slide 0 of 52 chapter 7 designing and developing products and production processes: manufacturing...

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Chapter 7Chapter 7Chapter 7Chapter 7

Designing and DevelopingDesigning and Developing

Products and Production Processes:Products and Production Processes:

Manufacturing and Service Manufacturing and Service OperationsOperations

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OverviewOverviewOverviewOverview

Designing and Developing Products and ServicesDesigning and Developing Products and Services Process Planning and DesignProcess Planning and Design Major Factors Affecting Process Design DecisionsMajor Factors Affecting Process Design Decisions Types of Process DesignsTypes of Process Designs Interrelationships Among Product Design, Process Interrelationships Among Product Design, Process

Design, and Inventory PolicyDesign, and Inventory Policy Process Design in ServicesProcess Design in Services Deciding Among Processing AlternativesDeciding Among Processing Alternatives Wrap-Up: What World-Class Producers DoWrap-Up: What World-Class Producers Do

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Product/ServiceDevelopment and Design

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Stages of a Product’s Life CycleStages of a Product’s Life CycleStages of a Product’s Life CycleStages of a Product’s Life Cycle

Introduction Growth Maturity DeclineIntroduction Growth Maturity Decline

B&W TVB&W TV

AutomobileAutomobile

Video RecorderVideo Recorder

Compact Disc PlayerCompact Disc Player

Fax MachineFax MachineColor CopierColor Copier

Cell PhoneCell Phone

Color Laser PrinterColor Laser Printer

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Product Life Cycle & Sales, Cost, andProduct Life Cycle & Sales, Cost, and Net Revenues Net Revenues

1 2 3 4 5

Introduction Growth Maturity Decline

Sale

s,

Co

st

& P

rofi

t SalesRevenue

NetRevenue

Loss

TimeTime

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Operations Emphasis in Product Life CycleOperations Emphasis in Product Life Cycle

Stage Operations Emphasis

Introductory Research Product development Process modification & enhancement Supplier development

Growth Capacity determination/enhancement

Maturity High volume production with innovation Cost control Reduction in options Paring down of product line

Decline Termination of production if necessary

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American Approach to Product DesignAmerican Approach to Product Design

ResearchResearch DevelopmentDevelopment

ManufacturingManufacturing ProcessProcess DesignDesign

ManufacturingManufacturing ProductProduct

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Japanese Approach to Product DesignJapanese Approach to Product Design

Research, Development, and Research, Development, and Manufacturing Process Design Manufacturing Process Design

ManufacturingManufacturing ProductProduct

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Product/Service DesignProduct/Service DesignProduct/Service DesignProduct/Service Design

When a product/service is designed:When a product/service is designed: The detailed characteristics of the product/service are The detailed characteristics of the product/service are

established.established. The characteristics of the product/service directly The characteristics of the product/service directly

affects how the product/service can be produced/ affects how the product/service can be produced/ delivered.delivered.

How the product/service is produced/delivered How the product/service is produced/delivered determines the design of the production/delivery determines the design of the production/delivery system.system.

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Product/Service DesignProduct/Service DesignProduct/Service DesignProduct/Service Design

Product/service design directly affects:Product/service design directly affects: Product/service qualityProduct/service quality Production/delivery costProduction/delivery cost Customer satisfactionCustomer satisfaction

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Product/Service Design and DevelopmentProduct/Service Design and DevelopmentProduct/Service Design and DevelopmentProduct/Service Design and Development

SourcesSources Developing New Products/ServicesDeveloping New Products/Services Getting Them to Market FasterGetting Them to Market Faster Improving Current Products/ServicesImproving Current Products/Services Designing for Ease of ProductionDesigning for Ease of Production Designing for QualityDesigning for Quality Designing and Developing New ServicesDesigning and Developing New Services

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Sources of Product/Service InnovationSources of Product/Service InnovationSources of Product/Service InnovationSources of Product/Service Innovation

CustomersCustomers ManagersManagers MarketingMarketing OperationsOperations EngineeringEngineering Research and Development (R&D)Research and Development (R&D)

Basic researchBasic research Applied researchApplied research

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Steps in Designing and DevelopingSteps in Designing and DevelopingNew ProductsNew Products

Steps in Designing and DevelopingSteps in Designing and DevelopingNew ProductsNew Products

1.1. Technical and economic feasibility studies Technical and economic feasibility studies

2.2. Prototype design Prototype design

3.3. Performance testing of prototype Performance testing of prototype

4.4. Market sensing/evaluation and economic evaluation Market sensing/evaluation and economic evaluation of the prototypeof the prototype

5.5. Design of production model Design of production model

6.6. Market/performance/process testing and economic Market/performance/process testing and economic evaluation of production modelevaluation of production model

7.7. Continuous modification of production model Continuous modification of production model

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Getting New Products to Market FasterGetting New Products to Market FasterGetting New Products to Market FasterGetting New Products to Market Faster

Speed creates competitive advantagesSpeed creates competitive advantages Speed saves moneySpeed saves money Tools to improve speed:Tools to improve speed:

Autonomous design and development teamsAutonomous design and development teams Computer-aided design/computer-aided Computer-aided design/computer-aided

manufacturing (CAD/CAM)manufacturing (CAD/CAM) Simultaneous (concurrent) engineering Simultaneous (concurrent) engineering

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Improving the DesignImproving the Designof Existing Products/Servicesof Existing Products/Services

Focus is improving performance, quality, and costFocus is improving performance, quality, and cost Objective is maintaining or improving market share Objective is maintaining or improving market share

of maturing products/servicesof maturing products/services Little changes can be significantLittle changes can be significant Small, steady (continuous) improvements can add up Small, steady (continuous) improvements can add up

to huge long-term improvementsto huge long-term improvements Value analysisValue analysis is practiced, meaning design features is practiced, meaning design features

are examined in terms of their cost/benefit (value).are examined in terms of their cost/benefit (value).

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Designing for Ease of ProductionDesigning for Ease of Production

Ease of ProductionEase of Production ((ManufacturabilityManufacturability)) SpecificationsSpecifications - Precise information about the - Precise information about the

characteristics of the productcharacteristics of the product TolerancesTolerances - Minimum & maximum limits on a - Minimum & maximum limits on a

dimension that allows the item to function as designeddimension that allows the item to function as designed StandardizationStandardization - Reduce variety among a group of - Reduce variety among a group of

products or partsproducts or parts SimplificationSimplification - Reduce or eliminate the complexity - Reduce or eliminate the complexity

of a part or product of a part or product

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Designing for QualityDesigning for QualityDesigning for QualityDesigning for Quality

Crucial element of product design is its impact on Crucial element of product design is its impact on qualityquality

Quality is determined by the customer’s perception of Quality is determined by the customer’s perception of the degree of excellence of the product/service’s the degree of excellence of the product/service’s characteristicscharacteristics

Chapter 17 covers the principles of designing Chapter 17 covers the principles of designing products/services for qualityproducts/services for quality

. . . more. . . more

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Designing and Developing New ServicesDesigning and Developing New ServicesDesigning and Developing New ServicesDesigning and Developing New Services

Three general dimensions of service design are:Three general dimensions of service design are: Degree of standardization of the serviceDegree of standardization of the service Degree of customer contact in delivering the serviceDegree of customer contact in delivering the service Mix of physical goods and intangible servicesMix of physical goods and intangible services

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Process PlanningProcess Planningand Designand Design

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Inputs:Inputs:• Product/Service InformationProduct/Service Information• Production System InformationProduction System Information• Operations StrategyOperations Strategy

Process Planning & Design:Process Planning & Design:• Select process typeSelect process type• Vertical integration studiesVertical integration studies• Process/Product studiesProcess/Product studies• Equipment studiesEquipment studies• Production procedures studiesProduction procedures studies• Facilities studiesFacilities studies

Outputs:Outputs:• Process Technology Process Technology • FacilitiesFacilities• Personnel EstimatesPersonnel Estimates

Process Planning and Design Process Planning and Design Process Planning and Design Process Planning and Design

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Major Factors Affecting Process DesignsMajor Factors Affecting Process DesignsMajor Factors Affecting Process DesignsMajor Factors Affecting Process Designs

Nature of product/service demandNature of product/service demand Degree of vertical integrationDegree of vertical integration Production flexibilityProduction flexibility Degree of automationDegree of automation Product/Service qualityProduct/Service quality

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Degree of Vertical IntegrationDegree of Vertical IntegrationDegree of Vertical IntegrationDegree of Vertical Integration

Vertical integrationVertical integration is the amount of the production is the amount of the production and distribution chain that is brought under the and distribution chain that is brought under the ownership of a company.ownership of a company.

This determines how many production processes need This determines how many production processes need to be planned and designed.to be planned and designed.

Decision of integration is based on cost, availability Decision of integration is based on cost, availability of capital, quality, technological capability, and more.of capital, quality, technological capability, and more.

Strategic outsourcingStrategic outsourcing (lower degree of integration) is (lower degree of integration) is the outsourcing of processes in order to react quicker the outsourcing of processes in order to react quicker to changes in customer needs, competitor actions, and to changes in customer needs, competitor actions, and technology.technology.

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Production FlexibilityProduction FlexibilityProduction FlexibilityProduction Flexibility

Product flexibilityProduct flexibility -- ability of the production (or -- ability of the production (or delivery) system to quickly change from producing delivery) system to quickly change from producing (delivering) one product (or service) to another.(delivering) one product (or service) to another.

Volume flexibilityVolume flexibility -- ability to quickly increase or -- ability to quickly increase or reduce the volume of product( or service) produced reduce the volume of product( or service) produced (or delivered).(or delivered).

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Degree of AutomationDegree of AutomationDegree of AutomationDegree of Automation

Advantages of automationAdvantages of automation Improves product qualityImproves product quality Improves product flexibilityImproves product flexibility Reduces labor and related costsReduces labor and related costs

Disadvantages of automationDisadvantages of automation Equipment can be very expensiveEquipment can be very expensive Integration into existing operations can be difficultIntegration into existing operations can be difficult

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Types of Process DesignsTypes of Process DesignsTypes of Process DesignsTypes of Process Designs

Product-FocusedProduct-Focused Process-FocusedProcess-Focused Group Technology/Cellular ManufacturingGroup Technology/Cellular Manufacturing

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Product-Focused (Production Line)Product-Focused (Production Line)Product-Focused (Production Line)Product-Focused (Production Line)

Processes (conversions) are arranged based on the Processes (conversions) are arranged based on the sequence of operations required to produce a product sequence of operations required to produce a product or provide a serviceor provide a service

Two general formsTwo general forms Discrete unitDiscrete unit Process (Continuous)Process (Continuous)

ExamplesExamples AutomobilesAutomobiles Vacuum cleanersVacuum cleaners

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PurchasedPurchased

Components,Components,SubassembliesSubassemblies

Product-Focused ProductionProduct-Focused ProductionProduct-Focused ProductionProduct-Focused Production

2222

3311

44

1

77

66

55

ComponentsComponents Subassem.Subassem.

AssembliesAssemblies

Product/Material FlowProduct/Material Flow

Production OperationProduction Operation

Assem

blie

s

Assem

blie

s

Raw MaterialRaw Material ComponentsComponents

Compon.

Compon.

Subassem.

Subassem.

Raw MaterialRaw Material

Fin. GoodsFin. Goods

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Process-Focused (Job Shop)Process-Focused (Job Shop)Process-Focused (Job Shop)Process-Focused (Job Shop)

Processes (conversions) are arranged based on the Processes (conversions) are arranged based on the type of process, i.e., like processes are grouped type of process, i.e., like processes are grouped togethertogether

Products/services (jobs) move from department Products/services (jobs) move from department (process group) to department based on that particular (process group) to department based on that particular job’s processing requirementsjob’s processing requirements

ExamplesExamples Auto body repairAuto body repair Custom woodworking shopCustom woodworking shop

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Process-Focused ProductionProcess-Focused ProductionProcess-Focused ProductionProcess-Focused Production

CuttingCutting AssemblyAssembly SandingSanding FinishingFinishingPlaningPlaning

DrillingDrilling

ShapingShaping

TurningTurning

1111 5555 7777

3333

2222

1111 6666

3333

6666

4444

2222Job AJob A

Job BJob B

4444 5555

Custom Woodworking ShopCustom Woodworking Shop

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Group Technology/Cellular ManufacturingGroup Technology/Cellular ManufacturingGroup Technology/Cellular ManufacturingGroup Technology/Cellular Manufacturing

Group technologyGroup technology forms parts with similar processing forms parts with similar processing requirements into requirements into part familiespart families or groups. or groups.

A A manufacturing cellmanufacturing cell is an arrangement of the is an arrangement of the processes required to make the parts that make up the processes required to make the parts that make up the group.group.

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Group Technology/CellsGroup Technology/CellsGroup Technology/CellsGroup Technology/Cells

Advantages (relative to a job shop)Advantages (relative to a job shop) Process changeovers simplifiedProcess changeovers simplified Variability of tasks reducedVariability of tasks reduced More direct routes through the systemMore direct routes through the system Quality control is improvedQuality control is improved Production planning and control simplerProduction planning and control simpler Automation simplerAutomation simpler

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Group Technology/CellsGroup Technology/CellsGroup Technology/CellsGroup Technology/Cells

DisadvantagesDisadvantages Duplication of equipmentDuplication of equipment Under-utilization of facilitiesUnder-utilization of facilities Processing of items that do not fit into a family Processing of items that do not fit into a family

may be inefficientmay be inefficient

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Product/Process Design & Inventory PolicyProduct/Process Design & Inventory PolicyProduct/Process Design & Inventory PolicyProduct/Process Design & Inventory Policy

Standard Products and Produce to StockStandard Products and Produce to Stock Forecast/orders drive production scheduleForecast/orders drive production schedule Maintain pre-determined finished-goods levelsMaintain pre-determined finished-goods levels MRP forecast drives material orderingMRP forecast drives material ordering

Custom Products and Produce to OrderCustom Products and Produce to Order Orders set production schedule and drive material Orders set production schedule and drive material

deliveriesdeliveries Design time may be required before production Design time may be required before production

can be scheduled can be scheduled

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Process Design in ServicesProcess Design in ServicesProcess Design in ServicesProcess Design in Services

Quasi manufacturingQuasi manufacturing -- production of goods takes -- production of goods takes place along a production line with almost no place along a production line with almost no customer interactioncustomer interaction

Customer-as-participantCustomer-as-participant -- high degree of customer -- high degree of customer involvement in the process of generating the serviceinvolvement in the process of generating the service

Customer-as-productCustomer-as-product -- service is provided through -- service is provided through personal attention to the customer personal attention to the customer

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Deciding Among Processing AlternativesDeciding Among Processing AlternativesDeciding Among Processing AlternativesDeciding Among Processing Alternatives

Batch Size and Product/Service VarietyBatch Size and Product/Service Variety Capital RequirementsCapital Requirements Economic AnalysisEconomic Analysis

Cost functions of alternativesCost functions of alternatives Operating leverage - relationship between a firm’s Operating leverage - relationship between a firm’s

annual costs and its annual salesannual costs and its annual sales Break-even analysisBreak-even analysis Financial analysisFinancial analysis

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Process Design Depends onProcess Design Depends onProduct Diversity and Batch SizeProduct Diversity and Batch Size

Process Design Depends onProcess Design Depends onProduct Diversity and Batch SizeProduct Diversity and Batch Size

Bat

ch S

ize

Number of Product Designs

ProductProductFocused,Focused,DedicatedDedicatedSystemsSystems

ProductProductFocused,Focused,

BatchBatchSystemSystem

Process-Focused,Process-Focused, Job ShopJob Shop

CellularCellularManufacturingManufacturing

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Flexible Manufacturing SystemFlexible Manufacturing System

10001000

100100

1010

1111 1010 100100 10001000 1000010000 100000100000 10000001000000

GeneralGeneralpurposepurpose

Work cellsWork cellsCIMCIM

FlexibleFlexibleManufacturingManufacturing SystemSystem

FocusedFocusedautomationautomation

Dedicated Dedicated automationautomation

ProductsProducts

VolumeVolume

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Economic AnalysisEconomic Analysis

Cost Function of Processing AlternativesCost Function of Processing Alternatives If capital is not a factor, the process design preferred depends If capital is not a factor, the process design preferred depends

upon product volumeupon product volume Operating LeverageOperating Leverage

Relationship between firm’s annual costs and annual salesRelationship between firm’s annual costs and annual sales If high % firm’s costs fixed, then high degree of operating If high % firm’s costs fixed, then high degree of operating

leverageleverage Small % change in sales drives large % change in operating Small % change in sales drives large % change in operating

incomeincome . . . more. . . more

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Economic AnalysisEconomic AnalysisEconomic AnalysisEconomic Analysis

Break Even Analysis Break Even Analysis Formulas for comparing processesFormulas for comparing processes Cannot incorporate uncertainty, costs assumed Cannot incorporate uncertainty, costs assumed

over entire range of values, and does not take into over entire range of values, and does not take into account time value of moneyaccount time value of money

Financial AnalysisFinancial Analysis Incorporate time value of money .... net present Incorporate time value of money .... net present

value, internal rate of return, etc.value, internal rate of return, etc.

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Cost Functions of Processing AlternativesCost Functions of Processing AlternativesCost Functions of Processing AlternativesCost Functions of Processing Alternatives

Annual Cost of Production ($000)Annual Cost of Production ($000)

Units Units ProducedProducedPer YearPer Year

100,000100,000 250,000250,000

CellularCellularManufacturingManufacturing

PreferredPreferred

AutomatedAutomatedAssembly LineAssembly Line

PreferredPreferred

JobJobShopShop

PreferredPreferred500500

1,0001,000

2,0002,000

1,5001,500

Job Shop

Job Shop

Cellular Manufacturing

Cellular Manufacturing

Automated Assembly Line

Automated Assembly Line

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Example: Cost FunctionsExample: Cost Functions of Processing Alternatives of Processing AlternativesExample: Cost FunctionsExample: Cost Functions

of Processing Alternatives of Processing Alternatives

Three production processes - A, B, and C - have the Three production processes - A, B, and C - have the following cost structure:following cost structure:

Fixed CostFixed Cost Variable Cost Variable CostProcessProcess Per YearPer Year Per UnitPer Unit

AA $120,000$120,000 $3.00 $3.00

BB 90,000 90,000 4.004.00

CC 80,000 80,000 4.504.50

What is the most economical process for a volume of What is the most economical process for a volume of 8,000 units per year?8,000 units per year?

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Most Economical Process at 8,000 UnitsMost Economical Process at 8,000 Units

TC = FC + v(Q)TC = FC + v(Q)

A: TC = 120,000 + 3.00(8,000) = $144,000 per yearA: TC = 120,000 + 3.00(8,000) = $144,000 per year

B: TC = 90,000 + 4.00(8,000) = $122,000 per yearB: TC = 90,000 + 4.00(8,000) = $122,000 per year

C: TC = 80,000 + 4.50(8,000) = $116,000 per yearC: TC = 80,000 + 4.50(8,000) = $116,000 per year

Process CProcess C has the lowest annual cost. has the lowest annual cost.

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Break-Even Points of ProcessesBreak-Even Points of Processes

Q = FC / (p-v)Q = FC / (p-v)

Assuming a $6.95 selling price per unit:Assuming a $6.95 selling price per unit:

A: Q = 120,000 / (6.95 - 3.00) = 30,380 unitsA: Q = 120,000 / (6.95 - 3.00) = 30,380 units

B: Q = 90,000 / (6.95 - 4.00) = 30,509 unitsB: Q = 90,000 / (6.95 - 4.00) = 30,509 units

C: Q = 80,000 / (6.95 - 4.50) = 32,654 unitsC: Q = 80,000 / (6.95 - 4.50) = 32,654 units

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Deciding Among Processing AlternativesDeciding Among Processing AlternativesDeciding Among Processing AlternativesDeciding Among Processing Alternatives

Assembly ChartsAssembly Charts (Gozinto Charts) (Gozinto Charts) Macro-view of how materials are unitedMacro-view of how materials are united Starting point to understand factory layout needs, Starting point to understand factory layout needs,

equipment needs, training needsequipment needs, training needs Process ChartsProcess Charts

Details of how to build product at each processDetails of how to build product at each process Includes materials needed, types of processes Includes materials needed, types of processes

product flows through, time it takes to process product flows through, time it takes to process product through each step of flowproduct through each step of flow

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Wrap-Up: World Class PracticeWrap-Up: World Class PracticeWrap-Up: World Class PracticeWrap-Up: World Class Practice

Fast new product introduction Fast new product introduction Design products for ease of productionDesign products for ease of production Refine forecastingRefine forecasting Focus on core competencies ... less vertical Focus on core competencies ... less vertical

integrationintegration Lean productionLean production Flexible automationFlexible automation Job shops move toward cellular manufacturingJob shops move toward cellular manufacturing Manage information flow ..... automate and simplify!Manage information flow ..... automate and simplify!

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