Definition: Industrial engineering method is a physical way of examining the relationship between cost drivers and costs by analyzing the inputs coming into the company, the outputs that are created, and the work that goes into the process. In other words, it is a detailed look at the entire production process and how that process affects the costs of an organization.
What Does Industrial Engineering Method Mean?
What is the definition of industrial engineering method? Regardless of the specifics of a manufacturing process, units go in and outputs are created at a manufacturing company. When there is a physical between those inputs and outputs, analyzing that relationship can help managers to examine and control costs. This may include something like a time-and-motion studies that express how much direct machinery time is needed to produce a certain amount of output.
While engaging in the industrial engineering method is helpful in examining the physical relationship between inputs and outputs, particularly if the company is interested in performing activity-based costing, it is also very costly and time consuming. For smaller organizations, the industrial engineering method of cost estimation may simply be out of scope.
Let’s look at an example.
Cara is the CFO of a large business that manufactures curtains. The inputs for these curtains include wood, dye, thread, machine hours, and labor. The output, of course, is the finished curtain. Her business uses the industrial engineering method to help estimate costs. Why is this a good choice for Cara’s organization? What information might it give her?
Cara’s organization benefits from the use of this method because it is large and there is a physical relationship between the inputs and the output. It might allow her to discover how much of an input produces a certain amount of output. She may discover, for example, that it takes two hours of direct labor to produce twenty square feet of curtain.
Define Industrial Engineering Method: This means a way of comparing cost drivers and objects to see how the company can make its operations more efficient.