Product Process And Service Design
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PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) PRODUCT DESING AND DEVELOPMENT Product, Process and Service design
Product design is defined as the determination and specification of the parts of a product and their interrelationship so that they became a unified whole. It may also be defined as the idea generation, concept development, testing and manufacturing or implementation of a physical object or service.
•
Product design and development
•
Process planning and process design
BENEFITS OF PRODUCT DESIGN AND DEVELOPMENT
•
Production processes,
10. 11. 12. 13.
•
Service Operations
CLASSIFICATION OF PRODUCT DESIGN
•
Production Technology
17. 18.
•
Problems
A product is designed to perform a particular function or set of functions effectively and reliably, to be economically manufacturability, to be profitably salable, to suit the purposes and the attitudes of the consumer, and to be durable, safe, and economical to operate,
Attract new customers with an improved, larger product line. Retain current customers through continuous product improvement. Identify alternate designs. Determine and reduce product limitations
Customized product design Eg. Boilers, turbines Standard product desing Eg. Coolers, fans, television
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) CONTRIBUTION OF FUNCTIONAL AREAS TO PRODUCT D&D Product, Process and Service design •
•
Product design and development Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
PURCHASING Availability of cost of material Supplier with design capabilities
FINANCE Available investment funds Financial feasibility projected In house
LEGAL Legal environment patents
MARKETING Customer needs Information on competitors & Their products desirability Of specific product features R&D Technological advances
PRODUCT DESIGN
OPERATIONS Resource flexibility product serviceability Process capabilities
H.R Skills required Training plan competencies
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) STAGES IN PRODUCT D&D Product, Process and Service design •
Product Feasible?
Feasibility study
Preliminary design
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Idea generation
Problems
Final design
Prototype
Design and Manufacturing Specifications
Manufacturing
Process planning
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
•
•
Product design and development Process planning and process design Production processes,
•
Service Operations
•
Production Technology
•
Problems
PHASES IN PRODUCT D & D I. PHASE -1- CONCEPTUAL DESIGN a) Production specification b) Design Concept II. PHASE-2- FEASIBILITY h) Proof-of-concept prototype i) Alpha prototype III. PHASE-3-DEVELOPMENT AND DESIGN l) Beta prototype m) Pre-production IV. PHASE-4-INTRODUCTION V. PHASE-5 STANDARDIZATION V1. PHASE-6 – SUCESSION PLANNING
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) PRODUCT LIFE CYCLE Product, Process and Service design Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
Level of effort
•
Introduction Research Product Development Process Modification And Enhancement Supplier Development
Growth
Capacity Determination/ Enhancement
Maturity High volume Production With Innovation Cost control Reduction In options
Decline Termination Of production If necessary
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
CADD (COMPUTER AIDED DRAFTING AND DESIGN) CADD involves both software and sometimes special purpose hardware, current packages range from 2D vector based drafting systems to 3D parametric surface and solid design modellers. AREAS OF USE 7. 8. 9. 10. 11.
Architecture Mechanical (MCAD) Ship building. Electronic and Electrical (ECAD) Apparel and Textile CAD
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6) Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
PROCESS DESIGN Process design can be the design of new facilities or it can be modifications expansion of existing facilities PROCESS PLANNING Process planning is concerned with planning the transformation needed to convert materials into finished goods. These steps are designed in sequence in order to produce the desired level of output MAJOR FACTORS EFFECTING PROCESS DESIGN • • • • •
Nature of Product and Service Demand Degree of Vertical Integration Product flexibility Degree of Automation Product/Service quality
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6) Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
PROCESS PLANNING AND DESIGN SYSTEM INPUTS •Product/Service Information -Product/service demand -Prices/volumes -patterns -Competitive environment -Consumer wants/needs -Desired product characteristics •Production system information -Resource availability -Production economics -Known technologies -Technology that can be acquired -predominant strengths & weakness •Operation Strategy -Positioning strategies -Competitive weapons needed -Outsourcing plans -allocation of resources
PROCESS PLANNING & DESIGN Process-type selection -Coordinated with strategies •Vertical integration studies -Vendor capabilities -acquisition decisions -make-or-buy decisions •Process/product studies -Major technological steps -Minor technological steps -Product simplification -Product standardization -product design for producibility •Equipment studies -Level of automation -Linkages of machines -equipment selection -tooling •Production procedures •studies -Production sequence -Material specifications -Personal requirements •Facilities studies -Building designs -layout of facilities
OUTPUTS •Process Technology -Design of Specific Process -Linkages Among processes •Facilities -Building Design -layout of Facilities -selection Of equipment •Personal Estimates -skill level Requirements -training/ retraining
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6)
PROCESS LIFE CYCLE
Product, Process and Service design •
•
Product design and development Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
Job Shop
Batch
Startup
Rapid Growth
Time
Assembly line
Maturation
Commodity
Continuous flow
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6) Product, Process and Service design •
•
TYPES OF PROCESS DESIGN • Product focused Production System RM
C 2
A
Product design and development
•
Production Technology
•
Problems
1
3
1
Process planning and process design Service Operations
FG
5
RM
•
SA
4
C
SA 6 PC
RM-Raw material C – Components SA- Sub assemblies
FG- Finished goods PC- Purchased components
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
•
•
3)
Process focused production system cutting
Product design and development
1 JOB-A
Process planning and process design
•
Shaping
2
2
Service Operations Production Technology
Assembly
5
6
Finishing
7
4 3
JOB-B
Problems
3)
Sanding
3
2 1
•
Drilling
Group Technology / Cellular Manufacturing
5
6
7
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) 3) Product, Process and Service design •
Process planning and process design
•
Service Operations
•
Lathe 3
RM
Product design and development
•
•
Group Technology / Cellular Manufacturing
Saw 2
Grinder 2
Drill 1
Weld 3 Production Technology FG Problems
Mill 2
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6)
Product design and development Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
Product Focused Dedicated Product Focused Batch System
Cellular Manufacturing Process-Focused Job Shop
Small
•
Dependence of process design on product diversity and batch size
Batch size
•
1)
Large
Product, Process and Service design
DECIDING AMONG PROCESS ALTERNATIVES
Number of product designs
2) 3) 4)
Capital requirement for process design Economic analysis of production process Cost function of processing alternatives
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) BREAK-EVEN ANALYSIS/COST VOLUME PROFIT MODEL
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
Loss Region COSTS OR INCOME
FIXED COST
BEC
BEP Total cost line
Profit Region
Margin of Safety
BEO VOLUME OF OUTPUT
TOTAL FC
•
Sales Revenue line
TOTAL VC
Product design and development
PROFIT
Product, Process and Service design
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
Product design and development
•
ASSUMPTIONS IN BREAK-EVEN ANALYSIS
3)
Selling price per unit of output will remain constant throughout the volume of output There is a linear relationship between sales volume and costs ie. There are no whole sale rates. Costs can be divided into two categories-fixed costs and variable costs Production and sales quantities are equal i.e. there is no inventory. No other factor will influence the cost except the quantity of out put.
4) 5) 6) 7)
ANALYTICAL CALCULATIONS •
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
Let
F = Fixed costs Q = Quantity of output produced and sold s = Selling price per unit of output v = Variable price per unit of output sQ = S = Sales revenue (income) for quantity Q vQ = V = Variable costs for quantity Q Total costs = Fixed costs + Variable costs = F + vQ At Break even point Total costs = Total income F + vQ = sQ where Q = Break even output s-v = Contribution per unit Q (BEP) = F / s-v
= Fixed Cost / Contribution/unit of O/P
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
•
•
•
Product design and development Process planning and process design
PROFIT VOLUME (P/V) RATIO measures the profitability in relation to sales. Higher the P/V ratio more profitable will be the product P/V Ratio = ( Contribution / Total Sales Revenue ) X 100 = {(Total Sales Revenue – Total Variable costs) / Total sales revenue} X 100 ANGLE OF INCIDENCE Large angle of incidence indicates large profitl and extremely favourable business positions. MARGIN OF SAFETY
Production processes, Service Operations
•
Production Technology
•
Problems
Large margin of safety indicates that the business can earn profit even if there is a great reduction in output Margin of Safety ={( Actual sales – Break even sales) / Actual sales} X 100 CONTRIBUTION At any given volume of output, if contribution is greater than the fixed costs, profit will result. Contribution always equals fixed cost at Break even output Contribution = Sales Revenue – Variable costs
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) USES OF BEA Product, Process and Service design •
•
Product design and development Process planning and process design
•
Production processes,
•
Service Operations
• • • • • •
Break even chart helps the management to know at a glance the profits at different levels of output Useful in determining the minimum output necessary to break even and go after profit The effects of altering selling price or the effects of controlling costs on the profits earned can be quickly understood by looking at the chart It helps comparing the profitability of tow or more proposals It helps in computing the output required to maintain a particular level of profit It helps in taking decisions regarding production, plant locations, make or buy components etc.
LIMITATIONS OF BEA • •
•
Production Technology
•
•
Problems
•
The major assumption of B.E analysis is that the whole of the production output is sold, which may not be so in reality. BEA assumes that all costs can easily be classified as Fixed or Variable for the whole range of production costs. In some cases it is very difficult to ascertain the nature of the cost BEA assumes that profits depend only on selling price and sales volume ignoring the fact that they are also affected by technological changes, price volume discounts, etc It is suitable only when the firm produces only one type of product.
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Problems Product, Process and Service design •
4)
Process
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
The production processes A,B, and C leave the following cost structure FC/Year
VC/Year
A
Rs. 1,20,000
Rs. 3
B
Rs. 90,000
Rs. 4
C
Rs. 80,000
Rs. 4.50
o)
What is the most economical process for a volume of 8,000 units per year?
q)
What is the annual break-even quantity for the process A,B and C of selling price of the product is Rs. 6.95 per unit?
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Problems Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
2)
The production processes automated (A), cellular manufacturing ( C ), and job shop (J) have the following structure. Process
o) p) q)
FC/Year
VC/Year
A
Rs. 1,100,00
Rs. 2
C
Rs. 80,000
Rs. 4
J
Rs. 75,000
Rs. 5
What is the most economical process for a volume of 10,000 units per year? At what volume would each of the processes be preferred? What is the annual break-even quantity for the automated process (A) if the selling price of the product is Rs. 14 per unit?
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Problems Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
3)
Process
o) p)
•
Service Operations
•
Production Technology
•
Problems
The production processes automated (A), cellular manufacturing ( C ), and job shop (J) have the following structure. FC/Year
VC/Year
A
Rs. 1,25,000
Rs. 2.50
C
Rs. 85,000
Rs. 4.00
J
Rs. 75,000
Rs. 5.00
What is the most economical process for a volume of 12,000 units per year? If the product is sold at Rs. 6/ unit, to earn a profit of Rs. 50,000, how much you need to produce and sell?
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6)
4)
Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
Mr. Mendoza is the production Manager at airsoft athletic shoes, a manufacturer of high end running shoes. Mr. Mendoza would like to automate the process of gluing the rubber soles onto shoe uppers, a process currently being performed manually. Five companies offer automated machines that perform this processes, but they vary in initial cost and operating cost. Due to ever changing competition in the running shoe industry. Airsoft’s sales vary substantially from year to year and are difficult to forecast accurately. Mr. Mendoza feels that part of his machine selection analysis should be to evaluate the annual cost of each machine. The uncertainty of annual sales volume has made the comparison of annual cost more difficult than he anticipated. Mr. Mendoza has decided that it would be most useful to obtain a range of annual volumes in which each machine would be the preferred alternative. The annual fixed cost and the variable cost per shoe for each machine are shown below Process
•
Service Operations
•
Production Technology
a)
•
Problems
b) c)
FC/Year
VC/shoe
A Rs. 20,500 Rs. 0.83 B Rs. 28,200 Rs. 0.59 C Rs. 21,100 Rs. 0.85 D Rs. 11,900 Rs. 0.99 E Rs. 29,600 Rs.0.68 Rearrange the machine cost information in order of increasing annual FC. Are any machines clearly inferior to any other machines? If so, eliminate them from further analysis For what range of annual volumes is each machine the preferred alternative, based only on annual cost ? What factors other than the annual cost should be considered in selecting the machine
Product design is defined as the determination and specification of the parts of a product and their interrelationship so that they became a unified whole. It may also be defined as the idea generation, concept development, testing and manufacturing or implementation of a physical object or service.
•
Product design and development
•
Process planning and process design
BENEFITS OF PRODUCT DESIGN AND DEVELOPMENT
•
Production processes,
10. 11. 12. 13.
•
Service Operations
CLASSIFICATION OF PRODUCT DESIGN
•
Production Technology
17. 18.
•
Problems
A product is designed to perform a particular function or set of functions effectively and reliably, to be economically manufacturability, to be profitably salable, to suit the purposes and the attitudes of the consumer, and to be durable, safe, and economical to operate,
Attract new customers with an improved, larger product line. Retain current customers through continuous product improvement. Identify alternate designs. Determine and reduce product limitations
Customized product design Eg. Boilers, turbines Standard product desing Eg. Coolers, fans, television
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) CONTRIBUTION OF FUNCTIONAL AREAS TO PRODUCT D&D Product, Process and Service design •
•
Product design and development Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
PURCHASING Availability of cost of material Supplier with design capabilities
FINANCE Available investment funds Financial feasibility projected In house
LEGAL Legal environment patents
MARKETING Customer needs Information on competitors & Their products desirability Of specific product features R&D Technological advances
PRODUCT DESIGN
OPERATIONS Resource flexibility product serviceability Process capabilities
H.R Skills required Training plan competencies
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) STAGES IN PRODUCT D&D Product, Process and Service design •
Product Feasible?
Feasibility study
Preliminary design
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Idea generation
Problems
Final design
Prototype
Design and Manufacturing Specifications
Manufacturing
Process planning
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
•
•
Product design and development Process planning and process design Production processes,
•
Service Operations
•
Production Technology
•
Problems
PHASES IN PRODUCT D & D I. PHASE -1- CONCEPTUAL DESIGN a) Production specification b) Design Concept II. PHASE-2- FEASIBILITY h) Proof-of-concept prototype i) Alpha prototype III. PHASE-3-DEVELOPMENT AND DESIGN l) Beta prototype m) Pre-production IV. PHASE-4-INTRODUCTION V. PHASE-5 STANDARDIZATION V1. PHASE-6 – SUCESSION PLANNING
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) PRODUCT LIFE CYCLE Product, Process and Service design Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
Level of effort
•
Introduction Research Product Development Process Modification And Enhancement Supplier Development
Growth
Capacity Determination/ Enhancement
Maturity High volume Production With Innovation Cost control Reduction In options
Decline Termination Of production If necessary
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
CADD (COMPUTER AIDED DRAFTING AND DESIGN) CADD involves both software and sometimes special purpose hardware, current packages range from 2D vector based drafting systems to 3D parametric surface and solid design modellers. AREAS OF USE 7. 8. 9. 10. 11.
Architecture Mechanical (MCAD) Ship building. Electronic and Electrical (ECAD) Apparel and Textile CAD
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6) Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
PROCESS DESIGN Process design can be the design of new facilities or it can be modifications expansion of existing facilities PROCESS PLANNING Process planning is concerned with planning the transformation needed to convert materials into finished goods. These steps are designed in sequence in order to produce the desired level of output MAJOR FACTORS EFFECTING PROCESS DESIGN • • • • •
Nature of Product and Service Demand Degree of Vertical Integration Product flexibility Degree of Automation Product/Service quality
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6) Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
PROCESS PLANNING AND DESIGN SYSTEM INPUTS •Product/Service Information -Product/service demand -Prices/volumes -patterns -Competitive environment -Consumer wants/needs -Desired product characteristics •Production system information -Resource availability -Production economics -Known technologies -Technology that can be acquired -predominant strengths & weakness •Operation Strategy -Positioning strategies -Competitive weapons needed -Outsourcing plans -allocation of resources
PROCESS PLANNING & DESIGN Process-type selection -Coordinated with strategies •Vertical integration studies -Vendor capabilities -acquisition decisions -make-or-buy decisions •Process/product studies -Major technological steps -Minor technological steps -Product simplification -Product standardization -product design for producibility •Equipment studies -Level of automation -Linkages of machines -equipment selection -tooling •Production procedures •studies -Production sequence -Material specifications -Personal requirements •Facilities studies -Building designs -layout of facilities
OUTPUTS •Process Technology -Design of Specific Process -Linkages Among processes •Facilities -Building Design -layout of Facilities -selection Of equipment •Personal Estimates -skill level Requirements -training/ retraining
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6)
PROCESS LIFE CYCLE
Product, Process and Service design •
•
Product design and development Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
Job Shop
Batch
Startup
Rapid Growth
Time
Assembly line
Maturation
Commodity
Continuous flow
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6) Product, Process and Service design •
•
TYPES OF PROCESS DESIGN • Product focused Production System RM
C 2
A
Product design and development
•
Production Technology
•
Problems
1
3
1
Process planning and process design Service Operations
FG
5
RM
•
SA
4
C
SA 6 PC
RM-Raw material C – Components SA- Sub assemblies
FG- Finished goods PC- Purchased components
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
•
•
3)
Process focused production system cutting
Product design and development
1 JOB-A
Process planning and process design
•
Shaping
2
2
Service Operations Production Technology
Assembly
5
6
Finishing
7
4 3
JOB-B
Problems
3)
Sanding
3
2 1
•
Drilling
Group Technology / Cellular Manufacturing
5
6
7
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) 3) Product, Process and Service design •
Process planning and process design
•
Service Operations
•
Lathe 3
RM
Product design and development
•
•
Group Technology / Cellular Manufacturing
Saw 2
Grinder 2
Drill 1
Weld 3 Production Technology FG Problems
Mill 2
PRODUCTION AND OPERATIONS MANAGEMENT
MODULE-2 (6)
Product design and development Process planning and process design
•
Service Operations
•
Production Technology
•
Problems
Product Focused Dedicated Product Focused Batch System
Cellular Manufacturing Process-Focused Job Shop
Small
•
Dependence of process design on product diversity and batch size
Batch size
•
1)
Large
Product, Process and Service design
DECIDING AMONG PROCESS ALTERNATIVES
Number of product designs
2) 3) 4)
Capital requirement for process design Economic analysis of production process Cost function of processing alternatives
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) BREAK-EVEN ANALYSIS/COST VOLUME PROFIT MODEL
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
Loss Region COSTS OR INCOME
FIXED COST
BEC
BEP Total cost line
Profit Region
Margin of Safety
BEO VOLUME OF OUTPUT
TOTAL FC
•
Sales Revenue line
TOTAL VC
Product design and development
PROFIT
Product, Process and Service design
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
Product design and development
•
ASSUMPTIONS IN BREAK-EVEN ANALYSIS
3)
Selling price per unit of output will remain constant throughout the volume of output There is a linear relationship between sales volume and costs ie. There are no whole sale rates. Costs can be divided into two categories-fixed costs and variable costs Production and sales quantities are equal i.e. there is no inventory. No other factor will influence the cost except the quantity of out put.
4) 5) 6) 7)
ANALYTICAL CALCULATIONS •
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
Let
F = Fixed costs Q = Quantity of output produced and sold s = Selling price per unit of output v = Variable price per unit of output sQ = S = Sales revenue (income) for quantity Q vQ = V = Variable costs for quantity Q Total costs = Fixed costs + Variable costs = F + vQ At Break even point Total costs = Total income F + vQ = sQ where Q = Break even output s-v = Contribution per unit Q (BEP) = F / s-v
= Fixed Cost / Contribution/unit of O/P
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Product, Process and Service design •
•
•
•
Product design and development Process planning and process design
PROFIT VOLUME (P/V) RATIO measures the profitability in relation to sales. Higher the P/V ratio more profitable will be the product P/V Ratio = ( Contribution / Total Sales Revenue ) X 100 = {(Total Sales Revenue – Total Variable costs) / Total sales revenue} X 100 ANGLE OF INCIDENCE Large angle of incidence indicates large profitl and extremely favourable business positions. MARGIN OF SAFETY
Production processes, Service Operations
•
Production Technology
•
Problems
Large margin of safety indicates that the business can earn profit even if there is a great reduction in output Margin of Safety ={( Actual sales – Break even sales) / Actual sales} X 100 CONTRIBUTION At any given volume of output, if contribution is greater than the fixed costs, profit will result. Contribution always equals fixed cost at Break even output Contribution = Sales Revenue – Variable costs
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) USES OF BEA Product, Process and Service design •
•
Product design and development Process planning and process design
•
Production processes,
•
Service Operations
• • • • • •
Break even chart helps the management to know at a glance the profits at different levels of output Useful in determining the minimum output necessary to break even and go after profit The effects of altering selling price or the effects of controlling costs on the profits earned can be quickly understood by looking at the chart It helps comparing the profitability of tow or more proposals It helps in computing the output required to maintain a particular level of profit It helps in taking decisions regarding production, plant locations, make or buy components etc.
LIMITATIONS OF BEA • •
•
Production Technology
•
•
Problems
•
The major assumption of B.E analysis is that the whole of the production output is sold, which may not be so in reality. BEA assumes that all costs can easily be classified as Fixed or Variable for the whole range of production costs. In some cases it is very difficult to ascertain the nature of the cost BEA assumes that profits depend only on selling price and sales volume ignoring the fact that they are also affected by technological changes, price volume discounts, etc It is suitable only when the firm produces only one type of product.
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Problems Product, Process and Service design •
4)
Process
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
The production processes A,B, and C leave the following cost structure FC/Year
VC/Year
A
Rs. 1,20,000
Rs. 3
B
Rs. 90,000
Rs. 4
C
Rs. 80,000
Rs. 4.50
o)
What is the most economical process for a volume of 8,000 units per year?
q)
What is the annual break-even quantity for the process A,B and C of selling price of the product is Rs. 6.95 per unit?
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Problems Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
•
Service Operations
•
Production Technology
•
Problems
2)
The production processes automated (A), cellular manufacturing ( C ), and job shop (J) have the following structure. Process
o) p) q)
FC/Year
VC/Year
A
Rs. 1,100,00
Rs. 2
C
Rs. 80,000
Rs. 4
J
Rs. 75,000
Rs. 5
What is the most economical process for a volume of 10,000 units per year? At what volume would each of the processes be preferred? What is the annual break-even quantity for the automated process (A) if the selling price of the product is Rs. 14 per unit?
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6) Problems Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
3)
Process
o) p)
•
Service Operations
•
Production Technology
•
Problems
The production processes automated (A), cellular manufacturing ( C ), and job shop (J) have the following structure. FC/Year
VC/Year
A
Rs. 1,25,000
Rs. 2.50
C
Rs. 85,000
Rs. 4.00
J
Rs. 75,000
Rs. 5.00
What is the most economical process for a volume of 12,000 units per year? If the product is sold at Rs. 6/ unit, to earn a profit of Rs. 50,000, how much you need to produce and sell?
PRODUCTION AND OPERATIONS MANAGEMENT MODULE-2 (6)
4)
Product, Process and Service design •
Product design and development
•
Process planning and process design
•
Production processes,
Mr. Mendoza is the production Manager at airsoft athletic shoes, a manufacturer of high end running shoes. Mr. Mendoza would like to automate the process of gluing the rubber soles onto shoe uppers, a process currently being performed manually. Five companies offer automated machines that perform this processes, but they vary in initial cost and operating cost. Due to ever changing competition in the running shoe industry. Airsoft’s sales vary substantially from year to year and are difficult to forecast accurately. Mr. Mendoza feels that part of his machine selection analysis should be to evaluate the annual cost of each machine. The uncertainty of annual sales volume has made the comparison of annual cost more difficult than he anticipated. Mr. Mendoza has decided that it would be most useful to obtain a range of annual volumes in which each machine would be the preferred alternative. The annual fixed cost and the variable cost per shoe for each machine are shown below Process
•
Service Operations
•
Production Technology
a)
•
Problems
b) c)
FC/Year
VC/shoe
A Rs. 20,500 Rs. 0.83 B Rs. 28,200 Rs. 0.59 C Rs. 21,100 Rs. 0.85 D Rs. 11,900 Rs. 0.99 E Rs. 29,600 Rs.0.68 Rearrange the machine cost information in order of increasing annual FC. Are any machines clearly inferior to any other machines? If so, eliminate them from further analysis For what range of annual volumes is each machine the preferred alternative, based only on annual cost ? What factors other than the annual cost should be considered in selecting the machine
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