-1 CHAPTER 4 Product and Service Design

-1 CHAPTER 4 Product and Service Design

-2 Product and Service Design · Major factors in design strategy Cost · Quality · Time-to-market · Customer satisfaction · Competitive advantage · Product and service design – or redesign – should be closely tied to an organization’s strategy

-3 Product or Service Design Activities Translate customer wants and needs into product and service requirements · Refine existing products and services · Develop new products and services · Formulate quality goals · Formulate cost targets · Construct and test prototypes · Document specifications ·

-4 Reasons for Product or Service Design · Economic · Social and demographic · Political, liability, or legal · Competitive · Technological

-5 Objectives of Product and Service Design · Main focus · · Customer satisfaction Secondary focus Function of product/service · Cost/profit · Quality · Appearance · Ease of production/assembly · Ease of maintenance/service ·

-6 Designing For Operations · Taking into account the capabilities of the organization in designing goods and services

-7 Legal, Ethical, and Environmental Issues · Legal FDA, OSHA, IRS · Product liability · Uniform commercial code · · Ethical · · Releasing products with defects Environmental · EPA

-8 Regulations & Legal Considerations · Product Liability - A manufacturer is liable for any injuries or damages caused by a faulty product. · Uniform Commercial Code - Products carry an implication of merchantability and fitness.

-9 Designers Adhere to Guidelines Produce designs that are consistant with the goals of the company · Give customers the value they expect · Make health and safety a primary concern · Consider potential harm to the environment ·

-10 Other Issues in Product and Service Design Product/service life cycles · How much standardization · Product/service reliability · Range of operating conditions ·

-11 Life Cycles of Products or Services Figure 4. 1 Saturation Demand Maturity Decline Growth Introduction Time

-12 CHAPTER 5 Capacity Planning For Products and Services

-13 Capacity Planning Capacity is the upper limit or ceiling on the load that an operating unit can handle. · The basic questions in capacity handling are: · · What kind of capacity is needed? · How much is needed? · When is it needed?

-14 Importance of Capacity Decisions 1. 2. 3. 4. 5. 6. 7. 8. Impacts ability to meet future demands Affects operating costs Major determinant of initial costs Involves long-term commitment Affects competitiveness Affects ease of management Globalization adds complexity Impacts long range planning

-15 Capacity · Design capacity · maximum output rate or service capacity an operation, process, or facility is designed for · Effective capacity · Design capacity minus allowances such as personal time, maintenance, and scrap · Actual output · rate of output actually achieved--cannot exceed effective capacity.

-16 Efficiency and Utilization Efficiency = Utilization = Actual output Effective capacity Actual output Design capacity Both measures expressed as percentages

-17 Efficiency/Utilization Example Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day Efficiency = Utilization = Actual output = 36 units/day Effective capacity Actual output Design capacity 40 units/ day = 36 units/day 50 units/day = 90% = 72%

-18 Determinants of Effective Capacity Facilities · Product and service factors · Process factors · Human factors · Operational factors · Supply chain factors · External factors ·

-19 Strategy Formulation Capacity strategy for long-term demand · Demand patterns · Growth rate and variability · Facilities · · · Cost of building and operating Technological changes · Rate and direction of technology changes Behavior of competitors · Availability of capital and other inputs ·

-20 Key Decisions of Capacity Planning 1. 2. 3. 4. Amount of capacity needed Timing of changes Need to maintain balance Extent of flexibility of facilities Capacity cushion – extra demand intended to offset un

-21 Steps for Capacity Planning 1. 2. 3. 4. 5. 6. 7. 8. Estimate future capacity requirements Evaluate existing capacity Identify alternatives Conduct financial analysis Assess key qualitative issues Select one alternative Implement alternative chosen Monitor results

-22 Make or Buy 1. 2. 3. 4. 5. 6. Available capacity Expertise Quality considerations Nature of demand Cost Risk

-23 Developing Capacity Alternatives 1. 2. 3. 4. 5. 6. Design flexibility into systems Take stage of life cycle into account Take a “big picture” approach to capacity changes Prepare to deal with capacity “chunks” Attempt to smooth out capacity requirements Identify the optimal operating level

-24 Economies of Scale · Economies of scale · · If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs Diseconomies of scale · If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs

-25 Evaluating Alternatives Figure 5. 3 Average cost per unit Production units have an optimal rate of output for minimal cost. Minimum average cost per unit Minimum cost 0 Rate of output

-26 Evaluating Alternatives Figure 5. 4 Average cost per unit Minimum cost & optimal operating rate are functions of size of production unit. 0 Small plant Medium plant Large plant Output rate

-27 Planning Service Capacity · Need to be near customers · · Inability to store services · · Capacity and location are closely tied Capacity must be matched with timing of demand Degree of volatility of demand · Peak demand periods

-28 Cost-Volume Relationships Amount ($) Figure 5. 5 a lc ta st o To VC = ble ia s co t C) (V r a lv ota T FC + Fixed cost (FC) 0 Q (volume in units)

-29 Cost-Volume Relationships Amount ($) Figure 5. 5 b 0 ue n ve e lr a ot T Q (volume in units)

-30 Cost-Volume Relationships Amount ($) Figure 5. 5 c 0 ve ta o T ue n re l fit ro P t os lc ota T BEP units Q (volume in units)

-31 Break-Even Problem with Step Fixed Costs Figure 5. 6 a C T C= +V FC + FC C =T C F +V C C =T C V 3 machines 2 machines 1 machine Quantity Step fixed costs and variable costs.

-32 Break-Even Problem with Step Fixed Costs Figure 5. 6 b $ BEP 3 TC BEP 2 TC 3 TC 2 TR 1 Quantity Multiple break-even points

-33 Assumptions of Cost-Volume Analysis 1. 2. 3. 4. 5. 6. One product is involved Everything produced can be sold Variable cost per unit is the same regardless of volume Fixed costs do not change with volume Revenue per unit constant with volume Revenue per unit exceeds variable cost per unit

-34 Financial Analysis · Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes. · Present Value - the sum, in current value, of all future cash flows of an investment proposal.

-35 Calculating Processing Requirements

-36 Location/Criteria PS 11 Guitar site location

-37 Capacity/Design STA 11 Demand/ patients/ staffing/ variation at St. Alexius Hospital

-38 Process Flow Improvement SU 6 Redesign of layout at Toyota