Product Design & Process Selection

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

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

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)

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.

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

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

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

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 costs @ 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)

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

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

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)

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)

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

Underlying Process Relationship Between Volume and Standardization

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

Facility layouts: intermittent vs. repetitive operations

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

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

Flowcharts for different product strategies

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

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)

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

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

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

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