Engineering Economics Lecture # 01 Instructor: Ms.

Tanzeela Siddiqui ECONOMICS: Economics is the social science that analyzes the production, distribution, and consumption of goods and services. Economics is the efficient utilization of scarce resources to satisfy unlimited human wants. Types of Resources: Free Resource: Sun heat, Water Scarce Resource: Petroleum, Clean Drinking water ENGINEERING: According to ABET(Accreditation Board of Engineering and Technology), Engineering is a profession in which knowledge of mathematical sciences is gained by study, experience and practice and is applied to develop the ways to utilize materials and forces of nature for the benefit of mankind. ENGINEERING ECONOMICS: is the collection of mathematical techniques which simplify economic comparisons among alternatives. Ages ago, the most significant barriers to engineers were technological. The things that engineers wanted to do, they simply did not yet know how to do, or hadn't yet developed the tools to do. There are certainly many more Challenges like this which face present-day engineers. Natural resources (from which we must build things) are becoming scarcer and more expensive. We are also aware of negative side-effects of engineering innovations (such as air pollution from automobiles) than ever before. For these reasons, engineers place their project ideas within the larger framework of the environment within a specific planet, country, or region. Engineers must ask themselves if a particular project will offer some net benefit to the people who will be affected by the project, engineers must decide if the benefits of a project exceed its costs, and must make this comparison in a unified framework. The framework within which to make this comparison is the field of engineering economics. The engineer must translate scientific ideas in products and systems that better mankind. THE RATIONAL DECISION MAKING PROCESS: (with example of car) Recognize a decision problem you need a car Define your goals and objectives buy or lease on installments Collect all relevant information- technical aswell as financial data Identify a set of feasible decision alternatives Lease the 2012 Honda Civic Lease Toyota Vitz 2007 1000cc Buy Suzuki Cultus 2007 Select the decision criteria to use

Satisfy the current and future driving needs, subject to specified constraints Select the best alternative

INTRODUCTION TO PRODUCTIONS AND OPERATIONS MANAGEMENT: Product:

Product is defined as a "thing produced by labor or effort" or the "result of an act or a process" For a consumer: Combination of Utilities For a product manager: Combination of Processes For a Financial Manager: Mix of various cost elements, For an HR Manager: Mix of various skills

In general we can define the product as a bundle of tangible and intangible attributes which along with the service is meant to satisfy the customer wants. Production: Production is Step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility of the product to the user. Its a value addition process. Example: manufacturing custom-made products like a boiler with a specific capacity, and standardized products like, bikes, radio, television etc.

Production Management is the process of planning, organizing, directing and controlling the activities of a production function. It combines and transforms various resources into value-added product in a controlled manner as per policies of the organization. Objectives of Production Management: An objective of production management is to produce products and services of right quality and quantity at right time and right manufacturing cost.

RIGHT QUALITY: is not necessarily best quality. It is determined by the cost of the product. RIGHT QUANTITY: products should be produced in right number. If they are produced in excess of demand, capital will block-up in the form of inventory. And if the quantity is produced in short of demand, leads to shortage of products. RIGHT TIME: timeliness of delivery is an important parameter to judge the effectiveness of department. So, the production department should make the optimal utilization of its resources to achieve its objectives. RIGHT COST: manufacturing cost is established before the product is actually manufactured. So product should be produced at pre-established costs to minimize the variation b/w actual costs and pre-established costs. CLASSIFICATION OF PRODUCTION SYSTEM: Production system can be classified as job-shop, batch, mass, and continuous production.

Classification of production system

JOB SHOP PRODUCTION Job shop production are characterized by manufacturing of one or few quantity of products designed and produced as per the specification of customers within prefixed time and cost. A job shop comprises of general purpose machines arranged into different departments. Each job demands unique technological requirements, demands processing on machines in a certain sequence Characteristics: High variety of products and low volume Use of general purpose machines and facilities Highly skilled operators Large inventory of materials Detailed planning is essential Higher cost due to frequent set up changes Larger space requirements

Example: tailor, a construction company who build houses as per specifications, orange county chopper (a custom-bike manufacturing company)

BATCH PRODUCTION Batch production is defined as a form of manufacturing in which the job passes through the functional departments in lots or batches and each lot may have a different routing. It is characterized by the manufacture of limited number of products produced at regular intervals and stocked awaiting sales. Characteristics: shorter production runs When plant and machinery are flexible. When plant and machinery set up is used for the production of item in a batch and change of set up is required for processing the next batch lead time and cost are lower as compared to job order production

Example: a bakery, a boutique, a pharmaceutical co. MASS PRODUCTION Manufacture of discrete parts or assemblies using a continuous process are called mass production. This production system is justified by very large volume of production. The machines are arranged in a line or product layout. Characteristics: Dedicated special purpose machines having higher production capacities and output rates. Large volume of products. Shorter cycle time of production. Lower in process inventory. Flow of materials, components and parts is continuous and without any back tracking. Production planning and control is easy. Material handling can be completely automatic Example: plastic company, assembly shops of automobiles, domestic appliance, Colgate etc. CONTINUOUS PRODUCTION Production facilities are arranged as per the sequence of production operations from the first operations to the finished product. The items are made to flow through the sequence of operations through Material handling devices such as conveyors, transfer devices, etc. Material handling is fully automated. Process follows a predetermined sequence of operations. Component materials cannot be readily identified with final product. Planning and scheduling is a routine action. Unit cost is lower due to high volume of production Example: nails, screws, brick etc