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 society
 Top organizations typically focus on
core products
 Customers buy satisfaction, not just
a physical good or particular service
 Fundamental to an organization's
strategy with implications
throughout the operations function
© 2008 Prentice Hall, Inc. 5 – 10
 Product Strategy Options

 Differentiation
 Shouldice Hospital
 Low cost
 Taco Bell
 Rapid response
 Toyota

© 2008 Prentice Hall, Inc. 5 – 11

 Product Life Cycles

 May be any length from a few

hours to decades
 The operations function must
be able to introduce new
products successfully

© 2008 Prentice Hall, Inc. 5 – 12

 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 – 13
 Product Life Cycle
Introduction
 Fine tuning may warrant
unusual expenses for
 Research
 Product development
 Process modification and
enhancement
 Supplier development
© 2008 Prentice Hall, Inc. 5 – 14
 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 – 15

 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

© 2008 Prentice Hall, Inc. 5 – 16

 Product Life Cycle
Decline
 Unless product makes a
special contribution to the
organization, must plan to
terminate offering

© 2008 Prentice Hall, Inc. 5 – 17

 Product Life Cycle Costs
100 –
Costs committed

80 –
Percent of total cost

60 –
Costs incurred
40 –

20 –

0– Ease of change

Concept Detailed Manufacturing Distribution,

design design service,
prototype and disposal
© 2008 Prentice Hall, Inc. 5 – 18
 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

© 2008 Prentice Hall, Inc. 5 – 19

 Product-by-Value Analysis
Sam’s Furniture Factory

Individual Total Annual

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

© 2008 Prentice Hall, Inc. 5 – 20

 New Product Opportunities
1. Understanding the
customer
2. Economic change
3. Sociological and
demographic change g
o r m i n
a i ns t l
4. Technological change Br fu l t o o
u s e
5. Political/legal change is a
6. Market practice, professional
standards, suppliers, distributors
© 2008 Prentice Hall, Inc. 5 – 21
 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 – 22
 New Products at Disney
Millions of visitors Figure 5.2
50 –
Magic Kingdom
40 – Combined data only prior to 1993
Epcot
Disney-MGM Studios
30 – Animal Kingdom

20 –

10 –

0–

84 86 88 90 92 94 96 98 00 02 04
© 2008 Prentice Hall, Inc. 5 – 23
 Product Development
System
Ideas

Ability Figure 5.3

Customer Requirements

Functional Specifications

Scope of Product Specifications Scope for

product design and
Design Review engineering
development teams
team Test Market

Introduction

Evaluation
© 2008 Prentice Hall, Inc. 5 – 24
 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
 Compare performance to desirable technical
attributes
© 2008 Prentice Hall, Inc. 5 – 25
 QFD House of Quality
Interrelationships
Customer
importance
How to satisfy
ratings
customer wants

Competitive
assessment
What the Relationship
customer matrix
wants

Target values Weighted

rating
Technical
evaluation
© 2008 Prentice Hall, Inc. 5 – 26
 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

© 2008 Prentice Hall, Inc. 5 – 27

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

What the
Technical
Attributes and
Evaluation

customer
wants Customer
importance
rating
(5 = highest)
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color correction 1

© 2008 Prentice Hall, Inc. 5 – 28

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Low electricity requirements
Attributes and
Evaluation

Aluminum components

Ergonomic design
Auto exposure
How to Satisfy
Customer Wants
Paint pallet
Auto focus

© 2008 Prentice Hall, Inc. 5 – 29

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

High relationship Technical

Attributes and
Evaluation

Medium relationship
Low relationship

Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color corrections 1

Relationship matrix
© 2008 Prentice Hall, Inc. 5 – 30
 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Low electricity requirements

Relationships
between the
things we can do

Aluminum components

Ergonomic design
Auto exposure

Paint pallet
Auto focus

© 2008 Prentice Hall, Inc. 5 – 31

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color corrections 1
Our importance ratings 22 9 27 27 32 25

Weighted
rating
© 2008 Prentice Hall, Inc. 5 – 32
 Interrelationships

How to Satisfy
Customer Wants

House of Quality Example

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and

Company A

Company B
Evaluation

How well do
competing products
meet customer wants

Lightweight 3 G P
Easy to use 4 G P
Reliable 5 F G
Easy to hold steady 2 G P
Color corrections 1 P P
Our importance ratings 22 5
© 2008 Prentice Hall, Inc. 5 – 33
 Interrelationships

How to Satisfy
Customer Wants

House of Quality Example

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Failure 1 per 10,000

Panel ranking
Target
values

2 circuits
(Technical

2’ to ∞
attributes)

0.5 A

75%
Company A 0.7 60% yes 1 ok G
Technical
evaluation Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G
© 2008 Prentice Hall, Inc. 5 – 34
 House of Quality Example

Low electricity requirements

Aluminum components

Ergonomic design
Auto exposure

Company A

Company B
Paint pallet
Auto focus
Completed
House of Lightweight
Easy to use
3
4
G P
G P

Quality Reliable
Easy to hold steady 2
5 F G
G P
Color correction 1 P P
Our importance ratings 22 9 27 27 32 25

Failure 1 per 10,000

Panel ranking
Target values
(Technical
attributes)

2 circuits
2’ to ∞
0.5 A
75%
Company A 0.7 60% yes 1 ok G
Technical
evaluation Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G
© 2008 Prentice Hall, Inc. 5 – 35
 House of Quality Sequence
Deploying resources through the
organization in response to
customer requirements

Quality
plan
Production
process

Production
Specific
House

process
components

components
House 4

Specific
Design
characteristics

characteristics
3
House
Design

2
requirements
Customer

House
1

Figure 5.4

© 2008 Prentice Hall, Inc. 5 – 36

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

© 2008 Prentice Hall, Inc. 5 – 44

 Extensions of CAD
 Design for Manufacturing and Assembly
(DFMA)
 Solve manufacturing problems during the
design stage
 3-D Object Modeling
 Small prototype
development
 CAD through the
internet
 International data
exchange through STEP
© 2008 Prentice Hall, Inc. 5 – 45
 Computer-Aided
Manufacturing (CAM)
 Utilizing specialized computers
and program to control
manufacturing equipment
 Often driven by the CAD system
(CAD/CAM)

© 2008 Prentice Hall, Inc. 5 – 46

 Benefits of CAD/CAM

1. Product quality
2. Shorter design time
3. Production cost reductions
4. Database availability
5. New range of capabilities

© 2008 Prentice Hall, Inc. 5 – 47

 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 – 50

 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 – 53

 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 – 67

 Group Technology Benefits
1. Improved design
2. Reduced 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 – 68
 Assembly Chart
R 209 Angle
1
Left
R 207 Angle SA bracket
2 A1
Bolts w/nuts (2)
1 assembly
Identifies the point
3 of production
R 209 Angle
4
Right
where components
5
R 207 Angle SA bracket
2 assembly
A2 flow into
6
Bolts w/nuts (2) subassemblies and
Bolt w/nut ultimately into the
7
R 404 Roller final product
8 A3
Lock washer Poka-yoke
9 inspection
Part number tag
10 A4
Box w/packing material
11 A5
Figure 5.11 (b)
© 2008 Prentice Hall, Inc. 5 – 71
 Route Sheet
Lists the operations and times required
to produce a component
Setup Operation
Process Machine Operations Time Time/Unit
1 Auto Insert 2 Insert Component 1.5 .4
Set 56
2 Manual Insert Component .5 2.3
Insert 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 – 72

 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 – 73

 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 – 74
 Product Life-Cycle
Management (PLM)
 Integrated software that brings
together most, if not all, elements of
product design and manufacture
 Product design
 CAD/CAM, DFMA
 Product routing
 Materials
 Assembly
 Environmental
© 2008 Prentice Hall, Inc. 5 – 76
 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 – 77
 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 – 78
 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 – 79
 Moments-of-Truth
Computer Company Hotline
Experience Enhancers

The technician was

Standard Expectations sincerely concerned and
apologetic about my
Only one local number problem
Experience Detractors needs to be dialed
He asked intelligent
I never get a busy signal questions that allowed me
I had to call more than to feel confident in his
once to get through I get a human being to
answer my call quickly abilities
A recording spoke to me and he or she is pleasant The technician offered
rather than a person and responsive to my various times to have work
While on hold, I get problem done to suit my schedule
silence,and wonder if I am A timely resolution to my Ways to avoid future
disconnected problem is offered problems were suggested
The technician sounded The technician is able to
like he was reading a form explain to me what I can
of routine questions expect to happen next
The technician sounded
uninterested
I felt the technician rushed Figure 5.13
me

© 2008 Prentice Hall, Inc. 5 – 80

 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

© 2008 Prentice Hall, Inc. 5 – 81

 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 – 82

 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 – 83
 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 – 84
 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 – 85
 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 – 86
 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 – 87
 Transition to Production
 Know when to move to production
 Product development can be viewed as
evolutionary and never complete
 Product must move from design to
production in a timely manner
 Most products have a trial production
period to insure producibility
 Develop tooling, quality control, training
 Ensures successful production

© 2008 Prentice Hall, Inc. 5 – 88

 Transition to Production
 Responsibility must also transition as the
product moves through its life cycle
 Line management takes over from design
 Three common approaches to managing
transition
 Project managers
 Product development teams
 Integrate product development and
manufacturing organizations

© 2008 Prentice Hall, Inc. 5 – 89