Sunday, May 29, 2016

Industrial Engineering Economics - Important Component of Industrial Engineering



The objectives of industrial engineering are productivity, efficiency, cost reduction and resource minimization.

Industrial engineers are responsible for decreasing the use of all resources used in production of products and services. To achieve this objective, industrial engineers have to redesign products and processes. This redesign activity is closer to management functions of planning and organizing. Thus industrial engineers develop more productive products and processes. To develop more productive products and processes industrial engineers identify and use freshly available technologies. As industrial engineer is modifying newly designed systems and systems in current use with the objective of reducing cost and eliminating waste, each decision of industrial engineer is to be subjected to economic analysis that assures that costs are decreasing and profits are increasing due to the industrial engineering improvements.

While in the initial iterations, the design engineers are more concerned with fulfilling the technical requirements, in the later iterations of design industrial engineers are more concerned with finding alternate ways of satisfying the technical requirements with lower cost alternatives. The specialty of industrial engineering knowledge accumulated in the handbooks of the profession regarding low cost alternatives that satisfy various technical requirements and also the experience of the professionals in using those alternatives in practical situations and realizing cost economies. Each year the profession accumulates more and more knowledge that furthers the objective or productivity (producing more output from the same output).


Engineering economics is the subject that attempts to convert engineering alternatives into economic terms. The basic model of engineering economics is one time investment or cash outflow followed by cash inflow as savings in costs (cost minimization models). A summary measure of return is calculated from this model and it is compared with the cost of capital (that is used in cash outflow).

The importance of industrial engineering economics is that whenever a new technology like cloud computing, Internet of things etc. emerge industrial engineers have to do engineering economic analysis and decide the appropriate time to adopt the technology in their organization to realize productivity improvement. New technology sellers have to contact industrial engineers and explain to the cost reduction potential of their technologies so that they can jointly do the engineering economic analysis for the organization and decide on implementing the technology.

Industrial engineering professional societies and academic institutions also have to arrange similar interaction between new technology sellers and the institution so that they can come out with more general analysis justifying adoption of the technology.

Engineering economic analysis is thus a very important component of industrial engineering to accelerate the productivity in the organization through adoption of new technologies as they emerge from any R&D organization in the world.

No doubt every industrial engineering proposal must the accompanies by economic analysis that shows that there will be cost reduction and increase in profit for the company.


Engineering Economic Analysis - Case Studies

June - Industrial Engineering Knowledge Revision Plan

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