MBM 204

Operations management

Unit 1
Introduction
toOperations
Management
Table of content

1. Introduction to operations management; competitiveness

2. Strategy
3. Factors affecting productivity and measurement of productivity
4. Management techniques to increase productivity
5. Product and service design
6. Design for manufacturing
Introduction To Operations
Management

Operations are what must be done internally in order to deliver value to the customer,
whether in goods or services. Thus, from an organizational perspective,
operationsmanagement may be defined as the management of direct resources that are
required to produce and deliver value via the organization’s goods and services. Every
function in the organization—whether marketing, finance and accounting, production,
purchasing, or human resources—adds value to the customer. Keep in mind as you read
through this textbook that operations management concepts can be used productively in every
function of the organization.

Operations management, just as every functional area within an organization, can be defined
from several perspectives: one with respect to its overall role and contribution within an
organization; another focusing more on the day-to-day activities that fall within its area of
responsibility.

Within the operations function, management decisions can be divided into three broad areas:
● Strategic (long-range) decisions
● Tactical (medium-range) decisions
● Operational planning and control (short-range) decisions
These three areas can be viewed as a top-down (hierarchical) approach to
operationsmanagement, with the decisions made at the lower level(s) depending on those
made at thehigher level(s).

The strategic issues usually are very broad in nature, addressing such questions as:
● How will we make the product?
● Where should we locate the facility or facilities?
● How much capacity do we need?
● When should we add more capacity?

Consequently, by necessity, the time frame for strategic decisions typically is very long,
usually several years or more, depending on the specific industry. Operations management
decisions at the strategic level impact the long-range effectiveness of the company in terms of
how well it can address the needs of its customers. Thus, for the firm to succeed, these
decisions must be closely aligned with the corporate strategy. Decisions made at the strategic
level then define the fixed conditions or constraints under which the firm must operate in
both the intermediate and short term. For example, a decision made at the strategic level to
increase capacity by building a new plant becomes a capacity constraint with respect to
tactical and operational decisions.

At the next level in the decision-making process, tactical planning primarily addresses the
issue of how to efficiently schedule material and labour over a specific time horizon and
within the constraints of the strategic decisions that were previously made. Thus, some
of the OM issues at this level are:
● How many workers do we need?
● When do we need them?
● Should we work overtime or put on a second shift?
● When should we have material delivered?
● Should we have a finished goods inventory?
These tactical decisions, in turn, define the operating constraints under which the operational
planning and control decisions are made.
Management decisions with respect to operational planning and control are very narrow and
short term, by comparison. For example, issues at this level include:
● Which jobs do we work on today or this week?
● To whom do we assign which tasks?
● Which jobs have priority?

An Operational Perspective
The day-to-day activities within the operations management function focus on addingvalue to
the organization through a transformation process , sometimes referred to as the technical
core, especially in manufacturing organizations.
Some examples of the different types of transformations are:
● Physical, as in manufacturing
● Locational, as in transportation
● Exchange, as in retailing

● Storage, as in warehousing
● Physiological, as in health care
● Informational, as in telecommunications
The inputs are customers and/or materials which undergo the transformation. Also part of the
transformation process are a variety of components supplied by the organization, such as
labour, equipment, and facilities, which convert the inputs into outputs. Every transformation
process is affected by external factors, which are outside the control of management. External
factors include random, unexpected events such as natural disasters, economic cycles,
changes in government policies and laws, as well as changes in consumer preferences and
tastes. These external factors can also include anticipated changes, such as seasonality, over
which management has little or no control.

Another important role of the operations management function is the measurement and
control of the transformation process. This consists of monitoring the outputs in various
ways, including quality and quantity, and then using this information as feedback to make the
necessary adjustments that will improve the process.
The various transformations that take place are not mutually exclusive. For example, a
department store can
(a) allow shoppers to compare prices and quality (informational),
(b) hold items in inventory until needed (storage), and
(c) sell goods (exchange).
presents sample input–transformation–output relationships for a wide variety of processes.
Note that only the direct components are listed; a more complete system description would
also include managerial and support functions.

The Emergence of Operations Management

Operations management has been gaining increased recognition in recent years for several
reasons, including (a) the application of OM concepts in service operations, (b) an expanded
definition of quality, (c) the introduction of OM concepts to other functional areas such as
marketing and human resources, and (d ) the realization that the OM function can add value
to the end product.

Application of OM to Service Operations

Initially, the application of operations management concepts was narrowly focused,
concentrating almost entirely on manufacturing. However, as countries become more
developed, services represent a larger percentage of their respective Gross Domestic Products
(GDPs). Henri De Castries, CEO of French insurance giantAXA, illustrated how important
operations management has become in services when he said, ―We have to increase
productivity in our factories. The first to understand that financial services are an industrial
business will be the winners.‖
The growth in services over time combined with the increased recognition that services could
learn much from manufacturing and vice versa, expanded the application of operations
management to also address related issues in services. Theodore Levitt of Harvard Business
School, in his article, ―Production-Line Approach to Service,‖ was one of the first to
recognize that many of the concepts that previously had been developed for manufacturing
could actually be applied to service operations. He observed that operations concepts can be
seen readily at McDonald’s fastfood outlets (where hamburgers are cooked in batches of 12
at a time) or at the Shouldice Hospital where patients are batched into groups of thirty to
increase efficiency.

Expansion of OM Concepts into Other Functions

Successful companies are also recognizing that, in addition to quality, many of the tools and
concepts now widely used within the operations function also have application to other
functional areas of an organization such as marketing, finance, and accounting. For example,
process analysis is a major tool that provides insight into how inputs are converted into
outputs, and can be applied to every type of process regardless of where it exists in an
organization. As an illustration, the hiring of personnel in human resources is a process, as is
the design of a new product in engineering or the rolling out of a new product by marketing.
In accounts receivable, the preparing and mailing of an invoice to a customer is also a
process.
Job Opportunities in Operations Management: Relating OM to Other
Business Functions
Some of the line and staff jobs that usually fall within the operations function. There are more
staff specializations in manufacturing than in services because of the focus on materials
management and control. Operations management is a required course in many business
schools, not only because it deals with the basic question of how goods and services are
created, but also because many of the concepts developed in OM have direct applications in
every other functional area within an organization. As seen, processes exist withinevery
function. These processes can be continuously improved by applying OM tools and
techniques. In addition, each of these functional areas interacts with the OM function.
Therefore, to do their jobs correctly, it is important for individuals working in these areas to
understand the fundamental concepts of operationsmanagement.

 Line and staff jobs in Operations Management

 Inputs provided by OM to other functional areas
Competitiveness
Competitiveness pertains to the ability and performance of a firm, sub-sector or country to
sell and supply goods and services in a given market, in relation to the ability and
performance of other firms, sub-sectors or countries in the same market.

The term may also be applied to markets, where it is used to refer to the extent to which
the market structure may be regarded as perfectly competitive. This usage has nothing to do
with the extent to which individual firms are "competitive'.

Competitiveness describes how an organization meets the needs and wants of customers
compared to the competitors of the organization, in other words, demand. Strategy helps the
organization achieve their goals by using tactics, which are the methods and actions taken to
accomplish strategies. Lastly, productivity helps the organization know what materials are
used effectively. Productivity = Output (Goods and services) / Input. (labor, materials,
energy, and otherresources.)

Competitiveness is important to a company because it determines an organizations profits.

For example, will the company be prosperous or barely get by. A strategy is important to be
defined whether they are long term or short term. Also, they can be very specific, for example
as in tactics or, in contrast, very broad. Finally, the chapter gives us a way to measure the
company’s output relative to input. Measuring productivity is important for analyzing,
scheduling, and many other type of managerial or external functions.

Many organizations are driven by competition. To be successful in today’s competitive

business environment, companies must know what combinations of factors are most
important to satisfy all of their shareholders while also helping to fulfill their mission. These
factors may include, but are not limited to: price, quality, services, time or special features. It
is critical that organizations as a whole develop goals and strategies to fulfill their mission.
Further, each functional area in the business should also have goals and strategies that
coincide with accomplishing the larger goals. Employees of the organization should also
focus on using all resources efficiently to maximize the productivity of the organization.

Strategy
Why do some companies succeed while others fail? In the fast-evolving world of the Internet,
for example, how is it that companies like Yahoo!, Amazon.com, eBay, and Google have
managed to attract millions of customers, while others like online grocer Web van, software
retailer Egghead.com, and the online pet supplies retailer Pets.com all went bankrupt? Why
has Wal-Mart been able to do so well in the fiercely competitive retail industry, while others
like Kmart have struggled? In the personal computer industry, what distinguishes Dell from
less successful companies such as Gateway? In the airline industry, how has Southwest
Airlines managed to keep increasing its revenues and profits through both good times and
bad, while rivals such as US Airways and United Airlines have had to seek bankruptcy
protection? What explains the persistent growth and profitability of Nucor Steel, now the
largest steel maker in America, during a period when many of its once larger rivals have
disappeared into bankruptcy?
Organizations fail, or perform poorly, for a variety of reasons. Being aware of those reasons
can help managers avoid making similar mistakes. Among one of the chief reasons is
Neglecting operations strategy. The strategies a company’s managers pursue have a major
impact on its performance relative to rivals.
Astrategy is a set of actions that managers take to increase their company’s performance
relative to rivals. If a company’s strategy does result in superior performance, it is said to
have a competitive advantage.

Understanding competitive issues can help managers develop successful strategies.

Importance of strategy

―Every moment spent planning saves three or four in execution.‖

–Crawford Greenwalt, former president, E. I. du Pont de Nemours

It's not enough for a company to develop a successful product or service.

Without a strategy

 an organization is rudderless
 and vulnerable to business changes as well as to competitive threats.

A sound strategy, skillfully carried out

 fosters significant structural shifts in the way a company does business that
distinguish it from its competitors.
 Provids a guidepost for a company's ongoing evolution
 Provides the necessary information and direction for managers to define their work
 and help their organization remain competitive.

Strategies arePlans for achieving organizational goal.Organizational strategy is important

because it guides the organization by providing direction for, and alignment of, the goals and
strategies of the functional units.

Basic Business Strategies

Strategies can be the main reason for the success or failure of an organization.
There are three basic business strategies:
• Low cost.
• Responsiveness.
• Differentiation from competitors.

Low cost - This generic strategy calls for being the low cost producer in an industry for a
given level of quality. The firm sells its products either at average industry prices to earn a
profit higher than that of rivals, or below the average industry prices to gain market share.

Responsiveness relates to ability to respond to changing demands.

Differentiation can relate to product or service features, quality, reputation, or customer
service. Some organizations focus on a single strategy while others employ a combination of
strategies.

One company that has multiple strategies is Amazon.com.Not only does it offer low cost and
quick, reliable deliveries, it also excels in customer service.

Planning and decision making hierarchy in an organization

MISSION
An organization’s mission is the reason for its existence. It is expressed in its mission
statement. For a business organization, the mission statement should answer the question-
―What business are we in?‖
Missions vary from organization to organization, depending on the nature of their business.

A mission statement serves as the basis for organizational goals, which provide more detail
and describe the scope of the mission. The mission and goals often relate to how an
organization wants to be perceived by the general public, and by its employees, suppliers, and
customers.

Several examples of mission statements are as follows:

Microsoft: To help people and businesses throughout the world to realize their full potential.

Nike: To bring inspiration and innovation to every athlete in the world.

Verizon: To help people and businesses communicate with each other.

Walt Disney: To be one of the world’s leading producers and providers of entertainment and
information.
GOALS

Theyserve as a foundation for the development of organizational strategies. These, in turn,

provide the basis for strategies and tactics of the functional units of the organization.

STRATEGIES

If we think of goals as destinations, then strategies are the roadmaps for reaching the
destinations.Strategies provide focus for decision making.
Generally speaking, organizations have overall strategies called organizational strategies,
which relate to the entire organization.
They also have functional strategies, which relate to each of the functional areas of the
organization. The functional strategies should support the overall strategies of the
organization, just as the organizational strategies should support the goals and mission of the
organization.

TACTICS

Tactics are the methods and actions used to accomplish strategies. They are more specific
than strategies, and they provide guidance and direction for carrying out actual
operations,which need the most specific and detailed plans and decision making in an
organization.

We can think of tactics as the ―how to‖ part of the process (e.g., how to reach the destination,
following the strategy roadmap) and operations as the actual ―doing‖ part of the process.

It should be apparent that the overall relationship that exists from the mission down to actual
operations is hierarchical.

EXAMPLE

A simple example may help to put this hierarchy into perspective.

Rita is a high school student in Southern California. She would like to have a career in
business, have a good job, and earn enough income to live comfortably.

A possible scenario for achieving her goals might look something like this:

Mission: Live a good life.

Goal: Successful career, good income.

Strategy: Obtain a college education.

Tactics: Select a college and a major; decide how to finance college.

Operations: Register, buy books, takes courses, study.

Different strategies an organization can choose
Here are some examples of different strategies an organization might choose from:

Low cost- Outsource operations to third-world countries that have low labor costs.

Scale-based strategies- Use capital-intensive methods to achieve high output volume and
low unit costs.

Specialization - Focus on narrow product lines or limited service to achieve higher quality.

Newness- Focus on innovation to create new products or services.

Flexible operations - Focus on quick response and/or customization.

High quality- Focus on achieving higher quality than competitors.

Service - Focus on various aspects of service (e.g., helpful, courteous, reliable, etc.).

Sustainability - Focus on environmental-friendly and energy-efficient operations.

A wide range of business organizations are beginning to recognize the strategic advantages of
sustainability, not only in economic terms, but also in promotional benefit by publicizing
their sustainability efforts and achievements.

Sometimes organizations will combine two or more of these or other approaches into their
strategy. However, unless they are careful, they risk losing focus and not achieving advantage
in any category.

Generally speaking, strategy formulation takes into account the way organizations compete
and a particular organization’s assessment of its own strengths andweaknesses in order to
take advantage of its core competencies - those special attributes or abilities possessed by an
organization that give it a competitive edge.

The most effective organizations use an approach that develops core competencies based on
customer needs as well as on what the competition is doing. Marketing and operations work
closely to match customer needs with operations capabilities. Competitor competencies are
important for several reasons.

For example, if a competitor is able to supply high-quality products, it may be necessary to

meet that high quality as a baseline. However, merely matching a competitor is usually not
sufficient to gain market share. It may be necessary to exceed the quality level of the
competitor or gain an edge by excelling in one or more other dimensions, such as rapid
delivery or service after the sale. Walmart, for example, has been very successful in
managing its supply chain, which has contributed to its competitive advantage.
To be effective, strategies and core competencies need to be aligned. Table lists examples of
strategies and companies that have successfully employed those strategies.

Strategy Formulation
Strategy formulation is almost always critical to the success of a strategy. Walmart
discovered that when it opened stores in Japan. Although Walmart thrived in many countries
on its reputation for low-cost items, Japanese consumers associated low cost with low
quality, causing Walmart to rethink its strategy in the Japanese market. And many felt that
Hewlett-Packard(HP) committed a strategic error when it acquired Compaq Computers at a
cost of $19 billion. HP’s share of the computer market was less after the merger than the sum
of the shares of the separate companies before the merger.

In another example, U.S. automakers adopted a strategy in the early 2000s of offering
discounts and rebates on a range of cars and SUVs, many of which were on low-margin
vehicles. The strategy put a strain on profits, but customers began to expect those incentives,
and the companies maintained them to keep from losing additional market share.

On the other hand, Coach, the maker of leather handbags and purses, successfully changed its
longtime strategy to grow its market by creating new products. Long known for its highly
durable leather goods in a market where women typically owned few hand-bags, Coach
created a new market for itself by changing women’s view of handbags by promoting
―different handbags for different occasions‖ such as party bags, totes, clutches, wristlets,
overnight bags, purses, and day bags. And Coach introduced many fashion styles and colors.

To formulate an effective strategy, senior managers must take into account the core
competencies of the organizations, and they must scan the environment. They must
determine what competitors are doing, or planning to do, and take that into account. They
must critically examine other factors that could have either positive or negative effects. This
is some-times referred to as the SWOT approach (strengths, weaknesses, opportunities, and
threats).

Strengths and weaknesses have an internal focus and are typically evaluated by operations
people.

Threats and opportunities have an external focus and are typically evaluated by marketing
people.

SWOT is often regarded as the link between organizational strategy and operations strategy.

In formulating a successful strategy, organizations must take into account both order
qualifiers and order winners. Order qualifiers are those characteristics that potential
customers perceive as minimum standards of acceptability for a product to be considered for
purchase.

However, that may not be sufficient to get a potential customer to purchase from the
organization.

Order winners are those characteristics of an organization’s goods or services that cause them
to be perceived as better than the competition.Characteristics such as price, delivery
reliability, delivery speed, and quality can be order qualifiers or order winners. Thus, quality
may be an order winner in some situations, but inothers only an order qualifier. Over time, a
characteristic that was once an order winner may become an order qualifier, and vice versa.

Obviously, it is important to determine the set of order qualifier characteristics and the set of
order winner characteristics. It is also necessary to decide on the relative importance of each
characteristic so that appropriate attention can be given to the various characteristics.
Marketing must make that determination and communicate it to operations.

Environmental scanning is the monitoring of events and trends that present either threats or
opportunities for the organization. Generally these include competitors’ activities; changing
consumer needs; legal, economic, political, and environmental issues; the potential for new
markets; and the like.

Another key factor to consider when developing strategies is technological change, which can
present real opportunities and threats to an organization. Technological changes occur in
products (high-definition TV, improved computer chips, improved cellular telephone
systems, and improved designs for earthquake-proof structures); in services (faster order
processing, faster delivery); and in processes (robotics, automation, computer-assisted
processing, point-of-sale scanners, and flexible manufacturing systems).

The obvious benefit is a competitive edge; the risk is that incorrect choices, poor execution,
and higher-than-expected operating costs will create competitive disadvantages.

Important factors may be internal or external. The following are key external factors:

1. Economic conditions - These include the general health and direction of the economy,
inflation and deflation, interest rates, tax laws, and tariffs.

2. Political conditions - These include favorable or unfavorable attitudes toward business,

political stability or instability, and wars.

3. Legal environment - This includes antitrust laws, government regulations, trade

restrictions, minimum wage laws, product liability laws and recent court experience, labor
laws, and patents.

4. Technology - This can include the rate at which product innovations are occurring,
current and future process technology (equipment, materials handling), and design
technology.

5. Competition - This includes the number and strength of competitors, the basis of
competition (price, quality, special features), and the ease of market entry.

6. Markets - This includes size, location, brand loyalties, ease of entry, potential for growth,
long-term stability, and demographics.

The organization also must take into account various internal factors that relate to possible
strengths or weaknesses. Among the key internal factors are the following:

1. Human resources - These include the skills and abilities of managers and workers; spe-
cial talents (creativity, designing, problem solving); loyalty to the organization;
expertise;dedication; and experience.
 2. Facilities and equipment - Capacities, location, age, and cost to maintain or replace can
have a significant impact on operations.

3. Financial resources - Cash flow, access to additional funding, existing debt burden, and
cost of capital are important considerations.

4. Customers - Loyalty, existing relationships, and understanding of wants and needs are
important.

5. Products and services - These include existing products and services, and the potential
for new products and services.

6. Technology - This includes existing technology, the ability to integrate new technology,
and the probable impact of technology on current and future operations.

7. Suppliers - Supplier relationships, dependability of suppliers, quality, flexibility, and

ser-vice are typical considerations.

8. Other - Other factors include patents, labor relations, company or product image,
distribution channels, relationships with distributors, maintenance of facilities and equipment,
access to resources, and access to markets.

After assessing internal and external factors and an organization’s distinctive competence, a
strategy or strategies must be formulated that will give the organization the best chance of
success.

The organization may decide to have a single, dominant strategy (e.g., be the price leader) or
to have multiple strategies. A single strategy would allow the organization to concentrate on
one particular strength or market condition.

On the other hand, multiple strategies may be needed to address a particular set of conditions.

Many companies are increasing their use of outsourcing to reduce overhead, gain flexibility,
and take advantage of suppliers’ expertise.

Dell Computers provides a great example of some of the potential benefits of outsourcing as
part of a business strategy.

Growth is often a component of strategy, especially for new companies. A key aspect of this
strategy is the need to seek a growth rate that is sustainable.

In the 1990s, fast-food company Boston Markets dazzled investors and fast-food consumers
alike. Fueled by its success, it undertook rapid expansion. By the end of the decade, the
company was nearly bankrupt; it had over expanded. In 2000, it was absorbed by fast-food
giant McDonald’s.

Companies increase their risk of failure not only by missing or incomplete strategies; they
also fail due to poor execution of strategies. And sometimes they fail due to factors beyond
their control, such as natural or man-made disasters, major political or economic changes, or
competitors that have an overwhelming advantage (e.g., deep pockets, very low labor
costs,less rigorous environmental requirements).

EXAMPLE

In 1984, Michael Dell, then a college student, started selling personal computers from his
dorm room. He didn’t have the resources to make computer components, so he let others do
that, choosing instead to concentrate on selling the computers. And, unlike the major
computer producers, he didn’t sell to dealers. Instead, he sold directly to PC buyers,
eliminating some intermediaries, which allowed for lower cost and faster deliv-ery. Although
direct selling of PCs is fairly commonplace now, in those days it was a major departure from
the norm. What did Dell do that was so different from the big guys? To start, he bought
components from suppliers instead of making them. That gave him tremendous leverage. He
had little inven-tory, no R&D expenditures, and relatively few employees. And the risks of
this approach were spread among his suppliers. Suppliers were willing to do this because Dell
worked closely with them, and kept them informed. And because he was in direct contact
with his customers, he gained tremendous insight into their expectations and needs, which he
communicated to his suppliers.

Having little inventory gave Dell several advantages over his competitors. Aside from the
lower costs of inventory, when new, faster computer chips became available, there was little
inven-tory to work off, so he was able to offer the newer models much sooner than
competitors with larger inventories. Also, when the prices of various components dropped, as
they frequently did, he was able to take advantage of the lower prices, which kept his average
costs lower than competitors’.

Today the company is worth billions, and so is Michael Dell.

STEPS IN STRATEGY FORMULATION

The key steps in strategy formulation are:

1. Link strategy directly to the organization’s mission or vision statement.

2. Assess strengths, weaknesses, threats and opportunities, and identify core competencies.

3. Identify order winners and order qualifiers.

4. Select one or two strategies (e.g., low cost, speed, customer service) to focus on.

Supply Chain Strategy

A supply chain strategy specifies how the supply chain should function to achieve supply
chain goals. The supply chain strategy should be aligned with the business strategy. If it is
well executed, it can create value for the organization. It establishes how the organization
should work with suppliers and policies relating to customer relationships and sustainability.

Sustainability Strategy
Society is placing increasing emphasis on corporate sustainability practices in the form of
governmental regulations and interest groups. For these and other reasons, business
organizations are or should be devoting attention to sustainability goals. To be successful,
they will need a sustainability strategy. That requires elevating sustainability to the level of
organizational governance; formulating goals for products and services, for processes, and for
the entire supply chain; measuring achievements and striving for improvements; and possibly
linking executive compensation to the achievement of sustainability goals.

Global Strategy
As globalization increased, many companies realized that strategic decisions with respect to
globalization must be made. One issue companies must face is that what works in one
country or region will not necessarily work in another, and strategies must be carefully
crafted to take these variability into account. Another issue is the threat of political or social
upheaval. Still another issue is the difficulty of coordinating and managing far-flung
operations. Indeed, ―In today’s global markets, you don’t have to go abroad to experience
international competition. Sooner or later the world comes to you.‖

Operations Strategy
The organization strategy provides the overall direction for the organization. It is broad in
scope, covering the entire organization. Operations strategy is narrower in scope, dealing
primarily with the operations aspect of the organization. Operations strategy relates to
products, processes, methods, operating resources, quality, costs, lead times, and scheduling.
Table provides a comparison of an organization’s mission, its overall strategy, and its
operations strategy, tactics, and operations.

In order for operations strategy to be truly effective, it is important to link it to organization

strategy; that is, the two should not be formulated independently. Rather, formulation of
organization strategy should take into account the realities of operations’ strengths and
weaknesses,capitalizing on strengths and dealing with weaknesses.

Similarly, operations strategy must be consistent with the overall strategy of the organization,
and with the other functional units of the organization. This requires that senior managers
work with functional units to formulate strategies that will support, rather than conflict with,
each other and the overall strategy of the organization. As obvious as this may seem, it
doesn’t always happen in practice. Instead, we may find power struggles between various
functional units. These struggles are detrimental to the organization because they pit
functional units against each other rather than focusing their energy onmaking the
organization more competitive and better able to serve the customer.
Some of the latest approaches in organizations, involving teams of managers and workers,
may reflect a growing awareness of the synergistic effects of working together rather than
competing internally.

In the 1970s and early 1980s, operations strategy in the United States was often neglected in
favor of marketing and financial strategies. That may have occurred because many chief
executive officers did not come from operations backgrounds and perhaps did not fully
appreciate the importance of the operations function. Mergers and acquisitions were
common; leveraged buyouts were used, and conglomerates were formed that joined
dissimilar operations.

These did little to add value to the organization; they were purely financial in nature.
Decisions were often made by individuals who were unfamiliar with the business, frequently
to the detriment of that business. Meanwhile, foreign competitors began to fill the resulting
vacuum with a careful focus on operations strategy.

In the late 1980s and early 1990s, many companies began to realize this approach was not
working. They recognized that they were less competitive than other companies. This caused
them to focus attention on operations strategy. A key element of both organization strategy
and operations strategy is strategy formulation.

Operations strategy can have a major influence on the competitiveness of an organization.

If it is well designed and well executed, there is a good chance that the organization will be
successful; if it is not well designed or executed, the chances are much less that the organiza-
tion will be successful.

Strategic Operations Management Decision Areas

Operations management people play a strategic role in many strategic decisions in a business
organization.

Table highlights some key decision areas. Notice that most of the decision areas have cost
implications.

Two factors that tend to have universal strategic operations importance relate to quality and
time.

Quality and Time Strategies

Traditional strategies of business organizations have tended to emphasize cost minimization
or product differentiation. While not abandoning those strategies, many organizations have
embraced strategies based on quality and/or time.

Quality-based Strategies focus on maintaining or improving the quality of an organization’s

products or services. Quality is generally a factor in both attracting and retaining customers.
Quality-based strategies may be motivated by a variety of factors. They may reflect an effort
to overcome an image of poor quality, a desire to catch up with the competition, a desire to
maintain an existing image of high quality, or some combination of these and other factors.
Interestingly enough, quality-based strategies can be part of another strategy such as cost
reduction, increased productivity, or time, all of which benefit from higher quality.

Time-based strategies focus on reducing the time required to accomplish various activities
(e.g., develop new products or services and market them, respond to a change in customer
demand, or deliver a product or perform a service). By doing so, organizations seek to
improve service to the customer and to gain a competitive advantage over rivals who take
more time to accomplish the same tasks. Time-based strategies focus on reducing the time
needed to conduct the various activities in a process. The rationale is that by reducing time,
costs are generally less, productivity is higher, quality tends to be higher, product innovations
appear on the market sooner, and customer service is improved.

Organizations have achieved time reduction in some of the following:

Planning time: The time needed to react to a competitive threat, to develop strategies
and select tactics, to approve proposed changes to facilities, to adopt new technologies,
and so on.
Product/service design time: The time needed to develop and market new or
redesigned
products or services.
Processing time: The time needed to produce goods or provide services. This can
involve
scheduling, repairing equipment, methods used, inventories, quality, training, and the
like.
Changeover time: The time needed to change from producing one type of product or
service to another. This may involve new equipment settings and attachments, different
 methods, equipment, schedules, or materials.
Delivery time: The time needed to fill orders.
Response time for complaints: These might be customer complaints about quality,
timing of deliveries, and incorrect shipments. These might also be complaints from
employees about working conditions (e.g., safety, lighting, heat or cold), equipment
problems,or quality problems.

It is essential for marketing and operations personnel to collaborate on strategy formulation in

order to ensure that the buying criteria of the most important customers in each market
segment are addressed.

Agile operations is a strategic approach for competitive advantage that emphasizes the use of
flexibility to adapt and prosper in an environment of change. Agility involves a blending of
several distinct competencies such as cost, quality, and reliability along with flexibility.

Processing aspects of flexibility include quick equipment changeovers, scheduling, and

innovation. Product or service aspects include varying output volumes and product mix.

Successful Agile operations requires careful planning to achieve a system that includes
people, flexible equipment, and information technology. Reducing the time needed to
perform work is one of the ways an organization can improve a key metric: productivity.

IMPLICATIONS OF ORGANIZATION STRATEGY FOR

OPERATIONS MANAGEMENT
Organization strategy has a major impact on operations and supply chain management
strategies. For example, organizations that use a low-cost, high-volume strategy limit the
amount of variety offered to customers. As a result, variations for operations and the supply
chain are minimal, so they are easier to deal with. Conversely, a strategy to offer a wide
variety of products or services, or to perform customized work, creates substantial operational
and supply chain variations and, hence, more challenges in achieving a smooth flow of goods
and services throughout the supply chain, thus making the matching of supply to demand
more difficult. Similarly, increasing service reduces the ability to compete on price. Table
pro-vides a brief overview of variety and some other key implications.
TRANSFORMING STRATEGY INTO ACTION: THE
BALANCED SCORECARD
The Balanced Scorecard (BSC) is a top-down management system that organizations can
use to clarify their vision and strategy and transform them into action. It was introduced in
the early 1990s by Robert Kaplan and David Norton, and it has been revised and improved
since then.

The idea was to move away from a purely financial perspective of the organization and
integrate other perspectives such as customers, internal business processes, and learning and
growth. Using this approach, managers develop objectives, metrics, and targets for each
objective and initiatives to achieve objectives, and they identify links among the various
perspectives. Results are monitored and used to improve strategic performance results.

Figure illustrates the conceptual framework of this approach. Many organizations employ
this or a similar approach.
As seen in Figure, the four perspectives are intended to balance not only financial and
nonfinancial performance, but also internal and external performance as well as past and
future performance. This approach can also help organizations focus on how they differ from
the competition in each of the four areas if their vision is realized.

A major key to Apple’s continued success is its ability to keep pushing the boundaries of
innovation. Apple has demonstrated how to create growth by dreaming up products so new
and ingenious that they have upended one industry after another.

Although the Balanced Scorecard helps focus managers’ attention on strategic issues and the
implementation of strategy, it is important to note that it has no role in strategy formulation.
Moreover, this approach pays little attention to suppliers and government regulations,and
community, environmental, and sustainability issues are missing. These are closely linked
and business organizations need to be aware of the impact they are having in these areas and
respond accordingly. Otherwise, organizations may be subject to attack by pressure groups
and risk damage to their reputation.

Factors Affecting Productivity

Measurement Of Productivity
Productivity is the ratio of output to inputs in production; it is an average measure of the efficiency
of production. Efficiency of production means production’s capability to create incomes which is
measured by the formula real output value minus real input value.
Increasing national productivity can raise living standards because more real income improves
people's ability to purchase goods and services, enjoy leisure, improve housing and education and
contribute to social and environmental programs. Productivity growth also helps businesses to be
more profitable.

Production refers to the volume value or quantity of goods and services produced during a given
period by a worker plant firm or economy. It is the sum total of results achieved by the various factors
used together.

Productivity measures are useful for:

• Tracking an operating unit’s performance over time

• Judging the performance of an entire industry or country

Why Productivity Matters:

 High productivity is linked to higher standards of living

 As an economy replaces manufacturing jobs with lower productivity service

jobs, it is more difficult to maintain high standards of living

 Higher productivity relative to the competition leads to competitive advantage in the

marketplace

 Pricing and profit effects

 For an industry, high relative productivity makes it less likely it will be supplanted by
foreign industry

Productivity:
Productivity is not concerned with the volume of production. It is the ratio of output and input factors
of an enterprise. It shoes the efficiency of production or the efficiency levels of input factors.

Factors Affecting Industrial Productivity:

Productivity is defined to be some ratio between output and input those all factors which affect output
and inputs will also affects the measure of productivity. The following factors affect the productivity.

The eight main factors that affect productivity are:

1. Technical factors,
2. Production factors,
3. Organizational factor,
4. Personnel factors,
5. Finance factors,
6. Management factors,
7. Government factors, and
8. Location factors.

Now let's discuss briefly above listed important factors that affect productivity.

Technical factors :Productivity largely depends on technology. Technical factors are the most
important ones. These include proper location, layout and size of the plant and machinery, correct
design of machines and equipment, research and development, automation and computerization, etc.
If the organization uses the latest technology, then its productiveness will be high.

Production factors :Productivity is related to the production-factors. The production of all

departments should be properly planned, coordinated and controlled. The right quality of raw-
materials should be used for production. The production process should be simplified and
standardized. If everything is well it will increase the productiveness.
Organizational factor :Productivity is directly proportional to the organizational factors. A simple
type of organization should be used. Authority and Responsibility of every individual and department
should be defined properly. The line and staff relationships should also be clearly defined. So,
conflicts between line and staff should be avoided. There should be a division of labor and
specialization as far as possible. This will increase organization's productiveness.

Personnel factors :Productivity of organization is directly related to personnel factors. The right
individual should be selected for suitable posts. After selection, they should be given proper training
and development. They should be given better working conditions and work-environment. They
should be properly motivated; financially, non-financially and with positive incentives. Incentive
wage policies should be introduced. Job security should also be given. Opinion or suggestions of
workers should be given importance. There should be proper transfer, promotion and other personnel
policies. All this will increase the productiveness of the organization.

Finance factors :Productivity relies on the finance factors. Finance is the life-blood of modem
business. There should be a better control over both fixed capital and working capital. There should
be proper Financial Planning. Capital expenditure should be properly controlled. Both over and under
utilization of capital should be avoided. The management should see that they get proper returns on
the capital which is invested in the business. If the finance is managed properly the productiveness of
the organization will increase.

Management factors :Productivity of organization rests on the management factors. The

management of organization should be scientific, professional, future-oriented, sincere and
competent. Managers should possess imagination, judgement skills and willingness to take risks. They
should make optimum use of the available resources to get maximum output at the lowest cost. They
should use the recent techniques of production. They should develop better relations with employees
and trade unions. They should encourage the employees to give suggestions. They should provide a
good working environment, and should motivate employees to increase their output. Efficient
management is the most significant factor for increasing productiveness and decreasing cost.

Government factors :Productivity depends on government factors. The management should have a
proper knowledge about the government rules and regulations. They should also maintain good
relations with the government.

Location factors : Productivity also depends on location factors such as Law and order situation,
infrastructure facilities, nearness to market, nearness to sources of raw-materials, skilled workforce,
etc.

The Size of the Plant:

The size of the plant and the capacity utilization has direct bearing on productivity. Production below
or above the optimum level will be uneconomical and will tend towards lower level of productivity.

Research and Development:

Investment in research and development may yield better method of work and better design and
quality of products.

Plant and Job Layout:

The arrangement of machines and position in the plant and the setup of the wore-bench of an
individual worked will determine how economically and efficiently production will be ferried out.

Machine and Equipment Design:

Whether design of machinery and equipments is modern and in keeping with the limitations and
capacities of the workers will also determine the production efficiently and level of productivity.

Power Raw Materials:

Improved quality of raw materials and increased use of power have a favorable effect on productivity.

Scientific Management:

Scientific management techniques such as better planning of work simplifications of methods time
and modern study emphasis for reduced wastage and spillage have positive effects on productivity.

2. Individual Factors:

Individual factor such as knowledge skill and attitude also affect the productivity of industry.
Knowledge is required or acquired through training education and interest on the part of lecturer. Skill
is affected by aptitude, personality, education, experience, training etc.

a) Organization Factors:

Organization factor include various steps taken by the organization towards maintaining better
industrial relations such as delegation and decentralization of authority. These factors also influence
motivation likewise the existence of group, with higher productivity as their goal is likely to
contribute to the organization objectives.
Main processes of a producing company
A producing company can be divided into sub-processes in different ways; yet, the following five are
identified as main processes, each with a logic, objectives, theory and key figures of its own. It is
important to examine each of them individually, yet, as a part of the whole, in order to be able to
measure and understand them. The main processes of a company are as follows:

Outputs
Productivity =
Inputs

Measures of Productivity:

Partial OutputOutputOutputOutput
measures Labor Machine Capital Energy

Multifactor OutputOutput

measuresLabor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

Partial productivity:If we produce only one product, the numerator can be either the total units of
the product or the total $ value of the product. If we produce several products, the numerator is the
total $ value of all products.

The denominator can be the units of input or the total $ value of input.

Measurement of partial productivity refers to the measurement solutions which do not meet the
requirements of total productivity measurement, yet, being practicable as indicators of total
productivity. In practice, measurement in production means measures of partial productivity. In that
case, the objects of measurement are components of total productivity, and interpreted correctly, these
components are indicative of productivity development. The term of partial productivity illustrates
well the fact that total productivity is only measured partially – or approximately. In a way,
measurements are defective but, by understanding the logic of total productivity, it is possible to
interpret correctly the results of partial productivity and to benefit from them in practical situations.

Example: Labor Productivity

• 10,000 units / 500hrs = 20 units/hr

• (10,000 units * $10/unit) / 500hrs = $200/hr

• 10,000 units / (500hrs * $9/hr) = 2.2 unit/$

• (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22

• The last one is unit-less

Multifactor productivity (MFP)measures the changes in output per unit of combined inputs. In
the United States, Indices of MFP are produced for the private business, private nonfarm business,
and manufacturing sectors of the economy. MFP is also developed for 2-and 3-digit Standard
Industrial Classification (SIC) through 1987, and NAICS (North Atlantic Industrial Classification
System) through 2005 for manufacturing industries, the railroad transportation industry, the air
transportation industry, and the utility and gas industry.
• Multifactor productivity measures reflect output per unit of some combined set of inputs. A
change in multifactor productivity reflects the change in output that cannot be accounted for
by the change in combined inputs. As a result, multifactor productivity measures reflect the
joint
effects of many factors including new technologies, economies of scale, managerial skill, and changes
in the organization of production.
Example :7040 Units Produced
Sold for $1.10/unit
Cost of labor: $1,000
Cost of materials: $520
Cost of overhead: $2000
  Which productivity
measures can be
calculated?
 What is the
multifactor
productivity?
MFP = Output
Labor + Materials + OverheadMFP = 2.20

Total-Factor Productivity (TFP),also called multi-factor productivity, is a variable

which accounts for effects in total output not caused by traditionally measured inputs of labor and
capital. If all inputs are accounted for, then total factor productivity (TFP) can be taken as a measure
of an economy’s long-term technological change or technological dynamism.
TFP cannot be measured directly. Instead it is a residual, often called the Solow residual, which
accounts for effects in total output not caused by inputs.
All-factors Goods or Services produced
measure All inputs used to produce them
If we produce only one product, the numerator can be either the total units of product or total $ value
of the product. If we produce several products, the numerator is the total $ value of all products.
Usually, the numerator is the total $ value of all outputs.The denominator is total $ value of all inputs.

Management techniques to improve productivity

Quality improvement programs:

Six Sigma quаlity programs arе derived from the stаtistical quality cоntrolmethods fіrst
developed by Walter Shewhart(1931) in the 1930s at Western Electric Cоmpany and
popularized by W. Edwards Deming (1982), Joseph Juran 15 (1979), Philip Crosby (1979),
and othеrs in the following decаdes. These mеthodsdevelоped in the U.S. but first were
applіеd in Japan. Thеу got usіng in the U.S. just after Amerіcan firms fаced intense
cоmpetitionfrоmJapanеse firms.

Lean production methods :

The lеаn production apprоachоffers a diffеrent but complеmentarywаy to imprоveprоductivity and
quаlity. The emphasis in lеаnproduсtion on еlimination of waste аnd continuous imprоvement
combined wіth a strategic fоcus on quality by the compаny (Stewart and Raman, 2007). Leаn
production sуstemshаve a different sеt of methods for imprоving productivityаnd quality thаn TQM
аnd Six Sigma, аlthough some of tools mау be jointly utilіzed. In lean systеms, the emphаsis is on
rеducing waste (muda) of all types: space, tіme, energy, mоtion, matеrials, inventоries, and defеcts.
To getting thisgоаl, employееs were trаiningtо use the sciеntificmеthod to check this hypothesis.
(Spear and Bowen, 1999). They are tаught to always lооk for sources ofmuda and
devеlopexpеriments to find wаys of elimіnating it. Teаmwork is emрhasized to lеverage the effоrts
of a wоrk team that tуpicallyrotаtes jobs and knows the prоcess intimately. Manаgers serve as
mentors and cоаches in these efforts whіch are cоnsidered a pаrt of every еmployee's job
rеsponsibilities. Employееs primarily lеаrn the cоntinuousimprоvement process bаsed on the
scientific mеthod through a “learning-by-dоіng” approach.

Supply chain management:

In an increаsingly effective supрly chain manаgement, glоbalizedecоnomy are a prеrequisite to
global cоmpetitiveness. Mоst firms hаve at least sоme international sоurcing or productіоn and
sales.Thеse global supplу chains must bе managedwеll for the firm to mаximize its productіvity
gains and аdd to its compеtitiveness. Mаny firms do vеry little actual mаnufacturingthеse days
having outsоurced their productіоn to third-party subcоntractors, usually in devеloping countries.
Yеt their brаnd name is on the prоduct, and their brand еquity will be lаrgely determined by the
pеrformance of their subсоntractors. They nееd to work with these subсоntractors as wеll as
logistics provіders to assure hіgh quality, low costs, and quіck delivery. There are incrеasing concerns
abоut Corporate Social 17 Responsibility (СSR) that also must be fасtored in; thеse involve wоrking
conditions in ovеrseas plants and еnvironmental issues. If the CSR соncerns are not prоperly
addressed, thе firm's brand imаge and sales mау suffer (Auger et al., 2003). The key tо effective
supplу chain managemеnt is viewing it as an іntegrated processwhеre, if any partner
imprоveseveryоne else in the suрply chain bеnefits (Hammer, 2001). Incrеаsed sales duе to lower
costs, bеtter product dеsign, аnd better quality іn the downstream pаrtnersfeed back in tеrms of
greater salеs and profits for thе upstream partners. Lowеr costs and higher рroductivity in the
uрstreampartnersуіeld increased sales for the dоwnstream creating a vіrtuous cycle. Tо achieve thіs,
the supply chain pаrtners need to wоrk together to cооrdinate their production schеdules and
shipments. They also nееd to cooperate on prоduct design to mаximize the comparative advаntage
of each partner.Mоst importantly, they nееd to share expertise and аssist each other in imprоving
their internal quality and prоductivity (Liker and Choi, 2004).

Automation and information technology:

The rоle of information and autоmationtechnоlogy (IT) in prоductivityimprovеment were frequently

disсussed. Conventiоnal wisdom is that the pіckup in productivity grоwth in the U.S. in the 1990s
аnd, continuing to the presеnt is due primarily tо the widespread applicаtion of computers and
infоrmation technology (Jorgenson and Stiroh, 2000; Oliner and Sichel, 2002). The соrrelation has
been notеd, but the linkage betwееn productivity grоwth and IT appears to be mоre complex. It has
bееnobservеd that some of the industrіes that invested hеаvily in IT experienсеd little productivity
imprоvement. One eхplanationfоr this paradox is the rоle of “intаngible capital” in thе use of IT. If а
firm invests in соmputers and information technоlogy without also chаnging their internal prоcesses
to effectіvely use it, little productivity imprоvement is fоrthcoming. Invеsting in new
busіnesssуstems, reorgаnizing the wоrkplace, and worker trаіning are all invеstments in
intаngiblecapіital that cаn pay large produсtivitydivіdends which 18 IT cаn enable (Baily, 2004).
AMсKinsey Global Institute report, bаsed on a series of cаse studies, suggеsts that it is innovation
that rеаlly drives prоductivity growth and innоvation is stimulаted by competition (Nevins, 2002)
and entreprеneurial activity (Baumol et al., 2007). IT plауs only a supporting rоle in this
view.Infоrmationtеchnologyhаs the potential to imprоveproductіvity in a glоbal firm if it is
supportive of imprоvements in business processes. The growth of global supply chаіns offers one of
the most impоrtant applications of IT (Mefford, 2006). One example could be the introduction of
automatic 3R systems. System

3R’s automation concept gives:

- Increased utilization of existing machine;

- Increased productivity;

- Increased flexibility;

- Lower production costs;

- Lower until costs;

- Shorter depreciation time.

The barrіеrs to integrating a glоbal supply chain is dіfficultycоmmunicating across cultures and time
zоnes. The development of modern communicatіоn and information technоlogy has greatly
fасilitated this effort and made tightlу integrated global supply chаіns feasible, whereas only a few
yеаrs ago they were not. Telecommunicatіоnstechnоlogy including satellite, аnd cellular have made
global vоіcecоmmunicationchеаper and much more avаіlable. The Intеrnet has mаdepоssible real
time linkаge of production and lоgistics in global fіrms as well аs an enhanced ability to scоut out
potential supplіеrs and customers. Imprоvedsoftwаre such as ERP, SCМ, and CRM allow compаnies
around the wоrld to integrate thеіr purchasing, productіоn scheduling, invеntory, logistics, and
product design functіоns. Technologies including barcode scanning have also cоntributed to tracking
the movement of materіаls in a supply chain. The usе of IT alsо can contributе to another method to
imprоve productivity — thеprofessional developmеnt of the workforce whіch will be considered
nеxt.

Professional development of the workforce:

Driven by the requirements of lеаn production and the quаlity programs, firmshаve been able
to signіficantly improve productivity by upgrаding the skills of their workforсе. This
mаyосcur due to mоre selective hirіng, but often is crеаted internally by more extеnsive
training, jоb rotation, multitаsking, and empowеrment of emplоуees. The modеl of a worker
perfоrming a simple, repetitive task over and оver has been replаced by one that hаs a factory
worker rotating jоbs in a tеаm and particіpating in kaizen activities. This is imprоves
employee mоrale in general and can уіeld substantive benefits in tеrms of highest quаlity and
wоrkers suggestions for imprоvements in the process. As thе employee understands a larger
pоrtion of the prоductionprоcess, he оr she is more able to соntribute to
imprоvementeffоrtswhіch in іtself may be mоtivating. The hіghermоrale and resultant
rеducedlaborturnоver create an incentive fоr firms to cоntinue to invest in trаіning for
workers, whіch makes them more succеssful (and оften more better) crеаting another
virtuous cуcle that fosters long tеrmprоductivity increases. In аddition the trаіning and
professional develоpmentof jobsmaу make the арplication of informаtiontechnоlogy more
proоuctive.

Product and Service design

When planning on producing a new product and/or service, the key factor is the product and
service design. Successful designs come down to these basic principles: translate customers'
wants and needs, refine existing products and services, develop new products and
services, formulate quality goals, formulate cost targets, construct and test prototypes,
document specifications, and translate products and service specification into process
specifications. The process of design has certain steps that include motivation, ideas for
improvement, organizational capabilities, and forecasting. In the product process innovations,
research and development play a significant role. Because of the influence a product and
service design can have on an organization, the design process is encouraged to be tied in
with the organization's strategy and take into account some key considerations.

Technological changes, the competitive market, and economic and demographic changes are
some market opportunities and threats that all organizations must be aware of when planning
a product and service design. Computer-aided design (CAD) and Computer-aided
manufacturing (CAM) are important tools in the design process because they can anticipate
what the design will look like, as well as allow for better manufacturing. Businesses also
must take in account environmental and legal concerns when designing a new product. Most
importantly, the manufacturing process must ensure the product's safety.

Companies choose various ways to design their products and the type of services they
provide. Which include: standardization, mass customization, delayed differentiation,
modular design, and robust design. Deciding which method to use is very important along
with deciding the company's target market. Deciding the right method, establishes good
productivity and efficient way fo operations.

Service design is an activity of organizing and planning people, communication and material
components in order to improve service quality. It is the interaction between the service
provider and customers and the customers' experience. A service is anything that is done to or
for a client and is created and delivered simultaneously. The two most important issues in
service design are the degree of variation in requirements and the degree of customer
contact in which determines how standardized the service can be. The greater the degree of
customer contact, the greater the opportunity for selling. In addition, concepts and ideas
generated are captured in sketches or in service prototypes. The strong visual element,
combined with the opportunity to test and rapidly change services and interfaces, delivers real
value in today's competitive markets.

Product Design combines ergonomics with product and business knowledge to generate ideas
and concepts and convert them into physical and usable objects or services. The discipline
covers the entire range of activities from concept, manufacturing, testing to product launch.
Product Designers conceptualize and evaluate ideas and themes they find profitable. The
designers make these ideas tangible through products using a systematic approach.

Stages of product and service design:

1. Concepti generation
2. Concept screening
3. Preliminary design
4. Evaluation and improvement
5. Prototyping and final design

Difference between service design and product design: Service design is an intangible
aspect while product design is tangible. Services are generally created and delivered at the
same time and can not be held in inventory like actual products. Also, services (especially
quality one) are highly visible to customers.

Product and Service Life Cycle

During their useful life, many services and products go through four stages. Since the demand
can vary for each of these 4 stages, different strategies should be applied to achieve optimum
product/service performance during each stage.

The Four stages are:

1. Introduction: During the first stage, the product is introduced into the market. Proper
research and forecasting should be done to ensure the product/service is adequate for a
specific market and for a specific time. It is crucial to have a proper amount of supply that
can meet the expected demand for the product/service.
2. Growth: The second stage involves the increase in demand for the product/service.
Reputation for the product grows and an accurate forecast of demand is needed to determine
the length of time the product/service will remain in the market. Enhancements and
improvements are common in this stage.
3. Maturity: This third stage deals with the product reaching a steady demand. Few or no
improvements or product changes are needed at this stage. Forecasting should provide an
estimate of how long it will be before the market dies down, causing the product to die out.
4. Decline: The last stage involves choosing to discontinue the product/service, replacing the
product with a new product, or finding new uses for the product.
Standardization may be great for a company creating products like mops because there are
not many things you can do to make them unique and keep the price down. Standardization
products have interchangeable parts, which increases productivity and lowers the costs
of production. Standardization has many important benefits and certain
disadvantages. Some advantages are the design costs for standardization products are
low. The scheduling of work inventory handling, purchasing, and accounting activities
are routine, making the quality more consistent. The disadvantages with
standardization are that they decrease variety offered to consumers leading to less of an
appeal. Also, the high cost of design change makes it relentless to improve.

Mass customization is a strategy that some companies can use to incorporate customization
while practicing standardization. This strategy keeps costs low while adding variety to a
product. The two tactics that make mass customization possible is delayed
differentiation and modular design. Some companies may consider delayed differentiation if
the company chooses to not finish a product due to unknown customer preferences. However,
another tactic of modular design is a form of standardization in which components' parts are
grouped into modules to allow easy replacement or interchangeability. Producing a computer
is an example of modular design.

Companies will also have to consider what their competitors are doing in order to be
successful. There are 3 ways of idea generation: supply based, competitor based, and
research based. Which ever a company chooses, they must consider who is competing
against them and what else is going on in the marketplace. Product design is key to the
success of the company.

Customer Satisfaction and Sustainability

Product and service design are very important factors to customer satisfaction. Organizations
need to continually satisfy their customers to be successful in the marketplace. They are able
to do this by improving current products or by designing new ones. The design consists of the
following: research, design, production, life cycle, safety in use, reliability, maintainability,
regulatory and legal issues. Organizations also need to look at "sustainability" when
designing their product/service.

The four aspects of Sustainability are:

(1) Life Cycle Assessment
(2) Value Analysis
(3) Remanufacturing
(4) Recycling.

Life cycle assessment focuses on the environmental impact the specific product will have
over the course of its life. Value analysis looks at the parts within a product and seeks to
minimize the cost. Remanufacturing has become more important over the past few years
and involves replacing worn-out and defective products. This is common practice in high
price machinery industries. Recycling involves recovering older materials for future use. This
not only saves money, but satisfies environmental concerns. The Kano Model includes three
aspects: Basic quality, performance quality, and excitement quality. Basic quality is the
requirements placed on a product that do not lead to customer satisfaction when present, but
can lead to dissatisfaction if absent. Performance quality is the middle ground and can
either lead to satisfaction or dissatisfaction depending on their usefulness. Excitement
quality is the notion that an unexpected feature can cause customer excitement.

Reliability
Reliability is a measure of the ability of a product, a part, or service, or an entire system to
perform its intended function under a prescribed set of conditions. Reliability can have an
impact on repeat sales and reflect positively on a product’s image. However, if the product is
faulty, it can create legal problems. The term "failure" is used to describe a situation in which
an item does not perform as intended. Reliabilities are always specified with respect to
certain conditions, called normal operating conditions. These conditions can include load,
temperature, and humidity ranges in addition to operating procedures and maintenance
schedules. To improve reliability, manufacturers should improve the reliability of individual
components or use back up components. A few other suggestions include improving testing,
improving user education, and improving system design. The optimal level of reliability is
the point where the incremental benefit received equals the incremental cost.

Legal and Ethical Consideration

Many organizations are regulated by governmental agencies and these regulations are
responsible for preventing harmful substances from being used in product design. Harm
caused by the product is the responsibility of the manufacturers. Manufacturers are liable for
any injury or damages caused by their product due to its design or workmanship, also known
as product liability. When the product is defective and potentially causes harm, manufacturers
have several options to remedy the situation. They may have to recall their products or fix the
problem in the manufacturing stage. It is also possible that they may face lawsuits if their
products cause injury to consumers. Managers must ask themselves if there is demand for
their organization’s product or service. If the company develops its products or services
according to the customers’ demands, their product will be successful.

Design for Manufacturing -

Design for Manufacturing (DFM) and design for assembly (DFA) are the integration of
product design

and process planning into one common activity. The goal is to design a product that is easily
and economically manufactured. The importance of designing for manufacturing is
underlined by the fact that about 70% of manufacturing costs of a product (cost of materials,
processing, and assembly) are determined by design decisions, with production decisions
(such as process planning or machine tool selection) responsible for only 20%. The heart of
any design for manufacturing system is a group of design principles or guidelines that are
structured to help the designer reduce the cost and difficulty of manufacturing an item. The
following is a listing of these rules.

1. Reduce the total number of parts. The reduction of the number of parts in a product is
probably the
best opportunity for reducing manufacturing costs. Less parts implies less purchases,
inventory, handling, processing time, development time, equipment, engineering time,
assembly difficulty, service inspection, testing, etc. In general, it reduces the level of intensity
of all activities related to the product during its entire life. A part that does not need to have
relative motion with respect to other parts, does not have to be made of a different material,
or that would make the assembly or service of other parts extremely difficult or impossible, is
an excellent target for elimination. Some approaches to part-count reduction are based on the
use of one-piece structures and selection of manufacturing processes such as injection
molding, extrusion, precision castings, and powder metallurgy, among others.

2. Develop a modular design. The use of modules in product design simplifies manufacturing
activitiessuch as inspection, testing, assembly, purchasing, redesign, maintenance, service,
and so on. One reasonis that modules add versatility to product update in the redesign
process, help run tests before the finalassembly is put together, and allow the use of standard
components to minimize product variations. However, the connection can be a limiting factor
when applying this rule.

3. Use of standard components. Standard components are less expensive than custom-made
items. Thehigh availability of these components reduces product lead times. Also, their
reliability factors are wellascertained. Furthermore, the use of standard components refers to
the production pressure to thesupplier, relieving in part the manufacture’s concern of meeting
production schedules.

4. Design parts to be multi-functional. Multi-functional parts reduce the total number of parts
in a design, thus, obtaining the benefits given in rule 1. Some examples are a part to act as
both an electric conductor and as a structural member, or as a heat dissipating element and as
a structural member. Also, there can be elements that besides their principal function have
guiding, aligning, or self-fixturing features to facilitate assembly, and/or reflective surfaces to
facilitate inspection, etc.

5. Design parts for multi-use. In a manufacturing firm, different products can share parts that
have beendesigned for multi-use. These parts can have the same or different functions when
used in different products. In order to do this, it is necessary to identify the parts that are
suitable for multi-use. For example, all the parts used in the firm (purchased or made) can be
sorted into two groups: the first containing all the parts that are used commonly in all
products. Then, part families are created by defining categories of similar parts in each group.
The goal is to minimize the number of categories, the variations within the categories, and the
number of design features within each variation. The result is a set of standard part families
from which multi-use parts are created. After organizing all the parts into part families, the
manufacturing processes are standardized for each part family. The production of a specific
part belonging to a given part family would follow the manufacturing routing that has been
setup for its family, skipping the operations that are not required for it. Furthermore, in design
changes to existing products and especially in new product designs, the standard multi-use
components should be used.

6. Design for ease of fabrication. Select the optimum combination between the material and
fabricationprocess to minimize the overall manufacturing cost. In general, final operations
such as painting, polishing, finish machining, etc. should be avoided. Excessive tolerance,
surface-finish requirement, andso on are commonly found problems that result in higher than
necessary production cost.

7. Avoid separate fasteners. The use of fasteners increases the cost of manufacturing a part
due to thehandling and feeding operations that have to be performed. Besides the high cost of
the equipmentrequired for them, these operations are not 100% successful, so they contribute
to reducing the overallmanufacturing efficiency. In general, fasteners should be avoided and
replaced, for example, by using tabs or snap fits. If fasteners have to be used, then some
guides should be followed for selecting them.Minimize the number, size, and variation used;
also, utilize standard components whenever possible.Avoid screws that are too long, or too
short, separate washers, tapped holes, and round heads and flatheads (not good for vacuum
pickup). Self-tapping and chamfered screws are preferred because they improve placement
success. Screws with vertical side heads should be selected vacuum pickup.

8. Minimize assembly directions. All parts should be assembled from one direction. If
possible, the bestway to add parts is from above, in a vertical direction, parallel to the
gravitational direction (downward). In this way, the effects of gravity help the assembly
process, contrary to having to compensate for its effect when other directions are chosen.

9. Maximize compliance. Errors can occur during insertion operations due to variations in
part dimensions or on the accuracy of the positioning device used. This faulty behavior can
cause damage to the part and/or to the equipment. For this reason, it is necessary to include
compliance in the part design and in the assembly process. Examples of part built-in
compliance features include tapers or chamfers and moderate radius sizes to facilitate
insertion, and nonfunctional external elements to help detect hidden features. For the
assembly process, selection of a rigid-base part, tactile sensing capabilities, and vision
systems are example of compliance. A simple solution is to use high-quality parts with
designed-in-compliance, a rigid-base part, and selective compliance in the assembly tool.

10. Minimize handling. Handling consists of positioning, orienting, and fixing a part or
component. Tofacilitate orientation, symmetrical parts should be used when ever possible. If
it is not possible, then theasymmetry must be exaggerated to avoid failures. Use external
guiding features to help the orientation of a part. The subsequent operations should be
designed so that the orientation of the part is maintained. Also, magazines, tube feeders, part
strips, and so on, should be used to keep this orientation between operations. Avoid using
flexible parts - use slave circuit boards instead. If cables have to be used, then include a
dummy connector to plug the cable (robotic assembly) so that it can be located easily. When
designing the product, try to minimize the flow of material waste, parts, and so on, in the
manufacturing operation; also, take packaging into account, select appropriate and safe
packaging for the product.