1

2002 South-Western/Thomson Learning 2002 South-Western/Thomson Learning

TM TM
Slides prepared Slides prepared
by John Loucks by John Loucks
Chapter 4
Product, Process, and
Service Design
Overview
Designing and Developing Products and
Services
Process Planning and Design
Major Factors Affecting Process Design
Decisions
Types of Process Designs
Interrelationships Among Product Design,
Process Design, and Inventory Policy
Process Design in Services
Deciding Among Processing Alternatives
Wrap-Up: What World-Class Companies Do
Product/Service Design
When a product/service is designed:
The detailed characteristics of the
product/service are established.
The characteristics of the product/service
directly affects how the product/service
can be produced/ delivered.
How the product/service is
produced/delivered determines the design
of the production/delivery system.
Product/Service Design
Product/service design directly affects:
Product/service quality
Production/delivery cost
Customer satisfaction
Product/Service Design and
Development
Sources of Product Innovation
Developing New Products/Services
Getting Them to Market Faster
Improving Current Products/Services
Designing for Ease of Production
Designing for Quality
Designing and Developing New Services
Sources of Product/Service
Innovation
Customers
Managers
Marketing
Operations
Engineering
Research and Development (R&D)
Basic research
Applied research
Steps in Developing New
Products
1. Technical and economic feasibility studies
2. Prototype design
3. Performance testing of prototype
4. Market sensing/evaluation and economic
evaluation of the prototype
5. Design of production model
6. Market/performance/process testing and
economic evaluation of production model
7. Continuous modification of production model
Steps in Developing New
Products
1. Technical and Economic Feasibility
Studies
Determine the advisability of establishing a
project for developing the product
If initial feasibility studies are favorable,
engineers prepare an initial prototype design
Steps in Developing New
Products
2. Prototype Design
This design should exhibit the basic form, fit,
and function of the final product
It will not necessarily be identical to the
production model
Steps in Developing New
Products
3. Performance Testing of Prototype
Performance testing and redesign of the
prototype continues until this design-test-
redesign process produces a satisfactorily
performing prototype
Steps in Developing New
Products
4. Market Sensing/Evaluation and
Economic Evaluation of the Prototype
Accomplished by demonstrations to potential
customers, market test, or market surveys
If the response to the prototype is favorable,
economic evaluation of the prototype is
performed to estimate production volume,
costs, and profits
If the economic evaluation is favorable, the
project enters the production design phase.

Steps in Developing New
Products
5. Design of Production Model
The initial design of the production model will
not be the final design; the model will evolve
Steps in Developing New
Products
6. Market/Performance/Process Testing
and Economic Evaluation of Production
Model
The production model should exhibit:
low cost
reliable quality
superior performance
the ability to be produced in the desired quantities
on the intended equipment

Steps in Developing New
Products
7. Continuous Modification of Production
Model
Production designs are continuously modified
to:
Adapt to changing market conditions
Adapt to changing production technology
Allow for manufacturing improvements

Managing Product Development
Projects
About 5% of all new-product ideas survive to
production, and only about 10% of these are
successful.
It is best to cancel unpromising new-
product/service development projects early!
Employees often become emotionally caught up
in these projects and are overly optimistic
An impartial management review board is
needed for periodic reviews of the progress of
these projects.
Getting New Products to Market
Faster
Speed creates competitive advantages
Speed saves money
Tools to improve speed:
Autonomous design and development teams
Computer-aided design/computer-aided
manufacturing (CAD/CAM)
Simultaneous (concurrent) engineering
Tools to Improve Speed to
Market
Autonomous Design and Development Teams
Teams are given decision-making
responsibility and more freedom to design
and introduce new products/services
Time-to-market has been slashed
dramatically
Enormous sums of money have been saved
Teams do not have to deal with the
bureaucratic red tape ordinarily required to
obtain approvals

Tools to Improve Speed to
Market
Computer-Aided Design/Computer-Aided Manufacturing
(CAD/CAM)
Engineers, using CAD/CAM, can generate many
views of parts, rotate images, magnify views, and
check for interference between parts
Part designs can be stored in a data base for use on
other products
When it is time for manufacturing, the product design
is retrieved, translated into a language that production
machinery understands, and then the production
system can be automatically set up.

Tools to Improve Speed to
Market
Simultaneous
(Concurrent)
Engineering
Economic and Technical
Feasibility Studies
Product/
Service Ideas
Production Process Design Product/Service Design
Produce and Market
New Product/Service
Continuous
Interaction
Improving the Design
of Existing Products/Services
Focus is improving performance, quality, and
cost
Objective is maintaining or improving market
share of maturing products/services
Little changes can be significant
Small, steady (continuous) improvements can
add up to huge long-term improvements
Value analysis is practiced, meaning design
features are examined in terms of their
cost/benefit (value).
Designing for Ease of Production
Ease of Production (Manufacturability)
Specifications - Precise information about the
characteristics of the product
Tolerances - Minimum & maximum limits on a
dimension that allows the item to function as
designed
Standardization - Reduce variety among a group
of products or parts
Simplification - Reduce or eliminate the
complexity of a part or product
Designing for Quality
Crucial element of product design is its
impact on quality
Quality is determined by the customers
perception of the degree of excellence of
the product/services characteristics
Chapter 7 covers the principles of
designing products/services for quality
Designing and Developing New
Services
Three general dimensions of service design are:
Degree of Standardization of the Service
Custom-fashioned for particular customers or
basically the same for all customers?
Degree of Customer Contact in Delivering the
Service
High level of contact (dress boutique) or low
level (fast-food restaurant)?
Mix of Physical Goods and Intangible Services
Mix dominated by physical goods (tailors
shop) or by intangible services (university)?
Designing and Developing New
Services
Differences Between New Service and New
Product Development
Unless services are dominated by physical
goods, their development usually does not
require engineering, testing, and prototype
building.
Because many service businesses involve
intangible services, market sensing tends to
be more by surveys rather than by market
tests and demonstrations.
Group Technology
Process Re-engineering
The concept of drastically changing an
existing process design
Not merely making marginal
improvements to the process
A correctly re-engineered process should
be more efficient
A smaller labor force is often the result
Deciding Among Processing
Alternatives
Batch Size and Product/Service Variety
Capital Requirements
Economic Analysis
Cost Functions of Alternative Processes
Break-Even Analysis
Financial Analysis
Process Design Depends
on Product Diversity and Batch Size
S
m
a
l
l







B
a
t
c
h

S
i
z
e








L
a
r
g
e

Few Number of Product Designs Many
Product
Focused,
Dedicated
Systems

Product
Focused,
Batch
System

Process-Focused,
Job Shop

Cellular
Manufacturing

S
m
a
l
l







B
a
t
c
h

S
i
z
e








L
a
r
g
e

Product
Focused,
Dedicated
Systems

Inputs:
Product/Service Information
Production System Information
Operations Strategy
Process Planning & Design:
Process-Type Selection
Vertical Integration Studies
Process/Product Studies
Equipment Studies
Production Procedures Studies
Facilities Studies
Outputs:
Process Technology
Facilities
Personnel Estimates
Process Planning and Design
System
Major Factors Affecting Process
Designs
Nature of product/service demand
Degree of vertical integration
Production flexibility
Degree of automation
Product/Service quality
Nature of Product/Service
Demand
Production processes must have adequate
capacity to produce the volume of the
products/services that customers need.
Provisions must be made for expanding or
contracting capacity to keep pace with demand
patterns.
Some types of processes are more easily
expanded and contracted than others.
Product/service price affects demand, so pricing
decisions and the choice of processes must be
synchronized.
Degree of Vertical Integration
Vertical integration is the amount of the
production and distribution chain that is brought
under the ownership of a company.
This determines how many production
processes need to be planned and designed.
Decision of integration is based on cost,
availability of capital, quality, technological
capability, and more.
Strategic outsourcing (lower degree of
integration) is the outsourcing of processes in
order to react quicker to changes in customer
needs, competitor actions, and technology.
Production Flexibility
Product flexibility -- ability of the
production (or delivery) system to quickly
change from producing (delivering) one
product (or service) to another.
Volume flexibility -- ability to quickly
increase or reduce the volume of product(
or service) produced (or delivered).
Degree of Automation
Advantages of automation
Improves product quality
Improves product flexibility
Reduces labor and related costs
Disadvantages of automation
Equipment can be very expensive
Integration into existing operations can be
difficult

Product/Service Quality
Old viewpoint high-quality products must be
made in small quantities by expert craftsmen
New viewpoint high-quality products can be
mass-produced using automated machinery
Automated machinery can produce products of
incredible uniformity
The choice of design of production processes is
affected by the need for superior quality.
Types of Process Designs
Product-Focused
Process-Focused
Group Technology/Cellular Manufacturing
Product-Focused
Processes (conversions) are arranged
based on the sequence of operations
required to produce a product or provide a
service
Also called Production Line or Assembly
Line
Two general forms
Discrete unit automobiles, dishwashers
Process (Continuous) petrochemicals,
paper
Purchased

Components,
Subassemblies
Product-Focused
2
3 1
4
1
7
6
5
Components Subassem.
Assemblies
Product/Material Flow

Production Operation
Raw Material Components
Raw Material
Fin. Goods
Product-Focused
Advantages
Lower labor-skill requirements
Reduced worker training
Reduced supervision
Ease of planning and controlling production
Disadvantages
Higher initial investment level
Relatively low product flexibility
Process-Focused
Processes (conversions) are arranged based on
the type of process, i.e., similar processes are
grouped together
Products/services (jobs) move from department
(process group) to department based on that
particular jobs processing requirements
Also called Job Shop or Intermittent
Production
Examples
Auto body repair
Custom woodworking shop
Process-Focused
Cutting







Assembly








Sanding







Finishing







Planing






Drilling
Shaping






Turning
1
5
7
3
2
1
6
3
6
4
2 Job A
Job B
4 5
Custom Woodworking Shop
Process-Focused
Advantages
High product flexibility
Lower initial investment level
Disadvantages
Higher labor-skill requirements
More worker training
More supervision
More complex production planning and
controlling
The Manufacturing Efficiency Problem
Time on
machine
5%
Moving and waiting
95%
Cutting
less than
30%
Positioning, loading, gauging,
idle, etc.
70%
Group Technology/Cellular
Manufacturing
Group Technology
Each part produced receives a multi-digit
code that describes the physical
characteristics of the part.
Parts with similar characteristics are grouped
into part families
Parts in a part family are typically made on
the same machines with similar tooling



46


Benefits of GT and CMS
(Companies Reporting):
52% Report reduction in new part design
10% Report reduction in # of new drawings
through standardization
30% Report reduction in new shop drawings
20% Report reduction in floor space
45% Report reduced scrap
80% Report reduced production and quality
costs
69% Report reduced set-up time (cost)
Note: Reported by companies in a survey of adopters of GT
Benefits of GT and CMS
(Companies Reporting):
70% Report reduced throughput time (even
more report better predictability of delivery)
82% Report reduced numbers of overdue orders
42% Report reduced raw-materials inventory
62% Report reduced WIP
60% Report reduced finished goods inventory
33% Report increased employee output/time
unit (productivity improvement)
Group Technology/Cellular
Manufacturing
Cellular Manufacturing
Some part families (those requiring significant
batch sizes) can be assigned to
manufacturing cells.
The organization of the shop floor into cells is
referred to as cellular manufacturing.
Flow of parts within cells tend to be more like
product-focused systems
Group Technology/Cellular
Manufacturing
Advantages (relative to a job shop)
Process changeovers simplified
Variability of tasks reduced (less training
needed)
More direct routes through the system
Quality control is improved
Production planning and control simpler
Automation simpler
Group Technology/Cellular
Manufacturing
Disadvantages
Duplication of equipment
Under-utilization of facilities
Processing of items that do not fit into a family
may be inefficient
Group Technology/Cellular
Manufacturing
The need for descriptive coding
The Opitz Method
Opitz Code
Opitz Code Example
This Form
code is the
Opitz Code
Solution on this
shaft- like part
Opitz Code Example
Capital Requirements
The amount of capital required tends to differ for
each type of production process
Generally, the capital required is greatest for product-
focused, dedicated systems
Generally, the capital required is lowest for process-
focused, job shops
The amount of capital available and the cost of capital
are important considerations

Economic Analysis
Cost Functions of Processing Alternatives
Fixed Costs
Annual cost when production volume is zero
Initial cost of buildings, equipment, and other fixed
assets
Variable Costs
Costs that vary with production volumes
Labor, material, and variable overhead
Cost Functions of Processing
Alternatives
Annual Cost of Production ($000)
Units
Produced
Per Year
100,000 250,000
Cellular
Manufacturing
Preferred
Automated
Assembly Line
Preferred
Job
Shop
Preferred
500
1,000
2,000
1,500
Cost Functions of Processing
Alternatives
Example
Three production processes (A, B, and C) have the
following cost structure:
Fixed Cost Variable Cost
Process Per Year Per Unit
A $120,000 $ 3.00
B 90,000 4.00
C 80,000 4.50

What is the most economical process for a volume of
8,000 units per year?
Cost Functions of Processing
Alternatives
Example

TC = FC + v(Q)

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

The most economical process at 8,000 units is
Process C, with the lowest annual cost.
Economic Analysis
Break-Even Analysis
Widely used to analyze and compare decision
alternatives
Can be displayed either algebraically or
graphically
Disadvantages:
Cannot incorporate uncertainty
Costs assumed over entire range of values
Does not take into account time value of money

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

Q = FC / (p-v)

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

Process A has the lowest break-even point.
Economic Analysis
Financial Analysis
A great amount of money is invested in
production processes and these assets are
expected to last a long time
The time value of money is an important
consideration
Payback period
net present value
internal rate of return
Profitability index

CMS and Group Technology
(GT)
NOTE: Step 1 is CMS a fundamental action in LEAN MFGing
Building
the
FACTORY
With A
FUTURE