please read the regulations carefully and I have been attached the chapter to know the context and the rubric to follow to exceed expectations.
SEU Discussion Board Rubric
Meets
Expectation
Approaches
Expectation
Below
Expectation
Limited
Evidence
No
Evidence
Content, Research, and Analysis
2 Points 1.5 Points 1 Point .5 Points 0 Points
Content Meets Expectation
– Demonstrates
excellent
knowledge of
concepts, skills,
and theories
relevant to topic.
Approaches
Expectation –
Demonstrates fair
knowledge of
concepts, skills,
and theories.
Below Expectation
– Demonstrates
significantly flawed
knowledge of
concepts, skills,
and theories.
Limited Evidence –
Demonstrates poor
or absent
knowledge of
concepts, skills,
and theories.
No Evidence – Did
not participate.
2 Points 1.5 Points 1 Point .5 Points 0 Points
Support Meets Expectation
– Statements are
well supported;
posts extend
discussion.
Approaches
Expectation –
Statements are
partially
supported; posts
may extend
discussion.
Below Expectation
– Support is
deficient; posts do
not extend
discussion.
Limited Evidence –
Statements are not
supported
No Evidence – Did
not participate.
2 Points 1.5 Points 1 Point .5 Points 0 Points
Writing
Quality
Meets Expectation
– Writing is well
organized, clear,
concise, and
focused; no errors.
Approaches
Expectation – Some
significant but not
major errors or
omissions in
writing
organization,
focus, and clarity.
Below Expectation
– Numerous
significant errors
or omissions in
writing
organization,
focus, and clarity.
Limited Evidence –
Numerous errors
or omissions—at
least some
major—in writing
organization,
focus, and clarity.
No Evidence – Did
not participate.
2 Points 1.5 Points 1 Point .5 Points 0 Points
Timelines
s
Meets Expectation
– Initial post made
before deadline.
Approaches
Expectation – Initial
post made 1 day
late.
Below Expectation
– Initial post 2 days
late.
Limited Evidence –
Initial post 3 days
late.
No Evidence – Did
not participate.
2 Points 1.5 Points 1 Point .5 Points 0 Points
Quantity Meets Expectation
– Initial post and
two other posts of
substance.
Approaches
Expectation – Initial
post and one other
post of substance.
Below Expectation
– Initial post only.
Limited Evidence –
One post of
substance to
colleagues.
No Evidence – Did
not participate.
Total Points Possible: 10
MGT-530:
Operation Management (Product and Service Design) – Module 05

Regulations: 

·
GRADING EXPECTATIONS :
1. I recommend that you use the grading rubric to shape your work product (Attached).  
2. With respect to grading, The instructor really looks for 2 things: 
citations and substance
. I encourage you to include cites and information from scholarly and/or peer-reviewed sources in addition to the course text (Stevenson, W. (2018). Operations management (13th ed.). New York, NY: McGraw-Hill Irwin. ISBN-13:9781259667473)
Otherwise, my potential for points is reduced. It  indicates you have read the course materials and searched far and wide for theories, statistics, and facts to address the issue at hand. I encourage you to paraphrase these sources. Convert the content into your own words rather than using direct quotes. This improves the synthesis of information, and it makes the writing more closely resemble your own style. 
In addition to scholarly citations, a substantive assignment is one that not only answers the question but advances the discussion. Please, do more than is expected.

· The writer must apply APA style guidelines.  

· Support your submission with:
1. Course material concepts, principles, and theories from the textbook and
Use
it in the references (Stevenson, W. (2018). Operations management (13th ed.). New York, NY: McGraw-Hill Irwin. ISBN-13:9781259667473)
2.  At least
Three
scholarly, peer-reviewed journal articles such as:
2.1 He, W. (2019). Integrating Overbooking with Capacity Planning: Static Model and Application to Airlines. Production & Operations Management, 28(8), 1972–1989. https://doi.org/10.1111/poms.13022
2.2 Bellos, I., & Kavadias, S. (2019). When should customers control service delivery? Implications for service design. Production & Operations Management, 28(4), 890–907.
2.3 Feng, T., Ren, Z. J., & Zhang, F. (2019). Service outsourcing: Capacity, quality and correlated costs. Production & Operations Management, 28(3), 682–699.

· Be 2 pages in length, does not include the title page, abstract, conclusion and required reference page, which are never a part of the minimum content requirements. 
Product and Service Design
When the capacity of an organization to produce goods or services and the demands of its customers to purchase goods or services is not matched, then the result is inefficiency, either in under-utilized resources or dissatisfied customers.
Address the following requirements:
1. Choose a Saudi Arabian organization that produces either a good or service and describe its capacity and demand concerns.
2. Develop an equation to calculate its capacity.
3. Define lead strategy, lag strategy, and match strategy, and recommend which your selected organization should pursue and why.
Thank you for your support
MGT

5
30
:
Operation Management

(
Product and Service Design
)

Module 0
5

Regulations
:

·

GRADING EXPECTATIONS
 
:

1.

I recommend that you use the grading rubric to shape your work product (
Attached
).
  

2.

With respect to
 
grading, The instructor really looks for 2 things:
 
citations
 
and substance
. I
encourage you to include cites and information from
 
scholarly and/or peer

reviewed sources in
addition to the course text
(
Stevenson
, W. (2018). Operations management (13th ed.). New
York, NY: McGraw

Hill Irwin. ISBN

13:9781259667473)

Otherwise
, my p
otential for points is reduced. It
 
indicates you have read the course materials
and searched far and wide for theories, statistics, and facts
 
to address the issue at hand.
 
I encourage
you to paraphrase these sources. Convert the content into your own word
s rather than using direct
quotes
. This improves the synthesis of information, and it makes the writing more closely resemble
your own style.
 

In addition to
 
scholarly citations, a substantive assignment is one that not only answers the
question but adva
nces the discussion. Please, do more than is expected.

·

The writer must apply

APA style guidelines
.

·

Support your submission with:

1.

Course material concepts, principles, and theories from the textbook and
Use

it in the
references
(Stevenson, W. (2018). Operations management (13th ed.). New York, NY:
McGraw

Hill Irwin. ISBN

13:9781259667473)

2.

 
At least
Three

scholarly, peer

reviewed journal articles such as:

2.1

He, W. (2019). Integrating Overbooking with Capacity Planning: Static Model and
Application to Airlines. Production &
Operations Management, 28(8), 1972

1989.

https://doi.org/10.1111/poms.13022

2.2

Bellos, I., & Kavadias, S. (2019). When should customers control service delivery?
Implications for service design. Production & Operations Management, 28(4), 890

907.

2.3

Feng, T., Ren, Z. J., & Zhang, F. (2019). Service
outsourcing: Capacity, quality and
correlated costs. Production & Operations Management, 28(3), 682

699.

·

Be
2

pages

in length,

does not include the title

page, abstract, conclusion and required
reference page,

which are never a part of the minimum content requirements.

MGT-530: Operation Management (Product and Service Design) – Module 05

Regulations:
 GRADING EXPECTATIONS :
1. I recommend that you use the grading rubric to shape your work product (Attached).  
2. With respect to grading, The instructor really looks for 2 things: citations and substance. I
encourage you to include cites and information from scholarly and/or peer-reviewed sources in
addition to the course text (Stevenson, W. (2018). Operations management (13th ed.). New
York, NY: McGraw-Hill Irwin. ISBN-13:9781259667473)

Otherwise, my potential for points is reduced. It  indicates you have read the course materials
and searched far and wide for theories, statistics, and facts to address the issue at hand. I encourage
you to paraphrase these sources. Convert the content into your own words rather than using direct
quotes. This improves the synthesis of information, and it makes the writing more closely resemble
your own style. 

In addition to scholarly citations, a substantive assignment is one that not only answers the
question but advances the discussion. Please, do more than is expected.
 The writer must apply APA style guidelines.
 Support your submission with:
1. Course material concepts, principles, and theories from the textbook and Use it in the
references (Stevenson, W. (2018). Operations management (13th ed.). New York, NY:
McGraw-Hill Irwin. ISBN-13:9781259667473)
2.  At least Three scholarly, peer-reviewed journal articles such as:

2.1 He, W. (2019). Integrating Overbooking with Capacity Planning: Static Model and
Application to Airlines. Production & Operations Management, 28(8), 1972–
1989. https://doi.org/10.1111/poms.13022
2.2 Bellos, I., & Kavadias, S. (2019). When should customers control service delivery?
Implications for service design. Production & Operations Management, 28(4), 890–907.
2.3 Feng, T., Ren, Z. J., & Zhang, F. (2019). Service outsourcing: Capacity, quality and
correlated costs. Production & Operations Management, 28(3), 682–699.
 Be 2 pages in length, does not include the title page, abstract, conclusion and required
reference page, which are never a part of the minimum content requirements.
Product & Service Design
Chapter 4
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
You should be able to:
LO 4.1 Explain the strategic importance of product and service design
LO4.2 Describe what product and service design does
LO4.3 Name the key questions of product and service design
LO4.4 Identify some reasons for design or redesign
LO4.5 List some of the main sources of design ideas
LO4.6 Discuss the importance of legal, ethical, and sustainability considerations in product and service design
LO4.7 Explain the purpose and goal of life cycle assessment
LO4.8 Explain the phrase “the 3 Rs”
LO4.9 Discuss several key issues in product or service design
LO4.10 Discuss the two key issues in service design
LO4.11 Name the phases in service design
LO4.12 List the characteristics of well-designed service systems
LO4.13 List some guidelines for successful service design
Chapter 4: Learning Objectives
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
The essence of an organization is the goods and services it offers
Every aspect of the organization is structured around them
Product and service design – or redesign – should be closely tied to an organization’s strategy
Strategic Product and Service Design
LO 4.1
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4-‹#›
Translate customer wants and needs into product and service requirements
Refine existing products and services
Develop new products and services
Formulate quality goals
Formulate cost targets
Construct and test prototypes
Document specifications
Translate product and service specifications into process specifications
Involve inter-functional collaboration
What Does Product & Service Design Do?
LO 4.2
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Is there a demand for it?
Market size
Demand profile
Can we do it?
Manufacturability – the capability of an organization to produce an item at an acceptable profit
Serviceability – the capability of an organization to provide a service at an acceptable cost or profit
Key Questions
LO 4.3
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
What level of quality is appropriate?
Customer expectations
Competitor quality
Fit with current offering
Does it make sense from an economic standpoint?
Liability issues, ethical considerations, sustainability issues, costs and profits
Key Questions (cont.)
LO 4.3
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Reasons to Design or Re-Design
The driving forces for product and service design or redesign are market opportunities or threats:
Economic
Social and demographic
Political, liability, or legal
Competitive
Cost or availability
Technological
LO 4.4
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Idea Generation
Supply-chain based
Competitor based
Research based
LO 4.5
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Ideas can come from anywhere in the supply chain:
Customers
Suppliers
Distributors
Employees
Maintenance and repair personnel
Supply-Chain Based
LO 4.5
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Competitor Based
By studying how a competitor operates and its products and services, many useful ideas can be generated
Reverse engineering
Dismantling and inspecting a competitor’s product to discover product improvements
LO 4.5
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Research and development (R&D)
Organized efforts to increase scientific knowledge or product innovation
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.
Research Based
LO 4.5
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Legal considerations
Product liability
The responsibility a manufacturer has for any injuries or damages caused by as faulty product
Some of the concomitant costs
Litigation
Legal and insurance costs
Settlement costs
Costly product recalls
Reputation effects
Uniform Commercial Code
Under the UCC, products carry an implication of merchantability and fitness
Legal Considerations
LO 4.6
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Designers are often under pressure to
Speed up the design process
Cut costs
These pressures force trade-off decisions
What if a product has bugs?
Release the product and risk damage to your reputation
Work out the bugs and forego revenue
Ethical Considerations
LO 4.6
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Sustainability
Sustainability
Using resources in ways that do not harm ecological systems that support human existence
Key aspects of designing for sustainability
Cradle-to-grave assessment (Life-Cycle assessment)
End-of-life programs
The 3-Rs
Reduction of costs and materials used
Re-using parts of returned products
Recycling
LO 4.6
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Cradle-to-Grave Assessment
aka Life-Cycle Assessment (LCA)
The assessment of the environmental impact of a product or service throughout its useful life
Focuses on such factors as
Global warming
Smog formation
Oxygen depletion
Solid waste generation
LCA procedures are part of the ISO 14000 environmental management procedures
Cradle-to-Grave Assessment
LO 4.7
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Value analysis
Examination of the function of parts and materials in an effort to reduce the cost and/or improve the performance of a product
Common questions used in value analysis
Is the item necessary; does it have value; could it be eliminated?
Are there alternative sources for the item?
Could another material, part, or service be used instead?
Can two or more parts be combined?
Can specifications be less stringent to save time or money?
Do suppliers/providers have suggestions for improvements?
Can packaging be improved or made less costly?
Reduce: Costs and Materials
LO 4.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Remanufacturing
Refurbishing used products by replacing worn-out or defective components
Can be performed by the original manufacturer or another company
Reasons to remanufacture:
Remanufactured products can be sold for about 50% of the cost of a new product
The process requires mostly unskilled and semi-skilled workers
In the global market, European lawmakers are increasingly requiring manufacturers to take back used products
Design for disassembly (DFD)
Designing a product to that used products can be easily taken apart
Re-Use: Remanufacturing
LO 4.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Recycling
Recovering materials for future use
Applies to manufactured parts
Also applies to materials used during production
Why recycle?
Cost savings
Environmental concerns
Environmental regulations
Companies doing business in the EU must show that a specified proportion of their products are recyclable
Design for recycling (DFR)
Product design that takes into account the ability to disassemble a used product to recover the recyclable parts
Recycle
LO 4.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Product or Service Life Stages
LO 4.9
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Standardization
Standardization
Extent to which there is an absence of variety in a product, service, or process
Products are made in large quantities of identical items
Every customer or item processed receives essentially the same service
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Mass customization
A strategy of producing basically standardized goods or services, but incorporating some degree of customization in the final product or service
Facilitating techniques
Delayed differentiation
Modular design
Designing for Mass Customization
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Delayed differentiation
The process of producing, but not quite completing, a product or service until customer preferences are known
It is a postponement tactic
Produce a piece of furniture, but do not stain it; the customer chooses the stain
Delayed Differentiation
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Modular Design
Modular design
A form of standardization in which component parts are grouped into modules that are easily replaced or interchanged
Advantages
Easier diagnosis and remedy of failures
Easier repair and replacement
Simplification of manufacturing and assembly
Training costs are relatively low
Disadvantages
Limited number of possible product configurations
Limited ability to repair a faulty module; the entire module must often be scrapped
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Reliability
The ability of a product, part, or system to perform its intended function under a prescribed set of conditions
Failure
Situation in which a product, part, or system does not perform as intended
Reliabilities are always specified with respect to certain conditions
Normal operating conditions
The set of conditions under which an item’s reliability is specified
Reliability
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Robust design
A design that results in products or services that can function over a broad range of conditions
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
Pertains to product as well as process design
Consider the following automobiles:
Ferrari Enzo
Toyota Avalon
Which is design is more robust?
Robust Design
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Degree of Newness
Product or service design changes:
Modification of an existing product or service
Expansion of an existing product line or service offering
Clone of a competitor’s product or service
New product or service
The degree of change affects the newness of the product or service to the market and to the organization
Risks and benefits?
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Quality Function Deployment
Quality Function Deployment (QFD)
An approach that integrates the “voice of the customer” into both product and service development
The purpose is to ensure that customer requirements are factored into every aspect of the process
Listening to and understanding the customer is the central feature of QFD
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
The House of Quality Sequence
LO 4.10
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4-‹#›
Basic quality
Refers to customer requirements that have only limited effect on customer satisfaction if present, but lead to dissatisfaction if absent
Performance quality
Refers to customer requirements that generate satisfaction or dissatisfaction in proportion to their level of functionality and appeal
Excitement quality
Refers to a feature or attribute that was unexpected by the customer and causes excitement
Kano Model
LO 4.10
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4-‹#›
The Kano Model – As Time Passes
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Concurrent engineering
Bringing engineering design and manufacturing personnel together early in the design phase
Also may involve manufacturing, marketing and purchasing personnel in loosely integrated cross-functional teams
Views of suppliers and customers may also be sought
The purpose is to achieve product designs that reflect customer wants as well as manufacturing capabilities
Concurrent Engineering
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
CAD
Product design using computer graphics
Advantages
Increases productivity of designers, 3 to 10 times
Creates a database for manufacturing information and product specifications
Provides possibility of engineering and cost analysis on proposed designs
CAD that includes finite element analysis (FEA) can significantly reduce time to market
Enables developers to perform simulations that aid in the design, analysis, and commercialization of new products
Computer-Aided Design (CAD)
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Designers must take into account production capabilities
Equipment
Skills
Types of materials
Schedules
Technologies
Special abilities
Production Requirements
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Manufacturability
Ease of fabrication and/or assembly
It has important implications for
Cost
Productivity
Quality
Manufacturability
LO 4.10
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4-‹#›
When products have a high degree of similarity in features and components, a part can be used in multiple products
Benefits:
Savings in design time
Standard training for assembly and installation
Opportunities to buy in bulk from suppliers
Commonality of parts for repair
Fewer inventory items must be handled
Component Commonality
LO 4.10
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Service Design
Begins with a choice of service strategy, which determines the nature and focus of the service, and the target market
Key issues in service design
Degree of variation in service requirements
Degree of customer contact and involvement
LO 4.11
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Differences between Service
and Product Design
Products are generally tangible, services intangible
Services are created and delivered at the same time
Services cannot be inventoried
Services are highly visible to consumers
Some services have low barriers to entry and exit
Location is often important to service design, with convenience as a major factor
Service systems range from those with little or no customer contact to those that have a very high degree of customer contact
Demand variability alternately creates waiting lines or idle service resources
LO 4.11
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Characteristics
Being consistent with the organization mission
Being user-friendly
Being robust if variability is a factor
Being easy to sustain
Being cost-effective
Having value that is obvious to the customer
Having effective linkages between back- and front-of-the-house operations
Having a single, unifying theme
Having design features and checks that will ensure service that is reliable and of high quality
The Well-Designed Service System
LO 4.12
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Define the service package in detail
Focus on the operation from the customer’s perspective
Consider the image that the service package will present both to customers and to prospective customers
Recognize that designers’ familiarity with the system may give them a quite different perspective than that of the customer, and take steps to overcome this
Make sure that managers are involved and will support the design once it is implemented
Define quality for both tangibles and intangibles
Make sure that recruitment, training, and reward policies are consistent with service expectations
Establish procedures to handle both predictable and unpredictable events
Establish system to monitor, maintain, and improve service
Successful Service Design
LO 4.13
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Effective product and service design can help the organization achieve competitive advantage:
Packaging products and ancillary services to increase sales
Using multiple-use platforms
Implementing tactics that will achieve the benefits of high volume while satisfying customer needs for variety
Continually monitoring products and services for small improvement opportunities
Reducing the time it takes to get a new or redesigned product or service to the market
Operations Strategy
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
4-‹#›
Strategic Capacity Planning for Products and Services
Chapter 5
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
You should be able to:
LO 5.1 Name the three key questions in capacity planning
LO 5.2 Explain the importance of capacity planning
LO 5.3 Describe ways of defining and measuring capacity
LO 5.4 Name several determinants of effective capacity
LO 5.5 Discuss factors to consider when deciding whether to operate in-house or outsource
LO 5.6 Discuss the major considerations related to developing capacity alternatives
LO 5.7 Describe the steps that are used to resolve constraint issues
LO 5.8 Briefly describe approaches that are useful for evaluating capacity alternatives
Learning Objective: Chapter 5
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Capacity
The upper limit or ceiling on the load that an operating unit can handle
Capacity needs include
Equipment
Space
Employee skills
Capacity Planning
LO 5.1
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Goal
To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-term demand
Overcapacity  operating costs that are too high
Undercapacity  strained resources and possible loss of customers
Strategic Capacity Planning
LO 5.1
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Key questions:
What kind of capacity is needed?
How much is needed to match demand?
When is it needed?
Related questions:
How much will it cost?
What are the potential benefits and risks?
Are there sustainability issues?
Should capacity be changed all at once, or through several smaller changes
Can the supply chain handle the necessary changes?
Capacity Planning Questions
LO 5.1
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Capacity decisions
Impact the ability of the organization to meet future demands
Affect operating costs
Are a major determinant of initial cost
Often involve long-term commitment of resources
Can affect competitiveness
Affect the ease of management
Have become more important and complex due to globalization
Need to be planned for in advance due to their consumption of financial and other resources
Capacity Decisions Are Strategic
LO 5.2
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5-‹#›
Measure capacity in units that do not require updating
Why is measuring capacity in dollars problematic?
Two useful definitions of capacity
Design capacity
The maximum output rate or service capacity an operation, process, or facility is designed for
Effective capacity
Design capacity minus allowances such as personal time and maintenance
Defining and Measuring Capacity
LO 5.3
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5-‹#›
Actual output
The rate of output actually achieved
It cannot exceed effective capacity
Efficiency
Utilization
Measured as percentages
Measuring System Effectiveness
LO 5.3
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5-‹#›
Design Capacity = 50 trucks per day
Effective Capacity = 40 trucks per day
Actual Output = 36 trucks per day
Example – Efficiency and Utilization
LO 5.3
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5-‹#›
Facilities
Product and service factors
Process factors
Human factors
Policy factors
Operational factors
Supply chain factors
External factors
Determinants of Effective Capacity
LO 5.4
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5-‹#›
Strategy Formulation
Strategies are typically based on assumptions and predictions about:
Long-term demand patterns
Technological change
Competitor behavior
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5-‹#›
Leading
Build capacity in anticipation of future demand increases
Following
Build capacity when demand exceeds current capacity
Tracking
Similar to the following strategy, but adds capacity in relatively small increments to keep pace with increasing demand
Capacity Strategies
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5-‹#›
Capacity cushion
Extra capacity used to offset demand uncertainty
Capacity cushion = 100% – utilization
Capacity cushion strategy
Organizations that have greater demand uncertainty typically have greater capacity cushion
Organizations that have standard products and services generally have smaller capacity cushion
Capacity Cushion
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5-‹#›
Estimate future capacity requirements
Evaluate existing capacity and facilities; identify gaps
Identify alternatives for meeting requirements
Conduct financial analyses
Assess key qualitative issues
Select the best alternative for the long term
Implement alternative chosen
Monitor results
Steps in Capacity Planning
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5-‹#›
Forecasting Capacity Requirements
Long-term considerations relate to overall level of capacity requirements
Require forecasting demand over a time horizon and converting those needs into capacity requirements
Short-term considerations relate to probable variations in capacity requirements
Less concerned with cycles and trends than with seasonal variations and other variations from average
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5-‹#›
Calculating processing requirements requires reasonably accurate demand forecasts, standard processing times, and available work time
Calculating Processing Requirements
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5-‹#›
Service capacity planning can present a number of challenges related to:
The need to be near customers
Convenience
The inability to store services
Cannot store services for consumption later
The degree of demand volatility
Volume and timing of demand
Time required to service individual customers
Service Capacity Planning
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5-‹#›
Strategies used to offset capacity limitations and that are intended to achieve a closer match between supply and demand
Pricing
Promotions
Discounts
Other tactics to shift demand from peak periods into slow periods
Demand Management Strategies
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5-‹#›
Once capacity requirements are determined, the organization must decide whether to produce a good or service itself or outsource
Factors to consider:
Available capacity
Expertise
Quality considerations
The nature of demand
Cost
Risks
In-House or Outsource?
LO 5.5
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Things that can be done to enhance capacity management:
Design flexibility into systems
Take stage of life cycle into account
Take a “big-picture” approach to capacity changes
Prepare to deal with capacity “chunks”
Attempt to smooth capacity requirements
Identify the optimal operating level
Choose a strategy if expansion is involved
Developing Capacity Alternatives
LO 5.6
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5-‹#›
Bottleneck Operation
An operation in a sequence of operations whose capacity is lower than that of the other operations
LO 5.6
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5-‹#›
Optimal Operating Level
Minimum
cost
Average cost per unit
Rate of output
Optimal
Output
rate
LO 5.6
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5-‹#›
Economies of scale
If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs
Diseconomies of scale
If the output rate is more than the optimal level, increasing the output rate results in increasing average per unit costs
Economies and Diseconomies of Scale
LO 5.6
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Economies of scale
If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs
Reasons for economies of scale:
Fixed costs are spread over a larger number of units
Construction costs increase at a decreasing rate as facility size increases
Processing costs decrease due to standardization
Economies of Scale
LO 5.6
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Diseconomies of scale
If the output rate is more than the optimal level, increasing the output rate results in increasing average per unit costs
Reasons for diseconomies of scale
Distribution costs increase due to traffic congestion and shipping from a centralized facility rather than multiple smaller facilities
Complexity increases costs
Inflexibility can be an issue
Additional levels of bureaucracy
Diseconomies of Scale
LO 5.6
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Facility Size and Optimal Operating Level
Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost per unit
Small
plant
Medium
plant
Large
plant
Output rate

LO 5.6
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Constraint
Something that limits the performance of a process or system in achieving its goals
Categories
Market
Resource
Material
Financial
Knowledge or competency
Policy
Constraint Management
LO 5.7
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Identify the most pressing constraint
Change the operation to achieve maximum benefit, given the constraint
Make sure other portions of the process are supportive of the constraint
Explore and evaluate ways to overcome the constraint
Repeat the process until the constraint levels are at acceptable levels
Resolving Constraint Issues
LO 5.7
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Alternatives should be evaluated from varying perspectives
Economic
Is it economically feasible?
How much will it cost?
How soon can we have it?
What will operating and maintenance costs be?
What will its useful life be?
Will it be compatible with present personnel and present operations?
Non-economic
Public opinion
Evaluating Alternatives
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Techniques for Evaluating Alternatives
Cost-volume analysis
Financial analysis
Decision theory
Waiting-line analysis
Simulation
Evaluating Alternatives (cont.)
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Cost-volume analysis
Focuses on the relationship between cost, revenue, and volume of output
Fixed Costs (FC)
Tend to remain constant regardless of output volume
Variable Costs (VC)
Vary directly with volume of output
VC = Quantity(Q) x variable cost per unit (v)
Total Cost
TC = FC + VC
Total Revenue (TR)
TR = revenue per unit (R) x Q
Cost-Volume Analysis
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
BEP
The volume of output at which total cost and total revenue are equal
Profit (P) = TR – TC = R x Q – (FC +v x Q)
= Q(R – v) – FC

Break-Even Point (BEP)
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Cost-Volume Relationships
.
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Cost-Volume Relationships (cont.)
Capacity alternatives may involve step costs, which are costs that increase stepwise as potential volume increases
The implication of such a situation is the possible occurrence of multiple break-even quantities
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Cost-volume analysis is a viable tool for comparing capacity alternatives if certain assumptions are satisfied
One product is involved
Everything produced can be sold
The variable cost per unit is the same regardless of volume
Fixed costs do not change with volume changes, or they are step changes
The revenue per unit is the same regardless of volume
Revenue per unit exceeds variable cost per unit
Cost-Volume Analysis Assumptions
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Cash flow
The difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes
Present value
The sum, in current value, of all future cash flow of an investment proposal
Financial Analysis
LO 5.8
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
Capacity planning impacts all areas of the organization
It determines the conditions under which operations will have to function
Flexibility allows an organization to be agile
It reduces the organization’s dependence on forecast accuracy and reliability
Many organizations utilize capacity cushions to achieve flexibility
Bottleneck management is one way by which organizations can enhance their effective capacities
Capacity expansion strategies are important organizational considerations
Expand-early strategy
Wait-and-see strategy
Capacity contraction is sometimes necessary
Capacity disposal strategies become important under these
conditions
Operations Strategy
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
5-‹#›
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