Unit-2 2014 Pearson Education Inc 5 -1

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Outline ► ► ► Global Company Profile: Regal Marine Goods and Services Selection Generating New Products Product Development Issues for Product Design Product Development Continuum © 2014 Pearson Education, Inc. 5 -3

Learning Objectives When you complete this chapter you should be able to : 1. 2. 3. 4. Define product life cycle Describe a product development system Build a house of quality Explain how time-based competition is implemented by OM © 2014 Pearson Education, Inc. 5 -5

Learning Objectives When you complete this chapter you should be able to : 5. Describe how products and services are defined by OM 6. Describe the documents needed for production 7. Explain how the customer participates in the design and delivery of services 8. Apply decision trees to product issues © 2014 Pearson Education, Inc. 5 -6

Regal Marine Global market ► 3 -dimensional CAD system ► ► Reduced product development time ► Reduced problems with tooling ► Reduced problems in production Assembly line production ► JIT ► © 2014 Pearson Education, Inc. © 2014 Pearson Education, 5 -7

Goods and Services Selection ► ► ► Organizations exist to provide goods or services to society Great products are the key to success Top organizations typically focus on core products Customers buy satisfaction, not just a physical good or particular service Fundamental to an organization's strategy with implications throughout the operations function © 2014 Pearson Education, Inc. 5 -8

Goods and Services Selection ► ► ► Goods or services are the basis for an organization's existence Limited and predicable life cycles requires constantly looking for, designing, and developing new products New products generate substantial revenue © 2014 Pearson Education, Inc. 5 -9

Goods and Services Selection Percent of sales from new products 50% – 40% – The higher the percentage of sales from the last 5 years, the more likely the firm is to be a leader. 30% – 20% – 10% – Industry leader Top third Middle Bottom third Figure 5. 1 Position of firm in its industry © 2014 Pearson Education, Inc. 5 - 10

Product Decision The objective of the product decision is to develop and implement a product strategy that meets the demands of the marketplace with a competitive advantage © 2014 Pearson Education, Inc. 5 - 11

Sales, cost, and cash flow Product Life Cycle Cost of development and production Sales revenue Net revenue (profit) Cash flow Negative cash flow Introduction Loss Growth Maturity Decline Figure 5. 2 © 2014 Pearson Education, Inc. 5 - 14

Life Cycle and Strategy Introductory Phase ► Fine tuning may warrant unusual expenses for 1. Research 2. Product development 3. Process modification and enhancement 4. Supplier development © 2014 Pearson Education, Inc. 5 - 15

Product Life Cycle Growth Phase ► ► ► Product design begins to stabilize Effective forecasting of capacity becomes necessary Adding or enhancing capacity may be necessary © 2014 Pearson Education, Inc. 5 - 16

Product Life Cycle Maturity Phase ► ► ► Competitors now established High volume, innovative production may be needed Improved cost control, reduction in options, paring down of product line © 2014 Pearson Education, Inc. 5 - 17

Product Life Cycle Costs 100 – Costs committed Percent of total cost 80 – 60 – Costs incurred 40 – 20 – Ease of change 0– Concept design © 2014 Pearson Education, Inc. Detailed design prototype Manufacturing Distribution, service, and disposal 5 - 19

Product-by-Value Analysis ► ► ► Lists products in descending order of their individual dollar contribution to the firm Lists the total annual dollar contribution of the product Helps management evaluate alternative strategies © 2014 Pearson Education, Inc. 5 - 20

Generating New Products 1. Understanding the customer 2. Economic change 3. Sociological and demographic change 4. Technological change 5. Political and legal change 6. Market practice, professional standards, suppliers, distributors © 2014 Pearson Education, Inc. 5 - 21

Product Development Stages Concept Figure 5. 3 Feasibility Customer Requirements Functional Specifications Product Specifications Design Review Scope for design and engineering teams Test Market Introduction Evaluation © 2014 Pearson Education, Inc. 5 - 22

Quality Function Deployment 1. Identify customer wants 2. Identify how the good/service will satisfy customer wants 3. Relate customer wants to product hows 4. Identify relationships between the firm’s hows 5. Develop customer importance ratings 6. Evaluate competing products 7. Compare performance to desirable technical attributes © 2014 Pearson Education, Inc. 5 - 23

QFD House of Quality Customer importance ratings What the customer wants Target values Interrelationships How to satisfy customer wants Relationship matrix Weighted rating Technical evaluation © 2014 Pearson Education, Inc. 5 - 24

House of Quality Example Interrelationships What the Customer Wants Relationship Matrix Technical Attributes and Evaluation What the customer wants Customer importance rating (5 = highest) Lightweight 3 Easy to use 4 Reliable 5 Easy to hold steady 2 High resolution 1 © 2014 Pearson Education, Inc. 5 - 26 Analysis of Competitors How to Satisfy Customer Wants

House of Quality Example Interrelationships What the Customer Wants Relationship Matrix © 2014 Pearson Education, Inc. Ergonomic design High number of pixels Auto exposure Auto focus Aluminum components Low electricity requirements Technical Attributes and Evaluation How to Satisfy Customer Wants 5 - 27 Analysis of Competitors How to Satisfy Customer Wants

House of Quality Example Interrelationships What the Customer Wants High relationship Relationship Matrix Technical Attributes and Evaluation Medium relationship Low relationship Lightweight 3 Easy to use 4 Reliable 5 Easy to hold steady 2 High resolution 1 Relationship matrix © 2014 Pearson Education, Inc. 5 - 28 Analysis of Competitors How to Satisfy Customer Wants

House of Quality Example Interrelationships What the Customer Wants Relationship Matrix Technical Attributes and Evaluation Ergonomic design High number of pixels Auto exposure Auto focus Aluminum components © 2014 Pearson Education, Inc. Low electricity requirements Relationships between the things we can do 5 - 29 Analysis of Competitors How to Satisfy Customer Wants

House of Quality Example Interrelationships What the Customer Wants Relationship Matrix Technical Attributes and Evaluation Lightweight 3 Easy to use 4 Reliable 5 Easy to hold steady 2 High resolution 1 Our importance ratings 22 9 27 27 32 25 Weighted rating © 2014 Pearson Education, Inc. 5 - 30 Analysis of Competitors How to Satisfy Customer Wants

Interrelationships House of Quality Example What the Customer Wants Relationship Matrix Analysis of Competitors How to Satisfy Customer Wants Company A Company B Technical Attributes and Evaluation Lightweight 3 G P Easy to use 4 G P Reliable 5 F G Easy to hold steady 2 G P High resolution 1 P P How well do competing products meet customer wants Our importance ratings © 2014 Pearson Education, Inc. 22 5 5 - 31

Interrelationships House of Quality Example What the Customer Wants Relationship Matrix Analysis of Competitors How to Satisfy Customer Wants 0. 5 A 75% 2’ to ∞ 2 circuits Failure 1 per 10, 000 Panel ranking Technical Attributes and Evaluation Company A 0. 7 60% yes 1 ok G Company B 0. 6 50% yes 2 ok F Us 0. 5 75% yes 2 ok G Target values (Technical attributes) Technical evaluation © 2014 Pearson Education, Inc. 5 - 32

Company B Company A Ergonomic design High number of pixels Auto exposure Auto focus Aluminum components Completed House of Quality Low electricity requirements House of Quality Example Lightweight 3 G P Easy to use 4 G P Reliable 5 F G Easy to hold steady 2 G P High resolution 1 P Failure 1 per 10, 000 Panel ranking 22 9 27 27 32 25 2 circuits Our importance ratings Company A 0. 7 60% yes 1 ok G Company B 0. 6 50% yes 2 ok F Us 0. 5 75% yes 2 ok G © 2014 Pearson Education, Inc. 2’ to ∞ 75% 0. 5 A Target values (Technical attributes) Technical evaluation P 5 - 33

House of Quality Sequence Deploying resources through the organization in response to customer requirements Quality plan Customer requirements House 1 House 2 House 3 Production process Design characteristics Specific components Production process House 4 Figure 5. 4 © 2014 Pearson Education, Inc. 5 - 34

Organizing for Product Development ► Traditionally – distinct departments ► ► ► Duties and responsibilities are defined Difficult to foster forward thinking A Champion ► Product manager drives the product through the product development system and related organizations © 2014 Pearson Education, Inc. 5 - 35

Organizing for Product Development ► Team approach ► ► ► Cross functional – representatives from all disciplines or functions Product development teams, design for manufacturability teams, value engineering teams Japanese “whole organization” approach ► No organizational divisions © 2014 Pearson Education, Inc. 5 - 36

Manufacturability and Value Engineering ► Benefits: 1. Reduced complexity of the product 2. Reduction of environmental impact 3. Additional standardization of components 4. Improvement of functional aspects of the product 5. Improved job design and job safety 6. Improved maintainability (serviceability) of the product 7. Robust design © 2014 Pearson Education, Inc. 5 - 37

Issues for Product Design ► Robust design ► Modular design ► Computer-aided design (CAD) ► Computer-aided manufacturing (CAM) ► Virtual reality technology ► Value analysis ► Sustainability and Life Cycle Assessment (LCA) © 2014 Pearson Education, Inc. 5 - 39

Robust Design ► ► Product is designed so that small variations in production or assembly do not adversely affect the product Typically results in lower cost and higher quality © 2014 Pearson Education, Inc. 5 - 40

Modular Design Products designed in easily segmented components ► Adds flexibility to both production and marketing ► Improved ability to satisfy customer requirements ► © 2014 Pearson Education, Inc. 5 - 41

Computer Aided Design (CAD) ► ► ► Using computers to design products and prepare engineering documentation Shorter development cycles, improved accuracy, lower cost Information and designs can be deployed worldwide © 2014 Pearson Education, Inc. 5 - 42

Extensions of CAD ► Design for Manufacturing and Assembly (DFMA) ► ► 3 -D Object Modeling ► ► ► Solve manufacturing problems during the design stage Small prototype development CAD through the internet International data exchange through STEP © 2014 Pearson Education, Inc. 5 - 43

Virtual Reality Technology ► ► ► Computer technology used to develop an interactive, 3 -D model of a product from the basic CAD data Allows people to ‘see’ the finished design before a physical model is built Very effective in large-scale designs such as plant layout © 2014 Pearson Education, Inc. 5 - 46

Value Analysis ► ► Focuses on design improvement during production Seeks improvements leading either to a better product or a product which can be produced more economically with less environmental impact © 2014 Pearson Education, Inc. 5 - 47

Sustainability and Life Cycle Assessment (LCA) ► ► Sustainability means meeting the needs of the present without compromising the ability of future generations to meet their needs LCA is a formal evaluation of the environmental impact of a product © 2014 Pearson Education, Inc. 5 - 48

Product Development Continuum ► ► ► Product life cycles are becoming shorter and the rate of technological change is increasing Developing new products faster can result in a competitive advantage Time-Based Competition © 2014 Pearson Education, Inc. 5 - 49

Product Development Continuum Strategies External Development Alliances Figure 5. 6 Joint ventures Purchase technology or expertise by acquiring the developer Internal Development Strategies Migrations of existing products Enhancements to existing products New internally developed products Internal Lengthy High © 2014 Pearson Education, Inc. Cost of product development Speed of product development Risk of product development Shared Rapid and/ or Existing Shared 5 - 50

Product Development Continuum ► Purchasing technology by acquiring a firm ► ► ► Speeds development Issues concern the fit between the acquired organization and product and the host Joint Ventures ► Both organizations learn ► Risks are shared © 2014 Pearson Education, Inc. 5 - 51

Product Development Continuum ► Through Alliances ► Cooperative agreements between independent organizations ► Useful when technology is developing ► Reduces risks © 2014 Pearson Education, Inc. 5 - 52

Defining a Product ► ► First definition is in terms of functions Rigorous specifications are developed during the design phase Manufactured products will have an engineering drawing Bill of material (BOM) lists the components of a product © 2014 Pearson Education, Inc. 5 - 53

Monterey Jack Cheese (a) U. S. grade AA. Monterey cheese shall conform to the following requirements: (1) Flavor. Is fine and highly pleasing, free from undesirable flavors and odors. May possess a very slight acid or feed flavor. (2) Body and texture. A plug drawn from the cheese shall be reasonably firm. It shall have numerous small mechanical openings evenly distributed throughout the plug. It shall not possess sweet holes, yeast holes, or other gas holes. (3) Color. Shall have a natural, uniform, bright and attractive appearance. (4) Finish and appearance—bandaged and paraffin-dipped. The rind shall be sound, firm, and smooth providing a good protection to the cheese. Code of Federal Regulation, Parts 53 to 109, General Service Administration © 2014 Pearson Education, Inc. 5 - 54

Product Documents ► Engineering drawing ► ► ► Shows dimensions, tolerances, and materials Shows codes for Group Technology Bill of Material ► ► Lists components, quantities and where used Shows product structure © 2014 Pearson Education, Inc. 5 - 55

Bills of Material BOM for a Panel Weldment Figure 5. 9 (a) NUMBER DESCRIPTION A 60 -71 PANEL WELDM’T 1 A 60 -7 R 60 -17 R 60 -428 P 60 -2 LOWER ROLLER ASSM. ROLLER PIN LOCKNUT 1 1 A 60 -72 R 60 -57 -1 A 60 -4 02 -50 -1150 GUIDE ASSM. REAR SUPPORT ANGLE ROLLER ASSM. BOLT 1 1 A 60 -73 A 60 -74 R 60 -99 02 -50 -1150 GUIDE ASSM. FRONT SUPPORT WELDM’T WEAR PLATE BOLT 1 1 © 2014 Pearson Education, Inc. QTY 5 - 57

Bills of Material Hard Rock Cafe’s Hickory BBQ Bacon Cheeseburger Figure 5. 9 (b) © 2014 Pearson Education, Inc. DESCRIPTION QTY Bun Hamburger patty Cheddar cheese Bacon BBQ onions Hickory BBQ sauce Burger set Lettuce Tomato Red onion Pickle French fries Seasoned salt 11 -inch plate HRC flag 1 8 oz. 2 slices 2 strips 1/2 cup 1 oz. 1 leaf 1 slice 4 rings 1 slice 5 oz. 1 tsp. 1 1 5 - 58

Group Technology ► ► ► Parts grouped into families with similar characteristics Coding system describes processing and physical characteristics Part families can be produced in dedicated manufacturing cells © 2014 Pearson Education, Inc. 5 - 59

Group Technology Benefits 1. Improved design 2. Reduced raw material and purchases 3. Simplified production planning and control 4. Improved layout, routing, and machine loading 5. Reduced tooling setup time, work-inprocess, and production time © 2014 Pearson Education, Inc. 5 - 61

Assembly Chart 1 2 3 4 5 6 7 8 9 10 11 R 209 Angle R 207 Angle Bolts w/nuts (2) Left bracket SA 1 assembly A 1 R 209 Angle R 207 Angle Bolts w/nuts (2) Right SA bracket A 2 2 assembly Identifies the point of production where components flow into subassemblies and ultimately into the final product Bolt w/nut R 404 Roller A 3 Lock washer Part number tag Box w/packing material © 2014 Pearson Education, Inc. Poka-yoke inspection A 4 A 5 Figure 5. 11 (b) 5 - 64

Route Sheet Lists the operations and times required to produce a component Process Machine Operations 1 Auto Insert 2 2 3 Manual Insert 1 Wave Solder 4 Test 4 Insert Component Set 56 Insert Component Set 12 C Solder all components to board Circuit integrity test 4 GY © 2014 Pearson Education, Inc. Setup Time Operation Time/Unit 1. 5 . 4 . 5 2. 3 1. 5 4. 1 . 25 . 5 5 - 65

Work Order Instructions to produce a given quantity of a particular item, usually to a schedule Work Order Item Quantity 157 C 125 Production Dept F 32 © 2014 Pearson Education, Inc. Start Date 5/2/08 Due Date 5/4/08 Delivery Location Dept K 11 5 - 66

Engineering Change Notice (ECN) ► A correction or modification to a product’s definition or documentation ► Engineering drawings ► Bill of material Quite common with long product life cycles, long manufacturing lead times, or rapidly changing technologies © 2014 Pearson Education, Inc. 5 - 67

Configuration Management ► ► The need to manage ECNs has led to the development of configuration management systems A product’s planned and changing components are accurately identified and control and accountability for change are identified and maintained © 2014 Pearson Education, Inc. 5 - 68

Product Life-Cycle Management (PLM) ► Integrated software that brings together most, if not all, elements of product design and manufacture ► Product design ► CAD/CAM, DFMA ► Product routing ► Materials ► Assembly ► Environmental © 2014 Pearson Education, Inc. 5 - 69

Service Design ► ► Service typically includes direct interaction with the customer Process – chain – network (PCN) analysis focuses on the ways in which processes can be designed to optimize interaction between firms and their customers © 2014 Pearson Education, Inc. 5 - 70

Outline ► ► ► Global Company Profile: Harley-Davidson Four Process Strategies Selection of Equipment Process Analysis and Design Special Consideration for Service Process Design © 2014 Pearson Education, Inc. 7 - 71

Learning Objectives When you complete this chapter you should be able to: 1. Describe four process strategies 2. Compute crossover points for different processes 3. Use the tools of process analysis 4. Describe customer interaction in service processes 5. Identify recent advances in production technology © 2014 Pearson Education, Inc. 7 - 73

Harley-Davidson Repetitive manufacturing works ► ► The only major U. S. motorcycle company Emphasizes quality and lean manufacturing ► Materials as Needed system ► Many variations possible ► Tightly scheduled repetitive production line © 2014 Pearson Education, Inc. © 2014 Pearson Education, 7 - 74

Process Flow Diagram Frame tube bending Frame-building work cells Frame machining Hot-paint frame painting THE ASSEMBLY LINE TESTING 28 tests Incoming parts Air cleaners Oil tank work cell Fluids and mufflers Shocks and forks Fuel tank work cell Arrive on a JIT schedule from a 10 -station work cell in Milwaukee Handlebars Wheel work cell Engines and transmissions Fender work cell Roller testing Crating © 2014 Pearson Education, Inc. 7 - 75

Process Strategy 7 Power. Point presentation to accompany Heizer and Render Operations Management, Eleventh Edition Principles of Operations Management, Ninth Edition Power. Point slides by Jeff Heyl © 2014 Pearson Education, Inc. © 2014 Pearson Education, 7 - 76

Process Strategies ► How to produce a product or provide a service that ► ► ► Meets or exceeds customer requirements Meets cost and managerial goals Has long term effects on ► Efficiency and production flexibility ► Costs and quality © 2014 Pearson Education, Inc. 7 - 78

Process, Volume, and Variety Volume Figure 7. 1 Low Volume High Variety one or few units per run, (allows customization) Repetitive Process High Volume Process Focus projects, job shops (machine, print, hospitals, restaurants) Arnold Palmer Hospital Changes in Modules modest runs, standardized modules Changes in Attributes (such as grade, quality, size, thickness, etc. ) long runs only © 2014 Pearson Education, Inc. Mass Customization (difficult to achieve, but huge rewards) Dell Computer Repetitive (autos, motorcycles, home appliances) Harley-Davidson Poor Strategy (Both fixed and variable costs are high) Product Focus (commercial baked goods, steel, glass, beer) Frito-Lay 7 - 79

Process Strategies Four basic strategies 1. Process focus 2. Repetitive focus 3. Product focus 4. Mass customization Within these basic strategies there are many ways they may be implemented © 2014 Pearson Education, Inc. 7 - 80

Process Focus ► ► ► Facilities are organized around specific activities or processes General purpose equipment and skilled personnel High degree of product flexibility Typically high costs and low equipment utilization Product flows may vary considerably making planning and scheduling a challenge © 2014 Pearson Education, Inc. 7 - 81

Process Focus (low-volume, high-variety, intermittent processes) Many inputs (surgeries, sick patients, baby deliveries, emergencies) Many departments and many routings Arnold Palmer Hospital Figure 7. 2(a) © 2014 Pearson Education, Inc. Many different outputs (uniquely treated patients) 7 - 82

Repetitive Focus ► ► Facilities often organized as assembly lines Characterized by modules with parts and assemblies made previously Modules may be combined for many output options Less flexibility than process-focused facilities but more efficient © 2014 Pearson Education, Inc. 7 - 83

Repetitive Focus Raw materials and module inputs (multiple engine models, wheel modules) Few modules (modular) Harley Davidson Figure 7. 2(b) © 2014 Pearson Education, Inc. Modules combined for many Output options (many combinations of motorcycles)- 84 7

Product Focus ► ► ► Facilities are organized by product High volume but low variety of products Long, continuous production runs enable efficient processes Typically high fixed cost but low variable cost Generally less skilled labor © 2014 Pearson Education, Inc. 7 - 85

Product Focus Few Inputs (corn, potatoes, water, seasoning) (high-volume, low-variety, continuous process) Frito-Lay Figure 7. 2(c) © 2014 Pearson Education, Inc. Output variations in size, shape, and packaging (3 -oz, 5 -oz, 24 -oz package labeled for each material) 7 - 86

Mass Customization ► ► The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires Combines the flexibility of a process focus with the efficiency of a product focus © 2014 Pearson Education, Inc. 7 - 87

Mass Customization TABLE 7. 1 Mass Customization Provides More Choices Than Ever NUMBER OF CHOICES ITEM 1970 s 21 ST CENTURY Vehicle styles 18 1, 212 Bicycle types 8 211, 000 Software titles 0 400, 000 Web sites 0 255, 000 267 744 40, 530 300, 000 5 185 160 340 14, 000 150, 000 0 102 Movie releases per year New book titles Houston TV channels Breakfast cereals Items (SKUs) in supermarkets LCD TVs © 2014 Pearson Education, Inc. 7 - 88

Mass Customization Many parts and component inputs (chips, hard drives, software, cases) Many modules (high-volume, high-variety) Dell Computer Figure 7. 2(d) © 2014 Pearson Education, Inc. Many output versions (custom PCs and notebooks) 7 - 89

Mass Customization ► Imaginative product design ► Flexible process design ► Tightly controlled inventory management ► Tight schedules ► Responsive supply-chain partners © 2014 Pearson Education, Inc. 7 - 90

Comparison of Processes TABLE 7. 2 Comparison of the Characteristics of Four Types of Processes PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS (MODULAR) PRODUCT FOCUS (HIGH-VOLUME, LOW-VARIETY) MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY) 1. Small quantity and large variety of products 1. Long runs, usually a standardized product from modules 1. Large quantity and small variety of products 1. Large quantity and large variety of products 2. Broadly skilled operators 2. Moderately trained employees 2. Less broadly skilled operators 2. Flexible operators © 2014 Pearson Education, Inc. 7 - 91

Comparison of Processes TABLE 7. 2 Comparison of the Characteristics of Four Types of Processes PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS (MODULAR) PRODUCT FOCUS (HIGH-VOLUME, LOW-VARIETY) MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY) 3. Instructions for each job 3. Few changes in the instructions 3. Standardized job instructions 3. Custom orders requiring many job instructions 4. High inventory 4. Low inventory relative to the value of the product © 2014 Pearson Education, Inc. 7 - 92

Comparison of Processes TABLE 7. 2 Comparison of the Characteristics of Four Types of Processes PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS (MODULAR) PRODUCT FOCUS (HIGH-VOLUME, LOW-VARIETY) MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY) 5. Finished goods are made to order and not stored 5. Finished goods are made to frequent forecasts 5. Finished goods are made to a forecast and stored 5. Finished goods are build-toorder (BTO) 6. Scheduling is complex 6. Scheduling is routine 6. Sophisticated scheduling accommodates custom orders © 2014 Pearson Education, Inc. 7 - 93

Comparison of Processes TABLE 7. 2 Comparison of the Characteristics of Four Types of Processes PROCESS FOCUS (LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS (MODULAR) PRODUCT FOCUS (HIGH-VOLUME, LOW-VARIETY) 7. Fixed costs are low and variable costs high 7. Fixed costs are dependent on flexibility of the facility 7. Fixed costs are high and variable costs low © 2014 Pearson Education, Inc. MASS CUSTOMIZATION (HIGH-VOLUME, HIGH-VARIETY) 7. Fixed costs tend to be high and variable costs low 7 - 94

Crossover Chart Example ▶ Evaluate three different accounting software products ▶ Calculate crossover points between software A and B and between software B and C TOTAL FIXED COST DOLLARS REQUIRED PER ACCOUNTING REPORT Software A $200, 000 $60 Software B $300, 000 $25 Software C $400, 000 $10 © 2014 Pearson Education, Inc. 7 - 95

Crossover Charts Variable costs $ $ Fixed costs Repetitive Process B ts Low volume, high variety Process A co s sts A ce ss To ta lp ro $ s. B co es roc p tal To High volume, low variety Process C sts co ss C ce l pro Tota 400, 000 300, 000 200, 000 Fixed cost Process A Figure 7. 3 (2, 857) © 2014 Pearson Education, Inc. V 1 V 2 (6, 666) Fixed cost Process B Fixed cost Process C Volume 7 - 97

Selection of Equipment ▶ Decisions can be complex as alternate methods may be available ▶ Important factors may be ► Cost ► Quality ► Cash flow ► Capacity ► Market stability ► Flexibility © 2014 Pearson Education, Inc. 7 - 99

Equipment and Technology ► ► Possible competitive advantage Flexibility may be a competitive advantage May be difficult and expensive and may require starting over Important to get it right © 2014 Pearson Education, Inc. 7 - 100

Process Analysis and Design ► ► Is the process designed to achieve a competitive advantage? Does the process eliminate steps that do not add value? Does the process maximize customer value? Will the process win orders? © 2014 Pearson Education, Inc. 7 - 101

“Baseline” Time-Function Map Order product Process order Move Transport Figure 7. 4(a) Extrude Wait Product Plant B Wait WIP Warehouse Product Print WIP Plant A Product Wait Order Production control Receive product WIP Sales Order Customer 12 days 13 days © 2014 Pearson Education, Inc. 1 day 4 days 1 day 10 days Move 1 day 0 day 1 day 52 days 7 - 103

“Target” Time-Function Map Order product Process order Wait Order Production control Receive product Product Sales Order Customer Print Extrude Product Plant WIP Wait Product Warehouse Transport 1 day 2 days 1 day Move 1 day 6 days Figure 7. 4(b) © 2014 Pearson Education, Inc. 7 - 104

Process Analysis and Design ► Value-Stream Mapping ► ► Where value is added in the entire production process, including the supply chain Extends from the customer back to the suppliers © 2014 Pearson Education, Inc. 7 - 105

Value-Stream Mapping 1. Begin with symbols for customer, supplier, and production to ensure the big picture 2. Enter customer order requirements 3. Calculate the daily production requirements 4. Enter the outbound shipping requirements and delivery frequency 5. Determine inbound shipping method and delivery frequency © 2014 Pearson Education, Inc. 7 - 106

Value-Stream Mapping 6. Add the process steps (i. e. , machine, assemble) in sequence, left to right 7. Add communication methods, add their frequency, and show the direction with arrows 8. Add inventory quantities (shown with I ) between every step of the entire flow 9. Determine total working time (value-added time) and delay (non-value-added time) © 2014 Pearson Education, Inc. 7 - 107

Service Blueprinting ► ► Focuses on the customer and provider interaction Defines three levels of interaction Each level has different management issues Identifies potential failure points © 2014 Pearson Education, Inc. 7 - 110

Service Blueprint Personal Greeting Level #1 Service Diagnosis Perform Service Customer arrives for service. (3 min) Friendly Close Customer departs F Warm greeting and obtain service request. (10 sec) Level #2 No Standard request. (3 min) Direct customer to waiting room. Determine specifics. (5 min) Can service be done and does customer approve? (5 min) Level #3 © 2014 Pearson Education, Inc. F Customer pays bill. (4 min) F F Notify customer the car is ready. (3 min) No F Yes F Notify customer and recommend an alternative provider. (7 min) Yes F Perform required work. (varies) F Prepare invoice. (3 min) Figure 7. 7 7 - 111

Special Considerations for Service Process Design ► ► ► Some interaction with customer is necessary, but this often affects performance adversely The better these interactions are accommodated in the process design, the more efficient and effective the process Find the right combination of cost and customer interaction © 2014 Pearson Education, Inc. 7 - 112

Service Process Matrix Degree of Customization Figure 7. 8 High Low Mass Service Degree of Labor High Professional Service Traditional orthodontics Private banking Commercial banking Full-service stockbroker Generalpurpose law firms Digital orthodontics Boutiques Retailing Law clinics Service Shop Specialized Limited-service hospitals stockbroker Service Factory Low Warehouse and catalog stores Fast-food restaurants Fine-dining restaurants Hospitals Airlines No-frills airlines © 2014 Pearson Education, Inc. 7 - 113

Service Process Matrix Mass Service and Professional Service ► Labor involvement is high ► Focus on human resources ► Selection and training highly important Degree of Customization Low Personalized services High Commercial banking High Professional Service Private Traditional banking orthodontics Full-service stockbroker Boutiques Degree of Labor ► Mass Service Generalpurpose law firms Digital orthodontics Retailing Low Law clinics Service Factory Service Shop Limited-service Specialized stockbroker hospitals Warehouse and Fast-food Fine-dining catalog stores restaurants Hospitals restaurants Airlines No-frills airlines © 2014 Pearson Education, Inc. 7 - 114

Service Process Matrix Service Factory and Service Shop ► Automation of standardized services ► Restricted offerings ► Low labor intensity responds well to process technology and scheduling Degree of Customization Low Mass Service Tight control required to maintain standards Commercial banking Full-service stockbroker Boutiques Degree of Labor ► High Professional Service Private Traditional banking orthodontics Generalpurpose law firms Digital orthodontics Retailing Low Law clinics Service Factory Service Shop Limited-service Specialized stockbroker hospitals Warehouse and Fast-food Fine-dining catalog stores restaurants Hospitals restaurants Airlines No-frills airlines © 2014 Pearson Education, Inc. 7 - 115

Improving Service Productivity TABLE 7. 3 Techniques for Improving Service Productivity STRATEGY TECHNIQUE EXAMPLE Separation Structuring service so customers must go where the service is offered Self-service Postponement Self-service so customers examine, compare, and evaluate at their own pace Customizing at delivery Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits Supermarkets and department stores Focus Restricting the offerings © 2014 Pearson Education, Inc. Customizing vans at delivery rather than at production Limited-menu restaurant 7 - 116

Improving Service Productivity TABLE 7. 3 Techniques for Improving Service Productivity STRATEGY TECHNIQUE EXAMPLE Modules Modular selection of service Modular production Automation Separating services that may lend themselves to some type of automation Precise personnel scheduling Investment and insurance selection Prepackaged food modules in restaurants Automatic teller machines Scheduling Training Clarifying the service options Explaining how to avoid problems © 2014 Pearson Education, Inc. Scheduling ticket counter personnel at 15 -minute intervals at airlines Investment counselor, funeral directors After-sale maintenance personnel 7 - 117

Production Technology 1. Machine technology 2. Automatic identification systems (AISs) and RFID 3. Process control 4. Vision systems 5. Robots 6. Automated storage and retrieval systems (ASRSs) 7. Automated guided vehicles (AGVs) 8. Flexible manufacturing systems (FMSs) 9. Computer-integrated manufacturing (CIM) © 2014 Pearson Education, Inc. 7 - 118

Machine Technology ► Increased precision ► Increased productivity ► Increased flexibility ► Improved environmental impact ► Reduced changeover time ► Decreased size ► Reduced power requirements © 2014 Pearson Education, Inc. Comp uter n contro umerical l (CNC ) 7 - 119

Automatic Identification Systems (AISs) ► Improved data acquisition ► Reduced data entry errors ► Increased speed ► Increased scope of process automation Bar codes and RFID © 2014 Pearson Education, Inc. 7 - 120

Process Control ► Real-time monitoring and control of processes ► ► ► Sensors collect data Devices read data on periodic basis Measurements translated into digital signals then sent to a computer Computer programs analyze the data Resulting output may take numerous forms © 2014 Pearson Education, Inc. 7 - 121

Automated Storage and Retrieval Systems (ASRSs) ► ► ► Automated placement and withdrawal of parts and products Reduced errors and labor Particularly useful in inventory and test areas of manufacturing firms © 2014 Pearson Education, Inc. 7 - 124

Flexible Manufacturing Systems (FMSs) ► ► ► Computer controls both the workstation and the material handling equipment Enhance flexibility and reduced waste Can economically produce low volume at high quality Reduced changeover time and increased utilization Stringent communication requirement between components © 2014 Pearson Education, Inc. 7 - 126

Computer-Integrated Manufacturing (CIM) ► Extend flexible manufacturing ► ► Backwards to engineering and inventory control Forward into warehousing and shipping Can also include financial and customer service areas Reducing the distinction between lowvolume/high-variety, and high-volume/low -variety production © 2014 Pearson Education, Inc. 7 - 127

Technology in Services TABLE 7. 4 Examples of Technology’s Impact on Services SERVICE INDUSTRY EXAMPLE Financial Services Debit cards, electronic funds transfer, ATMs, Internet stock trading, on-line banking via cell phone Education Electronic bulletin boards, on-line journals, Web. CT, Blackboard, and smart phones Utilities and government Automated one-man garbage trucks, optical mail and bomb scanners, flood warning systems, meters allowing homeowners to control energy usage and costs Restaurants and foods Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs Communications Interactive TV, e-books via Kindle © 2014 Pearson Education, Inc. 7 - 129

Technology in Services TABLE 7. 4 Examples of Technology’s Impact on Services SERVICE INDUSTRY EXAMPLE Hotels Electronic check-in/check-out, electronic key/lock systems, mobile Web bookings Wholesale/retail trade Point-of-sale (POS) terminals, e-commerce, electronic communication between store and supplier, bar-coded data, RFID Transportation Automatic toll booths, satellite-directed navigation systems, Wi-Fi in automobiles Health care Online patient-monitoring systems, online medical information systems, robotic surgery Airlines Ticketless travel, scheduling, Internet purchases, boarding passes downloaded as two-dimensional bar codes on smart phones © 2014 Pearson Education, Inc. 7 - 130

Process Redesign ► ► ► The fundamental rethinking of business processes to bring about dramatic improvements in performance Relies on reevaluating the purpose of the process and questioning both the purpose and the underlying assumptions Requires reexamination of the basic process and its objectives Focuses on activities that cross functional lines Any process is a candidate for redesign © 2014 Pearson Education, Inc. 7 - 131

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