Designing Goods and Services and Process Selection Chapter 3

Management 326 Operations and Operations Strategy Designing an Operations System Managing an Operations System Improving an Operations System

Designing an Operations System Project Management: A Design Tool Product Design Process Design

Lecture Outline Product design concepts  Strategy and product design  Feasibility study  Operations issues in product design

Lecture Outline (2) Designing goods  Form design and functional design  Learning from other companies  Design for manufacture  Design for the environment  Concurrent engineering

Lecture Outline (3) Designing services  Service package  Classifying services: pure service, mixed service, quasi-manufacturing  Approaches to service design: design for efficiency, customer involvement, high customer attention

Lecture Outline (4) Process design  Project, batch, line, and continuous processes  Process choice and layout  Process choice and inventory policy  Fixed and variable costs  Intermittent vs. repetitive processes  Summary of process choice  Process design tools and flow charts

Lecture Outline (5) Technology in operations  Automatic identification and vision systems  Automated material handling  Computer-aided design, engineering, and manufacturing  Flexible manufacturing systems

Strategy and Product Design The core product may be a good or a service Product design should support the business strategy Product design should meet the needs of a target market. Product design should give the company a competitive advantage.

Feasibility Study Purpose is to determine whether the company can make a product that  Meets the needs of customers in a target market  Can be made by the company with the required level of quality and delivery schedule  And sold at a price that customers are willing to pay  While allowing the company to meet its profit targets

Operations Issues in Product Design Product design and technology Process technology Would we need a new or modified facility? Can the firm make this product with consistent quality at a price that customers are willing to pay? Does our labor force have the needed skills?

Designing Goods Form design: Sensory aspects of the product (aesthetics)  Size, color, shape, sound  "Look and feel" – "smoothness", quality impression Functional design: how the product performs

Functional Design of Goods How the product performs Fitness for use: performs as intended Durability: how long the product lasts Reliability: consistent performance Maintainability: ease and cost of repairs

Learning from Other Companies Benchmarking: comparing your operations with those of a "best in class" firm  Product benchmark  Process benchmark  Cost benchmark

Learning from Other Companies (2) Reverse engineering: taking your competitor's products apart and figuring out how it is made  Physical products  Software Market research on competitor's products

Design for Manufacture Value engineering: Eliminate product features that add cost but do not add value to the customer. Reduce the number of parts.  Reduces the cost of ordering, purchasing, and storing parts.  Reduces the space required to hold inventory  Reduces the number of tools and operations required (by eliminating bolts, screws, etc.)  Reduces the time required to make the product

Design for Manufacture (2) See Figure 3-3, page 62 for an example of reducing the number of parts, operations, and tools

Design for Manufacture (3) Modular design: Design products to be assembled from standard components.  Example: Dell buys standard video cards, processors, power supplies, hard drives, etc., and assembles computers Use standard parts to reduce design costs and purchasing costs.  Examples: Computer makers often buy standard power supplies.

Design for the Environment: Materials Make the product recyclable. Make the product from recycled materials. Make products from safer materials  Example: lead-free paint Use less material in the product and packaging.

Design for the Environment: Energy Make products that require less energy. Make products that use alternative energy sources – wind, solar, etc.  Wind power  Solar power Make products that use renewable energy sources  Example: Ethanol from corn

Sequential vs. Concurrent Design See Figure 3-5, page 64.

Concurrent Engineering Design the product and the process at the same time. Use a design team that includes marketing, operations, engineering, operations, and suppliers.  Stay in touch with customers during the design process. Requires good project management and coordination among all groups involved.

Advantages of Concurrent Engineering Increases the chances of a successful product. Shorter design time  Shortens time to market.  Reduces design costs Supplier expertise can help design a product that meets customer needs at lower cost Reduces the need to make expensive changes in the product and the process later

Designing Services – Service Package Physical elements: facility, equipment and furnishings, inventories Sensory and aesthetic aspects Psychological benefits Quality standards

Classifying Services (1) Pure services  High, face-to-face customer contact  Low standardization  Examples: medical care, law offices, accounting firms, universities, schools, health clubs  Employees must have technical job skills and customer relations skills  Facility must be adapted to customer needs.  Meet customer needs and be as cost-effective as possible.

Classifying Services (2) Quasi-manufacturing services:  Contact with customers is limited to telephone, mail, or Internet  Examples: Internet retailers, distribution centers  Employees who have phone contact with customers need both technical job skills and customer service skills  Other employees need technical job skills.  Manage for efficiency.  Design facility for efficiency.

Classifying Services (3) Mixed services:  "Front office": high customer contact. May have low standardization  Manage like a pure service.  "Back office": Little customer contact.  Manage for efficiency but meet customer service deadlines.  Examples: car repair shop, retail banks.

Approaches to Service Design Design for efficiency:  High standardization  Limited variety  Automation  High-volume services purchase at low cost. Customer involvement in producing the service  Self-service salad bar High customer attention: pure services, high-end hotels and retailers

Intermittent Operations Intermittent operations: processes used to produce a variety of products with different processing requirements at lower volumes  Project processes: used to make one-of-a-kind items to customer specifications  Batch processes: used to make small quantities of products in batches based on customer orders or specifications  Also called job shops

Repetitive Operations Repetitive operations: Processes used to make one product or a few standardized products in high volume  Line process – also called an assembly line or flow shop  May have assemble-to-order options  Continuous process: operates continuously, produces a high volume of a fully standardized product Some firms use more than one type of process

Underlying Process Relationship Between Volume and Standardization High-volume processes are usually more standardized than low-volume processes. See Figure 3-6, page 67.

Process Choice and Layout Intermittent operations usually use a process (department) layout: workers & equipment are grouped by function Different products may take different paths through the production process Repetitive operations use a product layout: workers & equipment are grouped in the order in which they will be needed See Figure 3-10, page 77.

Process Choice and Inventory Policy See Figure 3-8, page 70.

Fixed and Variable Costs Fixed costs do not change with volume in the short term  Examples: facilities, equipment, staff overhead Variable costs change with volume in the short term.  Examples: labor, materials

Intermittent Processes Project and batch process Low production volume High product variety – may be customized products Production based on customer orders Process layout Lower fixed costs Higher variable costs Make-to-order or assemble-to- order inventory policy Long throughput time Repetitive processes Line or continuous process High production volume Low product variety Production based on a sales forecast Product layout Higher fixed costs Lower variable costs Assemble-to-order or make-to- stock inventory policy Short throughput time

Outsourcing Outsourcing means purchasing goods or services, rather than making them Offshore outsourcing means purchasing goods or services outside the country where they will be sold or used to produce a good or service Decisions about whether to produce or outsource are called make-or-buy decisions

Considerations in Make-or-Buy Decisions Strategic impact  Will outsourcing help or hurt the firm's ability to achieve its strategic goals?  Outsourcing non-core activities allows the firm to concentrate on its core competency  It is usually not wise to outsource a core competency

Considerations in Make-or-Buy Decisions (2) Your capabilities vs. supplier capabilities – who can do it better?  Available capacity  Expertise to produce the good or service  Quality  Timely production or delivery (speed) Fixed and variable costs to your firm  If your firm cannot produce a raw material in a cost-effective way, then buy it.

Process Design Tools Process flow analysis is a tool used to analyze and document the sequence of steps within a total process. Usually first step in process reengineering. Process reengineering is the fundamental rethinking and radical redesign of a process to bring about dramatic improvements in performance  Cost  Quality  Time  Flexibility Both operations processes and business processes can be re- engineered. Re-engineer a process before you automate it or computerize it.

Process Flow in a Pizza Restaurant See Figure 3-9, page 71.

Automatic Identification of Objects Magnetic stripes are used on credit cards and vending cards Bar codes identify goods and packages Radio frequency identification (RFID) uses memory chips with tiny radio antennas to broadcast the location of goods to a wireless receiver  RFID can identify goods inside a box.  Useful in retailing and distribution  Wal-Mart is requiring its top 100 vendors to supply RFID tags on all goods.

Vision Systems Vision systems are computer systems with artificial intelligence that can "see" objects  Often built into robots.  Used for sorting and positioning parts  Used for inspection. Suspect parts can be inspected by a second vision system or by a person  Can recognize images of hands, etc.

Biometrics: Automatic Identification of People Used to identify people and grant access to facilities, work areas, equipment, etc. Include a vision system, database, and artificial intelligence. Stored image of some portion of each user's body. May use hand, finger, or iris (colored part of eye). Vision system develops and stores images. Artificial intelligence compares body part of person seeking access with stored image.

Computer-Aided Design & Engineering Computer-aided design (CAD): use of computer software to design products  Similar software is used to make animated films Computer-aided engineering (CAE): use of computer software to evaluate and improve product designs Specialized CAD/CAE software is used by architects and landscape architects

Advantages of CAD and CAE Marketing: Firms can design better products and get them to market faster Finance: CAD and CAE reduce design costs, production costs, and the number of major product and process changes needed Operations: It is easier to make the product and to maintain good quality. General: Easier to use concurrent engineering, value engineering, design for manufacturing, and to involve suppliers in product design.

Data Flow in Manufacturing Technology Computer aided design (CAD) Computer aided engineering (CAE) Product design data Final design? No Yes Final design data Computer aided process planning (CAPP) Manufacturing instructions Computer aided manufacturing (CAM) Finished goods

Computer Aided Manufacturing (CAM) CAM is the use of a computer to program and control re-programmable manufacturing equipment A traditional robot is a mechanical arm with a power supply and a computer that controls the movements of the arm

Uses of Robots Uses of robots in processes  Monotonous work, such as assembly line work  Work that is hard or unhealthy for people, such as painting or nuclear plant cleanup  Work that requires great precision  Making integrated circuits  Surgery – guided by a surgeon Uses of robots in products: Robot vacuum cleaners, lawn mowers, toys, assistants for disabled people, assistive robots

Automated Materials Handling Conveyor belts are used in manufacturing & services Robots move materials short distances Automated guided vehicles move materials longer distances in plants, offices, hospitals

Flexible Manufacturing System (FMS) System that links flexible manufacturing cells and/or robot assembly lines under control of a central computer Includes materials handling Usually includes automated inspection

Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 7s-20 © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J Advantages of FMS Technology Fast response - short manufacturing lead time High product flexibility High quality Very efficient if total production volume is high

Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 7s-20 © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J Advantages of FMS Technology Low unit costs  Very little direct labor  Less material waste  Very low work in process inventory

Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 7s-20 © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J Disadvantages of FMS Technology High capital cost - need high total product volume to justify investment Expertise required to design and maintain the system

Computer Integrated Manufacturing (CIM) CAD, CAE and CAPP Flexible Manufacturing System Production planning and inventory management Purchasing Common databases and control systems for all these functions Provides product flexibility, cost savings, and short manufacturing lead times