3 Chapter Product Design & Process Selection
Operations Management by R. Dan Reid & Nada R. Sanders 3rd Edition Wiley 2007
PowerPoint Presentation by R.B. Clough UNH M. E. Henries UAA
2007 Wiley
Learning Objectives
Define product design and its strategic impact on organization Describe steps to develop a product design Using breakeven analysis as a tool in selecting between alternative products Identity different types of processes and explain their characteristics Understand how to use a process flowchart Understand how to use process performance metrics Understand current technology advancements and how they impact process and product design Understand issues impacting the design of service operations
2007 Wiley
Product Design
Product design the process of defining all of the companies product characteristics
Product design must support product manufacturability (the ease with which a product can be made) Product design defines a product's characteristics of;
appearance, materials, dimensions, tolerances, and performance standards
2007 Wiley
Design of Services versus Goods
Service design is unique in that the service and entire service concept are being designed
Must define both the service and concept
Physical elements, aesthetic and psychological benefits e.g. promptness, friendliness, ambiance
Product and service design must match the needs and preferences of the targeted customer group
2007 Wiley
Product and Service Design
Product design and process selection affects
Product quality Product cost Customer satisfaction Overall manufacturability the ease with which the product can be made
2007 Wiley
The Product Design Process
Someone thinks of a need and a product/service design to satisfy it e.g. customers, marketing, engineering, competitors, benchmarking, reverse engineering
Step 1 Idea Development
Step 2 Product Screening Every business needs a formal/structured evaluation process e.g. fit with facility and labor skills, size of market, contribution margin,
breakeven analysis, return on sales
Technical specifications are developed, prototypes built, testing starts
Step 3 Preliminary Design and Testing Step 4 Final Design
Final design based on test results, facility, equipment, material, & labor skills defined, suppliers identified
2007 Wiley
Idea Development
Existing and target customers
Benchmarking
Customer surveys & focus groups Studying "best in class" companies from your industry or others and comparing their practices and performance to your own Disassembling a competitor's product and analyzing its design characteristics and how it was made
Reverse engineering
Suppliers, employees and technical advances
2007 Wiley
BreakEven Analysis: Graphical Approach
Compute quantity of goods that must be sold to breakeven Compute total revenue at an assumed selling price Compute fixed cost and variable cost for several quantities Plot the total revenue line and the total cost line Intersection is breakeven Sensitivity analysis can be done to examine changes in all of the assumptions made
2007 Wiley
BreakEven Analysis
TC = F + (VC ) Q
Total cost = fixed costs + variable costs (quantity):
R = ( SP ) Q
Revenue = selling price (quantity)
Breakeven point is where total costs = revenue:
TC = R or or
F + (VC ) Q = ( SP ) Q
F Q= SP - VC
2007 Wiley
Example
A firm estimates that the fixed cost of producing a line of footwear is $52,000 with a $9 variable cost for each pair produced. They want to know:
If each pair sells for $25, how many pairs must they sell to breakeven? If they sell 4000 pairs at $25 each, how much money will they make?
2007 Wiley
Example Solved
Breakeven point:
F $52,000 Q= = = 3250 pairs SP - VC $25 - $9
P = ( SP ) Q - ( F + (VC ) Q ) = ( $25) 4000 - ( $52,000 - ( $9 ) 4000 ) = $12,000
2007 Wiley
Profit = total revenue total costs
Breakeven calculation: A company is planning to establish a chain of movie theaters. It estimates that each new theater will cost approximately $1 Million. The theaters will hold 500 people and will have 4 showings each day with average ticket prices at $8. They estimate that concession sales will average $2 per patron. The variable costs in labor and material are estimated to be $6 per patron. They will be open 300 days each year. What must average occupancy be to breakeven?
BreakEven Point Total revenues = Total costs @ breakeven point Q
Selling price*Q = Fixed cost + variable cost*Q ($8+$2)Q= $1,000,000 + $6*Q Q = 250,000 patrons (42% occupancy) What is the gross profit if they sell 300,000 tickets P = $10*300,000 (1,000,000 + $6*300,000) P = $200,000 If concessions only average $.50/patron, what is breakeven Q now? (sensitivity analysis) ($8.50)Q = 1,000,000 $6*Q Q = 400,000 patrons (67% occupancy) 2007 Wiley
Profit = Total Revenue Total Costs
Factors Impacting Product Design
Need to Design for Manufacturing DFM Series of guidelines to follow in order to produce a product easily and profitably
Simplification Minimize parts Standardization
Design parts for multiply applications
Use modular design Simplify operations
2007 Wiley
DFM Benefits
Lower costs:
Higher quality:
Lower inventories (fewer, standardized components) Less labor required (simpler flows, easier tasks) Simple, easytomake products means fewer opportunities to make mistakes
2007 Wiley
Factor In Product Life Cycle
Product life cycle series of changing product demand Consider product life cycle stages
Facility & process investment depends on life cycle
Introduction Growth Maturity Decline
2007 Wiley
Concurrent Engineering
Old "overthe wall" sequential design process should not be used
Each function did its work and passed it to the next function
Replace with a Concurrent Engineering process
All functions form a design team working together to develop specifications, involve customers early, solve potential problems, reduce costs, & shorten time to market
2007 Wiley
Process Selection
Product design considerations must include the process Two broad process classifications include
Intermittent operations produce a variety of products in lower volumes Repetitive operations produce one or a few standardized products in high volume
2007 Wiley
Process Selection
Process selection is based on five considerations
Type of process; range from intermittent to continuous Degree of vertical integration Flexibility of resources Mix between capital & human resources Degree of customer contact
2007 Wiley
Process Selection
Process types can be:
Process types exist on a continuum
2007 Wiley
Project make process a oneatatime product exactly to customer specifications Batch process small quantities of product in groups or batches based on customer orders or specifications Line process large quantities of a standard product Continuous process very high volumes of a fully standard product
Underlying Process Relationship Between Volume and Standardization Continuum
2007 Wiley
Differences between Intermittent and Continuous Operations
Decision Product variety Degree of standardization Organization of resources Path of products Factor driving production Critical resource Type of equipment Degree of automation Throughput time
Workinprocess inventory
I ntermittent Operation Great Low Grouped by Function Varied, depends on product Customer orders Labor General purpose Low Longer More
2007 Wiley
Continuous Operation Small High Line flow Line flow Forecast of demand Capital Specialized High Shorter Less
Designing Processes
Process design tools include
Design considerations include
Process flow analysis Process flowchart
Maketostock strategy Assembletoorder strategy Maketoorder strategy
2007 Wiley
Process Design Tools
Process flow analysis is a tool used to analyze and document the sequence of steps within a total process. Usually first step in Process Reengineering.
Process Re engineering is a structured approach used when major business changes are required as a result of:
Major new products Quality improvement needed Better competitors Inadequate performance
2007 Wiley
Process Performance Metrics
Determining if a process is functioning properly is required Determination requires measuring performance
Process performance metrics measurement of different process characteristics that tell us how a process is performing
2007 Wiley
Process Performance Metrics
2007 Wiley
Linking Product Design and Process Selection
Product design and process selection directly linked Type of product selected defines type of operation required Type of operation available defines broader organizational aspects such as
Equipment required Facility arrangement Organizational structure
2007 Wiley
Linking Design and Process Selection
Organizational Decisions appropriate for different types of operations
2007 Wiley
Intermittent vs. Repetitive Layouts
2007 Wiley
Product and Service Strategy
Type of operation is directly related to product and service strategy Three basic strategies include
Maketostock; in anticipation of demand Assembletoorder; built from standard components on order Maketoorder; produce to customer specification at time of order
2007 Wiley
Product and Service Strategy
2007 Wiley
Product and Service Strategy Options
2007 Wiley
Process DecisionsVertical Integration and Make or Buy
Vertical integration refers to the degree a firm chooses to do processes itself raw material to sales
Backward Integration means moving closer to primary operations Forward Integration means moving closer to customers
A firm's MakeorBuy choices should be based on the following considerations:
Strategic impact Available capacity Expertise Quality considerations Speed Cost (fixed cost + variable cost)make = Cost (fixed cost + Variable cost)buy Business are trending toward less backward integration, more outsourcing
2007 Wiley
Manufacturing Technology Decisions
Simplify first then apply appropriate technology Information Technology: ERP, GPS, RFID Automation Automated Material Handling:
Automated guided vehicles (AGV) Automated storage and retrieval systems (AS/RS)
Flexible Manufacturing Systems (FMS) Robotics & NumericallyControlled (NC) equipment
2007 Wiley
Emanufacturing
Webbased environment creates numerous business opportunities to include;
Computeraided design uses computer graphics to design new products Computerintegrated manufacturing integration of product design, process planning, and manufacturing using an integrated computer system
2007 Wiley
Product design collaboration Process design collaboration
How Are Services Different from Manufacturing
Services are different from manufacturing as the...