Presentation on theme: "Product and Service Design"— Presentation transcript:
1 Product and Service Design CHAPTER4Product and Service Design
2 Product and Service Design Major factors in design strategyCostQualityTime-to-marketCustomer satisfactionCompetitive advantageProduct and service design – or redesign – should beclosely tied to an organization’s strategy
3 Product or Service Design Activities Translate customer wants and needs into product and service requirementsRefine existing products and servicesDevelop new products and servicesFormulate quality goalsFormulate cost targetsConstruct and test prototypesDocument specifications
4 Reasons for Product or Service Design EconomicSocial and demographicPolitical, liability, or legalCompetitiveTechnological
5 Objectives of Product and Service Design Main focusCustomer satisfactionSecondary focusFunction of product/serviceCost/profitQualityAppearanceEase of production/assemblyEase of maintenance/service
6 Designing For Operations Taking into account the capabilities of the organization in designing goods and services
7 Legal, Ethical, and Environmental Issues FDA, OSHA, IRSProduct liabilityUniform commercial codeEthicalReleasing products with defectsEnvironmentalEPA
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 Designers Adhere to Guidelines Produce designs that are consistant with the goals of the companyGive customers the value they expectMake health and safety a primary concernConsider potential harm to the environment
10 Other Issues in Product and Service Design Product/service life cyclesHow much standardizationProduct/service reliabilityRange of operating conditions
11 Life Cycles of Products or Services Figure 4.1TimeIntroductionGrowthMaturitySaturationDeclineDemand
12 For Products and Services CHAPTER5Capacity PlanningFor Products and Services
13 Capacity PlanningCapacity 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 Importance of Capacity Decisions Impacts ability to meet future demandsAffects operating costsMajor determinant of initial costsInvolves long-term commitmentAffects competitivenessAffects ease of managementGlobalization adds complexityImpacts long range planning
15 Capacity Design capacity Effective capacity Actual output maximum output rate or service capacity an operation, process, or facility is designed forEffective capacityDesign capacity minus allowances such as personal time, maintenance, and scrapActual outputrate of output actually achieved--cannot exceed effective capacity.
16 Efficiency and Utilization Actual outputEfficiency =Effective capacityUtilization =Design capacityBoth measures expressed as percentages
18 Determinants of Effective Capacity FacilitiesProduct and service factorsProcess factorsHuman factorsOperational factorsSupply chain factorsExternal factors
19 Strategy Formulation Capacity strategy for long-term demand Demand patternsGrowth rate and variabilityFacilitiesCost of building and operatingTechnological changesRate and direction of technology changesBehavior of competitorsAvailability of capital and other inputs
20 Key Decisions of Capacity Planning Amount of capacity neededTiming of changesNeed to maintain balanceExtent of flexibility of facilitiesCapacity cushion – extra demand intended to offset uncertainty
21 Steps for Capacity Planning Estimate future capacity requirementsEvaluate existing capacityIdentify alternativesConduct financial analysisAssess key qualitative issuesSelect one alternativeImplement alternative chosenMonitor results
22 Make or Buy Available capacity Expertise Quality considerations Nature of demandCostRisk
23 Developing Capacity Alternatives Design flexibility into systemsTake stage of life cycle into accountTake a “big picture” approach to capacity changesPrepare to deal with capacity “chunks”Attempt to smooth out capacity requirementsIdentify the optimal operating level
24 Economies of Scale Economies of scale Diseconomies of scale If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costsDiseconomies of scaleIf the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs
25 Evaluating Alternatives Figure 5.3Production units have an optimal rate of output for minimal cost.MinimumcostAverage cost per unitRate of outputMinimum average cost per unit
26 Evaluating Alternatives Figure 5.4Minimum cost & optimal operating rate arefunctions of size of production unit.SmallplantAverage cost per unitMediumplantLargeplantOutput rate
27 Planning Service Capacity Need to be near customersCapacity and location are closely tiedInability to store servicesCapacity must be matched with timing of demandDegree of volatility of demandPeak demand periods
31 Break-Even Problem with Step Fixed Costs Figure 5.6aQuantityFC + VC = TCStep fixed costs and variable costs.1 machine2 machines3 machines
32 Break-Even Problem with Step Fixed Costs Figure 5.6b$TCBEP23TRQuantity1Multiple break-even points
33 Assumptions of Cost-Volume Analysis One product is involvedEverything produced can be soldVariable cost per unit is the same regardless of volumeFixed costs do not change with volumeRevenue per unit constant with volumeRevenue per unit exceeds variable cost per unit
34 Financial AnalysisCash 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.