Product Design and Process
Selection
Based on slides for Chase Acquilano and Jacobs, Operations
Management, McGraw-Hill
What is a Product?
 A product is a package
of:
 Goods
 Services
 Experiences
 Ongoing Relationships
 A product has:
 Tangible attributes
 Intangible attributes
 Examples
 Automobile
 Airplane trip
 Diamond Ring
 Restaurant Meal
 Dishwasher
 College Education
 Tax Preparation
 Basketball Game
Product Design Issues
 Value analysis/value engineering
 Obtain better performance at lower cost
 Two Design Approaches:
 Over the Wall Approach vs. Concurrent Engineering
 Complexity of design
 Implications??
 Reliability
 How can it be increased?
 Standardization
 Advantages & disadvantages?
 Modular design
 Advantages & disadvantages?
 Environmental Implications
Exercise
Pick several products and list some issues
that need to be considered in its design and
manufacture
Include aesthetic, manufacturability, after-sales
service issues among others
Deliverable
List and present to the class
Process Selection
Process Structures
Continuous Processing
Repetitive (assembly lines)
Manufacturing cells
Batch processing
Job Shops
Projects
“continuous or semicontinuous”
“intermittent”
Example: Job Shop
Example: Batch Processing
Example: Assembly Line Processing
Example: Continuous Processing
Manufacturing
Product Design
Unique
Customized
Varied
Standardized
Very High
Continuous
Manufacturing
Cells
V
High
o
l
Moderate
u
m
Low
e
One
Assembly Line
Batch
Job Shop
Project
Equipment
General
Purpose
Labor Skill
Highly Skilled
Scheduling
Complexity
Managerial
Focus
Homogenous
(Commodity)
Highly
Specialized
Rote Tasks
Varied
High
Low
Product
Process
Fixed Costs
Low
High
Variable
Costs
High
Low
Break-Even Analysis
Some managerial questions:
How much should we produce to break even?
For a specific volume, should we manufacture
the product ourselves, or outsource?
For machine alternatives A and B, at what
volumes should we use machine A and at what
volumes, machine B?
Break-Even Analysis (example)
Sale Price = $300
Option 1:
Purchase = $200 * Demand
Option 2:
Lathe = $80,000 + $75 * Demand
Option 3:
Machine center = $200,000 + $15 * Demand
Purchase vs. Lathe?
Lathe vs. Machining Center?
Calculations
 Purchase versus Lathe:
$200 * Demand = $80,000 +
$75 * Demand
($200 * Demand) - ($75 *
Demand) = $80,000
$125 * Demand = $80,000
Demand = $80,000/$125 =
640 units
so – less than 640 units,
purchase; 640 of greater, use
Lathe
 Lathe versus Machine Center:
$80,000 + $75 *Demand =
$200,000 + $15 * Demand
Demand = $120,000/$60 =
2,000 units
so – less that 2000 units use
the Lathe; 2000 or more use
the machining center
Break Even Analysis Example
You are starting a new business and your
fixed costs are estimated to be $500,000.
Your product sells for $100 and costs you
$50 to manufacture. What is the breakeven
point? If you sell 15,000 units, what will be
your profit?
 Answer: Break Even Value is 10,000 and Profit is
$250,000
Break Even Analysis Formulas
 Total Revenue = Total Cost
 P x = F + V x implies:
 BEP(x) = F/[P-V]
 Profit = TR-TC = (P-V) x – F
 Breakeven between two machines:
 F1 + V1 x and F2 + V2 x -- assume F2 > F1 & V2 < V1
 (F2 – F1) / (V1 – V2)
Note: F = Fixed Cost; P = Price; V = Variable Cost
Break Even Analysis Example
 In your business you are considering two machines.
Machine 1 costs $500,000 and has a variable per
unit cost of $50 per item. Machine 2 has a fixed
cost of $200,000 and has a variable per unit cost
of $80 per item. What is the break-even volume
for the two machines. If a friend tells you to use
Machine 2 if the volume is 5,000 items, is she right
or wrong?
 Answer: Break Even Value is 10,000
Break Even Analysis Graphical Answer
Machine 2
Machine 1
1,200,000
1,100,000
D
O
L
L
A
R
S
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
5000
Volume
10000
15000
Summary
Production Strategies
Process focused >>> Product focused
Other alternatives: Project, Cellular
Technology
Break-even Analysis