module 6 Product and Process Selection Project and

module 6: Product and Process Selection Project and Production Management Module 6 Product and Process Selection Prof Arun Kanda & Prof S. G. Deshmukh, Department of Mechanical Engineering, Indian Institute of Technology, Delhi Back to main index exit continue

module 6: Product and Process Selection MODULE 6: Product and Process Selection 1. Introducing New Products and Services 2. Economic Evaluation of Products and Services 3. Product Mix Decisions 4. Product and Process Selection Back to main index 5. Illustrative Examples 6. Self Evaluation Quiz 7. Problems for Practice 8. Further exploration exit

module 6: Product and Process Selection 1. Introducing new Products and Services Back to main index exit back to module contents

module 6: Product and Process Selection SOURCES OF IDEAS FOR NEW PRODUCTS & SERVICES Customer need Marketing department Production department Design and Development Vendors and subcontractors Top management New technologies Changing life styles Back to main index exit back to module contents

MOTIVATIN IN INTRODUCING NEW PRODUCTS module 6: Product and Process Selection For profit To satisfy need Back to main index exit back to module contents

module 6: Product and Process Selection COONTRIBUTION TO NEW PRODUCT IDEAS Sales and Marketing (close touch with customer) Top management (Active listener to visitor and customer feedback) Production department (limited to production ease and economics) Research and Development (prompted by new developments in materials & technology) Back to main index exit back to module contents

module 6: Product and Process Selection GENERATION OF NEW PRODUCT IDEAS Brain storming (preferably by interdisciplinary team) Team apprised of l l Company objectives & long term goals Current economic scenario Preferred field of activity (expertise) Approximate budget for new product Each one generates ideas which are recorded without criticism or evaluation Back to main index exit back to module contents

module 6: Product and Process Selection EVALUATION OF NEW PRODUCT IDEAS The evaluation of the new product ideas could be done on a number of criteria l l l Likely demand pattern of growth Ease of raw material availability Availability of Production technology Competition and likely market share Likely revenues and costs of operation The product life cycle An example to illustrate this process is taken up next Back to main index exit back to module contents

module 6: Product and Process Selection AN EXAMPLE OF SCREENING IDEAS Idea/ Demand Comp etition factor Ease of Raw Mtl Cost of Likely process profit ing Score Computer peripherals 6 3 6 5 6 26 Fast food 8 6 9 7 5 35 Fashion clothing 4 5 7 4 4 24 Soaps and detergents 9 2 7 6 4 28 Each factor evaluated on a scale of 1(least desirable) – 10 (most desirable) Back to main index exit back to module contents

module 6: Product and Process Selection CUSTOMER NEEDS AND DESIRES Desires Needs l Natural, as hunger, shelter, love and security l Generated by exposure to circumstances and temptations (as in advertisements on media, TV, neighbour) l l l Back to main index exit When a desire becomes strong enough and warrants fulfilment, it becomes a need. Customer demand is based on real or artificially generated needs Needs are constantly changing back to module contents

module 6: Product and Process Selection MORTALITY OF IDEAS Screening 35 -40 ? Economic evaluation Development Testing Commercialization Number of ideas Time Back to main index exit 3 -24 months ? back to module contents

module 6: Product and Process Selection PRODUCT POLICY Minimum price, whatever the quality Maximum quality, whatever the cost Safety/reliability Precision and prestige Satisfactory balance between quality & price Versatility Back to main index exit back to module contents

module 6: Product and Process Selection PRODUCT ANALYSIS Marketing aspect Product Characteristics Functional aspect l Operational aspect l Durability and dependability aspect l Aesthetic aspect l Economic aspect Production aspect Back to main index exit back to module contents

module 6: Product and Process Selection MARKETING ASPECT Who is the customer? What are his needs? Market Research him? How to reach Forecasting Advertising Back to main index exit back to module contents

CUSTOMER NEEDS TO PRODUCT SPECIFICATIONS module 6: Product and Process Selection Quality Function Deployment Value Analysis The Taguchi Method Computer Aided Design for manufacturability Design for assembly Prototyping Back to main index exit back to module contents

module 6: Product and Process Selection QFD RELATIONSHIP MATRIX FOR A LAPTOP Technical Attributes Customer Requirements Light weight wt. a b c d e 4. 5 3 9 3 3 Small size 3. 0 9 Long operation between recharging 3. 5 2. 0 Short time to recharge 1. 5 Readable screen 3. 0 Durable 2. 0 Fast processor /large memory 4. 0 9 9 Large keys on keyboard 3 3 Attribute Importance 3 f 3 9 9 3 3 9 49. 5 64. 5 118. 5 52. 5 64. 5 a Case Material b Battery type/size c Screen type/size d Ram capacity e Hard drive type/size f Keyboard type/size Back to main index 31. 5 exit back to module contents

module 6: Product and Process Selection HOUSE OF QUALITY Back to main index exit back to module contents

module 6: Product and Process Selection VALUE ANALYSIS Define the function of each component l provide support; permit rotation (verb, noun) Primary and secondary functions Identify poor value functions and eliminate them Come up with a design with higher value and lower cost (Value = Quality/Cost) Back to main index exit back to module contents

module 6: Product and Process Selection TAGUCHI METHODS Develop a robust design Use a loss function with appropriate range for aimed at target value Identify the design parameters of interest Design experiments to determine which combination of parameters affect quality most(Use of orthogonal arrays limits search) Develop a robust design Back to main index exit back to module contents

module 6: Product and Process Selection COMPUTER AIDED DESIGN Use of software permits l l l Development of drawings (Orthographic plus Isometric views) Rotation and viewing from different angles Visualization of alternative designs Compatibility of assemblies Producing files and drawings for manufacture Easy updation and transfer to needed locations Back to main index exit back to module contents

module 6: Product and Process Selection DESIGN FOR MANUFACTURABILITY Uses catalogs of information, guidelines, checklists, charts, tables, diagrams and graphs to Develop a design plan l Decompose products into components and assemblies l Evaluate the production costs of product designs l Simplify and improve product design l Back to main index exit back to module contents

module 6: Product and Process Selection DESIGN FOR ASSEMBLY The methodology focuses mainly on `Machining l Handling l Assembly l Design dimensions l Clearances l Shape l Orientation DFM/A developed by Geoffry Boothroyd and Peter Dewhurst. Design for Service DFS is a recent concept l Back to main index exit back to module contents

module 6: Product and Process Selection PROTOTYPING A prototype provides a feel for the final product. With increasing competition, it is imperative to reduce cost & lead times Rapid prototyping machines produce the 3 -D part by generating and joining slices Stereolithography is a commonly used technology for this purpose. Back to main index exit back to module contents

module 6: Product and Process Selection SUMMARY The product life cycle Idea generation and screening Marketing aspect Product Features l Function, Operation, Quality, Durability, Dependability, Aesthetics, Production aspect Tools for a Product Designer l QFD, Value Analysis, Taguchi, CAD, DMF, DFA, Prototyping Back to main index exit back to module contents

module 6: Product and Process Selection 2. Economic Evaluation of New Products and Services Back to main index exit back to module contents

module 6: Product and Process Selection TYPES OF ECONOMIC ANALYSIS Gross Measures of Cash Flows l l l Return over the life span (NPV, IRR, Payback) Loan disbursement cabability(DSCR) Risk evaluation in probability terms Annual Measures of Performance l l l Fixed and Variable Costs Break even analysis Profit Volume Charts Changes in demand, profitability Optimal strategy evaluation Back to main index exit back to module contents

module 6: Product and Process Selection GROSS PERFORMANCE MEASURES Net Present Value Payback period Internal Rate of Return Stream of Cash Flows Financial Ratios - Benefit /Cost Ratio -Debt Service Coverage Ratio Back to main index exit back to module contents

module 6: Product and Process Selection RISK EVALUATION Decision Tree Optimistic Scenario Most likely Scenario Uncertain Cash flows Pessimistic Scenario Back to main index exit back to module contents

module 6: Product and Process Selection THE PROFIT CONSIDERATIONS A Profit Distribution Storage Overhead Labour Materials Set up Back to main index Total Cost Selling Price Profit B C Quantity exit A Increase Selling Price B Increase Market C Reduce total cost back to module contents

module 6: Product and Process Selection COMPETITIVENESS OF PRODUCT Competitiveness = Fraction of the market captured by the product = p/P p P Ratio of Value/Price determines the Competitiveness of product Back to main index exit back to module contents

module 6: Product and Process Selection FIXED AND VARIABLES COSTS Variable Costs Fixed Costs l l Do not depend on production volume Costs which must be incurred no matter whether we produce or not l l Back to main index l Directly depend on production volumes, such as l l Rental or cost of land Initial Machinery cost Management & indirect salaries Warehouse, factory and office space l l l exit Raw materials Utilities Direct labour Packaging cost Shipment cost back to module contents

module 6: Product and Process Selection BREAK EVEN ANALYSIS Revenue = b. V Profit Cost & Revenue Total Cost = F+a. V At BEP, Revenue = Cost b. V 1 = F+a. V 1 or, Loss V 1 Breakeven point (BEP) Back to main index V 1 = F/(b-a) Volume of Sales exit back to module contents

module 6: Product and Process Selection MARGIN OF SAFETY Revenue = b. V Cost = F+ a. V Margin of Safety= (V 2 - V 1)/V 1 = (V 2/V 1) - 1 F V 1 (BEP) Back to main index exit V 2 back to module contents

module 6: Product and Process Selection PROFIT-VOLUME CHART Profit, Z Z = -F + p. V Volume V 1 -F Back to main index Profit, Z = Revenue - Cost = b. V - (F+a. V) -F + (b-a)V = -F + p V Slope = (b-a) = profitability, p exit back to module contents

module 6: Product and Process Selection AN EXAMPLE Fixed cost Unit variable cost Likely Sales Rs 1000 Rs 150 Product B Rs 10, 000 Rs 80 2000 Rs 150 Product C Rs 20, 000 Rs 50 5000 Rs 150 Product A zero Management Choices Back to main index exit Selling Price back to module contents

module 6: Product and Process Selection EXAMPLE(CONTD 1) The Profit functions for the three products A B and C are: ZA= 0 + (150 -100) V = 50 V (BEP = zero) ZB = -100, 000 + (150 -80)V = -100, 000 + 70 V (BEP = 1429) ZC = -200, 000 +(150 -50)V = -200, 000+ 100 V (BEP = 2000) The breakeven profit values occur as follows: For A and B For B and C For C and A Back to main index Volume = 5000 Volume = 3333 Volume = 4000 exit Profit Value = Rs 250, 000 Profit Value = Rs 133, 310 Profit Value = Rs 200, 000 back to module contents

module 6: Product and Process Selection 3 lac 2 lac 1 lac Profit 0 A 1 B -1 lac -2 lac Back to main index C 2 3 4 5 6 V in 000 s For maximum profit: For Volume 0 < V< 4000 Product A V>= 4000 Product C EXAMPLE (CONTD 2) exit back to module contents

module 6: Product and Process Selection 3 lac EXAMPLE(CONTD 3) 2 lac Assuming Limited Capacities of Products 1 lac Profit 0 A 1 B -1 lac -2 lac Back to main index C 2 3 4 5 6 V in 000 s Maximum profit is realized for Volume ranges as follows 0 <= V<=1000 Product A 1000<= V<=2000 Product B 2000<=V< =5000 Product C exit back to module contents

module 6: Product and Process Selection MODULAR DESIGN Products are typically designed and manufactured in modules. This results in l l l Low cost of production Greater product variety at low cost Greater satisfaction for assembly workers A greater choice of subcontractors and vendors for product manufacture Control of product reliability and cost Back to main index exit back to module contents

module 6: Product and Process Selection AN EXAMPLE OF MODULAR DESIGN A B For the product to function both A and B must function If there are 3 designs for A And 3 designs for B There a total of 3 X 3 =9 designs for the product Back to main index exit back to module contents

module 6: Product and Process Selection EXAMPLE OF MODULAR DESIGN Subcomponen t Reliability. 90 0. 95 0. 98 A Rs 50 Rs 90 Rs 140 B Rs 70 Rs 90 Rs 110 Required reliability of the product = 0. 90 Back to main index exit back to module contents

module 6: Product and Process Selection COST AND RELIABILITY ANALYSIS Combina Reliability Cost tion A A Reliability Cost B B Reliability Cost Product 1 0. 90 50 0. 90 70 0. 8100 120 2 0. 90 50 0. 95 90 0. 8550 140 3 0. 90 50 0. 98 110 0. 8820 160 4 0. 95 90 0. 90 70 0. 8550 160 5 0. 95 90 0. 9025 180 6 0. 95 90 0. 98 110 0. 9310 200 7 0. 98 140 0. 90 70 0. 8820 210 8 0. 98 140 0. 95 90 0. 9310 230 9 0. 98 140 0. 98 110 0. 9604 250 Back to main index exit back to module contents

module 6: Product and Process Selection SUMMARY Financial Evaluation of Products is generally carried out in two phases l l Gross measures of evaluation eg. NPV, IRR, Payback, Risk, Financial Ratios Annual cost analysis eg Breakeven analysis, Profit volume Charts, Profitability, Demand. P-V charts could be used to determine the optimal strategy when choices are available. Modular Design helps to improve variety, lower costs and greater job satisfaction to workers. Back to main index exit back to module contents

module 6: Product and Process Selection 3. Product Mix Decisions Back to main index exit back to module contents

module 6: Product and Process Selection WHY INTRODUCE VARIETY? It may seem that choosing the most profitable product in large quantities would maximize profits. This need not be so due to l l l Demand constraints Commitment to produce multiple products To absorb the risk of producing only one product To expand the customer base Utilization of resources Back to main index exit back to module contents

module 6: Product and Process Selection EXAMPLE 1 (LINEAR PROGRAMMING) Processing Time in Hours per unit Product Dept III Inspe Shipp Unit ction ing Profit Min Max Sales A 0. 14 0. 6 0. 2 0. 04 0. 10 42 150 250 B 0. 10 0. 4 0. 2 0. 04 0. 10 40 200 400 C --- 0. 2 0. 1 0. 04 0. 12 36 360 500 Hours of capacity 160 320 160 80 80 Back to main index exit back to module contents

module 6: Product and Process Selection LP FORMULATION FOR PRODUCT MIX Back to main index exit back to module contents

module 6: Product and Process Selection LP FORMULATION FOR PRODUCT MIX Constraints Back to main index exit back to module contents

module 6: Product and Process Selection SOLUTION TO LP Z = Rs. 28016 X 1 = 168 X 2 = 200 X 3 = 360 Only 3 constraints satisfied as equalities. 10 x 1 +. 10 x 2 +. 12 x 3 <= 80 (Shadow price = 420) x 2 >= 200 (Shadow price = -2) x 3 >= 360 (Shadow price = -14. 4) Back to main index exit back to module contents

module 6: Product and Process Selection PROBLEM 2 • Goal Programming to deal with multiple conflicting objectives 1. Ensure a profit of at least 80% of the maximum profit 2. Maximize the utilization of Dept I 3. Ensure at least 20 hours of idle capacity in Dept II 4. Ensure that the utilization of Dept III is exactly 150 hours Back to main index exit back to module contents

module 6: Product and Process Selection DEVIATIONAL VARIABLES The GP objective function is: l A function Target of only deviational variables Overachievement Variable d+ Underachievement Variable d- Minimization l Priority wise, hierarchical l Back to main index exit back to module contents

module 6: Product and Process Selection GOAL PROGRAMMING A Goal Programming Problem is an extended version of an LP formulation and the constraints include l Goal Constraints One for each goal, linking the goal to deviational Variables l System Constraints These are the original constraints that appear in the LP formulation Back to main index exit back to module contents

module 6: Product and Process Selection GOAL PROGRAM FOR MULTIPLE GOALS Back to main index exit back to module contents

module 6: Product and Process Selection SYSTEM CONSTRAINTS Back to main index exit back to module contents

module 6: Product and Process Selection SOLUTION TO THE GOAL PROGRAM X 1= 168 X 2 = 200 X 3 = 360 d 1+ = 563 d 1 - = 0 d 2+ = 0 d 2 - = 116. 48 Back to main index d 3+ = 0 d 3 - = 47. 2 d 4+ = 0 d 4 - = 40. 4 Profit = Rs 22976 Utilization of I =43. 52 Utilization of II =252. 80 Utilization of III = 109. 6 exit back to module contents

module 6: Product and Process Selection PROBLEM 3 Unconstrained Stochastic Product Mix • n different items • Uncertain sales potential (demand for an item is a random variable) • Short duration sale, no opportunity to reorder Back to main index exit back to module contents

module 6: Product and Process Selection Notation Xi = initial stock level of item i ci = unit procurement cost of item i ri = unit selling price of item i if sold during sale ri = unit disposal value of item i if not sold during the sale Di = demand of item i during sale, random variable having pdf fi(Di) Z = Contribution to profit and overhead from the sale Back to main index exit back to module contents

module 6: Product and Process Selection ANALYSIS For given {Xi} and a given realization {Di} Quantity sold = S (Xi, Di) = min (Xi, Di) Quantity remaining = R (Xi, Di) = max (Xi – Di, 0) Payoff from the sale = Z = Sum i=1, n [ri. S(Xi, Di) + ri’ R(Xi, Di)- ci. Xi] If product demands are mutually independent random variables, we can develop a expression for the Expected profit, E(Z) as follows Back to main index exit back to module contents

module 6: Product and Process Selection ANALYSIS(2) E(Z) = Sum (i=1, n) { [ri S(Xi, Di) + ri’R(Xi, Di)] fi(Di)d. Di – ci. Xi} = Sum( i=1, n){ri Difi(Di)d. Di + ri. Xi fi(Di)d. Di +ri’ (Xi –Di ) fi(Di)d. Di – ci. Xi} = Sum (i=1, n){(ri-ci)Xi + (ri-ri’)[ Difi(Di)d. Di –Xi. Fi(Xi)]} Back to main index exit back to module contents

module 6: Product and Process Selection ANALYSIS (3) E(Z) == Sum (i=1, n){(ri-ci)Xi + (ri-ri’)[ Difi(Di)d. Di –Xi. Fi(Xi)]} For the maximum E(Z) Xi = (ri-ci) - (ri-ri’)[Fi(Xi)] = 0 Fi(Xi*) = Back to main index fi(Di)d. Di = (ri- ci)/ (ri-ri’) exit back to module contents

module 6: Product and Process Selection STOCHASTIC PRODUCT MIX Product Cost Revenue Disposal from sale if not sold (Rs) Demand Min Max (units) Assume all demands to be uniformly distributed Back to main index exit back to module contents

module 6: Product and Process Selection SOLUTION (1) pdf fi(xi) 1/(b-a) ai xi bi cdf Fi(xi) Xi = ai +(bi-ai)Fi(xi) Back to main index exit back to module contents

SOLUTION (2) F 1(x 1) = (20 -10)/(20 -5) = 10/15 x 1 = 150 + 100 x 10/15 = 216. 67 F 2 (x 2) = (35 -20)/(35 -10) = 15/25 x 2 = 0 = 400 x 15/25 = 240 F 3 (x 3) = (50 -30/50 -20) = 20/30 x 3 = 100 + 200 x 20/30 = 233. 37 Investment = 2166. 7 + 4800+ 7000 = 13966. 7

module 6: Product and Process Selection SUMMARY The motivation and considerations behind product mix considered Some commonly used formulations of Product Mix illustrated with examples l l l Linear Programming Formulation Goal Programming Formulation for accommodating multiple goals Stochastic product mix for perishable items and short term sale Back to main index exit back to module contents

module 6: Product and Process Selection 4. Product and Process Selection Back to main index exit back to module contents

LINK BETWEEN PRODUCT DESIGN AND PROCESS PLANNING How Many to Make ? (Forecast, Orders) Design Specifications & Requirement Functional Design PRODUCT DESIGN Production Design Drgs. & Specifications of what to Make Product Analysis (Assy & Flow Charts) PROCESS PLANNING Make - Buy decision Process Decisions (Selection from Alternative Processes) Route Sheets & Operation Sheets. Specification of how to Manufacture Work Place & Tools Design Modification of process Plans due to Layout, Quality Preference and M/c availability MANUFACTURE Back to main index exit back to module contents

module 6: Product and Process Selection PRODUCT LIFE CYCLE Sales Volume I Start up Back to main index II Rapid growth III IV Maturity Decline Commodity exit Stages back to module contents

module 6: Product and Process Selection I II IV PRODUCT LIFE CYCLE Back to main index exit back to module contents

module 6: Product and Process Selection MANUFACTURING PROCESS TECHNOLOGY EQUIPMENT, PEOPLE AND SYSTEMS USED TO PRODUCE A FIRM’S PRODUCTS AND SERVICES. Back to main index exit back to module contents

module 6: Product and Process Selection KEY DECISIONS Organizing Process Flows Project / Job shop/ Batch/ Assembly line/ Continuous flow Choosing appropriate product/ process mix Adapting process to meet strategic requirements. Evaluating Automation & high technology processes. Back to main index exit back to module contents

module 6: Product and Process Selection I P R O Product Structure Low Vol. C Low Std, E One of a kind S S Jumbled I II IV flow (Job-Shop) Disconnect Line flow (Batch) Connected Line flow (Assy Line) Continuous Flow II Multiple Products, Low Vol III IV Few major products, Low Vol Comm. printer High vol. High std Commodity Void Heavy Eqpt. Auto Assy. Sugar, Refinery Void Product - Process Matrix Back to main index exit back to module contents

module 6: Product and Process Selection Manuf. Cost/unit Batch Job-Shop Start up Rapid Growth Assy. Line Maturity Continuou s Flow Commodity The Process Life Cycle Back to main index exit back to module contents

module 6: Product and Process Selection Products As Market requirements Change Competition Equipment So Must Procedures Human Resources Product - Process Matrix helps to understand WHY & HOW companies change their production operations. Back to main index exit back to module contents

module 6: Product and Process Selection DESIGN OF SERVICES AND SERVICE PROCESSES SERVICE Design similar to PRODUCT DESIGN except Certain services may not require l l Back to main index engineering testing components analysis prototype building exit back to module contents

module 6: Product and Process Selection In service design, process technology involves different considerations primarily because l Clients / customers are present in the conversion process. Services vary in Amount of Customer Contact Back to main index Intensiveness of Labour vs Capital exit back to module contents

module 6: Product and Process Selection MATRIX OF SERVICE PROCESSES Back to main index exit back to module contents

module 6: Product and Process Selection AUTOMATION Automated banking Electronic grocery scanners Office automation Back to main index exit back to module contents

module 6: Product and Process Selection CHOICE OF PROCESS Cost Job prod. batch production assembly line Volume Back to main index exit back to module contents

module 6: Product and Process Selection VARIOUS PROCESS FEATURES Project l From objective, identify tasks, plan and execute, one time activity Job Shop l On general purpose equipment produce a variety of jobs. Each job chooses its route J 2 J 1 Back to main index exit back to module contents

module 6: Product and Process Selection VARIOUS PROCESS FEATURES Batch Production l A batch of similar parts produced by following a sequence of machines. Savings from common setups. Assembly Line l One product produced in large numbers by processing on sequential work stations Back to main index exit back to module contents

module 6: Product and Process Selection VARIOUS PROCESS FEATURES Continuous Production Chemical Plants, Refineries l Here the product flows continuously with characteristics governed by environmental and control conditions such as temperature, humidity, chemical composition, catalyst etc. l Back to main index exit back to module contents

module 6: Product and Process Selection SUMMARY The Product undergoes varying requirements during its lifecycle Different processes serve different needs Product- Process Matrix captures the relationship Process life cycle gives how processes mature Service matrix for categories of service Back to main index exit back to module contents

module 6: Product and Process Selection SUMMARY (CONTD) Features of different processing modes Projects l Job Production l Batch Production l Assembly Lines l Continuous Production l Economic Selection of Optimal Process Back to main index exit back to module contents