ch03.ppt

© 2010 Wiley 1
Chapter 3 - Product Design &
Process Selection
Operations Management
by
R. Dan Reid & Nada R. Sanders
4th Edition © Wiley 2010

© 2010 Wiley
Remember the Tucker!
The Tucker automobile of the late 1940s stands out as
one of the most celebrated failures in the annals of
American business. With its aerodynamic sheet metal,
rear-mounted engine, and a Cyclops headlight that
turned in tandem with the steering wheel, the
prototype “Tucker 48” shown to the public in 1947
generated quite a bit of excitement. But the Tucker 48
never made it into mass production. Only 51 models
were produced, all largely fabricated by hand at
tremendous expense.

© 2010 Wiley
Remember the Tucker!
http://www.hfmgv.org/exhibits/showroom/1948/tucker.
html
Existing equipment and processes were not capable of
executing the relatively sophisticated design of the
Tucker 48 on a large scale. Thus the Tucker 48
provides an object lesson in the need to design for
manufacturing (DFM). DFM is part of the concurrent
engineering movement that blossomed in the 1980s.
DFM stresses the need to incorporate the perspective
of manufacturing engineering into the earliest stages of
product design.

© 2010 Wiley 4
Concurrent Engineering
Old “over-the-wall” sequential
products design process
 Each function did its work and
passed it to the next function
Improved Concurrent Engineering
process
 All functions form a design team
that develops specifications,
involves customers early, solves
potential problems, reduces
costs, & shortens time to
market

© 2010 Wiley 5
Product Design & Process
Selection - defined
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.
Process Selection – the development of the process necessary to
produce the designed product.

© 2010 Wiley 6
The Product Design Process
Idea development: all products begin
with an idea whether from:
 customers,
 competitors or
 suppliers
Reverse engineering: buying a
competitor’s product

© 2010 Wiley 7
Product Design Process
 Idea developments selection affects
 Product quality
 Product cost
 Customer satisfaction
 Overall manufacturability – the ease
with which the product can be made

© 2010 Wiley 8
The Product Design Process
Step 1 - Idea Development - Someone thinks of a need and a
product/service design to satisfy it: customers, marketing,
engineering, competitors, benchmarking, reverse engineering
Step 2 - Product Screening - Every business needs a
formal/structured evaluation process: fit with facility and labor
skills, size of market, contribution margin, break-even analysis,
return on sales
Step 3 – Preliminary Design and Testing - Technical specifications
are developed, prototypes built, testing starts
Step 4 – Final Design - Final design based on test results, facility,
equipment, material, & labor skills defined, suppliers identified

© 2010 Wiley 9
Design for Manufacturing (DFM)
 Guidelines to produce a
product easily and
profitably
 Simplification -
Minimize parts
 Standardization
 Design parts for
multiply
applications
 Use modular design
 Simplify operations

© 2010 Wiley 10
Product Screening Tool –
Break-Even Analysis con’t
 Break-even analysis considers two functions of Q
 Total cost – sum of fixed and variable cost
Total cost = F + (VC)*Q
 Revenue – amount of money brought in from sales
Revenue = (SP) * Q
Q = number of units sold

© 2010 Wiley 11
Break-Even Analysis: Graphical Approach
 Compute quantity of goods that
must be sold to break-even
 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 break-even
 Sensitivity analysis can be done
to examine changes in all of the
assumptions made

© 2010 Wiley 12
Product Screening Tool –
Break-Even Analysis
 Computes the quantity of goods
company needs to sell to cover its costs
QBE = F/ (SP - VC)
 QBE – Break even quantity
 F – Fixed costs
 SP – selling price/unit
 VC – Variable cost

© 2010 Wiley 13
Break-Even Example:
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 break-
even?

© 2010 Wiley 14
Break-Even Example
Calculations
 Break-Even Point
Total revenues = Total costs @ break-even 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
Profit = Total Revenue – Total Costs
P = $10*300,000 – (1,000,000 + $6*300,000)
P = $200,000
 If concessions only average $.50/patron, what is break-
even Q now? (sensitivity analysis)
($8.50)Q = 1,000,000 - $6*Q
Q = 400,000 patrons (67% occupancy)

© 2010 Wiley
Is Breakeven Analysis really in use?
 http://www.businessweek.com/magazin
e/content/06_44/b4007026.htm?chan=
search

© 2010 Wiley 16
Process Selection
 Product design considerations must include the
process
 Intermittent processes:
 Processes used to produce a variety of products
with different processing requirements in lower
volumes. (such as healthcare facility)
 Repetitive processes:
 Processes used to produce one or a few
standardized products in high volume. (such as a
cafeteria, or car wash)

© 2010 Wiley 17
Product-Process Grid

© 2010 Wiley 18
Process Types
 Process types can be:
 Project process – make a one-at-a-time 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
 Process types exist on a continuum

© 2010 Wiley 19
Intermittent VS. Repetitive Facility
Layouts

© 2010 Wiley 20
Process Selection Considerations
 Process selection is based on five
principal considerations
1. Product-Process Grid
2. Degree of vertical integration
3. Flexibility of resources
4. Mix between capital & human resources
5. Degree of customer contact

© 2010 Wiley
Process Decisions-Vertical Integration
& 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 Make-or-Buy 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 [see Ch 4]
 Business are trending toward less backward integration, more
outsourcing

© 2010 Wiley 22
Product Life Cycle also affects decisions
 Product life cycle –
series of changing
product demand
 Consider product
life cycle stages
 Introduction
 Growth
 Maturity
 Decline
 Facility & process
investment depends on
life cycle

Tasks or operations
Examples: Giving an
admission ticket to a
customer, installing a
engine in a car, etc.
Decision Points
Examples: How much
change should be
given to a customer,
which wrench should
be used, etc.
Purpose and Examples
Source: Chase, Jacobs & Aquilano, Operations Management for Competitive Advantage, 11/e
Flowchart Symbols for Process Design

Examples: Sheds,
lines of people waiting
for a service, etc.
Examples: Customers
moving to a seat,
mechanic getting a
tool, etc.
Storage areas or
queues
Flows of
materials or
customers
Purpose and Examples
Source: Chase, Jacobs & Aquilano, Operations Management for Competitive Advantage, 11/e
Flowchart Symbols for Process Design

© 2010 Wiley 25
Process Improvement
Often stages in
the production
process can be
performed in
parallel, as
shown here in
(c) and (d). The
two stages can
produce
different
products (c) or
the same
product (d).

© 2010 Wiley 26
Process Performance Metrics
Process performance metrics – defined:
Measurement of different process
characteristics that tell us how a process is
performing
 Determining if a process is functioning properly
is required
 Determination requires measuring performance

© 2010 Wiley 27
Process Performance Metrics

© 2010 Wiley
Metrics Example: At Zelle’s Dry Cleaning, it takes an
average of 3 ½ hours to dry clean & press a shirt,
with value-added time estimated at 110 min. Workers
are paid for a 7-hour workday but work 5 ½ hr/day,
accounting for breaks and lunch. Zelle’s completes 25
shirts per day, while the industry standard is 28 for a
comparable facility.
Process Velocity = (Throughput Time)/(Value-added time)
= (210 minutes/shirt)/(110 minutes/shirt) = 1.90
Labor Utilization = (Time in Use)/(Time Available)
= (5 ½ hr)/(7 hr) = .786 or 78.6%
Efficiency = (Actual Output)/(Standard Output)
= (25 shirts/day)/(28 shirts/day) = .89 or 89%

© 2010 Wiley 29
Throughput Time
A basic process performance
metric is throughput time. A
lower throughput time means
that more products can move
through the system. One goal of
process improvement is to
reduce throughput time.

© 2010 Wiley 30
Linking Product Design &
Process Selection
 Product design and process selection are
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

© 2010 Wiley 31
Process Selection con’t
Impact of Product Life Cycle:
Intermittent and repetitive operations
typically focus on producing products in
different stages of the product life cycle.
Intermittent is best for early in product
life; repetitive is better for later when
demand is more predicable.

© 2010 Wiley 32
Process Selection, con’t
 Impact of Competitive Priorities:
Intermittent operations are typically
less competitive on cost than
repetitive operations. (Think “off the
rack” vs. custom tailored clothing.)

© 2010 Wiley 33
Linking Design & Process Selection: Summary
 Organizational Decisions appropriate for different types of operations

© 2010 Wiley
Product and Service Strategy
 Type of operation is directly related to
product and service strategy
 Three basic strategies include
 Make-to-stock; in anticipation of demand
 Assemble-to-order; built from standard
components on order
 Make-to-order; produce to customer
specification at time of order

© 2010 Wiley 37
Technology Decisions
Information Technology
 Simplify first then apply appropriate technology
 ERP, GPS, RFID
 Automation
 Automated Material Handling: Automated guided vehicles
(AGV), Automated storage & retrieval systems (AS/RS)
 Flexible Manufacturing Systems (FMS)
 Robotics & Numerically-Controlled (NC) equipment

© 2010 Wiley 38
E-manufacturing
 Web-based environment creates numerous
business opportunities to include;
 Product design collaboration
 Process design collaboration
 Computer-aided design – uses computer
graphics to design new products
 Computer-integrated manufacturing –
integration of product design, process
planning, and manufacturing using an
integrated computer system

© 2010 Wiley 39
Design of Services
 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 &
psychological benefits
e.g. promptness, friendliness, ambiance
 Product and service design must match the needs
and preferences of the targeted customer group

© 2010 Wiley 40
Designing Services vs Products?
 Services are different from
manufacturing as they;
 Produce intangible products
 Involve a high degree of customer contact
 Type of service is classified according to
degree of customer contact

© 2010 Wiley 41
Service Design Matrix
 Service Characteristics
 Pure services
 Quasi-Manufacturing
 Mixed services
 Service Package
 The physical goods
 The sensual benefits
 The psychological benefits
 Differing designs
 Substitute technology for
people
 Get customer involved
 High customer attention

© 2010 Wiley
How Services Can Learn from Manufacturing
http://www.businessweek.com/magazine/content/05_34/b3948443.htm?chan=search

© 2010 Wiley
Manufacturing Crisis?
 http://www.businessweek.com/magazin
e/content/09_38/b4147046115750.htm

© 2010 Wiley 44
Remanufacturing
Uses components of old products in the
production of new ones and has:
 Environmental benefits
 Cost benefits
Good for:
 Computers, televisions, automobiles

© 2010 Wiley 45
Product Design and Process
Selection Across the Organization
 Strategic and financial of product design
and process selection mandates
operations work closely across the
organization
 Marketing is impacted by product that is
produced
 Finance is integral to the product design
and process selection issues due to
frequent large financial outlays

© 2010 Wiley 46
Product Design and Process Selection
Across the Organization – con’t
 Strategic and financial of product design and
process selection mandates operations work
closely across the organization
 Information services has to be developed to match
the needs of the production process
 Human resources provides important input to the
process selection decisions for staffing needs

© 2010 Wiley 47
Review of Learning Objectives
 Define product design and explain its
strategic impact on organizations
 Describe steps to develop a product
design
 Using break-even analysis as a tool in
selecting between alternative products
 Identify different types of processes
and explain their characteristics

© 2010 Wiley 48
Review of Learning Objectives – con’t
 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

© 2010 Wiley 49
Chapter 3 Highlights
 Product design is the process of deciding on the unique
characteristics and features of a company’s product
Process selection is the development of the process
necessary to produce the product being designed.
 Steps in product include idea generation, product
screening, preliminary design and testing, and final design
 Break-even analysis is a tool used to compute the amount
of goods that have to be sold just to cover costs.
 Production processes can be divided into two broad
categories: intermittent and repetitive operation project to
batch to line to continuous

© 2010 Wiley 50
Chapter 3 Highlights con’t
 Product design and process selection decisions are
linked
 Process flow charts is used for viewing the flow of
the processes involved in producing the
 Different types of technologies can significantly
enhance product and process design. These include
automation, automated material handling devices,
CAD, NC, FMS, and CIM
 Designing services have more complexities than
manufacturing, because service produce an
intangible product and typically have a high degree
of customer contact.

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