Decision Analysis

Decision Analysis Payoff Table - craps tables Maximax - maximum of maximum payoffs - optimistic - “hard ways” Maximin - maximum of minimum payoffs - safe bets or even odds bets Minimax regret - minimum of maximum regrets or opportunity costs

Decision Trees Graphical method of analyzing a decision - similar to Theory of Constraints Payoff table can be translated to a Decision Tree

The Payoff Table A method of organizing & illustrating the payoffs from different decisions given various states of nature A payoff is the outcome of the decision – a Craps table pay off chart is an example of a payoff chart

Payoff Table States Of Nature (Alternatives) Decision a b 1 Payoff 1/a Payoff 1/b 2 Payoff 2/a Payoff 2/b

Maximums: 1,300,000; 500,000 Minimums: 500,000; 320,000; -150,000 STATES OF NATURE Good Foreign Poor Foreign DECISION Competitive Conditions Competitive Conditions Expand $ 800,000 $ 500,000 Maintain status quo 1,300,000 -150,000 Sell now 320,000 320,000 Maximums: 1,300,000; 500,000 Minimums: 500,000; 320,000; -150,000

decision/State of Nature good economy fair economy poor economy EMV sell condo 295000 126000 19500 178550 sell beach house 175000 76000 37500 113950 sell office bldg 275000 95000 78000 179900 0.5 0.2 0.3 EVPI 183950 VPI 4050

Chapter 5 Products and Services

Product Design Specifies materials Determines dimensions & tolerances Defines appearance Sets performance standards

Service Design Specifies what the customer is to experience Physical items Sensual benefits Psychological benefits

An Effective Design Process Matches product/service characteristics with customer needs Meets customer requirements in simplest, most cost-effective manner Reduces time to market - haste vs. speed to market Minimizes revisions - quality designed into the product

Stages in the Design Process Idea Generation — Product Concept - can you create your own market? What role does the voice of the customer play in idea generation? Feasibility Study — Performance Specifications Preliminary Design — Prototype - testing and redesign Final Design — Final Design Specifications Process Planning — Manufacturing Specifications - make to order/stock – assembly line?

New product or service launch Revising and testing prototypes The Design Process Pilot run and final tests New product or service launch Final design & process plans Idea generation Feasibility study Product or service concept Performance specifications Functional design Form design Production design Revising and testing prototypes Design specifications Manufacturing or delivery specifications Suppliers R&D Customers Marketing Competitors

Idea Generation Suppliers, distributors, salespersons Trade journals and other published material Warranty claims, customer complaints, failures Customer surveys, focus groups, interviews Field testing, trial users Research and development

More Idea Generators Perceptual Maps Benchmarking Reverse engineering Visual comparison of customer perceptions Benchmarking Comparing product/service against best-in-class Reverse engineering Dismantling competitor’s product to improve your own product

Perceptual Map of Breakfast Cereals HIGH NUTRITION LOW NUTRITION GOOD TASTE BAD TASTE

Perceptual Map of Breakfast Cereals HIGH NUTRITION LOW NUTRITION GOOD TASTE Cocoa Puffs BAD TASTE Rice Krispies Wheaties Cheerios Shredded Wheat

Feasibility Study Market Analysis - Market Segmentation Economic Analysis Technical / Strategic Analysis Performance Specifications Not unlike mission analysis or Intelligence Preparation of the Battlefield

Risk Analysis 1. Identify the Hazards 2. Assess hazards to determine risks. 3. Develop controls and make risk decisions. 4. Implement controls. 5. Supervise and evaluate. From FM 100-14

Preliminary Design Create form & functional design Build prototype How will it look? Create form & functional design Build prototype Test prototype Revise prototype Retest

Functional Design (How the Product Performs) Reliability Probability product performs intended function for specified length of time Maintainability Ease and/or cost or maintaining/repairing product

Computing Reliability Components in series 0.90 0.90 x 0.90 = 0.81

Computing Reliability Components in series 0.90 0.90 x 0.90 = 0.81 Components in parallel 0.95 0.90 R2 R1 This is a refresher to High School Physics classes – capacitors in parallel provide a greater level of reliability than do capacitors in sequence. Having components in parallel provides some built in redundancy. 0.95 + 0.90(1-0.95) = 0.995

System Availability MTBF MTBF + MTTR System Availability, SA = This calculation is critical to determine the availability of a system based on the Mean Time Between Failure (MTBF) and the Mean Time To Repair (MTTR). The only draw back to this calculation is that you are working on averages.

System Availability MTBF MTBF + MTTR System Availability, SA = PROVIDER MTBF (HR) MTTR (HR) A 60 4.0 B 36 2.0 C 24 1.0 At first glance it would appear that the items from Provider A has the longest mean time between failures. This is why the Systems Availability computation is necessary.

System Availability MTBF MTBF + MTTR System Availability, SA = PROVIDER MTBF (HR) MTTR (HR) A 60 4.0 B 36 2.0 C 24 1.0 Although Provider A’s products have the longest mean time between failure, look at the Mean Time To Repair – when calculating the System Availability, the products from Provider C provides the best System Availability. SAA = 60 / (60 + 4) = .9375 or 93.75% SAB = 36 / (36 + 2) = .9473 or 94.73% SAC = 24 / (24 + 1) = .96 or 96%

Production Design Part of the preliminary design phase Simplification Standardization Modularity

Final Design & Process Plans Produce detailed drawings & specifications Create workable instructions for manufacture Select tooling & equipment Prepare job descriptions Determine operation & assembly order Program automated machines

Improving the Design Process Design teams Concurrent design Design for manufacture & assembly Design to prevent failures and ensure value Design for environment Measure design quality Utilize quality function deployment Design for robustness Engage in collaborative design

Breaking Down Barriers to Effective Design

Preferred solution = cross functional teams Design Teams Preferred solution = cross functional teams Marketing, manufacturing, engineering Suppliers, dealers, customers Lawyers, accountants, insurance companies

Concurrent Design Improves quality of early design decisions Decentralized - suppliers complete detailed design Incorporates production process Scheduling and management can be complex as tasks are done in parallel include the customer in the process!!

Design for Manufacture and Assembly Design a product for easy & economical production Incorporate production design early in the design phase Improves quality and reduces costs Shortens time to design and manufacture also known as Design for Six Sigma

Design for Six Sigma Define – the goals of the design activity Measure – customer input to determine what is critical to quality from the customers’ perspective – what are customer delighters? What aspects are critical to quality? Analyze – innovative concepts for products and services to create value for the customer Design – new processes, products, and services to deliver customer value Verify – new systems perform as expected

DFM Guidelines Minimize the number of parts, tools, fasteners, and assemblies Use standard parts and repeatable processes Modular design Design for ease of assembly, minimal handling Allow for efficient testing and parts replacement

Design for Assembly (DFA) Procedure for reducing number of parts Evaluate methods for assembly Determine assembly sequence

Design Review Failure Mode and Effects Analysis (FMEA) A systematic approach for analyzing causes & effects of failures Prioritizes failures Attempts to eliminate causes

Value Analysis (Value Engineering) Is there value added? Ratio of value / cost Assessment of value : 1. Can we do without it? 2. Does it do more than is required? 3. Does it cost more than it is worth? 4. Can something else do a better job 5. Can it be made by less costly method, tools, material? 6. Can it be made cheaper, better or faster by someone else? Should we contract it out?

Design for Environment Design from recycled material Use materials which can be recycled Design for ease of repair Minimize packaging Minimize material & energy used during manufacture, consumption & disposal green laws in Europe -

Examples Recycling of oil carpets in land fills - 4 billion pounds in land fills annually Xerox and Hewlett-Packard - pay for return of printer cartridges on larger printers

Quality Function Deployment (QFD) Translates the “voice of the customer” into technical design requirements Displays requirements in matrix diagrams First matrix called “house of quality” Series of connected houses

Design for Robustness Product can fail due to poor design quality Products subjected to many conditions Robust design studies Controllable factors - under designer’s control Uncontrollable factors - from user or environment Designs products for consistent performance

Consistency is Important Consistent errors are easier to correct than random errors Parts within tolerances may yield assemblies which aren’t Consumers prefer product characteristics near their ideal values

Characteristics of Services Services are intangible Service output is variable Service have higher customer contact Services are perishable Service inseparable from delivery Tend to be decentralized and dispersed Consumed more often than products Services can be easily emulated Call girl principle – value diminishes after service is rendered

A Well-Designed Service System is Consistent with firm’s strategic focus Customer friendly Easy to sustain Effectively linked between front & back office Cost effective Visible to customer

Processes and Technologies Chapter 6 Processes and Technologies

Process Strategy Overall approach to producing goods and services Defines: Capital intensity Process flexibility Vertical integration Customer involvement Vertical integration vs Horizontal integration. Depends on how much a company wants to control an industry. In the 80’s Anheuser Busch tried to control their market by creating Eagle Snacks to spur the sales of beer; moved into the bottle and can making industry; moved into the Aluminium industry; moved into the cardboard industry to make boxes for shipping beer. They finally decided that their core competency was making beer not snacks and boxes.

Types of Processes Projects Batch production Mass production Continuous production Projects are usually one of a kind items such as ship building Continuous production on the other end of the spectrum is commodities such as oil that are produced continuously.

Process Planning Make-or-buy decisions Process selection Specific equipment selection Process plans Process analysis

Make-or-Buy Decisions 1. Cost 2. Capacity 3. Quality 4. Speed 5. Reliability 6. Expertise What about Proprietary Information? Barrier to Make-or-Buy?

Source: Aberdeen Research, “Low-Cost Country Sourcing Success Strategies: Maximizing and Sustaining the Next Big Supply Savings Opportunity,” Jun 2005

Specific Equipment Selection Purchase cost Operating cost Annual savings Revenue enhancement Replacement analysis Risk and uncertainty Piecemeal analysis – “one piece at a time”

Process Plans Blueprints Bill of material Flat or multiple layers - part or assembly Assembly chart / product structure diagram Operations process chart - list of operations involved in assembly Routing sheet - sequence of events

Operations Process Chart Part name Crevice Tool Part No. 52074 Usage Hand-Vac Assembly No. 520 Oper. No. Description Dept. Machine/Tools Time 10 Pour in plastic bits 041 Injection molding 2 min 20 Insert mold 041 #076 2 min 30 Check settings 041 113, 67, 650 20 min & start machine 40 Collect parts & lay flat 051 Plastics finishing 10 min 50 Remove & clean mold 042 Parts washer 15 min 60 Break off rough edges 051 Plastics finishing 10 min

Process Analysis The systematic examination of all aspects of a process to improve its operation Faster More efficient Less costly More responsive Basic tools Process flowchart Process diagrams Process maps

Process Flowchart Symbols Operations Inspection Transportation Delay Storage

Process Flowchart Operation Transport Inspect Step Delay Storage Distance (feet) Time (min) Description of process 1 2 3 4 5 6 7 8 9 10 11 Unload apples from truck Move to inspection station Weigh, inspect, sort Move to storage Wait until needed Move to peeler Apples peeled and cored Soak in water until needed Place in conveyor Move to mixing area Total Page 1 0f 3 480 30 20 15 360 190 ft 20 ft 50 ft 100 ft Date: 9-30-02 Analyst: TLR Location: Graves Mountain Process: Apple Sauce

Process Diagram Reserve Storage Quality Assurance Back to Vendor UPS Parcel Post Next-Day UPS Mono-gramming Embroid-ering Hemming Gift Boxing Receiving Active Bins Picking Packing Shipping

Process Map Customer Waiter Salad Chef Dinner Chef N Place order Drink Eat salad or soup Eat dinner Receives check Gives payment to waiter Collect change, leave tip Fill in tip amount Give order to waiter Prepare dinner order Prepare soup or salad order Is order complete? Give soup or salad order to chef Give dinner order to chef Get drinks for customer Deliver salad or soup order to customer Deliver dinner to customer Deliver check to customer Receive payment for meal Cash or Credit? Bring change to customer Run credit card through Return credit slip to customer Collect tip Y N Credit Cash Customer Waiter Salad Chef Dinner Chef

Principles for Redesigning Processes Remove waste, simplify, consolidate Link processes to create value Let the swiftest and most capable execute Capture information digitally and propagate

Principles for Redesigning Processes Provide visibility through information about process status Fit the process with sensors and feedback loops Add analytic capabilities Connect, collect and create knowledge around the process Personalize the process

Other ways to redesign the process Define Measure Improve Define Measure Analyze Improve Control Velocity Management Methodology General Electric’s Six Sigma Methodology

Techniques for Generating Innovative Ideas Vary entry point to a problem Draw analogies Change your perspective Use attribute brainstorming

Information Technology Management Information Systems (MIS) Move large amounts of data Decision Support Systems (DSS) Add decision making support Expert System Recommend decision based on expert knowledge

Artificial Intelligence Neural networks Emulate interconnections in brain Genetic algorithms Based on adaptive capabilities in nature Fuzzy logic Simulate human ability to deal with ambiguity

Enterprise Software Collect, analyze, and make decisions based on data ERP - Enterprise Resource Planning Managing wide range of processes Human resources, materials management, supply chains, accounting, finance, manufacturing, sales force automation, customer service, customer order entry Finding hidden patterns through data mining

ERP SAP – 42% of market; forecast to 43% in 2006 Oracle – 20%; forecast to 23% 2006 Sage Group – 6% Microsoft – 4% Horror Stories – Hershey’s, Dell

Advanced Communications Electronic data interchange (EDI) Internet, extranets Wireless communications Teleconferencing & telecommuting Bar coding, Radio Frequency Identification Virtual reality Distance Learning?

RFID Active Tags Passive Tags Always on Small Battery powered Can be read from up to 300 ft US Army Savi Tags Passive Tags Small Must be activated May be turned off England California Rolex

Automated Material Handling Conveyors Automated guided vehicle (AGV) Automated storage & retrieval system (ASRS) Grainger/Defense Distribution Center, San Joaquin

Flexible Manufacturing Systems (FMS) Programmable machine tools Controlled by common computer network Combines flexibility with efficiency Reduces setup & queue times cellular layout - more on design next week

Robotics Programmable manipulators Follow specified path Better than humans with respect to Hostile environments Long hours Consistency Adoption has been slowed by ineffective integration and adaptation of systems Welding at Harley Davidson Plant

Next Week Chapter 10/11, 17 Handout Mid Term