Chapter 4 Product, Process, and Service Design. Product/Service Design Product/service design directly affects: Product/service qualityProduct/service

Chapter 4Chapter 4Chapter 4Chapter 4

Product, Process, and Service Product, Process, and Service DesignDesign

Product/Service DesignProduct/Service Design

Product/service design directly affects:Product/service design directly affects:

• Product/service qualityProduct/service quality

• Production/delivery costProduction/delivery cost

• Customer satisfactionCustomer satisfaction

Product/Service Design and Product/Service Design and DevelopmentDevelopment

• Sources of Product InnovationSources of Product Innovation

• Developing New Products/ServicesDeveloping New Products/Services

• Getting Them to Market FasterGetting Them to Market Faster

• Improving Current Products/ServicesImproving Current Products/Services

• Designing for Ease of ProductionDesigning for Ease of Production

• Designing for QualityDesigning for Quality

• Designing and Developing New ServicesDesigning and Developing New Services

Sources of Product/Service Sources of Product/Service InnovationInnovation

• CustomersCustomers

• ManagersManagers

• MarketingMarketing

• OperationsOperations

• EngineeringEngineering

• Research and Development (R&D)Research and Development (R&D)– Basic researchBasic research– Applied researchApplied research

Steps in Developing New Steps in Developing New ProductsProducts

1.1. Technical and economic feasibility studies Technical and economic feasibility studies

2.2. Prototype design Prototype design

3.3. Performance testing of prototype Performance testing of prototype

4.4. Market sensing/evaluation and economic Market sensing/evaluation and economic evaluation evaluation of the prototypeof the prototype

5.5. Design of production model Design of production model

6.6. Market/performance/process testing and Market/performance/process testing and economic economic evaluation of production modelevaluation of production model

7.7. Continuous modification of production model Continuous modification of production model


1.1. Technical and Economic Feasibility Technical and Economic Feasibility StudiesStudies– Determine the advisability of establishing a Determine the advisability of establishing a

project for developing the productproject for developing the product– If initial feasibility studies are favorable, If initial feasibility studies are favorable,

engineers prepare an initial prototype designengineers prepare an initial prototype design


2.2. Prototype Design Prototype Design– This design should exhibit the basic form, fit, This design should exhibit the basic form, fit,

and function of the final productand function of the final product– It will not necessarily be identical to the It will not necessarily be identical to the

production modelproduction model


3.3. Performance Testing of Prototype Performance Testing of Prototype– Performance testing and redesign of the Performance testing and redesign of the

prototype continues until this design-test-prototype continues until this design-test-redesign process produces a satisfactorily redesign process produces a satisfactorily performing prototypeperforming prototype


4.4. Market Sensing/Evaluation and Economic Market Sensing/Evaluation and Economic Evaluation of the PrototypeEvaluation of the Prototype– Accomplished by demonstrations to potential Accomplished by demonstrations to potential

customers, market test, or market surveyscustomers, market test, or market surveys– If the response to the prototype is favorable, If the response to the prototype is favorable,

economic evaluation of the prototype is economic evaluation of the prototype is performed to estimate production volume, performed to estimate production volume, costs, and profitscosts, and profits

– If the economic evaluation is favorable, the If the economic evaluation is favorable, the project enters the production design phase.project enters the production design phase.


5.5. Design of Production Model Design of Production Model– The initial design of the production model will The initial design of the production model will

not be the final design; the model will evolvenot be the final design; the model will evolve


6.6. Market/Performance/Process Testing Market/Performance/Process Testing and Economic Evaluation of Production and Economic Evaluation of Production ModelModel– The production model should exhibit:The production model should exhibit:

• low costlow cost• reliable qualityreliable quality• superior performancesuperior performance• the ability to be produced in the desired quantities the ability to be produced in the desired quantities

on the intended equipmenton the intended equipment


7.7. Continuous Modification of Production Continuous Modification of Production ModelModel– Production designs are continuously modified Production designs are continuously modified

to:to:• Adapt to changing market conditionsAdapt to changing market conditions• Adapt to changing production technologyAdapt to changing production technology• Allow for manufacturing improvementsAllow for manufacturing improvements

Managing Product Development Managing Product Development ProjectsProjects

• About 5% of all new-product ideas survive to About 5% of all new-product ideas survive to production, and only about 10% of these are production, and only about 10% of these are successful.successful.

• It is best to cancel unpromising It is best to cancel unpromising new-product/service development projects early!new-product/service development projects early!

• Employees often become emotionally caught up Employees often become emotionally caught up in these projects and are overly optimisticin these projects and are overly optimistic

• An impartial management review board is An impartial management review board is needed for periodic reviews of the progress of needed for periodic reviews of the progress of these projects.these projects.

Getting New Products to Market Getting New Products to Market FasterFaster

• Speed creates competitive advantagesSpeed creates competitive advantages

• Speed saves moneySpeed saves money

• Tools to improve speed:Tools to improve speed:– Autonomous design and development teamsAutonomous design and development teams– Computer-aided design/computer-aided Computer-aided design/computer-aided

manufacturing (CAD/CAM)manufacturing (CAD/CAM)– Simultaneous (concurrent) engineering Simultaneous (concurrent) engineering

Tools to Improve Speed to Tools to Improve Speed to MarketMarket

• Autonomous Design and Development Autonomous Design and Development TeamsTeams– Teams are given decision-making responsibility Teams are given decision-making responsibility

and more freedom to design and introduce new and more freedom to design and introduce new products/servicesproducts/services

– Time-to-market has been slashed dramaticallyTime-to-market has been slashed dramatically– Enormous sums of money have been savedEnormous sums of money have been saved– Teams do not have to deal with the bureaucratic Teams do not have to deal with the bureaucratic

red tape ordinarily required to obtain approvalsred tape ordinarily required to obtain approvals


• Computer-Aided Design/Computer-Aided Manufacturing Computer-Aided Design/Computer-Aided Manufacturing (CAD/CAM)(CAD/CAM)– Engineers, using CAD/CAM, can generate many Engineers, using CAD/CAM, can generate many

views of parts, rotate images, magnify views, and views of parts, rotate images, magnify views, and check for interference between partscheck for interference between parts

– Part designs can be stored in a data base for use on Part designs can be stored in a data base for use on other productsother products

– When it is time for manufacturing, the product design When it is time for manufacturing, the product design is retrieved, translated into a language that production is retrieved, translated into a language that production machinery understands, and then the production machinery understands, and then the production system can be automatically set up.system can be automatically set up.


• SimultaneousSimultaneous(Concurrent)(Concurrent)EngineeringEngineeringEconomic and TechnicalEconomic and Technical

Feasibility StudiesFeasibility Studies

Product/Product/Service IdeasService Ideas

Production Process DesignProduction Process DesignProduct/Service DesignProduct/Service Design

Produce and MarketProduce and MarketNew Product/ServiceNew Product/Service

ContinuousInteraction

Improving the DesignImproving the Designof Existing Products/Servicesof Existing Products/Services

• Focus is improving performance, quality, and Focus is improving performance, quality, and costcost

• Objective is maintaining or improving market Objective is maintaining or improving market share of maturing products/servicesshare of maturing products/services

• Little changes can be significantLittle changes can be significant• Small, steady (continuous) improvements can Small, steady (continuous) improvements can

add up to huge long-term improvementsadd up to huge long-term improvements• Value analysisValue analysis is practiced, meaning design is practiced, meaning design

features are examined in terms of their features are examined in terms of their cost/benefit (value).cost/benefit (value).

Designing for Ease of Designing for Ease of ProductionProduction

• Ease of ProductionEase of Production ((ManufacturabilityManufacturability))– SpecificationsSpecifications - Precise information about the - Precise information about the

characteristics of the productcharacteristics of the product– TolerancesTolerances - Minimum & maximum limits on a - Minimum & maximum limits on a

dimension that allows the item to function as dimension that allows the item to function as designeddesigned

– StandardizationStandardization - Reduce variety among a group - Reduce variety among a group of products or partsof products or parts

– SimplificationSimplification - Reduce or eliminate the - Reduce or eliminate the complexity of a part or product complexity of a part or product

Designing for QualityDesigning for Quality

• Crucial element of product design is its Crucial element of product design is its impact on qualityimpact on quality

• Quality is determined by the customer’s Quality is determined by the customer’s perception of the degree of excellence of perception of the degree of excellence of the product/service’s characteristicsthe product/service’s characteristics

• Chapter 7 covers the principles of Chapter 7 covers the principles of designing products/services for qualitydesigning products/services for quality

Designing and Developing New Designing and Developing New ServicesServices

Three general dimensions of service design are:Three general dimensions of service design are:• Degree of Standardization of the ServiceDegree of Standardization of the Service

– Custom-fashioned for particular customers or basically Custom-fashioned for particular customers or basically the same for all customers?the same for all customers?

• Degree of Customer Contact in Delivering the ServiceDegree of Customer Contact in Delivering the Service– High level of contact (dress boutique) or low level (fast-High level of contact (dress boutique) or low level (fast-

food restaurant)?food restaurant)?• Mix of Physical Goods and Intangible ServicesMix of Physical Goods and Intangible Services

– Mix dominated by physical goods (tailor’s shop) or by Mix dominated by physical goods (tailor’s shop) or by intangible services (university)?intangible services (university)?

Designing and Developing New Designing and Developing New ServicesServices

• Differences Between New Service and Differences Between New Service and New Product DevelopmentNew Product Development– Unless services are dominated by physical Unless services are dominated by physical

goods, their development usually does not goods, their development usually does not require engineering, testing, and prototype require engineering, testing, and prototype building.building.

– Because many service businesses involve Because many service businesses involve intangible services, market sensing tends to intangible services, market sensing tends to be more by surveys rather than by market be more by surveys rather than by market tests and demonstrations.tests and demonstrations.

ProcessProcessPlanning and DesignPlanning and Design

Inputs:Inputs:• Product/Service InformationProduct/Service Information• Production System InformationProduction System Information• Operations StrategyOperations Strategy

Process Planning & Design:Process Planning & Design:• Process-Type SelectionProcess-Type Selection• Vertical Integration StudiesVertical Integration Studies• Process/Product StudiesProcess/Product Studies• Equipment StudiesEquipment Studies• Production Procedures StudiesProduction Procedures Studies• Facilities StudiesFacilities Studies

Outputs:Outputs:• Process Technology Process Technology • FacilitiesFacilities• Personnel EstimatesPersonnel Estimates

Process Planning and Design Process Planning and Design System System

Major Factors Affecting Process Major Factors Affecting Process DesignsDesigns

• Nature of product/service demandNature of product/service demand

• Degree of vertical integrationDegree of vertical integration

• Production flexibilityProduction flexibility

• Degree of automationDegree of automation

• Product/Service qualityProduct/Service quality

Nature of Product/Service Nature of Product/Service DemandDemand

• Production processes must have adequate Production processes must have adequate capacity to produce the volume of the capacity to produce the volume of the products/services that customers need.products/services that customers need.

• Provisions must be made for expanding or Provisions must be made for expanding or contracting capacity to keep pace with contracting capacity to keep pace with demand patterns.demand patterns.

• Some types of processes are more easily Some types of processes are more easily expanded and contracted than others.expanded and contracted than others.

• Product/service price affects demand, so Product/service price affects demand, so pricing decisions and the choice of pricing decisions and the choice of processes must be synchronized.processes must be synchronized.

Degree of Vertical IntegrationDegree of Vertical Integration

• Vertical integrationVertical integration is the amount of the is the amount of the production and distribution chain that is brought production and distribution chain that is brought under the ownership of a company.under the ownership of a company.

• This determines how many production This determines how many production processes need to be planned and designed.processes need to be planned and designed.

• Decision of integration is based on cost, Decision of integration is based on cost, availability of capital, quality, technological availability of capital, quality, technological capability, and more.capability, and more.

• Strategic outsourcingStrategic outsourcing (lower degree of (lower degree of integration) is the outsourcing of processes in integration) is the outsourcing of processes in order to react quicker to changes in customer order to react quicker to changes in customer needs, competitor actions, and technology.needs, competitor actions, and technology.

Production FlexibilityProduction Flexibility

• Product flexibilityProduct flexibility -- ability of the -- ability of the production (or delivery) system to quickly production (or delivery) system to quickly change from producing (delivering) one change from producing (delivering) one product (or service) to another.product (or service) to another.

• Volume flexibilityVolume flexibility -- ability to quickly -- ability to quickly increase or reduce the volume of increase or reduce the volume of product( or service) produced (or product( or service) produced (or delivered).delivered).

Degree of AutomationDegree of Automation

• Advantages of automationAdvantages of automation– Improves product qualityImproves product quality– Improves product flexibilityImproves product flexibility– Reduces labor and related costsReduces labor and related costs

• Disadvantages of automationDisadvantages of automation– Equipment can be very expensiveEquipment can be very expensive– Integration into existing operations can be Integration into existing operations can be

difficultdifficult

Product/Service QualityProduct/Service Quality

• Old viewpoint – high-quality products must be Old viewpoint – high-quality products must be made in small quantities by expert craftsmenmade in small quantities by expert craftsmen

• New viewpoint – high-quality products can be New viewpoint – high-quality products can be mass-produced using automated machinerymass-produced using automated machinery

• Automated machinery can produce products of Automated machinery can produce products of incredible uniformityincredible uniformity

• The choice of design of production processes is The choice of design of production processes is affected by the need for superior quality.affected by the need for superior quality.

Types of Process DesignsTypes of Process Designs

• Product-FocusedProduct-Focused

• Process-FocusedProcess-Focused

• Group Technology/Cellular ManufacturingGroup Technology/Cellular Manufacturing

Product-FocusedProduct-Focused

• Processes (conversions) are arranged Processes (conversions) are arranged based on the sequence of operations based on the sequence of operations required to produce a product or provide a required to produce a product or provide a serviceservice

• Also called “Production Line” or “Assembly Also called “Production Line” or “Assembly Line”Line”

• Two general formsTwo general forms– Discrete unit – automobiles, dishwashersDiscrete unit – automobiles, dishwashers– Process (Continuous) – petrochemicals, paperProcess (Continuous) – petrochemicals, paper

PurchasedPurchased

Components,Components,SubassembliesSubassemblies


2222

3311

44

1

77

66

55

ComponentsComponents Subassem.Subassem.

AssembliesAssemblies

Product/Material FlowProduct/Material Flow

Production OperationProduction Operation

Ass

embl

ies

Ass

embl

ies

Raw MaterialRaw Material ComponentsComponents

Compon.

Compon.

Subassem.

Subassem.

Raw MaterialRaw Material

Fin. GoodsFin. Goods


• AdvantagesAdvantages– Lower labor-skill requirementsLower labor-skill requirements– Reduced worker trainingReduced worker training– Reduced supervisionReduced supervision– Ease of planning and controlling productionEase of planning and controlling production

• DisadvantagesDisadvantages– Higher initial investment levelHigher initial investment level– Relatively low product flexibilityRelatively low product flexibility

Process-FocusedProcess-Focused

• Processes (conversions) are arranged based on the type Processes (conversions) are arranged based on the type of process, i.e., similar processes are grouped togetherof process, i.e., similar processes are grouped together

• Products/services (jobs) move from department (process Products/services (jobs) move from department (process group) to department based on that particular job’s group) to department based on that particular job’s processing requirementsprocessing requirements

• Also called “Job Shop” or “Intermittent Production”Also called “Job Shop” or “Intermittent Production”• ExamplesExamples

– Auto body repairAuto body repair– Custom woodworking shopCustom woodworking shop


CuttingCutting AssemblyAssembly SandingSanding FinishingFinishingPlaningPlaning

DrillingDrilling

ShapingShaping

TurningTurning

1111 5555 7777

3333

2222

1111 6666

3333

6666

4444

2222Job AJob AJob AJob A

Job BJob B

4444 5555

Custom Woodworking ShopCustom Woodworking Shop


• AdvantagesAdvantages– High product flexibilityHigh product flexibility– Lower initial investment levelLower initial investment level

• DisadvantagesDisadvantages– Higher labor-skill requirementsHigher labor-skill requirements– More worker trainingMore worker training– More supervisionMore supervision– More complex production planning and More complex production planning and

controllingcontrolling

Group Technology/Cellular Group Technology/Cellular ManufacturingManufacturing

• Group TechnologyGroup Technology– Each part produced receives a multi-digit Each part produced receives a multi-digit

code that describes the physical code that describes the physical characteristics of the part.characteristics of the part.

– Parts with similar characteristics are grouped Parts with similar characteristics are grouped into part familiesinto part families

– Parts in a part family are typically made on Parts in a part family are typically made on the same machines with similar toolingthe same machines with similar tooling


• Cellular ManufacturingCellular Manufacturing– Some part families (those requiring significant Some part families (those requiring significant

batch sizes) can be assigned to batch sizes) can be assigned to manufacturing cells.manufacturing cells.

– The organization of the shop floor into cells is The organization of the shop floor into cells is referred to as referred to as cellular manufacturingcellular manufacturing..

– Flow of parts within cells tend to be more like Flow of parts within cells tend to be more like product-focused systemsproduct-focused systems


• Advantages (relative to a job shop)Advantages (relative to a job shop)– Process changeovers simplifiedProcess changeovers simplified– Variability of tasks reduced (less training Variability of tasks reduced (less training

needed)needed)– More direct routes through the systemMore direct routes through the system– Quality control is improvedQuality control is improved– Production planning and control simplerProduction planning and control simpler– Automation simplerAutomation simpler


• DisadvantagesDisadvantages– Duplication of equipmentDuplication of equipment– Under-utilization of facilitiesUnder-utilization of facilities– Processing of items that do not fit into a family Processing of items that do not fit into a family

may be inefficientmay be inefficient


• Candidates for GT/CM are job shops Candidates for GT/CM are job shops having:having:– A degree of parts standardizationA degree of parts standardization– Moderate batch sizesModerate batch sizes

Product/Process Design & Product/Process Design & Inventory PolicyInventory Policy

• Standard Products and Produce to StockStandard Products and Produce to Stock– Sales forecasts drive production scheduleSales forecasts drive production schedule– Maintain pre-determined finished-goods levelsMaintain pre-determined finished-goods levels– MRP forecast drives material orderingMRP forecast drives material ordering

• Custom Products and Produce to OrderCustom Products and Produce to Order– Orders set production schedule and drive Orders set production schedule and drive

material deliveriesmaterial deliveries– Design time (Design time (preproduction planningpreproduction planning) may be ) may be

required before production can be scheduled required before production can be scheduled

Process Design in ServicesProcess Design in Services

• Some of the factors important in process Some of the factors important in process design for products are also important in design for products are also important in services:services:– Nature (level and pattern) of customer Nature (level and pattern) of customer

demanddemand– Degree of vertical integrationDegree of vertical integration– Production flexibilityProduction flexibility– Degree of automationDegree of automation– Service qualityService quality

Deciding Among Processing Deciding Among Processing AlternativesAlternatives

• Batch Size and Product/Service VarietyBatch Size and Product/Service Variety

• Capital RequirementsCapital Requirements

• Economic AnalysisEconomic Analysis– Cost Functions of Alternative ProcessesCost Functions of Alternative Processes– Break-Even AnalysisBreak-Even Analysis– Financial AnalysisFinancial Analysis

Process Design Depends Process Design Depends on Product Diversity and Batch Sizeon Product Diversity and Batch Size

Sm

all

B

atch

Siz

e

L

arge

Few Number of Product Designs Many

ProductProductFocused,Focused,DedicatedDedicatedSystemsSystems

ProductProductFocused,Focused,

BatchBatchSystemSystem

Process-Focused,Process-Focused, Job ShopJob Shop

CellularCellularManufacturingManufacturing

Capital RequirementsCapital RequirementsCapital RequirementsCapital Requirements

The amount of capital required tends to differ for The amount of capital required tends to differ for each type of production processeach type of production process

Generally, the capital required is greatest for product-Generally, the capital required is greatest for product-focused, dedicated systemsfocused, dedicated systems

Generally, the capital required is lowest for process-Generally, the capital required is lowest for process-focused, job shopsfocused, job shops

The amount of capital available and the cost of capital The amount of capital available and the cost of capital are important considerationsare important considerations

Economic AnalysisEconomic Analysis• Cost Functions of Processing AlternativesCost Functions of Processing Alternatives

– Fixed CostsFixed Costs• Annual cost when production volume is zeroAnnual cost when production volume is zero• Initial cost of buildings, equipment, and other fixed Initial cost of buildings, equipment, and other fixed

assetsassets

– Variable CostsVariable Costs• Costs that vary with production volumesCosts that vary with production volumes• Labor, material, and variable overheadLabor, material, and variable overhead

Cost Functions of Processing Cost Functions of Processing AlternativesAlternatives

Annual Cost of Production ($000)Annual Cost of Production ($000)

Units Units ProducedProducedPer YearPer Year

100,000100,000 250,000250,000

CellularCellularManufacturingManufacturing

PreferredPreferred

AutomatedAutomatedAssembly LineAssembly Line

PreferredPreferred

JobJobShopShop

PreferredPreferred500500

1,0001,000

2,0002,000

1,5001,500

Job Shop

Job Shop

Cellular Manuf.

Cellular Manuf.

Autom. Assembly LineAutom. Assembly Line


• ExampleExample

Three production processes (A, B, and C) have Three production processes (A, B, and C) have the following cost structure:the following cost structure:

Fixed CostFixed Cost Variable Cost Variable CostProcessProcess Per YearPer Year Per YearPer Year

AA $120,000$120,000 $3.00 $3.00 BB 90,000 90,000 4.004.00 CC 80,000 80,000 4.504.50

What is the most economical process for a volume of What is the most economical process for a volume of 8,000 units per year?8,000 units per year?


• ExampleExample

TC = FC + v(Q)TC = FC + v(Q)

A: TC = 120,000 + 3.00(8,000) = $144,000 per yearA: TC = 120,000 + 3.00(8,000) = $144,000 per yearB: TC = 90,000 + 4.00(8,000) = $122,000 per yearB: TC = 90,000 + 4.00(8,000) = $122,000 per yearC: TC = 80,000 + 4.50(8,000) = $116,000 per yearC: TC = 80,000 + 4.50(8,000) = $116,000 per year

The most economical process at 8,000 units is The most economical process at 8,000 units is Process CProcess C, with the lowest annual cost., with the lowest annual cost.

Economic AnalysisEconomic Analysis

• Break-Even AnalysisBreak-Even Analysis– Widely used to analyze and compare decision Widely used to analyze and compare decision

alternativesalternatives– Can be displayed either algebraically or Can be displayed either algebraically or

graphicallygraphically– Disadvantages:Disadvantages:

• Cannot incorporate uncertaintyCannot incorporate uncertainty• Costs assumed over entire range of valuesCosts assumed over entire range of values• Does not take into account time value of moneyDoes not take into account time value of money

Break-Even AnalysisBreak-Even Analysis

• ExampleExample

Break-Even Points of Processes A, B, and C, Break-Even Points of Processes A, B, and C, assuming a $6.95 selling price per unitassuming a $6.95 selling price per unit

Q = FC / (p-v)Q = FC / (p-v)

A: Q = 120,000 / (6.95 - 3.00) = 30,380 unitsA: Q = 120,000 / (6.95 - 3.00) = 30,380 unitsB: Q = 90,000 / (6.95 - 4.00) = 30,509 unitsB: Q = 90,000 / (6.95 - 4.00) = 30,509 unitsC: Q = 80,000 / (6.95 - 4.50) = 32,654 unitsC: Q = 80,000 / (6.95 - 4.50) = 32,654 units

Process A has the lowest break-even point.Process A has the lowest break-even point.

Economic AnalysisEconomic Analysis

• Financial AnalysisFinancial Analysis– A great amount of money is invested in A great amount of money is invested in

production processes and these assets are production processes and these assets are expected to last a long timeexpected to last a long time

– The time value of money is an important The time value of money is an important considerationconsideration• Payback periodPayback period• net present valuenet present value• internal rate of returninternal rate of return• Profitability indexProfitability index

Documents

Chapter 4 Product, Process, and Service Design. Product/Service Design Product/service design directly affects: Product/service qualityProduct/service