chapter 4 product and service design. -2 major factors in design strategy cost quality...
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CHAPTER4
Product and Service Design
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Major factors in design strategy Cost Quality Time-to-market Customer satisfaction Competitive advantage
Product and Service DesignProduct and Service Design
Product and service design – or redesign – should be closely tied to an organization’s strategy
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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
Product or Service Design ActivitiesProduct or Service Design Activities
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Reasons for Product or Service DesignReasons for Product or Service Design
Economic
Social and demographic
Political, liability, or legal
Competitive
Technological
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Objectives of Product and Service DesignObjectives 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
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Taking into account the capabilities of the organization in designing goods and services
Designing For OperationsDesigning For Operations
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Legal FDA, OSHA, IRS Product liability Uniform commercial code
Ethical Releasing products with defects
Environmental EPA
Legal, Ethical, and Environmental IssuesLegal, Ethical, and Environmental Issues
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Regulations & Legal ConsiderationsRegulations & 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.
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Designers Adhere to GuidelinesDesigners 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
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Other Issues in Product and Service DesignOther Issues in Product and Service Design
Product/service life cycles How much standardization Product/service reliability Range of operating conditions
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Life Cycles of Products or ServicesLife Cycles of Products or Services
Time
Introduction
Growth
Maturity
Saturation
Decline
Dem
and
Figure 4.1
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CHAPTER5
Capacity PlanningFor Products and Services
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Capacity PlanningCapacity 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?
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1. Impacts ability to meet future demands2. Affects operating costs3. Major determinant of initial costs4. Involves long-term commitment5. Affects competitiveness6. Affects ease of management7. Globalization adds complexity8. Impacts long range planning
Importance of Capacity DecisionsImportance of Capacity Decisions
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CapacityCapacity
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.
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Efficiency and UtilizationEfficiency and Utilization
Actual outputEfficiency =
Effective capacity
Actual outputUtilization =
Design capacity
Both measures expressed as percentages
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Actual output = 36 units/day Efficiency = =
90% Effective capacity 40 units/ day
Utilization = Actual output = 36 units/day =
72% Design capacity 50 units/day
Efficiency/Utilization ExampleEfficiency/Utilization Example
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
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Determinants of Effective CapacityDeterminants of Effective Capacity
Facilities Product and service factors Process factors Human factors Operational factors Supply chain factors External factors
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Strategy FormulationStrategy 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
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Key Decisions of Capacity PlanningKey Decisions of Capacity Planning
1. Amount of capacity needed
2. Timing of changes
3. Need to maintain balance
4. Extent of flexibility of facilities
Capacity cushion – extra demand intended to offset uncertainty
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Steps for Capacity PlanningSteps for Capacity Planning
1. Estimate future capacity requirements
2. Evaluate existing capacity
3. Identify alternatives
4. Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative
7. Implement alternative chosen
8. Monitor results
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Make or BuyMake or Buy
1. Available capacity
2. Expertise
3. Quality considerations
4. Nature of demand
5. Cost
6. Risk
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Developing Capacity AlternativesDeveloping Capacity Alternatives
1. Design flexibility into systems
2. Take stage of life cycle into account
3. Take a “big picture” approach to capacity changes
4. Prepare to deal with capacity “chunks”
5. Attempt to smooth out capacity requirements
6. Identify the optimal operating level
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Economies of ScaleEconomies 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
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Evaluating AlternativesEvaluating Alternatives
Minimumcost
Av
era
ge
co
st
per
un
it
0 Rate of output
Production units have an optimal rate of output for minimal cost.
Figure 5.3
Minimum average cost per unit
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Evaluating AlternativesEvaluating Alternatives
Minimum cost & optimal operating rate are functions of size of production unit.
Av
era
ge
co
st
per
un
it
0
Smallplant Medium
plant Largeplant
Output rate
Figure 5.4
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Need to be near customers Capacity and location are closely tied
Inability to store services Capacity must be matched with timing of
demand Degree of volatility of demand
Peak demand periods
Planning Service CapacityPlanning Service Capacity
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Cost-Volume RelationshipsCost-Volume Relationships
Am
ou
nt
($)
0Q (volume in units)
Total cost = VC + FC
Total variable cost (V
C)
Fixed cost (FC)
Figure 5.5a
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Cost-Volume RelationshipsCost-Volume Relationships
Am
ou
nt
($)
Q (volume in units)0
Total r
evenue
Figure 5.5b
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Cost-Volume RelationshipsCost-Volume Relationships
Am
ou
nt
($)
Q (volume in units)0 BEP units
Profit
Total r
even
ue
Total cost
Figure 5.5c
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Break-Even Problem with Step Fixed CostsBreak-Even Problem with Step Fixed Costs
Quantity
FC + VC = TC
FC + VC = TC
FC + VC =
TC
Step fixed costs and variable costs.
1 machine
2 machines
3 machines
Figure 5.6a
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Break-Even Problem with Step Fixed CostsBreak-Even Problem with Step Fixed Costs
$
TC
TC
TCBEP2
BEP3
TR
Quantity
1
2
3
Multiple break-even points
Figure 5.6b
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1. One product is involved2. Everything produced can be sold3. Variable cost per unit is the same regardless
of volume4. Fixed costs do not change with volume5. Revenue per unit constant with volume6. Revenue per unit exceeds variable cost per
unit
Assumptions of Cost-Volume AnalysisAssumptions of Cost-Volume Analysis
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Financial AnalysisFinancial 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.
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Calculating Processing RequirementsCalculating Processing Requirements
P r o d u c tA n n u a l
D e m a n d
S t a n d a r dp r o c e s s i n g t i m e
p e r u n i t ( h r . )P r o c e s s i n g t i m e
n e e d e d ( h r . )
# 1
# 2
# 3
4 0 0
3 0 0
7 0 0
5 . 0
8 . 0
2 . 0
2 , 0 0 0
2 , 4 0 0
1 , 4 0 0 5 , 8 0 0
P r o d u c tA n n u a l
D e m a n d
S t a n d a r dp r o c e s s i n g t i m e
p e r u n i t ( h r . )P r o c e s s i n g t i m e
n e e d e d ( h r . )
# 1
# 2
# 3
4 0 0
3 0 0
7 0 0
5 . 0
8 . 0
2 . 0
2 , 0 0 0
2 , 4 0 0
1 , 4 0 0 5 , 8 0 0
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Location/CriteriaLocation/Criteria
PS11
Guitar site location
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Capacity/DesignCapacity/Design
STA11
Demand/ patients/ staffing/ variation at St. Alexius Hospital
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Process Flow ImprovementProcess Flow Improvement
SU6
Redesign of layout at Toyota
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