designing goods and services and process selection
DESCRIPTION
Designing Goods and Services and Process Selection. Chapter 3. MGMT 326. Capacity, Facilities, & Work Design. Products & Processes. Quality Assurance. Planning & Control. Foundations of Operations. Product Design. Introduction. Strategy. Process Design. Service Design - PowerPoint PPT PresentationTRANSCRIPT
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Designing Goods and Servicesand Process Selection
Chapter 3
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MGMT 326
Foundations
of Operatio
nsIntroductio
n
Strategy
QualityAssuran
ce
Capacity,Facilities,& WorkDesign
Planning& Control
Products &
ProcessesProduct
Design
ProcessDesign
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Designing Goods and Services
Service Design• Service package• Approaches to service design
Designing Goods
ProductCharacteristics• Form design• Functional design• Learning from other companies
Design Methods• Design for manufacture• Concurrent engineering
Breakeven Analysis in Product Screeningand Process Selection
Basic Concepts• Design and strategy• Feasibility study• Operations issues
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Strategy and Product Design
The core product may be a good or a service Product design should support the business
strategy Product design should meet the needs of a
target market. Product design should give the company a
competitive advantage.
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Feasibility Study
Purpose is to determine whether the company can make a product that Meets the needs of customers in a target market Can be made by the company with the required
level of quality and delivery schedule Can be sold at a price that customers are willing
to pay While allowing the company to meet its profit
targets. This depends on costs estimated by Accounting and revenue estimated by Marketing
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Operations Issues in Product Design
Product design and technology Product design is a joint responsibility of
marketing, operations, engineering (in manufacturing) and Accounting/Finance
Process technology (along with engineering)
Would we need a new or modified facility? Can the firm make this product with
consistent quality? How many workers will we need?
What skills will they need?
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Breakeven Analysisin Product Screening
The breakeven point (in terms of units) is the volume at which total costs = revenue Q = quantity sold, SP = selling price Revenue = (SP)Q F = fixed cost, VC = variable cost per unit At the breakeven point (QBE),
F + (VC)Q=(SP)Q
VCSP
FQBE
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Product Screening ExampleProblem 1, pages 90 -91
Given: F= fixed cost = $40,000VC = variable cost per unit = $50SP = selling price = $70
VCSP
FQBE
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Interpreting Breakeven Analysis
In Product Screening
When Q = QBE, the firm does not make money or lose money
When Q < QBE, revenue < costs, the firm loses money
When Q > QBE, revenue > costs, the firm makes a profit
QBE will be different for different production technologies
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Breakeven Analysis in Process Selection
Problem 2, Page 91
Current EquipmentProcess A
New EquipmentProcess B
Fixed cost $40,000 $60,000
Variable costper unit
$50 $25
Total cost $40,000 + 50Q $60,000 + 25QPoint of indifference: costs for the 2 processes are equal$40,000 + 50Q= $60,000 + 25Q25Q = $20,000, so Q = 800
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Interpreting Breakeven Analysis
in Process Selection
If expected sales < 800,use process A
If expected sales > 800, use process B
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Designing Services – Service Package
Physical elements: facility, equipment and furnishings, inventories
Sensory and aesthetic aspects Psychological benefits Quality standards
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Approaches to Service Design
Design for efficiency: Compete on consistency, cost, speed High standardization Limited variety Automation may be used High-volume services purchase at low
cost. Example: fast food
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Approaches to Service Design (2)
Customer involvement in producing the service The customer does part of the work Reduces costs and may allow the
customer to do some customization Example: self-service salad bar
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Approaches to Service Design (3)
High customer attention Highly customized service, provided
by highly trained people Used in professional services
(medical care, legal services, high-end tax preparation services)
Also used by luxury retailers, hotels, restaurants
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Designing Goods
Form design: Sensory aspects of the product (aesthetics) Size, color, shape, sound "Look and feel" Form design contributes to customer's
impressions of quality Functional design: how the product
performs
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Form Design: How the Product Looks, Etc.
Ipod Touch Toyota Camry
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Functional Design of GoodsWhat the Product Does
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2009 Toyota Prius2009 Honda Civic Hybrid
2009 Honda Civic NGVNatural Gas Vehicle
Functional Design of GoodsWhat the Product Does
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Functional Design of Goods (2)How the Product Performs
Fitness for use: product performs as intended
Durability: how long the product lasts
Reliability: consistent performance
Maintainability: ease and cost of repairs
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Learning from Other Companies
Benchmarking: comparing your operations with those of a "best in class" firm Product benchmark – compare your product
with competing products Process benchmark
How competing products or services are produced
How other companies perform business functions
Cost benchmark – what your competitors spend to make comparable products
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Learning from Other Companies (2)
Reverse engineering: taking your competitor's products apart and figuring out how it is made Physical products Software
Market research on competitor's products: customer needs and satisfaction
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Design for Manufacture
Value engineering: Eliminate product features that add cost but do not add value to the customer.
Reduce the number of parts. Reduces the cost of ordering, purchasing,
and storing parts. Reduces the space required to hold
inventory Reduces the number of tools and operations
required (by eliminating bolts, screws, etc.) Reduces the time required to make the
product
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Design for Manufacture (2)
Example of reducing the number of parts, operations, and tools.
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Design for Manufacture (3)
Modular design: Design products to be assembled from standard components. Example: Dell buys standard video cards,
processors, power supplies, hard drives, etc., and assembles computers
Use standard parts to reduce design costs and purchasing costs. Examples: Computer makers often buy
standard power supplies.
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Sequential vs. Concurrent Design
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Concurrent Engineering
Design the product and the process at the same time.
Use a design team that includes marketing, operations, engineering, operations, and suppliers. Stay in touch with customers during the
design process. Requires good project
management and coordination among all groups involved.
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Advantages of Concurrent Engineering
Increases the chances of a successful product.
Shorter design time Shortens time to market. Reduces design costs
Supplier expertise can help design a product that meets customer needs at lower cost
Reduces the need to make expensive changes in the product and the process later
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Process Selection
ProcessDesign Tools• Reengineering• Flowcharts
Intermittent
• Project• Batch
Process Types
Repetitive• Assembly line• Continuous
Impact of Process Type• Layout• Inventory policy• Costs
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Intermittent Operations
Intermittent operations: processes used to produce a variety of products with different processing requirements at lower volumes Project processes: used to make one-of-a-
kind items to customer specifications Batch processes: used to make small
quantities of products in batches based on customer orders or specifications Also called job shops
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Repetitive Operations
Repetitive operations: Processes used to make one product or a few standardized products in high volume Line process – also called an assembly line
or flow shop May have assemble-to-order options
Continuous process: operates continuously, produces a high volume of a fully standardized product
Some firms use more than one type of process
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Underlying Process Relationship Between Volume and Standardization
High-volumeprocesses areusually morestandardizedthan low-volumeprocesses.
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Process Choice and Layout
Intermittent operations usually use a process (department) layout: workers & equipment are grouped by function•Different products may take different paths through the production processRepetitive operations use a product layout: workers & equipment are grouped in the order in which they will be needed. The product passes from one work station to the next.
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Process Choice and Inventory Policy
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Process Choice and Costs
Intermittent processes Lower capital costs than repetitive processes Lower breakeven point than repetitive processes High variable cost per unit High total cost per unit
Repetitive processes Higher capital costs than intermittent processes Higher breakeven point than intermittent
processes Low variable cost per unit Low total cost per unit if volume is high
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Process Design Tools
Process flow analysis is a tool used to analyze and document the sequence of steps within a total process. Usually first step in process reengineering.
Process reengineering is the fundamental rethinking and radical redesign of a process to bring about dramatic improvements in performance Cost Quality Time Flexibility
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Process Design Tools (2)
Both operations processes and business processes can be re-engineered.
Re-engineer a process before you automate it or computerize it.
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Process Flow in a Pizza Restaurant