Product Design and Process Selection Based on slides for Chase Acquilano and Jacobs, Operations Management, McGraw-Hill

What is a Product? A product is a package of : äGoods äServices äExperiences äOngoing Relationships A product has: äTangible attributes äIntangible attributes Examples äAutomobile äAirplane trip äDiamond Ring äRestaurant Meal äDishwasher äCollege Education äTax Preparation äBasketball Game

Product Design Issues Value analysis/value engineering äObtain better performance at lower cost Two Design Approaches: äOver the Wall Approach vs. Concurrent Engineering Complexity of design äImplications?? Reliability äHow can it be increased? Standardization äAdvantages & disadvantages? Modular design äAdvantages & disadvantages? Environmental Implications

Exercise Pick several products and list some issues that need to be considered in its design and manufacture äInclude aesthetic, manufacturability, after-sales service issues among others Deliverable äList and present to the class

Process Selection

“continuous or semi-continuous” “intermittent” Process Structures Continuous Processing Repetitive (assembly lines) Manufacturing cells Batch processing Job Shops Projects

Example: Job Shop

Example: Batch Processing

Example: Assembly Line Processing

Example: Continuous Processing

Manufacturing

Break-Even Analysis Some managerial questions: How much should we produce to break even? For a specific volume, should we manufacture the product ourselves, or outsource? For machine alternatives A and B, at what volumes should we use machine A and at what volumes, machine B?

Break-Even Analysis (example) Sale Price = $300 Option 1: äPurchase = $200 * Demand Option 2: äLathe = $80,000 + $75 * Demand Option 3: äMachine center = $200,000 + $15 * Demand Purchase vs. Lathe? Lathe vs. Machining Center?

Calculations Purchase versus Lathe: $200 * Demand = $80,000 + $75 * Demand ($200 * Demand) - ($75 * Demand) = $80,000 $125 * Demand = $80,000 Demand = $80,000/$125 = 640 units so – less than 640 units, purchase; 640 of greater, use Lathe Lathe versus Machine Center: $80,000 + $75 *Demand = $200,000 + $15 * Demand Demand = $120,000/$60 = 2,000 units so – less that 2000 units use the Lathe; 2000 or more use the machining center

Break Even Analysis Example You are starting a new business and your fixed costs are estimated to be $500,000. Your product sells for $100 and costs you $50 to manufacture. What is the breakeven point? If you sell 15,000 units, what will be your profit? äAnswer: Break Even Value is 10,000 and Profit is $250,000

Break Even Analysis Formulas Total Revenue = Total Cost P x = F + V x implies: BEP(x) = F/[P-V] Profit = TR-TC = (P-V) x – F Breakeven between two machines: äF 1 + V 1 x and F 2 + V 2 x -- assume F 2 > F 1 & V 2 < V 1 ä(F 2 – F 1) / (V 1 – V 2 ) Note: F = Fixed Cost; P = Price; V = Variable Cost

Break Even Analysis Example In your business you are considering two machines. Machine 1 costs $500,000 and has a variable per unit cost of $50 per item. Machine 2 has a fixed cost of $200,000 and has a variable per unit cost of $80 per item. What is the break-even volume for the two machines. If a friend tells you to use Machine 2 if the volume is 5,000 items, is she right or wrong? äAnswer: Break Even Value is 10,000

Break Even Analysis Graphical Answer

Summary Production Strategies äProcess focused >>> Product focused äOther alternatives: Project, Cellular Technology Break-even Analysis