Production Book 2024 PDF

Summary

This textbook introduces operations management, explaining the transformation of inputs into outputs in organizations. It covers the principles of operations and supply chains, differentiating between goods and services. The book highlights the importance of operations management in achieving a balance between supply and demand.

Full Transcript

CHAPTER ONE: AN INTRODUCTION TO OPERATIONS MANAGEMENT OPERATIONS MANAGEMENT: AN OVERVIEW Operations management concern with the transformation of inputs into outputs, using physical resources, so as to provide the desired goods & services to the customer while meeting the other organizational obje...

CHAPTER ONE: AN INTRODUCTION TO OPERATIONS MANAGEMENT OPERATIONS MANAGEMENT: AN OVERVIEW Operations management concern with the transformation of inputs into outputs, using physical resources, so as to provide the desired goods & services to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability.So, within organizations, operations management describes the functional area responsible for managing the operations that produce goods and/or services for customers. Goods are physical items that include raw materials, parts, subassemblies such as motherboards that go into computers, and final products such as cell phones and automobiles. While, Services are activities that provide some combination of time, location, form, or psychological value. Operational activities are core to the producing of goods and/or delivering services. Every organization provides a product and service combination. A meal in a restaurant, a visit to the hospital, watching a movie, reading a book, insuring an automobile, staying in an hotel, going to the cinema; all have operations activities and their management is central to the successful providing of goods and services.The ideal situation for a business organization is to achieve an economic match of sup­ply and demand. Having excess supply or excess capacity is wasteful and costly; having too little means lost opportunity and possible customer dissatisfaction. The key func­tions on the supply side are operations and supply chains, while sales and marketing are working on the demand side. While the operations function is responsible for producing products and/or delivering ser­vices, it needs the support and input from other areas of the organization. Three basic functional areas can be found in business organizations, as shown in Figure 1.1, including finance, marketing, and operations. It doesn’t matter whether the business is a retail store, a hospital, a manufacturing firm, a car wash, or some other type of business; all business organizations have these three core functions. Finance is responsible for securing financial resources at favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment pro­posals, and providing funds for operations. Marketing is responsible for assessing consumer wants and needs, and selling and promoting the organization’s goods or services. Operations is responsible for producing the goods or providing the services offered by the organiza­tion. To put this into perspective, if a business organization were a car, operations would be its engine. And just as the engine is the core of what a car does, in a business organization, operations is the core of what the organization does. Operations management is responsible for managing that core. Hence, operations management is the management of systems or processes that create goods and/or provide services. (Press to learn more ) The following table (Table.1.1) shows the most important differences between production management and operations management. It will be helpful for students to understand the idea in a better way. Production is concerned with the creation of goods and/ or services. While operations are concerned with the transformation of specific inputs such as: materials, staff, information and facilities into desired outputs such as: goods and/or services. In the same vein, we have to put in mid that there are many differences between production and manufacturing as illustrated in the following figure (Figure, 1.2).To do the previously mentioned, any organization must have operations system which consists of four elements.i.e. inputs, processes, outputs and feedback. (Press to learn more) - Inputs are divided into to types: Converted resources.i.e. the resources that are treated before using them such as: raw materials and information. Converting resources.i.e. the resources that act upon the converted resources such as: staff and facilities - Transformation Processes indicate into all activities that add values. There are five common transformation processes.i.e. physical process as in manufacturing, locational process as in transportation, exchange process as in a giant store, physiological process in entertainment, and informational process as in telecommunications. - Outputs are goods and/or services such as: a pen and a health care. - Feedback, to ensure that the desired outputs are obtained, an organization takes measurements at various points in the transformation process {feedback) and then compares them with previously established standards to determine whether corrective action is needed {control). Figure 1.3. illustrates the operations function as a system. The term value added is used to describe the difference between the cost of inputs and the value or price of outputs. In nonprofit organizations, the value of outputs (e.g., highway construction, police and fire protection) is their value to society; the greater the value-added, the greater the effectiveness of these operations. In for-profit organizations, the value of outputs is measured by the prices that customers are willing to pay for those goods or services. Activities that do not add value are considered a waste; these include certain jobs, equipment, and processes. 2. PRODUCING GOODS VERSUS PROVIDING SERVICES It is important to note that goods and services often occur jointly. For example, having the oil changed in your car is a service, but the oil that is delivered is a good. The goods-service combination can be considered as a continuum. It can range from primar­ily goods, with little service, to primarily service, with few goods. Figure 1.4. illustrates this continuum. Because there are relatively few pure goods or pure services, companies usually sell product-packages, which are combination of goods and services. There are elements of both goods production and service delivery in these product packages. This makes managing operations more interesting, and also more challenging. Despite goods and services often go hand in hand, there are some basic differences between both. These differences affect the management of the goods portion versus man­agement of the service portion. On the other hand, there are also many similarities between them. Production of goods results in a tangible output, such as an automobile, eyeglasses, a golf ball, a refrigerator—anything that we can see or touch. It may take place in a factory, but it can occur elsewhere. For example, farming and restaurants produce nonmanufactured goods. Delivery of service, on the other hand, generally implies an act. A physician’s examination, TV and auto repair, lawn care, and the projection of a film in a theater are examples of services. all, Goods and service are often different in terms of what is done but quite similar in terms of how it is done. Consider these points of comparison: - Tangibility: Goods are tangible (Embodied such as a table) while services are intangible (Disembodied such as a lecture). - Storability: Goods can be stored (such as, storing a car while services are not (such as storing a healthcare service, can not be sored). - Transportability: Goods can be transported (cares can be produced in Korea, then transported to Egypt), while services are not (Such as a car maintenance service). - Simultaneity: Goods can be produced before they are needed (care can be produced then sored until they are needed from a customer part), while services are provided when they are needed (Such as a hair dresser or a barber provides his or her service when a customer wants such service). - Quality judgment. You can judge on quality of goods before you buy them such as: buying a new car you can judge on its quality before you buy it, while in services you have to receive a service firstly, then you can judge on its quality such as: receiving a health care service at a dental clinic, or attending a lecture on Operations Management. - Degree of customer contact. Many services involve a high degree of customer con­tact, although services such as Internet providers, utilities, and mail service do not. When there is a high degree of contact, the interaction between server and customer becomes a “moment of truth” that-will be judged by the customer every time the ser­vice occurs. - Uniformity of inputs. Service operations are often subject to a higher degree of vari­ability of inputs. Each client, patient, customer, repair job, and so on presents a some­what unique situation that requires assessment and flexibility. Conversely, manufacturing operations often have a greater ability to control the variability of inputs, which leads to more-uniform job requirements. - Measurement of productivity. Measurement of productivity can be more difficult for service jobs due largely to the high variations of inputs. Thus, one doctor might have a higher level of routine cases to deal with, while another might have more difficult cases. Unless a careful analysis is conducted, it may appear that the doctor with the difficult cases has a much lower productivity than the one with the routine cases. (Press to learn more) 3. WHY STUDY OPERATIONS MANAGEMENT? This is a question often asked by students (at both undergraduate and graduate levels) when they study this unique discipline. The answer is very simple, in operations management course the students will find tools, information and skills to become the best managers possible, the skill set them gain studying opera­tions management will serve them well in their career. More importantly, Operations management is one of the in- demand specializations in any business school or college of commerce at both undergraduate and graduate levels. It provides a systematic way towards the organizational process. It uses analytical thinking in the real world. By enrolling into operation management, a student can benefit with: - product efficacy - increasing customer satisfaction - promoting creativity and innovation - improving maintenance - material planning and control. - Developing operations strategy. Furthermore, there are many career-related reasons for wanting to learn about operations management, whether you plan to work in the field of operations or not. This is because every aspect of business affects or is affected by operations. Operations and marketing are the two-line functions in a business organization. All other functions—accounting, finance, marketing, IT, and so on—support the two-line functions. Among the service jobs that are closely related to opera­tions are financial services (e.g., stock market analyst, broker, investment banker, and loan officer), marketing services (e.g., market analyst, marketing researcher, advertising manager, and product manager), accounting services (e.g., corporate accountant, public accountant, and budget analyst), and information services'(e.g., corporate intelligence, library services, man­agement information systems design services) In contrast, a common complaint from employers is that college graduates come to them very focused, when employers would prefer them to have more of a general knowledge of how business organizations operate. This book provides some of the breadth that employers are looking for in their new hires. Apart from the career-related reasons is a not so obvious one: Through learning about operations and supply chains, you will have a much better understanding of the world you live in, the global dependencies of companies and nations, some of the reasons that companies succeed or fail, and the importance of working with others. Working together successfully means that all members of the organization understand not only their own role, but they also understand the roles of others. In practice, there is signifi­cant interfacing and collaboration among the various functional areas, involving exchange of information and cooperative decision making. For example, although the three primary func­tions in business organizations perform different activities, many of their decisions impact on the other areas of the organization. Consequently, these functions have numerous interactions, as depicted by the overlapping circles shown in Figure 1.5. Finance and operations management personnel cooperate by exchanging information and expertise in such activities as the following: 1-Budgeting. Budgets must be periodically prepared to plan financial requirements. Budgets must sometimes be adjusted, and performance relative to a budget must be evaluated. 2-Economic analysis of investment proposals. Evaluation of alternative investments in plant and equipment requires inputs from both operations and finance people. 3-Provision of funds. The necessary funding of operations and the amount and timing of funding can be important and even critical when funds are tight. Careful planning can help avoid cash-flow problems. Marketing’s focus is on selling and/or promoting the goods or services of an organization. Marketing is also responsible for assessing customer wants and needs, and for communicat­ing those to operations people (short term) and to design people (long term). That is, opera­tions needs information about demand over the short to intermediate term so that it can plan accordingly (e.g., purchase materials. or schedule work), while design people need informa­tion that relates to improving current products and services and designing new ones. Market­ing, design, and production must work closely together to successfully implement design changes and to develop and produce new products. Marketing can provide valuable insight on what competitors are doing. Marketing also can supply information on consumer prefer­ences so that design will know the kinds of products and features needed; operations can supply information about capacities and judge the manufacturability of designs. Operations will also have advance warning if new equipment or skills will be needed for new products or services. Finance people should be included in these exchanges in order to provide informa­tion on what funds might be available (short term) and to learn what funds might be needed for new products or services (intermediate to long term). One important piece of information marketing needs from operations is the manufacturing or service lead time in order to give customers realistic estimates of how long it will take to fill their orders. Thus, marketing, operations, and finance must interface on product and process design, forecasting, setting realistic schedules, quality and quantity decisions, and keeping each other informed on the other’s strengths and weaknesses. People in every area of business need to appreciate the importance of managing and coor­dinating operations decisions that affect the supply chain and the matching of supply and demand, and how those decisions impact other functions in an organization. Operations also interacts with other functional areas of the organization, including legal, management information systems (MIS), accounting, personnel/human resources, and public relations. The legal department must be consulted on contracts with employees, customers, suppli­ers, and transporters, as well as on liability and environmental issues. Accounting supplies information to management on costs of labor, materials, and over­head, and may provide reports on items such as scrap, downtime, and inventories. Management information systems (MIS) is concerned with providing management with the information it needs to effectively manage. This occurs mainly through designing systems to capture relevant information and designing reports. MIS is also important for managing the control and decision-making tools used in operations management. The personnel or human resources department is concerned with recruitment and training of personnel, labor relations, contract negotiations, wage and salary administration, assisting in manpower projections, and ensuring the health and safety of employees. Public relations has responsibility for building and maintaining a positive public image of the organization. Good public relations provides many potential benefits. An obvious one is in the marketplace. Other potential benefits include public awareness of the organization as a good place to work (labor supply), improved chances of approval of zoning change requests, community acceptance of expansion plans, and instilling a positive attitude among employees. 4. OBJECTIVES OF OPERATIONS MANAGEMENT Operation Management involves management of the entire process responsible for converting inputs into outputs. The following are the objectives of operations management. 1. To provide customer service The main objective of any operating management systems is to utilize resources judiciously for the satisfaction of customer needs and wants. Therefore, customer satisfaction is a key objective of operations management. Operation management focuses on providing the right products at a right price at the right time. Hence, this objective will influence the operations manager’s decisions to achieve the required customer service. 2. Effective utilization of resources Resources that are used in the business organization must be carefully utilized. Inefficient use of resources or inadequate customer service leads to commercial failure of an organization. Operations management is concerned essentially with the utilization of resources. It aims at obtaining maximum output from the available resources with minimum cost. 3. To reduce cost of production Operation management aims at reduction in the cost of production of goods and services. The cost per unit of the product has to be set properly and all efforts should be taken to control the actual cost to pre- determined cost of production. Cost can be classified in to fixed cost and variable cost. The variable cost changes with every level of production. This variable cost can be checked by means of inventory and labor control techniques. 4. To improve product quality Quality control and maintenance are the two important objectives of operations management. Quality control consists of all those activities, which are designed to define, maintain and control specific quality of products within reasonable limits. It is the systematic regulation of all variables affecting the goodness of the final product. In other words, quality control involves determination of quality standards and its actual measurement.It is necessary to ensure that the established standards are practiced and maintained. It does not attempt to achieve the perfect quality but to secure satisfactory or reasonable quality at a reasonable level of cost. 5. To fix time schedule Another important objective of operation management is to establish time schedule for various operation activities. The schedule fixation includes the operating cycle time, inventory turnover rate, machine utilization rate, capacity utilization etc. 6. Proper utilization of Machinery Operation management has to take number of decisions with regard to machinery and equipment. New machines should be installed and the old machines are to be replaced. It has to ensure judicious utilization of machinery and equipment. 7. Material control Based on the sales forecast and production plans, the materials planning and control is done. This involves estimating the individual requirements of parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and monitoring the performance in relation to production and sales. 5. THE SCOPE OF OPERATIONS MANAGEMENT The scope of operations management ranges across the organization. Operations management people are involved in product and service design, process selection, selection and manage­ment of technology, design of work systems, location planning, facilities planning, and qual­ity improvement of the organization’s products or services. The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more. For example, consider a service organization’s operations system in an airline company. The system consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide territory. The activities include: - Forecasting such things as weather and landing conditions, seat demand for flights, and the growth in air travel. - Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit. (Too few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.) - Facilities and layout, important in achieving effective use of workers and equipment. - Locating facilities according to managers’ decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs. - Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers. - Managing inventories of such items as foods and beverages, first-aid equipment, in­flight magazines, pillows and blankets, and life preservers. - Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb service, where the emphasis is on efficiency and courtesy. - Motivating and training employees in all phases of operations. 6. OPERATIONS MANAGEMENT AND DECISION MAKING The Operations manager is responsible for making several decisions in order to achieve outcomes that contribute to the achievement of the organization’s overall strategic goals. Most decisions involve many possible alternatives that can have quite different impacts on costs or profits. Operations management professionals make a number of key decisions that affect the entire organization. These include the following: - What: What resources will be needed, and in what amounts? - When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When is corrective action needed? - Where: Where will the work be done? - How: How will the product or service be designed? How will the work be done (organi­zation, methods, equipment)? How will resources be allocated? - Who: Who will do the work? An operations manager’s daily concerns include costs (budget), quality, and schedules (time).Throughout this book, a broad range of decisions that operations managers must make will be identified, besides the main tools necessary to handle those deci­sions. This section describes general approaches to decision making, including the use of models, quantitative methods, analysis of trade-offs, establishing priorities, ethics, and the systems approach. Models are often a key tool used by all decision makers. 7.1. Models A model is an abstraction of reality, a simplified representation of something. For example, a child's toy car is a model of a real automobile. It has many of the same visual features (shape, relative proportions, and wheels) that make it suitable for the child’s learning and playing. But the toy does not have a real engine, it cannot transport people, and it does not weigh 2,000 pounds. Other examples of models include automobile test tracks and crash tests; formulas, graphs and charts; balance sheets and income statements; and financial ratios. Common statistical models include descriptive statistics such as the mean, median, mode, range, and standard deviation, as well as random sampling, the normal distribution, and regression equations. Models are sometimes classified as physical, schematic, or mathematical: - Physical models look like their real-life counterparts. Examples include miniature cars, trucks, airplanes, toy animals and trains, and scale-model buildings. The advantage of these models is their visual correspondence with reality. - Schematic models are more abstract than their physical counterparts; that is, they have less resemblance to the physical reality. Examples include graphs and charts, blue­prints, pictures, and drawings. The advantage of schematic models is that they are often relatively simple to construct and change. Moreover, they have some degree of visual correspondence. - Mathematical models are the most abstract: They do not look at all like their real-life counterparts. Examples include numbers, formulas, and symbols. These models are usually the easiest to manipulate, and they are important forms of inputs for computers and calculators. The variety of models in use is enormous. Nonetheless, all have certain common features: They are all decision-making aids and simplifications of more complex real-life phenomena. Real life involves an overwhelming amount of detail, much of which is irrelevant for any par­ticular problem. Models omit unimportant details so that attention can be concentrated on the most important aspects of a situation. Since models play a significant role in operations management decision making, they are heavily integrated into the material of this text. For each model, try to learn (1) its pur­pose, (2) how it is used to generate results, (3) how these results are interpreted and used, and (4) what assumptions and limitations apply. The last point is particularly important because virtually every model has an associated set of assumptions or conditions under which the model is valid. Failure to satisfy all of the assumptions will make the results suspect. Attempts to apply the results to a problem under such circumstances can lead to disastrous consequences. Managers use models in a variety of ways and for a variety of reasons. Since Models are benefi­cial because they: 1- Are generally easy to use and less expensive than dealing directly with the actual situation. 2- Require users to organize and sometimes quantify information and, in the process, often indicate areas where additional information is needed. 3- Increase understanding of the problem. 4- Enable managers to analyze what-if questions. 5- Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem. 6- Enable users to bring the power of mathematics to bear on a problem. However, models have certain limitations of which managers should be aware. The following are three of the more important limitations: 1- Quantitative information may be emphasized at the expense of qualitative information. 2- Models may be incorrectly applied and the results misinterpreted. The widespread use of computerized models adds to this risk because highly sophisticated models may be placed in the hands of users who are not sufficiently knowledgeable to appreciate the subtleties of a particular model; thus, they are unable to fully comprehend the circum­stances under which the model can be successfully employed. 3- The use of models does not guarantee good decisions. CHAPTER TWO: OPERATIONS STRATEGY & PRODUCTIVITY 1. INTRODUCTION All business organizations are concerned with how they will survive and prosper in the future. A business strategy is often thought of as a plan or set of intentions that will set the long-term direction of the actions that are needed to ensure future organizational success. An organization’s strategy can only become a meaningful reality, in practice, if it is operationally enacted. An organization’s operations are strategically important precisely because most organizational activity comprises the day-to-day activities within the operations function. It is the countless of daily actions of operations, when considered in their totality that constitute the organization’s long-term strategic direction. Many people think that operations management is only concerned with short-term, day-to-day, tactical issues. This represents a short sight for conducting business. Accordingly, this chapter will seek to correct that view by considering the strategic importance of operations within any organization. It will develop the theme of how operations management must be seen in terms of strategic importance and how strategies have to be in place if the organization wants to be able to compete in the modern business world. 2. WHY DO SOME ORGANIZATIONS FAIL? Organizations may fail, or perform poorly, for a variety of reasons. Being aware of those reasons can help managers avoid making similar mistakes. Among the chief reasons are the following: 1- Neglecting operations strategy. 2- Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threats. 3- Putting too much emphasis on short-term financial performance at the expense of research and development. 4- Placing too much emphasis on product and service design and not enough on process design and improvement. 5- Neglecting investments in capital and human resources. 6- Failing to establish good internal communications and cooperation among different functional areas. 7- Failing to consider customer wants and needs. In order to successfully compete, organizations must determine what customers want and then direct efforts toward meeting (or even exceeding) customer expectations. Two basic issues must be addressed; First: What do the customers want? (Which items on the preceding list of the ways business organi­zations compete are important to customers?) Second: What is the best way to satisfy those wants? The operations function lies at the heart of any organization and interacts with all the other functions. As such, achieving agreement about what decision areas lie within the remit of operations, and what should be the basis of decision-making within operations is an essential part of ensuring the consistency of action over time necessary for a successful organizational strategy. Therefore, operations must work in align with marketing and other functions to obtain information on the relative importance of the various items to each major customer or target market. (Press to learn more) 3. COMPETITIVENESS Organizations must be competitive to sell their goods and services in the marketplace. Competitiveness is an important factor in determining whether an organization prospers, barely gets by, or fails. Business organizations compete through some combination of price, delivery time, and product or service differentiation. Marketing influences competitiveness in several ways, including identifying consumer wants and needs, pricing, and advertising and promotion. - Identifying consumer wants and/or needs is a basic input in an organization’s decision-making process, and central to competitiveness. The ideal is to achieve a per­fect match between those wants and needs and the organization’s goods and/or services. - Price and quality are key factors in consumer buying decisions. It is important to understand the trade-off decision consumers make between price and quality. - Advertising and promotion are ways organizations can inform potential customers about features of their products or services and attract buyers. Operations, on the other hand, has a major influence on competitiveness through product and service design, cost, location, quality, response time, flexibility, inventory and supply chain management, and service. Many of these are interrelated. - Product and service design should reflect joint efforts of many areas of the firm to achieve a match between financial resources, operations capabilities, supply chain capa­bilities, and consumer wants and needs. Special characteristics or features of a product or service can be a key factor in consumer buying decisions. Other key factors include innovation and the time-to-market for new products and services. - Cost of an organization’s output is a key variable that affects pricing decisions and prof­its. Cost-reduction efforts are generally ongoing in business organizations. Productivity (discussed later in the chapter) is an important determinant of cost. Organizations with higher productivity rates than their competitors have a competitive cost advantage. A company may outsource a portion of its operation to achieve lower costs, higher produc­tivity, or better quality. - Location can be important in terms of cost and convenience for customers. Location near inputs can result in lower input costs. Location near markets can result in lower transportation costs and quicker delivery times. Convenient location is particularly important in the retail sector. - Quality refers to materials, workmanship, design, and service. Consumers judge qual­ity in terms of how well they think a product or service will satisfy its intended purpose. Customers are generally willing to pay more for a product or service if they perceive the product or service has a higher quality than that of a competitor. - Quick response can be a competitive advantage. One way is quickly bringing new or improved products or services to the market. Another is being able to quickly deliver existing products and services to a customer after they are ordered, and still another is quickly handling customer complaints. - Flexibility is the ability to respond to changes. Changes might relate to alterations in design features of a product or service, or to the volume demanded by customers, or the mix of products or services offered by an organization. High flexibility can be a com­petitive advantage in a changeable environment. - Inventory management can be a competitive advantage by effectively matching sup­plies of goods with demand. - Supply chain management involves coordinating internal and external operations (buyers and suppliers) to achieve timely and cost-effective delivery of goods throughout the system. - Service might involve after-sale activities customers perceive as value- added, such as delivery, setup, warranty work, and technical support. Or it might involve extra atten­tion while work is in progress, such as courtesy, keeping the customer informed, and attention to details. Service quality can be a key differentiator; and it is one that is often sustainable. Moreover, businesses rated highly by their customers for service quality tend to be more profitable, and grow faster, than businesses that are not rated highly. (Press to learn more) 4. THE NATURE OF STRATEGY Strategy can be defined as “the direction and scope of an organization over the long-term, which achieves advantage in a changing environment through its configuration of resources with the aim of fulfilling stakeholder expectations”. In its determination of the long-term direction of an organization, strategy involves the interplay of three elements: (1) the organization’s external environment, (2) its resources and (3) its objectives (in meeting the expectations of its stakeholders). Operations management is principally concerned with the organizational resources. However, the way that the operations function manages resources will impact both the way that the organization interacts with its external environment and its ability to meet the needs of its stakeholders. Thus, operations management is an integral part of an organization’s strategy. Strategy can be considered to exist at three levels in an organization: 1- Corporate level strategy: Corporate level strategy is the highest level of strategy. It sets the long-term direction and scope for the whole organization. If the organization comprises more than one business unit, corporate level strategy will be concerned with what those businesses should be, how resources (e.g. cash) will be allocated between them, and how relationships between the various business units and between the corporate center and the business units should be managed. Organizations often express their strategy in the form of a corporate mission or vision statement. 2- Business level strategy: Business level strategy is primarily concerned with how a particular business unit should compete within its industry, and what its strategic aims and objectives should be. Depending upon the organization’s corporate strategy and the relationship between the corporate center and its business units, a business unit’s strategy may be constrained by a lack of resources or strategic limitations placed upon it by the center. In single business organizations, business level strategy is synonymous with corporate level strategy. 3- Functional level strategy: The bottom level of strategy is that of the individual function. These strategies are concerned with how each function contributes to the business strategy, what their strategic objectives should be and how they should manage their resources in pursuit of those objectives. 5. MISSION AND STRATEGIES An organization’s mission is the reason for its existence. It is expressed in its mission statement. For a business organization, the mission statement should answer the question “What business are we in?” Missions vary from organization to organization, depending on the nature of their business. A mission statement serves as the basis for organizational goals, which provide more detail and describe the scope of the mission. The mission and goals often relate to how an organiza­tion wants to be perceived by the general public, and by its employees, suppliers, and custom­ers. Goals serve as a foundation for the development of organizational strategies. These, in turn, provide the basis for strategies and tactics of the functional units of the organization. (Press to learn more) Organizational strategy is important because it guides the organization by providing direc­tion for, and alignment of, the goals and strategies of the functional units. Moreover, strate­gies can be the main reason for the success or failure of an organization. There are three basic business strategies: (Press to learn more) Low cost. Responsiveness. Differentiation from competitors. Responsiveness relates to ability to respond to changing demands. Differentiation can relate to product or service features, quality, reputation, or customer service. Some organiza­tions focus on a single strategy while others employ a combination of strategies. One com­pany that has multiple strategies is Amazon.com. Not only does it offer low cost and quick, reliable deliveries, it also excels in customer service. 6. STRATEGIC MANAGEMENT FRAMEWORK The basic framework of strategic management involves five stages: Stage 1: In this stage, organizations conduct analysis of their present situation in terms of their Strengths, Weaknesses, Opportunities and Threats (SWOT). Stage 2: In this stage, organizations setup their missions, goals and objectives by analyzing where they want to go bin future. Stage 3: In this stage organizations examine various strategic alternatives to achieve their goals and objectives. The alternatives are analyzed in terms of what business portfolio/product mix to adopt, expansion, merger, acquisition and divestment options etc. are analyzed to achieve the goals. Stage 4: In this organizations select the best suitable alternatives in line with their SWOT analysis Stage 5: This is implementation stage in which organizations implement and execute the selected alternatives to achieve their strategic goals and objectives.(Press to learn more) 6.1. The Strategic Management Process: An Example The Higher Institute for Tourism & Hotels as an example: Mission: - Broad à contributing to the development of education and tourism. - Narrow à qualifying graduates for jobs in hotels and tour guiding. Objectives: - Obtaining 15% Return on Investment (ROI) by the end of 2023. Strategies: - Increase the number of admissions. - Increase tuitions by 10%. - Reduce costs. 6.2. Strategy Formulation Strategy formulation is almost always critical to the success of a strategy. To formulate an effective strategy, senior managers must take into account the core com­petencies of the organizations, and they must scan the environment. They must determine what competitors are doing, or planning to do, and take that into account. They must criti­cally examine other factors that could have either positive or negative effects. This is some­times referred to as the SWOT approach (strengths, weaknesses, opportunities, and threats). Strengths and weaknesses have an internal focus and are typically evaluated by operations people. Threats and opportunities have an external focus and are typically evaluated by mar­keting people. SWOT is often regarded as the link between organizational strategy and operations strategy. Important factors may be internal or external. The following are key external factors: - Economic conditions. These include the general health and direction of the economy, inflation and deflation, interest rates, tax laws, and tariffs. - Political conditions. These include favorable or unfavorable attitudes toward business, political stability or instability, and wars. - Legal environment. This includes antitrust laws, government regulations, trade restric­tions, minimum wage laws, product liability laws and recent court experience, labor laws, and patents. - Technology. This can include the rate at which product innovations are occurring, current and future process technology (equipment, materials handling), and design technology. - Competition. This includes the number and strength of competitors, the basis of competition (price, quality, special features), and the ease of market entry. - Markets. This includes size, location, brand loyalties, ease of entry, potential for growth, long-term stability, and demographics. The organization also must take into account various internal factors that relate to possible strengths or weaknesses. Among the key internal factors are the following: - Human resources. These include the skills and abilities of managers and workers, special talents (creativity, designing, problem solving), loyalty to the organization, expertise, dedication, and experience. - Facilities and equipment. Capacities, location, age, and cost to maintain or replace can have a significant impact on operations. - Financial resources. Cash flow, access to additional funding, existing debt burden, and cost of capital are important considerations. - Customers. Loyalty, existing relationships, and understanding of wants and needs are important. - Products and services. These include existing products and services, and the potential for new products and services. - Technology. This includes existing technology, the ability to integrate new technology, and the probable impact of technology on current and future operations. - Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and service are typical considerations. - Other. Other factors include patents, labor relations, company or product image, dis­tribution channels, relationships with distributors, maintenance of facilities and equip­ment, access to resources, and access to markets. (Press to learn more) In formulating a successful strategy, organizations must take into account both order quali­fiers and order winners. Order qualifiers are those characteristics that potential customers perceive as minimum standards of acceptability for a product to be considered low purchase. However, that may not be sufficient to get a potential customer to purchase from the organi­zation. Order winners are those characteristics of an organization’s goods or services that cause them to be perceived as better than the competition. Characteristics such as price, delivery reliability, delivery speed, and quality can be order qualifiers or order winners. Thus, quality may be an order winner in some situations, but in others only an order qualifier. Over time, a characteristic that was once an order winner may become an order qualifier, and vice versa. Obviously, it is important to determine the set of order qualifier characteristics and the set of order winner characteristics. It is also necessary to decide on the relative importance of each characteristic so that appropriate attention can be given to the various characteristics. Marketing must make that determination and communicate it to operations. Another key factor to consider when developing strategies is technological change, which can present real opportunities and threats to an organization. Technological changes occur in products (high-definition TV, improved computer chips, improved cellular telephone systems, and improved designs for earthquake-proof structures); in services (faster order processing, faster delivery); and in processes (robotics, automation, computer-assisted processing, point-of-sale scanners, and flexible manufacturing systems). The obvious benefit is a competitive edge; while the risk is that incorrect choices, poor execution, and higher-than- expected operating costs will create competitive disadvantages. 7. OPERATIONS STRATEGY The organization strategy provides the overall direction for the organization. It is broad in scope, covering the entire organization. Operations strategy is narrower in scope, deal­ing primarily with the operations aspect of the organization. Operations strategy relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling. In order for operations strategy to be truly effective, it is important to link it to organiza­tion strategy; that is, the two should not be formulated independently. Rather, formulation of organization strategy should take into account the realities of operations’ strengths and weak­nesses, capitalizing on strengths and dealing with weaknesses. Similarly, operations strategy must be consistent with the overall strategy of the organization, and with the other functional units of the organization. In other words, operations strategy has a vertical relationship in the corporate hierarchy with business and corporate strategies, and horizontally with the other functional strategies (e.g. marketing, finance, human resources, etc.). This requires that senior managers work with functional units to for­mulate strategies that will support, rather than conflict with, each other and the overall strat­egy of the organization. As obvious as this may seem, it doesn’t always happen in practice. Instead, we may find power struggles between various functional units. These struggles are detrimental to the organization because they pit functional units against each other rather than focusing their energy on making the organization more competitive and better able to serve the customer. Some of the latest approaches in organizations, involving teams of managers and workers, may reflect a growing awareness of the synergistic effects of working together rather than competing internally. 7.1. Strategic Operations Management Decision Areas Operations management people play a strategic role in many strategic decisions in a business organization. Table 2.1 highlights some key decision areas. Notice that most of the decision areas have cost implications. Table 2.1. Key Decision Areas 7.2. Quality and Time Strategies Two factors that tend to have universal strategic operations importance relate to quality and time. The following section discusses quality and time strategies. Traditional strategies of business organizations have tended to emphasize cost minimization or product differentiation. While not abandoning those strategies, many organizations have embraced strategies based on quality and/or time. Quality-based strategies focus on maintaining or improving the quality of an organiza­tion’s products or services. Quality is generally a factor in both attracting and retaining cus­tomers. Quality-based strategies may be motivated by a variety of factors. They may reflect an effort to overcome an image of poor quality, a desire to cattish up with the competition, a desire to maintain an existing image of high quality, or some combination of these and other factors. Interestingly enough, quality-based strategies can be part of another strategy such as cost reduction, increased productivity, or time, all of which benefit from higher quality. Time-based strategies focus on reducing the time required to accomplish various activi­ties (e.g., develop new products or services and market them, respond to a change in cus­tomer demand, or deliver a product or perform a service). By doing so, organizations seek to improve service to the customer and to gain a competitive advantage over rivals who take more time to accomplish the same tasks. The rationale is that by reducing time, costs are generally less, productivity is higher, quality tends to be higher, product innovations appear on the market sooner, and cus­tomer service is improved. Organizations have achieved time reduction in some of the following: - Planning time: The time needed to react to a competitive threat, to develop strategies and select tactics, to approve proposed changes to facilities, to adopt new technologies, and so on. - Product/service design time: The time needed to develop and market new or rede­signed products or services. - Processing time: The time needed to produce goods or provide services. This can involve scheduling, repairing equipment, methods used, inventories, quality, training, and the like. - Changeover time: The time needed to change from producing one type of product or service together. This may involve equipment settings and attachments, different methods, equipment, schedules, or materials. - Delivery time: The time needed to fill orders. - Response time for complaints: These might be customer complaints about quality, timing of deliveries, and incorrect shipments. These might also be complaints from employees about working conditions (e.g., safety, lighting, heat or cold), equipment problems, or quality problems. 8. IMPLICATIONS OF ORGANIZATION STRATEGY FOR OPERATIONS MANAGEMENT Organization strategy has a major impact on operations and supply chain management strate­gies. For example, organizations that use a low-cost, high-volume strategy limit the amount of variety offered to customers. As a result, variations for operations and the supply chain are minimal, so they are easier to deal with. Conversely, a strategy to offer a wide variety of products or services, or to perform customized work, creates substantial operational and supply chain variations and, hence, more challenges in achieving a smooth flow of goods and services throughout the supply chain, thus making, the matching of supply, to demand more difficult. Similarly, increasing service reduces the ability to compete on price. Table 2.2 provides a brief overview of variety and some other key implications. Table 2.2. Overview of variety & other key implications On Operations Management 9. PRODUCTIVITY One of the primary responsibilities of a manager is to achieve productive use of an organiza­tion’s resources. The term productivity is used to describe this. Productivity is an index that measures output (goods and services) relative to the input (labor, materials, energy, and other resources) used to produce it. It is usually expressed as the ratio of output to input: Productivity = Output / Input Although productivity-is important for all business organizations, it is particularly impor­tant for organizations that use a strategy of low cost, because the higher the productivity, the lower the cost of the output. A productivity ratio can be computed for a single operation, a department, an organiza­tion, or an entire country. In business organizations, productivity ratios are used for planning workforce requirements, scheduling equipment, financial analysis, and other important tasks. Productivity has important implications for business organizations and for entire nations. For nonprofit organizations, higher productivity means lower costs; for profit-based organiza­tions, productivity is an important factor in determining how competitive a company is. For a nation, the rate of productivity growth is of great importance. Productivity growth is the increase in productivity from one period to the next relative to the productivity in the preced­ing period. Thus: Productivity growth = [ (Current productivity - Previous productivity) / Previous productivity] × 100 For example, if productivity increased from 80 to 84, the growth rate would be: [(84 - 80) / 80 ] × 100 = 5%. Productivity growth is a key factor in a country’s rate of inflation and the standard of living of its people. Productivity increases add value to the economy while keeping inflation in check. Productivity growth was a major factor in the long period of sustained economic growth in the United States in the 1990s. (Press to learn more) 9.1. Computing Productivity Productivity measures can be based on a single input (partial productivity;, on more than one input (multifactor productivity), or on all inputs (total productivity). Some examples of productivity measures are listed below. The choice of productivity measure depends primarily on the purpose of the measurement. If the purpose is to track improvements in labor productivity, then labor becomes the obvious input measure. Examples of Productivity Measures: Partial measures are often of greatest use in operations management. The following table provides some examples of partial productivity measures. Table 2.3. Examples of Partial Productivity Meassures. The units of output used in productivity measures depend on the type of job performed. The following are examples of labor productivity: Similar examples can be listed for machine productivity (e.g., the number of pieces per hour turned out by a machine). Example 1: Determine the productivity for these cases: 1. Four workers installed 720 square yards of carpeting in eight hours. 2. A machine produced 70 pieces in two hours. However, two pieces were unusable. The answer Productivity = (720 square yard) / (4 workers × 8 hours per worker) = 22.5 yard per hour Productivity = 68 usable pieces / 2 hours production time = 34 pieces per hour 9.2 Factors That Affect Productivity There are several factors affect productivity. Generally, they are methods, capital, quality, technol­ogy, and management. Factors that affect productivity may include the following: - Standardizing processes and procedures wherever possible to reduce variability can have a significant benefit for both productivity and quality. - Quality differences may distort productivity measurements. One way this can happen is when comparisons are made over time, such as comparing the productivity of a fac­tory now with one 30 years ago. Quality is now much higher than it was then, but there is no simple way to incorporate quality improvements into productivity measurements. - Use of the Internet can lower costs of a wide range of transactions, thereby increasing productivity. It is likely that this effect will continue to increase productivity in the fore­seeable future. - Computer viruses can have an immense negative impact on productivity. - Searching for lost or misplaced items wastes time, hence negatively affecting productivity. - Scrap rates have an adverse effect on productivity, signaling inefficient use of resources. - New workers tend to have lower productivity than seasoned workers. Thus, growing companies may experience a productivity lag. - Safety should be addressed. Accidents can take a toll on productivity. - A shortage of technology-savvy workers hampers the ability of companies to update com­puting resources, generate and sustain growth, and take advantage of new opportunities. - Layoffs often affect productivity. The effect can be positive and negative. Initially, pro­ductivity may increase after a layoff, because the workload remains the same but fewer workers do the work—although they have to work harder and longer to do it. However, as time goes by, the remaining workers may experience an increased risk of burnout, and they may fear additional job cuts. The most capable workers may decide to leave. - Labor turnover has a negative effect on productivity; replacements need time to get up to speed. - Design of the workspace can impact productivity. For example, having tools and other work items within easy reach can positively impact productivity. - Incentive plans that reward productivity increases can boost productivity. Moreover, there are still other factors that affect productivity, such as equipment breakdowns and shortages of parts or materials. The education level and training of workers and their health can greatly affect productivity. The opportunity to obtain lower costs due to higher productiv­ity elsewhere is a key reason many organizations turn to outsourcing. Hence, an alternative to outsourcing can be improved productivity. Moreover, as a part of their strategy for quality, the best organizations strive for continuous improvement. Productivity improvements can be an important aspect of that approach. 9.3. Improving Productivity A company or a department can take a number of key steps toward improving productivity: - Develop productivity measures for all operations. Measurement is the first step in man­aging and controlling an operation. - Look at the system as a whole in deciding which operations are most critical. It is overall productivity that is important. Develop methods for achieving productivity improvements, such as soliciting ideas from workers (perhaps organizing teams of workers, engineers, and managers), studying how other firms have increased productivity, and reexamining the way work is done. - Establish reasonable goals for improvement. - Make it clear that management supports productivity improvement. Consider incentives to reward workers for contributions. - Measure improvements and publicize them. (Press to learn more) CHAPTER THREE: PROCESS DESIGN 1. INTRODUCTION At the product conception stage, manufacturing proposes investigates processes and concepts. When the product concept has been finalized, the role of process management then is to develop cost estimates, define process architecture, conduct process simulation and validate suppliers. Concurrently with the detailed product design, process management is involved in the designing of the process, designing and developing tooling and participating in building full-scale prototype. At the time the product development teams are developing the prototype, the process management teams test and try out tooling and equipment; help build second phase -an assembly line is a prototypes-; install equipment and specify process procedures. This is followed by building pilot units in commercial process; refining process based on pilot experience, training personnel’s and verifying supply channels. Finally at the release of product, process management has to ramp up plan to volume targets, meet targets for quality, revenue and cost. Operations managers are responsible for the design and redesign of processes. The operations manager’s role is vitally important in integrating all the contributors into the design/redesign process. A business process is “a set of logically related business activities that combine to deliver something of value (e.g. products, goods, services or information) to a customer”. While, Process design refers to “the activity of determining the workflow, equipment needs, and implementation requirements for a particular process”. This chapter introduces how new processes are designed, and how existing processes are redesigned in response to changing market needs and/or changing operational capabilities. 2. THE INTERRELATION BETWEEN PROCESS DESIGN AND PRODUCT/SERVICE DESIGN Often scholars will treat the design of services and products, on the one hand, and the design of the processes which make them, on the other, as though they were separate activities. Yet they are clearly interrelated. It would be foolish to commit to the detailed design of any product or service without some consideration of how it is to be produced. Small changes in the design of products and services can have profound implications for the way the operation eventually has to produce them. Similarly, the design of a process can constrain the freedom of product and service designers to operate as they would wish (Fig. 3.1). (Press to learn more) This holds good whether the operation is producing products or services. However, the overlap between the two design activities is generally greater in operations which produce services. Because many services involve the customer in being part of the transformation process, the service, as far as the customer sees it, cannot be separated from the process to which the customer is subjected. Overlapping product and process design has implications for the organization of the design activity. Certainly, when product designers also have to make or use the things which they design, it can concentrate their minds on what is important. For example, in the early days of flight, the engineers who designed the aircraft were also the test pilots who took them out on their first flight. For this reason, if no other, safety was a significant objective in the design activity. 3. TYPES OF PROCESSES When you look at different types of companies, ranging from a small coffee shop to IBM, it may seem like there are hundreds of different types of processes. Some locations are small, like your local Starbucks, and some are very large, like a Ford Motor Company plant. Some produce standardized “off-the-shelf” products, like Pepperidge Farm’s frozen chocolate cake, and some work with customers to customize their product, like cakes made to order by a gourmet bakery. Though there seem to be large differences between the processes of companies, many have certain processing characteristics in common. All processes can be grouped into two broad categories: intermittent operations and repetitive operations. These two categories differ in almost every way. Once we understand these differences, we can easily identify organizations based on the category of process they use. 3.1. Intermittent Operations Intermittent operations are used to produce a variety of products with different processing requirements in lower volumes. Examples are an auto body shop, a tool shop, or a healthcare facility. Because different products have different processing needs, there is no standard route that all products take through the facility. Instead, resources are grouped by function and the product is routed to each resource as needed. Think about a healthcare facility. Each patient, “the product,” is routed to different departments as needed. One patient may need to get an X-ray, go to the lab for blood work, and then go to the examining room. Another patient may need to go to the examining room and then to physical therapy. To be able to produce products with different processing requirements, intermittent operations tend to be labor intensive rather than capital intensive. Workers need to be able to perform different tasks, depending on the processing needs of the products produced. Often we see skilled and semiskilled workers in this environment, with a fair amount of worker discretion in performing their jobs. Workers need to be flexible and able to perform different tasks as needed for the different products. Equipment in this type of environment is more general-purpose to satisfy different processing requirements. Automation tends to be less common because automation is typically product-specific. Given that many products are being produced with different processing requirements, it is usually not cost efficient to invest in automation for only one product type. Finally, the volume of goods produced is directly tied to the number of customer orders. 3.2. Repetitive Operations Repetitive operations are used to produce one or a few standardized products in high volume. Examples are a typical assembly line, cafeteria, or automatic car wash. Resources are organized in a line flow to efficiently accommodate production of the product. Note that in this environment it is possible to arrange resources in a line because there is only one type of product. This is directly the opposite of what we find with intermittent operations. To efficiently produce a large volume of one type of product, these operations tend to be capital intensive rather than labor intensive. An example is “mass-production” operations, which usually have much invested in their facilities and equipment to provide a high degree of product consistency. Often these facilities rely on automation and technology to improve efficiency and increase output rather than on labor skill. The volume produced is usually based on a forecast of future demands rather than on direct customer orders. The most common differences between intermittent and repetitive operations relate to two dimensions: (1) the amount of product volume produced, and (2) the degree of product standardization. Product volume can range from making a unique product one at a time to producing a large number of products at the same time. Product standardization refers to “a lack of variety in a particular product”. Examples of standardized products are white undershirts, calculators, toasters, and television sets. The type of operation used, including equipment and labor, is quite different if a company produces oneproduct at a time to customer specifications instead of mass production of one standardized product. Specific differences between intermittent and repetitive operations are shown in figure 3.2. (Press to learn more) 3.3. The Continuum of Process Types Dividing processes into two fundamental categories of operations is helpful in our understanding of their general characteristics. To be more detailed, we can further divide each category according to product volume and degree of product standardization, as follows. Intermittent operations can be divided into project processes and batch processes. Repetitive operations can be divided into line processes and continuous processes. Figure 3.3 shows a continuum of process types. Next we look at what makes these processes different from each other Project processes: are used to make one-of-a-kind products exactly to customer specifications. These processes are used when there is high customization and low product volume, because each product is different. Examples can be seen in construction, shipbuilding, medical procedures, custom tailoring, and interior design. With project processes the customer is usually involved in deciding on the design of the product. Batch processes: are used to produce small quantities of products in groups or batches based on customer orders or product specifications. They are also known as job shops. The volumes of each product produced are still small, and there can still be a high degree of customization. Examples can be seen in bakeries, education, and printing shops. The classes you are taking at the university use a batch process. Line processes: are designed to produce a large volume of a standardized product for mass production. They are also known as flow shops, flow lines, or assembly lines. With line processes the product that is produced is made in high volume with little or no customization. Think of a typical assembly line that produces everything from cars, computers, television sets, shoes, candy bars, even food items. Continuous processes: operate continually to produce a very high volume of a fully standardized product. Examples include oil refineries, water treatment plants, and certain paint facilities. The products produced by continuous processes are usually in continual rather than discrete units, such as liquid or gas. They usually have a single input and a limited number of outputs. Also, these facilities are usually highly capital intensive and automated. Note that both project and batch processes have low product volumes and offer customization. The difference is in the volume and degree of customization. Project processes are more extreme cases of intermittent operations compared to batch processes. Also, note that both line and continuous processes primarily produce large volumes of standardized products. Again, the difference is in the volume and degree of standardization. Continuous processes are more extreme cases of high volume and product standardization than are line processes. The above figure positions these four process types along the diagonal to show the best process strategies relative to product volume and product customization. Companies whose process strategies do not fall along this diagonal may not have made the best process decisions. Bear in mind, however, that not all companies fit into only one of these categories: a company may use both batch and project processing to good advantage. For example, a bakery that produces breads, cakes, and pastries in batches may also bake and decorate cakes to order. (Press to learn more) 4. COMMON DRIVERS OF PROCESS DESIGN Different process designs will target different areas of business activity, according to organizational focus and requirements. However, most process design projects are driven by a combination of these common requirements: The need to increase efficiency: An inefficient business process leads to poor communication, duplication of effort, functional barriers, delays, unnecessary costs (money, materials and manpower) and, ultimately, an output that either partially or wholly fails to achieve its designated purpose. The need to evaluate business practice as part of an organizational development project: For example, business process design might be required in preparation for the implementation of enterprise technology such as ERP modules for supply chain management or CRM, or prior to a proposed merger, acquisition or internal restructuring project. The need to evaluate potential new business ventures (e.g. joint ventures or alliances) or business offerings. The need to manage the company’s knowledge resources: Knowledge management and sharing can be difficult without clear processes to capture and contain both what is already known, and the new knowledge and skills that are acquired on a daily basis. The need to manage human resources: Business process design can help to identify current and future HR competence requirements, and is often an integral part of developing a human resource strategy. 5. PROCESS DESIGN OBJECTIVES The whole point of process design is to make sure that the performance of the process is appropriate for whatever it is trying to achieve. For example, if an operation competed primarily on its ability to respond quickly to customer requests, its processes would need to be designed to give fast throughput times. This would minimize the time between customers requesting a product or service and them receiving it. Similarly, if an operation competed on low price, cost-related objectives would be likely to dominate its process design. Some kind of logic should link what the operation as a whole is attempting to achieve, and the performance objectives of its individual processes as illustrated in Table 3.1. 6. IMPORTANT CONSIDERATIONS WHEN PROCESS DESIGN There are some general considerations should be taken into account when designing the process, which are: Inherent safety: All processes which might constitute a danger to either staff or customers should not be accessible to the unauthorized. Length of flow: The flow of materials, information or customers should be appropriate for the operation. This usually means minimizing the distance travelled by transformed resources. However, this is not always the case (in a supermarket, for example). Clarity of flow: All flow of materials and customers should be well signposted, clear and evident to staff and customers alike. Staff conditions: Staff should be located away from noisy or unpleasant parts of the operation. Management coordination: Supervision and communication should be assisted by the location of staff and communication devices. Accessibility: All machines and facilities should be accessible for proper cleaning and maintenance. Use of space: All layouts should use space appropriately. This usually means minimizing the space used, but sometimes can mean achieving an impression of spacious luxury, as in the entrance lobby of a high-class hotel. Long-term flexibility: Layouts need to be changed periodically. A good layout will have been devised with the possible future needs of the operation in mind. 7. PROCEDURES FOR PROCESS DESIGN Process design determines the best relative locations of functional work centers. Work centers that interact frequently, with movement of material or people, should be located close together, whereas those that have little interaction can be spatially separated. One approach of designing an efficient functional layout involves the following steps: 1. List and describe each functional work center; 2. Obtain a drawing and description of the facility being designed; 3. Identify and estimate the amount of material and personnel flow among work centers; 4. Use structured analytical methods to obtain a good general layout; and 5. Evaluate and modify the layout, incorporating details such as machine orientation, storage area location, and equipment access. CHAPTER FOUR: PRODUCT & SERVICE DESIGN 1. INTRODUCTION Designing of good product or service is the major challenge of any organization. Organizations that have well-designed products or services are more likely to realize their goals than those with poorly designed products or services. Hence, organizations have a strategic interest in product and service design. Product or service design should be closely tied to an organization’s strategy. It is a major factor in cost, quality, time- to-market, customer satisfaction, and competitive advantage. Consequently, marketing, finance, operations, accounting, IT, and HR need to be involved. Moreover, product design has an impact on what materials and components would be used, which suppliers will be selected, what machines or what type of processes will be utilized, where it will be stored, how it will be transported etc. without products there would be no customers. Without customers, there would be no revenue. Product and service design is concerned with putting new ideas into practice by embedding them in products and services. In other words, product design deals with conversion of ideas into reality. Every business Organization has to design, develop and introduce new products as a commercial strategy. Developing the new products and launching them in the market are the biggest problems faced by the organizations. Product design defines a product’s features & characteristics, such as its appearance, the materials it is made of, its dimensions and durability, and its performance standards. Across this chapter many insights will be discovered into the process, tools and techniques that apply to both product and service design. (Press to learn more) 2. WHAT DOES PRODUCT DESIGN DO? The various activities and responsibilities of product design include the following (functional interactions are shown in parentheses): - Translate customer wants and needs into product and service requirements. (Marketing, operations) - Refine existing products and services. (Marketing) - Develop new products and/or services. (Marketing, operations) - Formulate quality goals. (Marketing, operations) - Formulate cost targets. (Accounting, finance, operations) - Construct and test prototypes. (Operations, marketing, engineering) - Document specifications. - Translate product and/or service specifications into process specifications. (Engineering, operations) 3. REASONS FOR PRODUCT DESIGN OR REDESIGN Product design has typically had strategic implications for the success and prosperity of an organization. Furthermore, it has an impact on future activities. Consequently, decisions in this area are some of the most fundamental that managers must make. Organizations become involved in product and service design or redesign for a variety of reasons. The main forces that initiate design or redesign are market opportunities and threats. (Press to learn more) The factors that give rise to market opportunities and threats can be one or more changes: - Economic (e.g., low demand, excessive warranty claims, the need to reduce costs). - Social and demographic (e.g., aging baby boomers, population shift). - Political, liability, or legal (e.g., government changes, safety issues, new regulations). - Competitive (e.g., new or changed products or services, new advertising/promotions). - Cost or availability (e.g., of raw materials, components, labor, water, energy). - Technological (e.g., in product components, processes). While each of these factors may seem obvious, let’s reflect a bit on technological changes, which can create a need for product design changes in several different ways. An obvious way is new technology that can be used directly in a product (e.g., a faster, smaller microprocessor that spawns a new generation of personal digital assistants or cell phones). Technology also can indirectly affect product and service design: Advances in processing technology may require altering an existing design to make it compatible with the new processing technology. Still another way that technology can impact product design is illustrated by new digital recording technology that allows television viewers to skip commercials when they view a recorded program. This means that advertisers (who support a television program) can’t get their message to viewers. To overcome this, some advertisers have adopted a strategy of making their products an integral part of a television program, say by having their products prominently displayed and/or mentioned by the actors as a way to call viewers’ attention to their products without the need for commercials. 4. FACTORS TO CONSIDER WHEN PRODUCT DESIGN OR REDESIGN The following reading suggests factors to consider when product design or redesign. 4.1. Idea generation Ideas for new or redesigned products can come from a variety of sources, including customers, the supply chain, competitors, employees, and research. Customer input can come from surveys, focus groups, complaints, and unsolicited suggestions for improvement. Input from suppliers, distributors, and employees can be obtained from interviews, direct or indirect suggestions, and complaints. One of the strongest motivators for new and improved products or services is competitors’ products and services. By studying a competitor’s products or services and how the competitor operates (pricing policies, return policies, warranties, location strategies, etc.), an organization can glean many ideas. Beyond that, some companies purchase a competitor’s product and then carefully dismantle and inspect it, searching for ways to improve their own product. This is called reverse engineering. The Ford Motor Company used this tactic in developing its highly successful Taurus model: It examined competitors’ automobiles, searching for best-in-class components (e.g., best hood release, best dashboard display, best door handle). Sometimes reverse engineering can enable a company to leapfrog the competition by developing an even better product. Suppliers are still another source of ideas, and with increased emphasis on supply chains and supplier partnerships, suppliers are becoming an important source of ideas. Research is another source of ideas for new or improved products or services. Research and development (R&D) refers to organized efforts that are directed toward increasing scientific knowledge and product or process innovation. Most of the advances in semiconductors, medicine, communications, and space technology can be attributed to R&D efforts at colleges and universities, research foundations, government agencies, and private enterprises. R&D efforts may involve basic research, applied research, or development. - Basic research has the objective of advancing the state of knowledge about a subject, without any near-term expectation of commercial applications. - Applied research has the objective of achieving commercial applications. - Development converts the results of applied research into useful commercial applications. Basic research, because it does not lead to near-term commercial applications, is generally underwritten by the government and large corporations. Conversely, applied research and development, because of the potential for commercial applications, appeals to a wide spectrum of business organizations. The benefits of successful R&D can be tremendous. Some research leads to patents, with the potential of licensing and royalties. However, many discoveries are not patentable, or companies don’t wish to divulge details of their ideas so they avoid the patent route. Even so, the first organization to bring a new product or service to the market generally stands to profit from it before the others can catch up. Early products may be priced higher because a temporary monopoly exists until competitors bring their versions out. The costs of R&D can be high. Some companies spend more than $1 million a day on R&D. Large companies in the automotive, computer, communications, and pharmaceutical industries spend even more. For example, IBM spends about $5 billion a year, Hewlett- Packard about $4 billion a year, and Toshiba about $3 billion a year. Even so, critics say that many U.S. companies spend too little on R&D, a factor often cited in the loss of competitive advantage. It is interesting to note that some companies are now shifting from a focus primarily on products to a more balanced approach that explores both product and process R&D. Also, there is increasing recognition that technologies often go through life cycles, the same way that many products do. This can impact R&D efforts on two fronts. Sustained economic growth requires constant attention to competitive factors over a life cycle, and it also requires planning to be able to participate in the next-generation technology. In certain instances, however, research may not be the best approach. The following reading illustrates a research success. 4.2. Legal and ethical consideration Designers must be careful to take into account a wide array of legal and ethical considerations. Generally, they are mandatory. Moreover, if there is a potential to harm the environment, then those issues also become important. Most organizations are subject to numerous government agencies that regulate them. Among the more familiar federal agencies are the Food and Drug Administration, the Occupational Health and Safety Administration, the Environmental Protection Agency, and various state and local agencies. Bans on cyclamates, red food dye, phosphates, and asbestos have sent designers scurrying back to their drawing boards to find alternative designs that were acceptable to both government regulators and customers. Similarly, automobile pollution standards and safety features, such as seat belts, air bags, safety glass, and energy- absorbing bumpers and frames, have had a substantial impact on automotive design. Much attention also has been directed toward toy design to remove sharp edges, small pieces that can cause choking, and toxic materials. The government further regulates construction, requiring the use of lead-free paint, safety glass in entranceways, access to public buildings for individuals with disabilities, and standards for insulation, electrical wiring, and plumbing. Product liability can be a strong incentive for design improvements. Product liability is the responsibility of a manufacturer for any injuries or damages caused by a faulty product because of poor workmanship or design. Many business firms have faced lawsuits related to their products, including Firestone Tire & Rubber, Ford Motor Company, General Motors, tobacco companies, and toy manufacturers. Manufacturers also are faced with the implied warranties created by state laws under the Uniform Commercial Code, which says that products carry an implication of merchantability and fitness; that is, a product must be usable for its intended purposes. The suits and potential suits have led to increased legal and insurance costs, expensive settlements with injured parties, and costly recalls. Moreover, increasing customer awareness of product safety can adversely affect product image and subsequent demand for a product. Thus, it is extremely important to design products that are reasonably free of hazards. When hazards do exist, it is necessary to install safety guards or other devices for reducing accident potential, and to provide adequate warning notices of risks. Consumer groups business firms, and various government agencies often work together to develop industry wide standards that help avoid some of the hazards. Ethical issues often arise in the design of products and services; it is important for managers to be aware of these issues and for designers to adhere to ethical standards. Designers are often under pressure to speed up the design process and to cut costs. These pressures often require them to make trade-off decisions, many of which involve ethical considerations. One example of what can happen is “vaporware,” when a software company doesn’t issue a release of software as scheduled as it struggles with production problems or bugs in the software. The company faces the dilemma of releasing the software right away or waiting until most of the bugs have been removed—knowing that the longer it waits, the more time will be needed before it receives revenues and the greater the risk of damage to its reputation. Organizations generally want designers to adhere to guidelines such as the following: - Produce designs that are consistent with the goals of the organization. For instance, if the company has a goal of high quality, don’t cut corners to save cost, even in areas where it won’t be apparent to the customer. - Give customers the value they expect. - Make health and safety a primary concern. At risk are employees who will produce goods or deliver services, workers who will transport the products, customers who will use the products or receive the services, and the general public, which might be endangered by the products or services. 4.3. Human factors Human factor issues often arise in the design of consumer products. Safety and liability are two critical issues in many instances, and they must be carefully considered. For example, the crashworthiness of vehicles is of much interest to consumers, insurance companies, automobile producers, and the government. Another issue for designers to take into account is adding new features to their products or services. Companies in certain businesses may seek a competitive edge by adding new features. 4.4. Cultural factors Product designers in companies that operate globally also must take into account any cultural differences of different countries or regions related to the product. This can result in different designs for different countries or regions, as illustrated by the following reading. 4.5. Global product design Traditionally, product design has been conducted by members of the design team who are located in one facility or a few nearby facilities. However, organizations that operate globally are discovering advantages in global product design, which uses the combined efforts of a team of designers who work in different countries and even on different continents. Such virtual teams can provide a range of comparative advantages over traditional teams such as engaging the best human resources from around the world without the need to assemble them all in one place, and operating on a 24-hour basis, thereby decreasing the time-to-market. The use of global teams also allows for customer needs assessment to be done in more than one country with local resources, opportunities, and constraints to be taken into account. Global product design can provide design outcomes that increase the marketability and utility of a product. The diversity of an international team may yield different points of view and ideas and information to enrich the design process. However, care must be taken in managing the diversity, because if it is mismanaged, that can lead to conflicts and miscommunications. Advances in information technology have played a key role in the viability of global product design teams by enabling team members to maintain continual contact with each other and to instantaneously share designs and progress, and to transmit engineering changes and other necessary information. 4.6. Environmental factors: sustainability Product design is a focal point in the quest for sustainability. Key aspects include cradle-to-grave assessment, end-of-life programs, reduction of costs and materials used, reuse of parts of returned products, and recycling. 4.6.1. Cradle-to-Grave Assessment Cradle-to-grave assessment, also known as life cycle analysis, is the assessment of the environmental impact of a product or service throughout its useful life, focusing on such factors as global warming (the amount of carbon dioxide released into the atmosphere), smog formation, oxygen depletion, and solid waste generation. For products, cradle-to- grave analysis takes into account impacts in every phase of a product’s life cycle, from raw material extraction from the earth, or the growing and harvesting of plant materials, through fabrication of parts and assembly operations, or other processes used to create products, as well as the use or consumption of the product, and final disposal at the end of a product’s useful life. It also considers energy consumption, pollution and waste, and transportation in all phases. Hana Sameh, [05/11/2024 11:09 ‫]ص‬ Although services generally involve less use of materials, cradle-to- grave assessment of services is nonetheless important, because services consume energy and involve many of the same or similar processes that products involve. The goal of cradle-to-grave assessment is to choose products and services that have the least environmental impact while still taking into account economic considerations. The procedures of cradle- to-grave assessment are part of the ISO 14000 environmental management standards. 4.6.2. End-of-Life Programs End-of-life (EOL) programs deal with products that have reached the end of their useful lives. The products include both consumer products and business equipment. The purpose of these programs is to reduce the dumping of products, particularly electronic equipment, in landfills or third-world countries, as has been the common practice, or incineration, which converts materials into hazardous air and water emissions and generates toxic ash. Although the programs are not limited to electronic equipment, that equipment poses problems because the equipment typically contains toxic materials such as lead, cadmium, chromium, and other heavy metals. IBM provides a good example of the potential of EOL programs. Over the last 15 years, it has collected about 2 billion pounds of product and product waste. 4.6.3. The Three Rs: Reduce, Reuse, and Recycle Designers often reflect on three particular aspects of potential cost saving and reducing environmental impact: reducing the use of materials through value analysis; refurbishing and then reselling returned goods that are deemed to have additional useful life, which is referred to as remanufacturing; and reclaiming parts of unusable products for recycling. Reduce: Value Analysis Value analysis refers to an examination of the function of parts and materials in an effort to reduce the cost and/or improve the performance of a product. Typical questions that would be asked as part of the analysis include: Could a cheaper part or material be used? Is the function necessary? Can the function of two or more parts or components be performed by a single part for a lower cost? Can a part be simplified? Could product specifications be relaxed, and would this result in a lower price? Could standard parts be substituted for nonstandard parts? Reuse: Remanufacturing An emerging concept in manufacturing is the remanufacturing of products. Remanufacturing refers to refurbishing used products by replacing worn-out or defective components, and reselling the products. This can be done by the original manufacturer, or another company. Among the products that have remanufactured components are automobiles, printers, copiers, cameras, comp uters, and telephones. There are a number of important reasons for doing this. One is that a remanufactured product can be sold for about 50 percent of the cost of a new product. Another is that the process requires mostly unskilled and semiskilled workers. And in the global market, European lawmakers are increasingly requiring manufacturers to take back used products, because this means fewer products end up in landfills and there is less depletion of natural resources such as raw materials and fuel. Designing products so that they can be more easily taken apart has given rise to yet another design consideration. Recycle Recycling is sometimes an important consideration for designers. Recycling means recovering materials for future use. This applies not only to manufactured parts but also to materials used during production, such as lubricants and solvents. Reclaimed metal or plastic parts may be melted down and used to make different products. Companies recycle for a variety of reasons, including: - Cost savings. - Environment concerns. - Environmental regulations. An interesting note: Companies that want to do business in the European Union must show that a specified proportion of their products are recyclable. The pressure to recycle has given rise to the term design for recycling (DFR), referring to product design that takes into account the ability to disassemble a used product to recover the recyclable parts. 4.6.4. Other design considerations Aside from legal, ethical, environmental, and human considerations designers must also take into account product or service life cycles, how much standardization to incorporate, product or service reliability, and the range of operating conditions under which a product or service must function. These topics are discussed in this section. We begin with life cycles. 5. ROBUST DESIGN Some products or services will function as designed only within a narrow range of conditions, while others will perform as designed over a much broader range of conditions. The latter have robust design. Consider a pair of fine leather boots—obviously not made for trekking through mud or snow. Now consider a pair of heavy rubber boots—just the thing for mud or snow. The rubber boots have a design that is more robust than that of the fine leather boots. The more robust a product or service, the less likely it will fail due to a change in the environment in which it is used or in which it is performed. Hence, the more designers can build robustness into the product or service, the better it should hold up, resulting in a higher level of customer satisfaction. A similar argument can be made for robust design as it pertains to the production process. Environmental factors can have a negative effect on the quality of a product or service. The more resistant a design is to those influences, the less likely is a negative effect. For example, many products go through a heating process: food products, ceramics, steel, petroleum products, and pharmaceutical products. Furnaces often do not heat uniformly; heat may vary either by position in an oven or over an extended period of production. One approach to this problem might be to develop a superior oven; another might be to design a system that moves the product during heating to achieve uniformity. A robust-design approach would develop a product that is unaffected by minor variations in temperature during processing. 6. PHASES IN PRODUCT DESIGN AND DEVELOPMENT Product design and development generally proceeds in a series of phases including: Feasibility analysis. Feasibility analysis entails market analysis (demand), economic analysis (development cost and production cost, profit potential), and technical analysis (capacity requirements and availability, and the skills needed). Also, it is necessary to answer the question, does it fit with the mission? It requires collaboration among marketing, finance, accounting, engineering, and operations. Product specifications. This involves detailed descriptions of what is needed to meet (or exceed) customer wants, and requires collaboration between legal, marketing, and operations. Process specifications. Once product specifications have been set, attention turns to specifications for the process that will be needed to produce the product. Alternatives must be weighed in terms of cost, availability of resources, profit potential, and quality. This involves collaboration between accounting and operations. Prototype development. With product and process specifications complete, one (or a few) units are made to see if there are any problems with the product or process specifications. Design review. At this stage, any necessary changes are made or the project is abandoned. Marketing, finance, engineering, design, and operations collaborate to determine whether to proceed or abandon. Market test. A market test is used to determine the extent of consumer acceptance. If unsuccessful, the product returns to the design review phase. This phase is handled by marketing. Product introduction. The new product is promoted. This phase is handled by marketing. Follow-up evaluation. Based on user feedback, changes may be made or forecasts refined. This phase is handled by marketing. (Press to learn more) 7. PRODUCT DESIGN TECHNIQUES This section discusses design techniques that have greater applicability for the design of products than the design of services. Even so, it can be seen that they do have some relevance for service design. The topics include concurrent engineering, computer assisted design, designing for assembly and disassembly, and the use of components for similar products. 7.1. Concurrent Engineering To achieve a smoother transition from product design to production, and to decrease product development time, many companies are using simultaneous development, or concurrent engineering. In its narrowest sense, concurrent engineering means bringing design and manufacturing engineering people together early in the design phase to simultaneously develop the product and the processes for creating the product. More recently, this concept has been enlarged to include manufacturing personnel (e.g., materials specialists) and marketing and purchasing personnel in loosely integrated, cross-functional teams. In addition, the views of suppliers

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