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Operations Management. Chapter 5 Design of Goods and Services. Outline. Goods And Services Selection Product Strategy Options Support Competitive Advantage Product Life Cycles Life Cycle and Strategy Product-by-Value Analysis.

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Operations management l.jpg

Operations Management

Chapter 5

Design of Goods and Services


Outline l.jpg

Outline

  • Goods And Services Selection

    • Product Strategy Options Support Competitive Advantage

    • Product Life Cycles

    • Life Cycle and Strategy

    • Product-by-Value Analysis


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Outline - Continued

  • Generating New Products

    • New Product Opportunities

    • Importance of New Products

  • Product Development

    • Product Development System

    • Quality Function Deployment (QFD)

    • Organizing for Product Development

    • Manufacturability and Value Engineering


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Outline - Continued

  • Issues For Product Design

    • Robust Design

    • Modular Design

    • Computer-Aided Design (CAD)

    • Computer-Aided Manufacturing (CAM)

    • Virtual Reality Technology

    • Value Analysis

    • Ethics and Environmentally Friendly Design


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Outline - Continued

  • Time-Based Competition

    • Purchase of Technology by Acquiring Firm

    • Joint Ventures

    • Alliances Defining the Product

    • Make-or-Buy Decisions

    • Group Technology

  • Documents For Production


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Outline - Continued

  • Service Design

    • Documents for Services

  • Application of Decision Trees to Product Design


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Product Strategy Options

  • Differentiation

  • Low cost

  • Rapid response


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Cost of development and production

Sales revenue

Net revenue (profit)

Sales, cost, and cash flow

Cash flow

Loss

IntroductionGrowthMaturityDecline

Product Life Cycles

Negative cash flow


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Product Life Cycle

Introduction

  • Fine tuning

    • Research

    • Product development

    • Process modification and enhancement

    • Supplier development


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Product Life Cycle

Growth

  • Product design begins to stabilize

  • Effective forecasting of capacity becomes necessary

  • Adding or enhancing capacity may be necessary


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Product Life Cycle

Maturity

  • Competitors now established

  • High volume, innovative production may be needed

  • Improved cost control, reduction in options, paring down of product line


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Product Life Cycle

Decline

  • Unless product makes a special contribution to the organization, must plan to terminate offering


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Percentage of Sales from New Products

50%

40%

30%

20%

10%

Industry leader

Top third

Middle third

Bottom third

Position of Firm in Its Industry

Importance of New Products


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Product-by-Value Analysis

  • Lists products in descending order of their individual dollar contribution to the firm

  • Lists the total annual dollar contribution of the product

  • Helps management evaluate alternative strategies


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Product-by-Value Analysis

Sam’s Furniture Factory


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New Product Opportunities

Understanding the customer

Economic change

Sociological and demographic change

Technological change

Political/legal change

Market practice, professional standards, suppliers, distributors


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Number

Ideas

2000

1750

Design review,

Testing, Introduction

Market requirement

1500

1000

Functional specifications

1000

500

Product specification

500

One success!

100

25

0

Development Stage

Few Successes


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Ideas

Ability

Customer Requirements

Functional Specifications

Product Specifications

Scope for design and engineering teams

Scope of product development team

Design Review

Test Market

Introduction

Evaluation

Product Development System


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Quality Function Deployment

  • Identify customer wants

  • Identify how the good/service will satisfy customer wants

  • Relate customer wants to product hows

  • Identify relationships between the firm’s hows

  • Develop importance ratings

  • Evaluate competing products


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House of Quality Example

Your team has been charged with designing a new camera for Great Cameras, Inc.

The first action is to construct a House of Quality


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House of Quality Example

Customer

Importance

Customer

Requirements

Target Values

High relationship Medium relationship  Low Relationship


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House of Quality Example

What the customer desires (‘wall’)

Customer

Requirements

Customer

Importance

Auto

Focus

Auto

Exposure

Aluminum

Parts

Light weight

Easy to use

Reliable

Target Values

High relationship Medium relationship  Low Relationship


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Average customer importance rating

Customer

Requirements

Customer

Importance

Auto

Focus

Auto

Exposure

Aluminum

Parts

3

Light weight

2

Easy to use

1

Reliable

Target Values

High relationship Medium relationship  Low Relationship

House of Quality Example


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Relationship between customer attributes & engineering characteristics (‘rooms’)

Customer

Requirements

Customer

Importance

Auto

Focus

Auto

Exposure

Aluminum

Parts

3

Light weight

2

Easy to use

1

Reliable

Target Values

High relationship Medium relationship  Low Relationship

House of Quality Example


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Quality plan

Specific components

Production process

House 4

Production process

Design characteristics

House 2

House 3

Specific components

Design characteristics

House 1

Customer requirements

House of Quality Sequence

Deploying resources through the organization in response to customer requirements


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Organizing for Product Development

  • Historically – distinct departments

    • Duties and responsibilities are defined

    • Difficult to foster forward thinking

  • Today – team approach

    • Cross functional – representatives from all disciplines or functions

    • Concurrent engineering – cross functional team


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Manufacturability and Value Engineering

  • Benefits:

    • Reduced complexity of products

    • Additional standardization of products

    • Improved functional aspects of product

    • Improved job design and job safety

    • Improved maintainability of the product

    • Robust design


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Cost Reduction of a Bracket through Value Engineering


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Issues for Product Development

  • Robust design

  • Modular design

  • Computer-aided design (CAD)

  • Computer-aided manufacturing (CAM)

  • Virtual reality technology

  • Value analysis

  • Environmentally friendly design


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Robust Design

  • Product is designed so that small variations in production or assembly do not adversely affect the product

  • Typically results in lower cost and higher quality


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Modular Design

  • Products designed in easily segmented components

  • Adds flexibility to both production and marketing

  • Improved ability to satisfy customer requirements


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Using computers to design products and prepare engineering documentation

Shorter development cycles, improved accuracy, lower cost

Information and designs can be deployed worldwide

Computer Aided Design (CAD)


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Benefits of CAD/CAM

  • Product quality

  • Shorter design time

  • Production cost reductions

  • Database availability

  • New range of capabilities


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Virtual Reality Technology

  • Computer technology used to develop an interactive, 3-D model of a product from the basic CAD data

  • Allows people to ‘see’ the finished design before a physical model is built

  • Very effective in large-scale designs such as plant layout


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Value Analysis

  • Focuses on design improvement during production

  • Seeks improvements leading either to a better product or a product which can be produced more economically


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Ethics and Environmentally Friendly Designs

It is possible to enhance productivity, drive down costs, and preserve resources


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Goals for Ethical and Environmentally Friendly Designs

Develop safe and more environmentally sound products

Minimize waste of raw materials and energy

Reduce environmental liabilities

Increase cost-effectiveness of complying with environmental regulations

Be recognized as a good corporate citizen


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Guidelines for Environmentally Friendly Designs

  • Make products recyclable

  • Use recycled materials

  • Use less harmful ingredients

  • Use lighter components

  • Use less energy

  • Use less material


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Time-Based Competition

  • Product life cycles are becoming shorter and the rate of technological change is increasing

  • Developing new products faster can result in a competitive advantage


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Acquiring Technology

  • By Purchasing a Firm

    • Speeds development

    • Issues concern the fit between the acquired organization and product and the host

  • Through Joint Ventures

    • Both organizations learn

    • Risks are shared

  • Through Alliances

    • Cooperative agreements between independent organizations


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Defining The Product

  • First definition is in terms of functions

  • Rigorous specifications are developed during the design phase

  • Manufactured products will have an engineering drawing

  • Bill of material (BOM) lists the components of a product


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Engineering drawing

Shows dimensions, tolerances, and materials

Shows codes for Group Technology

Bill of Material

Lists components, quantities and where used

Shows product structure

Product Documents


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Engineering Drawings


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NUMBERDESCRIPTIONQTY

A 60-71PANEL WELDM’T1

A 60-7LOWER ROLLER ASSM.1

R 60-17 ROLLER1

R 60-428 PIN1

P 60-2 LOCKNUT1

A 60-72GUIDE ASSM. REAR1

R 60-57-1 SUPPORT ANGLE1

A 60-4 ROLLER ASSM.1

02-50-1150 BOLT1

A 60-73GUIDE ASSM. FRONT1

A 60-74 SUPPORT WELDM’T1

R 60-99 WEAR PLATE1

02-50-1150 BOLT1

Bills of Material

Panel Weldment


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DescriptionQty

Bun1

Hamburger patty8 oz.

Cheddar cheese2 slices

Bacon2 strips

BBQ onions1/2 cup

Hickory BBQ sauce1 oz.

Burger set

Lettuce1 leaf

Tomato1 slice

Red onion4 rings

Pickle1 slice

French fries5 oz.

Seasoned salt1 tsp.

11-inch plate1

HRC flag1

Bills of Material

BBQ Bacon Cheeseburger


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Group Technology

  • Parts grouped into families with similar characteristics

  • Coding system describes processing and physical characteristics

  • Part families can be produced in dedicated manufacturing cells


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(b) Grouped Cylindrical Parts (families of parts)

(a) Ungrouped Parts

GroovedSlotted ThreadedDrilledMachined

Group Technology Scheme


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Group Technology Benefits

  • Improved design

  • Reduced raw material and purchases

  • Simplified production planning and control

  • Improved layout, routing, and machine loading

  • Reduced tooling setup time, work-in-process, and production time


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Documents for Production

  • Assembly drawing

  • Assembly chart

  • Route sheet

  • Work order

  • Engineering change notices (ECNs)


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Assembly Drawing

  • Shows exploded view of product

  • Details relative locations to show how to assemble the product


Assembly chart l.jpg

R 209 Angle

Leftbracket

assembly

R 207 Angle

8

1

2

3

4

5

6

7

9

Bolts w/nuts (2)

SA1

A1

R 209 Angle

A2

Rightbracket

assembly

A4

R 207 Angle

SA2

A3

Bolts w/nuts (2)

A5

Bolt w/nut

R 404 Roller

10

Lock washer

Poka-yoke inspection

Part number tag

11

Box w/packing material

Assembly Chart

  • Identifies the point of production where components flow into subassemblies and ultimately into the final product


Route sheet l.jpg

SetupOperation

ProcessMachineOperationsTimeTime/Unit

1Auto Insert 2Insert Component 1.5.4 Set 56

2Manual Insert Component .52.3 Insert 1 Set 12C

3Wave SolderSolder all 1.54.1components to board

4Test 4Circuit integrity .25.5test 4GY

Route Sheet

Lists the operations and times required to produce a component


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Work Order

ItemQuantityStart DateDue Date

ProductionDelivery

DeptLocation

157C1255/2/065/4/06

F32Dept K11

Work Order

Instructions to produce a given quantity of a particular item, usually to a schedule


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Engineering Change Notice (ECN)

  • A correction or modification to a product’s definition or documentation

    • Engineering drawings

    • Bill of material

Quite common with long product life cycles, long manufacturing lead times, or rapidly changing technologies


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Service Design

  • Service typically includes direct interaction with the customer

    • Increased opportunity for customization

    • Reduced productivity

  • Cost and quality are still determined at the design stage

    • Delay customization

    • Modularization

    • Reduce customer interaction, often through automation


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(a) Customer participation in design such as pre-arranged funeral services or cosmetic surgery

(b) Customer participation in delivery such as stress test for cardiac exam or delivery of a baby

(c) Customer participation in design and delivery such as counseling, college education, financial management of personal affairs, or interior decorating

Service Design


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Documents for Services

  • High levels of customer interaction necessitates different documentation

  • Often explicit job instructions for moments-of-truth

  • Scripts and storyboards are other techniques


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Application of Decision trees to Product Design

  • Silicon.Inc is considering to produce and market microprocessor

  • Options:

    • 1. To purchase sophisticated CAD system($500,000 equipment cost with $40 per unit manufacturing cost)

    • 2. To hire and train engineers($ 375,000 for hiring and training with $50 per unit manufacturing cost)


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  • Market potential

    • High acceptance (25,000 units @ $100)

    • Low acceptance (8,000 units @ $100)

  • Probability

    • High acceptance : 0.40

    • Low acceptance : 0.60


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Evaluation

  • Purchase CAD with High Acceptance

    • Revenue = 2,500,000 (25,000 x 100)

    • Mfg cost = -1,000,000 (25,000 x 40)

    • CAD cost = - 500,000

    • Net = 1,000,000

  • Purchase CAD with Low Acceptance

    • Revenue = 800,000 (8,000 x 100)

    • Mfg cost = - 320,000 (8,000 x 40)

    • CAD cost = - 500,000

    • Net = - 20,000


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Evaluation

  • Hire and train engineer with High Acceptance

    • Revenue = 2,500,000 (25,000 x 100)

    • Mfg cost = -1,250,000 (25,000 x 50)

    • H&T cost = - 375,000

    • Net = 875,000

  • Hire and train engineer with Low Acceptance

    • Revenue = 800,000 (8,000 x 100)

    • Mfg cost = - 400,000 (8,000 x 50)

    • H&T cost = - 375,000

    • Net = 25,000


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Application of Decision Trees to Product Design

  • Particularly useful when there are a series of decisions and outcomes which lead to other decisions and outcomes


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Application of Decision Trees to Product Design

Procedures

  • Include all possible alternatives and states of nature - including “doing nothing”

  • Enter payoffs at end of branch

  • Determine the expected value of each branch and “prune” the tree to find the alternative with the best expected value


Decision tree example l.jpg

(.4)

High sales

Purchase CAD

(.6) Low sales

(.4)

High sales

Hire and train engineers

(.6)

Low sales

Do nothing

Decision Tree Example


Decision tree example65 l.jpg

$2,500,000Revenue

- 1,000,000Mfg cost ($40 x 25,000)

- 500,000CAD cost

$1,000,000Net

(.4)

High sales

Purchase CAD

$800,000Revenue

- 320,000Mfg cost ($40 x 8,000)

- 500,000CAD cost

- $20,000Net loss

(.6) Low sales

(.4)

High sales

Hire and train engineers

(.6)

Low sales

Do nothing

Decision Tree Example

EMV (purchase CAD system)= (.4)($1,000,000) + (.6)(- $20,000)


Decision tree example66 l.jpg

$2,500,000Revenue

- 1,000,000Mfg cost ($40 x 25,000)

- 500,000CAD cost

$1,000,000Net

(.4)

High sales

Purchase CAD

$388,000

$800,000Revenue

- 320,000Mfg cost ($40 x 8,000)

- 500,000CAD cost

- $20,000Net loss

(.6) Low sales

(.4)

High sales

Hire and train engineers

(.6)

Low sales

Do nothing

Decision Tree Example

EMV (purchase CAD system)= (.4)($1,000,000) + (.6)(- $20,000)

= $388,000


Decision tree example67 l.jpg

$2,500,000Revenue

- 1,000,000Mfg cost ($40 x 25,000)

- 500,000CAD cost

$1,000,000Net

(.4)

High sales

Purchase CAD

$388,000

$800,000Revenue

- 320,000Mfg cost ($40 x 8,000)

- 500,000CAD cost

- $20,000Net loss

(.6) Low sales

$2,500,000Revenue

- 1,250,000Mfg cost ($50 x 25,000)

- 375,000CAD cost

$875,000Net

(.4)

High sales

Hire and train engineers

$365,000

$800,000Revenue

- 400,000Mfg cost ($50 x 8,000)

- 375,000CAD cost

$25,000Net

(.6)

Low sales

Do nothing $0

$0 Net

Decision Tree Example


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