MM ZG 523 / QMJ ZG 523

PROJECT MANAGEMENT
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LECTURE 4

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TECHNICAL
ANALYSIS

Slide 2 of 52
 Product/Service
Development and Design

Slide 3 of 52
 Overview
Overview

● Designing and Developing Products and Services

● Process Planning and Design
● Major Factors Affecting Process Design Decisions
● Types of Process Designs
● Interrelationships Among Product Design, Process
Design, and Inventory Policy
● Process Design in Services
● Deciding Among Processing Alternatives
● Wrap-Up: What World-Class Producers Do

Slide 4 of 52
 Stages
Stages of
of aa Product’s
Product’s Life
Life Cycle
Cycle

Automobile

Cell Phone Video Recorder

Compact Disc Player
Color Laser Printer
Fax Machine
Color Copier B&W TV

Introduction Growth Maturity Decline

Slide 5 of 52
 Product Life Cycle & Sales, Cost, and
Net Revenues

Sales
Sales, Cost & Profit

Revenue
Net
Revenue
Loss

1 2 3 4 5

Introduction Growth Maturity Decline

Time

Slide 6 of 52
 Operations Emphasis in Product Life Cycle

Stage Operations Emphasis

Introductory Research
Product development
Process modification & enhancement
Supplier development
Growth Capacity determination/enhancement
Maturity High volume production with innovation
Cost control
Reduction in options
Paring down of product line
Decline Termination of production if necessary

Slide 7 of 52
 American Approach to Product Design

Manufacturing
Research Development Process
Design

Manufacturing Product

Slide 8 of 52
Japanese Approach to Product Design

Research, Development, and

Manufacturing Process Design

Manufacturing Product

Slide 9 of 52
 Product/Service
Product/Service Design
Design

When a product/service is designed:

● The detailed characteristics of the product/service are

established.
● The characteristics of the product/service directly

affects how the product/service can be produced/

delivered.
● How the product/service is produced/delivered

determines the design of the production/delivery

system.

Slide 10 of 52
 Product/Service
Product/Service Design
Design

Product/service design directly affects:

● Product/service quality

● Production/delivery cost

● Customer satisfaction

Slide 11 of 52
 Product/Service
Product/Service Design
Design and
and Development
Development

● Sources
● Developing New Products/Services
● Getting Them to Market Faster
● Improving Current Products/Services
● Designing for Ease of Production
● Designing for Quality
● Designing and Developing New Services

Slide 12 of 52
 Steps
Steps in
in Designing
Designing and
and Developing
Developing
New
New Products
Products
1. Technical and economic feasibility studies
2. Prototype design
3. Performance testing of prototype
4. Market sensing/evaluation and economic evaluation
of the prototype
5. Design of production model
6. Market/performance/process testing and economic
evaluation of production model
7. Continuous modification of production model

Slide 13 of 52
 Getting
Getting New
New Products
Products to
to Market
Market Faster
Faster

● Speed creates competitive advantages

● Speed saves money
● Tools to improve speed:
●
Autonomous design and development teams
●
Computer-aided design/computer-aided
manufacturing (CAD/CAM)
●
Simultaneous (concurrent) engineering

Slide 14 of 52
 Improving the Design
of Existing Products/Services
● Focus is improving performance, quality, and cost
● Objective is maintaining or improving market share
of maturing products/services
● Little changes can be significant
● Small, steady (continuous) improvements can add up
to huge long-term improvements
● Value analysis is practiced, meaning design features
are examined in terms of their cost/benefit (value).

Slide 15 of 52
 Designing for Ease of Production

● Ease of Production (Manufacturability)

●
Specifications - Precise information about the
characteristics of the product
●
Tolerances - Minimum & maximum limits on a
dimension that allows the item to function as designed
●
Standardization - Reduce variety among a group of
products or parts
●
Simplification - Reduce or eliminate the complexity
of a part or product

Slide 16 of 52
 Designing
Designing for
for Quality
Quality

● Crucial element of product design is its impact on

quality
● Quality is determined by the customer’s perception of
the degree of excellence of the product/service’s
characteristics
● Chapter 17 covers the principles of designing
products/services for quality
● . . . more

Slide 17 of 52
 Designing
Designing and
and Developing
Developing New
New Services
Services

Three general dimensions of service design are:

● Degree of standardization of the service

● Degree of customer contact in delivering the service

● Mix of physical goods and intangible services

Slide 18 of 52
Process Planning
and Design

Slide 19 of 52
 Process
Process Planning
Planning and
and Design
Design

Inputs:
• Product/Service Information
• Production System Information
• Operations Strategy

Process Planning & Design:

• Select process type Outputs:
• Vertical integration studies • Process Technology
• Process/Product studies • Facilities
• Equipment studies • Personnel Estimates
• Production procedures studies
• Facilities studies

Slide 20 of 52
 Major
Major Factors
Factors Affecting
Affecting Process
Process Designs
Designs

● Nature of product/service demand

● Degree of vertical integration
● Production flexibility
● Degree of automation
● Product/Service quality

Slide 21 of 52
 Degree
Degree of
of Vertical
Vertical Integration
Integration

● Vertical integration is the amount of the production

and distribution chain that is brought under the
ownership of a company.
● This determines how many production processes need
to be planned and designed.
● Decision of integration is based on cost, availability
of capital, quality, technological capability, and more.
● Strategic outsourcing (lower degree of integration) is
the outsourcing of processes in order to react quicker
to changes in customer needs, competitor actions, and
technology.
Slide 22 of 52
 Production
Production Flexibility
Flexibility

● Product flexibility -- ability of the production (or

delivery) system to quickly change from producing
(delivering) one product (or service) to another.
● Volume flexibility -- ability to quickly increase or
reduce the volume of product( or service) produced
(or delivered).

Slide 23 of 52
 Degree
Degree of
of Automation
Automation

● Advantages of automation
●
Improves product quality
●
Improves product flexibility
●
Reduces labor and related costs
● Disadvantages of automation
●
Equipment can be very expensive
●
Integration into existing operations can be difficult

Slide 24 of 52
 Types
Types of
of Process
Process Designs
Designs

● Product-Focused
● Process-Focused
● Group Technology/Cellular Manufacturing

Slide 25 of 52
 Product-Focused
Product-Focused (Production
(Production Line)
Line)

● Processes (conversions) are arranged based on the

sequence of operations required to produce a product
or provide a service
● Two general forms
●
Discrete unit
●
Process (Continuous)
● Examples
●
Automobiles
●
Vacuum cleaners

Slide 26 of 52
 Product-Focused
Product-Focused Production
Production

Raw Material Components

22 4 Su
Co ba
m ss
po em
n. .
Assemblies Fin. Goods
1 3 5 7
Raw Material Components Subassem.

s
li e
mb
Purchased

se
As
6
Components,
Product/Material
1 Flow
Subassemblies
Production Operation

Slide 27 of 52
 Process-Focused
Process-Focused (Job
(Job Shop)
Shop)

● Processes (conversions) are arranged based on the

type of process, i.e., like processes are grouped
together
● Products/services (jobs) move from department
(process group) to department based on that particular
job’s processing requirements
● Examples
●
Auto body repair
●
Custom woodworking shop

Slide 28 of 52
 Process-Focused
Process-Focused Production
Production

Custom Woodworking Shop

Cutting Planing Shaping Assembly Sanding Finishing

1 22 55 66 7
Job A 22 33

Job B 33 44

1 44 55 66

Drilling Turning

Slide 29 of 52
 Group
Group Technology/Cellular
Technology/Cellular Manufacturing
Manufacturing

● Group technology forms parts with similar processing

requirements into part families or groups.
● A manufacturing cell is an arrangement of the
processes required to make the parts that make up the
group.

Slide 30 of 52
 Group
Group Technology/Cells
Technology/Cells

● Advantages (relative to a job shop)

●
Process changeovers simplified
●
Variability of tasks reduced
●
More direct routes through the system
●
Quality control is improved
●
Production planning and control simpler
●
Automation simpler

Slide 31 of 52
 Group
Group Technology/Cells
Technology/Cells

● Disadvantages
●
Duplication of equipment
●
Under-utilization of facilities
●
Processing of items that do not fit into a family
may be inefficient

Slide 32 of 52
 Deciding
Deciding Among
Among Processing
Processing Alternatives
Alternatives

● Batch Size and Product/Service Variety

● Capital Requirements
● Economic Analysis
●
Cost functions of alternatives
●
Operating leverage - relationship between a firm’s
annual costs and its annual sales
●
Break-even analysis
●
Financial analysis

Slide 33 of 52
 Process
Process Design
Design Depends
Depends on
on
Product
Product Diversity
Diversity and
and Batch
Batch Size
Size
Product
Focused,
Dedicated
Systems
Batch Size

Product
Focused,
Batch
System
Cellular
Manufacturing
Process-Focused,
Job Shop

Number of Product Designs

Slide 34 of 52
 Flexible Manufacturing System
Products

General
purpose
1000
Work cells
CIM

100 Flexible
Manufacturing Focused
System automation
10
Dedicated
automation
1
1 10 100 1000 10000 100000 1000000
Volume

Slide 35 of 52
 Economic Analysis

● Cost Function of Processing Alternatives

● If capital is not a factor, the process design preferred depends upon
product volume
● Operating Leverage
● Relationship between firm’s annual costs and annual sales
● If high % firm’s costs fixed, then high degree of operating leverage
● Small % change in sales drives large % change in operating income
● . . . more

Slide 36 of 52
 Economic
Economic Analysis
Analysis

● Break Even Analysis

●
Formulas for comparing processes
●
Cannot incorporate uncertainty, costs assumed
over entire range of values, and does not take into
account time value of money
● Financial Analysis
●
Incorporate time value of money .... net present
value, internal rate of return, etc.

Slide 37 of 52
 Cost
Cost Functions
Functions of
of Processing
Processing Alternatives
Alternatives
Annual Cost of Production ($000)

h op tu r ing
b S u fac
Jo M an
u lar
l l
Ce
em bl y Lin e
t om at ed Ass
2,000 Au
Automated
1,500 Assembly Line
Preferred
Cellular
1,000
Manufacturing
Job
Preferred Units
500 Shop
Preferred Produced
Per Year

100,000 250,000

Slide 38 of 52
Long-Range Capacity Planning
and Facility Location

Slide 39 of 75
 Overview
Overview

● Introduction
● Long-Range Capacity Planning
● Facility Location
● Wrap-Up: What World-Class Producers Do

Slide 40 of 75
 Introduction
Introduction to
to Facility
Facility Planning
Planning

● HOW MUCH long range capacity will be needed?

● WHEN will the additional capacity be required?
● WHERE should the facility be located?
● WHAT should the layout and characteristics of the
facility be?

Slide 41 of 75
 Strategic Capacity Planning
● Capacity

● The amount of resource inputs available relative to

output requirements at a particular time

● How does productivity relate to capacity?

Slide 42 of 75
 Steps
Steps in
in the
the Capacity
Capacity Planning
Planning Process
Process

● Estimate the capacity of the present facilities.

● Forecast the long-range future capacity needs.
● Identify and analyze sources of capacity to meet these
needs.
● Select from among the alternative sources of capacity.

Slide 43 of 75
 Definitions
Definitions of
of Capacity
Capacity

● In general, production capacity is the maximum

production rate of an organization (or maximum
conversion rate of a production system) in any given
period.
● Sustainable practical capacity is the greatest level of
output that a plant can maintain:
●
within the framework of a realistic work schedule
●
taking account of normal downtime
●
assuming sufficient availability of inputs to operate
the machinery and equipment in place

Slide 44 of 75
 Measures
Measures of
of Capacity
Capacity

● Output rate capacity – Suitable for a single product or

a few homogeneous products
● Design capacity - The maximum capacity that can be
achieved under ideal conditions
● Effective capacity utilization - The percent of design
capacity actually achieved
● Aggregate capacity – Suitable when a common unit
of output is used
● . . . more

Slide 45 of 75
 Measures
Measures of
of Capacity
Capacity

● Rated capacity – Maximum usable capacity of a

particular facility
● Input rate capacity – Suitable for service operations
● Percentage utilization of capacity - Relates output
measures to inputs available

Slide 46 of 75
 Capacity Utilization

Capacity used
Utilizatio n =
Best operating level

● Capacity used
● Rate of output actually achieved
● Best operating level
● Capacity for which the process was designed

Slide 47 of 75
 Capacity Utilization--Example
● Best operating level = 120 units/week

● Actual output = 83 units/week

● Utilization = ?

Slide 48 of 75
 Solution

Capacity used 83 units/wk

Utilization = = = .692
Best operating level 120 units/wk

Slide 49 of 75
 Capacity
Capacity Cushion
Cushion

● A capacity cushion is an additional amount of capacity

added onto the expected demand to allow for:
●
greater than expected demand
●
demand during peak demand seasons
●
lower production costs
●
product and volume flexibility
●
improved quality of products and services

Slide 50 of 75
 Forecasting
Forecasting Capacity
Capacity Demand
Demand

● Consider the life of the input (e.g. facility is 10-30 yr)

● Understand product life cycle as it impacts capacity
● Anticipate technological developments
● Anticipate competitors’ actions
● Forecast the firm’s demand

Slide 51 of 75
 Other
Other Considerations
Considerations

● Resource availability
● Accuracy of the long-range forecast
● Capacity cushion
● Changes in competitive environment

Slide 52 of 75
 How
How to
to Determine
Determine Capacity
Capacity Requirements?
Requirements?

● Forecast sales within each individual product line

● Calculate equipment and labor requirements to meet

the forecasts

● Project equipment and labor availability over the

planning horizon

Slide 53 of 75
 Economies
Economies of
of Scale
Scale

● Best operating level - least average unit cost

● Economies of scale - average cost per unit decreases
as the volume increases
● Diseconomies of scale - average cost per unit
increases as the volume increases
● Other considerations
●
Subcontractor and supplier networks
●
Focused production
●
Economies of scope

Slide 54 of 75
 Economies
Economies and
and Diseconomies
Diseconomies of
of Scale
Scale
Average Unit
Cost of Output ($)

Economies Diseconomies
of Scale of Scale

Best Operating Level

Annual Volume (units)

Slide 55 of 75
 Economies
Economies and
and Diseconomies
Diseconomies of
of Scale
Scale
Average Unit
Cost of Output ($) Optimum Plant Size

100-unit
plant

200-unit 400-unit
plant plant

300-unit
plant

Annual Volume (units)

Slide 56 of 75
 The Learning Curve Effect

100
90
Cost/Time per repetition

Cost
80
70
60
50
40
30
20
10
0 20 40 60 80 100
Number of repetitions (Volume)

Slide 57 of 75
 The
The Learning
Learning Curve
Curve Effect
Effect

● Observe, that the per unit cost (or price) of the

product (or service) declines exponentially as the
number of repetitions increases

Slide 58 of 75
 Capacity Flexibility
● Flexible plants

● Flexible processes

● Flexible workers

Slide 59 of 75
 Capacity Planning

Stage 1 Stage 2 Stage 3

Units
per 6,000 7,000 4,500
month

● What will happen to WIP inventory?

● Issue: How to maintain system balance?

Slide 60 of 75
 Analyzing
Analyzing Capacity-Planning
Capacity-Planning Decisions
Decisions

● Break-even Analysis
● Present-Value Analysis
● Decision Tree Analysis
● Computer Simulation
● Waiting Line Analysis
● Linear Programming

Slide 61 of 75
 Determining Capacity Requirements
● Forecast sales within each individual product line

● Calculate equipment and labor requirements to meet

the forecasts

● Project equipment and labor availability over the

planning horizon

Slide 62 of 75
 Example: Capacity Requirements

A manufacturer produces two lines of ketchup,

FancyFine and a generic line. Each is sold in small
and family-size plastic bottles.
The following table shows forecast demand for the
next four years.
Year: 1 2 3 4
FancyFine
Small (000s) 50 60 80 100
Family (000s) 35 50 70 90
Generic
Small (000s) 100 110 120 140
Family (000s) 80 90 100 110

Slide 63 of 75
 Example: Capacity Requirements

● The Product from a Capacity Viewpoint

●
Are we really producing two different types of
ketchup from the standpoint of capacity
requirements?

Slide 64 of 75
 Example: Capacity Requirements
Equipment and Labor Requirements

Year: 1 2 3 4
Small (000s) 150 170 200 240
Family (000s) 115 140 170 200

Three 100,000-units-per-year machines are available for

small-bottle production. Two operators required per
machine.

Two 120,000-units-per-year machines are available for

family-sized-bottle production. Three operators required
per machine.
Slide 65 of 75
 Example: Capacity Requirements
Equipment and Labor Requirements

•Total machine capacity available for small-bottle

production: 3*100,000=300,000 units/year
•Total machine capacity available for family-sized-bottle
production: 2*120,000=240,000 units/year
•Total labor capacity required for small-bottle
production: 3*2=6 operators
•Total labor capacity required for family-sized-bottle
production: 2*3=6 operators

Slide 66 of 75
 Example: Capacity Requirements

Year: 1 2 3 4
Small (000s) 150 170 200 240
Family (000s) 115 140 170 200

Small Mach. Cap. 300,000 Labor 6

Family-size Mach. Cap. 240,000 Labor 6

Small
Percent capacity used 50.00% 56.67% 66.67% 80.00%
Machine requirement 1.50 1.70 2.00 2.40
Labor requirement 3.00 3.40 4.00 4.80
Family-size
Percent capacity used 47.92% 58.33% 70.83% 83.33%
Machine requirement 0.96 1.17 1.42 1.67
Labor requirement 2.88 3.50 4.25 5.00

Slide 67 of 75
 The Decision-Making Process

Quantitative Analysis
Logic
Problem Historical Data
Marketing Research Decision

? !
Scientific Analysis
Modeling

Qualitative Analysis
Emotions
Intuition
Personal Experience
& Motivation
Rumors
Slide 68 of 75
 Region Location Decision
● Corporate desires
● Attractiveness of region (culture, taxes, climate,
etc.)
● Labor availability, costs, attitudes toward union
● Cost and availability of utilities
● Environmental regulations of state and town
● Government incentives
● Proximity to raw materials & customers
● Land/construction costs

Slide 69 of 75
 Site Location Decisions

● Site size and cost

● Air, rail, highway, waterway systems
● Zoning restrictions
● Nearness of services/supplies needed
● Environmental impact issues

Slide 70 of 75
 Factors
FactorsAffecting
Affecting the
the
Location
Location Decision
Decision
● Economic
●
Site acquisition, preparation and construction costs
●
Labor costs, skills and availability
●
Utilities costs and availability
●
Transportation costs
●
Taxes
● . . . more

Slide 71 of 75
 Factors
FactorsAffecting
Affecting the
the
Location
Location Decision
Decision
● Non-economic
●
Labor attitudes and traditions
●
Training and employment services
●
Community’s attitude
●
Schools and churches
●
Recreation and cultural attractions
●
Amount and type of housing available

Slide 72 of 75
 Facility
Facility Types
Types and
and Their
Their
Dominant
Dominant Locational
Locational Factors
Factors
● Mining, Quarrying, and Heavy Manufacturing
●
Near their raw material sources
●
Abundant supply of utilities
●
Land and construction costs are inexpensive
● Light Manufacturing
●
Availability and cost of labor
● Warehousing
●
Proximity to transportation facilities
●
Incoming and outgoing transportation costs
● . . . more
Slide 73 of 75
 Facility
Facility Types
Types and
and Their
Their
Dominant
Dominant Locational
Locational Factors
Factors
● R&D and High-Tech Manufacturing
●
Ability to recruit/retain scientists, engineers, etc.
●
Near companies with similar technology interests
● Retailing and For-Profit Services
●
Near concentrations of target customers
● Government and Health/Emergency Services
●
Near concentrations of constituents

Slide 74 of 75