Product Design and Process Selection Based on slides for Chase Acquilano and Jacobs, Operations Management, McGraw-Hill.

Product Design and Process Selection

Based on slides for Chase Acquilano and Jacobs, Operations Management, McGraw-Hill

What is a Product?

A product is a package of:GoodsServicesExperiencesOngoing Relationships

A product has:Tangible attributesIntangible attributes

ExamplesAutomobileAirplane tripDiamond RingRestaurant MealDishwasherCollege EducationTax PreparationBasketball Game

Product Design IssuesValue analysis/value engineering

Obtain better performance at lower costTwo Design Approaches:

Over the Wall Approach vs. Concurrent EngineeringComplexity of design

Implications??Reliability

How can it be increased?Standardization

Advantages & disadvantages?Modular design

Advantages & disadvantages?Environmental Implications

Exercise

Pick several products and list some issues that need to be considered in its design and manufactureInclude aesthetic, manufacturability, after-

sales service issues among othersDeliverable

List and present to the class

Process Selection

“continuous or semi-continuous”

“intermittent”

Process Structures

Continuous ProcessingRepetitive (assembly lines)Manufacturing cellsBatch processingJob ShopsProjects

Example: Job Shop

Example: Batch Processing

Example: Assembly Line Processing

Example: Continuous Processing

Unique Customized Varied StandardizedHomogenous (Commodity)

Very High Continuous

HighManufacturing

CellsAssembly Line

Moderate Batch

Low Job Shop

One Project

General Purpose

Highly Specialized

Highly Skilled Rote Tasks Varied

High Low

Product Process

Low High

High Low

Product Design

Equipment

Labor Skill

Scheduling ComplexityManagerial

Focus

Fixed Costs

Variable Costs

Volume

Manufacturing

Break-Even Analysis

Some managerial questions:How much should we produce to break

even?For a specific volume, should we

manufacture the product ourselves, or outsource?

For machine alternatives A and B, at what volumes should we use machine A and at what volumes, machine B?

Break-Even Analysis (example)

Sale Price = $300Option 1:

Purchase = $200 * DemandOption 2:

Lathe = $80,000 + $75 * DemandOption 3:

Machine center = $200,000 + $15 * Demand

Purchase vs. Lathe? Lathe vs. Machining Center?

Calculations

Purchase versus Lathe:$200 * Demand = $80,000 + $75 * Demand ($200 * Demand) - ($75 * Demand) = $80,000$125 * Demand = $80,000Demand = $80,000/$125 = 640 unitsso – less than 640 units, purchase; 640 of greater, use Lathe

Lathe versus Machine Center: $80,000 + $75 *Demand = $200,000 + $15 * DemandDemand = $120,000/$60 = 2,000 unitsso – less that 2000 units use the Lathe; 2000 or more use the machining center

Break Even Analysis Example

You are starting a new business and your fixed costs are estimated to be $500,000. Your product sells for $100 and costs you $50 to manufacture. What is the breakeven point? If you sell 15,000 units, what will be your profit?Answer: Break Even Value is 10,000 and Profit is

$250,000

Break Even Analysis Formulas

Total Revenue = Total Cost P x = F + V x implies: BEP(x) = F/[P-V]Profit = TR-TC = (P-V) x – FBreakeven between two machines:

F1 + V1 x and F2 + V2 x -- assume F2 > F1 & V2 < V1

(F2 – F1) / (V1 – V2)

Note: F = Fixed Cost; P = Price; V = Variable Cost

Break Even Analysis Example

In your business you are considering two machines. Machine 1 costs $500,000 and has a variable per unit cost of $50 per item. Machine 2 has a fixed cost of $200,000 and has a variable per unit cost of $80 per item. What is the break-even volume for the two machines. If a friend tells you to use Machine 2 if the volume is 5,000 items, is she right or wrong?Answer: Break Even Value is 10,000

Break Even Analysis Graphical Answer

Machine 2

Machine 1

1,200,000

1,100,000

D 1,000,000

O 900,000

L 800,000

L 700,000

A 600,000

R 500,000

S 400,000

300,000

200,000

100,000

-

5000 10000 15000

Volume

Summary

Production StrategiesProcess focused >>> Product focusedOther alternatives: Project, Cellular

TechnologyBreak-even Analysis