1. Product Design & Process Selection

2. Product & Service Design
Product design must support the business strategy
Product design defines a product’s characteristics:
Appearance, materials, dimensions, tolerances, performance standards

3. Product & Service Design
Service industries must define both the service and concept: Physical elements, psychological benefits: promptness, friendliness, ambiance
Product and service design must match the needs and preferences of the targeted customer group

4. Product & Service Design Steps
Step 1 - Idea Development
- Someone thinks of a need and a product/service design to satisfy it
e.g. customers, engineering, competitors (benchmarking, reverse engineering), suppliers (Early Supplier Involvement)

5. Product & Service Design Steps
Step 2 - Product Screening (only 1 out of 5 ideas pass screening)
- Every business needs a formal/ structured evaluation process, e.g. fit with business strategy (Mission) fit with facility and labor skills (Operations), size of market (Marketing), contribution margin, break-even analysis, return on sales (Finance), ethics, environment, legal, etc.

6. Product & Service Design Steps
Step 3 – Preliminary Design and Testing - Technical specifications are developed, prototypes built, testing starts

7. Product & Service Design Steps
Step 4 – Final Design (only 1 out of 60 ideas are commercially successful)
- Final design based on:
* test results
* facility, equipment, material, and labor skills defined
* suppliers identified

8. Break-Even Analysis: Graphical Approach
Compute quantity of goods that must be sold to break-even
Compute total revenue at an assumed selling price
Compute fixed cost and variable cost for several quantities
Plot the total revenue line and the total cost line
Intersection is break-even
Sensitivity analysis can be done to examine changes in all of the assumptions made

9. Total revenues = Total costs @ break-even point Q
Break-even calculation: A company is planning to establish a chain of movie theaters. It estimates that each new theater will cost approximately $1 Million. The theaters will hold 500 people and will have 4 showings each day with average ticket prices at $8. They estimate that concession sales will average $2 per patron. The variable costs in labor and material are estimated to be $6 per patron. They will be open 300 days each year. What must average occupancy be to break even?
Break Even Point
Total revenues = Total break-even point Q
Selling price*Q = Fixed cost + variable cost*Q
($8+$2)Q= $1,000,000 + $6*Q
Q = 166,667 patrons (28% occupancy)
What is the gross profit if they sell 300,000 tickets
Profit = Total Revenue – Total Costs
P = $10*300,000 – (1,000,000 + $6*300,000)
P = $200,000
If concessions average $.50/patron, what is break-even Q now? (sensitivity analysis)
($8.50)Q = $1,000,000 + $6*Q
Q = 400,000 patrons (67% occupancy)

10. Other Product Design Factors
Need to Design for Manufacturing – DFM
Minimize parts
Design parts for multiply applications
Use modular design
Avoid tools
Simplify operations

11. Other Design Factors Consider product life cycle stages
Introduction
Growth
Maturity
Decline
Facility & process investment depends on life cycle

12. Other Design factors
Old “over-the –wall” sequential design process should not be used
Each function did its work and passed it to the next function
Replace with a Concurrent Engineering process
All functions form a design team working together to develop specifications, involve customers early, solve potential problems, reduce costs, & shorten time to market
Remanufacturing: uses components of old products in the production of new ones (Computers, TV’s, Cars)

13. Process Selection Process selection is based on five considerations
Type of process; range from intermittent to continuous
Degree of vertical integration
Flexibility of resources
Mix between capital & human resources
Degree of customer contact
Process types can be:
Project Process (project: build a highway; job shop: metal shop, ER)
Batch Process (batch: printing shop)
Line Process (assembly line: cars, pizza, cafeteria)
Continuous Process(continuous:paper mill, oil refinery)

14. Process Decisions-Vertical Integration & Make or Buy
Vertical integration refers to the degree a firm chooses to do processes itself- raw material to sales
Backward Integration means moving closer to primary operations
Forward Integration means moving closer to customers
What is “horizontal integration”?
A firm’s Make-or-Buy choices should be based on the following considerations:
Strategic impact
Available capacity
Expertise
Quality considerations
Speed
Cost (fixed cost + variable cost)make = (fixed cost + Variable cost)buy
Business are trending toward less backward integration, more outsourcing

15. Underlying Process Relationship Between Volume and Standardization

16. Differences between Intermittent and Repetitive Operations
Decision
Intermittent Oper.
Repetitive Operation
Product variety
Great
Small
Degree of standardization
Low
High
Organization of resources
Grouped by Function
Line flow
Path of products
Varied, depends on product
Line flow
Factor driving production
Customer orders
Forecast of demand
Critical resource
Labour
Capital
Type of equipment
General purpose
Specialized
Degree of automation
Low
High
Throughput time
Longer
Shorter
Work-in-process inventory
More
Less

17. Facility layouts: intermittent vs. repetitive operations

18. Volume and Process Choice
Low Volume typically means
Project or Batch processes
Less vertical integration
More resource flexibility
Less capital intensity
Higher skilled labor
More customer involvement
More customized products
Make or assemble to order strategy
High Volume typically means
Line/continuous processes
More vertical integration
Less resource flexibility
More capital intensity
More specialized labor
Little to no customer involvement
Standardized products
Make to stock strategy

19. Process Design Tools
Process flow analysis is a technique used to analyze and document the sequence of steps within a total process: uses process flowcharts --> Usually the first step in Process Reengineering.
Process Re-engineering is a structured approach used when major business changes are required as a result of:
Major new products
Quality improvement needed
Better competitors
Inadequate performance

20. Flowcharts for different product strategies

21. Process Performance Metrics
Measurements of different process characteristics:tell us how the process is performing
Throughput time (TT): Start -> End (Avg. T.)
Process velocity = TT/Value-added time
Nonvalue-added time: e.g. waiting
Productivity = Output/Input
Utilization = Time used/Time available
Efficiency = Actual output/Standard output

22. Manufacturing Technology Decisions
Simplify first, then apply appropriate technology
Automation
Automated Material Handling:
Automated guided vehicles (AGV)
Automated storage & retrieval systems (AS/RS)
Computer-Aided Design (CAD) software
Robotics & Numerically-Controlled (NC) equipment
Flexible Manufacturing Systems (FMS)
Computer-Integrated Manufacturing (CIM)

23. Designing Services Service Characteristics Differing designs
Intangible products
High customer contact
Differing designs
Substitute technology for people
Get customer involved
High customer attention

24. Classification of services
Quasi-Manufacturing (warehouses, distribution centres, environmental testing labs)
Mixed Services (offices, banks)
Pure Services (restaurants, schools, hospitals)

25. Labour intensity vs. Customer contact
Labour Intensity: LOW HIGH
Customer Contact: LOW HIGH
Standarization: HIGH LOW
Quasi-Manuf. Pure Serv.

26. Service package (bundle)
Physical benefits (e.g. food, tables, chairs, china)
Sensual benefits (visual, smell, sounds)
Psychological benefits (status, comfort, happiness)
purchased together as part of the service