Chapter 3 Product Design and Process Selection

Learning Objectives 1-4

  • Objective 1: Define product design and explain its strategic impact on the organization.

  • Objective 2: Describe the steps used to develop a product design.

  • Objective 3: Use break-even analysis as a tool in deciding between alternative products.

  • Objective 4: Identify different types of processes and explain their characteristics.

Learning Objectives 5-9

  • Objective 5: Understand how to use a process flowchart.

  • Objective 6: Understand how to use process performance metrics.

  • Objective 7: Understand the link between product design and process selection.

  • Objective 8: Understand current technological advancements and how they impact process and product design.

  • Objective 9: Understand issues of designing service operations.

Learning Objective 1: Product Design

  • Definition: Product design is the process of defining all product characteristics, which includes:

    • Appearance

    • Materials

    • Dimensions

    • Tolerances

    • Performance standards

  • Importance: Product design must ensure manufacturability, which is the ease with which a product can be made.

  • Process Selection: This refers to the development of processes required to produce the designed product.

Design of Services vs. Goods

  • Unique Aspects of Service Design: Both the service itself and the entire service concept are designed.

  • Characteristics of Service Design: It includes:

    • Physical benefits

    • Sensual benefits

    • Psychological benefits

  • Customer Focus: Both product and service designs must align with the needs and preferences of targeted customer groups.

Learning Objective 2: Steps in Product Design

  • Step 1: Idea Development

    • Source of ideas can include customers, marketing, competitors, benchmarking, and reverse engineering.

  • Step 2: Product Screening

    • Formal and structured evaluation process that assesses:

    • Fit with facility and labor skills

    • Market size

    • Contribution margin

    • Break-even analysis

    • Return on sales.

  • Step 3: Preliminary Design and Testing

    • Involves developing technical specifications, building prototypes, and conducting tests.

  • Step 4: Final Design

    • Based on testing results, defining:

    • Facility and equipment needs

    • Material and labor skills

    • Identifying suppliers.

Idea Development Details

  • Competitors can provide ideas through:

    • Benchmarking: Studying the best companies in the class to compare performance.

    • Reverse Engineering: Disassembling a product to analyze its design features.

  • Early Supplier Involvement (ESI): Engaging suppliers early in the product development process.

Break-Even Analysis

  • Definition: A tool that helps determine the quantity of goods needed to cover costs.

  • Equation for Break-even Analysis:

    • Q_{BE} = rac{F}{SP-VC}

    • where:

      • Q_{BE} = break-even quantity

      • F = fixed costs

      • SP = selling price per unit

      • VC = variable costs per unit.

Calculating Number of Units Sold

  • Total Cost: The sum of fixed and variable costs.

    • ext{Total Cost} = F + (VC imes Q)

  • Revenue: The amount of money generated from sales.

    • ext{Revenue} = SP imes Q

Graphical Approach to Break-even Analysis

  • Steps include:

    • Compute the necessary quantity of goods to break even.

    • Calculate total revenue at the assumed selling price.

    • Compute fixed and variable costs for different quantities.

    • Plot total revenue and total cost to find intersection (break-even point).

Break-Even Example: Movie Theater Scenario

  • Parameters:

    • Theater cost: $1 million

    • Capacity: 500 patrons

    • Showings per day: 4

    • Ticket price: $8

    • Concession average: $2 per patron

    • Variable costs: $6 per patron

    • Open days per year: 300

  • Calculation Aim: Determine average occupancy to break even.

Break-Even Example Calculation Steps

  1. Break-even Revenue Equation:

    • Q imes (SP + 2) = 1,000,000 + (6 imes Q)

    • Rearranging gives:

    • Q = 250,000 ext{ patrons} ext{ (42% occupancy)}.

  2. Gross Profit Calculation for 300,000 Tickets:

    • ext{Profit} = ext{Total Revenue} - ext{Total Cost}

    • ext{Profit} = 10(300,000) - [1,000,000 + 6(300,000)] = 200,000.

  3. Sensitivity Analysis for Concessions at $0.50 per Patron:

    • New Break-even Qty:

    • Q = 400,000 ext{ patrons (67% occupancy)}.

Learning Objective 3: Break-even Analysis for Alternative Products

  • Usage: It serves as a tool for comparing alternatives when designing or selecting products.

Factors Impacting Product Design

  • Design for Manufacture (DFM):

    • Simplification: Minimizing parts.

    • Standardization: Designing parts for multiple applications such as modular design or simplified operations.

Product Life Cycle Stages

  • Stages:

    • Introduction

    • Growth

    • Maturity

    • Decline

  • Investment Considerations: Facility and process investments vary throughout the life cycle stages.

Concurrent Engineering

  • Description: Ideally replaces the traditional sequential design process, which was characterized by isolated functional areas in product development.

  • Benefit: Promotes collaboration among different functions early in the design phase, ensuring simultaneous product and process design.

Types of Processes

  • Intermittent Operations: Produce a variety of products with different processing requirements in lower volumes (e.g., healthcare).

  • Repetitive Operations: Produce one or a few standardized products in high volumes (e.g., cafeterias, car washes).

Process Selection

  • Considerations: Product designs must align with the processes used in production. Main differences boil down to:

    • Volume of production

    • Degree of product standardization.

Features of Intermittent vs. Repetitive Operations

  • Table Comparing Operations:

    • Product Variety: High for intermittent; low for repetitive.

    • Degree of Standardization: Low for intermittent; high for repetitive.

    • Organizational Structure: Grouped by function for intermittent; line flow for repetitive.

    • Path of Products: Varied for intermittent; line flow for repetitive.

    • Critical Resource: Labor-intensive for intermittent; capital-intensive for repetitive.

    • Equipment Type: General-purpose for intermittent; specialized for repetitive.

    • Degree of Automation: Low for intermittent; high for repetitive.

    • Throughput Time: Longer for intermittent; shorter for repetitive.

    • Work-in-Progress Inventory: More for intermittent; less for repetitive.

Process Types Defined

  • Continua of Process Types:

    • Project Process: A custom, one-at-a-time product.

    • Batch Process: Small quantities produced in groups.

    • Line Process: High volume of a standardized product.

    • Continuous Process: Very high volumes of completely standardized products.

Process Design Considerations

  • Tools for Designing Processes:

    • Process flow analysis

    • Process flowchart

  • Strategies:

    • Make-to-Stock: Produces standard products for immediate sale.

    • Assemble-to-Order: Produces standard components for combining based on customer specifications.

    • Make-to-Order: Produces products to customer specifications after an order is received.

Process Performance Metrics

  • Definition: Metrics provide measurements of different characteristics that reflect the performance of a process over time.

Linking Product Design and Process Selection

  • Connection: Product design directly influences process selection, shaping operational aspects such as:

    • Competitive priorities

    • Equipment requirements

    • Facility layout and organization

Product Design Decisions for Operations

  • Differences in decisions across operations:

    • Intermittent operations focus on early product life cycle phases; repetitive operations on later phases.

    • Competitive priorities differ: flexibility and quality for intermittent vs. cost efficiency for repetitive.

    • Facility layout design varies between resource alignment by function and organized by production flow.

Vertical Integration

  • Definition: The extent to which a firm takes on processes from raw material to sales.

  • Considerations: More beneficial in repetitive operations with high volume and lower variety; less effective in capitalizing on specialized processes in intermittent operations.

Current Technological Advancements

  • Information Technology: }
    o Storage, processing, and communication enhancements in business operations (ERP, GPS, RFID).

  • Automation: Various technologies that reduce or eliminate human involvement, including:

    • Automated Material Handling (AGV, AS/RS)

    • Flexible Manufacturing Systems (FMS)

    • Robotics

    • Numerically Controlled (NC) Machines for versatile manufacturing.

E-Manufacturing and CAD

  • E-Manufacturing Benefits:
    o Enables collaboration in product and process design through web-based environments.

  • Tools:

    • Computer-Aided Design (CAD) allows for graphical design of products.

    • Computer-Integrated Manufacturing (CIM) connects product design and manufacturing efficiently.

    • 3D Printing: Builds objects layer by layer using materials like plastics and metals.

Designing Service Operations

  • Service Design Distinction:

    • Services produce intangible products.

    • High degree of customer interaction and contact is necessary.

Service Design Characteristics

  • Types of Service Design:

    • Pure Services

    • Quasi-Manufacturing

    • Mixed Services

  • Service Package Elements:

    • Physical goods

    • Sensual benefits

    • Psychological benefits

  • Design Strategies:

    • Substitute technology for labor where applicable.

    • Engage customers in the process.

    • Ensure high levels of customer attention.

Product Design and Process Selection across the Organization

  • Strategic Collaboration Needed:

    • Different departments such as Finance, Marketing, HR, and Engineering must engage in product design and process selection.

Chapter 3 Highlights (LO 1-5)

  • Product design encompasses defining unique product features.

  • Steps in product design include idea generation and product screening.

  • Break-even analysis computes necessary sales volume to recover costs.

  • Production processes fall into intermittent and repetitive categories.

Chapter 3 Highlights (LO 5-9)

  • Process flowcharts visualize process flows.

  • Process performance metrics measure operational effectiveness.

  • Product design and process selection are interlinked affecting various operational decisions.

  • Technological advancements such as automation significantly enhance product/process design.

  • Designing services involves complexities not present in manufacturing.