Production Management Guide
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شريف البلتاجىProduction Management Guide
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شريف البلتاجىﺷ
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ﺷﺮﻳﻒ ﻣﻨﻴﺮ ﻋﻠ اﻟﺒﻠﺘﺎﺟ 01029177970 30312061701458
Production Management
Introduction
To
ﺷ
ﺮﻳ
ﻒ
Production Management
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
Prepared By
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
Dr. Hassnein Elsayed Taha Dr. Ammar Fathy Mousa
5 8
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Professor of Human Resources Professor of Human
70
Resources Management
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Management - Faculty of
20
Commerce - University of Sadat Faculty of Commerce -
31
University of Sadat City
30
City
Ammar.fathy@com.usc.edu.eg
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Hassanein.taha@com.usc.edu.eg
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Second Edition
01
2023/2024
Prof.Hassanein Taha & Prof. Ammar Fathy P.M.
اﻟﺒﻠﺘﺎﺟﺷﺮﻳﻒ ﻣﻨﻴﺮ ﻋﻠ 01029177970 30312061701458
Production Management
The Book:
It is not permitted to print the book or some
of its chapters without a written permission
ﺷ
and prior authorization from the authors. The
ﺮﻳ
ﻒ
authors also welcome any suggestions from
ﻣﻨ
ﻴﺮ
scholars and learners or comments on the
ﻋﻠ
contents of the book, and they can personally
ﻰ
اﻟﺒ
contact him for criticism and analysis for the
ﻠﺘ
ﺎﺟ
purpose of development, via the official E-mail:
ﻰ
5 8
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E-mail address:
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Hassnein.Taha@ com.usc.edu.eg
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Amar.Fathy@ com.usc.edu.eg
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Prof.Hassanein Taha & Prof. Ammar Fathy P.M.
اﻟﺒﻠﺘﺎﺟﺷﺮﻳﻒ ﻣﻨﻴﺮ ﻋﻠ 01029177970 30312061701458
Production Management
▪ Introduction:
The production function is one of the oldest
jobs that man has ever done throughout the ages,
whatever form of organization takes place within it,
the first tool that helped the first human being to
ﺷ
perform his work when he knew the productive
ﺮﻳ
ﻒ
activity, and then began to develop continuously
ﻣﻨ
until we reached today to the extent that we find that
ﻴﺮ
most of the products we use and consume are in fact
ﻋﻠ
ﻰ
the result of productive activity.
اﻟﺒ
The need for production and process
ﻠﺘ
ﺎﺟ
management is increasing, and this increase is a
ﻰ
logical response to the requirements for the
5 8
14
development and diversity of production processes,
70
and the necessary modernization and diversification.
61
An in-depth understanding of the dimensions of
20
any production system is reflected in the perception
31
30
of the combination of technology and individuals,
70
which is focused on the production process, whether
79
in industrial or service projects, and therefore the
7
91
overall production system with its different
02
components is partially influenced by production
01
processes and vice versa.
This book aims to shed light on a set of basic
issues and recent trends related to operation
management in contemporary organizations by
addressing the main chapters as follows:
3 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
The first chapter deals with the conceptual
framework of Operation Management, the second
chapter deals with Productivity Efficiency, while the
third chapter deals with Break-Even Point, the
fourth chapter deals with Forecasting, the fifth
chapter deals with Transportation Models, the sixth
ﺷ
chapter Design of Goods and Services, the seventh
ﺮﻳ
ﻒ
chapter Managing Quality, and final chapter deals
ﻣﻨ
with Lean Operations.
ﻴﺮ
ﻋﻠ
The authors were keen on the simplicity and
ﻰ
integrity of the method of presenting the topics
اﻟﺒ
covered in this book as one of the basic and modern
ﻠﺘ
ﺎﺟ
topics in the field of operation management that has
ﻰ
8
become sensed by both specialists and non-specialists
5
14
in organizational thought.
70
We hope that this book will be a positive building
61
block in addition to the serious and honorable efforts
20
made by our teachers in the field of production
31
management and operations, and we hope that this
30
book will contribute to the development of the skills
70
and abilities of students and workers in the field of
79
production management and operations in our
7
91
precious Egypt in particular and in the Arab world
02
in general.
01
May Allah gurantee success for all of us.
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Production Management
Brief Contents
1 Operation Management Framework 6
ﺷ
2 Productivity Efficiency 50
ﺮﻳ
ﻒ
ﻣﻨ
3 Break-Even Point 91
ﻴﺮ
ﻋﻠ
ﻰ
4 Forecasting 129
اﻟﺒ
ﻠﺘ
ﺎﺟ
5 Transportation Models 164
ﻰ
5 8
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6 Design of Goods and Services 188
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Production Management
ﺷ
Chapter 1
ﺮﻳ
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ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
5 8
Operation Management
14
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Framework
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Production Management
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ﺮﻳ
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ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
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Production Management
Chapter 1
Operation Management Framework
Chapter Outline
- Introduction.
ﺷ
ﺮﻳ
1- Define Operation Management (O.M.).
ﻒ
ﻣﻨ
2- Importance of Operations Management.
ﻴﺮ
ﻋﻠ
ﻰ
3- Responsibilities in Operations Management.
اﻟﺒ
ﻠﺘ
4- Differences in Manufacturing Versus Service
ﺎﺟ
ﻰ
Operations.
5 8
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5- Decisions on production and operations
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Management
20
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6- Characteristics of production systems
30
70
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Production Management
Learning Outcomes:
By the end of this chapter, you should be able to:
1- Define Operations Management.
2- Determining the importance of production
and operations management.
3- Determining responsibilities of production and
ﺷ
ﺮﻳ
operations management.
ﻒ
4- Explain the difference between goods and
ﻣﻨ
ﻴﺮ
services.
ﻋﻠ
5- To know key benefits of effective operations
ﻰ
اﻟﺒ
management.
ﻠﺘ
ﺎﺟ
6- Determining Skills needed for successful
ﻰ
operations management.
5 8
7- To know Principles of operations management.
14
70
8- Determining Decisions on production and
61
operations management.
20
9- To know Characteristics of production systems.
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Production Management
• Introduction:
Operations are the product of factors of production,
and the factors of production are land, work and capital,
and the regulator and using these factors we can
produce a goods or provide a service on which there is a
ﺷ
ﺮﻳ
ﻒ
real effective demand, if you look at the office on which
ﻣﻨ
your lessons are recalled, for example, you find that it
ﻴﺮ
ﻋﻠ
consists of wood produced by the earth, and then the
ﻰ
اﻟﺒ
carpentry worker cuts, settles, polishes.
ﻠﺘ
ﺎﺟ
This was done in the workshop or factory assigned to
ﻰ
8
it and managed by its owner (organizer) or
5
14
administrator in that workshop or factory. Therefore, if
70
61
we are to produce a particular product (goods or
20
31
service), we need:
30
- Resources or factors of production: include all
70
79
material resources (funds, land, buildings,
7
91
number, machinery, furniture, etc.) and human
02
resources (which include employment of various
01
types skilled, half skilled, ordinary, specialists and
managers).
10 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
- Processes and activities: Include all production
and transformation processes and activities that
lead to the creation of goods and services that
individuals are in dire need of.
- Management: It means a group of individuals who
ﺷ
ﺮﻳ
work together and using the resources or
ﻒ
ﻣﻨ
capabilities available to them to achieve a
ﻴﺮ
ﻋﻠ
particular goal by performing a range of
ﻰ
اﻟﺒ
administrative functions such as planning,
ﻠﺘ
ﺎﺟ
organization, guidance and oversight.
ﻰ
8
Hence, this chapter sheds light on the nature and
5
14
importance of that department that specializes in
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planning, organizing and controlling the activities
20
through which goods or services are created to achieve
31
30
certain objectives of producing the right quantity at the
70
right quality level and within a certain schedule and at
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the lowest possible cost, namely production and
02
operations management .
01
The function of production and processes plays an
important and key role in shaping the image that
customers form about the organization and its products,
and therefore this function has a great impact on
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Production Management
customer satisfaction, hence it is necessary to first be
exposed to the definition of production management and
processes and know the decisions of that department, the
place of that department in the organizational structure
of the organization and the responsibilities of the
ﺷ
ﺮﻳ
production manager and the characteristics of
ﻒ
ﻣﻨ
production systems so that an integrated picture of that
ﻴﺮ
ﻋﻠ
management can be formed.
ﻰ
اﻟﺒ
1- Define Operation Management (O.M.):
ﻠﺘ
ﺎﺟ
It is appropriate, before defining production and
ﻰ
8
operations management to first and foremost clarify the
5
14
different nomenclature of that department as the
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multiple writings in this field fall under several names
20
31
among which are industrial management, industrial
30
organization, production management, process
70
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management, and finally production and operations
7
91
management.
02
It should be noted that the variation in the names of
01
that department is due to the historical development of
this branch of management, the term industrial
management began to be used with the turn of the
12 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
eighteenth century with Adam Smith acknowledging
that specialization and division of labor leads to the
realization of some economic benefits, and continued to
use the designation of industrial management until
about 1930, and during that period it was possible to
ﺷ
ﺮﻳ
apply many methods and concepts that were invented in
ﻒ
ﻣﻨ
the management of industrial projects, including the
ﻴﺮ
ﻋﻠ
study of Time and movement, use of the scientific
ﻰ
اﻟﺒ
method in management, problem solving.
ﻠﺘ
ﺎﺟ
In the late sixties the field of production expanded to
ﻰ
8
include the service sector in addition to the
5
14
manufacturing sector, and here the word operations was
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used with the word production or the use of the word
20
operations, alone to clarify that the function is not
31
30
limited to organizations that produce goods only, and
70
from here the scope of the production function expanded
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to include the service sector along with the industrial
02
sector on the basis that they are all, (although their
01
characteristics, the nature of their business and the goals
they seek to achieve) represent production systems that
transform the elements of Inputs to outputs, hence the
13 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
tendency of most writers to use the term production and
process management.
Despite the age of productive activity and the
increasing and diverse scientific research associated
with it in management thought, it is difficult to find a
ﺷ
ﺮﻳ
definition of production and process management that
ﻒ
ﻣﻨ
enjoys the agreement of researchers and practitioners,
ﻴﺮ
ﻋﻠ
where some when defining production management and
ﻰ
اﻟﺒ
processes focus on the goal that this department should
ﻠﺘ
ﺎﺟ
seek to achieve, as well as others focus on the operational
ﻰ
8
aspect in terms of production processes, stages of
5
14
manufacture and machines used, and others focus on
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The correlation between the production function and
20
other processes and functions in the organization such as
31
30
marketing, finance, human resources, procurement and
70
storage, and others in the definition of production and
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operations management focus on the elements of the
02
administrative process of planning, organization,
01
direction and control as production management and
operations as an area of application of the
administrative process.
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Production Management
From the above, production and operations
management can be defined as the process of creating
goods and services needed by society so that they have
formal, spatial or temporal value and so that this is done
with the highest degree of efficiency and effectiveness.
ﺷ
ﺮﻳ
Therefore, the management of production and
ﻒ
ﻣﻨ
operations is not limited to the production of goods only,
ﻴﺮ
ﻋﻠ
but there is another equally important aspect that is the
ﻰ
اﻟﺒ
provision of services.
ﻠﺘ
ﺎﺟ
Production and operations management can also be
ﻰ
8
defined as an ongoing management activity based on the
5
14
transformation of certain inputs from other materials
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and production factors through specific technical
20
operations into greater value outputs.
31
30
Production and operations management is defined as
70
the set of administrative activities necessary to design,
7 79
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operate and control conversion processes.
02
It is also defined as a set of events related to the
01
acquisition and use of factors of production for the
purpose of making a particular product or service.
It is clear from the above that the production and
operations management is:
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Production Management
• The decision-making process related to the design
and operation of process systems to achieve the
objectives.
• The process of directing and controlling the
system of operations under the conditions of the
ﺷ
ﺮﻳ
internal and external environment to achieve
ﻒ
ﻣﻨ
specific objectives.
ﻴﺮ
ﻋﻠ
• The process of planning and organizing
ﻰ
اﻟﺒ
operations to convert raw materials into goods
ﻠﺘ
ﺎﺟ
and services.
ﻰ
8
• This must be done with the highest degree of
5
14
efficiency and effectiveness; efficiency indicates
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the extent to which resources are exploited and
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31
effectiveness indicates the extent to which goals
30
have been achieved.
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The management of production and operations is of
7
91
great importance, and this importance stems from the
02
following:
01
• It is one of the basic functions of the organization
(marketing, production and operations, finance,
human resources) related to the use and
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Production Management
exploitation of resources and to achieve the
required goals.
• It offers the highest efficiency and best use to the
consumer through diversification in the sizes and
shapes of the products offered to him.
ﺷ
ﺮﻳ
• An important source of support for competitive
ﻒ
ﻣﻨ
advantage in modern companies in light of the
ﻴﺮ
ﻋﻠ
increasing competition in the market.
ﻰ
•
اﻟﺒ
Production processes are at the heart of the
ﻠﺘ
ﺎﺟ
activities of any productive organization.
ﻰ
8
• The production function is the organizational part
5
14
responsible for the production of goods and
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services that are consumed.
20
• Production processes are the most expensive part
31
30
of an organization that, if not managed well, may
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be a reason for the organization's exit from the
7
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market.
02
• The study of production and processes leads to a
01
comprehensive understanding of the function of
this department which helps in the development of
the theoretical framework for analyzing the types
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Production Management
of problems and decisions faced by production
and operations management.
• Production and process management can provide
an organization with a good opportunity to
improve its profitability or to implement its
ﺷ
ﺮﻳ
potential for success and continuity.
ﻒ
ﻣﻨ
• There is a use of resources to create goods and
ﻴﺮ
ﻋﻠ
services that lead to the organization being
ﻰ
اﻟﺒ
successful and in a good competitive position or
ﻠﺘ
ﺎﺟ
may lead to the failure of the enterprise.
ﻰ
8
In the light of previous discussions of the concept of
5
14
the production function, production and operations
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management can be defined as the department
20
31
responsible for planning, organizing, directing,
30
building and developing competencies and controlling
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all activities of the operations system to transform the
7
91
elements of inputs into the composition of outputs,
02
whether goods or services, and it should be noted that
01
the activities of the operations system vary to include
the design, operation and development of production
systems.
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Production Management
It is also noted from the previous definition that the
management of production and operations is
characterized by a clear administrative responsibility
that distinguishes it from other functions in the
organization such as marketing and finance, which are
ﺷ
ﺮﻳ
activities of planning, organizing, directing, motivating
ﻒ
ﻣﻨ
and controlling the activities of converting input
ﻴﺮ
ﻋﻠ
elements into outputs.
ﻰ
اﻟﺒ
2-Importance of Operations Management:
ﻠﺘ
ﺎﺟ
To manage production and processes is of great
ﻰ
8
importance, this importance stems from the following:
5
14
• One of the core functions of the organization
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61
(marketing, production and processes, financing,
20
31
human resources) is related to the use and
30
exploitation of resources and to achieve the
70
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desired goals.
7
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• Offers the highest efficiency and best use to the
02
01
consumer by diversifying the sizes and forms of
products provided to it.
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Production Management
• An important source of support for competitive
advantage in modern companies in light of
increased competition in the market.
• Production processes are at the heart of the
activities of any productive organization.
ﺷ
ﺮﻳ
• The production function is the regulatory part
ﻒ
ﻣﻨ
responsible for the production of goods and
ﻴﺮ
ﻋﻠ
services consumed.
ﻰ
اﻟﺒ
• Production processes are the costly part of the
ﻠﺘ
ﺎﺟ
organization if they are not well managed and may
ﻰ
8
be the reason for the organization's exit from the
5
14
market.
70
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• The study of production and processes leads to a
20
31
comprehensive understanding of the function of
30
this department, which helps to develop the
70
79
theoretical framework for analyzing the types of
7
91
problems and decisions faced by production and
02
process management.
01
• Production and process management can provide
the organization with a good opportunity to
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Production Management
improve its profitability or to implement its
viability and viability.
• There is a use of sources to create goods and
services that make the organization successful and
in a good competitive position or may lead to the
ﺷ
ﺮﻳ
failure of the organization.
ﻒ
ﻣﻨ
To illustrate the importance of managing production
ﻴﺮ
ﻋﻠ
and operations, this is done by reviewing the
ﻰ
following example:
اﻟﺒ
ﻠﺘ
ﺎﺟ
Sadat Spinning and Textile Company is a small
ﻰ
8
company that has to double its contribution to
5
14
achieve good profitability that enables it to buy a new
70
61
production machine, the company has verified that
20
31
its bank will not give it the required loan unless it is
30
confirmed in turn that the company has increased its
70
contributions, knowing that the inability of the
7 79
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company to buy the new machine will limit the
02
company's ability to remain in the business world,
01
and thus it will not be able to provide the business to
its workers as well as goods and services to its
customers, table 1 shows the list of income related to
21 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
this company and three options for this company to
improve its situation.
- The first option is the marketing option: based on
a 50% increase in sales, and a 50% increase in
sales, the contribution will also rise to 71%. But
ﺷ
ﺮﻳ
the problem here is that it is difficult to increase
ﻒ
ﻣﻨ
sales at this rate, and achieving this option may be
ﻴﺮ
ﻋﻠ
impossible in light of the company's current
ﻰ
conditions.
اﻟﺒ
ﻠﺘ
ﺎﺟ
- The second option is the financial and
ﻰ
8
accounting option, which is based on halving
5
14
the cost of financing, which will increase the
70
61
contribution to 21%.
20
The third and last option is the production
31
-
30
option, which is based on reducing the cost of
70
production and therefore the cost of sales by
7 79
91
20%, which will increase the contribution by
02
114%.
01
For example, the option of reducing the cost of
production has been shown to be the most acceptable,
most realistic and the best-produced option.
22 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Options Current MARKETING FINANCE/ OM OPTION
OPTION ACCOUNTING
OPTION
INCREASE REDUCE FINANCE
REDUCE
SALES REVENUE
COSTS 50% PRODUCTION
50% COSTS 20%
Sales $100,000 $150,000 $100,000 $100,000
ﺷ
Cost of goods –80,000 –120,000 –80,000 –64,000
ﺮﻳ
ﻒ
Gross margin 20,000 30,000 20,000 36,000
ﻣﻨ
Finance costs –6,000 –6,000 –3,000 –6,000
ﻴﺮ
Subtotal 14,000 24,000 17,000 30,000
ﻋﻠ
ﻰ
Taxes at 25% –3,500 –6,000 –4,200 –7,500
اﻟﺒ
Contribution $ 10,500 $ 18,000 $ 12,800 $ 22,500
ﻠﺘ
ﺎﺟ
3- Responsibilities in Operations Management:
ﻰ
The responsibilities of the Director of Production and
5 8
14
Operations are numerous and diverse, and the total of
70
61
these responsibilities can be as follows:
20
First: Production Planning: The responsibilities of the
31
30
production manager begin with the planning of
70
production, and there is no doubt that the planning of
7 79
production deals with the outputs, which are the
91
02
products (quantity and type) reflects the production
01
process in the production system that begins with inputs,
then the planning of production deals with the inputs,
which are (the necessary production elements) quantity
and quality as well, and then deals with the processes of
23 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
converting inputs into outputs, that is, how to convert it
from materials, supplies and labor to full-fledged
products or parts of intermediate products. Planning is
an essential function of the production and operations
manager, where the objectives of production are
ﺷ
ﺮﻳ
determined and determine the amount of production
ﻒ
ﻣﻨ
that must be achieved as a result of the operation of
ﻴﺮ
ﻋﻠ
production possibilities in the production system, as well
ﻰ
اﻟﺒ
as determine the quality levels that should not be less
ﻠﺘ
ﺎﺟ
than the quality of the resulting units in this system
ﻰ
8
besides determining the timetable at which the
5
14
production objectives must be achieved without delay,
70
61
as follows:
20
(1) Forecasting the volume of production: This is to meet
31
30
the expected demand in a timely manner, and this comes
70
only if forecasts are made well in advance so that the
7 79
91
operational transformation of inputs to the desired
02
products can be completed and presented to the markets
01
in a timely manner. It is logical that the forecasting of
the volume of production is in the light of the expected
sales volume on the basis of market studies and the
prediction of the variables affecting it in addition to the
24 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
studies of the experience of the project itself with regard
to the ability of the project to discharge its previous
production, and these studies call for reliance on
statistical methods ranging in complexity and difficulty
according to the nature of the studies to be completed.
ﺷ
ﺮﻳ
Based on the objectives set for production in the system,
ﻒ
ﻣﻨ
the production manager carries out the planning work
ﻴﺮ
ﻋﻠ
resulting from those goals such as the development of
ﻰ
اﻟﺒ
policies, plans, programs and procedures necessary to
ﻠﺘ
ﺎﺟ
achieve those goals.
ﻰ
8
(2) Product Planning: It is determined whether a
5
14
production department will focus on a specific type in
70
61
the production activity or to produce all kinds of
20
products in that activity, for example, in the
31
30
manufacture of household appliances, for example, will
70
it be limited to the production of refrigerators, for
7 79
91
example, or will we produce refrigerators, deep freezers,
02
air conditioners... The technical designs of these
01
products are also determined so that they perform their
expected functions to satisfy the needs of customers and
consumers.
25 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(3) Product Design and Development: The design
usually takes long periods before the products are
presented to the consumer because of the research
required by their implementation, where it takes into
account the security of the consumer when using goods
ﺷ
ﺮﻳ
and looks at the best ways to manufacture them, the best
ﻒ
ﻣﻨ
machines, the highest skills that can be used and the
ﻴﺮ
ﻋﻠ
estimated economic life of the commodity before the
ﻰ
اﻟﺒ
commodity becomes obsolete.
ﻠﺘ
ﺎﺟ
(4) Capital planning: It may be necessary to replace new
ﻰ
8
machines with used machines, so when is it preferable to
5
14
add new investments, and what studies are needed to
70
61
make such decisions?
20
(5) Energy Planning: By determining the necessary
31
30
energy for the machines and equipment that are used in
70
production and the necessary human energy until the
7 79
91
output of the required volume of production, do we rely
02
on working as overtime or arrange work for more than
01
one shift a day or use possibilities outside the factory to
increase the volume of production.
(6) Planning for the completion of transformational
operations: This can be done by developing master and
26 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
sub-plans, each of which deals with the aspects of
implementation, and this leads to coordination between
the performance of the different operational processes,
and the production manager develops the master plans
so that the heads of the different departments can
ﺷ
ﺮﻳ
develop their sub-plans including the basic production
ﻒ
ﻣﻨ
elements required for their completion, taking into
ﻴﺮ
ﻋﻠ
account the time allowed so that any emergency
ﻰ
اﻟﺒ
adjustments that need to be made as a result of changing
ﻠﺘ
ﺎﺟ
circumstances in the future can be made.
ﻰ
8
The principle of continuity of planning allows for the
5
14
best possible use of available possibilities, including the
70
61
time component. The planning of operating processes
20
requires the design of a system that governs the
31
30
production system in terms of rationalizing the available
70
production potential, and this is a system to control the
7 79
91
operations through several means, including scheduling
02
and loading machines, and the application of control
01
procedures on quality, costs and time.
The above procedures affect the mix of products and
parts that are produced by the production system, which
determine the size and quality of outputs from the
27 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
quantities of the product and its parts, production dates
and cost, noting that any change in one of the elements
of the production system from inputs or aspects of
operation affects the conditions of the other elements
and aspects of their operation, the efficiency of the
ﺷ
ﺮﻳ
systems and the level of achieving the final objectives of
ﻒ
ﻣﻨ
the system.
ﻴﺮ
ﻋﻠ
(7) Raw material planning: The cost of the materials
ﻰ
اﻟﺒ
included in the composition of the finished products
ﻠﺘ
ﺎﺟ
varies according to their nature and may reach in some
ﻰ
8
products up to 90% of their composition and highlights
5
14
the interest in managing that aspect of the elements of
70
61
production, which also includes conducting material
20
studies, procurement research, good selection of
31
30
suppliers and appropriate prices, all of which ensures
70
the provision of the necessary raw materials of the
7 79
91
required quality, price and time specified and therefore
02
the impact of the near on the cost of the product and the
01
price of its sale as well as its performance for its purpose
for which it was produced in addition to the expected
profit from Its production, marketing and continuity to
enjoy the level of demand for it.
28 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
if we know that the cost of the final product is
determined mainly in the light of the cost of raw
materials and labor, and if it is necessary to achieve a
high degree of control over the use and use of materials
also besides the responsibility of providing them. The
ﺷ
ﺮﻳ
production manager in this area has the responsibility to
ﻒ
ﻣﻨ
determine the appropriate sources of supply and how to
ﻴﺮ
ﻋﻠ
judge the quality of the purchased materials and the
ﻰ
اﻟﺒ
safety of the delivery dates pledged by the seller.
ﻠﺘ
ﺎﺟ
(8) Inventory planning and control: Raw materials are
ﻰ
8
stored in preparation for their demand for operations as
5
14
well as production requirements are stored in addition
70
61
to the storage of semi-finished goods and finished
20
products after their production. There is no doubt that
31
30
some, if not most, projects invest huge amounts in the
70
quantities stored of those types of stockpiles, which
7 79
91
requires trying to balance between leaving large
02
quantities of them in stores that represent disrupted
01
funds or reducing quantities so that this does not lead to
the cessation of production, and therefore inventory
management needs a high level of control that uses
advanced statistical and mathematical methods to
29 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
prepare studies to determine the economic quantities of
purchase and storage.
The production manager in this area has the
responsibility to determine the appropriate amount of
inventory that achieves good service to the consumer or
ﺷ
ﺮﻳ
customer? What are the quantities of stocks of raw
ﻒ
ﻣﻨ
materials and materials under operation that meet this
ﻴﺮ
ﻋﻠ
purpose? Does the project make or buy its needs from
ﻰ
اﻟﺒ
the necessary parts of the production process? What
ﻠﺘ
ﺎﺟ
quantities or parts are made or bought each time? What
ﻰ
8
is the right time to order them so that the materials are
5
14
available when you need them?
70
61
Second: Organization of Production: The organizational
20
responsibility of the production manager is determined
31
30
by determining the groups of productive activities and
70
the functions that are necessary to perform those
7 79
91
activities, and the roles performed by each group.
02
In order for each of the workers in the production
01
department – the factory – to perform the required
cycle, it is necessary to determine the responsibility and
authority of each individual or group, the relations
between the individuals and the different departments
30 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
involved in production, the selection of the site of
production of the commodity, the design of production
tools, the determination of the appropriate location for
the production of the commodity, the appropriate design
of buildings and the arrangement of machines to enable
ﺷ
ﺮﻳ
the production of goods in an economical manner,
ﻒ
ﻣﻨ
including:
ﻴﺮ
ﻋﻠ
(1) Selection of plant location: The appropriate location
ﻰ
اﻟﺒ
of the plant may be chosen once at the beginning of the
ﻠﺘ
ﺎﺟ
organization's life or repeated again when new branches
ﻰ
8
or factories are opened. The different cost elements,
5
14
marketing possibilities and production facilities
70
61
available are taken into account.
20
(2) Providing production requirements and facilities:
31
30
And design them in line with the quality of the expected
70
products, by determining the production capacity
7 79
91
necessary to complete the transformational operations
02
of machines, equipment and human forces and then
01
preparing the appropriate design and arrangement for
the production facilities within the factory as it may be
necessary to obtain new machines and determine the
appropriate time for these additions and benefit from
31 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
the studies necessary to make such decisions. As well as
how to keep them usable by control or therapeutic
maintenance and repair and whether it is inside the
factory or outside, and the best ways in which workers
perform their work efficiently while achieving
ﺷ
ﺮﻳ
satisfaction for them.
ﻒ
ﻣﻨ
(3) Equipping the plant with equipment and machinery:
ﻴﺮ
ﻋﻠ
This is done in the light of the identification of such
ﻰ
اﻟﺒ
equipment and the sources of its acquisition and
ﻠﺘ
ﺎﺟ
installation and the provision of repair and maintenance
ﻰ
8
facilities.
5
14
(4) Internal arrangement of the plant: It requires the
70
61
logical arrangement of equipment and machinery that
20
leads to easy flow of materials without complicating
31
30
handling processes.
70
(5) Job design, work measurement and remuneration of
7 79
91
the worker: The work performed by individuals should
02
be studied and designed in a way that leads to the flow
01
of productive operational processes easily and easily and
in a way that achieves the objectives set with a high
degree of efficiency and at the lowest possible cost.
32 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
The production manager in this area is responsible
for determining the amount of work that the worker is
expected to provide in the unit of time and what are the
ways to address the differences of actual production
from the planned production.
ﺷ
ﺮﻳ
This is in addition to determining the best ways in
ﻒ
ﻣﻨ
which the worker can perform his duties efficiently and
ﻴﺮ
ﻋﻠ
decides the appropriate remuneration for each job
ﻰ
اﻟﺒ
compared to other jobs, whether by paying the wage on
ﻠﺘ
ﺎﺟ
a piece basis or on the basis of time and whether the
ﻰ
8
wage is daily or monthly, also decides on the incentive
5
14
wage and the appropriate mix between bonuses, cash
70
61
and in-kind.
20
Third: Production Control: Control is exercised to
31
30
ensure that the objectives of production are achieved
70
quantitatively, qualitatively and qualitatively in order to
7 79
91
measure what has been produced, compare it with what
02
was targeted in the production plan as quantity, type,
01
quality, cost and time, then identify deviations
(differences) from what was targeted and then make the
necessary designs to modify the production plans in all
their aspects and inclusions (inputs, supplies, operations
33 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
and production capacity.... etc) in order to achieve the
required objectives, as well as the monitoring of
operations in Panama leads to the exclusion of all units
that do not conform to the specifications and the method
of treatment of the defective in them.
ﺷ
ﺮﻳ
If the function of planning and scheduling
ﻒ
ﻣﻨ
production is concerned with the quantities required in
ﻴﺮ
ﻋﻠ
a timely manner, the quality control is concerned with
ﻰ
اﻟﺒ
the level of quality of the product and conformity to the
ﻠﺘ
ﺎﺟ
specifications and quality control is carried out so that
ﻰ
8
the matter needs to be inspected on the stages of
5
14
manufacture and extends through them until it reaches
70
61
the final product, but also the reality is that the control
20
before manufacture begins with the control of raw
31
30
materials and production requirements included in it of
70
machines and labor with the accuracy of the design of
7 79
91
operating processes and the correction of any deviations
02
during them first-hand.
01
The production manager also has the responsibility
to ensure that the capital equipment or equipment
achieves the appropriate security for individuals and
workers, whether the operation of these equipment
34 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
produces disturbing gases or sounds, which causes
damage to workers and how these damages can be
avoided.
Fourth: General responsibility of the Director of
Production and Operations: The Director of Production
ﺷ
ﺮﻳ
and Operations is responsible for achieving the
ﻒ
ﻣﻨ
production objectives and therefore he heads the
ﻴﺮ
Department of Production and Operations – and leads
ﻋﻠ
ﻰ
اﻟﺒ
his subordinates in it to perform the production function
ﻠﺘ
ﺎﺟ
and its activities, and is mainly competent within the
ﻰ
8
limits of his responsibility as a manager in the
5
14
development of the appropriate plan and production
70
61
schedules with the identification of priorities, the design
20
of products and the determination of the level of their
31
30
quality, the selection of production methods and the
70
provision of its supplies, the coordination of his activities
7 79
91
between departments, the control of implementation
02
and quality control.
01
The function of production manager is considered an
organizational and technical administrative and
technical operational function at the same time, so he
performs his function as a manager and executive on the
35 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
basis of various skills that should be available to him and
prepared for them, including: To be able to innovate,
renew and innovate, whether with regard to the uses of
new products or the development of existing products
and the development of new uses for them and the
ﺷ
ﺮﻳ
development of new methods of work or the
ﻒ
ﻣﻨ
development of existing methods to achieve
ﻴﺮ
ﻋﻠ
effervescence and reduce costs, and therefore adopts
ﻰ
اﻟﺒ
scientific research and its tools and provides it with all
ﻠﺘ
ﺎﺟ
the possibilities to ensure its success.
ﻰ
8
He tries to take advantage of their results and takes
5
14
the initiative to apply what proves his validity by
70
61
experimenting without delay.
20
The production manager should be a conscious
31
30
ambition to achieve the objectives of the project and
70
achieve high achievements, and respond to the changes
7 79
91
in the tastes of consumers and the demands of workers,
02
and share the community interacting with him because
01
his organization is part of it.
To be able to analyze information, understand
indicators and interpret variables and be able to utilize
them in making sound logical decisions.
36 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Therefore, the production manager should
understand and be convinced of the general objectives of
the organization considering the objectives of
production management and operations as part of them,
and because his decisions will be directed towards its
ﺷ
ﺮﻳ
achievement and absorb the strategy of the organization
ﻒ
ﻣﻨ
and its long and short-term plans, and put production
ﻴﺮ
ﻋﻠ
policies within it.
ﻰ
اﻟﺒ
And to exchange information with other managers of
ﻠﺘ
ﺎﺟ
the management of the organization in marketing,
ﻰ
8
finance, organization and employment because of the
5
14
impact and impact of productivity plans, that the
70
61
production manager like other managers is an
20
information center that extends others and benefits from
31
30
it. Because of the importance of these skills to the
70
Director of Production and Operations, the senior
7 79
91
management should work on the basis of good selection
02
on the basis of qualifications and experience to provide
01
those required skills while providing training and
administrative development to him and determining his
responsibilities in accordance with the objectives of the
production management and the processes emanating
37 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
from the final organizational overall objectives of the
organization with the determination of his functional
relations with other administrative levels, as well as his
participation in determining the administrative goals
and objectives of the organization and his participation
ﺷ
ﺮﻳ
in making important decisions at the level of the
ﻒ
ﻣﻨ
organization.
ﻴﺮ
ﻋﻠ
4- Differences in Manufacturing Versus Service
ﻰ
اﻟﺒ
Operations
ﻠﺘ
ﺎﺟ
We have already clarified the different names of
ﻰ
5 8
production and operations management and linked this
14
70
to the historical development that the job went through,
61
where we concluded that in the modern era the interest
20
31
in providing services has increased. Thus, in addition to
30
the production of goods (manufacturing), the field of
70
79
production management has expanded to include the
7
91
expansion of the provision of services.
02
01
The fundamental difference between the provision of
goods and the provision of services is that goods are
tangible physical outputs of the productive process,
while services represent intangible outputs.
38 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Service: It is an activity or series of activities of an
intangible nature, provided through the interactions
that occur between the customer and the service
provider or between suppliers or systems of production
and service delivery where these activities are not
ﺷ
ﺮﻳ
considered solutions to the customer's problems.
ﻒ
ﻣﻨ
In the language of operations, the consumer or service
ﻴﺮ
ﻋﻠ
requester receives and consumes the service at the place
ﻰ
اﻟﺒ
of its production (workplace Floor, which in the service
ﻠﺘ
ﺎﺟ
organization may be called Front Office, restaurant or
ﻰ
8
operations room (hospital), depending on the type of
5
14
service. There are also many invisible activities
70
61
associated with tangible inputs and outputs, for
20
example, we find that in most airlines there is a so-called
31
30
Back Office to strengthen customer service and such an
70
office occupies tangible and intangible things and
7 79
91
information at the same time (tickets, checks, claims),
02
and therefore is managed in the same way as the factory.
01
Table showing the differences between a product and
service.
39 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Table (1)
The Differences between a product and service
Product Service
A product is tangible, it is A service is intangible, can only
Physical and can be held, be felt and not touched
seen and movable
Product value is derived by Value of service is offered by
ﺷ
ﺮﻳ
the customer the service provider
ﻒ
Customer care of the Customer care forms critical
ﻣﻨ
product is component of marketing a service
ﻴﺮ
limited
ﻋﻠ
ﻰ
A product can be stored for A service is perishable and
اﻟﺒ
Future use cannot be stored for later use or
sale ﻠﺘ
ﺎﺟ
ﻰ
A product can be owned A service cannot be owned by
8
the consumer once payment
5
14
has been made
70
The quality of a product Quality of a service depends on
61
depends the service provider who
20
its nature shapes it
31
A product can be returned A service cannot be returned to
30
to the seller the seller
70
The billing process of a Billing process can be
79
service is a once off continuous in the form of
7
91
transaction subscriptions for
02
services rendered
01
It is easy to compare It is difficult to compare
quality of products the quality of services offered
Products can be quantified Services cannot be quantified in
numerically terms of numbers
40 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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5- Decisions on production and operations
management
Within the framework of the production and process
function, the administrative decisions made in terms of
time range can be divided into three main types:
ﺷ
ﺮﻳ
strategic (long-term), operational decisions (medium-
ﻒ
term) and routine (short-term) decisions, which are
ﻣﻨ
ﻴﺮ
related to oversight and follow-up processes, and the
ﻋﻠ
ﻰ
following is a brief explanation of each type of decision
اﻟﺒ
as follows: ﻠﺘ
ﺎﺟ
ﻰ
(1) Strategic decisions:
5 8
14
Strategic decisions in the field of production and
70
operations management relate to what affects the
61
20
organization or unit in the long term, such as the
31
30
selection of the location of the organization or unit
70
and increased productivity efficiency, the issue of
7 79
quality, the expansion of the organization or unit, and
91
02
it should be noted that such decisions are made at the
01
level of the senior management of the organization or
the unit so that there can be integration between
production management, processes and other
departments in the organization.
41 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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(2) Tactical decisions (medium-term):
With regard to tactical or operational decisions in the
field of production and operations management,
which are decisions on how to implement the strategic
plan approved by the organization, these decisions
ﺷ
ﺮﻳ
relate to what needs to be done to identify the
ﻒ
ﻣﻨ
resource requirements (materials- work- machines)
ﻴﺮ
ﻋﻠ
needed to implement the organization's main
ﻰ
اﻟﺒ
production plan within a specified period of time and
ﻠﺘ
ﺎﺟ
in the light of the constraints and requirements
ﻰ
8
imposed by strategic decisions.
5
14
(3) Routine decisions:
70
61
Decisions on planning and control of operations in the
20
short term where the needs of the resources needed
31
30
to implement the production plan are determined
70
within a period of one week or a month, such as the
7 79
91
number of raw materials required during this period,
02
the number of shifts, the number of workers required
01
in each shift.
Problems addressed by production and process
management need to make two basic types of decisions :
42 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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These long-term strategic decisions relate to the design
of the production system, and short-term executive
decisions concerning the operation of the productive
system, i.e., the implementation and control of
production processes. We will explain the following are
ﺷ
ﺮﻳ
the most important of these decisions:
ﻒ
ﻣﻨ
(1) Decisions on the design of the production system
ﻴﺮ
ﻋﻠ
(long-term decisions):
ﻰ
اﻟﺒ
These decisions are far-reaching and have a relatively
ﻠﺘ
ﺎﺟ
long impact, the most important of which are:
ﻰ
• Choice of product type or commodity: There is a
58
14
strong relationship between the product and the
70
61
possibility of production represented by the
20
31
production capacity of the project, and the
30
appropriate here includes the type as well as
70
include quantity and alternatives here too many
7 79
91
which makes the selection process difficult need to
02
use modern scientific methods.
01
• Choosing the location of the project: the decision
to choose the appropriate site for the
establishment of a new project or to change the
43 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
current location of an existing project, has a
fundamental impact on the work of the project in
the present and the future, the strategy of selecting
the site of the project is a long-term strategic
decision because of its significant impact on the
ﺷ
ﺮﻳ
costs incurred by the project. Therefore, the
ﻒ
ﻣﻨ
question of choosing the optimal location for the
ﻴﺮ
ﻋﻠ
project is an important issue that has a strong
ﻰ
relationship to the success or failure of the project.
اﻟﺒ
ﻠﺘ
ﺎﺟ
• Product or commodity design: Product design
ﻰ
8
includes identifying technical and investment
5
14
functions and defining the different specifications
70
61
(characteristics) required in the product,
20
31
commodity or service.
30
• Work design: It is part of the overall design of the
70
79
production system, which includes the basic
7
91
organization of the work, the identification of
02
operations, the calculation of time and
01
productivity standards, and the determination of
the production route and stages. Identify the basic
44 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
models of production, the work system and the
possibility of using overtime.
• Production planning: One of the most important
decisions related to production and production
planning decisions include the following decisions:
ﺷ
ﺮﻳ
(a) Determining the expected demand for products
ﻒ
ﻣﻨ
(forecasting).
ﻴﺮ
ﻋﻠ
(b) Decisions to manufacture or purchase.
ﻰ
اﻟﺒ
(c) The development of annual production plans.
ﻠﺘ
ﺎﺟ
(d) Production programming.
ﻰ
8
(2) Decisions regarding the operation of the productive
5
14
system (short-term decisions):
70
61
(a) Decisions on production control and the period
20
31
during which machinery and equipment are loaded and
30
production and implementation lines balanced in
70
accordance with the programmed in question.
7 79
91
(b)Decisions on inventory control, availability of
02
security inventory, re-order levels, order size and
01
stagnant inventory analysis.
(c) Decisions on quality control and the requirements to
determine the required specifications for various types
of goods and products before operation, i.e., when they
45 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
are raw materials and materials, and quality control
decisions extend to include raw materials and their
characteristics, as well as limits of tolerance, rejection
and acceptance just as in the case of goods and products.
(d) Decisions on work control and compliance with the
ﺷ
ﺮﻳ
implementation of specific standards and actual
ﻒ
ﻣﻨ
performance levels of production elements.
ﻴﺮ
ﻋﻠ
6- Characteristics of production systems
ﻰ
اﻟﺒ
Any production system has a number of features that
ﻠﺘ
ﺎﺟ
can be displayed as follows:
ﻰ
8
(A) The relationship of the productive system to other
5
14
systems:
70
61
The production system cannot be operated alone and
20
31
independently of other systems in the organization, such
30
as marketing, financing, individuals, etc., because it is a
70
79
sub-part of it and the overall system of the organization,
7
91
so factors and productive elements may come from the
02
outputs of other systems, and therefore the outputs of
01
other systems are essential inputs to it.
46 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(b) The mutual relations between the parts of the
production system itself and the circumstances
associated with its operation.
(c) One unit system :
It is wrong to view the productive system as merely a
ﺷ
ﺮﻳ
compilation of subsystems or parts, nor to perform it
ﻒ
ﻣﻨ
through the performance of each part, but the
ﻴﺮ
ﻋﻠ
productive system must be seen as a total unit, its overall
ﻰ
اﻟﺒ
performance and continue to achieve some kind of
ﻠﺘ
ﺎﺟ
integration between its parts to achieve the overall and
ﻰ
8
higher objectives of the system.
5
14
(D) The final objectives are the guide to the productive
70
61
system.
20
(h) Feedback:
31
30
The system provides management with data and
70
information that reflects the level of operation and
7 79
91
production of outputs (goods, services or both), so that
02
management can monitor operations that take place
01
within the production system if there are differences
(deviations) between what management and production
planned and products produced from the system,
whether data and information serve as warning
47 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
warnings to restore the situation to its balance with
appropriate correction by making the necessary
adjustments to take the required work and achieve the
desired products themselves.
• References:
ﺷ
ﺮﻳ
(1) Stevenson, W. J., & Hojati, M. (2007). Operations
ﻒ
management. Boston: McGraw-Hill Irwin.
ﻣﻨ
ﻴﺮ
(2) Kleindorfer, P. R., Singhal, K., & Van
ﻋﻠ
Wassenhove, L. N. (2005). Sustainable operations
ﻰ
management. Production and operations
اﻟﺒ
management, 14(4), 482-492. ﻠﺘ
ﺎﺟ
ﻰ
(3) Schmenner, R. W., & Swink, M. L. (1998). On
8
theory in operations management. Journal of
5
14
operations management, 17(1), 97-113.
70
(4) Kumar, S. A., & Suresh, N. (2009). Operations
61
20
management. New Age International.
31
(5) Khanna, R. B. (2015). Production and operations
30
management. PHI Learning Pvt. Ltd.
70
(6) Martinich, J. S. (2008). Production and operations
79
management: An applied modern approach. John
7
91
Wiley & Sons.
02
(7) Pycraft, M. (2000). Operations management.
01
Pearson South Africa.
(8) Jacobs, F. R., Chase, R. B., & Aquilano, N. J.
(2004). Operations management for competitive
advantage. Boston: Mc-Graw Hill, 64, 70.
48 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(9) Flynn, B. B., Sakakibara, S., Schroeder, R. G.,
Bates, K. A., & Flynn, E. J. (1990). Empirical research
methods in operations management. Journal of
operations management, 9(2), 250-284.
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
5 8
14
70
61
20
31
30
70
7 79
91
02
01
49 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
Chapter 2
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
5 8
14
Productivity Efficiency
70
61
20
31
30
70
7 79
91
02
01
50 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
5 8
14
70
61
20
31
30
70
7 79
91
02
01
51 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Chapter 2
Productivity Efficiency
Chapter Outline
- Introduction.
ﺷ
ﺮﻳ
ﻒ
1- Define Productivity Efficiency.
ﻣﻨ
ﻴﺮ
2- Factors affecting productivity.
ﻋﻠ
ﻰ
3- Methods of Measuring productivity.
اﻟﺒ
ﻠﺘ
4- Productive efficiency of public sector employees
ﺎﺟ
ﻰ
5- Improving productivity of Industrial Projects.
5 8
14
6- The Best Methods to Measure Employee
70
61
Productivity.
20
31
30
70
7 79
91
02
01
52 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Learning Outcomes
By the end of this chapter, you should be able to:
1- Define Productivity Efficiency.
ﺷ
2- Compute single-factor productivity.
ﺮﻳ
ﻒ
3- Compute multifactor productivity.
ﻣﻨ
ﻴﺮ
4- Identify the critical variables in enhancing
ﻋﻠ
ﻰ
productivity.
اﻟﺒ
ﻠﺘ
ﺎﺟ
5- Identify the Factors affecting productivity.
ﻰ
8
6- Identify How to improve productivity.
5
14
• Introduction
70
61
20
The issue of productivity and improvement is one of
31
30
the biggest challenges facing organizations of all
70
activities and sizes in their quest to strengthen and gain
7 79
a competitive advantage over other organizations
91
02
working in the same activity. The importance of
01
studying and evaluating productivity results from the
importance of economic growth as a central goal of
economic policies, where productivity in both part and
total types is the most important source of economic
53 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
growth, and low productivity rates are one of the main
reasons for the decline in Arab growth rates during the
recent period.
Developing countries continue to suffer from low
productivity, which is reflected in multiple actors, the
ﺷ
ﺮﻳ
first of which is the individual, if productivity improves
ﻒ
ﻣﻨ
and the per capita income increases and improves its
ﻴﺮ
ﻋﻠ
economic level, and the second establishment itself, as it
ﻰ
اﻟﺒ
increases its competitiveness through lower prices,
ﻠﺘ
ﺎﺟ
which will eventually increase the volume of profits and
ﻰ
8
double them and increase their capacity and position in
5
14
the market. The importance of studying and improving
70
61
productive efficiency has also emerged in all countries in
20
general and developing countries in particular because
31
30
of their close relationship to the good use of the economic
70
resources available and possible to obtain the largest
7 79
91
possible return.
02
01
54 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
1- Define Productivity Efficiency:
Productivity is an indicator of the extent to which
different production elements are able to achieve a
certain level of output compared to inputs used for
productive purposes.
ﺷ
ﺮﻳ
ﻒ
Productivity is also defined as the relative relationship
ﻣﻨ
between the quantity of production and all the elements
ﻴﺮ
ﻋﻠ
of production that contributed to it within a specified
ﻰ
اﻟﺒ
period of time.
ﻠﺘ
ﺎﺟ
Here is a confusion between the concept of
ﻰ
8
productivity and some other concepts, so you must
5
14
identify some of the mistakes faced by researchers and
70
61
scholars of productivity as follows:
20
31
(1) Productivity is not synonymous with production:
30
Production refers to the total output produced per unit
70
79
of input, while productivity refers to a measure of
7
91
outputs resulting from a certain number of inputs.
02
(2) Productivity is not synonymous with profitability:
01
Profitability measures the organization's financial
position in the short term, while productivity measures
the organization's long-term position.
55 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(3) Productivity is not synonymous with production
capacity: The organization cannot be considered
productive simply because it produces the highest
possible amount of goods in the shortest period of time,
while these goods are not accepted by consumers
ﺷ
ﺮﻳ
because they satisfy their needs and desires.
ﻒ
ﻣﻨ
(4) Productivity does not just mean the pursuit of
ﻴﺮ
ﻋﻠ
efficiency: The organization may resort to pressuring
ﻰ
اﻟﺒ
workers to force them to work longer hours or get rid of
ﻠﺘ
ﺎﺟ
them to reduce production costs and then improve
ﻰ
8
productivity, so productivity means working brilliantly
5
14
and not just too hard.
70
61
(5) Productivity is not synonymous with effectiveness
20
only: Productivity = efficiency + effectiveness
31
30
Efficiency is the good use of available and possible
70
resources or is doing things right, but effectiveness is the
7 79
91
extent to which goals are achieved, or it is doing the right
02
things.
01
Productivity is an indicator of doing the right work
properly on time, so productivity is an indicator of both
efficiency and effectiveness. Productivity can be defined
according to three views:
56 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(1) Productivity as a ratio between outputs and inputs:
Researchers define productivity as a ratio between
the total production achieved at a specific time and
the factors of production used.
Units produced
ﺷ
ﺮﻳ
Productivity = Input used
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
Productivity can be increased in one of the following
ﻰ
اﻟﺒ
ways:
ﻠﺘ
ﺎﺟ
• Increase outputs as inputs stabilize.
ﻰ
• Increased output with low inputs.
5 8
14
• Increased outputs and inputs, but the rate of
70
61
increase in output is greater than inputs.
20
• Low outputs and inputs, but lower inputs are
31
30
greater than outputs Stable outputs and low
70
79
inputs.
7
91
• Stable outputs and low inputs.
02
(2) Productivity as a degree of efficiency :
01
Researchers define productivity as a measure of the
degree of efficiency on which raw materials are
converted into commodities, so according to this
57 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
definition productivity is a relative issue that reflects
what has already been produced as a theoretical
measure of what should have been produced .
(3) Productivity such as resource efficiency :
Researchers define productivity as the extent to which
ﺷ
ﺮﻳ
resources are used according to certain standards, and
ﻒ
ﻣﻨ
productivity is also defined as the possibility of
ﻴﺮ
ﻋﻠ
producing some quality or better goods or services in
ﻰ
اﻟﺒ
units less than factors of production in a specified
ﻠﺘ
ﺎﺟ
period of time .
ﻰ
8
The importance of productivity is as follows:
5
14
(1) Producing larger quantities of units produced with
70
61
less effort and fewer resources, which makes the
20
commodity more competitive with its counterparts in
31
30
the market.
70
(2) Productivity leads to a decrease in the sale prices of
7 79
91
products, and lower prices lead to increased demand
02
and increased sales, thus increasing the cash flow in and
01
increasing profits.
(3) Increasing productivity in the short term will lead to
the elimination of a percentage of workers, but the
success of the establishment and its achievement of
58 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
profits will work - in the medium and long term - to
expand it and attract more unemployed workers.
(4) Productivity Optimization of scarce resources of
multiple uses.
(5) Improving the standard of living and achieving the
ﺷ
ﺮﻳ
economic and social well-being of the population.
ﻒ
ﻣﻨ
(6) Productivity is the only source of increase of national
ﻴﺮ
ﻋﻠ
wealth, as the productive use of resources reduces waste
ﻰ
اﻟﺒ
in production, thus preserving scarce resources from
ﻠﺘ
ﺎﺟ
loss.
ﻰ
8
Productivity is also a fundamental indicator to
5
14
measure the progress of the national economy and
70
61
increase national income, which is the goal pursued by
20
all developing and developed countries alike and with
31
30
the same degree of interest, and the importance of
70
productivity stems from the fact that it affects the speed
7 79
91
of economic growth, contributes to the rise in living
02
standards, and leads to improvements in the balance of
01
payments, and contributes to the control of the increase
in the rate of inflation. The productivity of the employee
in the government sector occupies a large part of the
attention of researchers and decision makers, as it in
59 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
turn affects the quality of government services provided,
and the importance of studying the productive efficiency
of public sector employees and methods of measuring
them and mechanisms to improve them in all countries
in general and developing countries in particular for
ﺷ
ﺮﻳ
their close relationship with the good exploitation of
ﻒ
ﻣﻨ
economic resources to obtain the greatest return or the
ﻴﺮ
ﻋﻠ
best service, and we can see the importance of
ﻰ
اﻟﺒ
productive efficiency at several levels: The individual,
ﻠﺘ
ﺎﺟ
the organization, the national economy, and society as a
ﻰ
8
whole, as for the working individual, his productivity
5
14
reflects the extent of his contribution to the work he
70
61
performs, and the amount he gives of his effort,
20
knowledge and skill, and on the one hand the national
31
30
economy, productivity here reflects the average
70
performance of all the organs affecting the national
7 79
91
economy, and as for the whole society, productivity
02
affects the well-being of this society, by raising the
01
quality of goods and services that are provided to the
individuals and institutions of society.
60 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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2- Factors affecting productivity:
There are many factors affecting productive
efficiency, including:
(1) Technical factors such as :
• The technological level used in production .
ﺷ
ﺮﻳ
• Raw materials used (quantity, quality) .
ﻒ
ﻣﻨ
• Methods and methods of production followed .
ﻴﺮ
ﻋﻠ
• Workplace design .
ﻰ
اﻟﺒ
• Transport and trading methods used in
ﻠﺘ
ﺎﺟ
production processes .
ﻰ
8
(2) Humanitarian factors such as :
5
14
70
• Level of education and experience gained .
61
• The physical composition of the worker .
20
31
• Personal abilities and skills .
30
• Human desires .
70
79
• Social relations .
7
91
• Nature of the work itself .
02
01
researcher identified them by the following factors:
(1) Social system:
The behavior of the individual is affected by the negative
social conditions prevailing in society such as:
61 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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• Lack of respect for time.
• Lack of seriousness in the application of laws and
regulations.
• Consolidate family ties and nepotism in the
management of the organization.
ﺷ
ﺮﻳ
• Improvisation
ﻒ
in the management of the
ﻣﻨ
organization, and the non-adoption of modern
ﻴﺮ
ﻋﻠ
administrative methods.
ﻰ
اﻟﺒ
• The deterioration of the social status of the
ﻠﺘ
ﺎﺟ
worker, and the low wage.
ﻰ
8
• Poor awareness of the importance of increasing
5
14
70
productivity in society.
61
(2) The prevailing political and economic system in the
20
31
State:
30
• Is it a capitalist system based on market forces, or
70
79
a socialist system based on central planning?
7
91
• Monetary and fiscal policies, wage policies,
02
01
economic growth rates and investment in human
capital.
• Economic cycle: Is the economy in recession or
recovery?
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Production Management
• Inflation rates and their impact on the level of real
income obtained by the worker.
(3) Educational and Educational System:
The availability of educational institutions and
vocational training centers, which qualify workers for
ﺷ
ﺮﻳ
the labor market.
ﻒ
ﻣﻨ
(4) Labor Regulations, Laws and Legislations:
ﻴﺮ
ﻋﻠ
Labor legislation and laws contribute a great deal to the
ﻰ
اﻟﺒ
impact on labor productivity, because they constitute the
ﻠﺘ
ﺎﺟ
legal aspect of labor relations, as they determine the
ﻰ
8
responsibility of each worker in the production process,
5
14
the labor and labor law, the determination of a
70
61
minimum wage, the relationship between management
20
31
and workers, the role of labor organizations, as well as
30
the amount of tax imposed on the income of workers, all
70
determine the general framework that the worker can
7 79
91
take towards production, Thus, it affects negatively or
02
positively the productivity of the individual.
01
(5) Government policies and legislation:
Many of the changes that affect productivity come from
laws and regulations enacted by the government, such as
wage and price policy, import and export regulations,
63 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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taxes and customs on materials and products, as well as
investment promotion policies, subsidies, exemptions
and facilities.
6) Manpower: The availability of the workforce in
quantity and quality affects negatively or positively the
ﺷ
ﺮﻳ
level of productivity, as investment in education, culture
ﻒ
ﻣﻨ
and training would provide a skilled, trained, educated
ﻴﺮ
ﻋﻠ
and productive workforce, which has a significant
ﻰ
اﻟﺒ
impact on the level of productivity.
ﻠﺘ
ﺎﺟ
(7) Labor Organizations: The role of trade unions in the
ﻰ
8
realization of workers' rights, in creating consensus,
5
14
harmony and positive and fruitful labor relations
70
61
between workers, and in the management of the
20
economic establishment on the one hand, and economic
31
30
objectives on the other.
70
(8) Social and demographic evidence: The ratio of men
7 79
91
to women, the ratio of young people to children and the
02
elderly, the productivity of those in the prime of life is
01
more productive than those in the autumn of life, and
men are more productive than women and children.
(9) Good infrastructure availability: The availability of
good transport routes, communication services, water
64 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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and electricity.... And others, affect the cost of
production and marketing, and that the availability of
these services and their proximity or distance from
industrial facilities, and the level of these services are
important external factors that affect productivity.
ﺷ
ﺮﻳ
(10) Industrial Policy of the State: Where the state
ﻒ
ﻣﻨ
imposes the establishment of some industrial projects in
ﻴﺮ
ﻋﻠ
one area without the other, whether for environmental
ﻰ
اﻟﺒ
reasons, or for development reasons, which are known
ﻠﺘ
ﺎﺟ
as industrial zones, and this of course affects the
ﻰ
8
productivity of the project, due to the increase in
5
14
transport and communication costs, in case these
70
61
industrial zones are far from marketing and
20
consumption centers.
31
30
(11) Competition: Management cannot control the
70
degree of competition in the market, as the entry of a
7 79
91
strong competitor may lead to a decrease in the project's
02
share of the market (market share), which is the ratio of
01
project sales to total market sales, which in turn affects
the productivity of the project.
(12) Natural factors: The availability of raw materials,
and climatic factors such as humidity, rain and
65 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
temperatures, contribute to one degree or another to
raising productivity.
(13) Energy: Energy is one of the main factors of
production costs, and its prices are reflected in
productivity, as high energy costs increase production
ﺷ
ﺮﻳ
costs and negatively affect productivity, and vice versa.
ﻒ
ﻣﻨ
(14) Raw Materials: Raw materials are an important
ﻴﺮ
ﻋﻠ
factor that affects productivity, if the prices of raw
ﻰ
اﻟﺒ
materials increase, they lead to a decrease in
ﻠﺘ
ﺎﺟ
productivity.
ﻰ
8
15) Technology used: They include changes in
5
14
technology utilization rates including processes,
70
61
technologies, devices, equipment and machinery, all of
20
which have an impact on productivity.
31
30
(16) Information Technology: In order for the success of
70
operations management in improving productivity
7 79
91
methods, as well as providing sufficient information to
02
carry out work tasks and good feedback (based on facts)
01
on business results.
(17) Work environment (working conditions within the
production unit): Working conditions mean all the
natural or industrial conditions surrounding the
66 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
worker, such as temperatures, ventilation, cooling,
humidity, light intensity, noise intensity, and other
factors that affect the level of performance of the worker
negatively or positively.
(18) Methods of performing work: Working methods
ﺷ
ﺮﻳ
need constant review to avoid unnecessary work, and
ﻒ
ﻣﻨ
reduce waste in time, effort and cost.
ﻴﺮ
ﻋﻠ
(19) Production Process: The method of sequencing and
ﻰ
اﻟﺒ
flowing production processes, as well as the degree of
ﻠﺘ
ﺎﺟ
automation, as well as the mixing ratios of the
ﻰ
8
productive elements, affect the quantity and quality of
5
14
outputs and thus the productivity rate of the project.
70
61
(20) Product: Productivity can be improved not only by
20
improving product specifications, but also by providing
31
30
the product in the desired place, at the required time,
70
and at a reasonable price.
7 79
91
(21) Workforce Training: Training the workforce,
02
creating technical skills in the facility, and reducing the
01
volume of damaged materials during production will
undoubtedly contribute to improving the quality of the
product, and will have a significant impact on the level
of productivity.
67 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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(22) Production capacity of machinery and equipment:
Machinery and equipment have a central role in
influencing productivity, maintenance work, operating
conditions of machines and equipment, the extent to
which their production capacity is exploited, and the
ﺷ
ﺮﻳ
removal of choke zones all have a direct impact on
ﻒ
ﻣﻨ
productivity.
ﻴﺮ
ﻋﻠ
(23) Maintenance: Attention to the routine and
ﻰ
اﻟﺒ
preventive maintenance of machinery and equipment
ﻠﺘ
ﺎﺟ
ensures that there is no sudden stop in these machines
ﻰ
8
Breakdown and thus disrupt the work in the factory.
5
14
(24) Utilization rate.
70
61
(25) Labor Utilization Rate.
20
(26) Administrative Regulations: Modern management
31
30
is responsible for the effective use of all resources that
70
fall under the control of the enterprise, and the basic
7 79
91
element that has the task of planning, organizing and
02
monitoring production in terms of quality, and taking
01
the necessary decisions about it.
(27) Incentive Systems: The use of appropriate incentive
systems has become a vital issue for modern
68 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
management, with the aim of showing its full strength
and directing it towards the service of production.
(28) The size of the economic unit and the economics of
size: This is necessarily reflected in the high productivity
of the work represented by the decrease in costs.
ﺷ
ﺮﻳ
(29) Description and evaluation of works: Putting the
ﻒ
ﻣﻨ
right person in the right place, through the process of
ﻴﺮ
ﻋﻠ
planning and drawing up policies and distributing
ﻰ
اﻟﺒ
employees, and the work of training programs to raise
ﻠﺘ
ﺎﺟ
the efficiency of performance of employees.
ﻰ
8
(30) Provide the necessary cash flow (working capital).
5
14
(31) The availability of good raw materials reduces
70
61
waste and waste in production.
20
(32) Good internal arrangement of the factory: It
31
30
includes the placement of machinery and equipment in
70
a way that ensures the sequence of production processes,
7 79
91
and the ease of movement and flow of raw materials on
02
production lines.
01
(33) Balance the production line and reduce wasted time.
(34) Good storage of finished goods and raw materials
reduces damage and loss of them.
69 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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(35) Desire to work: The availability of (job security for
employees), the creation of material conditions, good
labor relations, fair work wages, and the granting of
incentives and financial rewards, all this would lead to
raising the morale of workers, and increase their desire
ﺷ
ﺮﻳ
to work, dedication and loyalty to the establishment in
ﻒ
ﻣﻨ
which they work, which positively affects the raising of
ﻴﺮ
ﻋﻠ
labor productivity.
ﻰ
اﻟﺒ
(36) Quality of work life: It relates to the degree of
ﻠﺘ
ﺎﺟ
motivation of the organization for employees, job
ﻰ
8
satisfaction, the degree of improvement of the work
5
14
environment, their sense of stability and job security,
70
61
their respect and encouragement to present creative and
20
creative ideas, the degree of belonging of employees to
31
30
the organization and the high morale of them, thus
70
increasing their productivity.
7 79
91
(37) Work Turnover Rate: The high turnover rate of
02
work negatively affects the level of productivity, as this
01
requires the allocation of large amounts of money for the
training and qualification of new workers.
70 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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3- Methods of Measuring productivity:
Measuring productive efficiency is a natural part of the
management's analysis, control and evaluation process,
as measuring productive efficiency helps to identify the
following:
ﺷ
ﺮﻳ
• The Degree to which the organization's core
ﻒ
ﻣﻨ
objectives are achieved.
ﻴﺮ
ﻋﻠ
• Efficient exploitation of available and possible
ﻰ
اﻟﺒ
resources to create a particular product.
ﻠﺘ
ﺎﺟ
• Judging the effectiveness of the facility.
ﻰ
8
•
5
A measure of the extent to which the
14
70
organization achieves a competitive advantage.
61
The methods of measuring productive efficiency are as
20
31
follows :
30
(a) Multifactor productivity :
70
79
Total productivity is the relationship between the
7
91
volume of production and the productive resources that
02
01
were used to obtain it, in other words the ratio of outputs
to inputs.
It shows in the numerator all the outputs produced by
the company, and also shows in the first place all the
71 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
inputs that it uses, and in the previous mathematical
formula uses quantities or value for both outputs and
inputs.
Multifactor =
ﺷ
Output
ﺮﻳ
ﻒ
Labor + Material + Energy + Capital +
ﻣﻨ
Miscellaneous
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
b) Partial productivity:
ﻠﺘ
ﺎﺟ
Partial productivity expresses the relationship between
ﻰ
8
outputs and one element of production, and one of the
5
14
most important measures of partial productivity is as
70
61
follows:
20
31
Labor Productivity=
30
Units produced
70
7 79
Labor-hours used
91
02
01
72 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
But there are some cases where some problems
اﻟﺒ
ﻠﺘ
associated with productivity may appear and they are as
ﺎﺟ
ﻰ
follows:
5 8
(1) The problem of choosing the category of labor force:
14
70
which is taken into account when measuring the
61
20
productivity of labor, whether for the economy as a
31
whole or for the project, for the economy as a whole do
30
70
we take into account the total active population, whether
79
they are employed or unemployed or take into account
7
91
only the workers, and for the project do we take direct
02
01
work, that is, work directly related to production, or
direct and indirect work, That is, in addition to direct
work, it takes other works such as administrative and
health services. This is where the problem of
73 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
distinguishing between productive work and
unproductive work arises, in addition to how to work by
means of production from previous periods, which is
represented by the means of production that the project
obtains from other projects, which play an important
ﺷ
ﺮﻳ
role in increasing its productivity.
ﻒ
ﻣﻨ
(2) The problem of the multiplicity of types of the labor
ﻴﺮ
ﻋﻠ
force: and how to combine the working hours exerted by
ﻰ
اﻟﺒ
workers, due to the difference in the quality of work, in
ﻠﺘ
ﺎﺟ
terms of skill, age, gender, level of education and health,
ﻰ
8
all of which affect the productivity of work, and the
5
14
problem of multiple types of labor force can be
70
61
addressed on two bases: wages paid, and average
20
qualifications.
31
30
The first method (wages paid) faces the problem of
70
whether wages are paid on the basis of actual working
7 79
91
hours only or in addition to the hours of work for which
02
wages are paid without being matched by work, which
01
are usually sick leave, public holidays and annual leave.
Usually, the number of labor productivity calculated on
actual working hours is greater than the number of
labor productivity calculated on the basis of the hours of
74 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
work for which wages are paid and part of which is not
matched by work, and the second method (average
qualifications) faces the difficulty of classifying workers
into groups according to their different qualifications.
(3) The lack of an accurate measure that can be applied
ﺷ
ﺮﻳ
to all products: there are observations that must be
ﻒ
ﻣﻨ
mentioned here that directly and significantly affect the
ﻴﺮ
ﻋﻠ
measurement of labor productivity: for example, if we
ﻰ
اﻟﺒ
take a car factory, the products are not all of the same
ﻠﺘ
ﺎﺟ
size and type and have the same characteristics, meaning
ﻰ
8
that the consumption of sources is not the same amount,
5
14
as well as there is a difference in the productivity of
70
61
manual labor and the productivity of manual labor and
20
the possibility of distinguishing between them, For
31
30
example, the productivity of a freelancer and an hourly
70
worker and between the productivity of a chemical
7 79
91
researcher or doctor ... Etc., it is necessary to note the
02
differences between the productivity of a worker
01
working in a restaurant, for example, and another in an
enterprise, depending on the nature of the work itself,
which makes measuring productivity very difficult, and
there are also other examples, how to address the
75 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
productivity of a single worker or address industrial
productivity that includes several enterprises, and we
find it difficult to measure the productivity of labor in
the trade and service sectors where these activities do
not entail production that can be measured in
ﺷ
ﺮﻳ
quantitative units, It is easy to determine the
ﻒ
ﻣﻨ
productivity of a freelancer, but it is difficult to
ﻴﺮ
ﻋﻠ
determine the productivity of a government employee,
ﻰ
اﻟﺒ
for example, is it by the number of hours worked, which
ﻠﺘ
ﺎﺟ
is a misleading measurement in some aspects, as a result
ﻰ
8
of the nature of the services provided, which may vary
5
14
from one customer to another, finding an accurate
70
61
measure is difficult in such a case.
20
(4) The problem of choosing a unit of measurement of
31
30
work: given that there is more than one unit of
70
measurement there are: worker / hour, worker / day,
7 79
91
worker / month or year, the first scale (factor / hour)
02
represents the actual working hours that are made in the
01
productive process, and is considered more suitable to
measure the productivity of work, while the second
measure (factor / day) represents the mere presence of
the worker to the workplace, whether he actually
76 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
practiced work or not, Thus, this measure includes the
lost work time during the working day, and this measure
is easier than the first measure due to the availability of
information and data about it more than the actual
working hours, while the third measure (worker / month
ﺷ
ﺮﻳ
or year) shows the number of workers included in the
ﻒ
ﻣﻨ
lists of salaries and wages, not necessarily the presence
ﻴﺮ
ﻋﻠ
of the worker, may be absent for the length of the period
ﻰ
اﻟﺒ
or in part of it, because he enjoys a regular or sick leave,
ﻠﺘ
ﺎﺟ
or for other reasons.
ﻰ
8
5- Improving productivity of Industrial Projects:
5
14
The mechanisms (means) of improving the productive
70
61
efficiency of industrial projects are as follows:
20
31
(1) General Methods: Many researchers have
30
addressed the mechanisms and means of
70
79
improving productivity in many different
7
91
production units, and these mechanisms and
02
methods can be summarized as follows:
01
• Interest in scientific studies and research.
• Technical techniques – such as: modernization of
technical mechanisms and equipment, preventive
77 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
maintenance of technical mechanisms and
equipment, attention to safety work in the work
environment.
• Administrative methods: such as attention to
human forces, specialization in public sector
ﺷ
ﺮﻳ
work, effective training.
ﻒ
ﻣﻨ
• Humanitarian methods: such as good treatment of
ﻴﺮ
ﻋﻠ
superiors, and improvement of working
ﻰ
اﻟﺒ
conditions.
ﻠﺘ
ﺎﺟ
Use of Industrial Engineering Techniques: The main
ﻰ
8
objective of industrial engineering techniques is to
5
14
improve productivity through the optimal use of
70
61
resources of human and financial resources, raw
20
31
materials and tools, and the tools and techniques of
30
industrial engineering that can be applied to improve
70
79
productivity are varied and here we mention some of
7
91
them such as: statistical methods, engineering
02
economics, study and analysis of work, engineering of
01
human factors, process reengineering, economic
analysis, methods of operations research, methods of
modeling and simulation, feasibility studies of projects,
78 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Strategic planning method, mucus evaluation and
management methods, forecasting methods, total
quality management, value engineering, and others.
These methods will be briefly defined.
(2/1) Statistical Methods: Statistical methods of all kinds
ﺷ
ﺮﻳ
include many techniques that can be used to improve
ﻒ
ﻣﻨ
productivity, and includes statistics, descriptive
ﻴﺮ
ﻋﻠ
statistics: which are methods for organizing and
ﻰ
اﻟﺒ
summarizing information, and the purpose of
ﻠﺘ
ﺎﺟ
organization is to help understand information as it
ﻰ
8
contains distributions of iterative tables, graphs,
5
14
methods of calculating measures of central tendency,
70
61
measures of dispersion and various other
20
measurements, analytical statistics, and is concerned
31
30
with the analysis, interpretation, extraction and
70
dissemination of conclusions for the purpose of decision-
7 79
91
making. Inferential statistics, which are scientific
02
methods that work to infer the features of society based
01
on the information obtained from the sample taken from
it, according to the known statistical methods.
(2/2) Engineering Economics: Engineering economics is
a set of techniques that are used to compare a range of
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alternatives and choose the best ones from the point of
view of economics, these techniques depend on the
change in the value of money with the change in time
based on specific or expected profitability rates.
(2/3) Study and analysis of work: These are those
ﺷ
ﺮﻳ
techniques and methods that are used to analyze human
ﻒ
ﻣﻨ
labor, and that lead on a regular basis to verify all the
ﻴﺮ
ﻋﻠ
factors that affect the efficiency of performance in the
ﻰ
اﻟﺒ
case under study, in order to make the necessary
ﻠﺘ
ﺎﺟ
improvements to increase labor productivity.
ﻰ
8
The correct scientific method to raise the efficiency of
5
14
production processes is done by studying the method of
70
61
performing these processes first, and then studying the
20
determination of the estimated time for their
31
30
performance in the industrial unit. The diagnosis of
70
unnecessary movements during work is very important,
7 79
91
because of its direct impact on increasing the time spent
02
at work, and thus reducing the productivity of the
01
worker, and the study of work includes the following:
the study of the method of work, and aims to simplify
work, and develop the most economical and effective
ways to do it, and this is done by regular registration and
80 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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critical testing of the current method, and of the
proposed ways to do the work or the work element as a
means of developing and applying the most easy and
effective methods in order to reduce costs and increase
productivity.
ﺷ
ﺮﻳ
(2/4) Time Study: It aims to determine the ideal amount
ﻒ
ﻣﻨ
of time it should take to carry out a work or task.
ﻴﺮ
ﻋﻠ
(2/5) Engineering of Human Factors: It is the applied
ﻰ
اﻟﺒ
science that specializes in the design of machines,
ﻠﺘ
ﺎﺟ
equipment, products and systems, with the intention of
ﻰ
8
maximizing the degree of safety, reducing fatigue and
5
14
stress and providing comfort to its users, through the
70
61
suitability of the design of products and a place for the
20
human element, with the aim of increasing efficiency
31
30
and maximizing productivity, and this science is a
70
practical study of human work, taking into account the
7 79
91
maximum limits of the physical and mental abilities of
02
the worker, with tools, fittings and equipment, methods
01
of work and work tasks, The environment and
conditions of work when it interacts with the
environment in which it operates.
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(2/6) Process Re-engineering (Engineering): The method
of re-engineering focuses on the radical change in the
processes of the organization in order to develop
productivity in its quantity and quality in order to
satisfy customers, and the emergence of the method of
ﺷ
ﺮﻳ
re-engineering dates back to the early nineties by
ﻒ
ﻣﻨ
Michael Hammer, who defines re-engineering by saying
ﻴﺮ
ﻋﻠ
that he asks us to provide a brief definition of the term
ﻰ
اﻟﺒ
engineering, we answer as: starting over, that is, starting
ﻠﺘ
ﺎﺟ
from scratch, and not repairing and restoring the status
ﻰ
8
quo, or making cosmetic changes that leave the
5
14
infrastructure as it was, as it does not mean patching the
70
61
holes of the systems in place to work better, but means
20
completely abandoning the old established work
31
30
procedures and thinking in a new and different way
70
about how products are manufactured or services are
7 79
91
provided to achieve the wishes of customers.
02
(2/7) Economic Analysis: Economic analysis is a
01
scientific method of research, and a logical method of
economic study, through which the factors influencing
the behavior of economic phenomena can be explained,
and it provides us with various logical tools, which are
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used to deduce different economic theories, if the theory
represents the conclusion, then the analysis represents
the research method, the method of economic study.
There are different classifications of types of economic
analysis, based on different criteria, related to the size of
ﺷ
ﺮﻳ
the economic unit addressed by the analysis, and the
ﻒ
ﻣﻨ
degree of comprehensiveness that the analyst wants, and
ﻴﺮ
ﻋﻠ
economic analysis can be classified, into partial analysis
ﻰ
اﻟﺒ
and macro analysis.
ﻠﺘ
ﺎﺟ
This can often include both types of analysis, and
ﻰ
8
therefore the economist must be fluent in using the
5
14
analytical tools available in both types, in order to draw
70
61
logical and convincing economic conclusions.
20
(2/8) Operations Research Methods: Operations
31
30
research is a science that uses scientific methods and
70
methods to study and analyze problems, and the search
7 79
91
for optimal solutions to them within the available
02
possibilities, and this science is interested in improving
01
or choosing certain processes and methods with the aim
of reaching the optimal solution to the problem with the
least time, effort and cost possible and at the maximum
possible profit, and the diversity of methods of high-level
83 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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research that can be applied to improve productivity, for
example: scheduling, Warehouse planning and control,
queue models, mathematical programming, project
planning, transport and customization models, network
models and others.
ﺷ
ﺮﻳ
(2/9) Modeling and simulation methods: Simulation
ﻒ
ﻣﻨ
modeling is an attempt to find a replica reflective image
ﻴﺮ
ﻋﻠ
of a system without trying to obtain the real system itself
ﻰ
اﻟﺒ
by developing a model that represents the system under
ﻠﺘ
ﺎﺟ
study where it shows all possible changes to the states of
ﻰ
8
the system and then setting the scales that are used to
5
14
estimate the performance of the system by conducting
70
61
experiments on system samples, or is a set of processes
20
that simulate real-world processes or systems that exist
31
30
during a certain period, whether those systems are
70
manual or automated, Simulation entails studying and
7 79
91
observing the system to study the impact on the
02
operating characteristics of the system in the real world.
01
(2/10) Feasibility Study: A feasibility study is a study
carried out by the owner of a new project idea to be able
to apply the project and its success, the feasibility study
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shows the required investments, the expected return and
external influences on the project, such as the laws of the
state, competition and technical development.
(2/11) Strategic Planning Method: It is a long-term
planning that takes into account internal and external
ﺷ
ﺮﻳ
variables and identifies the sectors and market segments
ﻒ
ﻣﻨ
targeted and the method of competition, and answers the
ﻴﺮ
ﻋﻠ
question (where are we going?) taking into account the
ﻰ
اﻟﺒ
future vision of the company and the relationship of
ﻠﺘ
ﺎﺟ
correlation and integration between the aspects of the
ﻰ
8
organization and its various activities and the
5
14
relationship between the organization and its
70
61
environment, strategic planning is one of the basic
20
components of strategic management and differs from
31
30
traditional planning where it is based on predicting the
70
future situation of the company and not predicting the
7 79
91
future and preparing for it.
02
(2/12) Methods of Risk Assessment and Management:
01
With the beginning of the nineteenth century, a
department specialized in industrial projects appeared
and its function is risk management, where one of the
most important activities was to provide security for the
85 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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workers of the project as well as provide security for the
property of these projects, and since that date the world
has been interested in using scientific methods to face
risks, and with the advent of the industrial revolution
and the presence of scarcity in some trained manpower
ﺷ
ﺮﻳ
and high costs of building construction and purchase of
ﻒ
ﻣﻨ
equipment, All this has led employers to continuously
ﻴﺮ
ﻋﻠ
seek to prevent and reduce the risks to workers and
ﻰ
اﻟﺒ
property, as well as legislation that urges employers to
ﻠﺘ
ﺎﺟ
follow the means of security to protect individuals and
ﻰ
8
property and compensate individuals for losses caused
5
14
to them by work.
70
61
Thus, we find that risk management is an area of
20
access to prevent the danger, reduce the size of losses
31
30
when they occur, and work to avoid repeating it by
70
studying the reasons for the occurrence of each risk to
7 79
91
avoid it in the future, and risk management extends to
02
the provision of funds to compensate the project for the
01
losses that occur so as not to stop working and
production, and the managers of any project have
become very interested in studies of the costs of risk
management.
86 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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(2/13) Forecasting Methods: Forecasting is defined as
planning and making assumptions about future events
using special techniques over different time periods and
is therefore the process on which managers or decision
makers rely in developing assumptions about future
ﺷ
ﺮﻳ
situations.
ﻒ
ﻣﻨ
The economic institution lives in a dynamic
ﻴﺮ
ﻋﻠ
environment, which necessitates the use of quantitative
ﻰ
اﻟﺒ
technologies in making its decisions, here highlights the
ﻠﺘ
ﺎﺟ
importance and role of forecasting, which are:
ﻰ
• Ensures to a large extent the efficiency and
5 8
14
effectiveness of the organization in its flexibility
70
61
with the external environment.
20
• Know the needs of the institution in the short and
31
30
medium term.
70
• Contribute to reducing the risks that may face the
7 79
91
institution.
02
• It gives a picture of the institution of its future
01
direction.
• Contribute greatly to decision-making and
identify their future effects.
87 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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(2/14) Total Quality Management: Total Quality
Management is the term coined by the Naval Air
Systems Command in 1985 to describe the Japanese
management style for quality improvement. This
concept began from the beginning of the decade of the
ﺷ
ﺮﻳ
eighties in Japan, and then the United States of America,
ﻒ
ﻣﻨ
to move to the rest of the industrialized and semi-
ﻴﺮ
ﻋﻠ
industrialized countries, and in some developing
ﻰ
اﻟﺒ
countries.
ﻠﺘ
ﺎﺟ
Since that time, TQM has taken several meanings, the
ﻰ
8
simplest of which is that TQM is a management method
5
14
that focuses on achieving long-term success by satisfying
70
61
customers, by achieving quality of production at all
20
stages, and confirming the improvement of quality and
31
30
performance continuously, with the aim of raising
70
productivity, and total quality emphasizes the continuity
7 79
91
of learning and adaptation for continuous change, as a
02
key factor for the success of the organization.
01
88 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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• References:
(1) Kumar, S. A., & Suresh, N. (2009). Operations
management. New Age International.
(2) Khanna, R. B. (2015). Production and
operations management. PHI Learning Pvt. Ltd.
(3) Martinich, J. S. (2008). Production and
ﺷ
operations management: An applied modern
ﺮﻳ
ﻒ
approach. John Wiley & Sons.
ﻣﻨ
(4) Pycraft, M. (2000). Operations management.
ﻴﺮ
ﻋﻠ
Pearson South Africa.
ﻰ
(5) Coelli, T. J., Rao, D. S. P., O'Donnell, C. J., &
اﻟﺒ
Battese, G. E. (2005). An introduction to efficiency
ﻠﺘ
ﺎﺟ
and productivity analysis. springer science &
ﻰ
8
business media.
5
14
(6) Tsai, H. C., Chen, C. M., & Tzeng, G. H.
70
(2006). The comparative productivity efficiency for
61
global telecoms. International Journal of
20
31
Production Economics, 103(2), 509-526.
30
(7) Grosskopf, S. (1993). Efficiency and
70
productivity. The measurement of productive
79
efficiency: Techniques and applications, 160-194.
7
91
(8) De Jorge, J., & Suárez, C. (2014).
02
Productivity, efficiency and its determinant factors
01
in hotels. The Service Industries Journal, 34(4),
354-372.
(9) Ahmad, M., Chaudhry, G. M., Iqbal, M., &
Khan, D. A. (2002). Wheat productivity, efficiency,
and sustainability: A stochastic production
89 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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frontier analysis [with comments]. The Pakistan
development review, 643-663.
(10) Chowdhury, H., Zelenyuk, V., Laporte, A., &
Wodchis, W. P. (2014). Analysis of productivity,
efficiency and technological changes in hospital
services in Ontario: How does case-mix
ﺷ
matter?. International Journal of Production
ﺮﻳ
ﻒ
Economics, 150, 74-82.
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
5 8
14
70
61
20
31
30
70
7 79
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02
01
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ﺷ
Chapter 3
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
5 8
14
Break-Even Point
70
61
20
31
30
70
7 79
91
02
01
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ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
5 8
14
70
61
20
31
30
70
7 79
91
02
01
92 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Chapter 3
Break-even Point
Chapter Outline
- Introduction.
ﺷ
ﺮﻳ
1- Types of production costs.
ﻒ
2- What is a Break-Even Analysis?
ﻣﻨ
ﻴﺮ
3- Uses of Break-Even Point.
ﻋﻠ
4- When is Break-even analysis used?
ﻰ
5- Benefits of Break-even analysis.
اﻟﺒ
6- Steps to Creating a Break-Even Analysis. ﻠﺘ
ﺎﺟ
ﻰ
7- How can the break-even point help your
8
business?
5
14
8- The Profit Break-Even Formula.
70
7-
61
20
31
30
70
7 79
91
02
01
93 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Learning Outcomes
By the end of this chapter, you should be able to:
1- Define Break-Even.
ﺷ
1- Explain the Components of Break-Even
ﺮﻳ
ﻒ
Analysis.
ﻣﻨ
ﻴﺮ
2- Explain Formula for Break Even Analysis.
ﻋﻠ
ﻰ
3- Compute the Break Even Point.
اﻟﺒ
ﻠﺘ
ﺎﺟ
4- To know Steps to Creating a Break-Even
ﻰ
8
Analysis.
5
14
70
5- To know Benefits of Break-even analysis.
61
20
31
30
70
7 79
91
02
01
94 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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- Introduction:
Breakeven analysis is an important financial tool,
which the production and operations manager can use
in planning the productive activity in the enterprise, and
ﺷ
the breakeven case should be seen as an analytical tool
ﺮﻳ
ﻒ
in the hands of management rather than an actual
ﻣﻨ
ﻴﺮ
reality, and it is rare to renew an organization that
ﻋﻠ
ﻰ
works and is in a state of complete equivalence, so it is a
اﻟﺒ
ﻠﺘ
tool based on a set of theoretical hypotheses and has
ﺎﺟ
ﻰ
proven effective to rely on in cost-benefit analysis,
5 8
Planning for the volume of production despite the
14
70
criticism directed at it of the assumptions on which it is
61
20
based.
31
The majority of organizations seek to achieve the
30
70
maximum possible profit, and the method in which
79
profits are achieved has differed, as the achievement of
7
91
profits today is based on the scientific method of
02
01
managing the elements of production instead of basing
it in the past on increasing the effort of workers and
increasing the number of working hours, and the
concept of maximum profits in the short term has been
95 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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replaced by the concept of practical profits, which
depends on long-term planning and the provision of
information through reducing costs, improving
performance, and following up on technical and
technological progress and benefiting from it.
ﺷ
ﺮﻳ
The breakeven model is one of the most basic related
ﻒ
ﻣﻨ
models in the making of production decisions and
ﻴﺮ
ﻋﻠ
management processes, where you provide them with
ﻰ
اﻟﺒ
important information in decision-making, and
ﻠﺘ
ﺎﺟ
managers are interested in the break-even point because
ﻰ
8
it tells them the quantities of outputs to be produced and
5
14
sold to avoid operating losses.
70
61
1- Types of Production Costs:
20
31
Production costs are divided - from the
30
administrative point of view - into two basic types,
70
79
namely fixed costs and variable costs, although
7
91
accountants expand on this classification, adding semi-
02
fixed costs and semi-variable costs, and we will show the
01
two basic types below:
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(1) Fixed Costs:
It is represented in the financial burdens incurred by
the enterprise regardless of the volume of production, it
bears this type of costs even if it temporarily stops
production, and one of the most important types of fixed
ﺷ
ﺮﻳ
costs is the consumption of fixed assets, rents and
ﻒ
ﻣﻨ
salaries of the members of the management team, as well
ﻴﺮ
ﻋﻠ
as the salaries and wages of permanent members of the
ﻰ
اﻟﺒ
labor force who are indispensable to the enterprise, and
ﻠﺘ
ﺎﺟ
the fixed costs are represented graphically in a straight
ﻰ
horizontal line.
5 8
14
It should be noted here two observations, the first is
70
61
that the fixed costs that we mean are specific to the
20
facility as a whole and not to the production
31
30
management alone, and the second is that this type of
70
cost is not fixed indefinitely but fixed under the
7 79
91
maximum production capacity available, if the
02
management is forced to increase this capacity to face a
01
possible continuous increase in demand for the products
of the facility, it buys additional machinery and
equipment and then increases the fixed costs to a higher
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level under the new maximum capacity and remains
constant. The energy limits are still constant, and so on.
For example, if the maximum capacity available in
an industrial plant is the production of 100,000 units of
the product per year and the fixed costs are 25,000
ﺷ
ﺮﻳ
pounds and the company currently produces 60,000
ﻒ
ﻣﻨ
units per year, the fixed costs will remain the same even
ﻴﺮ
ﻋﻠ
if the actual production decreases from 60,000 units per
ﻰ
اﻟﺒ
year and does not change if it increases by a maximum
ﻠﺘ
ﺎﺟ
of 100,000 units, but if there is a continuous expected
ﻰ
8
demand of more than 100,000 units per year of the
5
14
company's products so as to justify the increase in
70
61
available capacity, then Management adds new capital
20
machinery and equipment and then comes before a new
31
30
figure of fixed costs.
70
(2) Variable Costs:
7 79
91
These are those costs associated with the actual volume
02
of production and the change in increase or decrease and
01
can also be called operational costs where there are no
variable costs in the event that the production system is
not operated in the facility and can also be called direct
98 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
costs in relation to the unit of the product, as they enter
directly into the cost of their production.
The relationship between variable costs and the change
in the volume of production is a linear direct
relationship that increases if it increases and decreases if
ﺷ
ﺮﻳ
it decreases and in the same proportion in both cases,
ﻒ
ﻣﻨ
and despite what happens to these costs for both
ﻴﺮ
ﻋﻠ
decreases in the case of large-scale production, which
ﻰ
اﻟﺒ
economists call economies of scale, the characteristic of
ﻠﺘ
ﺎﺟ
this linear relationship remains assumed, and working
ﻰ
8
to reduce variable costs as much as possible while
5
14
maintaining the required level of quality is an essential
70
61
task for production management and a real test of its
20
efficiency.
31
30
It should be noted that management is primarily
70
concerned in times of recession and crisis with the
7 79
91
recovery of variable costs at least and the remaining sale
02
price of the unit contributes to the recovery of fixed costs
01
and it may be better to temporarily stop production until
conditions improve or the enterprise withdraws from
activity permanently if it cannot avoid or temporarily
bear the loss or rationalize its production system.
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2- What is a Break-Even Analysis?
The breakeven point is defined as the point that
represents the volume of production (sales volume) at
which the total revenues are equal to the total costs, then
the project does not make a profit and does not bear
ﺷ
ﺮﻳ
ﻒ
losses, and that the increase from this point achieves
ﻣﻨ
profits where the fixed costs will be distributed to a
ﻴﺮ
ﻋﻠ
larger number of units and then the unit's share of fixed
ﻰ
اﻟﺒ
costs decreases.
ﻠﺘ
ﺎﺟ
The break-even point is also defined as a
ﻰ
8
mathematical model of the income statement (profits)
5
14
that shows profits as a mathematical difference between
70
61
total revenues and total costs for several levels of
20
31
activity, i.e.
30
The break-even point determines the amount that
70
79
must be produced and sold from units so that the
7
91
economic unit covers its costs and does not incur losses.
02
The break-even point is also defined as the point from
01
which the revenues of the project cover its costs in full
without the project being exposed to the risk of
continuity, and the lower the volume of breakeven sales
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Production Management
than the maximum capacity, the greater the chances of
success of the project and vice versa when increasing the
quantities of the breakeven point and its proximity to the
maximum capacity and the breakeven point can be
expressed graphically in an industrial facility as follows:
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
58
14
70
61
20
31
30
70
7 79
91
02
01
It is noted from the chart that:
• That fixed costs (w) are represented by a fixed
horizontal line at the breakeven point, the
curves of total revenue and the curve of total
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Production Management
costs intersect, so that the organization does not
make a profit or loss.
• The total cost curve (TK) represents the sum of
w+ g at each level of production. Variable costs
are equal to zero when the volume of
ﺷ
ﺮﻳ
production (c) is zero.
ﻒ
ﻣﻨ
• If the volume of production falls below the
ﻴﺮ
ﻋﻠ
breakeven point, the organization makes losses,
ﻰ
اﻟﺒ
and these losses decrease as the volume of
ﻠﺘ
ﺎﺟ
production approaches the break-even point.
ﻰ
8
• The organization begins to make increased
5
14
profits as the volume of production exceeds the
70
61
break-even point.
20
• It should be noted that here we are not
31
30
criticizing the assumptions on which the break-
70
79
even analysis is based, but rather using them as
7
91
an agreed planning process tool, which
02
production planners use to determine the
01
volume of production that needs to be reached
in order for the organization to achieve the
target profit.
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break-even analysis helps the production and
operations manager make many important decisions
such as:
• What quantities of different products must be
produced under normal operating conditions
ﺷ
ﺮﻳ
that by selling them at current prices can cover
ﻒ
ﻣﻨ
their operating costs from the revenue of their
ﻴﺮ
ﻋﻠ
sales?
ﻰ
• What is the impact of the change in price on
اﻟﺒ
ﻠﺘ
ﺎﺟ
the amount of production to be produced and
ﻰ
8
vice versa?
5
14
• What is the impact of the introduction of
70
61
technical and technological advances on the
20
economics of operation?
31
30
• What is the amount of profit contribution per
70
79
unit of products produced by the company
7
91
under different production sizes?
02
• When does it stop production and when does it
01
last?
The advantages of the breakeven analysis model are
as follows:
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• An optimal way to illustrate the relationship
between cost, size and profit.
• A control and planning tool.
• Shows the volume of sales at which total
revenue is equivalent to total costs.
ﺷ
ﺮﻳ
• Helps management make pricing decisions
ﻒ
ﻣﻨ
• Assists management in assessing the feasibility
ﻴﺮ
ﻋﻠ
of introducing new products and existing
ﻰ
اﻟﺒ
products.
ﻠﺘ
ﺎﺟ
• It helps management determine the bestselling
ﻰ
8
mix that maximizes profits.
5
14
70
The breakeven point as a planning and control tool is
61
also affected by changes of several factors:
20
31
• Changes in the sale prices of products.
30
• Changes in the size of the level of sales and
70
79
productive activity.
7
91
• Changes in the level of fixed and variable costs.
02
01
• Changes in cost structure per variable cost
ratio and fixed cost ratio
• Changes in the sales mix.
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In light of this, parity analysis is one of the most
important analytical tools in planning and control
processes. The elements of the breakeven point are
as follows:
• Total Revenue: The total number of units sold
ﺷ
ﺮﻳ
multiplied by the sale price of the unit.
ﻒ
ﻣﻨ
• Fixed costs: These are costs that do not change
ﻴﺮ
ﻋﻠ
with the change in the volume of production
ﻰ
اﻟﺒ
and are borne by the economic unit, whether
ﻠﺘ
ﺎﺟ
produced or not produced for the purpose of
ﻰ
8
preserving capital such as depreciation,
5
14
interest on loans and insurance on assets.
70
61
• Variable costs: These are costs that change as
20
31
the volume of production changes by increase
30
or decrease such as raw materials, direct
70
79
wages and direct industrial expenses.
7
91
• Total costs: It is the sum of fixed costs and
02
variable costs.
01
The method of breakeven analysis is based on the
recovery of variable costs from the total revenues and
then the fixed costs are gradually covered from this
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Production Management
increase and is called the contribution margin, which is
the difference between the total income and variable
costs up to the point of no profit and no loss, which is
the breakeven point, and the contribution margin for
the quantities produced and sold after the amount of
ﺷ
ﺮﻳ
equivalence represents the net profit.
ﻒ
ﻣﻨ
The assumptions of the breakeven analysis are as
ﻴﺮ
ﻋﻠ
follows:
ﻰ
• Changes in the level of revenue and costs are only
اﻟﺒ
ﻠﺘ
ﺎﺟ
due to changes in the volume of quantities
ﻰ
8
produced and sold.
5
14
• Costs can be divided into variable costs and
70
61
fixed costs.
20
• The behavior of total revenues and total costs can
31
30
be expressed in a straight-line function, i.e., the
70
79
relationship between them is linear.
7
91
• Stable selling price, variable costs and fixed
02
costs in the appropriate range.
01
• The model assumes the stability of the sales mix
over the multiplicity of products.
• Not taking into account the time value of money.
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• The stability of the stock of the goods of the end
of the period means that the quantities of the
goods of the last period are equal to the
quantities of the goods of the first period and in
other words that the quantities produced are
ﺷ
ﺮﻳ
sold in full.
ﻒ
ﻣﻨ
3- Uses of Break-Even Point
ﻴﺮ
ﻋﻠ
The importance of parity analysis stems from the
ﻰ
اﻟﺒ
interrelationships between the volume of production,
ﻠﺘ
ﺎﺟ
sales and the volume of costs and in the end the volume
ﻰ
8
of profits, it uses analysis in the preparation of flexible
5
14
budgets, the most important of which is the budget of
70
61
sales necessary to achieve planned profits, where the
20
31
breakeven allows the work of budgets at several levels of
30
production, and thus provides feedback to the behavior
70
79
of costs and the change of profits at each level of
7
91
production, and the analysis of parity is important by
02
comparing the actual performance with the planned
01
performance and therefore it is a means of control over
the work of management through Identify and analyze
deviations.
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The income statement prepared according to the
variable cost method is another form of breakeven
analysis that helps management to make important
decisions related to the dynamics of the enterprise and
analyze the extent to which it is able to make profits at
ﺷ
ﺮﻳ
several different levels of activity, so the breakeven
ﻒ
ﻣﻨ
analysis can be used to estimate profits at a specific
ﻴﺮ
ﻋﻠ
activity level and thus help financial arbitrators reach
ﻰ
اﻟﺒ
the most important figures missing in the statement of
ﻠﺘ
ﺎﺟ
financial position at liquidation.
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
The uses of breakeven analysis can be limited to:
A- Preparation of planning budgets: Where breakeven
analysis allows the possibility of studying the behavior of
sales, the behavior of costs and the behavior of profits at
108 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
each level of production, and therefore the breakeven
analysis model provides a good basis that contributes to
the preparation of flexible planning budgets, and this
model is of great importance in determining the
maximum profit that management can achieve because
ﺷ
ﺮﻳ
it studies the behavior of fixed costs (energy costs) by
ﻒ
ﻣﻨ
comparing the amount of breakeven with the quantity
ﻴﺮ
ﻋﻠ
produced at maximum capacity, The farther away the
ﻰ
اﻟﺒ
breakeven point is from the maximum amount of power,
ﻠﺘ
ﺎﺟ
the greater the chance of success of the company and
ﻰ
8
vice versa. It can be seen that the breakeven point
5
14
expresses a fixed balance at one level of production while
70
61
the analysis of the relationship between cost, volume and
20
profit (breakeven analysis) expresses a flexible balance
31
30
that expresses several levels of activity.
70
In the field of planning: The break-even point is used
7 79
91
in making planning decisions, the most important of
02
which are:
01
• Planning the quantity and value of both
production and sales and their relationship to
costs and inventory planning.
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Production Management
• Planning profits at each level of production.
• Assist in the development of a flexible pricing
policy by separating fixed and variable costs and
taking into account only variable costs in short-
term pricing decisions.
ﺷ
ﺮﻳ
• Study the extent to which both fixed and variable
ﻒ
ﻣﻨ
costs affect profits and study the conversion of
ﻴﺮ
ﻋﻠ
fixed costs to variable and vice versa.
ﻰ
اﻟﺒ
• Determine the product assortment and form the
ﻠﺘ
ﺎﺟ
optimal sales that achieve the best profit. Assist in
ﻰ
8
capital decision-making such as adding or
5
14
excluding product lines Assist in making decisions
70
61
to accept and reject new orders by studying the
20
31
extent to which fixed costs and maximum capacity
30
are covered.
70
79
(B)In the field of control: Planning is the cornerstone
7
91
of the control process, there is no control without
02
planning, where the control process is done by
01
comparing the actual performance with the plans
prepared in advance and identifying deviations
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Production Management
and analyzing them and benefiting from them by
feedback.
Given that the level of equivalence is achieved as a
result of the interaction of three elements, namely
fixed costs, variable costs and the sale price of the unit
ﺷ
ﺮﻳ
of the product, any change in any of these elements
ﻒ
ﻣﻨ
leads to a change in the volume of production
ﻴﺮ
ﻋﻠ
achieved for the equivalence, as follows:
ﻰ
اﻟﺒ
(1) Impact of the change in fixed costs: If the production
ﻠﺘ
ﺎﺟ
scheme decides to change the current fixed costs, a
ﻰ
8
change in the same direction and in the same
5
14
proportion will occur at the level of parity quantity
70
61
or value. Example: If production planners find that
20
fixed costs are much higher than they should be and
31
30
decide to reduce them by 20%, how much is the level
70
achieved for parity in quantity and value. How much
7 79
91
has changed? Note that fixed costs = 100,000 pounds,
02
the selling price of the unit = 4 pounds, and the
01
variable cost of the unit = 2 pounds.
It is noted that the amount of parity has decreased from
50,000 units to 40,000 units, or 20%, which is the same
percentage as the decrease in fixed costs.
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If fixed costs increase by 25% or any other percentage,
the level of equivalence will increase by the same
percentage.
(2) Impact of change in variable costs: If there is a
change in the share of the unit produced in the
ﺷ
ﺮﻳ
variable costs, there is a change in the volume or
ﻒ
ﻣﻨ
value of the production of the tie in the same
ﻴﺮ
direction increase or decrease.
ﻋﻠ
ﻰ
اﻟﺒ
Example
ﻠﺘ
ﺎﺟ
It became clear to the production planners in one of the
ﻰ
8
industrial facilities when analyzing the internal situation in
5
14
the facility the following: (values in pounds):
70
61
-Fixed costs = 400,000 EGP
20
-Unit variable costs = 4
31
30
-Unit Sale Price = 8
70
79
It was felt that the variable costs of the unit were too high
7
91
and should be reduced by 25%.
02
What is needed: to find the impact of this decision on the
01
amount of production achieved for the tie?
(3) The impact of the change in price: If the production
planners find that a change in the selling price of the
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Production Management
product during the plan period, the amount of production
achieved for the tie will be affected by this change but in
the opposite direction as evidenced by the following two
examples.
Example One of the industrial establishments sells its
ﺷ
ﺮﻳ
ﻒ
only product at a price of 10 pounds, and the unit's share
ﻣﻨ
of the variable costs is 5 pounds, and the fixed costs are
ﻴﺮ
ﻋﻠ
600,000 pounds, and given the sharp price competition it
ﻰ
اﻟﺒ
faces, a decision has been taken to reduce the price by 20%,
ﻠﺘ
ﺎﺟ
and it is required to show the impact of this decision on the
ﻰ
8
volume of production achieved for the parity.
5
14
Example two If we assume in the previous example that
70
61
market conditions and the degree of elasticity of demand
20
31
relative to the price allow the sale price of the unit to
30
increase by 10%. What is required is to show the impact of
70
79
this on the volume of production achieved for the tie.
7
91
Graphically Representing the Break Even Point
02
01
The graphical representation of unit sales and dollar
sales needed to break even is referred to as the break-
even chart or Cost Volume Profit (CVP) graph. Below is
the CVP graph of the example above:
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
58
14
Explanation:
70
(1) The number of units is on the X-axis (horizontal)
61
20
and the dollar amount is on the Y-axis (vertical).
31
30
(2) The red line represents the total fixed costs of
70
$100,000.
7 79
(3) The blue line represents revenue per unit sold. For
91
02
example, selling 10,000 units would generate
01
10,000 x $12 = $120,000 in revenue.
(4) The yellow line represents total costs (fixed and
variable costs). For example, if the company sells
0 units, then the company would incur $0 in
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Production Management
variable costs but $100,000 in fixed costs for total
costs of $100,000. If the company sells 10,000 units,
the company would incur 10,000 x $2 = $20,000 in
variable costs and $100,000 in fixed costs for total
costs of $120,000.
ﺷ
ﺮﻳ
(5) The break-even point is at 10,000 units. At this
ﻒ
ﻣﻨ
point, revenue would be 10,000 x $12 = $120,000
ﻴﺮ
ﻋﻠ
and costs would be 10,000 x 2 = $20,000 in variable
ﻰ
اﻟﺒ
costs and $100,000 in fixed costs.
ﻠﺘ
ﺎﺟ
(6) When the number of units exceeds 10,000, the
ﻰ
8
company would be making a profit on the units
5
14
sold. Note that the blue revenue line is greater than
70
61
the yellow total costs line after 10,000 units are
20
produced. Likewise, if the number of units is
31
30
below 10,000, the company would be incurring a
70
loss. From 0-9,999 units, the total costs line is
7 79
91
above the revenue line.
02
4- When is Break-even analysis used?
01
• Starting a new business: To start a new business,
a break-even analysis is a must. Not only it helps
in deciding whether the idea of starting a new
115 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
business is viable, but it will force the startup to be
realistic about the costs, as well as provide a basis
for the pricing strategy.
• Creating a new product: In the case of an existing
business, the company should still perform a
ﺷ
ﺮﻳ
break-even analysis before launching a new
ﻒ
ﻣﻨ
product—particularly if such a product is going to
ﻴﺮ
ﻋﻠ
add a significant expenditure.
ﻰ
اﻟﺒ
• Changing the business model: If the company is
ﻠﺘ
ﺎﺟ
about to the change the business model, like,
ﻰ
8
switching from wholesale business to retail
5
14
business, then a break-even analysis must be
70
61
performed. The costs could change considerably
20
and breakeven analysis will help in setting the
31
30
selling price.
70
A break-even analysis isn’t just useful for startup
7 79
91
planning. Here are some ways that businesses can use it
02
in their daily operations and planning.
01
• Prices: If your analysis shows that your current
price is too low to enable you to break even in your
desired timeframe, then you might want to raise
the item’s cost. Make sure to check the cost of
116 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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comparable items, though, so you’re not price
setting yourself out of the market.
• Materials: Are the cost of materials and labor
unsustainable? Research how you can maintain
your desired level of quality while lowering your
ﺷ
ﺮﻳ
costs.
ﻒ
ﻣﻨ
• Planning: When you know exactly how much you
ﻴﺮ
need to make, it’s easier to set longer-term goals.
ﻋﻠ
ﻰ
اﻟﺒ
For example, if you want to expand your business
ﻠﺘ
ﺎﺟ
and move into a larger space with higher rent, you
ﻰ
8
can determine how much more you need to sell to
5
14
cover new fixed costs.
70
61
• Goals: If you know how many units you need to
20
sell or how much money you need to make to
31
30
break even, it can serve as a powerful motivational
70
tool for you and your team.
7 79
91
5- Benefits of Break-even analysis:
02
(1) Catch missing expenses: When you’re thinking
01
about a new business, it’s very much possible that
you may forget about a few expenses. Therefore, a
break-even analysis can help you to review all
117 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
financial commitments to figure out your break-
even point. This analysis certainly restricts the
number of surprises down the road or at least
prepares a company for them.
(2) Set revenue targets: Once the break-even analysis
ﺷ
ﺮﻳ
is complete, you will get to know how much you
ﻒ
ﻣﻨ
need to sell to be profitable. This will help you and
ﻴﺮ
ﻋﻠ
your sales team to set more concrete sales goals.
ﻰ
اﻟﺒ
(3) Make smarter decisions: Entrepreneurs often
ﻠﺘ
ﺎﺟ
take decisions in relation to their business based
ﻰ
8
on emotion. Emotion is important i.e., how you
5
14
feel, though it’s not enough. In order to be a
70
61
successful entrepreneur, decisions should be based
20
on facts.
31
30
(4) Fund your business: This analysis is a key
70
component in any business plan. It’s generally a
7 79
91
requirement if you want outsiders to fund your
02
business. In order to fund your business, you have
01
to prove that your plan is viable. Furthermore, if
the analysis looks good, you will be comfortable
enough to take the burden of various ways of
financing.
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(5) Better pricing: Finding the break-even point will
help in pricing the products better. This tool is
highly used for providing the best price of a
product that can fetch maximum profit without
increasing the existing price.
ﺷ
ﺮﻳ
(6) Cover fixed costs: Doing a break-even analysis
ﻒ
ﻣﻨ
helps in covering all fixed cost.
ﻴﺮ
ﻋﻠ
6- Steps to Creating a Break-Even Analysis:
ﻰ
اﻟﺒ
Here are the steps to take to determine break-even:
ﻠﺘ
ﺎﺟ
(1) Determine variable unit costs: Determine the
ﻰ
8
variable costs of producing one unit of this
5
14
product.
70
61
(2) Determine fixed costs: Fixed costs are costs to
20
31
keep your business operating, even if you didn't
30
produce any products.
70
79
(3) Determine unit selling price: Determine the unit
7
91
selling price for your product. This price may
02
change as you see where your break-even point is.
01
(4) Determine sales volume and unit price: The
break-even point will change as the sales volume
for this product and the unit price change.
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Production Management
(5) Create a spreadsheet: To do a break-even
calculation, you will construct or use a
spreadsheet then turn the spreadsheet into a
graph.
7- How can the break-even point help your
ﺷ
ﺮﻳ
business?
ﻒ
ﻣﻨ
The break-even point is a great metric and an important
ﻴﺮ
ﻋﻠ
tool that helps your business in a lot of ways. Here are
ﻰ
اﻟﺒ
the top three benefits of the break-even point in running
ﻠﺘ
ﺎﺟ
your business:
ﻰ
8
(1) Feasibility:
5
14
It's important to study the feasibility of any project or
70
61
new product line that you're planning to launch. With
20
31
break-even analysis, you can identify the time and price
30
at which your business will turn profitable. This helps
70
79
you plan the range of activities you need to reach that
7
91
point, set up a turnaround time for your tasks, and stick
02
to a timeline.
01
(2) Analysis:
Fluctuations in business are a common scenario.
External circumstances, like trade agreements and
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Production Management
changes in the political climate, have an impact on
your sales. This may cause your variable or fixed
costs to surge. In such cases, break-even analysis will
help you to decide on new prices for your products.
The break-even point gives you a clear picture of how
ﺷ
ﺮﻳ
much time will it take for your business to recover
ﻒ
ﻣﻨ
any losses and break even again after a change in the
ﻴﺮ
ﻋﻠ
business forecast.
ﻰ
اﻟﺒ
(3) Strategy:
ﻠﺘ
ﺎﺟ
Strategy making is an integral part of any organization.
ﻰ
8
Whether you're trying to promote your brand-new
5
14
product, stay ahead of your competitors, or cut down on
70
61
your expenses, you need to have a strategy in place.
20
Break-even analysis helps you to formulate these
31
30
strategies. If you have a break-even point tool, you can
70
try out changes to variables like the cost involved in the
7 79
91
promotions or the rate of depreciation, and calculate
02
how many units you need to sell to reach the break-even
01
point. This helps you craft a more formidable strategy
and reap better benefits for your company.
121 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
8- The Profit Break-Even Formula:
Profit is what is left of the net sales revenue after all
expenses have been covered. The basic break-even
formula identifies the point at which all expenses have
been covered, but where profit has not yet begun to exist.
ﺷ
ﺮﻳ
In other words, implicit in the basic formula is the idea
ﻒ
ﻣﻨ
that profit is zero at break-even.
ﻴﺮ
ﻋﻠ
In the original Reliable Chair Company example, break-
ﻰ
اﻟﺒ
even looked like this:
ﻠﺘ
ﺎﺟ
Fixed Costs + Variable Costs = Net Sales Revenue
ﻰ
8
$34,950 + $100X = $250X
5
14
Actually, profit was in the formula, but at a zero value:
70
61
Profit + Fixed Costs + Variable Costs =Net Sales
20
31
Revenue
30
$0 + $34,950 + $100X = $250X
70
79
The general form of the formula above, which we will
7
91
call the "profit break-even formula", is the form to use
02
when you want to estimate the level of sales necessary to
01
meet a certain profit requirement. Let's look at an
example using the Reliable Chair Co. data.
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The head of the marketing department at Reliable, who
was impressed with your ability to find the break-even
level of sales, now gives you the assignment of finding the
level of sales necessary to meet desired profit
projections. You are told that plans require a profit of
ﺷ
ﺮﻳ
$50,000 for the period under consideration. How many
ﻒ
ﻣﻨ
chairs must Reliable sell to make that profit level?
ﻴﺮ
ﻋﻠ
Recall the profit break-even formula and fill in the
ﻰ
اﻟﺒ
values we know or have already calculated:
ﻠﺘ
ﺎﺟ
Profit + Fixed Costs + Variable Costs = Net Sales
ﻰ
8
Revenue
5
14
$50,000+ $34,950 + $100X = $250X
70
61
and solving:
20
$50,000 + $34,950 = $250X - $100X
31
30
$84,950 = $150X
70
566.33 = X
7 79
91
or X = approximately 567 chairs
02
So, in order to make a $50,000 profit, Reliable must sell
01
567 chairs this month.
As with the basic break-even formula, the real strength
of profit break-even is its ability to give you a range of
figures to use in your planning.
123 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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What if selling 567 chairs a month is physically
impossible for Reliable? Suppose Reliable is only able to
produce 500 chairs a month because of production
constraints. What price would they then have to charge
to make a $50,000 profit?
ﺷ
ﺮﻳ
First, recognize that the variable cost per unit will not
ﻒ
ﻣﻨ
change. Therefore, it will still cost $100 to produce each
ﻴﺮ
ﻋﻠ
chair.
ﻰ
اﻟﺒ
Following the procedure, we've been, using, the number
ﻠﺘ
ﺎﺟ
of chairs was always represented by "X" because the
ﻰ
8
quantity of chairs was unknown.
5
14
Now we know that the number of chairs we can produce
70
61
is 500, and we want to find the sales price. So, let's let
20
"Y" = sales price and fill in the rest of what we know.
31
30
The profit break-even formula would then look like this:
70
Profit + Fixed Costs + Variable Costs = Net Sales
7 79
91
Revenue
02
$50,000 + $34,950 + $100X = $500X
01
And solving:
$50,000 + $34.950 + $50,000 = 500Y
$134,950 = 500Y
$269.90 = Y
124 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
or Y = approximately $270
The above calculation shows that if we must make a
$50,000 profit and are only able to make 500 chairs in a
month, the price that will allow us to meet that goal and
stay within our production constraint is $270.
ﺷ
ﺮﻳ
Obviously, charging anything over $270 would insure
ﻒ
ﻣﻨ
meeting the profit goal. However, there is a ceiling price
ﻴﺮ
ﻋﻠ
above which Reliable will have priced themselves out of
ﻰ
اﻟﺒ
the market.
ﻠﺘ
ﺎﺟ
Example No. (1)
ﻰ
8
Here are the following data from Al Qawi Industrial
5
14
Establishment which produces and sells ready-made
70
61
wooden kitchens: - Fixed costs 800,000 EGP - The
20
31
variable cost of the unit is 120 EGP - The sale price of
30
the unit is 200 EGP What is required:
70
79
1. Determine the size of the breakeven
7
91
production.
02
2. If the actual sales are 115,000 units, what
01
are the profits achieved?
3. What is the variable cost of the unit if the
sales are 115,000 pounds and the fixed cost
125 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
remains the same 800,000 pounds and the
sale price is 200 pounds.
Example No. (2)
A company that produced and sold a value of 10,000
EGP and made a profit of 2,000 EGP, the total variable
ﺷ
ﺮﻳ
ﻒ
cost was 5,000 EGP, the unit sale price was (2) C.
ﻣﻨ
Required: Calculate the percentage of energy to be
ﻴﺮ
ﻋﻠ
exploited to reach the breakeven knowing that the total
ﻰ
اﻟﺒ
production capacity of the company is 8000 units per
ﻠﺘ
ﺎﺟ
year. What is the volume of production that makes a
ﻰ
8
profit of 5000 EGP? And what are the conditions
5
14
necessary to make this profit?
70
61
Example No. (3)
20
31
You have the following data for a company: Sales value
30
= 100,000 EGP, profits = 20,000 EGP, fixed cost = 40,000
70
79
EGP, production volume = 25,000 units Required: How
7
91
much profit would be if sales increased by 10%? And
02
01
what is the sales number that doubles the profit? What
is the production size of the tie?
Example No. (4)
126 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
The following data were extracted from the records of
Al-Amal Company for the past year:
- Production and sales value 10000 EGP.
- Variable cost of the unit 2
c. - The sale price of the unit 3
ﺷ
ﺮﻳ
c. - Fixed cost. 5000 EGP.
ﻒ
ﻣﻨ
Required:
ﻴﺮ
- Calculate the production volume of the tie.
ﻋﻠ
ﻰ
- Calculation of the value of the equivalent
اﻟﺒ
ﻠﺘ
ﺎﺟ
production.
ﻰ
8
- Assuming that the company decided to raise the
5
14
70
selling price to 4c, what affected the volume, value
61
and sales of the breakeven.
20
31
Example No .(5)
30
70
Assuming that Al-Hamad produces a certain type, it sells
79
the unit for 3Pound, the variable unit cost is 2Pound, the
7
91
fixed unit is 500 Pound, the production capacity of the
02
01
company is 2000 units, and the total actually produced
is 750 units.
Required :
• Breakeven sales volume .
127 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
• The value of the breakeven sales .
• Security rate .
• The ratio of energy exploited to the sales of the
parity .
• The percentage of energy used to achieve a profit
ﺷ
ﺮﻳ
of 1000 pounds .
ﻒ
• The volume of production that achieves a profit of
ﻣﻨ
ﻴﺮ
1000 pounds .
ﻋﻠ
• References:
ﻰ
اﻟﺒ
(1) Kumar, S. A., & Suresh, N. (2009). Operations
ﻠﺘ
ﺎﺟ
management. New Age International.
ﻰ
(2) Khanna, R. B. (2015). Production and operations
85
management. PHI Learning Pvt. Ltd.
14
(3) Woolf, S. H., & Johnson, R. E. (2005). The break-
70
61
even point: when medical advances are less
20
important than improving the fidelity with which
31
they are delivered. The Annals of Family
30
Medicine, 3(6), 545-552.
70
(4) Gutierrez, P. H., & Dalsted, N. L. (1990). Break-
7 79
even method of investment analysis (Doctoral
91
dissertation, Colorado State University.
02
01
Libraries).
(5) Potkany, M., & Krajcirova, L. (2015).
Quantification of the volume of products to
achieve the break-even point and desired profit in
128 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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non-homogeneous production. Procedia
economics and finance, 26, 194-201.
(6) Sharma, M. P. (2014). Study of banking break-
even point: An innovative tool for banking
industry. International Journal of Innovative
research and development, 3(11).
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
129 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
Chapter 4
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
Forecasting
20
31
30
70
7 79
91
02
01
130 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
131 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Chapter 4
Forecasting
Chapter Outline
ﺷ
ﺮﻳ
ﻒ
- Introduction.
ﻣﻨ
1- What is Forecasting?
ﻴﺮ
ﻋﻠ
2- Why is forecasting important?
ﻰ
اﻟﺒ
3- Forecasting Time Horizons.
ﻠﺘ
ﺎﺟ
ﻰ
4- Type of Forecasting.
8
5
14
5- Steps in Forecasting.
70
61
6- Forecasting Approaches.
20
31
30
70
7 79
91
02
01
132 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Learning Outcomes
When you complete this chapter, you should be
able to:
(1)Define Forecasting.
(2)Understand the three-time horizons and
which models apply for each.
ﺷ
ﺮﻳ
(3)Explain when to use each of the four
ﻒ
ﻣﻨ
qualitative models.
ﻴﺮ
(4)Apply the naive, moving-average,
ﻋﻠ
ﻰ
exponential smoothing, and trend methods.
اﻟﺒ
ﻠﺘ
(5)Compute three measures of forecast
ﺎﺟ
ﻰ
accuracy.
8
5
(6)Explain the Steps in Forecasting.
14
70
(7)Understand the Forecasting Approaches.
61
20
31
30
70
7 79
91
02
01
133 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
• Introduction
Planning is a key function of the manager, especially
the production and operations managers, and predicting
the volume of demand for the project products is an
ﺷ
essential step in the production planning process where
ﺮﻳ
ﻒ
managers help determine the quantity to be produced
ﻣﻨ
ﻴﺮ
during the plan period, and then determine the
ﻋﻠ
ﻰ
production capacity requirements necessary to achieve
اﻟﺒ
production. ﻠﺘ
ﺎﺟ
ﻰ
8
Forecasting the size of demand is of great importance
5
14
due to many factors, the most important of which are the
70
61
following:
20
• Production planning begins by predicting the size
31
30
of future demand expected during a given period
70
for the organization's products of goods and
7 79
91
services.
02
• Production planning is based on the data of this
01
forecast in estimating the size of the necessary
production factors such as work, materials,
machines, buildings and others, as this is
134 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
determined in the light of the required production
capacity, in a way that prevents - as much as
possible from exposing the establishment to a
shortage of energy or the presence of production
capacity in excess The degree of accuracy in these
ﺷ
ﺮﻳ
estimates stops the accuracy of forecasting the
ﻒ
ﻣﻨ
expected demand volume.
ﻴﺮ
•
ﻋﻠ
Forecasting helps to enable the organization to
ﻰ
اﻟﺒ
produce the necessary outputs to meet customer
ﻠﺘ
ﺎﺟ
requests in a timely manner, in the required
ﻰ
8
quantities, and in the required level of quality and
5
14
technical specifications so that the organization
70
61
does not waste sales opportunities available
20
31
during the plan period.
30
With the multiplicity and different characteristics and
70
steps of the methods used to predict the volume of
7 79
91
demand, the choice of these methods depends on several
02
factors, the most important of which are:
01
- The degree of complexity in each method and the
possibility of understanding and using this
method.
135 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
- The size and characteristics of the data and
information that can be provided.
- Data sources and their willingness to cooperate in
providing the required data.
- Analysis methods that can be used to analyze and
ﺷ
ﺮﻳ
study data.
ﻒ
ﻣﻨ
- The level of accuracy required in forecasting and
ﻴﺮ
ﻋﻠ
results.
ﻰ
اﻟﺒ
- Time available to conduct the study process in
ﻠﺘ
ﺎﺟ
general and to collect and analyses data in
ﻰ
8
particular.
5
14
- Estimated budget approved to predict demand
70
61
volume.
20
1- What is Forecasting?
31
30
Forecasting is the process of making predictions of
70
79
events that are expected to occur, for example estimating
7
91
the value of a given variable at a future date.
02
Forecasting is also defined as planning and making
01
assumptions about future events using special
techniques over different time periods where managers
and decision makers rely on it to develop assumptions
136 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
about future situations, and forecasting is defined as an
estimate of what future phenomena or observations
could be if the factors influencing the process to be
estimated do not change in the future.
Forecasting itself is not just numbers but deeper than
ﺷ
ﺮﻳ
that, as these figures are translated into long- and short-
ﻒ
ﻣﻨ
term plans, and more precisely forecasting means
ﻴﺮ
ﻋﻠ
anticipating and estimating the expected volume of
ﻰ
اﻟﺒ
demand for sales.
ﻠﺘ
ﺎﺟ
Forecasting is also considered a science and an art, a
ﻰ
8
science because it uses objective, quantitative and
5
14
statistical methods and methods in forecasting, which
70
61
raises the degree of accuracy and avoidance of bias, and
20
an art because it depends on experience, intuition and
31
30
administrative appreciation.
70
7 79
91
02
01
137 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
2- Why is forecasting important?
70
The importance of forecasting stems from the
61
20
following:
31
30
(1) The forecasting of the volume of demand is the one
70
that controls the production of a good or service and
7 79
determines on the basis of which the choice of the
91
02
location of the project, the timing of production, the type
01
of technical expertise needed, and the volume of
production capacities available and used.
138 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(2) The need to make expansions to an existing project
or establish new projects is based on an estimate of the
magnitude of the effective demand.
(3) Estimating the volume of effective demand
(forecasting) is the cornerstone of marketing activity, it
ﺷ
ﺮﻳ
affects and is influenced by the price of the product and
ﻒ
ﻣﻨ
the marketing policies and outlets of the product.
ﻴﺮ
ﻋﻠ
Forecasting is a guide to the future activities of an
ﻰ
اﻟﺒ
organization.
ﻠﺘ
ﺎﺟ
(4) Identify the need for the financial resources of the
ﻰ
8
organization. Allow the time necessary to save energy,
5
14
technology and labor necessary to achieve production
70
61
rates according to the expected changes.
20
(5) Provide information that guides the organization in
31
30
the design of goals and strategies.
70
(6) It helps in the management of the supply chain, it
7 79
91
helps in building long-term partnerships with suppliers
02
based on trust and shared vision, and identifying the
01
right suppliers.
(7) Forecasting helps in the planning of the human
resources of the organization, it helps in estimating the
size and quality of human resources that the
139 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
organization needs. Forecasting helps in planning the
production capacity of the organization, and this means
that the expected sales volume must be proportional to
the production capacity of the organization.
3- Type of Forecasting:
ﺷ
ﺮﻳ
ﻒ
The forecast can be divided according to a set of criteria
ﻣﻨ
as follows:
ﻴﺮ
ﻋﻠ
(1) According to the time range:
ﻰ
اﻟﺒ
Forecasting according to the time range is divided into
ﻠﺘ
ﺎﺟ
three types:
ﻰ
8
• Short-term forecast: The duration of the time is
5
14
less than one year.
70
61
• Long-term forecast: The duration of the time is
20
31
more than three years.
30
• Prediction of the average term: The duration of
70
79
the term is from one to three years.
7
91
The most important differences between short-term,
02
01
medium- and long-term forecasting can be illustrated as
follows:
140 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Short-term forecasting Medium- and long-term
forecasting
Deals with simple issues. Deals with larger issues and
dimensions
More accurate than medium Less accurate than short-term
and long forecasting
ﺷ
forecasting.
ﺮﻳ
Uses mathematical and
ﻒ
Uses quantitative and descriptive
ﻣﻨ
quantitative methods methods
ﻴﺮ
ﻋﻠ
4- Characteristics of forecasting the demand
ﻰ
اﻟﺒ
The methods used to predict demand are varied,
ﻠﺘ
ﺎﺟ
and despite this diversity and variation, there is a set
ﻰ
8
of characteristics common to all forecasts that can be
5
14
presented below:
70
61
• Predictions are rarely correct, and the most
20
31
obvious characteristic of forecasting is that
30
predictions are rarely reflective of actual
70
79
reality, where real results usually differ from
7
91
predicted values, so the planning system must
02
be able to respond to unexpected prediction
01
errors.
• Overall predictions are more accurate than
individual predictions' and we conclude from
141 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
statistics that the average variance of a set of
independent and randomly distributed
variables is less than the variance of each
random variable separately, so the error in
predicting its masses of products is less than the
ﺷ
ﺮﻳ
error in predicting a single product.
ﻒ
ﻣﻨ
• All forecasting methods assume that the
ﻴﺮ
ﻋﻠ
demand for products in the future is an
ﻰ
اﻟﺒ
extension of the demand for products in the
ﻠﺘ
ﺎﺟ
past and present.
ﻰ
• The accuracy of the forecast decreases the
85
14
longer the time period covered by the forecast,
70
61
short-term forecasts are made under a low
20
31
percentage of risk and uncertainty and this
30
percentage rises with the increase of the time
70
79
period, so short-term forecasts are more
7
91
accurate than medium- and long-term
02
forecasts.
01
• The factors influencing the demand for
products of goods or services produced by an
organization through a specific period of time
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are divided into two main sections, namely,
external factors and internal factors, and can
be presented briefly as follows:
First: External Factors: The external factors
influencing the demand for the products of an
ﺷ
ﺮﻳ
organization are the factors that affect all organizations
ﻒ
ﻣﻨ
in a particular society, and these factors are outside the
ﻴﺮ
ﻋﻠ
scope of organizations, and those organizations cannot
ﻰ
اﻟﺒ
control them but interact with them and move and grow
ﻠﺘ
ﺎﺟ
within their framework, and these factors can be
ﻰ
8
summarized as follows:
5
14
- Economic factors, such as national income, the
70
61
availability of labor in quantity and quality, its cost,
20
inflation rates.... Etc.
31
30
- Political factors, such as legislation, laws and
70
international conventions.
7 79
91
- Social and cultural factors, that is, the values, customs
02
and traditions that prevail in the external environment
01
of organizations that affect the attitudes and behavior of
customers requesting the product, whether it is a good
or a service.
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Production Management
- The degree of competition from organizations that
offer the same product or alternative products.
Second: Internal factors: Internal factors include all the
interacting activities within the organization in order to
produce the final product (good or service)
ﺷ
ﺮﻳ
commensurate with the needs of the customer, and these
ﻒ
ﻣﻨ
activities are represented in the design of the product,
ﻴﺮ
ﻋﻠ
the design of the packaging and packaging, the
ﻰ
اﻟﺒ
determination of the price of the product, the means of
ﻠﺘ
ﺎﺟ
advertising and the incentives of sales representatives.
ﻰ
8
5- Steps in Forecasting:
5
14
The forecasting process requires following the following
70
61
set of key steps: Setting the goal of forecasting:
20
31
(1) This goal of setting the goal provides the degree of
30
detail required in the forecast and the number of
70
79
resources needed, whether human or financial resources
7
91
or material requirements.
02
(2) Determine the time horizon of the forecast: that is,
01
determine whether the forecast is short-term, medium-
term or long-term, taking into account that the accuracy
144 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
of the forecast decreases as the time period covered by
the forecast increases.
(3)Selection of the forecasting method: The method used
as a tool for forecasting the demand for the product is
chosen taking into account the suitability of this method
ﺷ
ﺮﻳ
to the time horizon of the forecast as well as the nature
ﻒ
ﻣﻨ
of the available information.
ﻴﺮ
ﻋﻠ
(4) Compile the information necessary to carry out the
ﻰ
اﻟﺒ
forecasting process.
ﻠﺘ
ﺎﺟ
(5) Make assumptions on which the prediction will be
ﻰ
8
made. Make a prediction using the chosen method: in
5
14
the light of the available information and on the basis of
70
61
the assumptions made.
20
(6) Monitoring the implementation of forecasting
31
30
results: Should the forecasting process be monitored to
70
determine whether the forecast results meet the goal or
7 79
91
not? If it is found that the objective of the forecast has
02
not been achieved, the method used as a forecasting tool
01
shall be reviewed and the assumptions on the basis of
which the forecast was made shall be adjusted with all
necessary and appropriate adjustments made to achieve
the objective of the forecast.
145 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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6- Forecasting Approaches:
There are many methods used to predict the volume of
demand for project products and these methods can be
classified as follows:
First: Qualitative methods:
ﺷ
ﺮﻳ
ﻒ
These types of forecasting methods are based on
ﻣﻨ
ﻴﺮ
judgments, opinions, intuition, emotions, or personal
ﻋﻠ
experiences and are subjective in nature. They do not
ﻰ
اﻟﺒ
rely on any rigorous mathematical computations.
ﻠﺘ
ﺎﺟ
Second: Quantitative methods:
ﻰ
8
5
These types of forecasting methods are based on
14
70
mathematical (quantitative) models, and are objective in
61
20
nature.
31
They rely heavily on mathematical computations.
30
OVERVIEW OF QUALITATIVE METHODS
70
79
(1) Historical method: This method of forecasting the
7
91
expected volume of demand in the following year is
02
01
based on the actual sales made in the previous year, and
assumes that the sales that will be made in the coming
year will be equal to the sales made last year.
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The historical method is based on the assumption that
the conditions and factors that surrounded the sales and
productive activity of the past year will remain constant
in the coming year, that is, the recent past will be
repeated in the future.
ﺷ
ﺮﻳ
Looking at the many drawbacks that are directed at
ﻒ
ﻣﻨ
this method, it is not recommended to rely on it to plan
ﻴﺮ
ﻋﻠ
production and predict the volume of demand in the
ﻰ
اﻟﺒ
long term, as the environment of economic activity as
ﻠﺘ
ﺎﺟ
well as the working environment within the organization
ﻰ
8
itself is not static in nature, as there are many economic
5
14
and social changes in the external environment, thus
70
61
affecting the trends of the volume of expected demand.
20
This method also ignores the change that may occur
31
30
in the design of the product itself in the future, whether
70
in terms of shape, size, function and technical
7 79
91
characteristics.... Nor is it concerned with the impact of
02
the organization's new advertising campaigns for its
01
products. In the face of this, it is difficult to recognize the
validity of the assumption on which this method is based,
which is that the past will repeat itself in the future,
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Production Management
especially in light of the dynamism and development of
the environment of economic activity.
(2) Method of compilation of opinions: This method is
the most widespread but simple method of forecasting
sales and is based on the compilation of the opinions of
ﺷ
ﺮﻳ
groups of individuals regarding the expected volume of
ﻒ
ﻣﻨ
sales during the next specific period of a product – or for
ﻴﺮ
ﻋﻠ
each of the products offered by the enterprise.
ﻰ
اﻟﺒ
Although their opinions vary from one facility to
ﻠﺘ
ﺎﺟ
another, the general characteristics that characterize
ﻰ
8
them, and the procedures on which the data is run, do
5
14
not differ much from one facility to another.
70
61
Under this method, sales representatives in different
20
regions are required to express their opinion on the
31
30
expected future sales volume in the region they
70
represent, for each group of the organization's products
7 79
91
in case of plurality or for the only product they offer.
02
Each delegate accordingly sends their estimates to
01
the Production Planning Committee.
Distribution branch managers are also required to
provide their estimates of the expected sales of the
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Production Management
organization's product(s) within a specific period to
come.
After compiling these opinions, they are sent to the
committee responsible for planning production and
ultimately making a forecast of the expected volume of
ﺷ
ﺮﻳ
demand, and this committee usually consists of
ﻒ
ﻣﻨ
production managers, marketing manager, financial
ﻴﺮ
ﻋﻠ
director as well as chief engineer in the organization, and
ﻰ
اﻟﺒ
the committee referred to reviews and evaluates the
ﻠﺘ
ﺎﺟ
opinions and estimates received in the light of a set of
ﻰ
8
factors and considerations of which sales representatives
5
14
or branch managers may not be aware.
70
61
These considerations include the changes that will be
20
made to the design of the product or products, the
31
30
campaigns to be implemented in the field of advertising
70
and advertising, as well as the changes that will occur in
7 79
91
the sale prices, the level of quality of the product or
02
products.
01
In addition to these internal considerations, there are
other considerations related to the external
environment, such as possible changes during the plan
in economic, social and technological aspects, change in
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income and its distribution, and other forces affecting
demand trends.
Initial estimates provided by sales representatives
and branch managers may be reviewed again. In the
light of the final review, it is decided to make the final
ﺷ
ﺮﻳ
prediction of the expected volume of demand. Some
ﻒ
ﻣﻨ
difficulties arise when operating data under this method,
ﻴﺮ
ﻋﻠ
especially if the estimates of the sales representatives of
ﻰ
اﻟﺒ
the branches are presented in a manner inconsistent
ﻠﺘ
ﺎﺟ
with what the said committee desires, such as expressing
ﻰ
8
the expected sales in money while preferably expressed
5
14
in units, as the sales representatives tend to express the
70
61
sales in monetary value, and the estimates may be
20
aggregate on an annual basis while production planning
31
30
may require more detailed data on a quarterly, monthly
70
or even daily basis.
7 79
91
To overcome this problem should it occur, Mayer
02
believes that if estimates have been prepared on an
01
annual basis, and forecasts for fewer periods are to be
made as we have indicated, then the annual aggregate
data can be converted into estimates for quarterly
periods or for lower periods by, for example, analyzing
150 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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the actual sales of a product or group of products during
the previous 5 years. And identify the percentages
achieved each quarter, and then find the average of these
percentages for each quarter separately, and thus the
annual total forecast can be converted into annual rent
ﺷ
ﺮﻳ
forecasts.
ﻒ
ﻣﻨ
(3) Delphi method: This method depends on experts
ﻴﺮ
ﻋﻠ
from inside and outside the organization, where the
ﻰ
اﻟﺒ
opinion of each of them is taken separately in the
ﻠﺘ
ﺎﺟ
forecast after studying the impact of each of the
ﻰ
8
variables on it with any assumptions presented to him in
5
14
this regard, and one of the officials in the company
70
61
(coordinator) studies the answers of each of them after
20
emptying them and then sends each of them a list asking
31
30
him if he wants to modify his opinions in the light of
70
other answers and give his average value to his
7 79
91
prediction in case of modifying his previous answer and
02
continues to contact the experts So that none of them
01
makes a modification in their answer provided that the
participants in the prediction are anonymous from each
other as a condition that no one is affected by the
personality of the other.
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Although this method relies on a large number of
experts to predict it, it can be expensive due to the use of
these experiences, and there is a possibility of bias in the
answers, although they can be controlled by the
coordinator and the difficulty of unpacking and
ﺷ
ﺮﻳ
discharging non-quantitative answers.
ﻒ
ﻣﻨ
This method is not intended to reach a unified opinion
ﻴﺮ
ﻋﻠ
among experts, which is not required, but on the
ﻰ
اﻟﺒ
contrary, the final divergence of opinions may be taken
ﻠﺘ
ﺎﺟ
as an indicator of the degree of uncertainty that
ﻰ
8
accompanies the prediction process.
5
14
70
61
20
31
30
70
7 79
91
02
OVERVIEW OF QUANTITATIVE METHODS
01
Quantitative Forecasts those that employ mathematical
modelling to forecast demand.
• Time-Series Forecasting:
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Time-Series – a forecasting technique that uses a series
of past data points to make a forecast.
• DECOMPOSITION OF A TIME SERIESA:
time series has four components:
(1) Trend – the gradual upward or downward movement
ﺷ
ﺮﻳ
of data over time.
ﻒ
ﻣﻨ
(2) Seasonality – a data pattern that repeats itself after a
ﻴﺮ
ﻋﻠ
period of days, weeks, months, or quarters.
ﻰ
(3) Cycles – patterns in the data that occur every several
اﻟﺒ
ﻠﺘ
ﺎﺟ
years; usually tied into the business cycle and are of
ﻰ
8
major importance in short-term business analysis and
5
14
planning.
70
61
(4) Random Variations – “blips” in the data caused by
20
31
chance and unusual situations; follow no discernible
30
pattern and cannot be predicted.
70
7 79
91
02
01
153 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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TIME SERIES MODELS
Model Description
Naïve Uses last period’s actual value as a forecast
Simple Mean
Uses an average of all past data as a forecast
(Average)
ﺷ
Uses an average of a specified number of the
ﺮﻳ
Simple Moving most recent observations, with each
ﻒ
Average observation receiving the same emphasis
ﻣﻨ
(weight)
ﻴﺮ
ﻋﻠ
Uses an average of a specified number of the
ﻰ
Weighted Moving most recent observations, with each
اﻟﺒ
Average observation receiving a different
ﻠﺘ
ﺎﺟ
emphasis (weight)
ﻰ
A weighted average procedure with
8
Exponential
5
weights declining exponentially as data
14
Smoothing
become older
70
61
Technique that uses the least squares
Trend Projection
20
method to fit a straight line to the data
31
A mechanism for adjusting the forecast to
30
Seasonal Indexes accommodate any seasonal patterns
70
inherent in the data
79
The following data set represents a set of hypothetical
7
91
demands that have occurred over several consecutive
02
years. The data have been collected on a quarterly basis,
01
and these quarterly values have been amalgamated into
yearly totals.
For various illustrations that follow, we may make
slightly different assumptions about starting points to
get the process started for different models. In most
154 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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cases we will assume that each year a forecast has been
made for the subsequent year. Then, after a year has
transpired we will have observed what the actual
demand turned out to be (and we will surely see
differences between what we had forecasted and what
actually occurred, for, after all, the forecasts are merely
ﺷ
educated guesses).
ﺮﻳ
ﻒ
Finally, to keep the numbers at a manageable size,
ﻣﻨ
several zeros have been dropped off the numbers (i.e.,
ﻴﺮ
ﻋﻠ
these numbers represent demands in thousands of
ﻰ
units).
اﻟﺒ
ﻠﺘ
ﺎﺟ
Year Quarter Quarter Quarter Quarter Total Annual
ﻰ
1 2 3 4 Demand
8
5
1 62 94 113 41 310
14
2 73 110 130 52 365
70
61
3 79 118 140 58 395
20
4 83 124 146 62 415
31
5 89 135 161 65 450
30
6 94 139 162 70 465
70
79
(1) Naïve method: The forecast for next period (period
7
91
t+1) will be equal to this period's actual demand (At).
02
In this illustration we assume that each year (beginning
01
with year 2) we made a forecast, then waited to see what
demand unfolded during the year. We then made a
forecast for the subsequent year, and so on right through
to the forecast for year 7.
155 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Actual
Demand Forecast
Year (At) (Ft) Notes
There was no prior demand
1 310 -- data on which to base a
forecast for period 1
From this point forward, these
2 365 310 forecasts were made on a
ﺷ
year-by-year basis.
ﺮﻳ
ﻒ
3 395 365
ﻣﻨ
ﻴﺮ
ﻋﻠ
4 415 395
ﻰ
اﻟﺒ
5 450 415
ﻠﺘ
ﺎﺟ
ﻰ
8
6 465 450
5
14
70
7 465
61
20
31
(2) Mean (simple average) method: The forecast for
30
next period (period t+1) will be equal to the average of
70
all past historical demands.
7 79
In this illustration we assume that a simple average
91
method is being used. We will also assume that, in the
02
absence of data at startup, we made a guess for the
01
year 1 forecast (300). At the end of year 1 we could
start using this forecasting method. In this
illustration we assume that each year (beginning
with year 2) we made a forecast, then waited to see
what demand unfolded during the year. We then
156 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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made a forecast for the subsequent year, and so on
right through to the forecast for year 7.
Actual
Demand Forecast
Year (At) (Ft) Notes
This forecast was a guess
ﺷ
1 310 300 at the beginning.
ﺮﻳ
ﻒ
From this point forward,
these forecasts were
ﻣﻨ
2 365 310.000 made on a year-by-year
ﻴﺮ
basis using a simple
ﻋﻠ
average approach.
ﻰ
3 395 337.500
اﻟﺒ
4 415 356.667
ﻠﺘ
ﺎﺟ
5 450 371.250
ﻰ
6 465 387.000
8
5
7 400.000
14
70
61
(3) Simple moving average method: The forecast for
20
next period (period t+1) will be equal to the average of a
31
specified number of the most recent observations, with
30
each observation receiving the same emphasis (weight).
70
In this illustration we assume that a 2-year simple
7 79
moving average is being used. We will also assume that,
91
in the absence of data at startup, we made a guess for the
02
01
year 1 forecast (300). Then, after year 1 elapsed, we
made a forecast for year 2 using a naïve method (310).
Beyond that point we had sufficient data to let our 2-year
simple moving average forecasts unfold throughout the
years.
157 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Actual
Demand Forecast
Year (At) (Ft) Notes
This forecast was a guess
1 310 300 at the beginning.
This forecast was made
2 365 310 using a naïve approach.
ﺷ
From this point forward,
ﺮﻳ
these forecasts were
ﻒ
3 395 337.500 made on a year-by-year
ﻣﻨ
basis using a 2-yr moving
ﻴﺮ
average approach.
4 415 380.000
ﻋﻠ
ﻰ
5 450 405.000
اﻟﺒ
6 465 432.500
7 457.500 ﻠﺘ
ﺎﺟ
ﻰ
8
5
- ANOTHER SIMPLE MOVING AVERAGE
14
ILLUSTRATION:
70
61
In this illustration we assume that a 3-year simple
20
moving average is being used. We will also assume that,
31
30
in the absence of data at startup, we made a guess for the
70
year 1 forecast (300). Then, after year 1 elapsed, we used
7 79
a naïve method to make a forecast for year 2 (310) and
91
02
year 3 (365). Beyond that point we had sufficient data to
01
let our 3-year simple moving average forecasts unfold
throughout the years.
158 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Actual
Demand Forecast
Year (At) (Ft) Notes
This forecast was a guess at
1 310 300 the beginning.
This forecast was made using
2 365 310 a naïve approach.
ﺷ
This forecast was made using
ﺮﻳ
3 395 365 a naïve approach.
ﻒ
ﻣﻨ
From this point forward,
ﻴﺮ
these forecasts were made
4 415 356.667 on a year-by-year basis using
ﻋﻠ
a 3-yr moving average
ﻰ
approach.
اﻟﺒ
5 450 391.667
ﻠﺘ
ﺎﺟ
6 465 420.000
ﻰ
7 433.333
8
5
14
(4) Weighted moving average method: The forecast for
70
next period (period t+1) will be equal to a weighted
61
average of a specified number of the most recent
20
observations.
31
30
In this illustration we assume that a 3-year weighted
70
moving average is being used. We will also assume that,
79
in the absence of data at startup, we made a guess for the
7
year 1 forecast (300). Then, after year 1 elapsed, we used
91
02
a naïve method to make a forecast for year 2 (310) and
01
year 3 (365). Beyond that point we had sufficient data to
let our 3-year weighted moving average forecasts unfold
throughout the years. The weights that were to be used
are as follows: Most recent year, .5; year prior to that,
.3; year prior to that, .2
159 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Actual
Demand Forecast
Year (At) (Ft) Notes
1 310 300 This forecast was a guess at the
beginning.
This forecast was made using a
2 365 310 naïve approach.
This forecast was made using a
3 395 365
ﺷ
naïve approach.
ﺮﻳ
From this point forward, these
ﻒ
4 415 369.000 forecasts were made on a year-
ﻣﻨ
by-year basis using a 3-yr wtd.
ﻴﺮ
moving avg. approach.
ﻋﻠ
5 450 399.000
ﻰ
6 465 428.500
اﻟﺒ
7 450.500
ﻠﺘ
ﺎﺟ
ﻰ
(5) Exponential smoothing method: The new forecast for
5 8
next period (period t) will be calculated as follows:
14
New forecast = Last period’s forecast + & (Last period’s
70
61
actual demand – Last period’s forecast)
20
(This box contains all you need to know to apply
31
exponential smoothing) Ft = Ft-1 + & (At-1 – Ft-1)
30
(equation 1)
70
Ft = &At-1 + (1-&) Ft-1 (alternate equation 1 – a bit
7 79
more user friendly)
91
Where & is a smoothing coefficient, whose value is
02
01
between 0 and 1.
- Exponential Smoothing Example:
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant a = .20
160 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
New forecast= 142 + .2(153 – 142)
(6) Trend projection method: This method is a version
of the linear regression technique. It attempts to draw a
straight line through the historical data points in a
fashion that comes as close to the points as possible.
(Technically, the approach attempts to reduce the
ﺷ
vertical deviations of the points from the trend line, and
ﺮﻳ
ﻒ
does this by minimizing the squared values of the
ﻣﻨ
deviations of the points from the line). Ultimately, the
ﻴﺮ
ﻋﻠ
statistical formulas compute a slope for the trend line (b)
ﻰ
and the point where the line crosses the y-axis (a). This
اﻟﺒ
results in the straight-line equation:
ﻠﺘ
ﺎﺟ
Y = a + bX
ﻰ
Where X represents the values on the horizontal axis
8
5
14
(time), and Y represents the values on the vertical
70
axis (demand).
61
For the demonstration data, computations for b
20
and a reveal the following (NOTE: I will not require
31
you to make the statistical calculations for b and a;
30
these would be given to you. However, you do need
70
to know what to do with these values when given to
7 79
you.)
91
b = 30
02
a = 295
01
Y = 295 + 30X
This equation can be used to forecast for any year
into the future. For example:
Year 7: Forecast = 295 + 30(7) = 505
Year 8: Forecast = 295 + 30(8) = 535
161 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Year 9: Forecast = 295 + 30(9) = 565
Year 10: Forecast = 295 + 30(10) = 595
The quantitative models used to estimate demand are
numerous, and there is an increasing need to use them
to complicate demand-interpreting phenomena and to
increase the number of variables that must be taken into
ﺷ
account when predicting future demand. However, there
ﺮﻳ
ﻒ
are limits to the use of quantitative methods in
ﻣﻨ
estimating the demand for a commodity or service, in
ﻴﺮ
relation to the following aspects:
ﻋﻠ
ﻰ
(1) Considerations that affect the function of demand
اﻟﺒ
and in marketing decision-making are two types
ﻠﺘ
ﺎﺟ
of quantitative (concrete) considerations,
ﻰ
qualitative considerations (intangible) and the
8
5
14
quantitative model includes quantitative
70
variables, while the marketing feasibility expert
61
takes over the impact of qualitative variables, and
20
predicts their behavior through the future.
31
30
(2) Estimates of quantitative models, their
70
predictability and interpretive strength of the
79
behavior of dependent variables are based on
7
91
assumptions that are expected to occur in the
02
future, and are not certain (probability)
01
depending on the marketing feasibility expert's
assessment of the probabilities related to the
assumptions of the behavior of independent
variables and the trade-off between the various
expected risks.
162 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(3) The role of quantitative models in estimating
demand depends on the analysis of data and the
provision of information that is useful in judging
the marketing feasibility, while the type of
judgement on the feasibility of the project in terms
of marketing depends on the feasibility expert's
ﺷ
ability to provide and use this information
ﺮﻳ
ﻒ
correctly.
ﻣﻨ
• References:
ﻴﺮ
ﻋﻠ
(1) Kumar, S. A., & Suresh, N. (2009). Operations
ﻰ
management. New Age International.
اﻟﺒ
(2) Khanna, R. B. (2015). Production and operations
ﻠﺘ
ﺎﺟ
management. PHI Learning Pvt. Ltd.
ﻰ
8
(3) Martinich, J. S. (2008). Production and operations
5
14
management: An applied modern approach. John
70
Wiley & Sons.
61
(4) Pycraft, M. (2000). Operations management.
20
31
Pearson South Africa.
30
(5) Armstrong, J. S. (Ed.). (2001). Principles of
70
forecasting: A handbook for researchers and
79
practitioners. Kluwer Academic Publishers.
7
91
[Amazon].
02
(6) Ord, J. K., Fildes, R., & Kourentzes, N. (2017).
01
Principles of business forecasting (2nd ed.).
Wessex Press Publishing Co. [Amazon].
(7) Hyndman, R. J., & Athanasopoulos, G.
(2018). Forecasting: principles and practice.
OTexts.
163 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(8) Hogarth, R. M., & Makridakis, S. (1981).
Forecasting and planning: An evaluation
. Management science, 27(2), 115-138.
(9) Armstrong, J. S. (2001). Evaluating forecasting
methods. In Principles of forecasting (pp. 443-
472). Springer, Boston, MA.
ﺷ
(10) Elliott, G., & Timmermann, A. (Eds.).
ﺮﻳ
ﻒ
(2013). Handbook of economic forecasting. Elsevier.
ﻣﻨ
(11) Evans, M. K. (2002). Practical business
ﻴﺮ
ﻋﻠ
forecasting. John Wiley & Sons.
ﻰ
(12) Chatfield, C. (1988). What is the ‘best ‘method of
اﻟﺒ
forecasting? Journal of Applied Statistics, 15(1), 19-38.
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
164 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
Chapter 5
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
Transportation Models
61
20
31
30
70
7 79
91
02
01
165 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
166 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Chapter 5
Transportation Models
Chapter Outline
- Introduction.
ﺷ
ﺮﻳ
1- Define Transportation Models.
ﻒ
ﻣﻨ
2- Procedure to Solving Transportation Problem.
ﻴﺮ
ﻋﻠ
3- The Transportation Model Characteristics.
ﻰ
اﻟﺒ
4- Structure of the Transportation Problem.
ﻠﺘ
ﺎﺟ
ﻰ
85
14
70
61
20
31
30
70
7 79
91
02
01
167 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Learning Outcomes
When you complete this chapter, you should be
able to:
ﺷ
ﺮﻳ
ﻒ
1- Develop an initial solution to a transportation
ﻣﻨ
ﻴﺮ
model with the northwest-corner and intuitive
ﻋﻠ
ﻰ
lowest-cost methods.
اﻟﺒ
ﻠﺘ
ﺎﺟ
2- Solve a problem with the stepping-stone
ﻰ
8
method.
5
14
70
3- Balance a transportation problem.
61
4- Deal with a problem that has degeneracy.
20
31
30
70
7 79
91
02
01
168 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
• Introduction
A major component of transportation planning is the
ability to analyze system conditions, performance, and
test various improvement alternatives using predictive
ﺷ
ﺮﻳ
modeling application. Transportation modeling uses
ﻒ
ﻣﻨ
state-of-the-art analysis tools to support critical
ﻴﺮ
ﻋﻠ
transportation planning and major capital investments
ﻰ
decision making.
اﻟﺒ
ﻠﺘ
ﺎﺟ
The field of transport is one of the aspects of linear
ﻰ
8
programming applications that contribute to decision-
5
14
making, as it initially relied on helping management
70
61
facilitate the flow of goods from the main production or
20
marketing outlets to smaller units in order to ensure that
31
30
transport costs are minimized.
70
Transport models between the production units
7 79
themselves can also be used to find the correlation
91
02
between existing units or between projects expected to
01
be established in the future, and the mechanism of work
is embodied in the programming of transport from
finding an initial solution to the problem and then
169 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
moving in a later stage to verify that this solution is the
optimal one that achieves the lowest level of costs.
Transport problems play an important role in the
national economy as well as in administrative decision-
making, as the availability of economic transport is
ﺷ
ﺮﻳ
essential to ensure the survival and continuity of
ﻒ
ﻣﻨ
business enterprises. Transport is one of the important
ﻴﺮ
ﻋﻠ
and even key elements in the delivery of goods and
ﻰ
اﻟﺒ
services to the final consumer, and in the transfer of
ﻠﺘ
ﺎﺟ
semi-finished products from one production stage to
ﻰ
8
another in industrial plants.
5
14
Thus, various business enterprises, whether
70
61
industrial, commercial, agricultural or others, seek to
20
use modern means and methods in order to reduce
31
30
transport costs to the lowest possible level, where sound
70
economic principles require the search for all ways that
7 79
91
would rationalize spending on transport service in order
02
to achieve the lowest possible cost of transporting goods
01
from different sources (areas of production or supply) to
different ends (areas of use or demand).
170 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Thus, the present chapter deals with a special type of
mathematical model for solving transport problems,
which is called the transport model.
The Modeling Team utilizes various planning
analysis tools that support various capital management
ﺷ
ﺮﻳ
programs, asset management and investment decisions.
ﻒ
ﻣﻨ
The Technical Modeling Team consists of a multi-
ﻴﺮ
ﻋﻠ
disciplinary team of engineers, planners, computer
ﻰ
اﻟﺒ
programmers, and transportation professionals. The
ﻠﺘ
ﺎﺟ
Modeling Section provides technical modeling needs
ﻰ
8
analysis and support to our various customers:
5
14
• Asset Managers
70
61
• Transportation Planning Staff
20
• Production & Project Managers
31
30
• Feasibility & Design Engineers
70
• Contract Consultants
7 79
91
• Metropolitan Planning Organizations
02
• Regional Planning Organizations
01
• Federal Agencies
• Neighboring State DOTs
171 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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1- Define Transportation Models:
The transportation model is a special case of linear
programming problem. The simplex algorithm method
which is discussed before can be used to solve any linear
programming problem but this method is laborious. For
ﺷ
ﺮﻳ
ﻒ
this reason, whenever possible we try to simplify the
ﻣﻨ
calculations.
ﻴﺮ
ﻋﻠ
The transport model is used to determine the
ﻰ
اﻟﺒ
optimal distribution of the production of the different
ﻠﺘ
ﺎﺟ
factories of the facility that are located in different
ﻰ
8
geographical areas, over distribution areas or
5
14
warehouses scattered in other geographical areas, in an
70
61
effort to minimize the cost of transportation.
20
31
The transport model is one of the special
30
mathematical models that represent an application of
70
79
the mathematical programming model, which aims to
7
91
find an optimal method of distributing (transporting or
02
shipping) a commodity or material from its areas of
01
production or supply (factories) to its areas of
consumption or demand (sales areas or stores) so that
172 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
the total cost of transportation of the commodity or
material is as low as possible.
The following are a set of conditions for the use of the
transfer model:
- The availability of limited and known capacities
ﺷ
ﺮﻳ
subject to quantification of factories and
ﻒ
ﻣﻨ
warehouses from which goods or raw materials
ﻴﺮ
ﻋﻠ
are transported, as well as the sales areas or
ﻰ
اﻟﺒ
warehouses as requesting entities must have their
ﻠﺘ
ﺎﺟ
specific needs and measured in quantitative form.
ﻰ
8
- The existence of multiple methods or the
5
14
shipment of goods or materials from the areas of
70
61
production or supply to the areas of consumption
20
or demand, so that it is possible to choose and
31
30
differentiate between these alternative methods
70
and choose the best ones.
7 79
91
- The cost of transporting a unit is characterized by
02
stability from the commodity or material from the
01
place of shipment to the place of arrival in order
to ensure the preservation of the linear character.
- Second: The basic stages of the application of the
transport model: The transport model includes
173 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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the following basic stages: The formation of the
transport matrix and then the design of a possible
basic initial solution so that it meets the needs of
different endings within the limits of the available
energies of the sources, and this solution can be
ﺷ
ﺮﻳ
determined in several ways, the most important of
ﻒ
ﻣﻨ
which are the northeast and/or western corner
ﻴﺮ
ﻋﻠ
method, the lowest cost method and the
ﻰ
اﻟﺒ
approximate Vogel method.
ﻠﺘ
ﺎﺟ
- Verify the suitability of the solution: by
ﻰ
8
determining the cost of opportunity lost for each
5
14
of the blank cells "i.e. the non-essential variables
70
61
in the solution chosen" to determine whether the
20
total cost of transportation can be reduced by
31
30
occupying one or more cells other than those cells
70
that were occupied in the previous (initial)
7 79
91
solution.
02
- The ideal solution is achieved if the wasted
01
opportunity costs of all empty cells are negative or
equal to zero.
- Search for other "design" solutions using blank
cells that achieve the greatest reduction in the total
174 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
cost of transportation (where non-essential
variables are introduced into the solution to
become basic variables) and the previous two steps
are repeated until we reach the optimal solution.
- Third: Determinants of the design of the initial
ﺷ
ﺮﻳ
solution to the transport problem: Before starting
ﻒ
ﻣﻨ
to use the transport model to solve the problem in
ﻴﺮ
ﻋﻠ
a practical way, the initial solution design requires
ﻰ
اﻟﺒ
arranging the problem data in the form of an
ﻠﺘ
ﺎﺟ
array or table, by allocating a row to each source
ﻰ
8
(resource/store/factory) and a column to each end
5
14
(store/factory/sales area).
70
61
- The point of intersection of the row with the
20
column is called the cell. It is noted that the
31
30
number of matrix cells is equal to the product of
70
multiplying the number of sources by the number
7 79
91
of ends. Inside each cell, the quantity that is
02
proposed to be transferred from the source to the
01
end is recorded.
- This quantity is denoted by the symbol A, and
therefore the symbol (A11) means the quantity
proposed to be transferred from the first source to
175 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
the first end, and the symbol (Nm) represents the
quantity proposed to be transferred from the
source "N" to the end "M". The available energy
of each plant (denoted by the symbol i) is also
indicated to the left of each row, and the needs of
ﺷ
ﺮﻳ
each end (denoted by the symbol "h") are written
ﻒ
ﻣﻨ
below its column. Finally, the cost of transporting
ﻴﺮ
ﻋﻠ
a unit of the commodity from each source to each
ﻰ
اﻟﺒ
end is recorded in the upper left corner of each cell
ﻠﺘ
ﺎﺟ
in the matrix, and this cost is symbolized by the
ﻰ
8
symbol K and then (K11) represents the cost of
5
14
transporting a unit of the commodity from the
70
61
first source to the first end, and similarly the cost
20
of transporting a unit of the commodity from the
31
30
source n to the end m.
70
- Here we emphasize dear student that the
7 79
91
preparation of the transport matrix is flexible as
02
the columns can be allocated to the sources of
01
supply (factories) and rows to the ends / needs
(stores or sales areas), and the cost of transporting
the unit anywhere within each cell can be written.
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Production Management
The following table shows the general shape of the
transport matrix.
4- Structure of the Transportation Problem:
Let, m = Origin n = Destinations
a i = Quantity of products available at origin i
ﺷ
ﺮﻳ
ﻒ
b j = Quantity of products required at destination j
ﻣﻨ
C ij = Cost of transporting one unit of product from
ﻴﺮ
ﻋﻠ
origin i to destination j x ij = Quantity transported from
ﻰ
اﻟﺒ
origin i to destination j
ﻠﺘ
ﺎﺟ
The objective is to determine the quantity x ij to be
ﻰ
8
transported over all routes (i, j) so as to minimize the
5
14
total transportation cost. The quantity of products
70
61
available at the origins must satisfy the quantity of
20
31
products required at the destinations.
30
If this is represented in matrix form, wherein each cell
70
79
contains a transportation variable, means the number of
7
91
units shipped from the row designated origin to the
02
column designated destination. The number of supplies
01
ai available at source i and the amount demanded by bj
at each destination j. Hence, ai and bj represent supply
and demand constraint.
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Destination
D D D .. . D Supply
1 2 3 n
(x1 (x12 (x13 (x1n)
S1 .. . a1
C1 1) C1 ) C1 ) C1n
1 2 3
(x2 (x22 (x23 (x2n)
ﺷ
S2 .. . a2
ﺮﻳ
)
C2 1 C2 ) C2 ) C2n
ﻒ
1 2 3
ﻣﻨ
(x3 (x32 (x33 (x3n)
Origin
ﻴﺮ
S3 ) ) .. . a3
C3 1 C3 C3 ) C3n
ﻋﻠ
ﻰ
1 2 3
اﻟﺒ
. . . . ﻠﺘ
. . .
ﺎﺟ
ﻰ
. . . . . . .
8
. . . . . . .
5
14
. . . . . .
70
(xm (xm (xm (xmn)
61
Sm .. . am
1) 2) 3) Cmn
20
Cm1 Cm2 Cm3
31
30
Deman b b b b ∑ai = ∑bj
d 1 2 3 n
70
79
Here S=Source and D=Destination
7
91
This represents the case, where total supply = total
02
demand.
01
i.e. ∑𝑚 ai = ∑𝑛 bj
It is the case when demand is fully met from the origin
and the problem can be stated as LP problem in the
following manner:
The objective function:
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Minimize Z = ∑𝑚
𝑛 j=0
Cij Xij
subject to the constraints
𝑛 j=1
𝑚 i=1
ﺷ
Xij = ai for i = 1, 2, 3 . . . . . . . . . . m (Supply constraint)
ﺮﻳ
ﻒ
Xij = bj for j = 1, 2, 3 . . . . . . . . . . n (Demand
ﻣﻨ
constraint)
ﻴﺮ
and Xij ≥ 0 for all i = 1, 2, 3 . . . . m & j = 1, 2, 3
ﻋﻠ
n
ﻰ
(Non negative constraint)
اﻟﺒ
ﻠﺘ
After the preparation of the transport matrix, the initial
ﺎﺟ
solution to the transport problem is designed and this
ﻰ
8
initial solution can be designed in several ways, the most
5
14
important of which are the following:
70
- North-East Corner Method
61
- North-West Corner Method
20
31
- The Least-Cost Method Vogel's Approximation
30
Method
70
- Balanced transportation problem:
79
A transportation problem is said to be balanced if the
7
91
supply from all the sources is equal to the total demand
02
of all destinations. It means,
01
Total quantity of supply = Total quantity of demand.
Symbolically, ∑𝑚 ai = ∑𝑛 bj
- Unbalanced transportation problem:
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A transportation problem is said to be unbalanced if
the supply from all the sources is not equal to the total
demand of all destinations. It means,
Total quantity of supply < OR > Total quantity of
demand.
Symbolically, ∑𝑚
ﺷ
ai < ∑𝑛 bj
ﺮﻳ
ﻒ
𝑚 i=1
ﻣﻨ
ai > ∑𝑛 bj
ﻴﺮ
ﻋﻠ
ﻰ
In case of unbalance transportation problem, first we
اﻟﺒ
ﻠﺘ
need to convert this into balanced transportation
ﺎﺟ
problem to solve it.
ﻰ
8
Feasible Solution:
5
14
A feasible solution to a transportation problem is a set of
70
non-negative values Xij (i=1,2,......,m and j=1,2, ,n) that
61
satisfies the constraints.
20
31
Basic Feasible Solution:
30
A feasible solution is called a basic feasible solution if it
70
contains not more than m+n-1 allocations, where m is
79
the number of rows and n is the number of columns in a
7
91
transportation problem.
02
North-West Corner Rule or DENTZY’s Method:
01
Initial basic feasible solution can be obtained by
following the given below steps:
Step 1: Choose the cell in the north-west corner of the
transportation problem table and allocate as much as
possible in this cell so that either the capacity of first row
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(supply) is exhausted or the destination requirement of
the first column (demand) is exhausted. (i.e) x11 = min
(a1, b1)
Step 2: If the demand is exhausted (b1 < a1), move one
cell right horizontally to the second column and allocate
as much as possible. (i.e) x12 = min (a1–x11 , b2).
ﺷ
If the supply is exhausted (b1 > a1), move one cell down
ﺮﻳ
ﻒ
vertically to the second row and allocate as much as
ﻣﻨ
possible. (i.e) x21 = min (a2, b1–x11).
ﻴﺮ
ﻋﻠ
If both supply and demand are exhausted move one cell
ﻰ
diagonally and allocate as much as possible.
اﻟﺒ
Step 3: Continue the above procedure until all the
ﻠﺘ
ﺎﺟ
allocations are made.
ﻰ
8
In this way, move horizontally until a supply source is
5
14
exhausted, then vertically down until a destination
70
demand is satisfied and diagonally, when the demand at
61
the destination matches exactly the supply available,
20
until the south east corner is reached.
31
30
Example 1:
70
Find the initial basic feasible solution for the following
79
transportation problem, using North-West Corner Rule
7
91
method.
02
Destination
01
Sources D1 D2 D3 Supply
S1 3 8 5 7
S2 4 4 2 8
S3 6 5 8 10
S4 2 6 3 15
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Production Management
Demand 8 10 22
Solution
Let’s compute the total of supply and total of demand
Total Supply = 7 + 8 + 10 + 15 = 40
Total Demand = 8 + 10 + 22 = 40
Let’s start with first cell (S1,D1) and allocate as much as
ﺷ
possible in this cell so that either the capacity of first row
ﺮﻳ
ﻒ
is exhausted or the destination requirement of the first
ﻣﻨ
column is exhausted. i.e. x11 = min (7, 8) = 7
ﻴﺮ
ﻋﻠ
Now, move on to the next cell (S2,D1) and allocate as
ﻰ
much as possible in this cell so that either the capacity of
اﻟﺒ
second row is exhausted or the destination requirement
ﻠﺘ
ﺎﺟ
of the first column is exhausted. i.e. x12 = min (1, 8) = 1
ﻰ
8
Now, move on to the next cell (S2,D2) and allocate as
5
14
much as possible in this cell so that either the capacity of
70
second row is exhausted or the destination requirement
61
of the second column is exhausted. i.e. x22 = min (7, 10)
20
=7
31
30
These steps are to be repeated till we reach south east
70
corner, where entire supply is exhausted with demand of
79
destinations are fulfilled.
7
91
After completing entire process, we find the following
02
allocations.
01
Destination
Sources D1 D2 D3 Supply
S1 3(7) 8 5 7/0
S2 4(1) 4(7) 2 8/7/0
S3 6 5(3) 8(7) 10/7
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S4 2 6 3(15) 15/0
Demand 8/1/0 10/3 22/15/0
Now we have the following transportation schedule:
S1 –> D1 S2 –> D1 S2 –> D2 S3 –> D2 S3
–> D3 S4 –> D3
ﺷ
Therefore Transportation Cost:
ﺮﻳ
ﻒ
(3 * 7) + (4 * 1) + (4 * 7) + (5 * 3) + (8 * 7) + (3 * 15) = Rs.
ﻣﻨ
169
ﻴﺮ
ﻋﻠ
Feasibility of the solution: To check the feasibility we
ﻰ
need to test allocated cells must be equal to m + n -1.
اﻟﺒ
Therefore, allocated cells = 6, which is equal to m+n-1 =
ﻠﺘ
ﺎﺟ
4+3-1 = 6. Hence the solution is feasible one.
ﻰ
8
Least Cost Method (LCM) or Minimum Cost
5
14
Method:
70
This method is more economical as compared to north
61
20
west corner rule method, since it considers the lowest
31
cost for allocation from beginning itself. When objective
30
is to minimize cost then it is always better to go through
70
lowest cost approach. Hence, the various steps involved
79
in this method are as follows:
7
91
Step 1: Find the cell with the least (minimum) cost in the
02
transportation table.
01
Step 2: Allocate the maximum feasible quantity to this
cell considering the supply as well as demand.
Step 3: Eliminate the row or column where an allocation
is made.
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D1 D2 D3 D4 Supply
O1 1 2 3 4 6
O2 4 3 2 5 8
O3 5 2 2 1 10
Demand 4 6 8 6
ﺷ
ﺮﻳ
Step 4: Adjust the demand or supply for the remaining
ﻒ
values after the above allocation.
ﻣﻨ
ﻴﺮ
Step 5: Repeat the above steps for the reduced
ﻋﻠ
transportation table until all the allocations are made.
ﻰ
Illustration 03:
اﻟﺒ
ﻠﺘ
Obtain the initial basic feasible solution to the following
ﺎﺟ
ﻰ
TP using least cost method.
5 8
D1 D2 D3 D4 Supply
14
70
O1 1 2 3 4 6
61
20
O2 4 3 2 5 8
31
O3 5 2 2 1 10
30
70
Demand 4 6 8 6
79
Here Oi and Dj denote i the origin and j the destination
7
91
respectively.
02
Solution
01
Total Supply = Total Demand = 24. Therefore, the given
problem is a balanced transportation problem. Hence
there exists a feasible solution to the given problem.
Given Transportation Problem is:
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The least cost is 1 corresponds to the cells (O1, D1) and
(O3, D4)
Take the Cell (O1, D1) randomly and allocate min (6,4)
= 4 units to this cell.
D1 D2 D3 D4 Supply
O1 1(4) 2 3 4 6/2
ﺷ
ﺮﻳ
ﻒ
O2 4 3 2 5 8
ﻣﻨ
ﻴﺮ
O3 5 2 2 1 10
ﻋﻠ
Demand 4/0 6 8 6
ﻰ
اﻟﺒ
The reduced table is:
ﻠﺘ
ﺎﺟ
D2 D3 D4 Supply
ﻰ
5 8
O1 2 3 4 2
14
70
O2 3 2 5 8
61
O3 2 2 1(6) 10/4
20
31
Demand 6 8 6/0
30
70
The least cost corresponds to the cell (O3, D4). Allocate
79
min (10,6) = 6 units to this cell. Now the reduced table is:
7
91
D2 D3 Supply
02
O1 2 3 2
01
O2 3 2(8) 8/0
O3 2 2 4
Demand 6 8/0
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The least cost in the above matrix is 2, which
corresponds to the cells (O1, D2), (O2, D3), (O3, D2), (O3,
D3). Choose any cell arbitrarily and allocate min of
supply or demand. We will take (O2, D3) since both
demand and supply is same. So that we can eliminate
ﺷ
both row as well as column simultaneously.
ﺮﻳ
ﻒ
Now, the reduced table is:
ﻣﻨ
D2 Supply
ﻴﺮ
ﻋﻠ
O1 2(2) 2
ﻰ
اﻟﺒ
O3 2(4) 4
ﻠﺘ
ﺎﺟ
ﻰ
Demand 6
5 8
Now balance units can be allocated to the remaining cell.
14
70
Thus, we have the following allocations:
61
D1 D2 D3 D4 Supply
20
O1 1(4) 2(2) 3 4 6/2/0
31
30
O2 4 3 2(8) 5 8/0
70
79
O3 5 2(4) 2 1(6) 10/4/0
7
91
Demand 4/0 6/4 8/0 6/0
02
01
Transportation schedule:
O1 –>D1 O1–>D2 O2–>D3 O3–>D2 O3–
>D4
Total transportation cost
= (4×1) + (2×2) + (8×2) + (4×2) + (6×1)
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= 4 + 4 + 16 + 8 + 6
= Rs. 38/-
• References:
(1) Kumar, S. A., & Suresh, N. (2009). Operations
management. New Age International.
(2) Khanna, R. B. (2015). Production and operations
ﺷ
management. PHI Learning Pvt. Ltd.
ﺮﻳ
ﻒ
(3) Martinich, J. S. (2008). Production and operations
ﻣﻨ
management: An applied modern approach. John
ﻴﺮ
ﻋﻠ
Wiley & Sons.
ﻰ
(4) Pycraft, M. (2000). Operations management.
اﻟﺒ
Pearson South Africa.
ﻠﺘ
ﺎﺟ
(5) Cascetta, E. (2009). Transportation systems
ﻰ
8
analysis: models and applications (Vol. 29).
5
14
Springer Science & Business Media.
70
(6) Small, K., & Winston, C. (1998). The demand for
61
transportation: models and applications (No. 98-99-
20
31
6).
30
(7) Nurprihatin, F., & Tannady, H. (2018). An
70
integrated transportation models and savings
79
algorithm to minimize distribution costs.
7
91
In Proceeding of the 1st Asia Pacific Conference on
02
Research in Industrial and Systems
01
Engineering (pp. 216-21). Depok: Department of
Industrial Engineering Universitas Indonesia.
(8) Tavasszy, L., de Bok, M., Alimoradi, Z., & Rezaei,
J. (2020). Logistics decisions in descriptive freight
187 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
transportation models: A review. Journal of
Supply Chain Management Science, 1(3-4), 74-86.
(9) Engebrethsen, E., & Dauzère-Pérès, S. (2019).
Transportation mode selection in inventory
models: A literature review. European Journal of
Operational Research, 279(1), 1-25.
ﺷ
(10) Shekarrizfard, M., Valois, M. F., Goldberg, M. S.,
ﺮﻳ
ﻒ
Crouse, D., Ross, N., Parent, M. E., ... &
ﻣﻨ
Hatzopoulou, M. (2015). Investigating the role of
ﻴﺮ
ﻋﻠ
transportation models in epidemiologic studies of
ﻰ
traffic related air pollution and health
اﻟﺒ
effects. Environmental research, 140, 282-291.
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
188 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
Chapter 6
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
Design of Goods and
20
Services
31
30
70
7 79
91
02
01
189 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
190 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Chapter 6
Design of Goods and Services
Chapter Outline
- Introduction.
ﺷ
ﺮﻳ
1- Defining a Product.
ﻒ
ﻣﻨ
2- Product Design.
ﻴﺮ
3- What Is the Product Life Cycle?
ﻋﻠ
ﻰ
4- Motivations for introducing new products.
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
5
14
70
61
20
31
30
70
7 79
91
02
01
191 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
Learning Outcomes
When you complete this chapter, you should be
able to:
1- Define product life cycle.
ﺷ
2- Describe Product Life Cycle.
ﺮﻳ
ﻒ
3- Build a house of quality.
ﻣﻨ
ﻴﺮ
4- Explain Motivations for introducing new
ﻋﻠ
ﻰ
products.
اﻟﺒ
ﻠﺘ
ﺎﺟ
• Introduction
ﻰ
8
5
An in-depth understanding of the dimensions of any
14
70
productive system crystallizes in the perception of the
61
20
combination between technology and people, which
31
focuses on the productive process, whether in industrial
30
70
projects or service projects, and therefore the total
79
productive system with its various components is
7
91
influenced in part by production processes and vice
02
01
versa.
The design of the product in the past was not based on
valid studies of the desires of consumers, but was a
speculative work based on the experience and
192 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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experiences of producers, and these guesses were not
based on methods or scientific research, and helped to
spread this policy lack of supply from demand, which led
the consumer to buy the products offered even if they
did not fully satisfy his desires, because there is nothing
ﺷ
ﺮﻳ
considered better than them, but the situation has
ﻒ
ﻣﻨ
changed in time Present than in the past, the consumer
ﻴﺮ
ﻋﻠ
became the master of attitude chooses from a wide range
ﻰ
اﻟﺒ
of products, so producers began to care about designing
ﻠﺘ
ﺎﺟ
products and making improvements to them whenever
ﻰ
8
the need arises, and this interest has been particularly
5
14
evident at the end of World War I to the present.
70
61
1- Defining a Product:
20
The concept of a product can be expressed as a set
31
30
of physical properties such as carbon or sulfur ratio,
70
spillage point, color, smell, liquid or gaseous state,
7 79
ignition velocity, or exhaust type.
91
02
This is in addition to the fact that the product is
01
usually sold in conjunction with a set of services
necessary for its effective use, which is provided by the
product, the intermediary or both, and therefore the
product is the set of physical properties in addition to the
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set of services associated with it, provided with it to the
buyer.
However, this definition of the concept of the product
remains incomplete because it views the product more in
the seller's point of view than in the buyer's point of
ﺷ
ﺮﻳ
view, while the buyer's perceptions of the product are
ﻒ
ﻣﻨ
the most important from a marketing point of view, the
ﻴﺮ
ﻋﻠ
product for the buyer is more than just a set of material
ﻰ
properties and arranged services, that it is – that is, the
اﻟﺒ
ﻠﺘ
ﺎﺟ
product – a means of satisfying certain needs and desires
ﻰ
he has – that is, the buyer, who evaluates the product by
8
5
14
the criterion of his ability to Satisfying those needs and
70
61
desires. The consumer, when he parks his car next to the
20
filling pumps, does not buy gasoline, but he buys the
31
30
right to operate his car, or more than that he buys a way
70
to move easily and quickly from one place to another
7 79
91
using his car, the housewife does not buy an insecticide,
02
but buys the safety and not to disturb her house, and the
01
farmer does not buy fertilizer, but buys the abundance
of the crop. Accordingly, it can be said that the concept
of the product in the petroleum industry includes three
dimensions at once: the physical properties, the
194 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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associated services and the available gratifications, and
the extent of the interdependence between these
dimensions can be expressed in the following form and
the placement of the available gratifications, which are
included in the product, in the base of the triangle is
ﺷ
ﺮﻳ
intended to clarify that the basis in the product is the
ﻒ
ﻣﻨ
gratifications it promises, and then the physical
ﻴﺮ
ﻋﻠ
properties and services associated with that basis are
ﻰ
اﻟﺒ
determined, and the decrease in gratifications loses the
ﻠﺘ
ﺎﺟ
product Its foundation, and thus the physical properties
ﻰ
8
and services associated with it become as worthless, or
5
14
as a structure without a foundation .
70
61
20
31
30
70
7 79
91
02
01
195 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
58
14
70
(1) The Core Product:
61
The core product satisfies the most basic need of the
20
31
customer.
30
(2) The Tangible Product:
70
79
Once the core product has been identified, the tangible
7
91
product becomes important. Tangible means
02
01
“perceptible by touch,” so the tangible aspects of a
product are those that can be touched and held.
(3) The Augmented Product:
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The augmented product includes the tangible product
and all of the services that support it. Often, the buyer
expects these services and would reject the tangible
product if they were not available.
(4) The Promised Product:
ﺷ
ﺮﻳ
The outer ring of the product is referred to as
ﻒ
ﻣﻨ
the promised product. Every product has an implied
ﻴﺮ
ﻋﻠ
promise, which is a characteristic that is attached to the
ﻰ
اﻟﺒ
product over time.
ﻠﺘ
ﺎﺟ
According to Peter Drucker, “Suppliers and
ﻰ
8
especially manufacturers have market power because
5
14
they have information about a product or a service that
70
61
the customer does not and cannot have, and does not
20
need if he can trust the brand. This explains the
31
30
profitability of brands.”
70
It should also be clarified that the gratifications
7 79
91
available using a particular product are not limited only
02
to the physical function of the product, but also include
01
its psychological function, and therefore any product
includes tangible elements and intangible elements that
interact together to give an integral satisfaction to the
197 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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psychological and non-psychological needs of the
consumer.
If we recall this fact, and with it also the great
flexibility of the range of services that can be sold in
conjunction with the product with its purely physical
ﺷ
ﺮﻳ
characteristics, we show the way to overcome the
ﻒ
ﻣﻨ
problem of the relative stability of the physical
ﻴﺮ
ﻋﻠ
properties of petroleum when thinking about product
ﻰ
اﻟﺒ
development.
ﻠﺘ
ﺎﺟ
In addition, these physical properties are not
ﻰ
8
absolutely constant in the consumable product extracted
5
14
from the ore after refining or manufacturing, but can be
70
61
controlled to a certain extent, where the proportions of
20
derivatives can be changed, and the octane ratios in
31
30
gasoline can be changed, for example, and the properties
70
of oils can be changed, and the quality of asphalt can be
7 79
91
changed, and the more we progress to lower stages of the
02
petroleum industries, the greater the flexibility in
01
determining the physical characteristics of the product,
and the more available More freedom in the work of
product planning.
198 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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2- Product Design:
Product design depends on several factors,
including:
(1) The type and nature of the product, and whether
it is a productive commodity or a consumer
ﺷ
ﺮﻳ
commodity, the design demanded by the consumer in
ﻒ
ﻣﻨ
consumer goods is different from that of productive
ﻴﺮ
goods.
ﻋﻠ
ﻰ
(2) The size, nature and location of the market in
اﻟﺒ
ﻠﺘ
ﺎﺟ
which the product is sold, the extent of competition
ﻰ
and the extent of productive progress achieved by
8
5
14
competitors.
70
61
(3) The price at which the product is expected to be
20
sold, if the product aims to sell at a price higher than
31
30
the market price, it should pay close attention to the
70
design, unlike if the product aims to sell at a price
7 79
lower than the market price.
91
02
(4) Design costs, and the extent to which the product
01
has the opportunity to raise the sale price so that it
can cover the backup commissioning that it spent on
the design.
199 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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(5) Different purchasing habits and tastes depending
on the environment in which the consumer lives, for
example there is a marked difference between the
wishes of rural people and urban dwellers, and this
of course affects the design of the product, for
ﺷ
ﺮﻳ
example, we find that consumers in the countryside
ﻒ
ﻣﻨ
are largely accepting the purchase of popular fabrics
ﻴﺮ
ﻋﻠ
of certain colors other than the people of cities.
ﻰ
اﻟﺒ
Given the nature of the design of goods and
ﻠﺘ
ﺎﺟ
services can be said to be a continuous or continuous
ﻰ
8
business, as long as the project works for survival
5
14
and its continued success, this is evident in advanced
70
61
economic systems characterized by strong
20
competition and constant change in the needs,
31
30
desires and tastes of consumers, as well as change in
70
different technical and technological fields. In fact,
7 79
91
the continuity of the goods and services design
02
function, which relates to the continuity of projects
01
in the provision of products and services, is mainly
due to the fact that each product has a life cycle,
which is illustrated by the following form:
200 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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ﺷ
ﺮﻳ
ﻒ
ﻣﻨ
ﻴﺮ
ﻋﻠ
ﻰ
اﻟﺒ
ﻠﺘ
ﺎﺟ
ﻰ
8
3- What Is the Product Life Cycle?
5
14
If we recognize that the needs of the market, and
70
therefore the satisfaction required of the product
61
20
change over time, and if we also recognize the
31
30
inevitability and speed of technological change, you
70
must recognize that each product has a life cycle,
7 79
starting with its introduction to the market and
91
02
ending with its withdrawal from the market through
01
the stages of growth, maturity and saturation.
The duration of each stage of the cycle will
certainly vary depending on the product, some
products may jump from submission to maturity,
201 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
some may never reach maturity and other patterns
depending on the degree of compatibility between
the product, technology and the market, but
recognizing the existence of this cycle in principle is
necessary when managing marketing work.
ﺷ
ﺮﻳ
Kotler distinguishes in the application of the
ﻒ
ﻣﻨ
concept of the life cycle of the product between the
ﻴﺮ
ﻋﻠ
type of product, the shape of the product, and the
ﻰ
اﻟﺒ
brand of the product, and this distinction is of great
ﻠﺘ
ﺎﺟ
importance in realizing the meaning and benefit
ﻰ
8
from the application of the concept of the life cycle of
5
14
the product in the design of the marketing strategy
70
61
in general, however, we believe that another
20
distinction more important in the petroleum
31
30
industry should be taken care of, where we have to
70
differentiate between the life cycle of the product
7 79
91
itself and the life cycle of using that product.
02
The product life cycle has 4 very clearly defined
01
stages, each with its own characteristics that mean
different things for business that are trying to
manage the life cycle of their particular products.
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(1) Introduction Stage – This stage of the cycle could
be the most expensive for a company launching a
new product. The size of the market for the product
is small, which means sales are low, although they
will be increasing. On the other hand, the cost of
ﺷ
ﺮﻳ
things like research and development, consumer
ﻒ
ﻣﻨ
testing, and the marketing needed to launch the
ﻴﺮ
product can be very high, especially if it’s a
ﻋﻠ
ﻰ
اﻟﺒ
competitive sector.
ﻠﺘ
ﺎﺟ
(2) Growth Stage – The growth stage is typically
ﻰ
8
characterized by a strong growth in sales and profits,
5
14
and because the company can start to benefit from
70
61
economies of scale in production, the profit margins,
20
as well as the overall amount of profit, will increase.
31
30
This makes it possible for businesses to invest more
70
money in the promotional activity to maximize the
7 79
91
potential of this growth stage.
02
(3) Maturity Stage – During the maturity stage, the
01
product is established and the aim for the
manufacturer is now to maintain the market share
they have built up. This is probably the most
competitive time for most products and businesses
203 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
need to invest wisely in any marketing they
undertake. They also need to consider any product
modifications or improvements to the production
process which might give them a competitive
advantage.
ﺷ
ﺮﻳ
(4) Decline Stage – Eventually, the market for a
ﻒ
ﻣﻨ
product will start to shrink, and this is what’s known
ﻴﺮ
ﻋﻠ
as the decline stage. This shrinkage could be due to
ﻰ
اﻟﺒ
the market becoming saturated (i.e., all the
ﻠﺘ
ﺎﺟ
customers who will buy the product have already
ﻰ
8
purchased it), or because the consumers are
5
14
switching to a different type of product. While this
70
61
decline may be inevitable, it may still be possible for
20
companies to make some profit by switching to less-
31
30
expensive production methods and cheaper markets.
70
4- Motivations for introducing new products:
7 79
Anyone who thinks that the field of introducing new
91
02
products in the petroleum industry is a limited field by
01
nature, this suspicion is often caused by a misconception
about the industry and about the product, as the industry
originally does not sell oil, but sells gratifications to the
needs of customers, and the crude product itself
204 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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fortunately has enormous potential in terms of diversity
of uses, and the following are examples of reasons that
may call on the petroleum company to introduce new
products.
A. Utilization of current production exhausts: The
ﺷ
ﺮﻳ
petroleum industry was initially an oil industry in the
ﻒ
ﻣﻨ
first place, and as a result of this the gas produced in
ﻴﺮ
ﻋﻠ
conjunction with oil was wasted by burning without
ﻰ
اﻟﺒ
thinking of benefiting from it and still in fact wasted
ﻠﺘ
ﺎﺟ
burning at the head of the well in many oil-exporting
ﻰ
8
countries, but innovative thinking led to the discovery of
5
14
ways to benefit from it and thus provide new gas-based
70
61
products, in the field of petroleum chemicals, and since
20
petroleum chemicals alone exhaust all the gas available
31
30
in each Countries, the liquefied gas industry has been
70
established to overcome the problem of transporting gas
7 79
91
over long distances, and more so innovative thinking has
02
led to the development of a natural gas alternative gas
01
product of methanol, which is based on the conversion of
natural gas to methanol alcohol (methanol) in the places
of production of this gas, and then the transfer of this
liquid substance to places of consumption where
205 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
methanol is broken down again and converted into gases
suitable for domestic consumption or for direct use as
clean fuel in generating stations Electricity or for large
factories instead of natural gas and other petroleum
fuels.
ﺷ
ﺮﻳ
B- Satisfying the changing needs of the market: The
ﻒ
ﻣﻨ
widespread use of automatic washing machines in
ﻴﺮ
ﻋﻠ
household chores, as well as the spread of the use of
ﻰ
اﻟﺒ
synthetic fibers in the manufacture of clothes have
ﻠﺘ
ﺎﺟ
created new needs for the consumer for industrial
ﻰ
8
detergents of a type that suits the conditions of the new
5
14
consumer, and therefore the need arises to introduce new
70
61
products, the spread of awareness of the observance of
20
safety considerations in driving cars creates the need for
31
30
new products that the petroleum industry can offer such
70
as a small fire extinguisher or life belts, or others, and the
7 79
91
intensification of the call against environmental pollution
02
creates The need for cleaner products for the petroleum
01
industry to provide, and the continuous development of
the engines of land, air and sea transport creates the
needs for new products that satisfy the changing needs of
the consumer, examples otherwise abound.
206 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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C. Confronting the obsolescence of existing products:
Obsolescence occurs either as a result of the development
of new technology, or as a result of the change in the
desires of consumer markets, and no one thinks that
petroleum as an energy source could in the future be
ﺷ
ﺮﻳ
threatened by the development of new sources of energy
ﻒ
ﻣﻨ
on acceptable economic bases - especially after the rise in
ﻴﺮ
ﻋﻠ
oil prices - but that consumer countries are now
ﻰ
اﻟﺒ
intensifying their efforts in this direction, and the
ﻠﺘ
ﺎﺟ
objectives announced within the program of the
ﻰ
8
International Energy Agency include reducing
5
14
dependence on imported oil, including through the
70
61
development of sources of Alternative energy, doing
20
energy research and development, and using uranium,
31
30
and this means that the petroleum company or the oil-
70
exporting country must work to introduce new products
7 79
91
to counter this potential obsolescence, whether it is in the
02
form of developing new uses for the current product, or
01
in the form of diversifying its commodity mix so that it
includes new alternative sources of energy, and we have
already shown elsewhere how global petroleum
companies have applied this concept extensively. In its
207 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
product strategy, in addition to the obsolescence in
manufactured petroleum products occurs constantly and
requires constant thinking about introducing new
products to counter it and maintain the profit position of
the petroleum company.
ﺷ
ﺮﻳ
D. Utilizing the available marketing possibilities: The
ﻒ
ﻣﻨ
great development of car filling stations is the most
ﻴﺮ
ﻋﻠ
prominent example of the possibility of taking advantage
ﻰ
اﻟﺒ
of the available distribution outlets by offering new
ﻠﺘ
ﺎﺟ
products directly related to petroleum or not directly
ﻰ
8
related to it, the filling station has become a place where
5
14
all the necessary products (goods or services) of
70
61
petroleum or non-petroleum (goods or services) such as
20
gasoline, tire air, battery means, engine control, engine
31
30
adjustment, floor pedals, small spare parts, tire repair,
70
sea equipment, rental of plates to agencies Advertising,
7 79
91
rust remover, lubrication, laundry, snacks, cash credit,
02
refreshments, shoe wiping, automated sale of insurance
01
policies, oils, newspapers and magazines, oil change,
mineral drinking water, greeting cards, compliments,
mail services, souvenirs, and much more.
208 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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(e) Production of a domestic commodity instead of a
foreign commodity: It often happens that the state tends
to limit imports, whether to apply a policy of self-
sufficiency, to scarcity of foreign exchange or to provide
royalties paid to foreign companies in the case of
ﺷ
ﺮﻳ
domestic production with a special license, and this is a
ﻒ
ﻣﻨ
motivation for the petroleum company to proceed with
ﻴﺮ
ﻋﻠ
the production of a new product that replaces the
ﻰ
اﻟﺒ
imported foreign product or the product manufactured
ﻠﺘ
ﺎﺟ
locally with a special license, and this case applies for
ﻰ
8
example in the case of the National Petroleum Company
5
14
(Kuwait) where it can start offering a commodity New –
70
61
engine oil – instead of importing it from abroad, it also
20
applies to the Petroleum Cooperative Society Company
31
30
(Egypt) where it can also stop its dependence on foreign
70
companies in the field of automotive oils that produce it
7 79
91
with a special license in exchange for the respective
02
royalties, and begin to offer new parallel products of its
01
production.
F- Providing an integrated assortment for the client: The
competitive position of the petroleum company can
always be strengthened, and its profit position
209 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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strengthened by extension by trying to provide an
integrated assortment to the customer from the angle of
his consumer needs, for example if the plan to establish
an aluminum factory in Kom Ombo (Egypt) or the plan
to establish a fertilizer plant in Talkha (Egypt) has been
ﺷ
ﺮﻳ
approved the petroleum company can immediately
ﻒ
ﻣﻨ
contact the prospective customer, (the plant to be
ﻴﺮ
ﻋﻠ
established) to study his needs, and thus the possibility of
ﻰ
اﻟﺒ
the company to survive by satisfying these needs in an
ﻠﺘ
ﺎﺟ
integrated manner, for goods. The services that fall
ﻰ
8
within the company's field of work, usually in these cases
5
14
offer opportunities to provide new products (goods or
70
61
services), and by the same logic the ships that we supply
20
with fuel from the company's petroleum warehouses can
31
30
also be sold to them a range of services or other goods
70
within the framework of offering an integrated formation
7 79
91
to the customer, and this mostly means thinking about
02
introducing new products.
01
G. Expanding the market through shaping: Formation
means the addition of new sizes, sizes, colors, quality
levels or packaging of existing products, and this leads to
meeting the needs of larger segments of the market, thus
210 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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developing the available marketing opportunities, if the
company's production of automotive fuel includes a
certain level of octane, then new types of gasoline can be
added in new octane proportions, and if the current
packaging of engine oil of 3 kg can be added new
ﺷ
ﺮﻳ
packaging to suit the needs of cars of different sizes, New
ﻒ
ﻣﻨ
sizes can also be added from the tires marketed by the
ﻴﺮ
ﻋﻠ
company.... Etc.
ﻰ
اﻟﺒ
H. Benefiting from new inventions and discoveries:
ﻠﺘ
ﺎﺟ
There is a wide scope for the petroleum company to
ﻰ
8
present new products by which to exploit new inventions
5
14
and technological discoveries and turn them into
70
61
gratifications of better existing needs, or needs that were
20
not saturated before, and it is fortunate for the petroleum
31
30
industry that hardly a long time passes without the
70
emergence of a new invention or discovery that can
7 79
91
benefit from a new introduction based in its ores on
02
petroleum in whole or in part.
01
• References:
(1) Kumar, S. A., & Suresh, N.
(2009). Operations management. New Age
International.
211 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
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Production Management
(2) Khanna, R. B. (2015). Production and
operations management. PHI Learning Pvt. Ltd.
Martinich, J. S. (2008). Production and
operations management: An applied modern
approach. John Wiley & Sons.
(3) Pycraft, M. (2000). Operations management.
ﺷ
Pearson South Africa.
ﺮﻳ
(4) Chary, S. N. (2017). Production and operations
ﻒ
management. McGraw Hill Education.
ﻣﻨ
ﻴﺮ
(5) Hayes, D. K., Ninemeier, J. D., & Miller, A. A.
ﻋﻠ
(2017). Hotel operations management. Upper
ﻰ
Saddle River, NJ: Pearson.
اﻟﺒ
ﻠﺘ
(6) Hitt, M. A., Xu, K., & Carnes, C. M. (2016).
ﺎﺟ
Resource based theory in operations
ﻰ
8
management research. Journal of Operations
5
14
Management, 41, 77-94.
70
(7)Heizer, J. (2016). Operations management,
61
11/e. Pearson Education India.
20
(8) Ivanov, D., Tsipoulanidis, A., & Schönberger,
31
J. (2017). Global supply chain and operations
30
management. A decision-oriented introduction to
70
the creation of value, 2.
7 79
91
02
01
212 Prof.Hassanein Taha & Prof. Ammar Fathy O.M.
اﻟﺒﻠﺘﺎﺟﺷﺮﻳﻒ ﻣﻨﻴﺮ ﻋﻠ 01029177970 30312061701458
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