MMH 717 – OPERATIONS MANAGEMENT

Faculty:
Department of Operations

Unit II
Designing Operations
 Course Objectives

• Understanding the basics of operations management using manufacturing

and service examples
• Explain the roles and responsibilities of operations managers in different
organizational contexts.
• Apply the planning and control concepts for decision-making
• Analyze the operations to identify areas for improvement
• Evaluate strategies for improvement in manufacturing and service contexts
 Product and Service Design

• Major factors in design strategy

• Cost
• Quality
• Time-to-market
• Customer satisfaction
• Competitive advantage

Product and service design – or redesign – should be

closely tied to an organization’s strategy
Product or Service Design Activities
1. Translate customer wants and needs into
product and service requirements
2. Refine existing products and services
3. Develop new products and services
4. Formulate quality goals
5. Formulate cost targets
6. Construct and test prototypes
7. Document specifications
 Reasons for Product or Service Design

• Economic
• Social and demographic
• Political, liability, or legal
• Competitive
• Cost or availability
• Technological
 Objectives of Product and Service Design
• Main focus
• Customer satisfaction
• Understand what the customer wants
• Secondary focus
• Function of product/service
• Cost/profit
• Quality
• Appearance
• Ease of production/assembly
• Ease of maintenance/service
 Designing For Operations
• Taking into account the capabilities of the
organization in designing goods and services.
• Failure to take this into account can:
• Reduce productivity
• Reduce quality
• Increase costs
 Other Issues in Product and Service Design

• Product/service life cycles

• How much standardization
• Mass customization
• Product/service reliability
• Robust design
• Degree of newness
• Cultural differences
 Life Cycles of Products or Services

Saturation

Maturity
Demand

Decline
Growth

Introduction

Time
Figure 4.1
 Standardization

• Standardization
• Extent to which there is an absence of variety in a
product, service or process
• Standardized products are immediately available to
customers
 Advantages of Standardization
• Fewer parts to deal with in inventory & manufacturing
• Design costs are generally lower
• Reduced training costs and time
• More routine purchasing, handling, and inspection procedures
• Quality is more consistent
• Orders fillable from inventory
• Opportunities for long production runs and automation
• Need for fewer parts justifies increased expenditures on
perfecting designs and improving quality control procedures.
 Disadvantages of Standardization

• Designs may be frozen with too many imperfections remaining.

• High cost of design changes increases resistance to improvements.
• Decreased variety results in less consumer appeal.
 Mass Customization

• Mass customization:
• A strategy of producing standardized goods or
services, but incorporating some degree of
customization
• Delayed differentiation
• Modular design
 Delayed Differentiation / Modular Design
• Delayed differentiation is a postponement tactic
• Producing but not quite completing a product or service until customer
preferences or specifications are known.

• Modular design is a form of standardization in which component

parts are subdivided into modules that are easily replaced or
interchanged. It allows:
• Easier diagnosis and remedy of failures
• Easier repair and replacement
• Simplification of manufacturing and assembly
 Reliability

• Reliability: The ability of a product, part, or system to perform

its intended function under a prescribed set of conditions
• Failure: Situation in which a product, part, or system does not
perform as intended
• Normal operating conditions: The set of conditions under which
an item’s reliability is specified
 Improving Reliability

• Component design
• Production/assembly techniques
• Testing
• Redundancy/backup
• Preventive maintenance procedures
• User education
• System design
 Product Design

• Product Life Cycles

• Robust Design
• Concurrent Engineering
• Computer-Aided Design
• Modular Design
 Robust Design

Robust Design: Design that results in products

or services that can function over a broad range
of conditions
 Taguchi Approach Robust Design
• Design a robust product
• Insensitive to environmental factors either in manufacturing
or in use.
• Central feature is Parameter Design.
• Determines:
• factors that are controllable and those not controllable
• their optimal levels relative to major product advances
 Degree of Newness
1.Modification of an existing product/service
2.Expansion of an existing product/service
3.Clone of a competitor’s product/service
4.New product/service
 Cultural Differences / Global Product Design
• Cultural Differences
• Multinational companies must take into account cultural differences related to
the product design.
• Notable failures:
• Chevy Nova in Mexico
• Ikea beds in U.S.
• Virtual teams
• Uses combined efforts of a team of designers working in different countries
• Provides a range of comparative advantages over traditional teams such as:
• Engaging the best human resources around the world
• Possibly operating on a 24-hr basis
• Global customer needs assessment
• Global design can increase marketability
Phases in Product Development Process
1. Idea generation
2. Feasibility analysis
3. Product specifications
4. Process specifications
5. Prototype development
6. Design review
7. Market test
8. Product introduction
9. Follow-up evaluation
Reverse Engineering

Reverse engineering is the

dismantling and inspecting
of a competitor’s product to discover
product improvements.
Research & Development (R&D)
• Organized efforts to increase scientific knowledge or
product innovation & may involve:
• Basic Research advances knowledge about a subject
without near-term expectations of commercial
applications.
• Applied Research achieves commercial applications.
• Development converts results of applied research into
commercial applications.
Manufacturability
• Manufacturability is the ease of fabrication
and/or assembly which is important for:
• Cost
• Productivity
• Quality
 Designing for Manufacturing
Beyond the overall objective to achieve customer
satisfaction while making a reasonable profit is:
Design for Manufacturing(DFM)
The designers’ consideration of the organization’s
manufacturing capabilities when designing a product.
The more general term design for operations
encompasses services as well as manufacturing
 Concurrent Engineering

Concurrent engineering
is the bringing together
of engineering design and
manufacturing personnel
early in the design phase.
 Computer-Aided Design

• Computer-Aided Design (CAD) is product design

using computer graphics.
• increases productivity of designers, 3 to 10 times
• creates a database for manufacturing information on
product specifications
• provides possibility of engineering and cost analysis on
proposed designs
 Product design

• Design for manufacturing (DFM)

• Design for assembly (DFA)
• Design for recycling (DFR)
• Remanufacturing
• Design for disassembly (DFD)
• Robust design
 Recycling

• Recycling: recovering materials for future use

• Recycling reasons
• Cost savings
• Environment concerns
• Environment regulations
 Remanufacturing
• Remanufacturing: Refurbishing used products by
replacing worn-out or defective components.
• Remanufactured products can be sold for 50% of the cost of a
new producr
• Remanufacturing can use unskilled labor
• Some governments require manufacturers to take back used
products
• Design for Disassembly (DFD): Designing products so that
they can be easily taken apart.
 Component Commonality

• Multiple products or product families that have a high degree of

similarity can share components
• Automakers using internal parts
• Engines and transmissions
• Water pumps
• Etc.
• Other benefits
• Reduced training for assemble and installation
• Reduced repair time and costs
 Service Design

• Service is an act
• Service delivery system
• Facilities
• Processes
• Skills
• Many services are bundled with products
 Service Design

• Service design involves

• The physical resources needed
• The goods that are purchased or consumed by the
customer
• Explicit services
• Implicit services
 Service Design
• Service
• Something that is done to or for a customer
• Service delivery system
• The facilities, processes, and skills needed to provide a
service
• Product bundle
• The combination of goods and services provided to a
customer
• Service package
• The physical resources needed to perform the service
 Differences Between Product
and Service Design
• Tangible – intangible
• Services created and delivered at the same time
• Services cannot be inventoried
• Services highly visible to customers
• Services have low barrier to entry
• Location important to service
• Range of service systems
• Demand variability
 Service Systems

• Service systems range from those with little or no customer contact to

very high degree of customer contact such as:
• Insulated technical core (software development)
• Production line (automatic car wash)
• Personalized service (hair cut, medical service)
• Consumer participation (diet program)
• Self service (supermarket)
 Service Demand Variability
• Demand variability creates waiting lines and idle service
resources
• Service design perspectives:
• Cost and efficiency perspective
• Customer perspective
• Customer participation makes quality and demand
variability hard to manage
• Attempts to achieve high efficiency may depersonalize
service and change customer’s perception of quality
 Phases in Service Design

1.Conceptualize
2.Identify service package components
3.Determine performance specifications
4.Translate performance specifications into design
specifications
5.Translate design specifications into delivery
specifications
 Service Blueprinting

• Service blueprinting
• A method used in service design to describe and
analyze a proposed service.
• A useful tool for conceptualizing a service delivery
system
Major Steps in Service Blueprinting

1. Establish boundaries
2. Identify sequence of customer interactions
• Prepare a flowchart
3. Develop time estimates
4. Identify potential failure points
 Characteristics of Well Designed
Service Systems
1. Consistent with the organization mission
2. User friendly
3. Robust
4. Easy to sustain
5. Cost effective
6. Value to customers
7. Effective linkages between back operations
8. Single unifying theme
9. Ensure reliability and high quality
 Challenges of Service Design

1. Variable requirements
2. Difficult to describe
3. High customer contact
4. Service – customer encounter
 Guidelines for Successful Service Design
1. Define the service package
2. Focus on customer’s perspective
3. Consider image of the service package
4. Recognize that designer’s perspective is different from
the customer’s perspecticve
5. Make sure that managers are involved
6. Define quality for tangible and intangibles
7. Make sure that recruitment, training and rewards are
consistent with service expectations
8. Establish procedures to handle exceptions
9. Establish systems to monitor service
 Facilities Location
Growing importance

• Factors promoting globalisation of operations

• Regulatory & economic reforms
• Factor Cost Advantages
• Expanding markets in developing countries
• Location issues have become more prominent in recent years due to
globalisation
• Location decision pertains to the choice of appropriate geographical
site for locating manufacturing & service facilities of an organisation
Location Decision in an Organization
Impact of Globalization

Saturation of High Cost Input

Developed Economies Legacy Cost Burden

Economic
Reforms Impact on Location
Choice for Organizations
High Growth of Huge Capabilities in
Newly Emerging Economies NEE constantly discovered
(NEE) & Exploited by the West

Multi-location (Globalized) Operations

Competitiveness of a location
Three tier model

Country Competitiveness
Govt. budget & regulation Quality of judicial &
political institutions

Labour Sector Competitiveness Qlty of

Mkt. Flexibility Infrastructure Openness to
Quality Intl. trade &
Company Competitiveness of Tech. finance
Ability to design, produce, & mkt products
superior to competitors, Qlty. of business mgmt.

Extent to which a business sector offers potential for growth

and attractive return on investment

Development
of financial Mkt. Extent to which a national environment is
Conducive or detrimental to business
Location Decision
Relevant Factors

Market related issues Cost related issues

Market for products and services Wage rates
Raw Material availability Transportation costs
Number and proximity of suppliers Taxes and other tariff issues
Availability of skilled labour
Quality of Infrastructure
Regulatory & Policy issues Other issues
Government & Economic stability Culture
Quality of legal and other institutions Climate
Trading blocks and trading agreements Quality of Life
Special Economic Zones
Another dimension to location choices
• The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received
Presidential assent on the 23rd of June, 2005
• Land for the 270 notified SEZs where operations have since commenced involved is approximately over
31,405 hectares
• Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-
processing area where the supporting infrastructure is to be created
• Benefits of SEZs include employment generation, increased exports, development of quality
infrastructure
• Nokia and Flextronics electronics hardware SEZs in Sriperumbudur providing employment to 14,577 and
1,058 persons respectively.
• Hyderabad Gems SEZ for Jewellery manufacturing in Hyderabad has already employed 2,145 persons
• Apache SEZ being set up in Andhra Pradesh will employ 20, 000 persons to manufacture 1 million pairs
of shoes every month
 Location Planning Methods

• One facility – Multiple Candidates

• Location factor rating
• Centre of Gravity Method
• Load Distance Method
• Multiple Facility – Multiple Candidates
• Transportation Model
 Location factor rating
Steps
• Identify and list down all the relevant factors for the location
decision
• Establish the relative importance of each factor in the final decision
• Rate the performance of each candidate location using a rating
mechanism
• Compute a total score for each location based on its performance
against each factor and rank them in the decreasing order of the
score
 PROBLEM
A manufacturer of garments is actively considering five alternative locations for
setting up its factory. The locations vary in terms of the advantages that it
provides to the firm. Hence the firm requires a method of identifying the most
appropriate location. Based on a survey of its senior executives the firm has
arrived at six factors to be considered for final site selection. The ratings of
each factor on a scale of 1 to 100 provide this information. Further, based some
detailed analysis of both the qualitative and quantitative data available for
each of the location, the rating for the locations against each factor has also
been arrived at (on a scale of 0 to 100). Using this information obtain a ranking
of the alternative locations.

Factor Ratings
Factors Rating
Rating of each locations against the factors
Availability of infrastructure 90
Size of the market 60
Industrial relations climate 50 Factors Location 1 Location 2 Location 3 Location 4 Location 5
Tax benefits and concessions 30 Availability of infrastructure 20 40 60 35 55
Availability of cheap labour 30 Size of the market 30 30 40 60 80
Industrial relations climate 80 30 50 60 50
Nearness to port 65
Tax benefits and concessions 80 20 10 20 20
Availability of cheap labour 70 70 45 50 50
Nearness to port 20 40 90 50 60
 Solution
Relative
Factors Rating weights
Availability of infrastructure 90 0.28
Size of the market 60 0.18
Industrial relations climate 50 0.15 Overall rating for location 3 = 60*0.28 +
Tax benefits and concessions 30 0.09
Availability of cheap labour 30 0.09
40*0.18 + 50*0.15 + 10*0.09 +
Nearness to port 65 0.20 45*0.09 + 90*0.20 = 54.77

Sum of all factor ratings 325 1.00

Relative
Factors weights Location 1 Location 2 Location 3 Location 4 Location 5
Availability of infrastructure 0.28 20 40 60 35 55
Size of the market 0.18 30 30 40 60 80
Industrial relations climate 0.15 80 30 50 60 50
Tax benefits and concessions 0.09 80 20 10 20 20
Availability of cheap labour 0.09 70 70 45 50 50
Nearness to port 0.20 20 40 90 50 60

Overall score for the locations 41.23 37.54 54.77 46.46 56.15
Ranking of the locations 4 5 2 3 1
 Plant Location Methodology: Centre of Gravity
(Centroid) Method

• The centroid method is used for locating

single facilities that considers existing
facilities, the distances between them,
and the volumes of goods to be shipped
between them
• This methodology involves formulas used
to compute the coordinates of the two-
dimensional point that meets the
distance and volume criteria stated
above
 Plant Location Methodology: Centroid Method Formulas

Cx =
d V ix i
Cy =
d V
iy i

V i V i

Where:
Cx = X coordinate of centroid
Cy = Y coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
 Plant Location Methodology: Example of Centre of gravity
Method

• Centroidmethod example
• Several automobile showrooms are located
according to the following grid which represents
coordinate locations for each showroom

Y S ho wro o m No o f Z-Mo b ile s

Q s o ld p e r mo nth
(790,900)

D
A 1250
(250,580)

D 1900
A
(100,200)
Q 2300
(0,0) X
Question: What is the best location for a new Z-Mobile
warehouse/temporary storage facility considering only distances and
quantities sold per month?
 Plant Location Methodology: Example of Centroid Method
(Continued): Determining Existing Facility Coordinates

Y
To begin, you must identify the Q
existing facilities on a two- (790,900)

dimensional plane or grid and D

(250,580)
determine their coordinates.
A
(100,200)

(0,0) X

S ho wro o m No o f Z-Mo b ile s

You must also have the s o ld p e r mo nth
volume information on the
business activity at the A 1250
existing facilities.
D 1900

Q 2300
 Plant Location Methodology: Example of Centroid Method (Continued):
Determining the Coordinates of the New Facility

You then compute the new coordinates using the formulas:

100(1250) + 250(1900) + 790(2300) 2,417,000
Cx = = = 443.49
1250 + 1900 + 2300 5,450
200(1250) + 580(1900) + 900(2300) 3,422,000
Cy = = = 627.89
1250 + 1900 + 2300 5,450

You then take the coordinates and place them on the map:
Y
S ho wro o m No o f Z-Mo b ile s
Q New s o ld p e r mo nth
(790,900)
location
Z
D
(250,580) of facility A 1250
Z about
A D 1900
(100,200) (443,627)
(0,0) X Q 2300
 Other issues in location planning
• Recent trends in the international markets point to a shift
towards fewer facilities that could serve markets worldwide
– Example HP Desk Jet Printer, Dell PC
• These developments point to two areas which could affect
the location planning problem very significantly
– availability of good transportation infrastructure
– use of Internet and IT infrastructure
• Location planning in the overall context of just-in-time
manufacturing philosophy (suppliers located in the vicinity
(20 – 40 Km radius) of the manufacturer)
• Service quality depends on responsiveness of service delivery
system. Locating service outlets, close to the demand point is
an important requirement in a service system

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