Placement: This may be on probation and on successfully completion of the same the candidate may be offered permanent employment. Training and Development: It is concerned with imparting and developing specific skills for a particular purpose. Performance Appraisal: Systematic evaluation of personnel by superiors or others familiar with their performance so as to rank employees to ascertain their eligibility for promotions. FUNCTIONS OF MANAGEMENT COMMUNICATING Transmitting information and ensuring a transparent understanding among individuals within the organization are crucial for effective communication. Moreover, fostering clear communication channels promotes collaboration, aligns goals, and enhances overall organizational efficiency. Key Activities: Sharing goals, providing feedback, and facilitating open and effective communication channels are vital components of successful collaboration. Additionally, these actions foster a collaborative environment that encourages teamwork and innovation. FUNCTIONS OF MANAGEMENT MOTIVATING Motivation is an important factor which encourages persons to give their best performance and help in reaching enterprise goals. A strong positive motivation will enable the increased output of employees but a negative motivation will reduce their performance. According to Likert, “It is the core of management which shows that every human being gives him a sense of worth in face-to face groups which are most important to him. A supervisor should strive to treat individuals with dignity and a recognition of their personal worth.” FUNCTIONS OF MANAGEMENT MOTIVATING Motivation plays a crucial role in enhancing organizational performance by: 1. Improving Performance: Motivation boosts both the ability and willingness to work, which are essential for efficiency. While education and training build skills, motivation is key to willingness, influencing performance more significantly. 2. Changing Negative Attitudes: Managers use motivation to shift employees’ negative or indifferent attitudes by offering raises or praise, depending on the employees' needs and financial conditions. 3. Reducing Employee Turnover: Motivation helps retain employees, reducing turnover and saving time and costs associated with recruitment and training. 4. Decreasing Absenteeism: Motivated employees are less likely to be absent, as a positive work environment makes them enjoy their workplace. 5. Reducing Resistance to Change: Motivation helps employees accept and adapt to organizational changes, improving their performance and enthusiasm for new processes. FUNCTIONS OF MANAGEMENT LEADING / DIRECTING Leadership is a process by which an executive can direct, guide and influence the behavior and work of others towards accomplishment of specific goals in a given situation. Leadership is the ability of a manager to induce the subordinates to work with confidence and zeal. Characteristics of Leadership 1. It is a inter-personal process in which a manager is into influencing and guiding workers towards attainment of goals. 2. It denotes a few qualities to be present in a person which includes intelligence, maturity and personality. 3. It is a group process. It involves two or more people interacting with each other. 4. A leader is involved in shaping and moulding the behaviour of the group towards accomplishment of organizational goals. 5. Leadership is situation bound. There is no best style of leadership. It all depends upon tackling with the situations. FUNCTIONS OF MANAGEMENT LEADING / DIRECTING Importance of Leadership Leadership is a vital management function aimed at maximizing efficiency and achieving organizational goals. It involves: 1. Initiating Action: Leaders start the work by communicating policies and plans to subordinates, initiating the work process. 2. Motivation: Leaders play an incentive role, using economic and non-economic rewards to motivate employees and ensure productivity. 3. Providing Guidance: Leaders supervise and instruct subordinates on how to perform tasks effectively and efficiently. 4. Building Morale: Leaders boost morale by gaining employees' trust and cooperation, ensuring they perform at their best to achieve organizational goals. 5. Co-ordination: Effective leaders reconcile personal interests with organizational goals, ensuring proper coordination and alignment for overall success. FUNCTIONS OF MANAGEMENT CONTROLLING Controlling is one of the important functions of a manager. In order to seek planned results from the subordinates, a manager needs to exercise effective control over the activities of the subordinates. In other words, the meaning of controlling function can be defined as ensuring that activities in an organization are performed as per the plans. Controlling also ensures that an organization's resources are being used effectively & efficiently for the achievement of predetermined goals. FUNCTIONS OF MANAGEMENT CONTROLLING Process of Controlling Control process involves the following steps as shown in the figure: FUNCTIONS OF MANAGEMENT CONTROLLING Process of Controlling Establishing standards: This means setting up of the target which needs to be achieved to meet organizational goals eventually. Standards indicate the criteria of performance. Control standards are categorized as quantitative and qualitative standards. Quantitative standards are expressed in terms of money. Qualitative standards, on the other hand, includes intangible items. Measurement of actual performance: The actual performance of the employee is measured against the target. With the increasing levels of management, the measurement of performance becomes difficult. Comparison of actual performance with the standard: This compares the degree of difference between the actual performance and the standard. Taking corrective actions: It is initiated by the manager who corrects any defects in actual performance. MANAGEMENT AS AN ART Art implies application of knowledge & skill to trying about desired results. An art may be defined as personalized application of general theoretical principles for achieving best possible results. Art has the following characters: Practical Knowledge: Like any art, management requires practical application of theoretical principles. A manager must know how to apply management principles effectively in real-life situations beyond just academic qualifications. Personal Skill: Management is personalized, as each manager has their own style based on their knowledge, experience, and personality. This leads to variations in the success and quality of managers. MANAGEMENT AS AN ART Creativity: Management, like any art, involves creativity. Managers combine human and non-human resources innovatively to achieve desired outcomes and create effective solutions. Perfection through Practice: Managers, like artists, become proficient through practice. Experience and the application of management principles over time lead to skill improvement and mastery. Goal-Oriented: Management, being result-oriented, focuses on achieving specific goals. Managers utilize resources like people, money, materials, machinery, and methods to promote organizational growth and success. Thus, we can say that management is an art therefore it requires application of certain principles rather it is an art of highest order because it deals with moulding the attitude and behavior of people at work towards desired goals MANAGEMENT AS A SCIENCE Science is a systematic body of knowledge pertaining to a specific field of study that contains general facts which explains a phenomenon. It establishes cause and effect relationship between two or more variables and underlines the principles governing their relationship. These principles are developed through scientific method of observation and verification through testing. Practical Knowledge: Like any art, management requires practical application of theoretical principles. A manager must know how to apply management principles effectively in real-life situations beyond just academic qualifications. Personal Skill: Management is personalized, as each manager has their own style based on their knowledge, experience, and personality. This leads to variations in the success and quality of managers. INEN 203 INDUSTRIAL ORGANIZATION AND MANAGEMENT MANAGING PRODUCT & SERVICE OPERATIONS ENGR. KATHLEEN N. MACAPAGAL Course Instructor Discussion Outline In this lecture, we shall cover the following topics: 1 CONCEPTS OF OPERATIONS MANAGEMENT 2 PROCESS OF MARKETING OM 3 DIFFERENCE OF GOODS AND SERVICES 4 THREE GENERAL TYPES OF PROCESSES 5 HISTORICAL DEVELOPMENT OF OM What is Operation Management? "It the process of planning, organizing and controlling operations to reach objectives efficiently and effectively." - Aldag and Stearns Operations management (OM) is the science and art of ensuring that goods and services are created and delivered successfully to customers. The principles of OM help one to view a business enterprise as a total system, in which all activities are coordinated, not only vertically throughout the organization, but also horizontally across multiple functions. OM in the Workplace Planning and budgeting: Representing the plastic card production area in all meetings, developing annual budgets and staffing plans, and watching technology that might affect the production of plastic credit cards. Inventory management: Overseeing the management of inventory for items such as plastic blank cards, inserts such as advertisements, envelopes, postage, and credit card rules and disclosure inserts. OM in the Workplace Scheduling and capacity: Daily to annual scheduling of all resources (equipment, people, inventory) necessary to issue new credit cards and reissue cards that are up for renewal, replace old or damaged cards, and ones that are stolen. Quality: Embossing the card with accurate customer information and quickly getting the card in the hands of the customer. Understanding Goods and Services A good is a physical product that you can see, touch, or possibly consume. Examples of goods include: oranges, flowers, televisions, soap, airplanes, fish, furniture, coal, lumber, personal computers, paper, and industrial machines. A durable good is a product that typically lasts at least three years. Vehicles, dishwashers, and furniture are some examples of durable goods. A non-durable good is perishable and generally lasts for less than three years. Examples are toothpaste, software, shoes, and fruit. A service is any primary or complementary activity that does not directly produce a physical product. Similarities Between Goods and Services Goods and services provide value and satisfaction to customers who purchase and use them. They both can be standardized or customized to individual wants and needs. A process creates and delivers each good or service, and therefore, OM is a critical skill. Differences Between Goods and Services Goods are tangible while services are intangible. Customers participate in many service processes, activities, and transactions. The demand for services is more difficult to predict than the demand for goods. Services cannot be stored as physical inventory. Service management skills are paramount to a successful service encounter. Service facilities typically need to be in close proximity to the customer. Patents do not protect services. Understanding Goods and Services Service management integrates marketing, human resources, and operations functions to plan, create, and deliver goods and services, and their associated service encounters. A service encounter is an interaction between the customer and the service provider. Understanding Goods and Services A broader definition is: Service encounters consist of one or more moments of truth –any episodes, transactions, or experiences in which a customer comes into contact with any aspect of the delivery system, however remote, and thereby has an opportunity to form an impression. Here, a service encounter includes the impression an empty parking lot has on whether the customer goes into a facility or the interaction with other customers such as while waiting in line. How Goods and Services Affect Operations Management Activities Three General Types of Process Management processes The management processes transcribe the strategy and objectives and enable the Quality approach to pilot while ensuring its continuous improvement. Core Processes (Value-Creation Processes) These are the primary activities that directly contribute to the production of goods or services and deliver value to the customer. Support processes Support processes contribute to the smooth running of other processes by providing them with the necessary resources, both tangible and intangible. These processes include maintenance, provision of equipment or human resources, control of documentation and communication, metrology, etc. Historical Development of OM INEN 203 INDUSTRIAL ORGANIZATION AND MANAGEMENT MANAGING THE FINANCE FUNCTION ENGR. KATHLEEN N. MACAPAGAL Course Instructor Discussion Outline In this lecture, we shall cover the following topics: 1 FINANCE FUNCTION 2 DETERMINATION OF FUND REQUIREMENTS 3 THE SOURCES OF FUNDS 4 THE BEST SOURCE OF FINANCING 5 THE FIRM’S FINANCIAL HEALTH Finance Function The finance function is an important management responsibility that deals with the “procurement and administration of funds with the view of achieving the objectives of business.” If the engineer manager is running the firm as a whole, he must be concerned with the determination of the amount of funds required, when they are needed, how to procure them, and how to effectively and efficiently use them. The Finance Function: A Process Flow DETERMINATION EFFECTIVE AND PROCUREMENT OF FUND EFFICIENT USE OF REQUIREMENTS OF FUNDS FUNDS DETERMINATION OF FUND REQUIREMENTS Any organization, including the engineering firm, will need funds for the following specific requirements; To finance daily operations To finance the firm’s credit services To finance the purchase of inventory To finance the purchase of major assets DETERMINATION OF FUND REQUIREMENTS Financing Daily Operations The day-to-day operations of the engineering firm will require funds to take care of expenses as they come. Money must be made available for the payment of the following; Wages and Salaries Power and Light Rent Marketing expenses Taxes Administrative expenses Financing the Firm’s Credit Services it is oftentimes unavoidable for firms to extend credit to customers. If the engineering firm manufactures products, sales terms vary from cash to 90-day credit extensions to customers. Construction firms will have to finance the construction of government projects that will be paid many months later. DETERMINATION OF FUND REQUIREMENTS Financing the Purchase of Inventory The maintenance of adequate inventory is crucial to many firms. The purchase of adequate inventory, however, will require sufficient funding and this must be secured. Financing the Purchase of Major Asset When top management decides on expansion, there will be a need to make investments in capital assets like land, plant, and equipment. It is obvious that the financing of the purchase of major assets must come from long-term sources THE SOURCES OF FUNDS To finance its various activities, the engineering firm will have to make use of its cash inflows coming from various sources, namely; Cash sales Collection of Accounts Receivables Loans and Credits Sale of assets Ownership contribution Advances from customers THE SOURCES OF FUNDS Short-Term Sources of Funds Short-term sources of funds are those with repayment schedules of less than one year. Collaterals are sometimes required by short-term creditors Advantages of Disadvantages of Short-Term Credits Short-Term Credits 1. They are easier to obtain. 1. Short-term credits mature more frequently. 2. Short-term financing is often less costly. 2. Short-term debts may, at times, be more 3. Short-term financing offers flexibility to costly than long-term debts the borrower. Supplies of Short-Term Funds 1. Trade creditors 4. Finance companies 2. Commercial banks 5. Factors, and 3. Commercial paper houses 6. Insurance companies THE SOURCES OF FUNDS Long-Term Sources of Funds There are instances when the engineering firm will have to tap the long-term sources of funds. After the amount required is determined, a decision has to be made on the type of source to be used Long-term sources of funds are classified as follows 1. Long-term debts 2. Common stocks, and 3. Retained earnings Long-term debts are sub-classified into term loans and bonds. Term Loans a term loan is a commercialor industrial loan from a commercial bank. Term loans have maturities of 2 to 30 years. Bond Loans a bond is a certificate of indebtedness issued by a corporation to a lender. It is a marketable security that the firm sells to raise funds. Since the ownership of bonds can be transferred to another person, investors are attracted to buy them THE SOURCES OF FUNDS TYPES OF BONDS Debentures no collateral requirement Mortgage bond secured by real estate Collateral trust bond secured by stocks and bonds owned by the issuing corporation Guaranteed bond payment of interest or principal is guaranteed by one or more individuals or corporations Subordinated debentures with an inferior claim over other debts Convertible bonds convertible into shares of common stock Bonds with warrants warrants are options which permit the holder to buy stock of the issuing company at a stated price Income bonds pays interest only when earned The Best Source of Financing As there are various fund sources, the engineer manager, or whoever is in charge, must determine which source is the best available for the firm. To determine the best source, Schall and Haley recommends the following factors must be considered; Flexibility Some fund sources impose certain restrictions on the activities of the borrowers. An example of a restriction is the prohibition on the insurance of additional debt instruments by the borrower. As some fund sources are less restrictive, the flexibility factor must be considered. In general, however, short-term fund sources offer more flexibility than long-term sources. This is because after setting the debt, short-term borrowers may shift to other types of financing. Long-term borrowers are given this opportunity only after a longer period of waiting. The Best Source of Financing Risk When applied to the determination of fund sources, risk refers to the chance that the company will be affected adversely when a particular source of financing is chosen. Generally, short-term debt "subjects the borrowing firm to more risk than does financing with long-term debt". This happens because of two reasons; a. Short-term debts may not be renewed with the same terms as the previous one, if they can be renewed at all. b. Since repayments are done more often, the risk of defaulting is greater. The Best Source of Financing Income The various sources of funds, when availed of, will have their own individual effects in the net income of the engineering firm. when the firm borrows, it must generate enough income to cover the cost of borrowing and still be left with sufficient returns for the owners. It is possible that the owners were enjoying higher rates of return on their investment before borrowing was made. Control When new owners are taken in because of the need for additional capital, the current group of owners may lose control of the firm. If the current owners do not want this to happen, they must consider other means of financing. The Best Source of Financing Timing The financial market has its ups and downs. This means that there are times when certain means of financing provide better benefits than other times. The engineer manager must therefore, choose the best time for borrowing or selling equity. Other Factors A. Collateral values; Are these assets available as collateral? B. Floatation cost; How much will it cost to issue bonds or stocks? C. Speed; How fast can the funds required be raised? D. Exposure; To what extent will the firm be exposed to other parties? The Firm’s Financial Health In general, the objectives of engineering firms are as follows: To make profits for the owners; To satisfy creditors with the repayment of loans plus interest; To maintain the viability of the firm so that customers will be assured of a continuous supply of products of services, employees will be assured of employment, suppliers will be assured of a market, etc. Indicators of Financial Health Tree basic financial statements that used in financial health of an engineering firm 1. Balance sheet 2. Income statement 3. Statement of changes in financial position INEN 203 INDUSTRIAL ORGANIZATION AND MANAGEMENT MANAGING THE MARKET FUNCTION ENGR. KATHLEEN N. MACAPAGAL Course Instructor Discussion Outline In this lecture, we shall cover the following topics: 1 CONCEPT OF MARKETING 2 THE ENGINEER AND THE FOUR P'S OF MARKETING PRODUCT PRIZE PLACE PROMOTION 3 PROMOTIONAL TOOLS AVAILABLE FOR PROMOTION 4 STRATEGIC MARKETING FOR ENGINEERS WHAT IS THE MARKETING CONCEPT? Marketing is group of activities designed to facilitate and expedite the selling of goods and services. The marketing concepts states that the engineer must try to satisfy the needs of his clients by means of a set of coordinated activities. When clients are satisfied with what the company offers, they continually provide business. WHAT IS THE MARKETING CONCEPT? Marketing Practices Why use the Market Oriented Approach? it recognises the importance of all functional areas It lowers the risk of new G&S failing due to effective market research it is customer oriented as the product is viewed from a customers perspective Ongoing consumer research and feedback is sought to ensure of a product and when time is right to extend, remove or update a product WHAT IS THE MARKETING CONCEPT? Marketing The business focuses on satisfying the needs of the customer rather than on selling a product or service. "Customer comes first" This approach is based on 4 factors: 1. Customer satisfaction 2. A total or integrated effort is required by the organisation 3. Objectives are set 4. KPIs that indicate whether objectives have been achieved THE ENGINEER AND THE FOUR P'S OF MARKETING PRODUCT "Product" includes the tangible or intangible item and its capacity to satisfy its specific needs. The services provided by the engineer manager will be evaluated by the client on the basis of whether or not his or her exact need are met. When a competitor comes into the picture and sells the same type of service, the pressure to improve the quality of the service sold will be felt. When improvements is not possible "extras" or "bonuses" are given to clients THE ENGINEER AND THE FOUR P'S OF MARKETING PRIZE Prize refers to the money or other considerations exchanged for the purchased or use of the product, idea, or service. Some companies use price as a competitive tool or as a means to convince the customer to buy. When products are similar in quality and other characteristics, price will be a strong factor on whether or not a sale will be made. This does not hold true, however, in the selling of services and ideas. This is because of the uniqueness of every service rendered or every idea Plenerated. THE ENGINEER AND THE FOUR P'S OF MARKETING PLACE In every factor is equal customers would prefer to buy from firms easily accessible to them. If time is of essence, the nearest firm will be patronized. It is very important for companies to locate in places where they can be easily reached by their customers. Not every place is the right location for any company. When a company cannot be near the customers, it uses other means to eliminate or minimize the effects of the problem some of these means are: Hiring sales agent to cover specific areas; Selling to dealers in particular areas; Establishing branches where customers are located; Establishing franchises in selected areas and manufacturing companies can choose or adapt all of the above mentioned options. Service companies like construction firms adapt the modified versions. An example is the engineer manager of a construction firm who gives commissions to whoever could negotiate a construction contract for the firm. THE ENGINEER AND THE FOUR P'S OF MARKETING PROMOTION Promotion is "communicating information between seller and potential buyer to influence attitudes and behavior." (McCarthy and Perreault) When engineer manager have products or services to sell they will have to convince their buyers to buy from them. Before the buyer makes the purchasing decision, however, he must first be informed, persuaded, and influenced. The activity referred to, in this case, is called promotion. PROMOTION Promotional Tools Available for Promotion: Advertising Nylen defines advertising as "a paid message that appears in the mass media for the purpose of informing of persuading people about particular products, services, beliefs of action" The mass media referred to include television, radio, magazines, and newspapers. If the engineer manager wants to reach a large number of people, he may use any of the mass media depending on his specific needs and his budget. Each of the public advertising carriers, i.e. radio, television, magazines, and newspaper, has their own specific audiences and careful analysis must be made if the engineering manager wants to pick the right one. PROMOTION Promotional Tools Available for Promotion: Publicity The mass media referred to include television, radio, magazines, and newspapers. If the engineer manager wants to reach a large number of people, he may use any of the mass media depending on his specific needs and his budget. Each of the public advertising carriers, i.e. radio, television, magazines, and newspaper, has their own specific audiences and careful analysis must be made if the engineering manager wants to pick the right one The promotional tool that publishes news or information about a product, service, or idea on behalf of a sponsor but is not paid for by sponsor is called publicity. The mass media is also the means used for publicity. If the engineer manager knows how to use it, publicity is a very useful promotional tool. His message may be presented as a news item, helpful IN==information, or an announcement. PROMOTION Promotional Tools Available for Promotion: Personal Selling A more aggressive means of promoting the sales of a product or service is called personal selling. It refers to the "oral representation in a conversation with one or more prospective purchasers for the purpose of making a sale." Personal selling may be useful to the marketing efforts of the engineer manager. If, for instance, he is the general manager of a firm manufacturing spare parts, he may assign some employees to personal seek out spare parts dealer and big trucking companies to carry their product lines. PROMOTION Promotional Tools Available for Promotion: Sales Promotion Any paid attempt to communicate with the customers other than advertising, publicity, and personal selling, may be considered sales promotion. This includes displays, contests, sweepstakes, coupons, trading stamps, prizes samples, demonstrations, referral gifts, etc. THE ENGINEER MANAGER AND THE FOUR P'S OF MARKETING DIAGRAM: The Product Marketing Success Prize objectives of Or Place the Engineer Failure promotion Manager STRATEGIC MARKETING FOR ENGINEERS Companies, including those managed by engineer managers, must serve markets that are fitted to their capabilities. Under this set-up, the following steps are made: Selecting a Target A market consists of individuals or organizations, or both, with the desire and ability to buy a specific product or service. To maximize sales and profits, a company has the option of serving entirely or just a portion of its chosen market. Within the markets are segments with common needs and which will respond similarly to a marketing action.ng steps are made: STRATEGIC MARKETING FOR ENGINEERS Companies, including those managed by engineer managers, must serve markets that are fitted to their capabilities. Under this set-up, the following steps are made: Selecting a Target A market consists of individuals or organizations, or both, with the desire and ability to buy a specific product or service. To maximize sales and profits, a company has the option of serving entirely or just a portion of its chosen market. Within the markets are segments with common needs and which will respond similarly to a marketing action.ng steps are made: STRATEGIC MARKETING FOR ENGINEERS Selecting a Target An analysis of the various segments of the chosen market will help the company make a decision on whether to serve all or some of the segments. The segment or segments chosen become the target market. In selecting a target market, the following steps are necessary: 1. Divide the total market into groups of people who have relatively similar product or service needs 2. Determine the profit potential of each segment 3. Make a decision on which segment Thank You Thank you for watching