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Design of Goods and Services

PowerPoint presentation to accompany

Heizer and Render

Operations Management, Eleventh Edition

Principles of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

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Outline

Global Company Profile: Regal Marine

Goods and Services Selection
Generating New Products
Product Development
Issues for Product Design
Product Development Continuum

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Outline - Continued

Defining a Product

Documents for Production

Service Design

Application of Decision Trees to Product Design

Transition to Production

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Learning Objectives

Define product life cycle
Describe a product development system
Build a house of quality
Explain how time-based competition is implemented by OM

When you complete this chapter you should be able to :

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Learning Objectives

Describe how products and services are defined by OM
Describe the documents needed for production
Explain how the customer participates in the design and delivery of services
Apply decision trees to product issues

When you complete this chapter you should be able to :

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Global market

3-dimensional CAD system

Reduced product development time

Reduced problems with tooling

Reduced problems in production

Assembly line production

JIT

Regal Marine

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Organizations exist to provide goods or services to society

Great products are the key to success

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

Goods and Services Selection

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Goods or services are the basis for an organization's existence

Limited and predicable life cycles requires constantly looking for, designing, and developing new products

New products generate substantial revenue

Goods and Services Selection

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Goods and Services Selection

Figure 5.1

The higher the percentage of sales from the last 5 years, the more likely the firm is to be a leader.

Industry leader

Top third

Middle third

Bottom third

Position of firm in its industry

Percent of sales from new products

50% –

40% –

30% –

20% –

10% –

0% –

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The objective of the product decision is to develop and implement a product strategy that meets the demands of the marketplace with a competitive advantage

Product Decision

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Product Strategy Options

Differentiation
Shouldice Hospital
Low cost
Taco Bell
Rapid response
Toyota

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Product Life Cycles

May be any length from a few days to decades
The operations function must be able to introduce new products successfully

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Product Life Cycle

Negative cash flow

Figure 5.2

Introduction Growth Maturity Decline

Sales, cost, and cash flow

Cost of development and production

Cash flow

Net revenue (profit)

Sales revenue

Loss

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Life Cycle and Strategy

Introductory Phase

Fine tuning may warrant unusual expenses for
Research
Product development
Process modification and enhancement
Supplier development

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Product Life Cycle

Growth Phase

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 Phase

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 Phase

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

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Product Life Cycle Costs

Costs incurred

Costs committed

Ease of change

Concept Detailed Manufacturing Distribution,

design design service,

prototype and disposal

Percent of total cost

100 –

80 –

60 –

40 –

20 –

0 –

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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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Generating New Products

Understanding the customer
Economic change
Sociological and demographic change
Technological change
Political and legal change
Market practice, professional standards, suppliers, distributors

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Product Development Stages

Figure 5.3

Scope for design and engineering teams

Evaluation

Introduction

Test Market

Functional Specifications

Design Review

Product Specifications

Customer Requirements

Feasibility

Concept

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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 customer importance ratings

Evaluate competing products

Compare performance to desirable technical attributes

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QFD House of Quality

Relationship

matrix

How to satisfy

customer wants

Interrelationships

Technical

evaluation

Target values

What the customer

wants

Customer importance ratings

Weighted rating

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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

rating

(5 = highest)

Lightweight 3

Easy to use 4

Reliable 5

Easy to hold steady 2

High resolution 1

What the customer wants

What the Customer

Wants

Relationship

Matrix

Technical

Attributes and

Evaluation

How to Satisfy

Customer Wants

Interrelationships

Analysis of

Competitors

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House of Quality Example

What the Customer

Wants

Relationship

Matrix

Technical

Attributes and

Evaluation

How to Satisfy

Customer Wants

Interrelationships

Analysis of

Competitors

Low electricity requirements

Aluminum components

Auto focus

Auto exposure

High number of pixels

Ergonomic design

How to Satisfy

Customer Wants

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House of Quality Example

Lightweight 3

Easy to use 4

Reliable 5

Easy to hold steady 2

High resolution 1

What the Customer

Wants

Relationship

Matrix

Technical

Attributes and

Evaluation

How to Satisfy

Customer Wants

Interrelationships

Analysis of

Competitors

High relationship

Medium relationship

Low relationship

Relationship matrix

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House of Quality Example

Low electricity requirements

Aluminum components

Auto focus

Auto exposure

High number of pixels

Ergonomic design

Relationships between the things we can do

What the Customer

Wants

Relationship

Matrix

Technical

Attributes and

Evaluation

How to Satisfy

Customer Wants

Interrelationships

Analysis of

Competitors

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House of Quality Example

Weighted rating

Lightweight 3

Easy to use 4

Reliable 5

Easy to hold steady 2

High resolution 1

Our importance ratings 22 9 27 27 32 25

What the Customer

Wants

Relationship

Matrix

Technical

Attributes and

Evaluation

How to Satisfy

Customer Wants

Interrelationships

Analysis of

Competitors

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House of Quality Example

Company A

Company B

G P

F G

G P

P P

Lightweight 3

Easy to use 4

Reliable 5

Easy to hold steady 2

High resolution 1

Our importance ratings 22 5

How well do competing products meet customer wants

What the Customer

Wants

Relationship

Matrix

Technical

Attributes and

Evaluation

How to Satisfy

Customer Wants

Interrelationships

Analysis of

Competitors

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House of Quality Example

What the Customer

Wants

Relationship

Matrix

Technical

Attributes and

Evaluation

How to Satisfy

Customer Wants

Interrelationships

Analysis of

Competitors

Target values

(Technical attributes)

Technical evaluation

Company A 0.7 60% yes 1 ok G

Company B 0.6 50% yes 2 ok F

Us 0.5 75% yes 2 ok G

2 circuits

Failure 1 per 10,000

Panel ranking

0.5 A

75%

2’ to ∞

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House of Quality Example

Completed House of Quality

Low electricity requirements

Aluminum components

Auto focus

Auto exposure

High number of pixels

Ergonomic design

Company A

Company B

Lightweight 3

Easy to use 4

Reliable 5

Easy to hold steady 2

High resolution 1

Our importance ratings

G P

F G

G P

P P

Target values

(Technical attributes)

Technical evaluation

Company A 0.7 60% yes 1 ok G

Company B 0.6 50% yes 2 ok F

Us 0.5 75% yes 2 ok G

0.5 A

75%

2’ to ∞

2 circuits

Failure 1 per 10,000

Panel ranking

22 9 27 27 32 25

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House of Quality Sequence

Figure 5.4

Deploying resources through the organization in response to customer requirements

Production process

Quality plan

House 4

Specific components

Production process

House 3

Design characteristics

Specific components

House 2

Customer requirements

Design characteristics

House 1

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Organizing for Product Development

Traditionally – 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 organizations

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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

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Manufacturability and
Value Engineering

Benefits:

Reduced complexity of the product

Reduction of environmental impact

Additional standardization of components

Improvement of functional aspects of the product

Improved job design and job safety

Improved maintainability (serviceability) of the product

Robust design

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Cost Reduction of a Bracket via Value Engineering

Figure 5.5

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Issues for Product Design

Robust design

Modular design

Computer-aided design (CAD)

Computer-aided manufacturing (CAM)

Virtual reality technology

Value analysis

Sustainability and Life Cycle Assessment (LCA)

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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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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

Extensions of CAD

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Computer-Aided Manufacturing (CAM)

Utilizing specialized computers and program to control manufacturing equipment
Often driven by the CAD system (CAD/CAM)

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Product quality

Shorter design time

Production cost reductions

Database availability

New range of capabilities

Benefits of CAD/CAM

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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 with less environmental impact

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Sustainability and Life Cycle Assessment (LCA)

Sustainability means meeting the needs of the present without compromising the ability of future generations to meet their needs
LCA is a formal evaluation of the environmental impact of a product

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Product Development Continuum

Product life cycles are becoming shorter and the rate of technological change is increasing
Developing new products faster can result in a competitive advantage
Time-Based Competition

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Product Development Continuum

Figure 5.6

Internal Cost of product development Shared

Lengthy Speed of product development Rapid and/
or Existing

High Risk of product development Shared

External Development Strategies

Alliances

Joint ventures

Purchase technology or expertise
by acquiring the developer

Internal Development Strategies

Migrations of existing products

Enhancements to existing products

New internally developed products

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Product Development Continuum

Purchasing technology by acquiring a firm
Speeds development
Issues concern the fit between the acquired organization and product and the host
Joint Ventures
Both organizations learn
Risks are shared

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Product Development Continuum

Through Alliances
Cooperative agreements between independent organizations
Useful when technology is developing
Reduces risks

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Defining a 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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Monterey Jack Cheese

(a) U.S. grade AA. 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.

Code of Federal Regulation, Parts 53 to 109, General Service Administration

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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

Figure 5.8

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Bills of Material

BOM for a Panel Weldment

Figure 5.9 (a)

NUMBER DESCRIPTION QTY

A 60-71 PANEL WELDM’T 1

A 60-7 LOWER ROLLER ASSM. 1

R 60-17 ROLLER 1

R 60-428 PIN 1

P 60-2 LOCKNUT 1

A 60-72 GUIDE ASSM. REAR 1

R 60-57-1 SUPPORT ANGLE 1

A 60-4 ROLLER ASSM. 1

02-50-1150 BOLT 1

A 60-73 GUIDE ASSM. FRONT 1

A 60-74 SUPPORT WELDM’T 1

R 60-99 WEAR PLATE 1

02-50-1150 BOLT 1

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Bills of Material

Hard Rock Cafe’s Hickory BBQ Bacon Cheeseburger

Figure 5.9 (b)

DESCRIPTION QTY

Bun 1

Hamburger patty 8 oz.

Cheddar cheese 2 slices

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

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Parts grouped into families with similar characteristics

Coding system describes processing and physical characteristics

Part families can be produced
in dedicated manufacturing cells

Group Technology

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Group Technology Scheme

Figure 5.10

(a) Ungrouped Parts

(b) Grouped Cylindrical Parts (families of parts)

Grooved Slotted Threaded Drilled Machined

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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

Group Technology Benefits

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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

Figure 5.11 (a)

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Assembly Chart

Figure 5.11 (b)

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

SA
1

SA
2

R 209 Angle

R 207 Angle

Bolts w/nuts (2)

R 209 Angle

R 207 Angle

Bolt w/nut

R 404 Roller

Lock washer

Part number tag

Box w/packing material

Bolts w/nuts (2)

Left
bracket

assembly

Right
bracket

assembly

Poka-yoke inspection

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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

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Work Order

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

Work Order

Item Quantity Start Date Due Date

Production Delivery

Dept Location

157C 125 5/2/08 5/4/08

F32 Dept K11

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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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Configuration Management

The need to manage ECNs has led to the development of configuration management systems
A product’s planned and changing components are accurately identified and control and accountability for change are identified and maintained

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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

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Service Design

Service typically includes direct interaction with the customer
Process – chain – network (PCN) analysis focuses on the ways in which processes can be designed to optimize interaction between firms and their customers

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Process-Chain-Network (PCN) Analysis

Figure 5.12

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Process-Chain-Network (PCN) Analysis

Direct interaction region includes process steps that involve interaction between participants
The surrogate (substitute) interaction region includes process steps in which one participant is acting on another participant’s resources
The independent processing region includes steps in which the supplier and/or the customer is acting on resources where each has maximum control

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Process-Chain-Network (PCN) Analysis

All three regions have similar operating issues but the appropriate way of handling the issues differs across regions
Service operations exist only within the area of direct and surrogate interaction
PCN analysis provides insight to aid in positioning and designing processes that can achieve strategic objectives

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Adding Service Efficiency

Service productivity is notoriously low partially because of customer involvement in the design or delivery of the service, or both
Complicates product design

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Adding Service Efficiency

Limit the options
Improves efficiency and ability to meet customer expectations
Delay customization
Modularization
Eases customization of a service

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Adding Service Efficiency

Automation
Reduces cost, increases customer service
Moment of truth
Critical moments between the customer and the organization that determine customer satisfaction

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Documents for Services

High levels of customer interaction necessitates different documentation
Often explicit job instructions
Scripts and storyboards are other techniques

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First Bank Corp. Drive-up Teller Service Guidelines

Be especially discreet when talking to the customer through the microphone.

Provide written instructions for customers who must fill out forms you provide.

Mark lines to be completed or attach a note with instructions.

Always say “please” and “thank you” when speaking through the microphone.

Establish eye contact with the customer if the distance allows it.

If a transaction requires that the customer park the car and come into the lobby, apologize for the inconvenience.

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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

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

Procedure

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Decision Tree Example

Figure 5.13

(.6)

Low sales

(.4)

High sales

(.6) Low sales

(.4)

High sales

Purchase CAD

Hire and train engineers

Do nothing

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Decision Tree Example

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

Figure 5.13

(.6) Low sales

(.4)

High sales

Purchase CAD

(.6)

Low sales

(.4)

High sales

Hire and train engineers

Do nothing

$2,500,000 Revenue

– 1,000,000 Mfg cost ($40 x 25,000)

– 500,000 CAD cost

$1,000,000 Net

$800,000 Revenue

– 320,000 Mfg cost ($40 x 8,000)

– 500,000 CAD cost

– $20,000 Net loss

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Decision Tree Example

$388,000

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

= $388,000

Figure 5.13

(.6) Low sales

(.4)

High sales

Purchase CAD

(.6)

Low sales

(.4)

High sales

Hire and train engineers

Do nothing

$2,500,000 Revenue

– 1,000,000 Mfg cost ($40 x 25,000)

– 500,000 CAD cost

$1,000,000 Net

$800,000 Revenue

– 320,000 Mfg cost ($40 x 8,000)

– 500,000 CAD cost

– $20,000 Net loss

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Decision Tree Example

Figure 5.13

(.6)

Low sales

(.4)

High sales

(.6) Low sales

(.4)

High sales

Purchase CAD

$388,000

Hire and train engineers

$365,000

Do nothing $0

$0 Net

$800,000 Revenue

– 400,000 Mfg cost ($50 x 8,000)

– 375,000 Hire and train cost

$25,000 Net

$2,500,000 Revenue

– 1,250,000 Mfg cost ($50 x 25,000)

– 375,000 Hire and train cost

$875,000 Net

$2,500,000 Revenue

– 1,000,000 Mfg cost ($40 x 25,000)

– 500,000 CAD cost

$1,000,000 Net

$800,000 Revenue

– 320,000 Mfg cost ($40 x 8,000)

– 500,000 CAD cost

– $20,000 Net loss

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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

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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

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174 P A R T 2 | D E S I G N I N G O P E R AT I O N S

A process chain is a sequence of steps that accomplishes an activity, such as building a home, completing a tax return, or preparing a sandwich. A process participant can be a manufac- turer, a service provider, or a customer. A network is a set of participants.

Each participant has a process domain that includes the set of activities over which it has control. The domain and interactions between two participants for sandwich preparation are shown in the PCN diagram (Figure 5.12). The activities are organized into three process regions for each participant:

1. The direct interaction region includes process steps that involve interaction between par- ticipants. For example, a sandwich buyer directly interacts with employees of a sandwich store (e.g., Subway, in the middle of Figure 5.12).

2. The surrogate (substitute) interaction region includes process steps in which one partici- pant is acting on another participant’s resources, such as their information, materials, or technologies. This occurs when the sandwich supplier is making sandwiches in the restaurant kitchen (left side of Figure 5.12) or, alternately, when the customer has access to buffet ingredients and assembles the sandwich himself (right side of the figure). Under surrogate interaction, direct interaction is limited.

3. The independent processing region includes steps in which the sandwich supplier and/or the sandwich customer is acting on resources where each has maximum control. Most make-to-stock production fits in this region (left side of Figure 5.12; think of the firm that assembles all those prepackaged sandwiches available in vending machines and conveni- ence stores). Similarly, those sandwiches built at home occur to the right, in the customer’s independent processing domain.

All three process regions have similar operating issues—quality control, facility location and lay- out, job design, inventory, and so on—but the appropriate way of handling the issues differs across regions. Service operations exist only within the area of direct and surrogate interaction.

From the operations manager’s perspective, the valuable aspect of PCN analysis is insight to aid in positioning and designing processes that can achieve strategic objectives. A !rm’s operations are strategic in that they can de!ne what type of business the !rm is in and what value proposition it desires to provide to customers. For example, a !rm may assume a low-cost strategy, operating on the left of Figure 5.12 as a manufacturer of premade sandwiches. Other !rms (e.g., Subway) adopt a differentiation strategy with high customer interaction. Each of the process regions depicts a unique operational strategy.

Process chain A sequence of steps that ac- complishes an identifiable purpose (of providing value to process participants).

Figure 5.12 Customer Interaction Is a Strategic Choice

Sandwich supplier Assemble sandwich

Supplier’s process domain

Prepare sandwiches at factory for resale at convenience stores

Make sandwich in restau- rant kitchen from menu offerings with modest modifications

Assemble custom sandwich at Subway as customer orders

Customer assembles sandwich from buffet offerings

Assemble sandwich at home using ingredients from refrigerator

Independent processing

Surrogate interaction

Direct interaction

Sandwich consumer

Consumer’s process domain

LO7 Explain how the customer participates in the design and delivery of services

M05_HEIZ1145_11_SE_C05.indd 174 07/11/12 7:25 PM