DESIGN AND

CAPACITY
PLANNING

4-1

Learning Objectives

 Explain the strategic importance of product

and service design.
 List some key reasons for design or
redesign.
 Identify the main objectives of product and
service design.
 Discuss the importance of standardization.
 Discuss the importance of legal, ethical, and
environmental issues in product and service
design.
4-2

Learning Objectives
 Briefly describe the phases in product design and
development.
 Describe some of the main sources of design
ideas.
 Name several key issues in manufacturing design.
 Name several key issues in service design.
 Name the phases in service design.
 List the characteristics of well-designed service
systems.
 Name some of the challenges of service design.

4-3

1
 Learning Objectives
 Explain the importance of capacity
planning.
 Discuss ways of defining and measuring
capacity.
 Describe the determinants of effective
capacity.
 Discuss the major considerations related to
developing capacity alternatives.
 Briefly describe approaches that are useful
for evaluating capacity alternatives
5-4

Product and Service Design

 Major factors in design strategy

 Cost
 Quality
 Time-to-market
 Customer satisfaction
 Competitive advantage

Product and service design – or redesign – should be

closely tied to an organization’s strategy

4-5

Product or Service Design Activities

1. Translate customer wants and needs
into product and service requirements
2. Refine existing products and services
3. Develop new products and services
4. Formulate quality goals
5. Formulate cost targets
6. Construct and test prototypes
7. Document specifications

4-6

2
 Reasons for Product or Service
Design

 Economic
 Social and demographic
 Political, liability, or legal
 Competitive
 Cost or availability
 Technological

4-7

Objectives of Product and

Service Design
 Main focus
 Customer satisfaction
 Understand what the customer wants
 Secondary focus
 Function of product/service
 Cost/profit
 Quality
 Appearance
 Ease of production/assembly
 Ease of maintenance/service

4-8

Designing For Operations

 Taking into account the capabilities of
the organization in designing goods
and services.
 Failure to take this into account can:
 Reduce productivity
 Reduce quality
 Increase costs

4-9

3
 Legal, Ethical, and Environmental
Issues
 Legal
 FDA, OSHA, IRS
 Product liability
 Uniform commercial code
 Ethical
 Releasing products with defects
 Environmental
 EPA

4-10

Regulations & Legal Considerations

 Product Liability - A manufacturer is liable
for any injuries or damages caused by a
faulty product.
 Uniform Commercial Code - Products carry
an implication of merchantability and fitness.

4-11

Designers Adhere to Guidelines

 Produce designs that are consistant with
the goals of the company
 Give customers the value they expect
 Make health and safety a primary
concern
 Consider potential harm to the
environment

4-12

4
 Other Issues in Product and
Service Design
 Product/service life cycles
 How much standardization
 Mass customization
 Product/service reliability
 Robust design
 Degree of newness
 Cultural differences

4-13

Product Design

 Product Life Cycles

 Robust Design
 Concurrent Engineering
 Computer-Aided Design
 Modular Design

4-14

Robust Design

Robust Design: Design that results in

products or services that can function
over a broad range of conditions

4-15

5
 Taguchi Approach Robust Design
 Design a robust product
 Insensitive to environmental factors either in
manufacturing or in use.
 Central feature is Parameter Design.
 Determines:
 factors that are controllable and those not
controllable
 their optimal levels relative to major product
advances

4-16

Degree of Newness
1.Modification of an existing
product/service
2.Expansion of an existing product/service
3.Clone of a competitor’s product/service
4.New product/service

4-17

Degree of Design Change

Table 4.3

Type of Design Newness of the Newness to the

Change organization market
Modification Low Low

Expansion Low Low

Clone High Low

New High High

4-18

6
 Cultural Differences
 Multinational companies must take into
account cultural differences related to the
product design.
 Notable failures:
 Chevy Nova in Mexico
 Ikea beds in U.S.

4-19

Global Product Design

 Virtual teams
 Uses combined efforts of a team of designers
working in different countries
 Provides a range of comparative advantages
over traditional teams such as:
 Engaging the best human resources around the world
 Possibly operating on a 24-hr basis
 Global customer needs assessment
 Global design can increase marketability

4-20

Phases in Product Development

Process
1. Idea generation
2. Feasibility analysis
3. Product specifications
4. Process specifications
5. Prototype development
6. Design review
7. Market test
8. Product introduction
9. Follow-up evaluation

4-21

7
 Product design

 Design for manufacturing (DFM)

 Design for assembly (DFA)
 Design for recycling (DFR)
 Remanufacturing
 Design for disassembly (DFD)
 Robust design

4-22

Recycling

 Recycling: recovering materials for future

use
 Recycling reasons
 Cost savings
 Environment concerns
 Environment regulations

4-23

Remanufacturing
 Remanufacturing: Refurbishing used
products by replacing worn-out or defective
components.
 Remanufactured products can be sold for 50% of
the cost of a new producr
 Remanufacturing can use unskilled labor
 Some governments require manufacturers to
take back used products
 Design for Disassembly (DFD): Designing
products so that they can be easily taken
apart.
4-24

8
 Component Commonality
 Multiple products or product families that
have a high degree of similarity can share
components
 Automakers using internal parts
 Engines and transmissions
 Water pumps
 Etc.
 Other benefits
 Reduced training for assemble and installation
 Reduced repair time and costs

4-25

Quality Function Deployment

 Quality Function Deployment
 Voice of the customer
 House of quality

QFD: An approach that integrates the “voice of the

customer” into the product and service development
process.

4-26

The House of Quality

Figure 4.3

Correlation
matrix

Design
requirements

Customer
Relationship Competitive
require-
matrix assessment
ments

Specifications
or
target values

4-27

9
 The Kano Model
Figure 4.5
Kano Model
Customer Satisfaction

Excitement
Expected
Must Have

Customer Needs

4-28

Service Design

 Service is an act
 Service delivery system
 Facilities
 Processes
 Skills
 Many services are bundled with products

4-29

Service Design

 Service design involves

 The physical resources needed
 The goods that are purchased or consumed
by the customer
 Explicit services
 Implicit services

4-30

10
 Service Design
 Service
 Something that is done to or for a customer
 Service delivery system
 The facilities, processes, and skills needed to
provide a service
 Product bundle
 The combination of goods and services
provided to a customer
 Service package
 The physical resources needed to perform
the service
4-31

Service Systems
 Service systems range from those with little
or no customer contact to very high degree
of customer contact such as:
 Insulated technical core (software development)
 Production line (automatic car wash)
 Personalized service (hair cut, medical service)
 Consumer participation (diet program)
 Self service (supermarket)

4-32

Service Demand Variability

 Demand variability creates waiting lines and
idle service resources
 Service design perspectives:
 Cost and efficiency perspective
 Customer perspective
 Customer participation makes quality and
demand variability hard to manage
 Attempts to achieve high efficiency may
depersonalize service and change
customer’s perception of quality
4-33

11
 Phases in Service Design

1.Conceptualize
2.Identify service package components
3.Determine performance specifications
4.Translate performance specifications
into design specifications
5.Translate design specifications into
delivery specifications

4-34

Service Blueprinting

 Service blueprinting
 A method used in service design to describe
and analyze a proposed service
 A useful tool for conceptualizing a service
delivery system

4-35

Major Steps in Service

Blueprinting
1. Establish boundaries
2. Identify sequence of customer
interactions
• Prepare a flowchart
3. Develop time estimates
4. Identify potential failure points

4-36

12
 Characteristics of Well Designed
Service Systems
1. Consistent with the organization mission
2. User friendly
3. Robust
4. Easy to sustain
5. Cost effective
6. Value to customers
7. Effective linkages between back operations
8. Single unifying theme
9. Ensure reliability and high quality

4-37

Challenges of Service Design

1. Variable requirements
2. Difficult to describe
3. High customer contact
4. Service – customer encounter

4-38

Guidelines for Successful Service

Design
1. Define the service package
2. Focus on customer’s perspective
3. Consider image of the service package
4. Recognize that designer’s perspective is different
from the customer’s perspecticve
5. Make sure that managers are involved
6. Define quality for tangible and intangibles
7. Make sure that recruitment, training and rewards
are consistent with service expectations
8. Establish procedures to handle exceptions
9. Establish systems to monitor service
4-39

13
 Operations Strategy

1. Increase emphasis on component

commonality
2. Package products and services
3. Use multiple-use platforms
4. Consider tactics for mass
customization
5. Look for continual improvement
6. Shorten time to market

4-40

Shorten Time to Market

1. Use standardized components

2. Use technology
3. Use concurrent engineering

4-41

Capacity Planning
 Capacity is the upper limit or ceiling on
the load that an operating unit can
handle.
 Capacity also includes
 Equipment
 Space
 Employee skills
 The basic questions in capacity handling
are:
 What kind of capacity is needed?
 How much is needed?
 When is it needed? 5-42

14
 Importance of Capacity Decisions

1. Impacts ability to meet future demands

2. Affects operating costs
3. Major determinant of initial costs
4. Involves long-term commitment
5. Affects competitiveness
6. Affects ease of management
7. Globalization adds complexity
8. Impacts long range planning

5-43

Capacity
 Design capacity
 maximum output rate or service capacity an
operation, process, or facility is designed for
 Effective capacity
 Design capacity minus allowances such as
personal time, maintenance, and scrap
 Actual output
 rate of output actually achieved--cannot
exceed effective capacity.

5-44

Efficiency and Utilization

Actual output
Efficiency =
Effective capacity

Actual output
Utilization =
Design capacity

Both measures expressed as percentages

5-45

15
 Determinants of Effective
Capacity
 Facilities
 Product and service factors
 Process factors
 Human factors
 Policy factors
 Operational factors
 Supply chain factors
 External factors

5-46

Strategy Formulation
 Capacity strategy for long-term demand
 Demand patterns
 Growth rate and variability
 Facilities
 Cost of building and operating
 Technological changes
 Rate and direction of technology changes
 Behavior of competitors
 Availability of capital and other inputs
5-47

Key Decisions of Capacity

Planning
1. Amount of capacity needed
• Capacity cushion (100% - Utilization)
2. Timing of changes
3. Need to maintain balance
4. Extent of flexibility of facilities

Capacity cushion – extra demand intended to offset uncertainty

5-48

16
 Steps for Capacity Planning
1. Estimate future capacity requirements
2. Evaluate existing capacity
3. Identify alternatives
4. Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative
7. Implement alternative chosen
8. Monitor results

5-49

Forecasting Capacity
Requirements
 Long-term vs. short-term capacity needs
 Long-term relates to overall level of capacity
such as facility size, trends, and cycles
 Short-term relates to variations from
seasonal, random, and irregular fluctuations
in demand

5-50

Planning Service Capacity

 Need to be near customers
 Capacity and location are closely tied
 Inability to store services
 Capacity must be matched with timing of
demand
 Degree of volatility of demand
 Peak demand periods

5-51

17
 In-House or Outsourcing
Outsource: obtain a good or service
from an external provider

1. Available capacity
2. Expertise
3. Quality considerations
4. Nature of demand
5. Cost
6. Risk

5-52

Developing Capacity Alternatives

1.Design flexibility into systems
2.Take stage of life cycle into account
3.Take a “big picture” approach to capacity
changes
4.Prepare to deal with capacity “chunks”
5.Attempt to smooth out capacity
requirements
6.Identify the optimal operating level

5-53

Bottleneck Operation
Figure 5.2 Bottleneck operation: An operation
in a sequence of operations whose
10/hr capacity is lower than that of the
Machine #1 other operations

10/hr
Machine #2
Bottleneck 30/hr
Operation
Machine #3
10/hr

Machine #4 10/hr

5-54

18
 Bottleneck Operation

Bottleneck

Operation 1 Operation 2 Operation 3

10/hr.
20/hr. 10/hr. 15/hr.

Maximum output rate

limited by bottleneck

5-55

Economies of Scale
 Economies of scale
 If the output rate is less than the optimal level,
increasing output rate results in decreasing
average unit costs
 Diseconomies of scale
 If the output rate is more than the optimal
level, increasing the output rate results in
increasing average unit costs

5-56

Optimal Rate of Output

Figure 5.4
Production units have an optimal rate of output for minimal cost.
Average cost per unit

Minimum average cost per unit

Minimum
cost

0 Rate of output

5-57

19
 Economies of Scale
Figure 5.5
Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost per unit

Small
plant Medium
plant Large
plant

0 Output rate

5-58

Evaluating Alternatives
 Cost-volume analysis
 Break-even point
 Financial analysis
 Cash flow
 Present value
 Decision theory
 Waiting-line analysis

5-59

Cost-Volume Relationships
Figure 5.6a
Amount ($)

Fixed cost (FC)

0
Q (volume in units)

5-60

20
 Cost-Volume Relationships
Figure 5.6b
Amount ($)

0
Q (volume in units)

5-61

Cost-Volume Relationships
Figure 5.6c
Amount ($)

0 BEP units
Q (volume in units)

5-62

Break-Even Problem with Step

Figure 5.7a Fixed Costs

3 machines

2 machines

1 machine
Quantity
Step fixed costs and variable costs.

5-63

21
 Break-Even Problem with Step
Figure 5.7b
Fixed Costs

$
BEP
3
TC
BEP2
TC
3
TC
2

1
Quantity
Multiple break-even points

5-64

Assumptions of Cost-Volume
Analysis
1.One product is involved
2.Everything produced can be sold
3.Variable cost per unit is the same
regardless of volume
4.Fixed costs do not change with volume
5.Revenue per unit constant with volume
6.Revenue per unit exceeds variable cost
per unit

5-65

Financial Analysis
 Cash Flow - the difference between
cash received from sales and other
sources, and cash outflow for labor,
material, overhead, and taxes.
 Present Value - the sum, in current
value, of all future cash flows of an
investment proposal.

5-66

22
 Decision Theory
 Helpful tool for financial comparison of
alternatives under conditions of risk or
uncertainty
 Suited to capacity decisions
 See Chapter 5 Supplement

5-67

Waiting-Line Analysis
 Useful for designing or modifying service
systems
 Waiting-lines occur across a wide variety of
service systems
 Waiting-lines are caused by bottlenecks in
the process
 Helps managers plan capacity level that will
be cost-effective by balancing the cost of
having customers wait in line with the cost of
additional capacity
5-68

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