Operations

Management
Chapter 5 –
Design of Goods
and Services
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
© 2008 Prentice Hall, Inc. 5–1
 Product Decision
 The good or service the
organization provides
 Top organizations typically focus
on core products
 Customers buy satisfaction, not
just a physical good or particular
service
 Is fundamental to an
organization's strategy with
implications throughout the
operations function
© 2008 Prentice Hall, Inc. 5–2
 Product Strategy Options

 Differentiation
 Rolls Royce
 Low cost
 Walmart
 Rapid response
 Dominos

© 2008 Prentice Hall, Inc. 5–3

 Product Life Cycles

Cost of development and production

Sales, cost, and cash flow

Sales revenue
Net revenue (profit)

Cash
flow

Negative
cash flow Loss

Introduction Growth Maturity Decline

Figure 5.1
© 2008 Prentice Hall, Inc. 5–4
 Product Life Cycle
Introduction
 Tuning to the market requires
unusual expenses for
 Research
 Product development
 Process modification and
enhancement
 Supplier network development
© 2008 Prentice Hall, Inc. 5–5
 Product Life Cycle
Growth
 Product design begins to
stabilize
 Effective forecasting of
capacity becomes necessary
 Adding or enhancing capacity
may be necessary

© 2008 Prentice Hall, Inc. 5–6

 Product Life Cycle
Maturity
 Competitors now established
 High volume, innovative
production may be needed for
customer retention
 Improved cost control,
reduction in expansion
options, pruning down the
© 2008 Prentice Hall, Inc.
product line 5–7
 Product Life Cycle
Decline
 Plan to terminate offering

© 2008 Prentice Hall, Inc. 5–8

 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 (in
terms of sales or revenues)
 Helps management evaluate
alternative strategies for certain
products.

© 2008 Prentice Hall, Inc. 5–9

 Product-by-Value Analysis
Sam’s Furniture Factory

Individual Total Annual

Contribution ($) Contribution ($)
Barcalounger $102 $36,720
Arm Chair $87 $51,765
Foot Stool $12 $6,240
Recliner $136 $51,000

© 2008 Prentice Hall, Inc. 5 – 10

 New Product Opportunities
and Challenges
1. Understanding the
customer
2. Economic changes
3. Sociological and
demographic changes g
o r m i n
a i ns t l
4. Technological changes Br fu l t o o
u s e
5. Political/legal changes is a
6. Market practice, professional
standards, suppliers, distributors
© 2008 Prentice Hall, Inc. 5 – 11
 Importance of New Products
Percentage of Sales from New Products
50%

40%

30%

20%

10%

Industry Top Middle Bottom

leader third third third
Position of Firm in Its Industry Figure 5.2
© 2008 Prentice Hall, Inc. 5 – 12
 New Products at Disney
Millions of visitors Figure 5.2

50 –
Magic Kingdom
Combined data only prior to 1993
40 – Epcot
Disney-MGM Studios
Animal Kingdom
30 –

20 –

10 –

0 – 84 86 88 90 92 94 96 98 00 02 04
© 2008 Prentice Hall, Inc. 5 – 13
 Product Development
System
Ideas

Ability of Firm Figure 5.3

Customer Requirements

Functional Specifications

Scope of Product Specifications Scope for

product design and
Design Review engineering
development teams
team Market Testing

Introduction

Evaluation
© 2008 Prentice Hall, Inc. 5 – 14
 Organizing for Product
Development
 Historically – distinct departments
 Duties and responsibilities are defined
 Difficult to foster forward thinking
 A Champion
 Product manager drives the product
through the product development
system and related units/organizations

© 2008 Prentice Hall, Inc. 5 – 15

 Organizing for Product
Development
 Team approach
 Cross functional – representatives
from all disciplines or functions
 Product development teams, design
for manufacturability teams, value
engineering teams
 Japanese “whole organization”
approach
 No organizational divisions
© 2008 Prentice Hall, Inc. 5 – 16
 Product Development
Approaches
 Robust design
 Modular design
 Computer-aided design (CAD)
 Computer-aided manufacturing (CAM)
 Virtual reality technology
 Value analysis
 Environmentally friendly design

© 2008 Prentice Hall, Inc. 5 – 17

 Robust Design

 Product is designed in such a way

that small variations in production
or assembly do not adversely
affect the product
 Typically results in lower cost and
higher quality
 Example: Spare parts, Lamp
frames
© 2008 Prentice Hall, Inc. 5 – 18
 Modular Design
 Products designed in easily
segmented components
 Adds flexibility to both production
and marketing
 Improved ability to satisfy customer
requirements

© 2008 Prentice Hall, Inc. 5 – 19

 Computer Aided Design
(CAD)
 Using computers to
design products and
prepare engineering
documentation
 Shorter development
cycles, improved
accuracy
 Information and
designs can be
deployed worldwide

© 2008 Prentice Hall, Inc. 5 – 20

© 2008 Prentice Hall, Inc. 5 – 21
 Extensions of CAD
 Design for Manufacturing and Assembly
(DFMA)
 Solve manufacturing problems during the
design stage
 3-D Object Modeling
 Small prototype
development
 International data
exchange online

© 2008 Prentice Hall, Inc. 5 – 22

 3D Object Modelling

© 2008 Prentice Hall, Inc. 5 – 23

 Computer-Aided
Manufacturing (CAM)
 Utilizing specialized computers and program
to control manufacturing equipment
 Often driven by the CAD system (CAD/CAM)
 https://www.youtube.com/watch?v=2kttVyakH
N4&list=WL&index=2&ab_channel=Discovery
UK
 https://www.youtube.com/watch?v=v2J-
qS9n9X4&ab_channel=Newsthink

© 2008 Prentice Hall, Inc. 5 – 24

© 2008 Prentice Hall, Inc. 5 – 25
 Benefits of CAD/CAM

1. Enhanced product quality

2. Shorter design time
3. Production cost reductions
4. Database availability for trial
and error
5. New range of capabilities

© 2008 Prentice Hall, Inc. 5 – 26

 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

© 2008 Prentice Hall, Inc. 5 – 27

© 2008 Prentice Hall, Inc. 5 – 28
 Manufacturability and
Value Engineering
 Benefits:
1. Reduced complexity of products
2. Additional standardization of products
3. Improved functional aspects of product
4. Improved product design and safety
5. Robust (uniform) design

© 2008 Prentice Hall, Inc. 5 – 29

 Ethics and Environmentally
Friendly Designs
It is possible to enhance productivity,
drive down costs, and preserve
resources
Effective at any stage of the product life cycle

 Design
 Production
 Destruction

© 2008 Prentice Hall, Inc. 5 – 30

 The Ethical Approach

 View product design from a

systems perspective
 Inputs, processes, outputs
 Costs to the firm/costs to
society
 Consider the entire life cycle of
the product

© 2008 Prentice Hall, Inc. 5 – 31

 Goals for Ethical and
Environmentally Friendly
Designs
1. Develop safe and more environmentally
sound products
2. Minimize waste of raw materials and energy
3. Reduce environmental liabilities
4. Complying with environmental regulations
5. Be recognized as a good corporate citizen

© 2008 Prentice Hall, Inc. 5 – 32

 Guidelines for Environmentally
Friendly Designs

1. Make products recyclable

2. Use recycled materials
3. Use less harmful ingredients
4. Use lighter components
5. Use less energy
6. Use less material

© 2008 Prentice Hall, Inc. 5 – 33

 Legal and Industry
Standards

For Design …

 Federal Drug Administration

 Consumer Products Safety Commission
 National Highway Safety Administration
 Children’s Product Safety Act

© 2008 Prentice Hall, Inc. 5 – 34

 Legal and Industry
Standards

For Manufacture/Assembly …
 Occupational Safety and Health
Administration
 Environmental Protection Agency
 Professional ergonomic standards
 State and local laws dealing with
employment standards, discrimination, etc.
© 2008 Prentice Hall, Inc. 5 – 35
 Legal and Industry
Standards

For Disassembly/Disposal …

 Vehicle Recycling Partnership

 Increasingly rigid laws worldwide

© 2008 Prentice Hall, Inc. 5 – 36

 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

© 2008 Prentice Hall, Inc. 5 – 37

 Product Development
Continuum
External Development Strategies
Figure 5.6 Alliances
Joint ventures
Purchase technology or expertise
by acquiring the developer

Internal Development Strategies

Enhancements to existing products
New internally developed products

Internal Cost of product development Shared

Lengthy Speed of product development Rapid and/
or Existing
High Risk of product development Shared

© 2008 Prentice Hall, Inc. 5 – 38

 Acquiring Technology
 By Purchasing a Firm
 Speeds development
 Issues concern the fit between the acquired
organization and product and the host
 Through Joint Ventures and Alliances
 Both organizations learn
 Risks are shared
 Cooperative agreements between
independent organizations

© 2008 Prentice Hall, Inc. 5 – 39

 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
© 2008 Prentice Hall, Inc. 5 – 40
 Product Documents
 Engineering drawing
 Shows dimensions, tolerances, and
materials
 Shows codes for Group Technology
 Bill of Material
 Lists components, quantities and
where used
 Shows product constituting structure

© 2008 Prentice Hall, Inc. 5 – 41

 Monterey Jack Cheese
Monterey cheese shall conform to the following requirements:
(1) Flavor. Is fine and highly pleasing, free from undesirable
flavors and odors. May possess a very slight acid or feed
flavor.
(2) Body and texture. A plug drawn from the cheese shall be
reasonably firm. It shall have numerous small mechanical
openings evenly distributed throughout the plug. It shall not
possess sweet holes, yeast holes, or other gas holes.
(3) Color. Shall have a natural, uniform, bright and attractive
appearance.
(4) Finish and appearance - bandaged and paraffin-dipped .
The rind shall be sound, firm, and smooth providing a good
protection to the cheese.

© 2008 Prentice Hall, Inc. 5 – 42

 Engineering Drawings

Figure 5.8

© 2008 Prentice Hall, Inc. 5 – 43

 Bills of Material

© 2008 Prentice Hall, Inc. 5 – 44

 Bills of Material
DESCRIPTION QTY
Hard Rock
Bun 1
Cafe’s Hickory Hamburger patty 8 oz.
BBQ Bacon Cheddar cheese 2 slices
Cheeseburger Bacon 2 strips
BBQ onions 1/2 cup
Hickory BBQ sauce 1 oz.
Burger set
Lettuce 1 leaf
Tomato 1 slice
Red onion 4 rings
Pickle 1 slice
French fries 5 oz.
Seasoned salt 1 tsp.
11-inch plate 1
HRC flag 1
Figure 5.9 (b)
© 2008 Prentice Hall, Inc. 5 – 45
 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

© 2008 Prentice Hall, Inc. 5 – 46

 Group Technology Scheme
(b) Grouped Cylindrical Parts (families of parts)
(a) Ungrouped Parts
Grooved Slotted Threaded Drilled Machined

Figure 5.10

© 2008 Prentice Hall, Inc. 5 – 47

 Group Technology Benefits
1. Improved design
2. Reduced and efficient raw material
and purchases
3. Simplified production planning and
control
4. Improved layout, routing, and
machine loading
5. Reduced tooling setup time, work-in-
process, and production time
© 2008 Prentice Hall, Inc. 5 – 48
 Documents for Production

 Assembly drawing
 Assembly chart
 Route sheet
 Work order
 Engineering change notices (ECNs)

© 2008 Prentice Hall, Inc. 5 – 49

 Assembly Drawing

 Shows exploded
view of product
 Details relative
locations to
show how to
assemble the
product

Figure 5.11 (a)

© 2008 Prentice Hall, Inc. 5 – 50
 Assembly Chart
1

2 Identifies the point ofA1production where

3 components flow into subassemblies and

4
ultimately into the final product
5

8 A3

A4

A5

© 2008 Prentice Hall, Inc. 5 – 51

 Assembly Chart
1

2 A1

8 A3
Poka-yoke
(mistake-
9 proofing)
inspection
A4

A5

© 2008 Prentice Hall, Inc. 5 – 52

 Assembly Chart

© 2008 Prentice Hall, Inc. 5 – 53

 Route Sheet
Lists the operations and times required
to produce a component
Setup Operation
Process Machine Operations Time Time
1 Insert Part 2 Insert Component 1.5 .4
Set 56
2 Manually Insert Component .5 2.3
Insert Part 1 Set 12C
3 Wave Solder Solder all 1.5 4.1
components
to board
4 Test 4 Circuit integrity .25 .5
test 4GY

© 2008 Prentice Hall, Inc. 5 – 54

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

Work Order
Item Quantity Start Date Due Date
157C 125 5/2/08 5/4/08

Production Delivery
Dept Location
F32 Dept K11

© 2008 Prentice Hall, Inc. 5 – 55

 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
© 2008 Prentice Hall, Inc. 5 – 56
 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
© 2008 Prentice Hall, Inc. 5 – 57
 Service Design
(a) Customer participation in design
 Service typically includes direct such as pre-arranged funeral services
or cosmetic surgery
interaction with the customer
 Increased opportunity for customization
 Reduced productivity
(b) Customer participation in
delivery such as stress test for
 Cost and quality are still determined at cardiac exam or delivery of a
baby
the design stage
 Delay customization
(c) Customer participation in design and
delivery such as counseling, college
 Modularization education, financial management of
personal affairs, or interior decorating
 Reduce customer interaction, often
through automation Figure 5.12
© 2008 Prentice Hall, Inc. 5 – 58
 Moments of Truth
 Concept created by Jan Carlzon of
Scandinavian Airways
 Critical moments between the
customer and the organization that
determine customer satisfaction
 There may be many of these moments
 These are opportunities to gain or
lose business
© 2008 Prentice Hall, Inc. 5 – 59
 Moments-of-Truth
Computer Company Hotline
Experience Detractors
I had to call more than
once to get through
A recording spoke to me
rather than a person
While on hold, I get
silence,and wonder if I am
disconnected
The technician sounded
like he was reading a form
of routine questions
The technician sounded
uninterested
I felt the technician rushed
me
© 2008 Prentice Hall, Inc.
Experience Enhancers
The technician was
Standard Expectations sincerely concerned and
apologetic about my
Only one local number problem
needs to be dialed
He asked intelligent
I never get a busy signal questions that allowed me
to feel confident in his
I get a human being to
answer my call quickly abilities
and he or she is pleasant The technician offered
and responsive to my various times to have work
problem done to suit my schedule
A timely resolution to my Ways to avoid future
problem is offered problems were suggested
The technician is able to
explain to me what I can
expect to happen next
Figure 5.13
5 – 60
 Documents for Services

 Often explicit job instructions for

moments-of-truth
 Scripts and storyboards are
other techniques

© 2008 Prentice Hall, Inc. 5 – 61

 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

© 2008 Prentice Hall, Inc. 5 – 62

 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
© 2008 Prentice Hall, Inc. 5 – 63
 Decision Tree Example
(.4)
Purchase CAD
High sales

(.6) Low sales

Hire and train engineers

(.4)
High sales

(.6)
Low sales
Do nothing
Figure 5.14
© 2008 Prentice Hall, Inc. 5 – 64
 Decision Tree Example
$2,500,000 Revenue
(.4) - 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD - 500,000 CAD cost
High sales
$1,000,000 Net

$800,000 Revenue
(.6) Low sales - 320,000 Mfg cost ($40 x 8,000)
- 500,000 CAD cost
Hire and train engineers - $20,000 Net loss

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

(.6)
Low sales
Do nothing
Figure 5.14
© 2008 Prentice Hall, Inc. 5 – 65
 Decision Tree Example
$2,500,000 Revenue
(.4) - 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD - 500,000 CAD cost
$388,000 High sales
$1,000,000 Net

$800,000 Revenue
(.6) Low sales - 320,000 Mfg cost ($40 x 8,000)
- 500,000 CAD cost
Hire and train engineers - $20,000 Net loss

(.4)
High sales
EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(- $20,000)
= $388,000
(.6)
Low sales
Do nothing
Figure 5.14
© 2008 Prentice Hall, Inc. 5 – 66
 Decision Tree Example
$2,500,000 Revenue
(.4) - 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD - 500,000 CAD cost
$388,000 High sales
$1,000,000 Net

$800,000 Revenue
(.6) Low sales - 320,000 Mfg cost ($40 x 8,000)
- 500,000 CAD cost
Hire and train engineers - $20,000 Net loss
$365,000
$2,500,000 Revenue
(.4) - 1,250,000 Mfg cost ($50 x 25,000)
- 375,000 Hire and train cost
High sales
$875,000 Net

$800,000 Revenue
(.6) - 400,000 Mfg cost ($50 x 8,000)
- 375,000 Hire and train cost
Low sales
Do nothing $0 $25,000 Net

$0 Net Figure 5.14

© 2008 Prentice Hall, Inc. 5 – 67