1. Module-3 (Chapter 4)
Product

2. Module-3 : Syllabus Product Life Cycle Product Design
Product Development

3. Overview Product Life Cycle Designing and Developing Products
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

4. Stages in a Product’s Life Cycle
Introduction- Sales begin, production and marketing are developing, profits are negative.
Growth - Sales grow dramatically, marketing efforts intensify, capacity is expanded, profits begin.
Maturity - Production focuses on high-volume, efficiency, low costs; marketing focuses on competitive sales promotion; profits are at peak.
Decline - Declining sales and profit; product might be dropped or replaced.

5. Stages of a Product’s Life Cycle
Introduction Growth Maturity Decline
B&W TV
Automobile
Video Recorder
CD Player
Color Copier
Cell Phone
Internet Radio
Fax Machine
Dot-Matrix
Printer
ANNUAL SALES GROW
DECLINE

6. Evolution of Positioning Strategies
Life
Stage
Intro.
Early
Growth
Late
Growth
Maturity
Product
Custom
Slightly
Standard
Standard
Highly
Standard
Volume
Very
Low
Low
High
Very
High
Focus
Process
Process
Product
Product
Fin.Gds.
To-Order
To-Order
To-Stock
To-Stock
Batch
Size
Very
Small
Small
Large
Very
Large

7. CONCEPT OF PRODUCTION PROCESS LIFE CYCLE
Production Systems tend to evolve as products move through their product life cycles,
‘Product life cycle’ and ‘production process life cycle’ are interdependent; each affects the other.
PRODUCTION COST, QUALITY, & PRODUCTION CAPACITY
VOLUME OF PRODUCTS THAT CAN BE SOLD
PRODUCTION PROCESSES
VOLUME OF
PRODUCTS
THAT ARE
SOLD
TYPE OF PRODUCTION PROCESSES THAT CAN BE JUSTIFIED

8. PRODUCT, PROCESS AND SERVICE DESIGN
DESIGNING AND DEVELOPING PRODUCTS AND SERVICES

9. 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.

10. Product / Service Design
Product / service design directly affects :
Product / service quality
Production / delivery cost
Customer satisfaction

11. Product / Service Design and Development
FOLLOWING ARE RELEVANT :
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

12. Sources of Product / Service Innovation
Customers
Managers
Marketing
Operations
Engineering
Research and Development (R&D)
Basic research
Applied research

13. 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

14. 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

15. 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

16. 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

17. 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.

18. 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.

19. 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

20. 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

21. 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.

22. 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

23. 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

24. 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.

25. Tools to Improve Speed to Market
Simultaneous
(Concurrent)
Engineering
Product/
Service Ideas
Continuous
Interaction
Economic and Technical
Feasibility Studies
Product/Service Design
Production Process Design
Produce and Market
New Product/Service

26. Improving the Design of Existing Products/Services
Focus is on 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).

27. 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

28. Designing for Quality
Crucial element of product design is its impact on quality
Quality is determined by the customer’s perception of the degree of excellence of the product/service’s characteristics
Chapter 7 covers the principles of designing products / services for quality

29. 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 (tailor’s shop) or by intangible services (university)?

30. 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.

31. Process Planning and Design

32. Process Planning and Design System
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

33. PRODUCT, PROCESS AND SERVICE DESIGN
MAJOR FACTORS AFFECTING PROCESS DESIGN DECISIONS

34. Major Factors Affecting Process Designs
Nature of product/service demand
Degree of vertical integration
Production flexibility
Degree of automation
Product/Service quality

35. 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.

36. 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.

37. 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).

38. 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

39. 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.

40. PRODUCT, PROCESS AND SERVICE DESIGN
TYPES OF PROCESS DESIGNS

41. Types of Process Designs
Product-Focused
Process-Focused
Group Technology / Cellular Manufacturing

42. 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

43. Product-Focused Raw Material Components Subassem. Compon. Assemblies2 4
Subassem.
Compon.
Assemblies
Fin. Goods 1 3 5 7
Raw Material
Components
Subassem.
Assemblies
Purchased
Components,
Subassemblies
Product/Material Flow
Production Operation 1 6

44. 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

45. 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 job’s processing requirements
Also called “Job Shop” or “Intermittent Production”
Examples
Auto body repair
Custom woodworking shop

46. Process-Focused Custom Woodworking Shop Cutting Planing Shaping
Assembly
Sanding
Finishing 1 2 5 6 7
Job A 2 3
Drilling
Turning
Job B 3 4 1 4 5 6

47. 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

48. Group Technology/Cellular Manufacturing
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

49. Group Technology/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

50. 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

51. 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

52. Group Technology/Cellular Manufacturing
Candidates for GT/CM are job shops having:
A degree of parts standardization
Moderate batch sizes

53. Product/Process Design & Inventory Policy
Standard Products and Produce to Stock
Sales forecasts drive production schedule
Maintain pre-determined finished-goods levels
MRP forecast drives material ordering
Custom Products and Produce to Order
Orders set production schedule and drive material deliveries
Design time (preproduction planning) may be required before production can be scheduled

54. PRODUCT, PROCESS AND SERVICE DESIGN
PROCESS DESIGN IN SERVICES

55. Process Design in Services
Some of the factors important in process design for products are also important in services:
Nature (level and pattern) of customer demand
Degree of vertical integration
Production flexibility
Degree of automation
Service quality

56. Process Design in Services
Three schemes for producing and delivering services
Quasi-Manufacturing
Customer-as-Participant
Customer-as-Product

57. Process Design in Services
Quasi-Manufacturing
Physical goods are dominant over intangible service
Production of goods takes place along a production line
Operations can be highly automated
Almost no customer interaction
Little regard for customer relations
Example – bank’s checking encoding operation

58. Process Design in Services
Customer-as-Participant
Physical goods may be a significant part of the service
Services may be either standardized or custom
High degree of customer involvement in the process
Examples: ATM, self-service gas station

59. Process Design in Services
Customer-as-Product
Service is provided through personal attention to the customer
Customized service on the customer
High degree of customer contact
There is a perception of high quality
Customer becomes the central focus of the process design
Examples: medical clinic, hair salon

60. Process Reengineering
The concept of drastically changing an existing process design
Not merely making marginal improvements to athe process
A correctly reengineered process should be more efficient
A smaller labor force is often the result

61. PRODUCT, PROCESS AND SERVICE DESIGN
DECIDING AMONG PROCESSING ALTERNATIVES

62. Deciding Among Processing Alternatives
Batch Size and Product/Service Variety
Capital Requirements
Economic Analysis
Cost Functions of Alternative Processes
Break-Even Analysis
Financial Analysis

63. Process Design Depends on Product Diversity and Batch Size
Focused,
Dedicated
Systems
Product
Focused,
Batch
System
Small Batch Size Large
Cellular
Manufacturing
Process-Focused,
Job Shop
Few Number of Product Designs Many

64. 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

65. 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

66. Cost Functions of Processing Alternatives
Annual Cost of Production ($000)
Job Shop
Cellular Manuf.
Autom. Assembly Line
2,000
Automated
Assembly Line
Preferred
1,500
Cellular
Manufacturing
Preferred
1,000
Job
Shop
Preferred
Units
Produced
Per Year
500
100,000
250,000

67. 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 Year
A $120, $3.00
B ,
C ,
What is the most economical process for a volume of 8,000 units per year?

68. Cost Functions of Processing Alternatives
Example
TC = FC + v(Q)
A: TC = 120, (8,000) = $144,000 per year
B: TC = 90, (8,000) = $122,000 per year
C: TC = 80, (8,000) = $116,000 per year
The most economical process at 8,000 units is Process C, with the lowest annual cost.

69. 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

70. 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 / ( ) = 30,380 units
B: Q = 90,000 / ( ) = 30,509 units
C: Q = 80,000 / ( ) = 32,654 units
Process A has the lowest break-even point.

71. 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

72. METHODS OF FINANCIAL ANALYSIS
Payback period
Net present value (NPV)
Internal rate of return (IRR)
Profitability index

73. Payback Period
Payback is the number of years required to recover the original cash outlay invested in a project.
If the project generates constant annual cash inflows, the payback period can be computed by dividing cash outlay by the annual cash inflow. That is:
Assume that a project requires an outlay of Rs 50,000 and yields annual cash inflow of Rs 12,500 for 7 years. The payback period for the project is:

74. Unequal cash flows In case of unequal cash inflows, the payback period can be found out by adding up the cash inflows until the total is equal to the initial cash outlay.
Suppose that a project requires a cash outlay of Rs 20,000, and generates cash inflows of Rs 8,000; Rs 7,000; Rs 4,000; and Rs 3,000 during the next 4 years. What is the project’s payback?
3 years + 12 × (1,000/3,000) months
3 years + 4 months

75. Acceptance Rule
The project would be accepted if its payback period is less than the maximum or standard payback period set by management.
As a ranking method, it gives highest ranking to the project, which has the shortest payback period and lowest ranking to the project with highest payback period.

76. Net Present Value Method
Net present value should be found out by subtracting present value of cash outflows from present value of cash inflows. The formula for the net present value can be written as follows:

77. Calculating Net Present Value
Assume that Project X costs Rs 2,500 now and is expected to generate year-end cash inflows of Rs 900, Rs 800, Rs 700, Rs 600 and Rs 500 in years 1 through 5. The opportunity cost of the capital may be assumed to be 10 per cent.

78. Acceptance Rule Accept the project when NPV is positive NPV > 0
Reject the project when NPV is negative NPV < 0
 May accept the project when NPV is zero NPV = 0
The NPV method can be used to select between mutually exclusive projects; the one with the higher NPV should be selected.

79. Internal Rate of Return Method
The internal rate of return (IRR) is the rate that equates the investment outlay with the present value of cash inflow received after one period. This also implies that the rate of return is the discount rate which makes NPV = 0.

80. Calculation of IRR
Uneven Cash Flows: Calculating IRR by Trial and Error
The approach is to select any discount rate to compute the present value of cash inflows. If the calculated present value of the expected cash inflow is lower than the present value of cash outflows, a lower rate should be tried. On the other hand, a higher value should be tried if the present value of inflows is higher than the present value of outflows. This process will be repeated unless the net present value becomes zero.

81. Level Cash Flows
Let us assume that an investment would cost Rs 20,000 and provide annual cash inflow of Rs 5,430 for 6 years.
The IRR of the investment can be found out as follows:

82. Acceptance Rule Accept the project when r > k.
Reject the project when r < k.
May accept the project when r = k.

83. Profitability Index
Profitability index is the ratio of the present value of cash inflows, at the required rate of return, to the initial cash outflow of the investment.

84. Profitability Index
The initial cash outlay of a project is Rs 100,000 and it can generate cash inflow of Rs 40,000, Rs 30,000, Rs 50,000 and Rs 20,000 in year 1 through 4. Assume a 10 per cent rate of discount. The PV of cash inflows at 10 per cent discount rate is:

85. Acceptance Rule The following are the PI acceptance rules:
Accept the project when PI is greater than one. PI > 1
Reject the project when PI is less than one PI < 1
May accept the project when PI is equal to one. PI = 1
The project with positive NPV will have PI greater than one. PI less than means that the project’s NPV is negative.

86. Deciding Among Processing Alternatives
Assembly Charts (Gozinto Charts)
Macro-view of how materials are united
Starting point to understand factory layout needs, equipment needs, training needs
Ideal for getting bird’s-eye view of process
Process Charts
Details of how to build product at each process
Includes materials needed, types of processes product flows through, time it takes to process product through each step of flow
Useful for comparing operations

87. Wrap-Up: World Class Practice
Fast new product introduction
Design products for ease of production
Refine forecasting
Focus on core competencies ... less vertical integration
Lean production
Flexible automation
Job shops move toward cellular manufacturing
Manage information flow automate and simplify!

88. End of Module-3 (Chapter 4)