Lecture 2 Flashcards
(22 cards)
The Four V’s of OM
Operating processes have different characteristics:
Volume of output
Variety of output
Variation in demand for output
Visibility of production
Product Design
Product design: The process of defining all the features
and characteristics of a product:
The characteristics include, Appearance, Materials ,
Dimensions, Tolerances, Performance standards
Teamwork: Product design bring together marketing analysts,
art directors, sales forecasters, engineering, finance experts, etc.
Organisations’ perspective: Product design must support
product
manufacturability (the ease with which a
product can be made)
Product has to be manufactured using materials, equipment and
labour skills that are efficient and affordable; otherwise its
cost will be too high for the market.
Customer’s perspective: If a product is to achieve
customer satisfaction, it must have the combined
characteristics of good design, competitive pricing
and the ability to fill a market need.
The product design process
Step 1 - Idea Development
All product design begins with an idea.
The ideas may come from the customers, marketing, engineering, suppliers.
The ideas may come from the competitors:
Benchmarking: The process of studying the practices of companies (including
looking at the product design, pricing strategy and other aspects of the operation) and
comparing your company’s performance against theirs.
Reverse Engineering: The process of disassembling a product in order to analyse its
design features.
Step 2 - Product Screening images
Every business needs a formal/structured evaluation process to determine the likelihood of
success of a new product idea.
Some of the issues that can be explored include, fit with facility and labour skills,
size of market, contribution margin, break-even analysis (slide 10), return on sales.
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The Product Design Process
Step 3 – Preliminary Design and Testing
Technical specifications are developed, prototypes built, testing starts.
Changes are made based on test results, and the process of revising, rebuilding a
prototype and testing continues.
Step 4 – Final Design
Following extensive design testing the product moves to the final design stage. Final
specification are drawn up at this stage.
The final specifications are translated into specific processing instructions to manufacture
the product. This may include the identification of facilities and equipment,
outlining labour skills and the jobs that are needed to be performed ,
identifying specific materials needed and the suppliers that will be used.
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Product designs are
never finished, but
are usually updated
with new ideas!
Product Screening Tool – Break-Even Analysis
Computes the quantity of goods company needs to sell to cover its costs.
Break-even analysis also includes calculating
Total cost – sum of fixed cost (F) and variable cost (VC)
Total cost = F + (VC)Q
Revenue – amount of money brought in from sales, i.e., sales selling
price per unit (SP) multiplied the number of units sold (Q).
Revenue = (SP) * Q
At the break-even point, the revenue equals total cost.
(SP) * Q = F + (VC)Q
Equation for calculating the break even quantity (QBE):
QBE = F/ (SP - VC)
Where, QBE – Break even quantity; F – Fixed costs; SP – selling price/unit; VC – Variable cost
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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
Break-even calculation:
A company is planning to establish a chain of cinemas. It estimates
that each cinema will cost approximately £1 Million. The theatres will hold 500 people and will
have 4 showings each day with average ticket prices at £10. The variable costs in labour and
material are estimated to be £6 per customer. They will be open 300 days each year. What
must average occupancy be to break-even?
Break-Even Point
QBE = F/ (SP - VC)
QBE = 1000000/ (10 - 6) = 250,000 customers
What is the gross profit if they sell 300,000 tickets ?
Profit (P) = Total Revenue – Total Costs
P = £10300,000 – (1,000,000 + £6300,000) = £200,000
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Factors Impacting Product Design
1. DFM
Need to Design for Manufacture – DFM
DFM is a series of guidelines to follow in order
to produce a product easily and profitably (see
image). They focus on the following two issues:
Simplification - Minimise parts
A simpler product is easier to make, costs
less and gives higher quality
Standardisation – Use of common andinterchangeable parts
Design parts for multiple applications
Enables us to offer greater variety of
products with less inventory.
Results in lower cost and provides greater
flexibility 16
Factors Impacting Product Design
2. Product Life Cycle
Product life cycle – series
of changing product
demand
Consider product
life cycle stages
Introduction
Growth
Maturity
Decline
Facility and process
investment depends on life cycle
Factors Impacting Product Design
3. 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.
This is inefficient, takes longer time and
can be costly.
Does not create a team atmosphere.
Replace with a Concurrent
Engineering process
All functions form a design team working
together to develop specifications, involve
customers early, solve potential problems,
reduce costs, & shorten time to market
This approach has been found to achieve a
smooth transition from the design stage to
actual production, in a shorter
development time and with improved
quality results. 21
Factors Impacting Product Design
4. Remanufacturing
Remanufacturing: The concept of using
components of old products in the production of
new products.
Gaining increasing prominence as our society
becomes:
More environmentally conscious
Focuses on recycling
Focuses on the elimination of waste
Remanufacturing has both environmental benefits
and cost benefits.
Remanufactured products usually cost less than the
price of their new counterparts
Remanufacturing has been quite popular in the
production of computers, televisions and
automobiles.
Process Design and Selection
Process design: The development of the process necessary to produce
the designed product.
Product design and process selection decisions are typically made
together
Product design considerations must include reflection with regard to the
process
A company can have an innovative design for its product, but if it has not
determined how to make that product in a cost-effective way (process
design is crucial here) , the product cannot be launched/succeed in the
market.
Two broad categories of processes:
Intermittent operations – produce a variety of products in lower
volumes.
Repetitive operations – produce one or a few standardised products in
high volume.
The most common differences between them relate to two dimensions:
(1) the amount of product produced, and
(2) degree of standardisation.
Designing Processes
Design considerations include
Make-to-stock strategy: Produce standard products and services for immediate sale
and delivery.
Assemble-to-order strategy: Produces standard components that can be combined
to customer specifications.
Make-to-order strategy: Produces products to customer specifications
after an order
has been received.
Can you think of some examples?
Process Flow Analysis
Process Flow Analysis (PFA) is a technique used for evaluating a process in
terms of the sequence of steps from inputs to outputs.
Process flowchart can be used for PFA.
A process flowchart shows the sequence of steps in producing a product or a
service.
The flowchart shows the flow of a product through the process.
It can be useful for seeing the totality of the operation and for identifying potential
problem areas.
Process flowchart uses arrows to represent
flows; triangles to represent
decision
points; inverted triangles to represent
storage of goods; and rectangles as
tasks.
Linking Product Design & Process Selection
1. Product Design Decisions
Intermittent operations focus on products in the early stage of their
lifecycle
Facilities are general purpose and can be adapted to the needs of the
product
Products in this stage are still being refined
Demand volumes of these products are still uncertain
Repetitive operations focus on products in the later stage of the
product life cycle
Product features have been standarised
The demand volume is predictable
Volumes are usually large and thus repetitive operations are more suited
Once a company has an intermittent operation in place, it is a poor
strategic decision to pursue production of a highly standarised product
in the same facility; and vice versa.
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Linking Product Design & Process Selection
2. Competitive Priorities
Competitve priority: The decision as to how a company will compete in the
marketplace. This is largely affected by the type of operation than a company
has in place.
Intermittent operations
Less competitive on cost
Provides greater variety of features and workmanship not usually associated with
mass production
Repetitive operations
Geared towards mass production; the cost of product is spread over a large
volume, allowing the company to offer products at comparatively lower price
Provide greater consistency among products produced (first and last products
made in the day are almost identical)
Once a company has an intermittent operation in place, it is a poor strategic
decision to try to compete primarily on cost. Similarly, the primary
competitive priority for a repetitive operation should not be variety of
features
Linking Product Design & Process Selection
3. Facility Layout
Facility Layout: It is concerned with the arrangement of resources in a facility to
enhance the production process.
Intermittent operations
Resources are grouped based in similar processes or functions
Products moved from resource to resource. The challenge is to organise resources to
maximise efficiency and minimise wasted time/resources required for the movement.
Repetitive operations
Resources are usually arranged in sequence
They have faster processing rates; the operation is inflexible and therefore cannot
respond rapidly to changes in the market (both in relation to intermittent operations)
Linking Product Design & Process Selection
4. Product and Service Strategy
Product and Service strategies can be classified in terms of their delivery lead
time
(which is the amount of time from when the order is received to when the order
is delivered)
Made-to-Stock (finished goods for immediate sale) usually associated with
repetitive operations
Assemble-to-Order (produces standard components that can be combined to
customer specifications)
Make-to-Order (produce products according to customer specifications after an
order has been received) usually associated with intermittent operations
The three strategies differ not only in terms of their deliver lead time, but also by the
degree of product customisation possible.
Linking Product Design & Process Selection
5. Vertical Integration
Vertical integration refers to the degree a firm chooses to do processes
itself. Example of processes include manufacture of raw material,
production processes, distribution processes, sale of finished goods to the
customer, etc.
The larger the number of processes performed by a company, the higher
the vertical integration
Vertical integration is a good strategy when there are high
volumes of a small variety of input materials, as it the case with
repetitive operations.
It is usually not a good strategic decision to vertically integrate into
specialised processes that provide inputs in in small volumes, as it the
case with intermittent operations.
Design of Services
Services are different from manufacturing as they
Produce intangible products
Involve a high degree of customer contact
Design elements (dimension, tolerance, material used, etc.) are typical
for industries such as manufacturing and retail where the product is
tangible. For services industry, the design elements are equally
important, but they have additional dimensions (aesthetic and
psychological benefits of a product).
Service design defines the characteristics of a service, such as its
physical elements, and the aesthetic and psychological benefits it
provides.
Example of aesthetic and psychological benefits include promptness, friendliness,
ambiance, “feel good” element.
Service design is unique in that the service and entire service concept
are being designed. 37
Classification of Services
Type of service is classified
according to degree of customer
contact
Quasi-Manufacturing:
They have low customer contact.
High degree of service
standardisation
High sales volume
Generally less labour intensive
Pure services:
They have high customer contact.
Low product standardisation
Sales volume are generally lower
Labour intensive
Mixed Services:
Services that combine elements of
both the aforementioned service
categories (some parts may have
high customer contact, though
others do not) 38
Different Service Designs
Substitute technology for people
Substitute people with technology wherever possible (makes the service more like
manufacturing and leads to lower service costs)
Ensures product consistency and takes the guesswork away from the employees
As technology develops in different service industries, it is expected that we
increasingly be reliant on this service design, and the consequent increase in the
elimination of workers
Example: self-service petrol pumps, patient monitoring in hospitals
Get customer involved
Take advantage of customer’s presence during the delivery of the service (“get them
involved!”)
Advantages include faster delivery of the service, reduction in staff costs, empowering
of customers, etc.
Leads to lower service costs
Examples: self-service food buffets
High customer attention
Customising the service to the needs that are unique to each customer
This service design relies on developing a personal relationship with each customer
and giving them precisely what they want
Geared towards customers who are prepared to pay more for the service they receive
Example: Luxury hotels 39
Product Design and Process Selection Across the
Organisation
Strategic and financial impact of product design and process selection
mandates operations work closely across the organisation
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
Human Resources provides important input to the process selection
decisions for staffing needs
Purchasing works closely with suppliers to get the needed parts and raw
materials
Engineering needs to be an integral part of the product design and process
selection because this is the function that understands the need for specific
equipments, product tolerance, requirements for manufacturing, etc.
Information Systems will have to be developed keeping in mind the needs of
the production processes being planned.
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