Designing Goods and Services and Process Selection Chapter 3

MGMT 326 Capacity, Facilities, & Work Design Foundations of Operations Products & Processes Quality Assurance Planning & Control Product Design Introduction Strategy Process Design

Breakeven Analysis in Product Screening Designing Goods and Services Basic Concepts Design and strategy Feasibility study Operations issues Breakeven Analysis in Product Screening and Process Selection Service Design Service package Approaches to service design Designing Goods Product Characteristics Form design Functional design Learning from other companies Design Methods Design for manufacture Concurrent engineering

Strategy and Product Design The core product may be a good or a service Product design should support the business strategy Product design should meet the needs of a target market. Product design should give the company a competitive advantage.

Feasibility Study Purpose is to determine whether the company can make a product that Meets the needs of customers in a target market Can be made by the company with the required level of quality and delivery schedule Can be sold at a price that customers are willing to pay While allowing the company to meet its profit targets. This depends on costs estimated by Accounting and revenue estimated by Marketing

Operations Issues in Product Design Product design and technology Product design is a joint responsibility of marketing, operations, engineering (in manufacturing) and Accounting/Finance Process technology (along with engineering) Would we need a new or modified facility? Can the firm make this product with consistent quality? How many workers will we need? What skills will they need?

Breakeven Analysis in Product Screening The breakeven point (in terms of units) is the volume at which total costs = revenue Q = quantity sold, SP = selling price Revenue = (SP)Q F = fixed cost, VC = variable cost per unit At the breakeven point (QBE), F + (VC)Q=(SP)Q

Product Screening Example Problem 1, pages 90 -91 Given: F= fixed cost = $40,000 VC = variable cost per unit = $50 SP = selling price = $70

Interpreting Breakeven Analysis In Product Screening When Q = QBE, the firm does not make money or lose money When Q < QBE, revenue < costs, the firm loses money When Q > QBE, revenue > costs, the firm makes a profit QBE will be different for different production technologies

Breakeven Analysis in Process Selection Problem 2, Page 91 Current Equipment Process A New Equipment Process B Fixed cost $40,000 $60,000 Variable cost per unit $50 $25 Total cost $40,000 + 50Q $60,000 + 25Q Point of indifference: costs for the 2 processes are equal $40,000 + 50Q= $60,000 + 25Q 25Q = $20,000, so Q = 800

Interpreting Breakeven Analysis in Process Selection If expected sales < 800, use process A If expected sales > 800, use process B

Designing Services – Service Package Physical elements: facility, equipment and furnishings, inventories Sensory and aesthetic aspects Psychological benefits Quality standards

Approaches to Service Design Design for efficiency: Compete on consistency, cost, speed High standardization Limited variety Automation may be used High-volume services purchase at low cost. Example: fast food

Approaches to Service Design (2) Customer involvement in producing the service The customer does part of the work Reduces costs and may allow the customer to do some customization Example: self-service salad bar

Approaches to Service Design (3) High customer attention Highly customized service, provided by highly trained people Used in professional services (medical care, legal services, high-end tax preparation services) Also used by luxury retailers, hotels, restaurants

Designing Goods Form design: Sensory aspects of the product (aesthetics) Size, color, shape, sound "Look and feel" Form design contributes to customer's impressions of quality Functional design: how the product performs

Form Design: How the Product Looks, Etc. Ipod Touch Toyota Camry

Functional Design of Goods What the Product Does

Functional Design of Goods What the Product Does 2009 Honda Civic NGV Natural Gas Vehicle 2009 Toyota Prius 2009 Honda Civic Hybrid

Functional Design of Goods (2) How the Product Performs Fitness for use: product performs as intended Durability: how long the product lasts Reliability: consistent performance Maintainability: ease and cost of repairs

Learning from Other Companies Benchmarking: comparing your operations with those of a "best in class" firm Product benchmark – compare your product with competing products Process benchmark How competing products or services are produced How other companies perform business functions Cost benchmark – what your competitors spend to make comparable products

Learning from Other Companies (2) Reverse engineering: taking your competitor's products apart and figuring out how it is made Physical products Software Market research on competitor's products: customer needs and satisfaction

Design for Manufacture Value engineering: Eliminate product features that add cost but do not add value to the customer. Reduce the number of parts. Reduces the cost of ordering, purchasing, and storing parts. Reduces the space required to hold inventory Reduces the number of tools and operations required (by eliminating bolts, screws, etc.) Reduces the time required to make the product

Design for Manufacture (2) Example of reducing the number of parts, operations, and tools.

Design for Manufacture (3) Modular design: Design products to be assembled from standard components. Example: Dell buys standard video cards, processors, power supplies, hard drives, etc., and assembles computers Use standard parts to reduce design costs and purchasing costs. Examples: Computer makers often buy standard power supplies.

Sequential vs. Concurrent Design

Concurrent Engineering Design the product and the process at the same time. Use a design team that includes marketing, operations, engineering, operations, and suppliers. Stay in touch with customers during the design process. Requires good project management and coordination among all groups involved.

Advantages of Concurrent Engineering Increases the chances of a successful product. Shorter design time Shortens time to market. Reduces design costs Supplier expertise can help design a product that meets customer needs at lower cost Reduces the need to make expensive changes in the product and the process later

Process Selection Process Types Process Design Tools Reengineering Flowcharts Intermittent Project Batch Repetitive Assembly line Continuous Impact of Process Type Layout Inventory policy Costs

Intermittent Operations Intermittent operations: processes used to produce a variety of products with different processing requirements at lower volumes Project processes: used to make one-of-a-kind items to customer specifications Batch processes: used to make small quantities of products in batches based on customer orders or specifications Also called job shops

Repetitive Operations Repetitive operations: Processes used to make one product or a few standardized products in high volume Line process – also called an assembly line or flow shop May have assemble-to-order options Continuous process: operates continuously, produces a high volume of a fully standardized product Some firms use more than one type of process

Underlying Process Relationship Between Volume and Standardization High-volume processes are usually more standardized than low-volume processes.

Process Choice and Layout Intermittent operations usually use a process (department) layout: workers & equipment are grouped by function Different products may take different paths through the production process Repetitive operations use a product layout: workers & equipment are grouped in the order in which they will be needed. The product passes from one work station to the next.

Process Choice and Inventory Policy

Process Choice and Costs Intermittent processes Lower capital costs than repetitive processes Lower breakeven point than repetitive processes High variable cost per unit High total cost per unit Repetitive processes Higher capital costs than intermittent processes Higher breakeven point than intermittent processes Low variable cost per unit Low total cost per unit if volume is high

Process Design Tools Process flow analysis is a tool used to analyze and document the sequence of steps within a total process. Usually first step in process reengineering. Process reengineering is the fundamental rethinking and radical redesign of a process to bring about dramatic improvements in performance Cost Quality Time Flexibility

Process Design Tools (2) Both operations processes and business processes can be re-engineered. Re-engineer a process before you automate it or computerize it.

Process Flow in a Pizza Restaurant