Operations Strategy: Product Design & Process Selection
ITEM-13: Conduct of Operations – Strategic Decisions
Design and Product Development
The goods and services a company can produce are varied, and their nature depends largely on the productive process design. If the company’s product meets consumer needs in quality and functionality, the company will see increased turnover. Product selection is key for organizational success. After selecting the product, the next step is designing it to meet market requirements, environmental constraints, and organizational criteria.
The Goal: Develop a strategy to meet market needs based on the competitive situation. This production decision has a multifunctional character and drives sustainable competitive advantages. The design process and product development involve activities across most functional areas of the organization.
Characteristics of Goods:
- Tangible and resalable
- Easy to standardize
- Separation between production and consumption
- Little customer interaction
- Transportable
- Customer purchases property
- Measurable quality aspects
- Usually easy to automate
Characteristics of Services:
- Intangible, non-resalable, and non-returnable
- Unique
- Produced and consumed simultaneously
- Sale is part of the service
- High customer interaction
- Customer participation in production
- Difficult to inventory
- Non-durable
- Quality is harder to measure
- Often knowledge-based
- Difficult to automate
Stages of Design and Development of New Products
1st Stage: Generating Ideas and Identifying Opportunities
- Obtain information on market needs and requirements
- Identify opportunities from competition analysis, technical possibilities, and market requirements
- Combine information to outline the new product
- Main Idea Sources: Customers, engineers, designers, competitors, top management, employees, universities, public research
2nd Stage: Evaluation and Selection of Ideas
- Assess product feasibility: commercial viability, technical feasibility, economic viability
- Evaluate competitor reactions
- Ensure alignment with organizational objectives
3rd Stage: New Product Specification
Create a written specification to guide the development process.
4th Stage: Product and Process Development and Engineering
Detailed design and development of product and production processes for manufacturing and market launch.
5th Stage: Fabrication Prototyping and Market Testing
- Prototype manufacturing
- Manufacturing test
- Market testing
6th Stage: Production and Distribution of the Product
Large-scale manufacturing, new product launch, and distribution.
Selection and Process Design and Technology
To manufacture and deliver products, a manufacturing process must be defined for smooth and efficient information and material flow. An efficient process allows low-cost, timely manufacturing while meeting market quality standards. The chosen process affects production equipment configuration, capacity, staffing, and fixed assets. It impacts efficiency, flexibility, cost, and quality.
This decision is determined by the operations strategy and is made when:
- Offering a new product
- Changing competitive priorities
- Current process performance is inadequate
Types of Production Processes
Process for Projects
- Unique and exclusive products
- Few units
- Unique operation sequence for each project
- Highly skilled and versatile staff
- Complex projects
- Long manufacturing periods and high costs (e.g., building construction, boats)
Intermittent Processes
- Small product amounts with great variety
- Shared facilities for various products
- Work centers group equipment and similar jobs
- Products pass through different work centers
- Workshop Type: Small product amounts, meets customer demands, flexible, products made once, little automation, high unit variable costs (e.g., car repair shops)
- Batch Type: Products made more than once, larger than workshops, may go through different work centers, greater automation, higher initial investment, reduced variable costs (e.g., electronic device manufacturing)
Linear Process Flow
- Linear operation sequence
- Large volume fabrication
- Few different products
- High automation
- Assembly Lines: Standardized products pass sequentially through stages, controlled rate, low inventory between operations, low-skilled labor, less flexibility, high fixed costs, low variable costs (e.g., car manufacturing)
- Continuous Processes: Same operations for the same product, wage labor and quality control, continuous product flow with few stops, high automation (e.g., beverage industry, chemical industry)
Process optimization is crucial for organizational success. Automation, while beneficial, requires strategic decision-making and should not be based solely on economic factors.
Long-Term Planning Capacity
Productive capacity determination involves significant capital investment and impacts organizational success. It requires careful analysis to optimize financial resource utilization. Insufficient capacity leads to lost demand and damaged image, while excess capacity impacts cost structure.
Capacity: Maximum goods or services obtainable under normal operating conditions in a given period.
Determination Stages of Production Capacity
1st Phase: Anticipation of Demand
- Estimate total product demand in the sector
- Estimate market share percentage
- Estimate demand for the organization’s products
2nd Phase: Determination of Capacity
- Determine capacity needs based on demand
- Consider financial resources and demand accuracy
- Account for aging facilities and learning effects
3rd Phase: Establishment of Alternatives
- If capacity exceeds existing: outsource, purchase facilities, build new facilities, expand existing facilities, acquire new equipment
- If existing capacity exceeds: sell facilities, cut jobs, introduce new products, expand into new markets
4th Phase: Evaluation and Selection
- Qualitative aspects: alignment with objectives, staff compatibility, competitor reaction
- Quantitative aspects: financial analysis
Location of Facilities
Industrial Park: Area with industrial buildings, attracted by state and local policies.
Technological Park: Area for innovative or high-tech enterprises.
Incubator: Temporary host for young companies offering adapted services.
Physical Distribution Facilities
Layout: Location of machines, jobs, customer service areas, warehouses, offices, rest areas within company buildings.
- Process Distribution: Small batches of poorly standardized products, little specialized machinery use.
- Product Distribution: Highly standardized products in large batches, activities grouped for product manufacturing.
- Cellular Distribution: Machines grouped into cells for similar component families.
- Fixed Point Distribution: Product remains in a fixed position, workers and materials move (e.g., building or ship construction).
Quality Management
Approaches to Quality:
- Transcendent Approach: Excellence and best quality.
- Product-Based Approach: Quality based on specific variables and measurements.
- Client-Based Approach: Quality meets or exceeds customer expectations.
- Production-Based Approach: Quality conforms to manufacturing specifications.
- Value-Based Approach: Quality considers price and value in a competitive market.
Standardization and Certification: Essential for effective process control and outcomes. ISO is responsible for industrial standards coordination.
Total Quality Management
Management philosophy based on achieving excellent targets through planning, organization, management, and control. Quality extends to all business functions and customers. Total Quality originated in Japan, emphasizing customer satisfaction across the supply chain.