Product Design

THE DESIGN PROCESS

Design is a critical process for a firm. Strategically, it defines a firm’s customers, as well as its
competitors. It capitalizes on a firm’s core competencies and determines what new
competencies need to be developed. It is also the most obvious driver of change—new products
and services can rejuvenate an organization, define new markets, and inspire new technologies.

The design process itself is beneficial because it encourages companies to look outside their
boundaries, bring in new ideas, challenge conventional thinking, and experiment. Product and
ser- vice design provide a natural venue for learning, breaking down barriers, working in teams,
and integrating across functions. Design has a tremendous impact on the quality of a product or
service. Poor designs may not meet customer needs or may be so difficult to make that quality
suffers. Costly designs can result in over- priced products that lose market share. If the design
process is too lengthy, a competitor may capture the market by being the first to introduce new
products, services, or features. However, rushing to be first to the market can result in design
flaws and poor performance, which totally negate first-mover advantages. Design may be an art,
but the design process must be managed effectively. An effective design process:

Matches product or service characteristics with customer requirements,

Ensures that customer requirements are met in the simplest and least costly manner,
Reduces the time required to design a new product or service, and minimizes the revisions
necessary to make a design workable.

Product design defines the appearance of the product, sets standards for performance,
specifies which materials are to be used, and determines dimensions and tolerances.

Idea Generation

The design process begins with understanding the customer and actively
identifying customer needs. Ideas for new products or improvements to existing
products can be generated from many sources, including a company’s own R&D
department, customer complaints or sugges- tions, marketing research, suppliers,
salespersons in the field, factory workers, and new techno- logical developments.
Competitors are also a source of ideas for new products or services. Perceptual
maps, benchmarking, and reverse engineering can help companies learn from
their competitors.

Perceptual maps compare customer perceptions of a company’s products with competitors’

products. Consider the perceptual map of breakfast cereals in terms of taste and nutrition
shown in Figure The lack of an entry in the good-taste, high-nutrition category suggests there
are opportu- nities for this kind of cereal in the market. This is why Cheerios introduced honey-
nut and apple- cinnamon versions while promoting its “oat” base. Fruit bits and nuts were
added to wheat flakes to make them more tasty and nutritious. Shredded Wheat opted for
more taste by reducing its size and adding a sugar frosting or berry filling. Rice Krispies, on the
other hand, sought to challenge Cocoa Puffs in the “more tasty” market quadrant with
marshmallow and fruit-flavored versions.

Feasibility Study

Marketing takes the ideas that are generated and the customer needs that are identified from
the first stage of the design process and formulates alternative product and service concepts. The
promising concepts undergo a feasibility study that includes several types of analyses, beginning
with a market analysis. Most companies have staffs of market researchers who can design and
evaluate customer surveys, interviews, focus groups, or market tests. The market analysis
assesses whether there’s enough demand for the proposed product to invest in developing it
further.

If the demand potential exists, then there’s an economic analysis that looks at estimates of
production and development costs and compares them to estimated sales volume. A price
range. for the product that is compatible with the market segment and image of the new
product is discussed. Quantitative techniques such as cost/benefit analysis, decision theory, net
present value, or internal rate of return are commonly used to evaluate the profit potential of
the project. The data used in the analysis are far from certain. Estimates of risk in the new
product venture and the company’s attitude toward risk are also considered.

II.2 RAPID PROTOYPING AND CONCURENT DESIGN

Designers take general performance specifications and transform them into a physical
product or service with technical design specifications. The process involves building a
prototype, testing the prototype, revising the design, retesting, and so on until a viable design is
determined.

Rapid prototyping, as the name implies, creates preliminary design models that are quickly
tested and either discarded (as fast failures) or further refined. The models can be physical or
electronic, rough facsimiles or full-scale working models. The iterative process involves form and
functional design, as well as production design. It is important that these design decisions be
performed concurrently at the rapid prototype stage. Design decisions affect sales strategies,
efficiency of manufacture, assembly quality, speed of repair, and product cost.

Concurrent design improves both the quality of the design and the time-to-market. This is
especially true with the design of component parts to be completed by a supplier. Rather than
designing the parts and giving the design specs to a supplier to complete, concurrent design in-
volves the supplier in the design process. For example, a company may share with a potential
supplier the performance specs and ask the supplier to complete the design so that the part
per- forms properly and fits with space, weight, and cost parameters.

Form Design

Form design refers to the physical appearance of a product—its shape, color, size, and style.
Aesthetics such as image, market appeal, and personal identification are also part of form design.
In many cases, functional design must be adjusted to make the product look or feel right. For
example, the form de- sign of Mazda’s Miata sports car went further than looks—the exhaust had
to have a certain “sound,” the gearshift lever a certain “feel,” and the seat and window
arrangement the proper dimensions to encourage passengers to ride with their elbows out. Apple
products have great form and functional design. Read about Apple’s design process in the “Along
the Supply Chain” box on the next page.

Funtional Design

Functional design is concerned with how the product performs. It seeks to meet the
performance specifications of fitness for use by the customer. Three performance characteristics
considered during this phase of design are reliability, maintainability, and usability.

Reability

Reliability is the probability that a given part or product will perform its intended function for
a spec- ified length of time under normal conditions of use. You may be familiar with reliability
informa- tion from product warranties. A hair dryer might be guaranteed to function (i.e., blow
air with a certain force at a certain temperature) for one year under normal conditions of use
(defined to be 300 hours of operation). A car warranty might extend for three years or 50,000
miles. Normal conditions of use would include regularly scheduled oil changes and other minor
maintenance activities. A missed oil change or mileage in excess of 50,000 miles in a three-year
period would not be considered “normal” and would nullify the warranty.

Maintanbility

Maintainability (also called serviceability) refers to the ease and/or cost with
which a product or ser- vice is maintained or repaired. Products can be made
easier to maintain by assembling them in modules, like computers, so that entire
control panels, cards, or disk drives can be replaced when they malfunction. The
location of critical parts or parts subject to failure affects the ease of disas- sembly
and, thus, repair. Instructions that teach consumers how to anticipate
malfunctions and cor- rect them themselves can be included with the product.
 Usability

Usability is what makes a product or service easy to use and a good fit for its targeted
customer. It is a combination of factors that affect the user’s experience with a product, including
ease of learning, ease of use, and ease of remembering how to use, frequency and severity of
errors, and user satisfaction with the experience.

Apple revolutionized the computer industry with its intuitive, easy-to-use designs and
continues to do so with its sleek and functional iPods, iPads, and iPhones. Microsoft employs
over 140 us- ability engineers. Before a design is deemed functional, it must go through usability
testing. Sim- pler, more standardized designs are usually easier to use. They are also easier to
produce, as we’ll see in the next section.

Product Desaign

Production design is concerned with how the product will be made. Designs that are difficult
to make often result in poor-quality products. Engineers tend to overdesign products, with too
many fea- tures, options, and parts. Lack of knowledge of manufacturing capabilities can result
in designs that are impossible to make or require skills and resources not currently available.
Many times, production personnel find themselves redesigning products on the factory floor.
Late changes in design are both costly and disruptive. An adjustment in one part may
necessitate an adjustment in other parts, “unraveling” the entire product design. That’s why
production design is considered.

Final Desaign

In the preliminary design stage, prototypes are built and tested. After several iterations, a
pilot run of the process is conducted. Adjustments are made as needed before the final design
is agreed on. In this way, the design specifications for the new product have considered how the
product is to be produced, and the manufacturing or delivery specifications more closely reflect
the intent of the design. This should mean fewer revisions in the design as the product is
manufactured and service provided. Design changes, known as engineering change orders
(ECOs), are a major source of delay and cost overruns in the product development process.

II.3 TECHNOLOGY IN DESIGN

New products for more segmented markets have proliferated over the past decade. Changes
in product design are more frequent, and product lifecycles are shorter. IBM estimates the
average life of its new product offerings is about six months. The ability to get new products to
the market quickly has revolutionized the competitive environment and changed the nature of
manufacturing.

Part of the impetus for the deluge of new products is the advancement of technology
available for designing products. It begins with computer-aided design (CAD) and includes
related tech- nologies such as computer-aided engineering (CAE), computer-aided
manufacturing (CAM), and collaborative product design (CPD).

II.4 DESIGN QUALITY REVIEW

Before finalizing design product, there is formal procedures for analyzing possible failures
and rigorously assessing the value of every part and component should be followed. Three such
techniques are:

Failure Mode And Effects Analysis.

Is a systematic approach to analyzing the causes and effects of product failures. It begins
with listing the functions of the product and each of its parts. Failure modes are then
defined and ranked in order of their seriousness and likelihood of failure. Failures are
addressed one by one (beginning with the most catastrophic), causes are hypothesized,
 and design changes are made to reduce the chance of failure. The objective of fmea is to
anticipate failures and prevent them from occurring.
Fault Tree Analysis.

Is a visual method of analyzing the interrelationship among failures. Fta lists failures and
their causes in a tree format using two hatlike symbols, one with a straight line on
The bottom representing and and one with a curved line on the bottom for.

Value Analysis.

Was developed by General Electric in 1947 to eliminate unnecessary features and

functions in product designs. It has reemerged as a technique for use by multifunctional
design teams. The design team defines the essential functions of component, assembly, or
product using a verb and a noun.

II.5 DESIGN FOR ENVIRONMENT

Many products produce tons of waste. Only some of wastes are recycled. It causes
overflowing landfill, toxic streams and global warming and the point thing is health problems.
Awareness is needed from companys who responsible for it and the power of government makes
laws and regulations protecting the environment and rewarding environmental stewardship.
There are some concepts about design of environment:
Extended Producer Responbility (EPR) is a concept that holds companies responsible for
their product even after its useful life. Companies responsible for disposing of their own products
are more conscious of the design decisions that generated the excess and toxic waste that can be
expensive to process.
Eco-labeling is a label that give the seal of approval to envorenmentally safe products and
encourages in formed consumer purchase. It refers specifically to the provision of information to
consumers about the relative environmental quality of a product.
Carbon Footprints is a measure the amount of carbon dioxide (CO2) and other greenhouse
gases that contribute to global warming and climate change. A product’s carbon footprint is
calculated by estimating the greenhouse gas emissions from the energy used in manufacturing
and transporting the product along its supply chain, the energy used in stocking and selling the
product, the energy used by the consumer in using the product, and the energy used to recycle
and dispose of the product at the end of its useful life. Carbon footprints are part of a more
comprehensive lifecycle assessment initiative supported by IS0 14000 environmental standards.
IS0 14000 standards provide guidelines and certifications for environmental requirements of
doing business in certain countries, and is often used to qualify for foreign aid, business
loans,and reduced insurance premiums.

Sustainability, the ability to meet present needs without compromising those of future
generations, is a lofty goal, but companies worldwide are beginning to discover the cost savings
and consumer goodwill that green practices provide.

Design For Environment (DFE) involves many aspects of design, such as designing
products from recycled material, reducing hazardous chemicals, using materials or components
that can be recycled after use, designing a product so that it is easier to repair than discard, and
minimizing unnecessary packaging.

Also, there are design that corncern for it:

Green sourcing
Design environment is started by using less material, if possible using recycle materials, using
organic materials, using non toxic or chemical materials. The materials should also be renewable,
not endangered or scarce, and durable, so that the product will last. Suppliers should be vetted to
ensure that their processes are environmentally sound, and should be located nearby so that
greenhouse gases are minimized in transportation. Finally, the design should be rationalized so
that only the needed features (and thus material) are included and so that the product is saleable
and will not end up, unused, in landfills.
Green Manufacture
In the manufacturing process, green design is concerned with the energy needed to
produce the product, whether that energy is renewable, how much waste or harmful by-
products are generated from the process, and if that waste can be recycled or by-product
disposed of safely. Production should be in the proper amounts so that inventory is
minimized, and the manufacturing plant should be located in close proximity to
customers to minimize transportation and its affect on greenhouse gas emissions. The
 product should have minimal packaging and the boxes or bins used for transportation
should be re-usable.

Green Consumption

Once the product is in the consumer's hands, green design affects how efficiently the
product uses energy, how long the product will last, and if the product can be repaired
instead of discarded (i.e., the reliability and maintainability concepts we discussed earlier
in the chapter). At the end of the useful life of the product, it should be recyclable and
easy to disassemble for that purpose. Finally, the product should not cause harm to the
customer or the environment (e.g., lead in toys or toxic fumes), and should serve a useful
purpose.

Recycling And Re-Use

When a product reaches the end of its useful life, it can be recycled, reused, or discarded
(usually to a landfill). Design factors such as product life, recoverable value, ease of
repair, and disposal cost affect the decision to recycle, discard, or continue to use. Many
products are discarded because they are difficult or expensive to repair. Materials from
discarded products may not be recycled if the product is difficult to disassemble. That's
why companies like Hewlett-Packard and Xerox design their products for disassembly.
As a result, HP has been able to disassemble and refurbish 12,000 tons of equipment
annually with less than 1% waste.

II.6 QUALITY FUNCTION DEPLOYMENT

Quality function deployment (QFD) is a process to translate the voice of customers into a
technical design requirements. QFD being a communications and planning tool that promotes
better understanding of customer demands, promotes better understanding of design interactions,
involves manufacturing in the design process, and provides documentation of the design process.
QFD uses series of matrix that looks like a connected house. It has six sections:

A customer requirement section.

A competitive assessment section.

A design characteristic section.

A relationship matrix.

A trade off matrix.

A target values section.

A customer requirement section as a voice of customer that can help customer to

communicate what they want about the product. Customers can make a list of requirements on
scale 1-10, with 10 being most important. Now we go to a competitive assessment, with scale 1-
5. A company makes a comparison with other company’s product and tries to make solutions that
win a customer’s requirements. To translate the requirements, company needs to measurable a
design characteristic. In the body of matrix, company identify how the design characteristic
relate to customer requirements. Relationship can be positive (+) or negative (-). Product design
characteristics can interrelated, designer must be taken all factors into account when determining
a final design. Add quantitive measure to our design characteristic. To decide which
characteristic will be change, we compare the estimated impact of the change with estimated
cost. Now visualize a design team discussing target values for these product characteristics using
the data provided in the house of quality as a focal point. The house does not tell the team how to
change the design, only what characteristics to change.
The house of quality is the most popular QFD matrix. However, to understand the full
power of QFD, we need to consider three other houses that can be linked to the house of quality.
In comparison with traditional design approaches, QFD forces management to spend more time
defining the new product changes and examining the ramifications of those changes. More time
spent in the early stages of design means less time is required later to revise the design and make
it work.

II.7 DESIGN FOR ROBUSTNESS

 Robust design is a product design quality that concern to a superior quality and make product
being durable and stronger. This concept is introduced by Genichi Taguchi, Japanese industrialist
and statistican. He suggest that product failure is primarily a function of design quality.
Consumens always expect about the function of product will work normally. But in some
conditions, product will operate poorly because of controllable and uncontrollable factors. From
a designer’s point of view:

The Controllable factors are design parameters such as material used, dimensions, and form of
processing.

Uncontrollable factors are under the user’s control (length of use, maintenance, settings, and so
on).

To do this, various configurations of the product are tested under different operating
conditions specified in the design of experiments (DOE). The experiment is replicated multiple
times. The mean performance of an experimental configuration over a number of trials is called
the “signal.” The standard deviation of performance is referred to as “noise.” The signal to noise
ratio measures the robustness design.

Taguchi said consistency is more important to quality than being within tolerances. He
supports this view with the following observations.

Consistent errors can be more easily corrected than random errors.

The consistent error will detect more easily because it happen again and again.

Parts within tolerance limits may produce assemblies that are not within limits.

Consistency is important specially for assembled products. Manufacturing tolerances

define what is acceptable or unacceptable quality. Parts or products measured outside
tolerance limits are considered defective and are either reworked or discarded. Parts or
products within the limits are considered “good.” Taguchi asserts that although all the
parts or products within tolerances may be acceptable, they are not all of the same
quality.

Consumers have a strong preference for product characteristics near their ideal values.
 Taguchi quantified customer preferences toward on-target quality in the quality loss
function The quadratic function, graphed in Figure implies that a customer’s
dissatisfaction (or quality loss) increases geometrically as the actual value deviates from
the target value. The quality loss function is used to emphasize that customer preferences
are strongly oriented toward consistently meeting quality expectations. Design for Six
Sigma (DFSS) uses the Taguchi method

Process Design

2.1 Four Process Strategies

Process strategies is an organization approach to transforming resources into goods and

services. The purpose of process strategies is to meets customer requirement and product
spesification within cost and managerial constraints. Limitations operation strategy are
determined to make some decision, because the process will have long-term impact on efficiency
and production, as well as flexibility, cost, and quality of goods product.

There are four process strategies which are :

Process Focus

A production activities that organized around processes to making low volume, high
variety production and intermitten process. Because equipment are prepared for a short
period and not permanent, which is then set up again to produce other products,
depending on the design of the product being worked on. Such fasilities process focused
in term of equipment, layout, and supervision. That provide a high degree of product
flexibility as product move between procesess. Because of that, process focus have high
variabel cost with extreamly low utilization.

Repetitive Focus

A production activities that use modules to oriented production process. Modules is a part or
component of a product previously prepared, often in continous process. In this case, firm can
obtain both the econonomic advantages of the continous model and the custom advantage of the
low-volume, higher-variety model.

Product Focus

A production activities that organized around the product. Product focus have very long and
continue production runs. In this matter, the firms must be prepared standardization and effective
quality control when established product-focused fasilities. The product-focus facility produces
high volume and low variety, expecially requaires high fixed cost, but low variabel costs reward
high facility utilization.

Mass Customization

Is the rapid, low-cost production of goods and services that fullfill increasingly unique customer
desires. However, mass customization is not just about variety, its about making precisely what
the customer wants when the customer wants it economically. In the mass customization the
variety of products traditionally provided by low-volume a process focus at the cost of
standardized high volume (product-focused) production.

But, achieving mass customization is a challange because that must building agile
process that rapidly and inexpensively produce custom products requires imaginative and
aggressive use of organizational resources. Beside that, the link between sales, design,
production, supply chain, and logistics must be tight.

Mass customization suggests a high-volume system in which products are built to order, its
means producing to customer orders, not forecasts. Some major challange are :

Product design must be imaginative and fast

Process design must be flexible and able to accomodate changes in both design and technology

Inventory management requires tight controll

Tight schedules that track orders and material from design through delivery are another
requirement of mass customization.

Responsive partners in the supply chain can yield effective collaboration

Comparison of Process Choice

No. Process Focus Repetitive Focus Product Focus Mass

Customization
1. Small quantity and Long runs, usually a Large quantity Large quantity and
large variety of standardized product and small large variety off
products are produced with options, are variety of products are
produced from product are produced
modules produced
2. Equipment used in Special equipment Equipment used Rapid changeover
general purpose aids in use of an is special on flexible
assembly line purpose equipment
3. Operators are broadly Employees are Operators are Flexible operators
skilled modestly trained less broadly are trained for the
skilled necessary
customization
4. There are many job Repetitive operations Work orders and Custom orders
instruction because reduce training and job instructions require many job
each job changes changes in job are few because instructions
instructions they are
standardized
5. Raw-material Just-in-time Raw-material Raw-material
inventories are high procurement inventories are inventories are
relative to the value of techniques are used low relative to low relative to the
the product the value of the value of the
product product
6. Work-in-process is Just-in-time inventory Work-in process Work-in process
high compared to techniques are used inventory is lo inventory is driven
output compared to down by JIT,
output kanban, lean
production
7. Units move slowly Assembly is Swift movement Goods move
through the facility measured in hours of units through swiftly through the
and days the facility is facility
No. Process Focus Repetitive Focus Product Focus Mass
Customization
typical

8. Finished goods are Finished goods are Finished goods Finished goods are
usually made to order made frequent to are usually often build-to-
and not stored forecasts made to a order (BTO)
forecast and
stored
9. Schedulling is Scheuling is based on Scheduling is Sophisticated
complex and building various relatively simple scheduling is
concerned with the models from a variety and concerned required to
trade-off between of modules to with accommodate
inventory availability, forecast establishing a custom orders
capacity, and rate of output
customer services sufficient to
meet sales
forecasts
10. Fixed costs tend to be Fixed costs are Fixed costs tend Fixed costs tend to
low and variable costs dependent on to be high and be high but
high flexibility of the variable costs variable costs
facility low must be low

2.2 Process Analysis and Design

When we want to analysis and designing process, we need some tools that help us
understand the complexities of process design an redesign. That have benefit to making sense of
what happens or must happen in a process. There are five tools that needed, among others :

Flowchart

It is a schematic or drawing of the movement of material, product or people. Such charts can
help understanding, analysis and communication of a process.
Time-Function Mapping

It is a flowchart with time added on the horizontal axis. Sometimes called time-function mapping
or process mapping, that indicate the activities and arrows indicate the flow direction with time
on the horizontal axis. This users to identify and eliminate waste such as extra steps, duplication
and delay.

Value-Stream Mapping

It is a variation of time-function mapping, that helps managers understand how a value in the
flow of material and information through the entire production process and extends the analysis
back to suppliers. Value-stream mapping takes into account not only the process, but also
management decisions and inormation systems that support the process.

Process Charts

It is a charts that use symbols, time, and distance to provide an objective and structured way to
analyze an record the activities that make up a process and allow us too focus on value-added
activities.

Service Blueprinting

It is a process analysis technique that focuses on the customer an the provider’s interaction with
the customer. Because, customers interaction is often an important variable in process design and
can examine some additional aspects of service process design.

2.3 Special Considerations for Service Process Design

Interaction with the customers often affect process performance aversely. But a service,
by its very nature, implies that some interaction and customization is needed. Recognizing that
the customers’s unique desires tend to play havoc, with a process, the more the manager designs
the process will be.

Customers Interaction an Process Design

In this case, provide additional insight on how operation managers design service processes to
find the best level of specialization and focus while maintaining the necessary customer
interaction and customization.

More Opportunities to Improve Service Processes

Layout

Layout is such an integral part of many services, its provides continuing opportunity for winning
orders.

Human Resources

Human resources is particullary important ingrediants in services processes. Because, can have a
tremendous impact on overall process performance.

2.4 Selection of Equipment and Technology

In this case, picking the best equipment means understanding the spesific industry and
available processes and technology. To make some decision, operation manaement develop
documentation that indicates the capacity, size, and tolerances of each option, as well as its
maintenance requirements.

The selection of equipment or a particular type of process can also provide competitive
advantage. This advantage may result in added flexibility in meeting customer requirements,
lower cost, or higher quality. Innovations and equipments modification might also allow or a
more stable production process requiring less adjustment, maintenance, and operator training. In
any case, specialized equipment often provides a way to in orders.

The technological advances that influence operation management process strategy.

Modern technology also allows operations managers to enlarge the scope of their processes. As a
result, an important attribute to look for in new equipment and process selection is flexible
equipment. Flexibility means the ability to respond with little penalty in time, cost, or customers
value. Flexibility may also mean the development of sophisticated electronic equipment, which
increasingly provide the rapid changes that mass customization demands.
2.5 Production Technology
Productivity has increases time to time, effected by the development of technology. The
productivity are made based on the efficiency and effectively of technology used. Technology
impact both in manufacturing and services. (kutipan) There are nine areas of technology which
are :
Machine Technology
Machines these days often smaller, five times more productive, and use less energy.
Machines these days are also use technology that make it possible for control the machine
and resulting a precise output. Machinery that used intelligence artificial are named
computer numerical control (CNC). Technology focus in machinery development are
competing to make machines that are produce more output with less mistakes and less
energy.
Automatic Identification Systems (AISs) and RFID
Automatic Identification Systems move data into electronic form. The examples are
numerically controlled manufactured machinery and ATM machines. As for RFID or
radio frequency identification is integrated circuitry that use radio waves to send signals a
limited range. RFID has tags that can track and monitor virtually everything that moves.
Some of the examples are: hospitals use matching barcodes to control medicine that being
given to the patient, FedEx tags major airplane parts to track its data such as part number,
installation date, etc.
Process Control
Process control is monitoring and controlling the physical process by using technology to
give details of information. It also determine and control temperature, pressure,
quantities, etc. Process control operate in varies of ways, but the general are:
Data collected by sensors
Data read by devices on periodic basis.
Measurements are translated into digital signals, which are transmitted to a computer.
Computer programs read and analyze the data
Output result with many forms, it could be warning lights, or sounds, or even statistical
graphics.
Vision system
 Inspection roles use vision system by combining video cameras and computer technology.
In food processing and manufactures visual inspections are really important because it
supervise the manufacture process, making sure to notice errors in the progress. This job
is done by human in many times before, but because human have some weakness; they
can be bored, and they tend to have more errors than machine, thus some corporations use
vision system by technology to supervise. For example Frito Lay’s potato use vision
system to identify imperfections as the machine process the chips.
Robots
Robot is mechanical device that use electronic impulse to activate motor and switches.
Robots are effective to use in some activities that are too dangerous to be done by
humans. For example process of welding and painting some automobile. Because robots
are more consistent, accurate, and fast, lots of other activities are also done by robots to
replace human.
Automated Storage and Retrieval System
Automated Storage and retrieval system are one of the breakthrough in warehousing.
They can automatically place and withdraw products into and from its certain designed
place in the warehouse. This system are used by retailers like WalMart and Tupperware.
Automated Guided Vehicles
Automated Guided Vehicles are carts that being guided and controlled electronically to
move parts and equipment. They take forms in many ways, for example monorails,
conveyors, robots, or automated guided vehicles. They are used in mail offices and
hospitals.
Flexible Manufacturing System
Also known as automated work cell. A central computer provides instructions to each
workstation and to the material handling equipment. They are easily to operate because
the operators can simply load the program they need to produce different product.
Computer Integrated Manufacturing
Computer Integrated manufacturing is the entire system of flexible manufacturing system
that can be extended backward into the engineering and forward to warehousing and
shipping departments. Both flexible manufacturing system and computer integrated
manufactured system are reducing the distinction between varies of production.
2.6 Technology in Services
Technology also change service sector dramatically. For example in hospital, they use
machine to process blood and urine quickly. Another example is the booking system in hotel, by
technology, booker doesn’t have to go to the hotel to booked a reservation. Mcdonald’s approach
to use self-serve kiosk. In education, students are given with accessibility to online journals and
materials. So even in services, technology has made the process more efficient and effective,
therefore it cuts the cost but also multiply the market.

2.7 Process Redesign

World is a dynamic place with is change, therefore firms and corporation needs to be ready
to embrace it. Redesign means that we are rethinking about our business purposes, goal, and
process to bring improvements to our performance. It works only if us re-examined the basic
process and its objectives.
Redesign put aside all notions how the process are currently being done and focuses to bring
a big change of improvement in cost, time, and customer value. The process itself can be done in
many ways, from factory layout, purchasing procedure, new way of processing credit
applications, or new order fulfilment process.

2.8 Sustainability
Sustainability in production process can be addressed as for Rs, which are:
Resources
Firm need to use all the resources; human, financial, and materials in sustainable way.
Reducing resources lowers cost as well being a positive force toward sustainability. For
example Pepsi has reduced the weight of its plastic bottles for Aquafina by 20%. This
reduces resource use and save weight with the advantage of cutting delivery cost.
Recycle
Waste can only be burn, bury or recycle. As the two first options can cause lots of damage
to environment, such as contaminate the soil and release dangerous emissions to the air;
therefore manager should think of ways to design the products with materials that have
high potential to be recycle.
Regulations
 Laws regulate of how certain ways need to be done. In business aspect, they affecting
transportation, waste, and noise. Its done because resources are limited and the industry
activity have increase the global warming and effected environment. Firms must abide by
the rule of the host nation and the society. Therefore, firms need to find ways to be
sustainable as it obligation to the people of the host nation. For example hospitals are
required to meet the terms of the Resource Conservation and Recovery Act, which
governs the storage and handling of hazardous materials.
Reputation
Firms need to have a good reputation and values to have a good relationship with the
stakeholders. Those firms that do not meet the expectations of the society found
difficulties to maintain a relationship and will have bad consequences. The relationship
itself mostly is built by how the society trust firms to have a good social environment
responsibility. Green processing, can yield good news, good reputation, and good result.
For example, British cosmetic firm The Body Shop has successfully differentiated its
products by stressing environmental sensitivity. It pursues a product design, development,
and testing strategy that it believes to be ethical and socially responsible. This includes
environment friendly ingredients and eliminated animal testing.

Location Strategy
2.1 The Strategic Importance of Location

The world markets continue to expand and the global nature of business is accelerating. Indeed,
one of the most important strategic decisions made by companies is where to locate their operations.
The strategic impact, cost and international aspect of these decisions indicate how significant location
decisions are.

Firms throughout the world are using the concepts and techniques of location strategy to
address the location decision because location greatly affects both fixed and variable costs. Location has
a major impact on the overall risk and profit of the company. For instances, transportation cost can be
25% of the product's selling price. That is one-fourth of a firm's total revenue may be needed just to
cover transportation expenses. Other costs that may be influenced by location include taxes, wages, raw
material costs and rents. When all costs considered, location may alter total operation expenses as much
as 50%.
 Companies make location decisions infrequently, usually because demand has out-grown the
current plant's capacity or because changes in labor productivity, exchange rates, costs or local attitudes.
Companies may also relocate their manufacturing or service facilities because of shifts in demographics
and customer demand.

Location options include expanding an existing facility, maintaining current sites while adding
another facility elsewhere or closing the existing facility and moving to another location. The location
decision often depends on type of business. The objective of location strategy is to maximize the benefit
of location to the firm.

Location and Costs

Because location is such a significant cost and revenue driver, location has the power to make or
break a company's business strategy. Key multinationals in every major industries now have or are
planning a presence in each of their major markets. Location decisions to support a low-cost strategy
require particularly careful consideration.

Location and Innovation

When creativity, innovation, and research and development investments are critical to the
operation strategy, the location criteria may change from a focus on costs. When innovation is the focus,
these attributes which are, the presence of high-quality and specialized inputs as scientific and technical
talent, an environment that encourage investment, pressure and insight gained from a local market and
local presence of related and supporting industries are seem to affect overall competitiveness as well as
innovation.
2.2 Factors That Affect Location Decisions

Selecting a facility location is becoming much more complex with the globalization of the work-
place. Globalization has taken place because of the development of markets economics, better
international communications, more rapid reliable travel and shipping, ease of capital flow between
countries and high differences in labor costs. Many firms now consider opening new offices, factories,
retail stores or banks outside of their home country.

One approach to selecting a country is to identify what the parent organization believes are key
success factors needed to achieve competitive advantages. Once a firm decides which country is best for
its location, it focuses on a region of the chosen country and a community. The final step in the location
decision process is choosing a specific site within a community. The company must pick the one location
that is best suited for shipping and receiving, zoning, utilities, size and cost.
 Besides globalization, a number of other factors affect the location decision. Among these are
labor productivity, foreign exchange, culture, changing attitudes toward the industry and proximity to
markets, suppliers and competitors.

Labor Productivity

When deciding on a location, management may be tempted by an area's low wage rates.
However, wages rates cannot be considered by themselves. Management must also consider
productivity.

Employees with poor training, poor education or poor work habits may not be a good buy even
at low wages. By the same conditions, employees who cannot or will not always reach their places of
works are not much good to the organization, even at low wages.

Exchange Rates and Currency Risk

Although wage rates and productivity may make a countru seem economical, unfavorable
exchange ratee may negate any savings. Sometimes firms can take advantage of a particularly favorable
exchange rate by relocating or exporting to a foreign country. However, the values of foreign currencies
continually rise and fall in most countries.

Costs

We can divide location costs into two categories, tangible and intangible. Tangible costs are
those that are readily identifiable and precisely measured. They include utilities, labor, material, taxes,
depreciation and other accounting department and management can identify. In addition such as costs
as transportation of raw materials, transportation of finished goods, and site contruction are all factored
into overall cost of location.

Intangible costs are less easily quantified. They include quality of education, public
transportation facilities, community attitudes toward the industry and the company, and quality and
attitude of prospective employees. They also include quality-of-life variables, such as climate and others.

Political Risk, Values and Culture

The political risk associated with national, state and local government's attitudes toward private
and intelectual property, zoning, pollution and employment stability may be in flux. Government
positions at the time a location decision is made may not be lasting ones. However management may
find that these attitudes can be influenced by their own leadership.
 Workers may also differ from country to country, region to region and small town to city.
Worker's different values can affect a company's decision whether to make offers to current workers if
the firm relocates to a new location.

Cultural variations by employees and suppliers make a marked difference in production and
delivery schedules. As result, operations managers face significant challenges when building effective
supply chains across cultures.

Proximity to Markets

Service organizations find that proximity to market is the promary location factor because
locating near customers is extremely important. With just-in-time production, suppliers want to locate
near users.

Proximity to Suppliers

Firms locate near their raw materials and suppliers because of perishability, transportation costs
or bulk. Some companies have perishable materials so they chose to be close to their customers. Some
companies depends on heavy or bulky raw materials face inbound transportation costs so transportation
become a major factor.

Proximity to Competitors

Every company like to locate their near competitors. This tendency called clustering often occurs
when major resource is found in that region. Suc resources include natural resources, informaton
resources venture capital resources and talent resources.

2.3 Methods Of Evaluating Location Alternatives

There are four major methods that are often used for solving location problems. Those methods are
the Factor-rating Method, Locational Break-Even Analysis, The Center-of-Gravity method, and The
Transportation Model. Each method will be described in the following section.

The Factor-Rating Method

There are many factors, both qualitative and quantitative, to consider in choosing
a location. Some of these factors are more important than others, so managers can use
weightings to make the decision process more objective. The Factor-Rating Method
is popular because a wide variety of factors, from education to recreation to labor
skills, can be objectively incuded.
 Figure 2.1. listed a few of many factors that affect location decision

The Factor-Rating Method has six steps :

Develop a list of relevant factors called key succes factors (Such as those in figure 2.1)
Assign a weight to each factor to reflect its relative importance in the company objectives.
Develop a scale for each factors (for example, 1 to 10 or 1 to 100 points)
Have a management score each location for each factor, using the scale in step 3.
Multiply the score by the weights for each factors and total the score for each location.
Make a recommendation based in the maximum point score, considering the result of other quantitative
approaches as well.
Here are the calculation example of the use of The Factor-Rating Method. A theme park
company wants to expand their park on another country in Europe. It wishes to select
between Dijon in France and Copenhagen in Denmark. Their weightings and ratings for two
possible site are shown below.

Figure 2.2. Weight, score, and solution using The Factor-Rating Method

When a decision is sensitive to minor changes, further analysis of weighting and the
points assigned may be appropriate. Alternatively, management may conclude that these
 intangible factors are not the proper criteria on which to base a location decision. Managers
therefore place primary weight on the more quantitative aspects of the decision.

Locational Break-Even Analysis

Locational Break-Even Analysis is the use of cost-volume analysis to make an
economic comparison of location alternatives. By identifying fixed and variable
costs and graphing them for each location, we can determine which one provides the
lowest cost. Locational break-even analysis can be done mathematically or
graphically. The graphic approach has the advantage of providing the range of
volume over which each location is preferable.

The three steps to locational break-even analysis are as follows :

Determine the fixed and variable cost for each location.

Plot the costs for each location, with costs on the vertical axis of the graph and annual volume on the
horizontal axis.
Select the location that has the lowest total cost for the expected production volume.
Here are the example of using Locational Break-Even Analysis. AC Delco is
considering a new manufacturing plant in Akron, Bowling Green, or Chicago. Fixed
costs per year are $30k, $60k, & $110k respectively. Variable costs per case are $75,
$45, & $25 respectively. The price per case is $120. The calculation for choosing the
best location for an expected volume of 2,000 is shown below.

Figure 2.3. The calculation of the total cost of each City

Figure 2.4. The calculation of Crossover point

 Figure 2.5. The Graph of the Break-Even Analysis

So for the production volume of 2000, Bowling Green is the best option.
But for the volume less than 1000, Akron would be prefered. And for a volume
more than 2500, Chicago would yield the greatest profit.

Center-of-Gavity Method
The center-of-gravity method is a mathematical technique used for finding the
location of a distribution center that will minimize distribution costs. The method
takes into account the location of markets, the volume of goods shipped to those
markets and shipping costs in finding the best location for a distribution center.

The first step in the center-of-gravity method is to place the location on a

coordinate system. This will be illustrated in Example 1. The origin of the
coordinate system and the scale used are arbritrary, just as long as the relative
distance are correctly represented. This can be done easily by placing a grid over
an ordinary map. The center of gravity is determined using equation (2-1) and (2-
2)

x-coordinate of the center of gravity = (2-1)

y-coordinate of the center of gravity = (2-2)

where :

= x-coordinate of location i
 = y-coordinate of location i coordinate of location i

= Quantity of goods moved to Quantity of goods moved to or from location i

The example of this method is the case of Quain’s Discount Departement

store that has a store location in Chicago, Pittsburh, New York, and Atlanta; they
are currently being supplied out of an old and inadequate warehouse in
Pittsburgh, the site of the chains’s first store. The firm wants to find some
“central” location in which to build a new warehouse. The calculation using the
center-of-gravity method is shown in figures below.

Figures 2.6. The table of

store location and number of
shipped containers

Figure 2.7. The current store coordinates

 Figure 2.8. the calculation of the best place (coordinates) for the new warehouse

Figure 2.9. the best location (coordinates) of the new warehouse

Since the number od containers shipped each months affects cost,

distance alone should not be the principal criterion. The center-of-gravity method
assumes that cost is directly proportional to both distance and volumes shipped.
The ideal location is that which minimizes the weighted distance between the
warehouse and its retail outlets, where the distance is weighted by the number of
containers shipped.

Transportation Model
The objective of the transportation model is to determine the best pattern
of shipment from several points of supply (sources) to several points of demands
(destinations) so as to minimizes total production and tranportation costs. Every
firm with a network of supply-and-demand points faces such a problem.
 Figure 3.0 Worldwide Distribution of Volkswagen and Parts

The complex Volkswagen supply network (shown in Figures 2.2)

provides one such illustration. We note in Figure 2.2, for example, that VW de
Mexico ships vehicles for assembly and parts to VW of Nigeria, send assemblies
to VW do Brasil, and recieves parts and assemblies from headquarters in
Germany.

Although the linear programming (LP) technique can be used to solve

this type of problem, more efficient, special-purpose algorithms have been
developed for the transportation application. The transportation model finds and
initial feasible solution and rhen makes step-by-step improvement until an
optimal solution is reached.

2.4 Service Location Strategy

While the focus in industrial-sector location analysis is on minimizing cost, the focus in
the service sector is on maximizing revenue. This is because manufacturing firms find that costs tend to
vary substantially among locations, while service firms find that location often has more impact on
revenue than cost. Therefore, for the service firm, a specific location often influences revenue more than
it does cost. This means that the location focus for service firms should be on determining the volume of
business and revenue.

There are eight major determinants of volume and revenue for the service firm:

Purchasing power of customer drawing area

Service and image compatibility with demographics of the customer drawing area
Competition in the area
 Quality of the competition
Uniqueness of the firm’s and competitor’s locations
Physical qualities of facilities and neighboring businesses
Operating policies of the firm 8
. Quality of management

There are some differences location strategies between service and Good-producing
Organization, the figures below mention those differences

Figure 3.1 the differences in focus of each organization

Figure 3.2 The differences in techniques and assumptions between the organizations

Realistic analysis of these factors can provide a reasonable picture of the revenue
expected. The techniques used in the service sector include correlation analysis, traffic
counts, demographic analysis, purchasing power analysis, the factor-rating method, the
center-of-gravity method, and geographic information system

How Hotel Chains Select Sites

One of the most important decisions in the hospitality industry is location. Hotel
chains that pick good sites more accurately and quickly than competitors have a
distinct strategic advantage. Let’s take La Quinta Corporation as an example. La
Quinta Corporation is a moderately priced chain of 590 motels oriented toward
frequent bisiness travelers. To model motel-selection behaviour and predict success of
a site, La Quinta turned to statistical regression analysis.

The hotel started by testing 35 independent variables, trying to find which of

them would have the highest correlation with predicted profitability, the dependent
variable.“Competitive” independent variables included the number of hotel rooms in
the vicinity and average room rates. “Demand generator ” variables were such local
attarctions as office buildings and hospitals that drew potential customers to a 4-mile-
radius trade area. “Demographic” variabes, such as local population and
unemployment rate, can also affect the success of a hotel. “Market awareness ” factors,
such as the number of inns in a region, were fourth category. Finally, “physical
characteristics” of the site, such as ease of access or sign visibility, provided the last
group of the 35 independent variables.

In the end, the regression model chosen, with a coefficient of determination (r 2)

of 51% , included just four predictive variables. They are the price of the inn, median
income levels, the state population per inn, and the location of nearby colleges (which
serves as a proxy for other demand generators). La Quinta then used the regression
model to predict profitability and developed a cutoff that gave the best results for
predicting success or failure of a site. A spreadsheet is now used to implement the
model, which applies the decision rule and suggests “build” or “don’t build. ”

The Call Center Industry

Industries and office activities that require neither face-to-face contact with the
customer nor movement of material broaden location options substantially. A case in
point is the call center industry, in which the traditional variables are no longer
relevant. Where inexpensive fiber-optic phone lines are available, the cost and
availability of labor may drive the location decision.
 Geographic Information System
Geographic information system are an important tool to help firms make
successful, analytical, decisions with regard to location. A geographic information
system (GIS) stores and displays information that can be linked to a geographical
location. For instance, retailers, banks, food chains, gas stations, and print shop
franchise can all use geographically coded files from a GIS to conduct demographic
analyses. By combining population, age, income, traffic flow, and density figures with
geography, a retailer can pinpoint the best location for a new store or restaurant.

Here are some of the geographic databases available in many GISs :

Census data by block, tract, city,country, congressional district, metropolitan area, state, zip code
Maps of every street, highway, bridge, and tunnel
Utilities such as electrical, water,and gas lines
All rivers, mountains, lakes, forests
All major airports, colleges, and hospital.

For example, airlines using GISs to identify airports where ground services are
the most effective. This information is then used to help schedule and to decide
where to purchase fuel, meals, and other services.

Commercial office building developers use GISs in the selection of cities for
future consturstion. Building new office space takes several years so developers value
the database approach that a GIS can offer. GIS is used to analyze factors that
influence the location decisions by addressing five elements for each city : (1)
residental areas, (2) retail shops, (3) cultural and enetertainment centers, (4) crime
incidence, and (5) transportation options. For example, one study of Tama, Florida,
showed that the citys central business district lacks the characteristics to sustain a
viable high-demand office market, suggesting that builders should look elsewhere.