Module-03- Product- Service & Process Design

8/8/2019 Module-03- Product- Service & Process Design

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Module-2 (Chapter 4)Module-2 (Chapter 4)Module-2 (Chapter 4)Module-2 (Chapter 4)Product, Process, and Service DesignProduct, Process, and Service Design


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OverviewOverviewOverviewOverviewq Designing and Developing Products andDesigning and Developing Products and

ServicesServicesq Process Planning and DesignProcess Planning and Designq Major Factors Affecting Process DesignMajor Factors Affecting Process Design

DecisionsDecisionsq Types of Process DesignsTypes of Process Designsq Interrelationships Among Product Design,Interrelationships Among Product Design,

ProcessProcess Design, and Inventory PolicyDesign, and Inventory Policyq Process Design in ServicesProcess Design in Servicesq Deciding Among Processing AlternativesDeciding Among Processing Alternativesq

Wrap-Up: What World-Class Companies DoWrap-Up: What World-Class Companies Do


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PRODUCT, PROCESS AND SERVICE DESIGNPRODUCT, PROCESS AND SERVICE DESIGNPRODUCT, PROCESS AND SERVICE DESIGNPRODUCT, PROCESS AND SERVICE DESIGN

DESIGNING ANDDESIGNING AND

DEVELOPINGDEVELOPINGPRODUCTS ANDPRODUCTS AND

SERVICESSERVICES


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Product/Service DesignProduct/Service DesignProduct/Service DesignProduct/Service Design

When a product/service is designed:When a product/service is designed:q The detailed characteristics of theThe detailed characteristics of the

product/service are established. product/service are established.q The characteristics of the product/serviceThe characteristics of the product/service

directly affects how the product/service can bedirectly affects how the product/service can be produced/ delivered. produced/ delivered.

q How the product/service is produced/deliveredHow the product/service is produced/delivereddetermines the design of thedetermines the design of the

production/delivery system. production/delivery system.


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Product/Service DesignProduct/Service DesignProduct/Service DesignProduct/Service Design

Product / service design directly affects :Product / service design directly affects :q Product / service qualityProduct / service qualityq Production / delivery costProduction / delivery costq

Customer satisfactionCustomer satisfaction


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Product/Service Design and DevelopmentProduct/Service Design and DevelopmentProduct/Service Design and DevelopmentProduct/Service Design and Development

q Sources of Product InnovationSources of Product Innovationq Developing New Products/ServicesDeveloping New Products/Servicesq Getting Them to Market Faster Getting Them to Market Faster q Improving Current Products/ServicesImproving Current Products/Servicesq

Designing for Ease of ProductionDesigning for Ease of Productionq Designing for QualityDesigning for Qualityq Designing and Developing New ServicesDesigning and Developing New Services

FOLLOWING ARE RELEVENT :


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Sources of Product/Service InnovationSources of Product/Service InnovationSources of Product/Service InnovationSources of Product/Service Innovation

q CustomersCustomersq ManagersManagersq MarketingMarketingq OperationsOperationsq EngineeringEngineeringq Research and Development (R&D)Research and Development (R&D)

q Basic researchBasic researchq Applied researchApplied research


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Steps in Developing New ProductsSteps in Developing New ProductsSteps in Developing New ProductsSteps in Developing New Products

1.1. Technical and economic feasibility studiesTechnical and economic feasibility studies2.2. Prototype designPrototype design3.3. Performance testing of prototypePerformance testing of prototype

4.4. Market sensing/evaluation and economic evaluationMarket sensing/evaluation and economic evaluationof the prototypeof the prototype5.5. Design of production modelDesign of production model

6.6. Market/performance/process testing and economicMarket/performance/process testing and economicevaluation of production modelevaluation of production model

7.7. Continuous modification of production modelContinuous modification of production model


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1.1. Technical and Economic FeasibilityTechnical and Economic FeasibilityStudiesStudies

q Determine the advisability of Determine the advisability of establishing a project for developingestablishing a project for developingthe productthe product

q

If initial feasibility studies areIf initial feasibility studies arefavorable, engineers prepare an initialfavorable, engineers prepare an initial prototype design prototype design


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2.2. Prototype DesignPrototype Designq This design should exhibit the basicThis design should exhibit the basic

form, fit, and function of the finalform, fit, and function of the final product productq It will not necessarily be identicalIt will not necessarily be identical

to the production modelto the production model


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3.3. Performance Testing of PrototypePerformance Testing of Prototypeq Performance testing andPerformance testing and

redesign of the prototyperedesign of the prototypecontinues until this design-test-continues until this design-test-

redesign process produces aredesign process produces asatisfactorily performingsatisfactorily performing prototype prototype


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4.4. Market Sensing/Evaluation and Economic EvaluationMarket Sensing/Evaluation and Economic Evaluationof the Prototypeof the Prototype

q Accomplished by demonstrations to potentialAccomplished by demonstrations to potentialcustomers, market test, or market surveyscustomers, market test, or market surveys

q If the response to the prototype is favorable,If the response to the prototype is favorable,economic evaluation of the prototype is performedeconomic evaluation of the prototype is performedto estimate production volume, costs, and profitsto estimate production volume, costs, and profits

q

If the economic evaluation is favorable, the projectIf the economic evaluation is favorable, the projectenters the production design phase.enters the production design phase.


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5.5. Design of Production ModelDesign of Production Modelq The initial design of the productionThe initial design of the production

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


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6.6. Market/Performance/Process Testing andMarket/Performance/Process Testing andEconomic Evaluation of Production ModelEconomic Evaluation of Production Model

q The production model should exhibit:The production model should exhibit:q low costlow costq reliable qualityreliable qualityq superior performancesuperior performanceq the ability to be produced in the desiredthe ability to be produced in the desired

quantities on the intended equipmentquantities on the intended equipment


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Managing Product Development ProjectsManaging Product Development ProjectsManaging Product Development ProjectsManaging Product Development Projects

q

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

q It is best to cancel unpromising new-product/serviceIt is best to cancel unpromising new-product/servicedevelopment projects early!development projects early!

q Employees often become emotionally caught up inEmployees often become emotionally caught up inthese projects and are overly optimisticthese projects and are overly optimistic

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


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Getting New Products to Market FasterGetting New Products to Market FasterGetting New Products to Market FasterGetting New Products to Market Faster

q

Speed creates competitive advantagesSpeed creates competitive advantagesq Speed saves moneySpeed saves moneyq Tools to improve speed:Tools to improve speed:

q

Autonomous design and development teamsAutonomous design and development teamsq Computer-aided design/computer-aidedComputer-aided design/computer-aided

manufacturing (CAD/CAM)manufacturing (CAD/CAM)q Simultaneous (concurrent) engineeringSimultaneous (concurrent) engineering


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Tools to Improve Speed to MarketTools to Improve Speed to MarketTools to Improve Speed to MarketTools to Improve Speed to Market

q Autonomous Design and Development TeamsAutonomous Design and Development Teamsq Teams are given decision-making responsibilityTeams are given decision-making responsibility

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

q Time-to-market has been slashed dramaticallyTime-to-market has been slashed dramaticallyq Enormous sums of money have been savedEnormous sums of money have been savedq Teams do not have to deal with the bureaucraticTeams do not have to deal with the bureaucratic

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


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Tools to Improve Speed to MarketTools to Improve Speed to MarketTools to Improve Speed to MarketTools to Improve Speed to Market

q

SimultaneousSimultaneous(Concurrent)(Concurrent)EngineeringEngineering

Economic and TechnicalEconomic and TechnicalFeasibility 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


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

q Focus is improving performance, quality, andFocus is improving performance, quality, andcostcost

q Objective is maintaining or improving marketObjective is maintaining or improving marketshare of maturing products/servicesshare of maturing products/services

q Little changes can be significantLittle changes can be significantq Small, steady (continuous) improvements canSmall, steady (continuous) improvements can

add up to huge long-term improvementsadd up to huge long-term improvementsq Value analysisValue analy sis is practiced, meaning designis practiced, meaning design

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


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Designing for Ease of ProductionDesigning for Ease of Production

q

Ease of ProductionEase of Production ((ManufacturabilityManufacturability ))q SpecificationsSpeci fications - Precise information about the- Precise information about the

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

dimension that allows the item to function asdimension that allows the item to function asdesigneddesigned

q StandardizationStandardization - Reduce variety among a group of - Reduce variety among a group of

products or parts products or partsq SimplificationSimp lification - Reduce or eliminate the complexity- Reduce or eliminate the complexity

of a part or productof a part or product


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Designing for QualityDesigning for QualityDesigning for QualityDesigning for Quality

q Crucial element of product design is itsCrucial element of product design is itsimpact on qualityimpact on quality

q Quality is determined by the customersQuality is determined by the customers perception of the degree of excellence of perception of the degree of excellence of the product/services characteristicsthe product/services characteristics

q

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


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Designing and Developing New ServicesDesigning and Developing New ServicesDesigning and Developing New ServicesDesigning and Developing New Services

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

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

q Degree of Customer Contact in Delivering the ServiceDegree of Customer Contact in Delivering the Serviceq High level of contact (dress boutique) or low levelHigh level of contact (dress boutique) or low level

(fast-food restaurant)?(fast-food restaurant)?q

Mix of Physical Goods and Intangible ServicesMix of Physical Goods and Intangible Servicesq Mix dominated by physical goods (tailors shop) or Mix dominated by physical goods (tailors shop) or by intangible services (university)? by intangible services (university)?


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Designing and Developing New ServicesDesigning and Developing New ServicesDesigning and Developing New ServicesDesigning and Developing New Services

q

Differences Between New Service and New ProductDifferences Between New Service and New ProductDevelopmentDevelopment

q Unless services are dominated by physical goods,Unless services are dominated by physical goods,their development usually does not requiretheir development usually does not requireengineering, testing, and prototype building.engineering, testing, and prototype building.

q Because many service businesses involveBecause many service businesses involveintangible services, market sensing tends to beintangible services, market sensing tends to be

more by surveys rather than by market tests andmore by surveys rather than by market tests anddemonstrations.demonstrations.


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ProcessProcessPlanning and DesignPlanning and Design


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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:Output s: Process TechnologyProcess Technology FacilitiesFacilities Personnel EstimatesPersonnel Estimates

Process Planning and Design SystemProcess Planning and Design SystemProcess Planning and Design SystemProcess Planning and Design System


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MAJOR FACTORSMAJOR FACTORS

AFFECTINGAFFECTINGPROCESS DESIGNPROCESS DESIGN

DECISIONSDECISIONS


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Nature of Product/Service DemandNature of Product/Service DemandNature of Product/Service DemandNature of Product/Service Demand

q

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

q Provisions must be made for expanding or Provisions must be made for expanding or contracting capacity to keep pace with demandcontracting capacity to keep pace with demand

patterns. patterns.q Some types of processes are more easily expandedSome types of processes are more easily expanded

and contracted than others.and contracted than others.q Product/service price affects demand, so pricingProduct/service price affects demand, so pricing

decisions and the choice of processes must bedecisions and the choice of processes must besynchronized.synchronized.


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Degree of Vertical IntegrationDegree of Vertical IntegrationDegree of Vertical IntegrationDegree of Vertical Integration

q

Vertical integrationVertical integr ation is the amount of the productionis the amount of the productionand distribution chain that is brought under theand distribution chain that is brought under theownership of a company.ownership of a company.

q This determines how many production processes needThis determines how many production processes needto be planned and designed.to be planned and designed.

q Decision of integration is based on cost, availabilityDecision of integration is based on cost, availabilityof capital, quality, technological capability, and more.of capital, quality, technological capability, and more.

q Strategic outsourcingStrategi c outsourcing (lower degree of integration) is(lower degree of integration) isthe outsourcing of processes in order to react quicker the outsourcing of processes in order to react quicker to changes in customer needs, competitor actions, andto changes in customer needs, competitor actions, andtechnology.technology.


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Production FlexibilityProduction FlexibilityProduction FlexibilityProduction Flexibility

q

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

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


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Degree of AutomationDegree of AutomationDegree of AutomationDegree of Automation

q

Advantages of automationAdvantages of automationq Improves product qualityImproves product qualityq Improves product flexibilityImproves product flexibilityq

Reduces labor and related costsReduces labor and related costsq Disadvantages of automationDisadvantages of automation

q Equipment can be very expensiveEquipment can be very expensiveq Integration into existing operations can be difficultIntegration into existing operations can be difficult


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Product/Service QualityProduct/Service QualityProduct/Service QualityProduct/Service Quality

q

Old viewpoint high-quality products must be madeOld viewpoint high-quality products must be madein small quantities by expert craftsmenin small quantities by expert craftsmenq New viewpoint high-quality products can be mass- New viewpoint high-quality products can be mass-

produced using automated machinery produced using automated machineryq Automated machinery can produce products of Automated machinery can produce products of

incredible uniformityincredible uniformityq The choice of design of production processes isThe choice of design of production processes is

affected by the need for superior quality.affected by the need for superior quality.


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TYPES OFTYPES OFPROCESSPROCESSDESIGNSDESIGNS


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Types of Process DesignsTypes of Process DesignsTypes of Process DesignsTypes of Process Designs

q Product-FocusedProduct-Focusedq Process-FocusedProcess-Focusedq Group Technology / Cellular Group Technology / Cellular

ManufacturingManufacturing


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Product-FocusedProduct-FocusedProduct-FocusedProduct-Focusedq

Processes (conversions) are arranged based onProcesses (conversions) are arranged based onthe sequence of operations required to producethe sequence of operations required to producea product or provide a servicea product or provide a service

q

Also called Production Line or AssemblyAlso called Production Line or AssemblyLineLineq Two general formsTwo general forms

q

Discrete unit automobiles, dishwashersDiscrete unit automobiles, dishwashersq Process (Continuous) petrochemicals,Process (Continuous) petrochemicals,

paper paper


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PurchasedPurchased

Components,Components,SubassembliesSubassemblies

Product-FocusedProduct-FocusedProduct-FocusedProduct-Focused

2222

3311

44

1

77

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ComponentsComponents Subassem.Subassem.

AssembliesAssemblies

Product/Material FlowProduct/Material Flow

Production OperationProduction Operation

A s s

e m b l

i e s

A s s

e m b l

i e s

Raw MaterialRaw Material ComponentsComponentsC o m p o n .

C o m p o n .

S u b a s s e m .

S u b a s s e m .

Raw MaterialRaw Material

Fin. GoodsFin. Goods


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Process-FocusedProcess-FocusedProcess-FocusedProcess-Focused

q

Processes (conversions) are arranged based on theProcesses (conversions) are arranged based on thetype of process, i.e., similar processes are groupedtype of process, i.e., similar processes are groupedtogether together

q Products/services (jobs) move from departmentProducts/services (jobs) move from department(process group) to department based on that particular (process group) to department based on that particular

jobs processing requirements jobs processing requirementsq Also called Job Shop or Intermittent ProductionAlso called Job Shop or Intermittent Productionq

ExamplesExamplesq Auto body repair Auto body repair q Custom woodworking shopCustom woodworking shop


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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


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q

AdvantagesAdvantagesq High product flexibilityHigh product flexibilityq Lower initial investment levelLower initial investment level

q DisadvantagesDisadvantagesq Higher labor-skill requirementsHigher labor-skill requirementsq More worker trainingMore worker trainingq More supervisionMore supervisionq More complex production planning and controllingMore complex production planning and controlling


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Group Technology/Cellular ManufacturingGroup Technology/Cellular ManufacturingGroup Technology/Cellular ManufacturingGroup Technology/Cellular Manufacturing

q

Group TechnologyGroup Technologyq Each part produced receives a multi-digit code thatEach part produced receives a multi-digit code that

describes the physical characteristics of the part.describes the physical characteristics of the part.q Parts with similar characteristics are grouped intoParts with similar characteristics are grouped into

part families part familiesq Parts in a part family are typically made on theParts in a part family are typically made on the

same machines with similar toolingsame machines with similar tooling


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q

Advantages (relative to a job shop)Advantages (relative to a job shop)q Process changeovers simplifiedProcess changeovers simplifiedq Variability of tasks reduced (less training needed)Variability of tasks reduced (less training needed)q

More direct routes through the systemMore direct routes through the systemq Quality control is improvedQuality control is improvedq Production planning and control simpler Production planning and control simpler q Automation simpler Automation simpler


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q

DisadvantagesDisadvantagesq Duplication of equipmentDuplication of equipmentq Under-utilization of facilitiesUnder-utilization of facilitiesq

Processing of items that do not fit into a familyProcessing of items that do not fit into a familymay be inefficientmay be inefficient


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q

Candidates for GT/CM are job shops having:Candidates for GT/CM are job shops having:q A degree of parts standardizationA degree of parts standardizationq Moderate batch sizesModerate batch sizes


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Product/Process Design & Inventory PolicyProduct/Process Design & Inventory PolicyProduct/Process Design & Inventory PolicyProduct/Process Design & Inventory Policy

q

Standard Products and Produce to Stock Standard Products and Produce to Stock q Sales forecasts drive production scheduleSales forecasts drive production scheduleq Maintain pre-determined finished-goods levelsMaintain pre-determined finished-goods levelsq

MRP forecast drives material orderingMRP forecast drives material orderingq Custom Products and Produce to OrderCustom Products and Produce to Orderq Orders set production schedule and drive materialOrders set production schedule and drive material

deliveriesdeliveriesq Design time (Design time ( preproduction planning preproduction planning ) may be) may be

required before production can be scheduledrequired before production can be scheduled


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PROCESSPROCESS

DESIGN INDESIGN IN

SERVICESSERVICES


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Process Design in ServicesProcess Design in ServicesProcess Design in ServicesProcess Design in Services

q

Some of the factors important in process design for Some of the factors important in process design for products are also important in services: products are also important in services:q Nature (level and pattern) of customer demand Nature (level and pattern) of customer demandq Degree of vertical integrationDegree of vertical integrationq Production flexibilityProduction flexibilityq Degree of automationDegree of automationq Service qualityService quality


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q

Three schemes for producing and delivering servicesThree schemes for producing and delivering servicesq Quasi-ManufacturingQuasi-Manufacturingq Customer-as-ParticipantCustomer-as-Participantq

Customer-as-ProductCustomer-as-Product


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q

Quasi-ManufacturingQuasi-Manufacturingq Physical goods are dominant over intangiblePhysical goods are dominant over intangible

serviceserviceq Production of goods takes place along a productionProduction of goods takes place along a production

linelineq Operations can be highly automatedOperations can be highly automatedq Almost no customer interactionAlmost no customer interactionq Little regard for customer relationsLittle regard for customer relationsq Example banks checking encoding operationExample banks checking encoding operation


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q

Customer-as-ParticipantCustomer-as-Participantq Physical goods may be a significant part of thePhysical goods may be a significant part of the

serviceserviceq Services may be either standardized or customServices may be either standardized or customq High degree of customer involvement in theHigh degree of customer involvement in the

process processq Examples: ATM, self-service gas stationExamples: ATM, self-service gas station


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q

Customer-as-ProductCustomer-as-Productq Service is providedService is provided through personal attention tothrough personal attention to

the customer the customer q Customized serviceCustomized service onon the customer the customer q High degree of customer contactHigh degree of customer contactq There is a perception of high qualityThere is a perception of high qualityq Customer becomes the central focus of the processCustomer becomes the central focus of the process

designdesignq Examples: medical clinic, hair salonExamples: medical clinic, hair salon


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DECIDINGDECIDING

AMONGAMONGPROCESSINGPROCESSINGALTERNATIVESALTERNATIVES


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Deciding Among Processing AlternativesDeciding Among Processing AlternativesDeciding Among Processing AlternativesDeciding Among Processing Alternatives

q

Batch Size and Product/Service VarietyBatch Size and Product/Service Varietyq Capital RequirementsCapital Requirementsq Economic AnalysisEconomic Analysis

q

Cost Functions of Alternative ProcessesCost Functions of Alternative Processes

q Break-Even AnalysisBreak-Even Analysisq Financial AnalysisFinancial Analysis

Process Design DependsProcess Design DependsProcess Design DependsProcess Design Depends


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Process Design DependsProcess Design Dependson Product Diversity and Batch Sizeon Product Diversity and Batch Size

Process Design DependsProcess Design Dependson Product Diversity and Batch Sizeon Product Diversity and Batch Size

Small

Batch Size

Large

Few Number of Product Designs Many

ProductProductFocused,Focused,DedicatedDedicatedSystemsSystems

ProductProductFocused,Focused,

BatchBatchSystemSystem

Process-Focused,Process-Focused,Job ShopJob Shop

Cellular Cellular ManufacturingManufacturing


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Capital RequirementsCapital RequirementsCapital RequirementsCapital Requirements

q

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 processq Generally, the capital required is greatest for product-Generally, the capital required is greatest for product-

focused, dedicated systemsfocused, dedicated systemsq Generally, the capital required is lowest for process-Generally, the capital required is lowest for process-

focused, job shopsfocused, job shopsq The amount of capital available and the cost of capitalThe amount of capital available and the cost of capital

are important considerationsare important considerations

lE i A l i


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Economic AnalysisEconomic Analysis

q

Cost Functions of Processing AlternativesCost Functions of Processing Alternativesq Fixed CostsFixed Costs

q Annual cost when production volume is zeroAnnual cost when production volume is zeroq

Initial cost of buildings, equipment, and other Initial cost of buildings, equipment, and other fixed assetsfixed assets

q Variable CostsVariable Costsq Costs that vary with production volumesCosts that vary with production volumesq Labor, material, and variable overheadLabor, material, and variable overhead

f lfC F i f P i Al i


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Cost Functions of Processing AlternativesCost Functions of Processing AlternativesCost Functions of Processing AlternativesCost Functions of Processing Alternatives

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

UnitsUnitsProducedProducedPer YearPer Year

100,000100,000 250,000250,000

Cellular Cellular ManufacturingManufacturing

PreferredPreferred

AutomatedAutomatedAssembly LineAssembly Line

PreferredPreferred

JobJob

ShopShopPreferredPreferred

500500

1,0001,000

2,0002,000

1,5001,500

J o b S h

o p J o b

S h o p

C e l l u l a r

M a n u f.

C e l l u l a r

M a n u f.

A u to m. Asse m b l y

L i ne

A u to m. Asse m b l y

L i ne


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lE i A l iE i A l iE i A l i


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Economic AnalysisEconomic AnalysisEconomic AnalysisEconomic Analysis

q

Break-Even AnalysisBreak-Even Analysisq Widely used to analyze and compare decisionWidely used to analyze and compare decision

alternativesalternativesq Can be displayed either algebraically or Can be displayed either algebraically or

graphicallygraphicallyq Disadvantages:Disadvantages:

q Cannot incorporate uncertaintyCannot incorporate uncertaintyq

Costs assumed over entire range of valuesCosts assumed over entire range of valuesq Does not take into account time value of moneyDoes not take into account time value of money

B k E A l iB k E A l iB k E A l iB k E A l i


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Break-Even AnalysisBreak-Even AnalysisBreak-Even AnalysisBreak-Even Analysis

q

ExampleExampleBreak-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 units

C: 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.

E i A l iE i A l iE i A l iE i A l i


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Economic AnalysisEconomic AnalysisEconomic AnalysisEconomic Analysis

q

Financial AnalysisFinancial Analysisq A great amount of money is invested in productionA great amount of money is invested in production

processes and these assets are expected to last a processes and these assets are expected to last along timelong time

q The time value of money is an importantThe time value of money is an importantconsiderationconsideration

q Payback periodPayback periodq net present valuenet present valueq internal rate of returninternal rate of returnq Profitability indexProfitability index


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W U W ld Cl P iW U W ld Cl P tiW U W ld Cl P tiW U W ld Cl P ti


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Wrap-Up: World Class PracticeWrap-Up: World Class PracticeWrap-Up: World Class PracticeWrap-Up: World Class Practiceq

Fast new product introductionFast new product introduction

q Design products for ease of productionDesign products for ease of productionq Refine forecastingRefine forecastingq Focus on core competencies ... less verticalFocus on core competencies ... less vertical

integrationintegrationq Lean productionLean productionq Flexible automationFlexible automationq

Job shops move toward cellular manufacturingJob shops move toward cellular manufacturing

q Manage information flow ..... automate and simplify!Manage information flow ..... automate and simplify!

d f d l ( h )End of Mod le 2 (Chapter 4)


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End of Module-2 (Chapter 4)End of Module-2 (Chapter 4)

Documents

Module-03- Product- Service & Process Design