-1
CHAPTER
4
Product and
Service Design
-2
Product and Service Design

Major factors in design strategy

Cost
 Quality
 Time-to-market
 Customer satisfaction
 Competitive advantage
Product and service design – or redesign – should be
closely tied to an organization’s strategy
-3
Product or Service Design Activities

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
-4
Reasons for Product or Service Design

Economic

Social and demographic

Political, liability, or legal

Competitive

Technological
-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
Designing For Operations

Taking into account the capabilities of the
organization in designing goods and
services
-7
Legal, Ethical, and Environmental Issues

Legal

FDA, OSHA, IRS
 Product liability
 Uniform commercial code

Ethical


Releasing products with defects
Environmental

EPA
-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 company
 Give customers the value they expect
 Make health and safety a primary concern
 Consider potential harm to the environment
-10
Other Issues in Product and Service Design

Product/service life cycles
 How much standardization
 Product/service reliability
 Range of operating conditions
-11
Life Cycles of Products or Services
Figure 4.1
Saturation
Deman
d
Maturity
Decline
Growth
Introduction
Time
-12
CHAPTER
5
Capacity Planning
For Products and Services
-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
Importance of Capacity Decisions
1.
2.
3.
4.
5.
6.
7.
8.
Impacts ability to meet future demands
Affects operating costs
Major determinant of initial costs
Involves long-term commitment
Affects competitiveness
Affects ease of management
Globalization adds complexity
Impacts long range planning
-15
Capacity

Design capacity


Effective capacity


maximum output rate or service capacity an
operation, process, or facility is designed for
Design capacity minus allowances such as
personal time, maintenance, and scrap
Actual output

rate of output actually achieved--cannot
exceed effective capacity.
-16
Efficiency and Utilization
Actual output
Efficiency =
Effective capacity
Actual output
Utilization =
Design capacity
Both measures expressed as percentages
-17
Efficiency/Utilization Example
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Actual output
=
36 units/day
Efficiency =
= 90%
Effective capacity
Utilization =
Actual output
Design capacity
40 units/ day
=
36 units/day
50 units/day
= 72%
-18
Determinants of Effective Capacity

Facilities
 Product and service factors
 Process factors
 Human factors
 Operational factors
 Supply chain factors
 External factors
-19
Strategy Formulation

Capacity strategy for long-term demand
 Demand patterns
 Growth rate and variability
 Facilities


Technological changes


Cost of building and operating
Rate and direction of technology changes
Behavior of competitors
 Availability of capital and other inputs
-20
Key Decisions of Capacity Planning
1.
2.
3.
4.
Amount of capacity needed
Timing of changes
Need to maintain balance
Extent of flexibility of facilities
Capacity cushion – extra demand intended to offset uncertainty
-21
Steps for Capacity Planning
1.
2.
3.
4.
5.
6.
7.
8.
Estimate future capacity requirements
Evaluate existing capacity
Identify alternatives
Conduct financial analysis
Assess key qualitative issues
Select one alternative
Implement alternative chosen
Monitor results
-22
Make or Buy
1.
2.
3.
4.
5.
6.
Available capacity
Expertise
Quality considerations
Nature of demand
Cost
Risk
-23
Developing Capacity Alternatives
1.
2.
3.
4.
5.
6.
Design flexibility into systems
Take stage of life cycle into account
Take a “big picture” approach to capacity
changes
Prepare to deal with capacity “chunks”
Attempt to smooth out capacity requirements
Identify the optimal operating level
-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
Evaluating Alternatives
Figure 5.3
Average cost per unit
Production units have an optimal rate of output for minimal cost.
Minimum average cost per unit
Minimum
cost
0
Rate of output
-26
Evaluating Alternatives
Figure 5.4
Average cost per unit
Minimum cost & optimal operating rate are
functions of size of production unit.
0
Small
plant
Medium
plant
Large
plant
Output rate
-27
Planning Service Capacity

Need to be near customers


Inability to store services


Capacity and location are closely tied
Capacity must be matched with timing of
demand
Degree of volatility of demand

Peak demand periods
-28
Cost-Volume Relationships
Amount ($)
Figure 5.5a
Fixed cost (FC)
0
Q (volume in units)
-29
Cost-Volume Relationships
Amount ($)
Figure 5.5b
0
Q (volume in units)
-30
Cost-Volume Relationships
Amount ($)
Figure 5.5c
0
BEP units
Q (volume in units)
-31
Break-Even Problem with Step Fixed Costs
Figure 5.6a
3 machines
2 machines
1 machine
Quantity
Step fixed costs and variable costs.
-32
Break-Even Problem with Step Fixed Costs
Figure 5.6b
$
BEP
3
TC
BEP2
TC
3
TC
2
1
Quantity
Multiple break-even points
-33
Assumptions of Cost-Volume Analysis
1.
2.
3.
4.
5.
6.
One product is involved
Everything produced can be sold
Variable cost per unit is the same regardless
of volume
Fixed costs do not change with volume
Revenue per unit constant with volume
Revenue per unit exceeds variable cost per
unit
-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
Calculating Processing Requirements
Standard
processing time
per unit (hr.)
Product
Annual
Demand
Processing time
needed (hr.)
#1
400
5.0
2,000
#2
300
8.0
2,400
#3
700
2.0
1,400
5,800
-36
Location/Criteria
PS11
Guitar site location
-37
Capacity/Design
STA11
Demand/ patients/ staffing/ variation at St. Alexius Hospital
-38
Process Flow Improvement
SU6
Redesign of layout at Toyota