1. Designing Goods and Services and Process Selection
Chapter 3

2. MGMT 326 Capacity, Facilities, & Work Design Foundations of Operations
Products &
Processes
Quality
Assurance
Planning
& Control
Product
Design
Introduction
Strategy
Process
Design

3. Breakeven Analysis in Product Screening
Designing Goods and Services
Basic Concepts
Design and strategy
Feasibility study
Operations issues
Breakeven Analysis in Product Screening
and Process Selection
Service Design
Service package
Approaches to
service design
Designing Goods
Product
Characteristics
Form design
Functional design
Learning from
other companies
Design Methods
Design for manufacture
Concurrent engineering

4. 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.

5. 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
Can be sold at a price that customers are willing to pay
While allowing the company to meet its profit targets. This depends on costs estimated by Accounting and revenue estimated by Marketing

6. Operations Issues in Product Design
Product design and technology
Product design is a joint responsibility of marketing, operations, engineering (in manufacturing) and Accounting/Finance
Process technology (along with engineering)
Would we need a new or modified facility?
Can the firm make this product with consistent quality?
How many workers will we need?
What skills will they need?

7. Breakeven Analysis in Product Screening
The breakeven point (in terms of units) is the volume at which total costs = revenue
Q = quantity sold, SP = selling price
Revenue = (SP)Q
F = fixed cost, VC = variable cost per unit
At the breakeven point (QBE),
F + (VC)Q=(SP)Q

8. Product Screening Example Problem 1, pages 90 -91
Given:
F= fixed cost = $40,000
VC = variable cost per unit = $50
SP = selling price = $70

9. Interpreting Breakeven Analysis In Product Screening
When Q = QBE, the firm does not make money or lose money
When Q < QBE,
revenue < costs,
the firm loses money
When Q > QBE,
revenue > costs,
the firm makes a profit
QBE will be different for different production technologies

10. Breakeven Analysis in Process Selection Problem 2, Page 91
Current Equipment
Process A
New Equipment
Process B
Fixed cost
$40,000
$60,000
Variable cost
per unit
$50
$25
Total cost
$40, Q
$60, Q
Point of indifference: costs for the 2 processes are equal
$40, Q= $60, Q
25Q = $20,000, so Q = 800

11. Interpreting Breakeven Analysis in Process Selection
If expected sales < 800,
use process A
If expected sales > 800,
use process B

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

13. Approaches to Service Design
Design for efficiency:
Compete on consistency, cost, speed
High standardization
Limited variety
Automation may be used
High-volume services purchase at low cost.
Example: fast food

14. Approaches to Service Design (2)
Customer involvement in producing the service
The customer does part of the work
Reduces costs and may allow the customer to do some customization
Example: self-service salad bar

15. Approaches to Service Design (3)
High customer attention
Highly customized service, provided by highly trained people
Used in professional services (medical care, legal services, high-end tax preparation services)
Also used by luxury retailers, hotels, restaurants

16. Designing Goods
Form design: Sensory aspects of the product (aesthetics)
Size, color, shape, sound
"Look and feel"
Form design contributes to customer's impressions of quality
Functional design: how the product performs

17. Form Design: How the Product Looks, Etc.
Ipod Touch
Toyota Camry

18. Functional Design of Goods What the Product Does

19. Functional Design of Goods
What the Product Does
2009 Honda Civic NGV
Natural Gas Vehicle
2009 Toyota Prius
2009 Honda Civic Hybrid

20. Functional Design of Goods (2) How the Product Performs
Fitness for use: product performs as intended
Durability: how long the product lasts
Reliability: consistent performance
Maintainability: ease and cost of repairs

21. Learning from Other Companies
Benchmarking: comparing your operations with those of a "best in class" firm
Product benchmark – compare your product with competing products
Process benchmark
How competing products or services are produced
How other companies perform business functions
Cost benchmark – what your competitors spend to make comparable products

22. 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: customer needs and satisfaction

23. 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

24. Design for Manufacture (2)
Example of reducing the number of parts, operations, and tools.

25. 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.

26. Sequential vs. Concurrent Design

27. 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.

28. 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

29. Process Selection Process Types Process Design Tools Reengineering
Flowcharts
Intermittent
Project
Batch
Repetitive
Assembly line
Continuous
Impact of Process Type
Layout
Inventory policy
Costs

30. 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

31. 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

32. Underlying Process Relationship Between Volume and Standardization
High-volume
processes are
usually more
standardized
than low-volume
processes.

33. 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. The product passes from one work station to the next.

34. Process Choice and Inventory Policy

35. Process Choice and Costs
Intermittent processes
Lower capital costs than repetitive processes
Lower breakeven point than repetitive processes
High variable cost per unit
High total cost per unit
Repetitive processes
Higher capital costs than intermittent processes
Higher breakeven point than intermittent processes
Low variable cost per unit
Low total cost per unit if volume is high

36. 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

37. Process Design Tools (2)
Both operations processes and business processes can be re-engineered.
Re-engineer a process before you automate it or computerize it.

38. Process Flow in a Pizza Restaurant