Principles of Economics and Management for Manufacturing Engineering

Front Cover
Principles of Economics and Management for Manufacturing Engineering
Copyright
Contents
About the author
Foreword
Preface
Acknowledgments
Abbreviations used in Engineering Economics
Section I: Theories and laws of economics
	Chapter One: Introduction to engineering economics
		1.1. Engineering economics
		1.2. Macroeconomics and microeconomics
		1.3. Engineering economics vs. theoretical economics
		1.4. History of engineering economies
		1.5. Elements of engineering economies
		1.6. Cost benefit analysis
		1.7. Standard operation procedure for cost benefit analysis
		1.8. History of cost benefit analysis
		1.9. Limitations of cost benefit analysis
		1.10. Basic approaches for application of cost benefit analysis for resolving environmental problems
			1.10.1. Cost oblivious approach
			1.10.2. Cost benefit approach
			1.10.3. A combination of professional and personal ethics
		1.11. Conclusion
		Criteria questions
		Further reading
	Chapter Two: The basic concepts of economics
		2.1. What is economics?
		2.2. History of economics
			2.2.1. Other definitions of economics
		2.3. Economic theory
		2.4. Economic principles vary with society
		2.5. Basic units of study in economics
		2.6. Broad division of economics
		2.7. Income
		2.8. Relationship between income groups and the type of expenditure
		2.9. Personal income, disposable income
		2.10. National income and Says Law
		2.11. The marginal propensity to consume
		2.12. Marginal propensity to save
		2.13. Wealth vs standard of living
		2.14. Human needs and economic wants
			2.14.1. Characteristics of wants
			2.14.2. Classification of wants
			2.14.3. Wants are flexible
		2.15. Maslows theory of hierarchy of basic needs
		2.16. Conclusion
		Criteria questions
		Further reading
	Chapter Three: Categories of economic system
		3.1. Introduction
		3.2. Capitalist economy
			3.2.1. Main features of capitalist economy
		3.3. Socialist economy
			3.3.1. The main features of socialist economy
		3.4. Mixed economy
			3.4.1. Can pure capitalism or pure socialism exist?
			3.4.2. The sense of ownership in mixed economy
		3.5. Problems of an underdeveloped economy
		3.6. Market
			3.6.1. Essentials of a market
			3.6.2. Types of markets
		3.7. Main market forms
		3.8. Market situation under perfect competition
		3.9. Market situation under monopoly
			3.9.1. The features of a monopoly
			3.9.2. Distinguishing features of monopolistic competition
		3.10. Market situation under oligopoly
		3.11. Market situation under government protection
		3.12. Representative firm
		3.13. The role of planning commissions in the socialist economy
		3.14. Conclusion
		Criteria questions
		Further reading
	Chapter 4: Laws of demand and supply
		4.1. Introduction
		4.2. Utility
		4.3. Total utility
		4.4. Types of economic utilities
		4.5. Law of diminishing utility
		4.6. Marginal utility
		4.7. Some Definitions of marginal utility
		4.8. Equimarginal utility
		4.9. Factors influencing demand
			4.9.1. The above factors can also be represented by the following relationship
		4.10. Law of demand
		4.11. Demand schedule
		4.12. Demand curve
		4.13. Market demand curve
		4.14. Law of substitution
		4.15. Elasticity of demand
			4.15.1. Factors governing the elasticity of demand
			4.15.2. Uses of the concept of law of demand
		4.16. Law of supply
			4.16.1. Factors influencing supply
			4.16.2. Supply curve
		4.17. Elasticity of supply
		4.18. Aggregate demand and aggregate supply
		4.19. Review of the definitions for demand and supply
		4.20. Conclusion
		Criteria questions
		Further reading
	Chapter Five: Value and equilibrium price
		5.1. Economic laws
		5.2. Commodities
		5.3. Value
			5.3.1. Utility value
			5.3.2. Exchange value
			5.3.3. Concept of value as applied in value engineering
		5.4. Price
		5.5. Concepts of pricing
		5.6. Equilibrium price
		5.7. Temporary equilibrium price
			Example
		5.8. Equilibrium price under different market conditions
			5.8.1. Equilibrium price under perfect competition
			5.8.2. Equilibrium price under monopoly
			5.8.3. Equilibrium price under monopolistic competition
			5.8.4. Equilibrium price under oligopoly
		5.9. Effect of time on theory of pricing
		5.10. Conclusion
		Criteria questions
		Further reading
	Chapter Six: Wealth and time value of money
		6.1. Wealth
			6.1.1. Classification of wealth
		6.2. Money
			6.2.1. History of money
			6.2.2. Functions of money
			6.2.3. Types of money
			6.2.4. Properties of money
			6.2.5. Kinds of money
			6.2.6. Credit Instruments
		6.3. Banking operations
			6.3.1. Types of banks
			6.3.2. Functions of banks
			6.3.3. How the reserve bank controls credit in the country
			6.3.4. Other functions of the reserve bank of India
		6.4. Monetary policy
			6.4.1. Contractionary and expansionary monetary policies
			6.4.2. Tools of monetary policy
			6.4.3. Fiscal policy
			6.4.4. Mudra loans
		6.5. Capital asset pricing model (CAPM)
		6.6. Short-term financing and long-term financing
		6.7. Optimal capital structure
		6.8. Gross domestic product (GDP)
			6.8.1. Gross national product (GNP)
			6.8.2. Net domestic product (NDP) and net national product (NNP)
		6.9. Cash reserve ratio
			6.9.1. Cash reserve ratio (CRR)
			6.9.2. Repo rate
			6.9.3. Reverse repo rate
			6.9.4. Statutory liquidity ratio
		6.10. Money market
			6.10.1. Share market
			6.10.2. Mutual funds
		6.11. International trade and globalization
		6.12. The time value of money
		6.13. Simple interest and compound interest
		6.14. Gradient series factor or gradient interest addition
		6.15. Discrete compounding and continuous compounding
		6.16. Internal rate of return (IRR)
			6.16.1. Minimum acceptable rate of return (MARR)
		6.17. Nominal vs. real values
		6.18. Modified internal rate of return
		6.19. Expected rate of return
		6.20. Laws of diseconomies of scale
			6.20.1. The law of increasing returns to scale
			6.20.2. Law of diminishing returns to scale
			6.20.3. Law of constant returns to scale
		6.21. Investment demand vs. rate of interest
		6.22. Marginal efficiency of capital
			6.22.1. Case A, where the person borrows money
			6.22.2. Case B, where the person invests their own money
		6.23. Relationship between r, Q, C, and I
		6.24. Investment multiplier
		6.25. Exchange
			6.25.1. Advantages of exchange
		6.26. Taxation systems
		6.27. Trade related organizations
		6.28. Conclusion
		Criteria questions
		Further reading
	Chapter Seven: Cost accounting for engineers
		7.1. Why finance and cost accounting for engineers?
		7.2. Double-entry bookkeeping and trial balance
		7.3. Annual accounts
		7.4. Balance sheet
		7.5. Depreciation, amortization, and depletion
		7.6. Depreciation methods
		7.7. Capital budgeting
		7.8. Inflation-adjusted return of investment
		7.9. Cost accounting
		7.10. Categories of cost accounting
		7.11. Cost accounting vs. financial accounting
		7.12. Origin of cost accounting
		7.13. Implicit vs. explicit costs
		7.14. Cash flow diagrams
			7.14.1. Revenue-dominated cash flow diagram
			7.14.2. Cost-dominated cash flow diagram
		7.15. Conclusion
		Criteria questions
		Further reading
	Chapter Eight: Corporate social responsibilities
		8.1. Social responsibility
		8.2. Categories of social responsibility
		8.3. Perspectives of social responsibility
		8.4. Points favoring social involvement of an organization
		8.5. Difficulties faced in the social involvement of organizations (or points in favor of the efficiency perspective)
		8.6. Social audit
		8.7. Audit terminology
		8.8. Ethical audit procedure
		8.9. Ethical audit reviews
		8.10. Seven key features of ethical audit
		8.11. Community information, empowerment and transparency (CIET)
		8.12. Conclusion
		Criteria questions
		Further reading
Section II: Principles of engineering economics
	Chapter Nine: Principles of management
		9.1. Role of engineers in management
		9.2. Definitions on management
		9.3. Skill types and roles of managers
		9.4. Evolution of management thinking
		9.5. Early pioneers in management thinking pre-nineteenth century
		9.6. Second phase in the development of management thinking leading to scientific management
		9.7. Concepts of scientific management
		9.8. Specific aims of scientific management
		9.9. Advantages of scientific management
		9.10. Summary of the features of management as a system
		9.11. Resistance to scientific management
		9.12. Conclusion
		Criteria questions
		Further reading
	Chapter Ten: Factors for production
		10.1. The concept of production
		10.2. Factors of production
		10.3. Characteristics of land
		10.4. Characteristics of labor
			10.4.1. Effective use of the labor force by the employer
		10.5. Functions of capital
			10.5.1. Forms of capital
		10.6. Characteristics of machinery
		10.7. Automation
		10.8. Functions of entrepreneurship
		10.9. Conclusion
		Criteria questions
		Further reading
	Chapter Eleven: Cost of production
		11.1. Introduction
		11.2. Definitions of terms related to production cost
		11.3. Explicit and implicit costs of production
		11.4. Tangible and intangible costs of production
		11.5. Classification of the tangible costs
			11.5.1. Material costs
			11.5.2. Labor costs
			11.5.3. Expense costs
		11.6. The philosophy of fixing of selling price
		11.7. Economic laws governing pricing policy
		11.8. Total cost/marginal costs under long run/ short run conditions
			11.8.1. Short run total costs
			11.8.2. Short run average and marginal costs
			11.8.3. Long run average cost
			11.8.4. Why the average cost curve is always cup shaped
		11.9. Total average and marginal revenue
			11.9.1. Total revenue
			11.9.2. Average revenue
			11.9.3. Marginal revenue
			11.9.4. Relationship between TR, AR, and MR
		11.10. Selecting batch size to reduce overall production cost
		11.11. Group technology
		11.12. Conclusion
		Criteria questions
		Further reading
	Chapter Twelve: Economies of scale
		12.1. Economies of scale
		12.2. Types of economies of scale
			12.2.1. Size economies of scale
			12.2.2. Technical economies of scale
			12.2.3. Managerial economies of scale
			12.2.4. Financial economies of scale
			12.2.5. Network economies of scale
			12.2.6. External economies of scale
			12.2.7. Diseconomies of scale
			12.2.8. Factors for the size of an undertaking
		12.3. Classes of industries
		12.4. Factors for the size of an undertaking
		12.5. Large-scale industries
			12.5.1. Characteristics of large-scale industry
			12.5.2. Advantages of large-scale production
			12.5.3. Limitations of large-scale industries
		12.6. Small-scale industries
			12.6.1. Characteristics of small-scale industry
			12.6.2. Advantages of small-scale industries
		12.7. Cottage industry
		12.8. Micro, small, and medium enterprises (MSME)
		12.9. Benefits of MSME registration in India
		12.10. Conclusion
		Criteria questions
		Further reading
	Chapter Thirteen: Demand forecasting
		13.1. Introduction
		13.2. Need for demand forecasting
		13.3. Definitions of forecasting
		13.4. Basic steps of forecasting
			13.4.1. Characteristics of a good forecast
			13.4.2. Basic steps in the forecasting process
		13.5. Short-term, medium-term, and long-term forecasts
		13.6. Market segmentation
		13.7. Techniques of forecasting
		13.8. Qualitative forecasting methods
			13.8.1. Opinion survey
			13.8.2. Aided judgment
			13.8.3. Judgmental bootstrapping
			13.8.4. Delphi technique
			13.8.5. Jury of executive-opinion
			13.8.6. Prediction markets
			13.8.7. Marketing trials
			13.8.8. Market research
			13.8.9. Simulated interaction
		13.9. Quantitative forecasting methods
			13.9.1. Discrete event simulation
			13.9.2. Continuous simulation
			13.9.3. Group method of data handling (GMDH)
			13.9.4. Reference class forecasting
			13.9.5. Quantitative analogies
			13.9.6. Game theory
			13.9.7. Conjoint analysis
			13.9.8. Causal models
			13.9.9. Segmentation
			13.9.10. Cross-sectional forecasting
		13.10. Trend analysis or time series in forecasting
			13.10.1. Extrapolation
		13.11. Seasonal and cyclic fluctuations
			13.11.1. Seasonal fluctuations
			13.11.2. Cyclic fluctuations
			13.11.3. Random fluctuations
		13.12. Least squares method
			13.12.1. The least squares straight line
			13.12.2. The least squares parabola
			13.12.3. Multiple regression least squares
		13.13. Moving average method
		13.14. Life cycle effect on forecasting
		13.15. Forecasting errors
		13.16. Cost of forecasting
		13.17. Tracking signals in forecasting
		13.18. International symposia on forecasting
		13.19. Conclusion
		Criteria questions
		Further reading
	Chapter Fourteen: Decision theory
		14.1. Significance of decision theory for engineering economics
			14.1.1. Synonyms of decisions
		14.2. Problem analysis and decision making
			14.2.1. Problem analysis
			14.2.2. Decision-making
		14.3. Situations under which decisions are taken
			14.3.1. Decision-making under certainty
			14.3.2. Decision-making under uncertainty
			14.3.3. Decision-making under risk
			14.3.4. Decision making under conflicts
		14.4. Classifications of decisions
			14.4.1. Organizational and personal decisions
			14.4.2. Routine and strategic decisions
			14.4.3. Policy and operative decisions
			14.4.4. Programmed and nonprogrammed decisions
			14.4.5. Individual and group decisions
		14.5. Different approaches to decision-making
			14.5.1. Intuitive decision-making
			14.5.2. Trial and error decision-making
			14.5.3. Follow the leader decision-making
			14.5.4. Scientific decision-making
			14.5.5. Systematic decision-making
		14.6. Bias in decision-making
		14.7. Proper management decision (PMD) and proper engineering decision (PED)
		14.8. Information needed by the decision-maker
			14.8.1. Operating data
			14.8.2. Control data
			14.8.3. Planning data
		14.9. Interdepartmental communication flow
		14.10. Lateral information flow
		14.11. Conclusion
		Criteria questions
		Further reading
Section III: Applications of engineering economics
	Chapter Fifteen: Total productive maintenance
		15.1. Introduction
		15.2. TPM is an application of engineering economics
		15.3. History of TPM
		15.4. The meaning of TPM
		15.5. Definitions of TPM
		15.6. The five zeros of TPM
		15.7. What can TPM achieve?
		15.8. The three levels of autonomous maintenance in TPM
		15.9. Procedure for the implementation of TPM
		15.10. The structure of TPM
		15.11. TPM, terotechnology, and logistics-A comparison
		15.12. 5S vs. TPM
			15.12.1. A place for everything and everything in its place (PEEP)
			15.12.2. Seiso (shine, sweep, or sanitize)
			15.12.3. Cleanliness in the office environment
		15.13. Maintenance work sampling
		15.14. Conclusion
		Criteria questions
		Further reading
	Chapter Sixteen: Break-even and make-or-buy analyses
		16.1. Introduction
		16.2. Definitions of break-even analysis
		16.3. Break-even chart
		16.4. Break-even analysis terminology
		16.5. Factors for break-even point
		16.6. Formula for break-even point
		16.7. Break-even point vs. payback period
		16.8. Case studies of break even analysis as applicable in several situations
			16.8.1. Production batch quantity, as illustrated in Example 1 below
			16.8.2. Organizing seminars, as illustrated in Example 2 below
		16.9. Economic order quantity
		16.10. Make-or-buy decision
		16.11. The criteria that influence our decision to produce in-house
		16.12. The criteria that influence our decision to buy or outsource
		16.13. Impact of control needed for the make-or-buy decision
		16.14. Thumb rule for outsourcing
		16.15. Some definitions of make-or-buy decision
		16.16. Example for make or buy decision
		16.17. Conclusion
		Criteria questions
		Further reading
	Chapter Seventeen: Creativity and Kaizen
		17.1. Significance of creativity in engineering economics
		17.2. The principles of creativity
			17.2.1. Divide and conquer
			17.2.2. Set quotas and deadlines for yourself
			17.2.3. Let loose your mind
			17.2.4. Two heads are better than one
			17.2.5. Question each and every detail
		17.3. Six thinking hats
		17.4. What is Kaizen?
			17.4.1. What is Kaizens role in engineering economics?
		17.5. Why continuous improvement?
		17.6. Significance of Kaizen in continuous improvement
		17.7. How does Kaizen improve productivity?
		17.8. Jurans methodology
		17.9. Illustrations of Kaizen application
		17.10. Umbrella of Kaizen
		17.11. Other continuous improvement techniques
		17.12. Conclusion
		Criteria questions
		A. Appendix
			A.1. Case studies on engineering economics by creativity
		Further reading
	Chapter Eighteen: Material layout planning
		18.1. Material layout planning
			18.1.1. Significance of material layout planning
			18.1.2. Material layout planning applied to shearing operations
		18.2. Case study in material layout planning
			18.2.1. Bill of materials
			18.2.2. The process for fan shaped body
			18.2.3. Existing operation sequence for producing the blanks
			18.2.4. Recommended material layout and the process
				18.2.4.1. Change in the angle between the shearing edge of the power guillotine and the coil feed line
				18.2.4.2. Shearing the fan shaped body in the recommended method (plan B of Fig. 18.4)
				18.2.4.3. Shearing of the bottom circle in the recommended method (plan D of Fig. 18.5)
			18.2.5. Summary of results achieved
		18.3. Conclusion
		Criteria questions
		Further reading
	Chapter Nineteen: Value engineering and engineering economics
		19.1. Significance of value engineering to engineering economics
		19.2. What is value engineering?
		19.3. Definitions of value engineering
		19.4. History of value engineering
		19.5. What is value?
		19.6. Value engineering
		19.7. Objectives of value engineering
		19.8. Functional value of a product
		19.9. Methodology of value analysis
			19.9.1. General phase
			19.9.2. Information phase
			19.9.3. Function phase
			19.9.4. Investigation and creative phases
			19.9.5. Evaluation phase
			19.9.6. Recommendation and follow-up phases
		19.10. DARSIRI methodology for value analysis
		19.11. Function analysis system technique (FAST)
		19.12. Conclusion
		Criteria questions
		Further reading
	Chapter Twenty: Plant location and layout
		20.1. Introduction
		20.2. Plant location and plant layout
		20.3. City vs. suburban vs. urban location
			20.3.1. Conditions suggesting a city location
			20.3.2. Conditions suggesting a suburban location
			20.3.3. Conditions suggesting a rural location
		20.4. Other factors controlling plant location
		20.5. Cost factors and noncost factors
			20.5.1. Cost factors
		20.6. Least cost center analysis
		20.7. The center-of-gravity method of plant location
		20.8. Noncost factors
			20.8.1. Proximity to raw materials and markets
			20.8.2. Labor
			20.8.3. Electric power
			20.8.4. Fuel
			20.8.5. Water
			20.8.6. Government policy
		20.9. Illustrations of typical noncost factors
			20.9.1. Fish canning factory
			20.9.2. Oil refineries
			20.9.3. Breweries
			20.9.4. Beach hotels
			20.9.5. Airports
		20.10. Particle swarm optimization
		20.11. Plant layout
		20.12. General rules and objectives of successful plant layout
		20.13. Types of plant layout
			20.13.1. Fixed position layout
			20.13.2. Process or functional layout
			20.13.3. Product or line layout
			20.13.4. Combination layout
			20.13.5. Cellular layout
		20.14. Group Technology
		20.15. Conclusion
		Criteria questions
		Further reading
	Chapter Twenty-one: Scientific inventory control
		21.1. Introduction-Relevance of inventory control to engineering economics
		21.2. What is inventory?
		21.3. Types of inventories
		21.4. Conditions leading to increased inventory
		21.5. Costs involved with inventories
		21.6. Selective control in inventory management
		21.7. Scientific material planning
		21.8. Classification and codification
		21.9. ABC analysis
			21.9.1. Procedure for ABC analysis
		21.10. Inventory control parameters
		21.11. Economic order quantity
			21.11.1. Inventory carrying costs or costs resulting from owning the item
			21.11.2. Stock-out or downtime costs
		21.12. Two-bin inventory control system
		21.13. Recent trends in inventory control
		21.14. Suppler partnership
		21.15. Collaborative planning, forecasting, and replenishment (CPFR)
		21.16. Conclusion
		21.17. Case studies
			21.17.1. Case study I
			21.17.2. Case study II
		Criteria questions
		Further reading
	Chapter Twenty-two: Machinery replacement analysis
		22.1. Introduction
		22.2. Why equipment replacement?
		22.3. Basic strategies of repair/replacement
		22.4. Phases of replacement analysis
		22.5. Methods of evaluation
		22.6. Traditional methods
			22.6.1. Payback period method
			22.6.2. Total life average method
			22.6.3. Average rate of returns method
			22.6.4. Internal rate of return (IRR) and average rate of returns (ARR)
			22.6.5. Disadvantages of the traditional methods
		22.7. Discounted cash flow methods
			22.7.1. Net present worth (NPW) or net present value (NPV)
			22.7.2. Profitability index method
			22.7.3. Internal rate of returns method
			22.7.4. Differences between net present worth and internal rate of returns methods
		22.8. MAPI method
		22.9. Markov analysis
		22.10. Conclusion
		Criteria questions
		Further reading
Appendix I: Syllabi of Indian universities
	A. NPTEL, IIT Roorkee
	B. Maharshi Dayanand University, Rohtak
	C. Anna University
	D. Gujarat Technological University
	E. College of Engineering, Pune (CEP)
	F. The Thapar Institute of Engineering and Technology (TIET), Patiala
	G. Aryabhatta Knowledge University, Patna, Bihar
	H. Galgotias College of Engineering and Technology (GCET), Greater Noida
	I. Biju Patnaik University of Technology (BPUT), Bhubaneswar
Appendix II: Syllabi of foreign universities
	A. Texas A&M University of Commerce, USA
	B. State University of New York College of Technology Canton, New York
	C. University of Pennsylvania School of Engineering and Applied Science
	D. Illinois Institute of Technology
	E. The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
	F. Purdue School of Engineering and Technology
	G. Stanford School of Engineering
	H. Bilikent University, Dept of Industrial Engineering, Turkey
References
Index
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