CHAPTER ONE

INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT

INTRODUCTION

 Importance: Efficient use of resources (people, materials, etc.) is crucial for business
success in today's global market. Effective OM leads to strategic growth and
competitiveness.
 What is OM? It's the design, control, and improvement of systems that transform
resources into products or services. It encompasses managing people, materials,
equipment, and facilities.
 Broadened Scope: Traditionally associated with factories, OM now applies to a wide
range of industries, including services like healthcare, education, and banking.
 New Terminology: Due to this broader scope, the field is often called
Production/Operations Management (POM) or simply Operations Management (OM).

There no single definition of OM, but provides examples that highlight its role in:

 Producing goods and services

 Transforming inputs to outputs
 Designing, operating, and improving production systems
 Managing resources to deliver an organization's offerings

Operations System:

 Core Function: OM is essential for businesses, transforming inputs (materials,

labor) into finished goods or services.
 Transformation Process: Inputs are converted to outputs through one or more
stages.
 Feedback and Control: Measurements are taken throughout the process to
ensure desired outputs are achieved. Deviations from standards trigger
corrective actions.
 Value Addition: A key concept – the difference between input costs and the
value/price of outputs.

Operations Function and its Environment:

 Foundation of Business: Production/Operations is considered the foundation

for any business, as it directly creates the products or services customers need.
 Internal Function: Operations typically function internally, buffered from
external influences by other departments like marketing and finance.
 Interaction with Environment: This buffering allows for smoother operations.
Interaction with the external environment (customers, suppliers) happens
indirectly through other functions.
Indirect Interaction: The operations function (production) primarily interacts with the
external environment (customers, suppliers) indirectly through other departments like
marketing and finance.

Benefits of Buffering: There are several advantages to this separation:

 Smoother Operations: Direct interaction with external factors can disrupt

production processes. Buffering minimizes these disruptions.
 Continuous Production: For efficiency, some production systems function best
uninterrupted. Buffering allows for smoother transitions and can help maintain
continuous production.
 Specialized Skills: Managing production requires different skills than managing
external-facing functions like marketing. Buffering acknowledges this by
separating the responsibilities.

Operations Decisions:

 Frequency and Impact: Numerous decisions are made daily in operations,

with even seemingly minor ones impacting a company's success.
 Decision-Making Process: These decisions can range from simple judgments
based on experience to complex analyses that involve both objective data and
subjective judgment. Quantitative methods can be used to improve
objectivity.

Major Decision Areas for Operations Managers:

Strategic Decisions (Long-Term):

 Product and service plans

 Competitive priorities (e.g., Total Quality Management, lean manufacturing)
 Location, capacity, and layout decisions

Design Decisions:

 Designing the actual production system

 Choosing process design technology
 Job design (how tasks are assigned)

Operating Decisions (Day-to-Day):

 Forecasting (demand prediction)

 Materials management
 Inventory management
 Aggregate planning (production planning over a medium timeframe)
 Scheduling (specific production plans)
 Quantitative Approaches:

 These methods aim to find mathematically optimal solutions for problems faced by
managers.
 Common quantitative approaches include:
 Linear programming (resource allocation optimization)
 Queuing theory (analyzing waiting lines)
 Inventory models (optimizing inventory levels)
 Forecasting techniques (predicting future demand)
 Statistical models (data analysis for informed decisions)

Decision Complexity:

 Operations decisions become more complex when:

 Many variables are involved and interconnected.
 Data about these variables is incomplete or uncertain.
The following are quantitative tools used under the three situations.
Certainty Risk uncertainty
Algebra, Breakeven analysis, Statistical analysis Game theory
Cost benefit analysis, Queuing theory - Decision theory
Calculus, mathematical Simulation
Programming, linear and Net Work analysis;
Non linear, integer, dynamic PERT/CPM

Framework for Decision Making:

This framework provides a structured approach for decision-makers.

Steps involved:
 Define the problem and its key factors (parameters).
 Establish the decision criteria and overall objective.
 Develop a model that relates the parameters to the decision criteria.
 Generate alternative solutions by adjusting parameter values.
 Choose the course of action that best meets the organization's goals.
 Implement the decision and monitor the results.
Quantitative Tools:

Specific quantitative tools can be applied within this framework to solve operations
problems. While not all models are covered here, the following decision-making
scenarios with example tools are provided:
 A. Decision Making under Certainty (known outcomes):

Common decision rules include:

 Break-even analysis (BEA): This technique helps determine the production level
where total costs equal total revenue (no profit, no loss).
 Cost-benefit analysis: This approach weighs the costs of an action against its potential
benefits.
 Mathematical programming: This involves using mathematical models to find
optimal solutions for resource allocation problems.
B. Decision Making under Risk (probabilistic outcomes):
Decision Tree: This is a visual tool that maps out different decision options, their associated
probabilities of occurrence, and the resulting outcomes. It helps determine the expected value
of each option under risk.
C. Decision Making under Uncertainty (unknown outcomes):
When there's limited or no information about future events, different decision criteria
can be used:
 Minimax Regret: This approach focuses on minimizing the potential regret
associated with each decision, considering the worst-case scenario for each option.
 Maximax: This strategy involves choosing the option with the highest potential
payoff, regardless of probability.
 Laplace Criterion: This method suggests selecting the option with the average payoff
of all possible outcomes.
Differences between manufacturing and service operations
 Tangibility of Output: The main distinction lies in the nature of the output. Manufacturing
produces tangible physical goods, while services are intangible experiences. The saying "If
you drop it on your foot and it doesn't hurt, it's a service" is a humorous way to remember
this difference.
 Customer Involvement: Service operations typically involve a higher degree of direct
customer contact during the service delivery process (e.g., haircut, surgery). In contrast,
manufacturing often occurs in a separate location away from the customer.
 Input Variability: Manufacturing tends to have more standardized inputs (raw materials)
compared to services. Each service encounter may involve unique customer requirements or
problems that need to be addressed.
 Labor Intensity: Services are generally more labor-intensive, relying on people to deliver the
service. Manufacturing often relies more on machinery and capital equipment.
 Output Uniformity: Manufactured goods tend to be more uniform in quality and
characteristics. Services can be more variable depending on the specific customer and the
service provider.
 Productivity Measurement: Measuring productivity is typically easier in manufacturing due
to the tangible nature of outputs. Measuring service productivity can be more challenging
due to the intangible aspects of services like customer satisfaction.

The Overlap between Manufacturing and Services:

 In reality, many businesses provide a combination of both goods and services. For instance, a
car manufacturer not only produces the car (good) but may also provide after-sales service
(service).

Services often involve some element of physical good production (e.g., a restaurant prepares
food) and vice versa (e.g., a manufactured computer comes with software as a service).

 Inventory: Manufactured goods can typically be inventoried and stored for

later sale. Services generally cannot be inventoried; they are produced and
consumed simultaneously.
 Lead Time: The time it takes to deliver a service is often shorter than the lead
time for manufacturing a product.
 Quality Measurement: Evaluating service quality can be more subjective and
complex compared to measuring the quality of a physical product.

Historical perspective on the evolution of Production and Operations Management

(POM)

Early Traces:

 The concern for efficiency and productivity has existed throughout history, even
in small groups and individual efforts.
 Large organizations like governments, armies, and religious institutions also
employed management techniques to boost output.

18th Century

 Adam Smith's ideas on specialization of labor emerged, emphasizing dividing

tasks into subtasks for worker skill development and efficiency.

Early 20th Century

 F.W. Taylor's scientific management approach put Smith's theories into practice,
focusing on worker efficiency through detailed studies to eliminate wasted
effort.
 Other disciplines like psychology, sociology, and economics began contributing
to management practices.

1930s-1950s:

 "Production Management" became the prevalent term.

 Techniques focused on economic efficiency in manufacturing continued to
develop.

1970s and Beyond:

  Shift in Focus: The rise of the service sector led to a name change from
"Production" to "Operations Management," reflecting a broader scope beyond
just manufacturing.
 Emphasis on Synthesis: A shift occurred from purely analytical approaches to a
more integrated view, considering operations within the larger strategic and
policy context of organizations.
 Operations as a Strategic Function: Operations Management gained recognition
as a vital strategic element for achieving customer needs globally.
Contributions from Other Disciplines:
 Industrial engineering, management science, statistics, economics, and physical
sciences (biology, anatomy, chemistry, physics) have all significantly contributed
to advancements in OM, particularly in product and process design.
 Information sciences play a major role in improving productivity and providing
a wider variety of goods and services through data processing and information

What is Productivity?

 It's a measure of how efficiently resources (inputs) are used to produce goods or
services (outputs).

The formula: Productivity = Outputs / Inputs

Goal:

 Increase the ratio of outputs to inputs for better productivity.

Relative Measure:

 Productivity gains meaning when compared to something else:

 Similar businesses within the same industry
 The same operation's performance over time

Types of Productivity Measures:

 Partial Productivity: Ratio of output to a single input (e.g., labor productivity =

total output / total labor hours)
 Multifactor Productivity: Ratio of output to a group of inputs (but not all inputs)
 Total Factor Productivity: Ratio of all outputs to all inputs (represents the
productivity of an entire organization or even a nation)

Choosing the Right Measure:

 The type of productivity measure used depends on what you're trying to

understand or improve.

The Three Critical Productivity Factors:

 Labor: A healthy, well-educated, and well-nourished workforce contributes to better
productivity. Historically, about 10% of annual productivity gains are attributed to labor
quality improvements.
 Capital: Investment in tools and equipment (capital) is crucial. Capital investment has grown
steadily except during severe recessions. However, inflation and taxes can make capital more
expensive. While using more labor might reduce unemployment in the short term, it can
hinder long-term productivity and wage growth. Capital investment is necessary but not
always sufficient for productivity gains.
 Management: Effective management practices are essential for ensuring efficient use of labor
and capital, leading to productivity increases. Management is estimated to be responsible for
over half (52%) of annual productivity improvement. This includes leveraging knowledge
and technology.

The Role of Operations Managers in a Knowledge Society:

 Knowledge societies are characterized by a shift from manual labor to

information processing tasks requiring ongoing education.

Operations managers play a key role in:

 Providing necessary education and training for the workforce.

 Effectively utilizing technology and knowledge to boost productivity.
 Selecting the best new capital investments and improving existing ones.

The Challenge of Productivity in the Service Sector:

Measuring and improving productivity in the service sector is challenging because

service work is often:

 Labor-intensive (e.g., counseling, teaching)

 Focused on individual needs (e.g., investment advice)
 Performed by professionals (e.g., medical diagnosis)
 Difficult to automate (e.g., haircut)
 Difficult to evaluate for quality (e.g., law firm performance)
 The growth of low-productivity activities like childcare and housekeeping within
the service sector further complicates productivity measurement.

Improving Productivity:
Several key steps can be taken by companies and departments to improve
productivity:

 Develop productivity measures for all operations.

 Take a holistic view to identify areas for improvement, focusing on overall
productivity.
 Develop methods to achieve these improvements.
 Establish realistic goals for improvement.
 Demonstrate management support and encouragement for productivity
improvement initiatives.
 Measure and publicize improvements.

Ethics and Social Responsibility in Operations Management:

 Operations managers face constant changes and challenges due to a complex and
evolving environment (physical, social, legal).
 Balancing the needs of various stakeholders (customers, distributors, suppliers,
owners, lenders, and employees) is crucial.

Ethical considerations include:

 Developing and producing safe, high-quality products.

 Maintaining environmental cleanliness.
 Providing a safe workplace.
 Fulfilling community commitments.

CHAPTER TWO
 OPERATIONS STRATEGY AND COMPETITIVENESS

Operations Strategy for Competitive Advantage

Strategic Framework:

 Every business strategy should consider both the external environment (threats
& opportunities) and the internal environment (strengths & weaknesses).
 The core question is: "How can we satisfy customers?" given these constraints.

Mission and Strategies:

 Effective operations management requires a clearly defined mission (purpose)

and a well-defined strategy (action plan) to achieve that mission.

Defining the Mission:

 A well-defined mission clarifies the organization's purpose and what value it

provides to society.
 The mission statement sets boundaries and focus, guiding the organization's
actions.

Developing Strategies:

 Strategies outline how to achieve the mission. Each functional area (e.g., marketing,
finance, operations) has its own strategy that supports the overall mission.

Strategies aim to:

 Exploit opportunities and leverage strengths.

 Neutralize threats and overcome weaknesses.

Three Strategic Approaches:

 Differentiation: Offer unique or superior products/services compared to competitors.

 Cost Leadership: Become the low-cost producer in the market.
 Quick Response: Respond rapidly to changing customer needs and market demands.
 Operations managers play a crucial role in translating these strategic concepts into
actionable tasks.

Strategies vs. Tactics:

 Strategies are high-level plans for achieving goals (like a roadmap).

 Tactics are the specific methods and actions used to implement strategies (like the
driving directions).

Hierarchical Relationship:

There's a hierarchical relationship from mission down to actual operations:

  Mission -> Goals -> Strategies -> Tactics -> Operations

Operations Strategy

Two Levels of Strategy:

 Organization Strategy: Sets the broad direction for the entire organization.
 Operations Strategy: Focuses specifically on the operations aspects of the business,
encompassing:
 Products and processes used
 Methods employed
 Operating resources
 Quality standards
 Cost management
 Lead times (production and delivery times)
 Scheduling

Alignment is Key:

 For maximum effectiveness, these two strategies must be closely linked and not formulated
independently.
 The organization's overall strategy should consider the strengths and weaknesses of its
operations.
 It should leverage operational strengths and find ways to address weaknesses.
 Likewise, the operations strategy needs to be aligned with the organization's overall goals
and support them effectively.

Benefits of Alignment:

 This alignment ensures that all efforts within the organization are working towards the same
objectives.
 Operations can be optimized to support the chosen competitive strategy (e.g., cost
leadership, differentiation).
 Strategy Formulation

SWOT Analysis:

A crucial tool for strategy formulation is the SWOT analysis, which considers:
  Strengths: Internal capabilities that give the organization an edge.
 Weaknesses: Internal limitations that hinder performance.
 Opportunities: External factors that present potential benefits.
 Threats: External factors that pose risks to the organization.

Order Qualifiers vs. Order Winners:

 Order Qualifiers: The minimum requirements a product or service must

meet to be considered for purchase by a customer.
 Order Winners: The factors that differentiate an organization's offerings from
competitors, making them more attractive.

Distinctive Competencies:

These are the unique strengths or capabilities that give an organization a competitive
advantage. Examples include:

 Price competitiveness
 High quality
 Rapid delivery
 Flexibility (variety or volume)
 Superior customer service
 Convenient location

Developing Distinctive Competencies:

The most successful organizations:

 Align their distinctive competencies with customer needs.

 Consider competitor capabilities but aim to exceed them in at least one dimension.
 Leverage marketing and operations to create offerings that meet customer needs and
capitalize on operational strengths.

Environmental Scanning:

This involves proactively monitoring external events and trends that can impact the
organization, both positively and negatively. Examples include:

 Competitor activities
 Shifting customer needs
 Legal, economic, political, and environmental issues
 New market opportunities

The Strategic Importance of Operations:

Operations play a critical role in achieving organizational goals.

 There are three main levels of strategy:

 Corporate Strategy: Defines the overall mission and long-term objectives for
the entire organization.
 Business Strategy: Outlines how the organization will compete in the
marketplace, potentially through cost leadership, differentiation, or focus.
 Operational Strategy: Specifies how individual functions like operations
contribute to achieving the corporate and business strategies.

Operations strategy involves:

 Selecting and managing resources effectively (technology, workforce,

systems)
 Aligning operations with the chosen competitive strategy
 Creating goods and services that support the business strategy

Achieving Competitive Advantage through Operations

Three Main Strategies:

 Differentiation: Offering unique or superior products/services compared to

competitors. This can encompass various aspects of the customer experience.
 Cost Leadership: Becoming the low-cost producer in the market while still
meeting customer value expectations.
 Quick Response: Adapting rapidly to changing customer needs and market
demands. This includes features like:
 Reliable and quick delivery
 Flexible production to accommodate volume fluctuations
 Timely product development

Key Ideas for Each Strategy:

 Differentiation: Uniqueness can be created across all aspects of the business, not
just specific functions.
 Cost Leadership: Optimizing facilities and relentlessly driving down costs
without sacrificing value.
 Quick Response: Encompasses flexibility, reliability, and speed in areas like:
 Product development
 Delivery
 Scheduling

Six Specific Strategies:

These strategies translate the broader concepts into actionable tactics:

  Flexibility in Design and Volume: Adapt production to changing market
demands.
 Low Price: Achieve cost leadership to offer competitive pricing.
 Delivery: Ensure fast and reliable delivery of products or services.
 Quality: Deliver high-quality products or services that meet customer
expectations.
 After-Sales Service: Provide excellent customer support after the sale.
 Broad Product Line: Offer a diverse range of products or services to cater to
different customer needs.

The Role of Operations Management:

Effective implementation of these strategies relies on sound operations management

decisions. By optimizing operations, organizations can achieve:

 Increased productivity
 Sustainable competitive advantage

Competitive Advantage and Competitive Priorities

Competitive Advantage:

 Defined as any activity that creates superior value for customers compared to
rivals.
 The strongest advantage is difficult for competitors to imitate.
 Key to achieving it lies in understanding how to create value for customers.

Competitive Priorities:

 Specific areas of focus within operations that support the chosen competitive strategy.

 Eight possible priorities are grouped into four categories:

1. Cost: Becoming the low-cost producer (e.g., minimizing costs for labor, materials,
overhead).
2. Quality:
 High-performance design: Offering superior features, durability, and reliability.
 Consistent quality: Ensuring products or services consistently meet specifications.
3. Time:
 Fast delivery time: Fulfilling orders quickly.
 On-time delivery: Meeting promised delivery times.
 Development speed: Bringing new products or services to market rapidly.
4. Flexibility:
 Customization: Adapting products or services to individual customer needs.
 Volume flexibility: Adjusting production rates to handle demand fluctuations.

The Importance of Trade-Offs in Operations Strategy

  Resource Allocation: Operations resources are limited. Focusing on one
competitive priority (like quality) often means sacrificing others (like cost).
 Strategic Alignment: Operations priorities must align with the overall business
strategy. (e.g., High-quality components may not be feasible for a low-cost
strategy.)
 Minimum Standards: Even with a focus on specific priorities, a baseline level for
all is necessary. (e.g., Competitive pricing even if not the lowest.)

Plant-within-a-Plant (PWP):

 A strategy for large facilities with diverse products and priorities.

 Different areas are dedicated to distinct products, each with its own workforce
and priorities.
 Examples: Hospitals with specialized units, department stores with separate
departments.

Order Qualifiers vs. Order Winners (by Terry Hill):

 Order Qualifiers: Minimum requirements for a product/service to be

considered in a market. (e.g., Delivery time for pizza restaurants.)
 Order Winners: Differentiating factors that attract customers and win business.
(e.g., Fresh ingredients for a pizza restaurant.)
 Order winners can become qualifiers over time, requiring continuous innovation
for differentiation.
 Example: Quality became an order qualifier in the auto industry after Japanese
competition.

Key Points:

 Strategic Alignment: Operations decisions must prioritize aspects that support

the overall business strategy. These decisions often involve trade-offs.
 Order Qualifiers vs. Order Winners:
 Order Qualifiers: The minimum requirements to be considered for purchase in a
market (e.g., good quality in most industries).
 Order Winners: The differentiating factors that make a company's offerings
more attractive than competitors (e.g., speed for FedEx, customization for
tailors).

Making the Choice:

Businesses need to identify both order qualifiers and order winners for their specific
market.

Examples:

 Dell: Aims to excel in all four competitive priorities (cost, quality, speed,
flexibility).
 Southwest Airlines: Focuses on cost as a key order winner.
 McDonald's: Emphasizes consistency as a primary order winner.
 FedEx: Prioritizes speed as a key order winner.
 Custom Tailors: Specialize in flexibility (customization) to win business.

Remember:

 Order qualifiers can evolve into order winners over time, requiring companies to
constantly innovate and find new ways to differentiate themselves.
 Understanding trade-offs and focusing on the right priorities is crucial for
achieving a competitive advantage.

CHAPTER THREE

PRODUCT AND SERVICE DESIGN

 Product Design

 Encompasses both the aesthetic (appearance) and functional aspects of a product or

service.
 Determines the characteristics of the various components and functionalities.
 Inputs come from various departments: marketing, engineering, and production.

Importance in Operations:

 New Product Development: Crucial for growth and competitive advantage.

 Production Planning: Product design defines what will be produced and how.
 Integration with Operations: Needs to consider production processes, quality, capacity,
and inventory.
 Prerequisite for Production: Production cannot occur without a defined product design.

Collaboration:

 Requires close cooperation between operations, marketing, and other relevant

functions.

Reasons for Product or Service Design

Growth and Competition:

Introducing new products or services is a core strategy for:

 Business growth and profitability.

 Gaining a competitive edge by offering novel options.
 Countering potential downsizing through innovation.

Redesigning Existing Products:

Redesign happens due to various factors:

 Addressing customer complaints, safety concerns, or excessive warranty claims.

 Low product demand.
 Achieving cost reductions in materials or labor.

Responding to Technological Advancements:

Obsolete technology forces companies to:

 Discontinue outdated products.

 Develop new products leveraging new technologies.

Addressing Product-Target Gaps:

When a product fails to deliver promised benefits, companies may:

  Redesign it to meet customer expectations.
 Reposition it as a "price advantage" product targeting budget-conscious buyers.

Economic Factors:

Resource availability and pricing can influence design:

 Shortages of raw materials (e.g., leather, precious metals) necessitate product

changes.
 Rising resource costs may force companies to develop new products.
 Underutilized resources may lead to new product creation to maximize their value.
 Acquisition of new resources (technologies, materials) can spark product innovation.

Shifting Customer Preferences:

Evolving customer tastes and needs drive product design:

 Consumers seek variety and products that enhance or maintain their lifestyles.
 Changes in demographics (age, income, lifestyle) influence product demand.

Socio-Legal Considerations:

Legal and social factors can necessitate product redesign:

 Products that become illegal, unethical, or environmentally unfriendly need

changes.

Marketing Considerations:

Identifying new market opportunities or responding to competition can lead to:

 Product modifications to better suit specific market needs.

 Development of new products to compete with substitutes entering the market.
 Product adjustments to satisfy distribution channel partners.

Overall Objectives of Product/Service Design:

 Launching new or improved products/services quickly.

 Creating products/services with high customer appeal and satisfaction.
 Enhancing product quality.
 Reducing production costs.

The Product/Service Design Process: From Ideas to Market Launch

Initiating the Design Process:

 Motivation: Driven by organizational goals, customer needs, regulations,

competition, and new technologies.
 Customer Focus: Customer satisfaction is paramount, with poor design leading
to complaints, returns, and market share loss.
 Idea Generation: Sources include customers (through marketing research, focus
groups), R&D departments, competitor analysis (including reverse engineering),
and internal staff.

The Design Stages:

1. Concept Generation: Brainstorming ideas from various sources.

 Customers: Market research, focus groups, listening to feedback.
 Competitors: Studying their products and practices (including reverse
engineering).
 Staff: Salespeople, front-of-house staff, and R&D departments.
2. Concept Screening (Feasibility Analysis): Evaluating ideas based on:
 Market feasibility: Does the product have a market?
 Financial feasibility: Are costs and performance aligned with objectives?
 Technical feasibility: Is the technology and skilled workforce available?
3. Initial (Preliminary) Product Design: Translating the chosen concept into a detailed
design with specifications and engineering drawings. This stage involves balancing
cost, quality, and performance.
4. Prototype Construction: Building one or more physical models closely resembling
the final product, often using non-permanent materials.
5. Prototype Testing: Evaluating the prototypes for:
 Marketing performance: Customer acceptance through test markets.
 Technical performance: Identifying and addressing any functional issues.
6. Final Product Design: Incorporating any changes suggested by testing into the final
product specifications and drawings.
7. Product Introduction: Launching the product through marketing efforts.
8. Follow-up Evaluation: Monitoring performance and customer feedback to identify
areas for improvement and refine forecasts (handled by marketing).

Key Points:

 Design is an iterative process, often requiring revisiting earlier stages based on

testing and feedback.
 Teamwork is crucial for efficient design and development.
 Understanding customer needs and market feasibility is essential for success.

Value Analysis
 Value Analysis Defined:

 A systematic approach to identify and eliminate unnecessary costs in a

product or service.
 Focuses on achieving equivalent performance at a lower cost.
 Analyzes the function of parts and materials to optimize cost-effectiveness.

Key Questions in Value Analysis:

 Can cheaper materials or parts be used without compromising function?

 Are certain functions unnecessary?
 Can multiple parts be combined for reduced cost?
 Can parts be simplified or standardized?
 Can product specifications be relaxed for lower costs?

Value as a Relative Concept:

 Value is not inherent; it depends on function, cost, and customer perception.

 A product's value is determined by how well it fulfills a need at a price the
customer is willing to pay.
 Value analysis emphasizes the functional approach, focusing on the cost of
achieving a specific function.

Steps in Value Analysis:

1. Function Identification: Clearly define the primary and secondary functions of the
product.
2. Function Evaluation: Compare functions to alternative solutions to find the most cost-
effective option.
3. Developing Alternatives: Brainstorm realistic and cost-saving alternatives using the
following principles:
 Avoid generalizations.
 Gather all cost data.
 Use reliable information sources.
 Conduct brainstorming sessions.
 Identify and overcome obstacles.
 Leverage industry expertise.
 Consider using vendor expertise and standard parts.
 Evaluate the use of specialized processes.
 Apply relevant industry standards.
 Make cost-conscious decisions.

The Product Design Process

 Step 1: Idea Generation:

 The starting point of product design.

 Ideas can come from various sources:
 Customers: Market research (surveys, focus groups) helps understand customer
needs and preferences.
 Competitors: Studying competitor products (including features, pricing, and
strategies) can spark innovation. Techniques like benchmarking (comparing
performance) and reverse engineering (disassembling a product to understand
its design) are used for competitor analysis.
 Internal sources: Product managers, engineers with inventive ideas, and R&D
departments can all contribute product concepts.

Step 2: Product Screening:

 Evaluating the feasibility and potential of a product idea.

 A product screening team considers various factors:
 Operations: Can the product be manufactured with existing resources or
will new facilities/equipment be required?
 Marketing: What is the market size and potential? How will the product
be marketed?
 Finance: What are the investment costs, expected return on investment,
and break-even point (minimum quantity needed to cover costs)?
 Techniques like checklist scoring and break-even analysis are used to aid product
screening decisions.

Break-Even Analysis:

 A tool to assess the financial viability of a product.

 It calculates the quantity of units that need to be sold to cover all costs (fixed
and variable) and reach a break-even point.
 A product with a high break-even quantity might be risky due to sales
uncertainty.

Steps involved in Break-Even Analysis:

1. Identify fixed costs (costs that don't vary with production volume) and variable
costs (costs that vary with production volume).
2. Calculate total cost (fixed cost + variable cost per unit * number of units
produced).
3. Determine selling price per unit.
4. Set total cost equal to total revenue (selling price per unit * number of units sold)
and solve for the break-even quantity.
 Step 3: Initial (Preliminary) Product Design and Testing:

 Once an idea passes screening, it moves to this stage.

 Design engineers translate performance specifications into technical details.
 Prototypes are built and tested for functionality and performance.
 Based on test results, the design is revised, rebuilt, and retested until
satisfactory performance is achieved.

Step 4: Final Product Design:

 The final stage where the product is ready for manufacturing.

 Final specifications are drawn up, including detailed instructions for:
 Equipment selection
 Production tasks
 Material requirements
 Supplier selection

Factors to Consider in Product Design

Product design goes beyond aesthetics; it requires considering various aspects to ensure
a successful product launch. Here's a breakdown of some key factors:

A. Design for Manufacture (DFM):

 Focuses on making products easy and cost-effective to manufacture.

 Achieved through:
 Minimizing parts and subassemblies.
 Using standard parts and repeatable processes.
 Designing for efficient assembly and testing.

Benefits:

 Lower production costs

 Improved quality
 Reduced assembly time

B. Product Life Cycle:

 Products go through stages of changing demand: introduction, growth, maturity, and

decline.
 Understanding the life cycle stage helps with:
 Design changes (focus on early stages)
 Estimating future profitability (considering initial investment)
 Life cycle length varies by industry (short in computers, long in aircraft).
 C. Concurrent Engineering:

 Involves bringing various teams (design, manufacturing) together early on.

 Aims for a smooth transition from design to production.
 Benefits:
 Faster development time
 Improved quality

D. Remanufacturing: Reusing components of old products in new ones.

 Benefits:
 Environmental benefits (reduced waste)
 Cost savings (cheaper than new products)

E. Robust Design:

 Designing products to function effectively under various conditions.

 More robust designs lead to fewer failures.

F. Concurrent Engineering:

 An approach that brings various teams together early in the design phase.
 Benefits:
 Smoother transition from design to production.
 Faster development time.
 Improved quality.

G. Computer-Aided Design (CAD):

 Using computers to create and modify product designs.

 Benefits:
 Increased design productivity
 Easier revisions and error correction

H. Product Variety:

 Balancing customer needs with operational efficiency.

 More variety offers:
 Increased customer choices
 Potential sales growth
 But also leads to:
 Higher costs
 Greater complexity
 Difficulty in standardization
 I. Modular Design:

 A way to achieve high product variety with low component variety.

 Achieved through:
 Developing standard building blocks (modules)
 Assembling modules to create different products
 Benefits:
 Offers product customization for customers
 Maintains operational efficiency with fewer components

J. Quality Function Deployment (QFD):

 A tool to translate customer needs into technical specifications.

 Helps bridge the gap between what customers say and what engineers need.
 Improves communication between different departments.

Service Design

Service vs. Product Design:

 Services are intangible – you can't hold or store them, unlike physical products.
 Services involve a high degree of customer contact – the customer is often part of
the service delivery itself.

Challenges in Service Design:

 Defining the Customer Experience: A service experience can be subjective and

depend on emotions and feelings.
 Maintaining Consistency: Delivering a consistent and positive experience across
different service providers can be challenging.

The Service Design Process:

1. Service Concept:
 Defines the target customer and the desired experience.
 Identifies how the service will stand out from competitors.
2. Service Package:
 Creates a combination of physical items, sensory benefits, and psychological
benefits to meet customer needs.
 Physical Items: Tangible elements like facilities, food, or equipment.
 Sensual Benefits: Aspects perceived through the senses (taste, smell, sight,
sound).
 Psychological Benefits: Emotional or mental benefits like relaxation, status, or
well-being.
 Example: A fast-food restaurant prioritizes speed and provides uncomfortable
seating to encourage quick consumption, aligning with the service concept.
3. Service Specifications:
 Performance Specifications: Outline expectations for service delivery.
 Design Specifications: Describe the service in detail to ensure consistent
experience across locations and personnel. This includes:
 Activities performed by service providers.
 Skill requirements and guidelines for service providers.
 Cost and time estimates.
 Facility layout and equipment needs.
 Delivery Specifications: Outline the steps required to deliver the service,
including:
 Work schedule.
 Deliverables (what the customer receives).
 Location of service delivery.