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© 2010 Wiley 1
Chapter 3 - Product Design & Process Selection
Operations Managementby
R. Dan Reid & Nada R. Sanders
4th Edition © Wiley 2010
© 2010 Wiley 2
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 3
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 4
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 5
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 & psychological benefits
e.g. promptness, friendliness, ambiance Product and service design must match the needs
and preferences of the targeted customer group
© 2010 Wiley 7
The Product Design Process
Idea development: all products begin with an idea from customers, competitors, suppliers and company’s R&D.
Reverse engineering: disassembling of competitor’s product for complete analysis
Benchmarking: comparing one’s own practices, performances with that of ‘best-in -class’
Perceptual mapping
Perceptual Map of Breakfast Cereals in Idea Development
Rice Rice KrispiesKrispies
WheatiesWheaties
CheeriosCheerios
Shredded Shredded WheatWheat
HIGH HIGH NUTRITIONNUTRITION
LOW LOW NUTRITIONNUTRITION
GOOD GOOD TASTETASTE
BAD BAD TASTETASTE
Cocoa PuffsCocoa Puffs
Rice Rice KrispiesKrispies
WheatiesWheaties
CheeriosCheerios
Shredded Shredded WheatWheat
© 2010 Wiley 9
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 10
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
The Product Design Process
Pilot runand final tests
New product or service launch
Final designFinal design& process plans& process plans
Ideageneration
FeasibilitystudyProduct or Product or
service conceptservice conceptPerformance Performance specificationsspecifications
Functionaldesign
Form design
Production design
Revising and testing Revising and testing prototypesprototypes
Design Design specificationsspecifications
Manufacturing Manufacturing or delivery or delivery specificationsspecifications
SuppliersSuppliersR&DR&D
CustomersCustomers
MarketingMarketing CompetitorsCompetitors
© 2010 Wiley 12
Factors Impacting Product Design
Must 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 13
Factors In Product Life Cycle
Product life cycle – series of changing product demand
Consider product life cycle stages
Introduction Growth Maturity Decline
Facility & process investment depends on life cycle
© 2010 Wiley 14
Concurrent Engineering
Old “over-the-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
that develops specifications,
involves customers early, solves
potential problems, reduces
costs, & shortens time to
market
© 2010 Wiley 15
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 16
Types of Processes 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
Process Selection
Product design considerations must include the process
Differences between Intermittent & Repetitive Ops:
(1) the amount of product volume produced, and
(2) the degree of product standardization.
© 2010 Wiley 19
Process Selection 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 21
Process Selection Considerations
Process selection is based on five considerations
1. Type of process; range from intermittent to repetitive or continuous
2. Degree of vertical integration3. Flexibility of resources4. Mix between capital & human resources5. Degree of customer contact
© 2010 Wiley 22
Product Screening Tool – Break-Even Analysis
Computes the quantity of goods company needs to sell to cover its costs F – Fixed costs; VC – Variable cost/unit SP – selling price/unit Q- Quantity sold; QBE – Break even quantity Total cost – sum of fixed and variable cost
Total cost = F + (VC)*Q Revenue – amount of money brought in from
salesRevenue = (SP) * Q
Break-even quantity, QBE = F/ (SP - VC)
Copyright 2009 John Wiley & Sons, Inc. 6-23
Break-Even Analysis: Example
Fixed costFixed cost = = F F = $2,000= $2,000Variable costVariable cost = = VCVC = $5 per raft = $5 per raft
Selling PriceSelling Price= = SP SP = $10 per raft= $10 per raft
Break-even quantity isBreak-even quantity is
QQ= = = rafts= = = rafts FF
SP SP -VC-VC
Copyright 2009 John Wiley & Sons, Inc. 6-24
Break-Even Analysis: Graph
Total cost line
Total revenue line
Break-even point400 Units
$3,000 —
$2,000 —
$1,000 —
Dollars
Copyright 2009 John Wiley & Sons, Inc.Copyright 2009 John Wiley & Sons, Inc. 6-6-2525
Process SelectionProcess Selection
Below or equal to 2,667, choose ABelow or equal to 2,667, choose AAbove or equal to 2,667, choose BAbove or equal to 2,667, choose B
$2,000 + $5$2,000 + $5vv = $10,000 + $2= $10,000 + $2vv$3$3vv = $8,000= $8,000vv = 2,667 rafts= 2,667 rafts
Process AProcess A Process BProcess B
Copyright 2009 John Wiley & Sons, Inc.Copyright 2009 John Wiley & Sons, Inc. 6-6-2626
Choosing Between Three Processes
Example 4.3Example 4.3
| | | |1000 2000 3000 4000 Units
$20,000 —
$15,000 —
$10,000 —
$5,000 —
Total cost of process A
Total cost of process B
Copyright 2009 John Wiley & Sons, Inc.Copyright 2009 John Wiley & Sons, Inc. 6-6-2727
Choosing Between Three Choosing Between Three ProcessesProcesses
Example 4.2Example 4.2
Process AProcess A Process B Process CProcess B Process C$2,000 + $5$2,000 + $5vv $10,000 + $2$10,000 + $2vv $14,000 + $v$14,000 + $v
Point of Indifference between Processes B and CPoint of Indifference between Processes B and C$10,000 + $2$10,000 + $2v = v = $14,000 + $$14,000 + $vv
v = v = 4,0004,000
Copyright 2009 John Wiley & Sons, Inc. 6-28
Choosing Between Three Processes
Example 4.3Example 4.3
| | | |1000 2000 3000 4000 Units
$20,000 —
$15,000 —
$10,000 —
$5,000 —
Total cost of process A
Total cost of process B
Total cost of process C
Copyright 2009 John Wiley & Sons, Inc. 6-29
Choosing Between Three Processes
Between 400 and 2667 units, Choose Process ABetween 2667 and 4000 units,
Choose Process B Above 4000 units, Choose Process C
© 2010 Wiley 30
Process Design Tools 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 31
Designing Processes Process design tools include
Process flow analysis Process flowchart
Design considerations include Make-to-stock strategy Assemble-to-order strategy Make-to-order strategy
See flowcharts for different product strategies at Antonio’s Pizzeria (next slide)
© 2010 Wiley 33
Process Flowchart of Customer Flow at Antonio’s Pizzeria
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 34
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 36
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 37
Linking Design & Process Selection
Organizational Decisions appropriate for different types of operations
© 2010 Wiley 38
Linking Product Design & Process Selection con’t
Product Design Decisions: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 39
Linking Product Design & Process Selection, con’t
Competitive Priorities: decisions of how a company will compete in the marketplace. Intermittent operations are typically less competitive on cost than repetitive operations. (Think “off the rack” vs. custom tailored clothing.)
© 2010 Wiley 41
Product and Service Strategy
Type of operation is directly related to product and service strategy
Three basic strategies include1. Make-to-stock; in anticipation of
demand2. Assemble-to-order; built from standard
components on order3. Make-to-order; produce to customer
specification at time of order
© 2010 Wiley 43
Degrees of 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
© 2010 Wiley 44
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 45
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 46
Designing Services: How do they Differ from Manufacturing?
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 47
Designing Services 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 48
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 49
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 50
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 51
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.