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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Strategies for new product introduction market pull
we make what we can sell
example: food industry
technology push we sell what we can make
example: electronics
inter-functional view example: personal computers
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product development process typical phases of product development
planning
concept development
product or service design
pilot production, testing and refinement
production ramp up
designing a product without co-operation outcome is shown in figure 3.1 (Schroeder, 5/e)
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Economic analysis of development costs using measurable factors to help determine
operational design and development decisions
go and no-go milestones
building a base case financial model a financial model consisting of major cash flows
sensitivity for what if analysis
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
House of Quality
What the Customer
Wants
How to SatisfyCustomer Wants
Inter-relationships
Analysis ofCompetitors
RelationshipMatrix
TechnicalAttributes and
Evaluation
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Designing for the customer ideal customer product
quality function deployment (QFD)– inter-functional team from marketing, design engineering,
and manufacturing
– also known as house of quality
» voice of customer/engineer, competitors comparison
» example: exhibit 4.6 (Jacobs, 12/e)
value analysis / engineering– achieve equivalent or better performance at a lower cost
while maintaining all functional requirements of customer
– by eliminating redundant features, non standard parts, or consider two or more parts be combined
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product design in the old days, “over the wall”
we design it, you build it
now, concurrent engineering must be able to make it (process)
– technology
– availability of resources
must have the capacity
must deliver a quality product or service
must decide inventory policies
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product design design for manufacturing and assembly (DFMA)
improvements arise from simplification of the product by reducing the number of separate parts:
– during the operation of the product, does the part move relative to all other parts already assembled?
– must the part be of a different material or be isolated from other parts already assembled?
– must the part be separate from all other parts to allow the disassembly of the product for adjustment/maintenance?
modular design– multiple products using common parts, processes and
modules
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Measuring development performance dimensions measures
time to market frequency of new products introduced
time to market introduction
number stated and number completed
percentage of sales from new products
productivity engineering hours per project
cost of materials and tooling per project
actual versus plan
quality conformance reliability in use
performance and customer satisfaction
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow basic work flow structures
project, batch layout, and work center
manufacturing cell
assembly line
continuous process
process flow structures job shop
batch shop
assembly line
continuous flow
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow product process matrix
Product Volumelow high
Sta
nd
ard
izat
ion
low
high
continuousprocessline
manufacturingcell
work center
project
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow product flow characteristics
continuous process– highly standardized and automated (beer, paper, etc)
– high volumes of production, flexibility limited
– commodity products
– low cost is the ‘order winner’
assembly line flow– linear sequence of operations for discrete products
– high volume, standardized products (appliances, etc)
– inflexibility in product and volume
– very efficient but large capital investment
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow product flow characteristics
batch flow– production of batches or lots
– batches flow from one work center to another
– low volume products
– many different types of products
– flow is jumbled and intermittent
– flexible labour and equipment
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow type of customer order
make to stock (MTS)– produce finished goods; customer buys from inventory– advantage: smooth production– disadvantage: inventory
make to order (MTO)– start production when customer orders– advantage: no finished goods inventory– disadvantage: intermittent production
assemble to order (ATO)– advantages: less inventory, faster service– disadvantage: some WIP inventory
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow type of customer order
customization point
distributionassemblyfabricationsupplier
MTO MTO ATO MTS
∇ ---------- ∇ ∇ ∇
Figure 4.4 (Schroeder, 5/e)
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow process selection decisions
factors affecting process choice– market conditions and competition
– capital requirements
– labour supply and cost
– state of technology
product process strategy– strategy must consider not only the product or service,
but also how to produce it
– as many industries move through their product life cycles, they also move through a process life cycle
– figure 4.5 product process matrix (Schroeder, 5/e)
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow focused operations
rationale– company may have products or services with different
volumes and levels of standardization, mixing them in the same operation can cause significant problems
– separating different products/services in the same facility
types of focus– product focus
– process type, technology
– volume of sales
– make-to-stock and make-to-order
– new products and mature products
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Product and process flow mass customization
rationale– provide products in lot sizes of one in high volume
– economies of scope instead of economies of scale
» a high variety of products from a single process
– possible because of flexible manufacturing
forms of customization– modular production & ATO (example: Dell)
– fast changeover (example: Motorola)
– postponement of options (example: Hewlett-Packard)
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Service business what is it?
the management of organizations whose primary business requires interaction with the customer to produce the service
types of service facilities based
– where the customer must go to the service facility
field based– where the production and consumption of the service
takes place in the customer’s environment
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Service business customer centered view
TheCustomer
The ServiceStrategy
ThePeople
TheSystems
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Service business service system design matrix
mail contact
face-to-faceloose specs
face-to-facetight specs
phonecontact
face-to-facetotal
customization
high
lowhigh
low
internet & on-site
technology
SalesOpportunity
ProductionEfficiency
Degree of customer/server contact
buffered permeable reactive
Exhibit 7.6(Jacobs, 12/e)
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Service business example of service blueprinting
Brushshoes
Applypolish
Failpoint
BuffCollect
payment
Cleanshoes Materials
(e.g., polish, cloth)
Select andpurchasesupplies
Standardexecution time
2 minutes
Total acceptableexecution time
5 minutes
30secs
30secs
45secs
15secs
Wrongcolor wax
Seen bycustomer 45
secs
Line ofvisibility
Not seen bycustomer butnecessary toperformance
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Service business three contrasting service designs
production line approach– example: McDonald’s
self service approach– example: automatic teller machines
personal attention approach– example: Ritz-Carlton Hotel Company
managing customer introduced variation variability in
– arrival, request, capability, effort, subjective preference
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Service business characteristics of a well designed service system
each element is consistent with the operating focus
user friendly
robust
structured to maintain consistent performance easily
provides effective links between the back office and the front office so that nothing falls between the cracks
manages evidence of service quality in such a way that customers see the value of the service provided
it is cost effective
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Product, Service & Process Design
Reference chapters 3, 4, 5 & 6 (Schroeder, 5/e)
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Quality one of the four key objectives of operations
historical development of quality concepts inspection (early 1900s)
statistics quality control (Shewhart, 1940s)
quality management (1960s)
responsibility of everyone in the organization
meeting (or exceeding) customer requirements now and in the future
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Quality pioneers W. Edwards Deming (1900-1993)
14 Management Principles
advocate of statistical process control
emphasis on continuous improvement
PDCA wheel (example)
Joseph Juran (1904- 2008 ) quality trilogy: planning, control and improvement
emphasis on management
“Quality Handbook”
plus many others
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Dimensions of quality quality of design
determined before the product is produced
put “wishes” of customers into specifications
concurrent design through the QFD process
quality of conformance producing a product to meet the specifications
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Dimensions of quality abilities
availability– continuity of service to customers
reliability– length of time that a product can be used before it fails
– measured by MTBF
maintainability– restoration of the product or service once it has failed
– measured by MTTR
figure 8.1
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Dimensions of quality field service
warranty, repair or replacement of the product– after it has been sold
also called– customer service
– after sales service, or
– service
dimensions– promptness
– competence
– integrity
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Service quality measures are perceptual or subjective
SERVQUAL most popular measure
– uses a questionnaire consisting of 22 items
– an aggregate measure of the following five dimensions
five dimensions of service– tangibles
– reliability
– responsiveness
– assurance
– empathy
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Quality planning, control and improvement implementing through quality cycle
define quality attributes on the basis of customer needs
decide how to measure each attribute
set quality standards
establish appropriate tests for each standards
find and correct causes of poor quality
continue to make improvements
Poka-Yoke by Toyota’s Shigeo Shingo means ‘mistake proofing’, developed in 1960s
a design approach so that mistakes cannot occur
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
ISO 9000 standards established in 1987
guidelines for designing
manufacturing
selling, and
servicing products
provides some assurance that supplier follows accepted business practices in areas covered
required by many companies especially in Europe
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
ISO 9000 standards quality management principles
principle 1: customer focus
principle 2: leadership
principle 3: involvement of people
principle 4: process approach
principle 5: system approach to management
principle 6: continual improvement
principle 7: factual approach to decision making
principle 8: mutually beneficial supplier relationships
http://www.iso.ch
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Supply chain quality principles for outsourcing
supplier involved in product design
suppliers maintain high quality– therefore high rolled yield
operations must manage risk– e.g. defective toys
suppliers should be certified– e.g. ISO 9000
don’t rely just on price and product samples
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Quality control systems break down production process into
sub-processes and
internal customers
identify critical points where inspection or measurement should take place
four steps in designing QC systems identify critical points
decide on the type of measurement: variables/attribute
decide on the amount of inspection to be used
decide who should do the inspection
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Quality control systems types of measurement
attribute measurement– evaluated with a discrete choice
– counts, such as the number (or proportion) of defects
variables measurement– measured on a continuous scale
– mean, range or deviation of critical characteristics
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Process quality control basic assumptions
every process has random variation in it
processes are not usually found in a state of control
state of control unnecessary variation is eliminated
– assignable (special) causes identified and corrected
remaining variation is because of random causes– common causes, occur randomly
– cannot be changed unless process is redesigned
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Process quality control formulas for statistical process control (3 sigma)
p chart : n
ppp
13
x-bar chart : RAx 2
R chart : RDUCLRDLCL 43 , where A2, D3, D4 are constants depend on sample size
process capability Cp = spec width ÷ process width, higher the better
more widely used measure Cpk =
3,
3
LSLUSLMin
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Continuous improvement aim
reduce the variability of the product or process
priority processes with strategic importance
low process capability
use seven tools of quality control flow charts, run (trend) charts, control charts
pareto charts, histogram, scatter (x-y) diagram
cause-effect (fishbone or Ishikawa) charts
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Six Sigma quality introduction
defect level of 3.4 parts per million (ppm)
process range is +4.5 and –7.5, thus, Cpk = 1.5
airline fatalities are 6.4 sigma, most processes are 4
process improvement steps (DMAIC) define
measure
analyze
improve
control
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Six Sigma quality improvement cycle
uses a project/team approach
a process is selected for improvement
a cross-functional team is formed
a six sigma ‘black belt’ is chosen to head the team
uses DMAIC to find root causes and improve process
lean and six sigma are complementary approaches to improvement
lean eliminates waste, six sigma eliminates defects
six sigma is project focused, lean is more broad based
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Quality
Quality control and improvement in industry 75% use process control charts
more use of variable charts than attribute (p) charts because of sample size requirements
Six Sigma rapidly gaining acceptance
Quality control in the service industry SERVQUAL
Reference chapters 8 & 9 (Schroeder, 5/e)
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Capacity is defined as
the maximum output that can be produced over a given period of time
theoretical capacity primarily determined by physical assets
labor availability
nominal capacity subtracts downtime, shift breaks, etc
capacity utilization= output ÷ nominal capacity × 100%
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Hierarchy of capacity decisions
Planning Horizon (months)0 6 12
Scheduling
18
Aggregate Planning
24
Facilities DecisionsFacilitiesDecisions
AggregatePlanning
Scheduling
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Facilities decisions
how much total capacity is needed?
how large should each unit of capacity be?
when is the capacity needed?
what type of facilities/capacity are needed?
strategy typically considers amount of capacity
size of the units
timing of capacity changes
types of facilities needed for the long run
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Facilities factors affecting facilities strategy
predicted demand
cost of facilities
likely behavior of competitors
business strategy
international considerations
amount of capacity capacity cushion = capacity – average demand
build to average forecast
maximize utilization at bottlenecks
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Facilities size of the units
optimum unit size
economies of scale– production costs are not linear
– overhead spread over more units
diseconomies of scale– increased transportation costs
– cost of more bureaucracy
– increased organizational complexity
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Facilities timing of capacity additions
preempt the competition– build capacity ahead of need
– positive capacity cushion
wait and see strategy– small or negative capacity cushion
– lower risk strategy
types of facilities product, market or process focused
general purpose
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Aggregate planning characteristics
a time horizon of about 12 months
facilities that are considered fixed
aggregated level of demand– for one or few categories of product
a variety of management objectives
the possibility of changing both supply and demand
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Aggregate planning planning options
options for managing demand– influencing demand from customers
– delivering orders as promised
options for influencing demand from customers– pricing
– advertising and promotion
– backlog or reservations (shifting demand)
– development of complementary products
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Aggregate planning planning options
options for managing supply– delivering what is promised
– managing capacity and other resources
options for influencing supply– hiring and layoff of employees
– using overtime and undertime
– using part-time or temporary labor
– carrying inventory
– outsourcing or subcontracting
– making cooperative arrangements
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Aggregate planning basic production strategies
level load strategy– deliver products and services at a constant rate
– avoid making changes to operations
chase demand strategy– produce only what you sell
– produce products or services just in time
– do not produce if there are no sales
– typical for services
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Aggregate planning associated costs
level load strategy– inventory carrying costs
– cost of stock out or back order
chase demand strategy– hiring and firing costs
– overtime and undertime costs
– subcontracting costs
– part-time labor costs
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Sales and operations planning purpose
balance demand and supply
iterative nature1. develop production plan
2. check implications for inventory / backlog plan
3. if necessary, adjust production plan
4. check against resource plan and availability
5. if necessary, adjust production plan
6. recheck against inventory / backlog and resources
7. continue (go to 5) until you meet all constraints
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Scheduling it is the last and most constrained decision
in the capacity planning hierarchy
results in a time-phased plan
may range from a few hours to a few months
has conflicting objectives high efficiency
low inventories
good customer service
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Scheduling batch scheduling
characteristics– complex scheduling environment, closely related to MRP
– can be thought of as “network of queues”
– customers or jobs spend most of their time in queues
– actual work is less than 20% of total throughput time
difficulties– variety of jobs processed
– different routing and processing requirements of each job
– number of different orders in the facility at any one time
– competition for common resources
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161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Scheduling batch scheduling
example: figure 13.1 (Schroeder, 5/e)job work center / machine hours due date1 A/2, B/3, C/4 32 C/6, A/4 23 B/3, C/2, A/1 44 C/4, B/3, A/3 45 A/5, B/3 2
Total machine times for the five jobs:– machine A: 15 hours– machine B:12 hours– machine C:16 hours
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Scheduling Gantt charting
proposed by Henry Gantt in 1917
machine performance measures:– make span
» total time to complete a set of jobs
– machine utilization
» percent of make span time a machine is used
used primarily to monitor progress of jobs
one technique for executing the production plan
example: figures 13.2 & 13.3 (Schroeder, 5/e)
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Managing Capacity
Scheduling Gantt charting
hour
A1
B1
C14
5
4
4
5
2
3
2
3
3
machine idle : A 5 hoursB 8 hoursC 4 hoursTotal 17 hours
make span : 20 hours
machine utilization :
(60 – 17) hours60 hours
= 71.17%
161-639904-01 Competitive Cost Planning & Analysis Lecture 5
Managing Capacity
Scheduling other methods and techniques
finite capacity scheduling
theory of constraints
priority dispatching rules
infinite capacity loading
constant time networks
program evaluation review technique (PERT)
critical path method (CPM)
Reference chapters 12, 13 & 14 (Schroeder, 5/e)