ME 328 Manufacturing

Engineering

Competitive Aspect and Design

1
 Strategy
Operations Strategy: a plan for the design and
management of operations functions
– is developed after the business strategy
– focuses on specific capabilities which give it a
competitive edge – competitive priorities

2
Importance of Operations Strategy

• Essential differences between operational

efficiency and strategy:
– Operational efficiency is performing tasks
well, or better than competitors
– Strategy is a plan for competing in the
marketplace
• Operations strategy ensures all tasks
performed are the right tasks

3
Developing a Business Strategy

• Consider these three critical factors in

developing a business strategy:
– What is the business goal? (mission)
– Does company understand the market?
(environmental scanning)
– What are the company strengths? (core
competencies)

4
 Competitive Priorities- The Edge

• Four Key Operations Questions:

Will you compete on –
Cost?
Quality?
Time?
Flexibility?
• All of the above? Some? Tradeoffs?

5
 Competing on Cost

• Offering product at a low price relative to competition

– Typically high volume products
– Often limit product range & offer little customization
– May invest in automation to reduce unit costs
– Can use lower skill labor
– Probably uses product focused layouts
– Low cost does not mean low quality

6
 Competing on Quality
• Quality is often subjective
• Quality is defined differently depending on who is defining it
• Two major quality dimensions include
– High performance design:
• Superior features, high durability, & excellent customer service

– Product & service consistency:

• Meets design specifications
• Close tolerances
• Error free delivery

• Quality needs to address

– Product design quality – product/service meets requirements
– Process quality – error free products

7
 Competing on Time

• Time/speed one of most important competition

priorities
• First that can deliver often wins the race
• Time related issues involve
– Rapid delivery:
• Focused on shorter time between order placement and delivery
– On-time delivery:
• Deliver product exactly when needed every time

8
 Competing on Flexibility

• Company environment changes rapidly

• Company must accommodate change by being
flexible
– Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific requirements of a
customer

– Volume flexibility:
• Ability to ramp production up and down to match market demands

9
 The Need for Trade-offs
• Decisions must emphasize priorities that support business
strategy
• Decisions often required trade offs
• Decisions must focus on order qualifiers and order
winners
– Which priorities are “Order Qualifiers”?
Must have excellent quality since everyone expects it

– Which priorities are “Order Winners”?

Dell competes on all four priorities
Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility

10
Translating to Production Requirements

• Specific Operation requirements include two

general categories
– Structure – decisions related to the
production process, such as characteristics of
facilities used, selection of appropriate
technology, and the flow of goods and
services
– Infrastructure – decisions related to planning
and control systems of operations

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Translating to Production Requirements

• Dell Computer example – structure & infrastructure

– They focus on customer service, cost, and speed
– ERP system developed to allow customers to order
directly from Dell
– Product design and assembly line allow “make to
order” strategy – lowers costs, increases turns
– Suppliers ship components to a warehouse within 15
minutes of the assembly plant - VMI
– Dell set up a shipping arrangement with UPS

12
 Strategic Role of Technology

• Technology should support competitive priorities

• Three Applications: product technology, process
technology, and information technology
– Products - Teflon, CD’s, fiber optic cable
– Processes – flexible automation, CAD
– Information Technology – POS, EDI, ERP, B2B

13
Technology for Competitive Advantage
• Technology has positive and negative potentials
– Positive
• Improve processes
• Maintain up-to-date standards
• Obtain competitive advantage
– Negative
• Costly
• Risks such as overstating benefits
• Technology should:
– Support competitive priorities
– Can require change to strategic plans
– Can require change to operations strategy
• Technology is an important strategic decision
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 Measuring Productivity
• Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = Output/input

• Total Productivity Measure

Total Productivity = Output produced/All inputs used

• Partial Productivity Measure

Partial Productivity = Output/labor or Output/Capital

• Multifactor Productivity Measure

Multi-factor Productivity = Output/labor + Materials

15
 Productivity Example - An automobile manufacturer has presented the
following data for the past three years in its annual report. As a potential
investor, you are interested in calculating yearly productivity and year to
year productivity gains as one of several factors in your investment
analysis.

2012 2013 2014

2012 2013 201
Unit car 2,700,000 2,400,000 2,100,000 Partial Prod. Measure
sales
Unit Car Sales/Employee 24.1 21.2 18.3
Employees 112,000 113,000 115,000
Year-to-year Improvement -13.7% -15.8%

Multifactor Prod. Measures

$ Sales $49,000 $41,000 $38,000
(billions$)
Total Cost Productivity 1.26 1.24 1.19

Cost of $39,000 $33,000 $32,000

Year-to-year Improvement 1.6% 4.2%
Sales
(billions)
Which is the best measurement?

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 Interpreting Productivity Measures
• Productivity measures must be compared to something,
i.e. another year, a different company
• Raw productivity calculations do not tell the complete
story unless there are no major structure differences.
• In the prior automobile business example, it is obvious
that some major changes were taking place to yield
15.8% and 13.7% year-to-year cars/employee
productivity improvements. What changes could improve
car sales per employee? Automation? Out sourcing?
Major re-design?

17
 Interpreting Productivity Measures
• Other productivity measure questions:
– Is this partial productivity measurement enough to
make an investment decision?
– Is the Total Cost Productivity measure a better
reflection of year to year productivity at 4.2% and
1.6%. Why?
– Should you also look at productivity measures for the
two major competitors for comparison?

• Productivity measure provides information on how the

firm is doing relative to what is critical to the firm

18
 Operations Strategy

• Strategic decisions of firm drive tactical

decisions
• Business strategy defines long-term plan
• Operations strategy support the business
strategy
• Marketing strategy needs to fully understand
operations capability
• Financial plans in effect support operations
activities.

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Product Design & Process Selection

• Product Design – the process of defining all

of the companies product characteristics
– Product design must support product manufacturability (the
ease with which a product can be made)
– Product design defines a product’s characteristics of:
• appearance, materials, dimensions, tolerances, and
performance standards
• Process Selection – the development of the
process necessary to produce the designed
product.
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Design of Services versus Goods

• Service design is unique in that the service

and entire service concept are being designed
– Must define both the service and concept
• Physical elements, aesthetic & psychological
benefits e.g. promptness, friendliness, ambiance
– Product and service design must match the needs
and preferences of the targeted customer group

21
 The Product Design Process

• Idea development: all products begin with an

idea whether from:
– customers,
– competitors or
– suppliers
• Benchmarking: studying “best-in-class”
companies and comparing to your company’s
performance
• Reverse engineering: buying a competitor’s
product
22
 Design Process

• Effective design can provide a competitive edge

– matches product or service characteristics with
customer requirements
– ensures that customer requirements are met in the
simplest and least costly manner
– reduces time required to design a new product or
service
– minimizes revisions necessary to make a design
workable

23
 Product Design Process

• Idea developments selection affects

– Product quality
– Product cost
– Customer satisfaction
– Overall manufacturability – the ease with
which the product can be made

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 The Product Design Process

Step 1 - Idea Development - Someone thinks of a need and a

product/service design to satisfy it: customers, marketing,
engineering, competitors, benchmarking, reverse engineering
Step 2 - Product Screening - Every business needs a
formal/structured evaluation process: fit with facility and labor
skills, size of market, contribution margin, break-even analysis,
return on sales
Step 3 – Preliminary Design and Testing - Technical specifications
are developed, prototypes built, testing starts
Step 4 – Final Design - based on test results, facility, equipment,
material, & labor skills defined, suppliers identified

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Design Process

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 Idea Generation

• Company’s own • Salespersons in

R&D department the field
• Customer • Factory workers
complaints or • New technological
suggestions developments
• Marketing research • Competitors
• Suppliers

27
 Idea Generation

• Perceptual Maps
– visual comparison of customer perceptions
• Benchmarking
– comparing product/process against best-in-class
• Reverse engineering
– dismantling competitor’s product to improve your
own product

28
 Perceptual Mapping

•Compares customers perception of available products

•Identifies gap in market
•Limitations: Only two variables 29
 Feasibility Study

• Market analysis
• Economic analysis
• Technical/strategic analyses
• Performance specifications

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 Rapid Prototyping and
Concurrent Design
• Testing and revising a preliminary design model
• Build a prototype
– form design
– functional design
– production design
• Test prototype
• Revise design
• Retest

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Concurrent Design

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 Form and Functional Design
• Form Design
• how product will look?
• Functional Design
• how product will perform?
• reliability
• maintainability
• usability

Usability
• Ease of use of a product or service
– ease of learning
– ease of use
– ease of remembering how to use
– frequency and severity of errors
– user satisfaction with experience
33
 Usability

• Ease of use of a product or service

– ease of learning
– ease of use
– ease of remembering how to use
– frequency and severity of errors
– user satisfaction with experience

34
 Production Design

• How the product will be made

– Simplification
• reducing number of parts, assemblies, or options in
a product
– Standardization
• using commonly available and interchangeable
parts
– Modular Design
• combining standardized building blocks, or
modules, to create unique finished products
– Design for Manufacture (DFM)
• Designing a product so that it can be produced
easily and economically

35
Design Simplification

36
 Final Design and Process Plans

• Final design
– detailed drawings and specifications for new
product or service
• Process plans
– workable instructions
• necessary equipment and tooling
• component sourcing recommendations
• job descriptions and procedures
• computer programs for automated machines

37
 Technology in Design

• Computer Aided Design (CAD)

– assists in creation, modification, and analysis of a
design
– computer-aided engineering (CAE)
• tests and analyzes designs on computer screen
– computer-aided manufacturing (CAD/CAM)
• ultimate design-to-manufacture connection
– product life cycle management (PLM)
• managing entire lifecycle of a product
– collaborative product design (CPD)

38
Collaborative Product Design (CPD)

• A software system for collaborative design and

development among trading partners
• With PML, manages product data, sets up project
workspaces, and follows life cycle of the product
• Accelerates product development, helps to resolve
product launch issues, and improves quality of design
• Designers can
– conduct virtual review sessions
– test “what if” scenarios
– assign and track design issues
– communicate with multiple tiers of suppliers
– create, store, and manage project documents

39
 Design Quality Review

• Review designs to prevent failures and ensure

value
– Failure mode and effects analysis (FMEA)
• a systematic method of analyzing product
failures
– Fault tree analysis (FTA)
• a visual method for analyzing interrelationships
among failures
– Value analysis (VA)
• helps eliminate unnecessary features and
functions

40
 Value Analysis (VA)

• Eliminate unnecessary features and

functions
• Used by multifunctional design teams
• Define essential functions of an item
• Determine the value of the functions
• Determine the cost of providing the
functions
• Compute Value/Cost ratio
• Design team works to increase the ratio
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 Design for Robustness
• Robust product
– designed to withstand variations in environmental and operating
conditions
• Robust design
– yields a product or service designed to withstand variations
• Controllable factors
– design parameters such as material used, dimensions, and form of
processing
• Uncontrollable factors
– user’s control (length of use, maintenance, settings, etc.)
• Tolerance
– allowable ranges of variation in the dimension of a part
• Consistency
– consistent errors are easier to correct than random errors
– parts within tolerances may yield assemblies that are not within limits
– consumers prefer product characteristics near their ideal values

42
 Design for Robustness

• Tolerance
– allowable ranges of variation in the dimension of a part
• Consistency
– consistent errors are easier to correct than random
errors
– parts within tolerances may yield assemblies that are
not within limits
– consumers prefer product characteristics near their
ideal values

43
 Product Screening Tool – Break-
Even Analysis

• Computes the quantity of goods

company needs to sell to cover its costs
QBE = F/ (SP - VC)
– QBE – Break even quantity
– F – Fixed costs
– SP – selling price/unit
– VC – Variable cost

44
 Product Screening Tool – Break-
Even Analysis

– Break-even analysis also includes calculating

(Q = number of units sold)

– Total cost – sum of fixed and variable cost

Total cost = F + (VC)*Q

– Revenue – amount of money brought in from sales

Revenue = (SP) * Q

45
 Break-Even Analysis: Graphical
Approach
• Compute quantity of goods that
must be sold to break-even
• Compute total revenue at an
assumed selling price
• Compute fixed cost and variable
cost for several quantities
• Plot the total revenue line and the
total cost line
• Intersection is break-even
• Sensitivity analysis can be done
to examine changes in all of the
assumptions made

46
 Break-Even Example:
• Slick Pads is a company that manufactures laptop notebook
computers. The company is considering adding its own line of
computer printers as well. It has considered the implications
from the marketing and financial perspectives and estimates
fixed costs to be $500,000. Variable costs are estimated at $200
per unit produced and sold.
• If the company plans to offer the new printers at a price of $350,
how many printers does it have to sell to break even?
• Answer:
• Break-even Quantity = Fixed Cost / (Selling Price – Variable
Cost)
• = 500,000/ (350 – 200) = 3333.3, so 3334 printers exceeds the
breakeven

47
1. Plastic company produces a variety of plastic items. One item, container #145, has had a
low contribution to profits. Last year, 20,000 units of container #145 were produced and
sold. The selling price of the container was $20 per unit, with a variable cost of $18 per
unit and a fixed cost of $70,000 per year.
a) What is the break-even quantity for this product?
b) The company is currently considering ways to improve profitability by either stimulating
sales volumes or reducing variable costs. Management believes that sales can be increased
by 35 percent of their current level or that variable cost can be reduced to 90 percent of
their current level. Assuming all other costs equal, identify which alternative would lead to
a higher profit contribution.

a) Break-even Quantity = Fixed Cost / (Selling Price – Variable Cost)

= 70,000/ (20 – 18) = 35,000 units of product
a) Increase Sales: 20,000 (1.35) = 27,000 units
Contribution to Profit = Total Revenue – Total Cost
= SP(Q) – [FC + VC(Q)]
= 27,000(20) – [70,000 + 18(27,000)]
= –$16,000

Reduce Variable Costs: 0.90 (18) = $16.20

Contribution to Profit = Total Revenue – Total Cost
= SP(Q) – [FC + VC(Q)]
= 20,000(20) – [70,000 + 16.20(20,000)] 48
= $6,000
 Factors In Product Life Cycle

• Product life cycle –

series of changing
product demand
• Consider product
life cycle stages
– Introduction
– Growth
– Maturity
– Decline
• Facility & process
investment depends
on life cycle
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 Remanufacturing

Uses components of old products in the

production of new ones and has:
– Environmental benefits
– Cost benefits

Good for:
– Computers, televisions, automobiles

50
 Types of Processes
• Intermittent processes:
– Processes used to produce a variety of
products with different processing
requirements in lower volumes. (such as
healthcare facility)
• Repetitive processes:
– Processes used to produce one or a few
standardized products in high volume.
(such as a cafeteria, or car wash)

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 Process Selection

• Product design considerations must

include the process
• Differences between Intermittent &
Repetitive Ops:
(1) the amount of product volume produced,
and
(2) the degree of product standardization.

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 Process Selection Types

• Process types can be:

– Project process – make a one-at-a-time product
exactly to customer specifications
– Batch process – small quantities of product in
groups or batches based on customer orders or
specifications
– Line process – large quantities of a standard
product
– Continuous process – very high volumes of a fully
standard product
• Process types exist on a continuum

53
Volume and Standardization Continuum

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 Process Selection Considerations

• Process selection is based on five

considerations
1. Type of process; range from intermittent to
repetitive or continuous
2. Degree of vertical integration
3. Flexibility of resources
4. Mix between capital & human resources
5. Degree of customer contact

55
 Process Design Tools

Often stages in the

production process
can be performed
in parallel, as
shown here in (c)
and (d). The two
stages can
produce different
products (c) or the
same product (d).

56
 Designing Processes

• Process design tools include:

– Process flow analysis
– Process flowchart
• Design considerations include:
– Make-to-stock strategy
– Assemble-to-order strategy
– Make-to-order strategy

57
 Process Performance Metrics

• Definition: Measurement of different

process characteristics that tell us how a
process is performing
– Determining if a process is functioning
properly is required
– Determination requires measuring
performance

58
Process Performance Metrics

59
Product Design & Process Selection

• Product design and process selection are

directly linked
• Type of product selected defines type of
operation required
• Type of operation available defines broader
organizational aspects such as
– Equipment required
– Facility arrangement
– Organizational structure

60
 Design & Process Selection

Organizational Decisions appropriate for different types of operations

61
Product Design & Process Selection

• Product Design Decisions:

– Intermittent and repetitive operations
typically focus on producing products in
different stages of the product life cycle
– Intermittent is best for early in product life
– Repetitive is better for later when demand
is more predicable

62
Product Design & Process Selection

• Competitive Priorities:
– Decisions of how a company will compete
in the marketplace.
– Intermittent operations are typically less
competitive on cost than repetitive
operations. (Think “off the rack” vs. custom
tailored clothing.)

63
Intermittent vs. Repetitive Facility
Layouts

64
 Product and Service Strategy

• Type of operation is directly related to

product and service strategy
• Three basic strategies include
1. Make-to-stock; in anticipation of demand
2. Assemble-to-order; built from standard
components on order
3. Make-to-order; produce to customer
specification at time of order

65
Product and Service Strategy
Options

66
 Degrees of Vertical Integration &
Make or Buy

• Vertical integration • Make-or-Buy choices

refers to the degree a should be based on the
firm chooses to do following
processes itself- raw considerations:
material to sales – Strategic impact
– Backward Integration – Available capacity
means moving closer to – Expertise
primary operations
– Quality considerations
– Forward Integration
– Speed
means moving closer to
customers – Cost (fixed cost + variable
cost)make = Cost (fixed cost
+ Variable cost)buy

67
Product Design & Process Selection

• Strategic and financial of product design

and process selection mandates
operations work closely across the
organization
– Marketing is impacted by product that is
produced
– Finance is integral to the product design and
process selection issues due to frequent
large financial outlays
68
Product Design & Process Selection

• Strategic and financial of product design and

process selection mandates operations work
closely across the organization
– Information services has to be developed to match
the needs of the production process
– Human resources provides important input to the
process selection decisions for staffing needs
– Purchasing ensures need parts and raw materials
are attained within reasonable prices
– Engineering understands technical characteristics

69