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CHAPTER 4 Product and Service Design. -2 Major factors in design strategy Cost Quality Time-to-market Customer satisfaction Competitive advantage Product.

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Presentation on theme: "CHAPTER 4 Product and Service Design. -2 Major factors in design strategy Cost Quality Time-to-market Customer satisfaction Competitive advantage Product."— Presentation transcript:

1 CHAPTER 4 Product and Service Design

2 -2 Major factors in design strategy Cost Quality Time-to-market Customer satisfaction Competitive advantage Product and Service Design Product and service design – or redesign – should be closely tied to an organizations strategy

3 -3 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 Activities

4 -4 Reasons for Product or Service Design Economic Social and demographic Political, liability, or legal Competitive Technological

5 -5 Objectives 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

6 -6 Taking into account the capabilities of the organization in designing goods and services Designing For Operations

7 -7 Legal FDA, OSHA, IRS Product liability Uniform commercial code Ethical Releasing products with defects Environmental EPA Legal, Ethical, and Environmental Issues

8 -8 Regulations & 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.

9 -9 Designers 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

10 -10 Other Issues in Product and Service Design Product/service life cycles How much standardization Product/service reliability Range of operating conditions

11 -11 Life Cycles of Products or Services Time Introduction Growth Maturity Saturation Decline Deman d Figure 4.1

12 -12 CHAPTER 5 Capacity Planning For Products and Services

13 -13 Capacity 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?

14 Impacts ability to meet future demands 2. Affects operating costs 3. Major determinant of initial costs 4. Involves long-term commitment 5. Affects competitiveness 6. Affects ease of management 7. Globalization adds complexity 8. Impacts long range planning Importance of Capacity Decisions

15 -15 Capacity 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.

16 -16 Efficiency and Utilization Actual output Efficiency = Effective capacity Actual output Utilization = Design capacity Both measures expressed as percentages

17 -17 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 Example Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day

18 -18 Determinants of Effective Capacity Facilities Product and service factors Process factors Human factors Operational factors Supply chain factors External factors

19 -19 Strategy 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

20 -20 Key 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

21 -21 Steps 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

22 -22 Make or Buy 1. Available capacity 2. Expertise 3. Quality considerations 4. Nature of demand 5. Cost 6. Risk

23 -23 Developing 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

24 -24 Economies 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

25 -25 Evaluating Alternatives Minimum cost Average cost per unit 0 Rate of output Production units have an optimal rate of output for minimal cost. Figure 5.3 Minimum average cost per unit

26 -26 Evaluating Alternatives Minimum cost & optimal operating rate are functions of size of production unit. Average cost per unit 0 Small plant Medium plant Large plant Output rate Figure 5.4

27 -27 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 Capacity

28 -28 Cost-Volume Relationships Amount ($) 0 Q (volume in units) Total cost = VC + FC Total variable cost (VC) Fixed cost (FC) Figure 5.5a

29 -29 Cost-Volume Relationships Amount ($) Q (volume in units) 0 Total revenue Figure 5.5b

30 -30 Cost-Volume Relationships Amount ($) Q (volume in units) 0 BEP units Profit Total revenue Total cost Figure 5.5c

31 -31 Break-Even Problem with Step Fixed Costs Quantity FC + VC = TC Step fixed costs and variable costs. 1 machine 2 machines 3 machines Figure 5.6a

32 -32 Break-Even Problem with Step Fixed Costs $ TC BEP 2 3 TR Quantity Multiple break-even points Figure 5.6b

33 One product is involved 2. Everything produced can be sold 3. Variable cost per unit is the same regardless of volume 4. Fixed costs do not change with volume 5. Revenue per unit constant with volume 6. Revenue per unit exceeds variable cost per unit Assumptions of Cost-Volume Analysis

34 -34 Financial 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.

35 -35 Calculating Processing Requirements

36 -36 Location/Criteria PS11 Guitar site location

37 -37 Capacity/Design STA11 Demand/ patients/ staffing/ variation at St. Alexius Hospital

38 -38 Process Flow Improvement SU6 Redesign of layout at Toyota

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