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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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 5-‹#› Strategy Formulation Strategies are typically based on assumptions and predictions about: Long-term demand patterns Technological change Competitor behavior Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 5-‹#› Calculating processing requirements requires reasonably accurate demand forecasts, standard processing times, and available work time Calculating Processing Requirements Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 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 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 5-‹#› Bottleneck Operation An operation in a sequence of operations whose capacity is lower than that of the other operations 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-‹#› Optimal Operating Level Minimum cost Average cost per unit Rate of output Optimal 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-‹#› 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-‹#› capacity effective output actual Efficiency = capacity design output actual n Utilizatio = % 90 40 36 capacity effective output actual Efficiency = = = % 72 50 36 capacity design output actual n Utilizatio = = = horizon planning the during available time processing horizon planning the during product for demand product for time processing standard machines required of number where 1 = = = = = å = T i D i p N T D p N i i R k i i i R v R Q BEP - = FC