Operation management

Unit-3
CAPACITY PLANNING
Systematic determination of resource requirements for the projected output, over a
specific period. Capacity planning is the process of determining the
production capacity needed by an organization to meet changing demands for
its products. In the context of capacity planning, design capacity is the maximum
amount of work that an organization is capable of completing in a given period.
Effective capacity is the maximum amount of work that an organization is capable
of completing in a given period due to constraints such as quality problems, delays,
material handling, etc. The phrase is also used in business computing as a synonym
for capacity management.
A discrepancy between the capacity of an organization and the demands of its
customers results in inefficiency, either in under-utilized resources or unfulfilled
customers. The goal of capacity planning is to minimize this discrepancy. Demand
for an organization's capacity varies based on changes in production output, such
as increasing or decreasing the production quantity of an existing product, or
producing new products. Better utilization of existing capacity can be
accomplished through improvements in overall equipment effectiveness (OEE).

Capacity is calculated as (number of machines or workers) (number of

shifts) (utilization) (efficiency).

AGGREGATE PLANNING
Aggregate Planning is Concerned With Determining The Quantity And
Timing Of Production For The Intermediate Future, Often From Three To
18 Months Ahead.
Aggregate planning is an operational activity that does an aggregate plan for
the production process, in advance of 2 to 18 months, to give an idea
to management as to what quantity of materials and other resources are to be
procured and when, so that the total cost of operations of the organization is kept to
the minimum over that period..
The quantity of outsourcing, subcontracting of items, overtime of labour, numbers
to be hired and fired in each period and the amount of inventory to be held in stock
and to be backlogged for each period are decided. All of these activities are done
within the framework of the company ethics, policies, and long term commitment
to the society, community and the country of operation.

Aggregate Planning is concerned with matching supply and demand of

output over the medium time range, up to approximately 12 months into the
future. The term aggregate implies that the planning is done for a single
overall measure of output or, at the most, a few aggregated product
categories. The aim of aggregate planning is to set overall output levels in
the near to medium future in the face of fluctuating or uncertain demands.
Aggregate planning might seek to influence demand as well as supply.
The Goal is To Minimize Costs Over The Planning Period.
Other Objectives May Be To Minimize Fluctuations In The Work Force Or
Inventory Levels.
Based on the planning horizon, We can divide plans into 3 general
categories:

STRATEGIES IN AGGREGATE PLANNING

1.Changing Inventory Levels

This is to Increase Inventory During Periods Of Low Demand To Meet High
Demand in Future Periods.
However, By doing this, Costs Of Storage and Handling Increases
2. Varying Work Force Size By Hiring Or Layoffs
This is to Hire Or Lay Off Workers To Meet Production Rates.

In this option, Often New Employees Need To Be Trained.

3. Varying Production Rates Through Overtime Or Idle Time.

There is always a Limit For Overtime. Costs also Increase.

4. Subcontracting

Costly, Opens Doors To Competitors, Hard To Find Perfect

Subcontractor.

5. Using Part Time Workers

e.g., Fast Food Restaurants

6. Influencing Demand Through Advertising, Promotion, And Price Cuts.

For example, Weekend Discounts At Hotels and Airlines.

7. Back Ordering at High Demand Periods.

Back ordering means That A Firm Promises To Deliver a Product In A Later
Date. Many Auto Dealers Purposely Back Order.
8. Counter seasonal Product Mixing
This is To Develop A Product Mix Of Counter seasonal Items.
For example, Companies That Make Both Furnaces And Air Conditioners.

Problems related to Aggregate Planning

Smoothing

Smoothing refers to costs that result from changing production and

workforce levels from one period to the next.

Bottleneck Problems

It is the inability of the system to respond to sudden changes in demand as a

result of capacity restrictions.

Planning Horizon

The number of periods for which the demand is to be forecasted, and hence
the number of periods for which workforce and inventory levels are to be
determined, must be specified in advance.

MATERIAL REQUIREMENTS PLANNING

Material requirements planning (MRP) is a production planning and inventory
control system used to manage manufacturing processes. Most MRP systems are
software-based, while it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:
Ensure materials are available for production and products are available for
delivery to customers.
Maintain the lowest possible level of inventory.
Plan manufacturing activities, delivery schedules and purchasing activities.

The scope of MRP in manufacturing

The basic functions of an MRP system include: inventory control, bill of
material processing, and elementary scheduling.
MRP helps organizations to maintain low inventory levels. It is used to plan
manufacturing, purchasing and delivering activities.
"Manufacturing organizations, whatever their products, face the same daily
practical problem - that customers want products to be available in a shorter time
than it takes to make them. This means that some level of planning is required."
Companies need to control the types and quantities of materials they purchase, plan
which products are to be produced and in what quantities and ensure that they are
able to meet current and future customer demand, all at the lowest possible cost.
Making a bad decision in any of these areas will make the company lose money. A
few examples are given below:

If a company purchases insufficient quantities of an item used in

manufacturing (or the wrong item) it may be unable to meet contract
obligations to supply products on time.

If a company purchases excessive quantities of an item, money is wasted the excess quantity ties up cash while it remains as stock and may never even
be used at all.

Beginning production of an order at the wrong time can cause customer

deadlines to be missed.

MRP is a tool to deal with these problems. It provides answers for several
questions:

What items are required?

How many are required?

When are they required?...

MRP can be applied both to items that are purchased from outside suppliers and to
sub-assemblies, produced internally, that are components of more complex items.
The data that must be considered include:

The end item (or items) being created. This is sometimes called Independent
Demand, or Level "0" on BOM (Bill of materials).

How much is required at a time.

When the quantities are required to meet demand.

Shelf life of stored materials.

Inventory status records. Records of net materials available for use already
in stock (on hand) and materials on order from suppliers.

Bills of materials. Details of the materials, components and sub-assemblies

required to make each product.

Planning Data. This includes all the restraints and directions to produce the
end items. This includes such items as: Routing, Labor and Machine Standards,
Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing
techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap
Percentages, and other inputs.

MASTER PRODUCTION SCHEDULING

A Master Production Schedule or MPS is the plan that a company has developed for
production, inventory, staffing, etc. It sets the quantity of each end item to be
completed in each week of a short-range planning horizon. A Master Production
Schedule is the master of all schedules. It is a plan for future production of end items.
MPS INPUTS:
Forecast Demand
Production Costs
Inventory Costs
Customer Orders
Inventory Levels
Supply
Lot Size
Production Lead Time
Capacity

MPS OUTPUT (production plan):

Amounts to be Produced
Staffing Levels
Quantity Available to Promise
Projected Available Balance

The Master Production Schedule gives production, planning, purchasing info to top
management which is needed to plan and control the manufacturing operation. The
application ties overall business planning and forecasting to detail operations through
the Master Production Schedule.

A master production schedule (MPS) is a plan for individual commodities to

produce in each time period such as production, staffing, inventory, etc]It is usually
linked to manufacturing where the plan indicates when and how much of each
product will be demanded.

This plan quantifies significant processes, parts, and other resources in order to
optimize production, to identify bottlenecks, and to anticipate needs and completed
goods.
Since an MPS drives much factory activity, its accuracy and viability dramatically
affect profitability. Typical MPS's are created by software with user tweaking.
Due to software limitations, but especially the intense work required by the
"master production schedulers", schedules do not include every aspect of
production, but only key elements that have proven their control effectivity, such as
forecast demand, production costs, inventory costs, lead time, working hours,
capacity, inventory levels, available storage, and parts supply. The choice of what
to model varies among companies and factories. The MPS is a statement of what
the company expects to produce and purchase (i.e. quantity to be produced,
staffing levels, dates, available to promise, projected balance.
The MPS translates the business plan, including forecast demand, into a production
plan using planned orders in a true multi-level optional component scheduling
environment. Using MPS helps avoid shortages, costly expediting, last minute
scheduling, and inefficient allocation of resources. Working with MPS allows
businesses to consolidate planned parts, produce master schedules and forecasts for
any level of the Bill of Material (BOM) for any type of part.

How a MPS works

By using many variables as inputs the MPS will generate a set of outputs used
for decision making. Outputs may include forecast demand, production
costs, inventory money, customer needs, inventory progress, supply, lot size,
production lead time, and capacity. Inputs may be automatically generated by an
ERP system that links a sales department with a production department. For
instance, when the sales department records a sale, the forecast demand may be
automatically shifted to meet the new demand. Inputs may also be inputted
manually from forecasts that have also been calculated manually. Outputs may
include amounts to be produced, staffing levels, quantity available to promise, and
projected available balance. Outputs may be used to create a Material
Requirements Planning (MRP) schedule.
A master production schedule may be necessary for organizations to synchronize
their operations and become more efficient. An effective MPS ultimately will:

Give production, planning, purchasing, and management the information to

plan and control manufacturing.
Tie overall business planning and forecasting to detail operations
Enable marketing to make legitimate delivery commitments to warehouses
and customers
Increase the efficiency and accuracy of a company's manufacturing

MPS issues:

Width of the time bucket

Planning horizon

Rolling plan

Time fencing

Schedule freezing

Production plan
An example of a master production schedule for "product A".

JUST IN TIME PRODUCTION

An inventory strategy companies employ to increase efficiency and decrease waste by receiving
goods only as they are needed in the production process, thereby reducing inventory costs.
A good example would be a car manufacturer that operates with very low inventory levels, relying on
their supply chain to deliver the parts they need to build cars. The parts needed to manufacture the

cars do not arrive before nor after they are needed, rather they arrive just as they are needed.
This inventory supply system represents a shift away from the older "just in case" strategy where
producers carried large inventories in case higher demand had to be met.

The principle that underpins JIT is that production should be pulled through rather than pushed
through. This means that production should be for specific customer orders, so that the
production cycle starts only once a customer has placed an order with the producer. Stocks are
delivered when they are needed. Consequently, this approach requires much more frequent
delivery of stocks. Developing a JIT approach requires sophisticated planning and considerable
experience in this field. This is why leading companies contract out their supply chain
management to a specialist company like Exel with considerable experience of this area.
Just-In-Time is the key element in what is termed lean production. Lean production is a
philosophy and a way of working involving eliminating all forms of waste (where waste is
defined as anything that does not add value in the production process and supply chain).

Just in time (JIT) is a production strategy that strives to improve a business' return on investment by reducing
in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals
or Kanban between different points, which are involved in the process, which tell production when to make the
next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a
part on a shelf. Implemented correctly, JIT focuses on continuous improvement and can improve a
manufacturing organization's return on investment, quality, and efficiency. To achieve continuous improvement
key areas of focus could be flow, employee involvement and quality.
JIT relies on other elements in the inventory chain as well. For instance, its effective application cannot be
independent of other key components of a lean manufacturing system or it can "end up with the opposite of the
desired result. In recent years manufacturers have continued to try to hone forecasting methods such as
applying a trailing 13-week average as a better predictor for JIT planning; however, some research
demonstrates that basing JIT on the presumption of stability is inherently flawed.
Just-in-time manufacturing goes hand in hand with concepts such as Kanban, continuous improvement and
total quality management (TQM).
Just-in-time production requires intricate planning in terms of procurement policies and the manufacturing
process if its implementation is to be a success.

Advantages Just-In-Time Systems

Following are the advantages of Adopting Just-In-Time Manufacturing Systems:

Just-in-time manufacturing keeps stock holding costs to a bare minimum. The release of storage space
results in better utilization of space and thereby bears a favorable impact on the rent paid and on any insurance
premiums that would otherwise need to be made.

Just-in-time manufacturing eliminates waste, as out-of-date or expired products; do not enter into this
equation at all.

As under this technique, only essential stocks are obtained, less working capital is required to finance
procurement. Here, a minimum re-order level is set, and only once that mark is reached, fresh stocks are
ordered making this a boon to inventory management too.

Due to the aforementioned low level of stocks held, the organizations return on investment (referred to
as ROI, in management parlance) would generally be high.

As just-in-time production works on a demand-pull basis, all goods made would be sold, and thus it
incorporates changes in demand with surprising ease. This makes it especially appealing today, where the
market demand is volatile and somewhat unpredictable.

Just-in-time manufacturing encourages the 'right first time' concept, so that inspection costs and cost
of rework is minimized.

High quality products and greater efficiency can be derived from following a just-in-time production
system.

Close relationships are fostered along the production chain under a just-in-time manufacturing system.

Constant communication with the customer results in high customer satisfaction.

Overproduction is eliminated when just-in-time manufacturing is adopted.

Disadvantages:
Following are the disadvantages of Adopting Just-In-Time Manufacturing Systems:

Just-in-time manufacturing provides zero tolerance for mistakes, as it makes re-working very difficult
in practice, as inventory is kept to a bare minimum.

There is a high reliance on suppliers, whose performance is generally outside the purview of the
manufacturer.

Due to there being no buffers for delays, production downtime and line idling can occur which would
bear a detrimental effect on finances and on the equilibrium of the production process.

The organization would not be able to meet an unexpected increase in orders due to the fact that there
are no excess finish goods.

Transaction costs would be relatively high as frequent transactions would be made.

Just-in-time manufacturing may have certain detrimental effects on the environment due to the
frequent deliveries that would result in increased use of transportation, which in turn would consume
more fossil fuels.

Precautions:
Following are the things to Remember When Implementing a Just-In-Time Manufacturing System:

Management buy-in and support at all levels of the organization are required; if a just-in-time
manufacturing system is to be successfully adopted.

Adequate resources should be allocated, so as to obtain technologically advanced software that is

generally required if a just-in-time system is to be a success.

Building a close, trusting relationship with reputed and time-tested suppliers will minimize
unexpected delays in the receipt of inventory.

Just-in-time manufacturing cannot be adopted overnight. It requires commitment in terms of time and
adjustments to corporate culture would be required, as it is starkly different to traditional production
processes.

The design flow process needs to be redesigned and layouts need to be re-formatted, so as to
incorporate just-in-time manufacturing.

Lot sizes need to be minimized.

Workstation capacity should be balanced whenever possible.

Preventive maintenance should be carried out, so as to minimize machine breakdowns.

Set-up times should be reduced wherever possible.

Quality enhancement programs should be adopted, so that total quality control practices can be
adopted.

Reduction in lead times and frequent deliveries should be incorporated.

Motion waste should be minimized, so the incorporation of conveyor belts might prove to be a good
idea when implementing a just-in-time manufacturing system.

Japanese

Translation

English

Seiri

Proper arrangement

Sort

Seiton

Orderliness

Simplify

Seiso

Cleanliness

Sweep

Seiketsu

Cleanup

Standardize

Shitsuke

Discipline

Sustain

LEAN MANAGEMENT

The principle that underpins JIT is that production should be pulled through
rather than pushed through. This means that production should be for specific
customer orders, so that the production cycle starts only once a customer has
placed an order with the producer. Stocks are delivered when they are needed.
Consequently, this approach requires much more frequent delivery of stocks.
Developing a JIT approach requires sophisticated planning and considerable
experience in this field. This is why leading companies contract out their supply
chain management to a specialist company like Exel with considerable experience
of this area.

Just-In-Time is the key element in what is termed lean production. Lean production
is a philosophy and a way of working involving eliminating all forms of waste
(where waste is defined as anything that does not add value in the production
process and supply chain).

What is 'Lean Manufacturing' and how does it differ from 'Just-inTime Manufacturing (JIT)'?

Lean Manufacturing combines the advantages of craft and mass production

systems, whilst avoiding the disadvantages of each. Lean manufacturing is 'lean'
because it produces products using fewer resources than traditional 'job shop' and
'mass production' methods.
Lean Manufacturing involves removal of all unnecessary costs (i.e. 'waste'). Waste
elimination is translated into customer satisfaction (i.e. improved performance,
quality, cost, delivery etc). In this regard, it is the same as Just-in-Time (JIT)
Manufacturing; the difference being that Lean Manufacturing encompasses the

whole business rather than just manufacturing. It includes product development,

production, supply chains, distribution and customer service.

SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) is the management of the flow of goods. It
includes the movement and storage of raw materials, work-in-process inventory,
and finished goods from point of origin to point of consumption.
Interconnected or interlinked networks, channels and node businesses are involved
in the provision of products and services required by end customers in a supply
chain.
Supply chain management has been defined as the "design, planning, execution,
control, and monitoring of supply chain activities with the objective of creating net
value, building a competitive infrastructure, leveraging worldwide logistics,
synchronizing supply with demand and measuring performance globally.
SCM draws heavily from the areas of operation
management, logistics, procurement, and information technology, and strives for
an integrated approach.

Supply Chain Management encompasses every effort involved in producing and

delivering a final product or service, from the suppliers supplier to the customers
customer.
Supply Chain Management includes managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly, warehousing and inventory
tracking, order entry and order management, distribution across all channels, and
delivery to the customer.
The concept of Supply Chain Management is based on two core ideas. The first is
that practically every product that reaches an end user represents the cumulative
effort of multiple organizations. These organizations are referred to collectively as
the supply chain.

The second idea is that while supply chains have existed for a long time, most
organizations have only paid attention to what was happening within their four
walls. Few businesses understood, much less managed, the entire chain of
activities that ultimately delivered products to the final customer. The result was
disjointed and often ineffective supply chains.
Supply chain management, then, is the active management of supply chain
activities to maximize customer value and achieve a sustainable competitive
advantage. It represents a conscious effort by the supply chain firms to develop and
run supply chains in the most effective & efficient ways possible.
Supply chain activities cover everything from product development, sourcing,
production, and logistics, as well as the information systems needed to coordinate
these activities.
The organizations that make up the supply chain are linked together through
physical flows and information flows. Physical flows involve the transformation,
movement, and storage of goods and materials. They are the most visible piece of
the supply chain. But just as important are information flows. Information flows
allow the various supply chain partners to coordinate their long-term plans, and to
control the day-to-day flow of goods and material up and down the supply chain.

A set of approaches used to efficiently integrate

Suppliers

Manufacturers
Warehouses
Distribution centers
So that the product is produced and distributed
In the right quantities

To the right locations

And at the right time
System-wide costs are minimized and
Service level requirements are satisfied
Why so Difficult
to Match Supply and Demand?
Uncertainty in demand and/or supply
Changing customer requirements
Decreasing product life cycles
Fragmentation of supply chain ownership
Conflicting objectives in the supply chain
Conflicting objectives even within a single firm
Marketing/Sales wants: more FGI inventory, fast delivery, many package types,
special wishes/promotions
Production wants: bigger batch size, depots at factory, latest ship date, decrease
changeovers, stable production plan
Distribution wants: full truckload, low depot costs, low distribution costs, small #
of SKUs, stable distribution plan.

INVENTORY PLANNING AND CONTROL

What do we mean by inventory?
The chapter discusses inventory (we use the word interchangeably with the word stock) predominantly
as accumulations of transformed input resource. In fact, usually as accumulations of material, parts or
products. It does however mention the broader use of the word inventory or stock to denote the
organisations stock of people, machines, and other assets. You often hear economists talking of a stock
of resources in this way. From here on however we use the word exclusively to mean an accumulation of
materials.

Stock is both good and bad

The problem with inventory management is that keeping stock has both advantages and
disadvantages.
The advantages include,

Inventory allows customers to be served quickly and conveniently (otherwise you would have to
make everything as the customer requested it).

Inventory can be used so a company can buy in bulk, which is usually cheaper.

Inventory allows operations to meet unexpected surges in demand.

Inventory is an insurance if there is an unexpected interruption in supply from outside the

operation or within the operation.

Inventory allows different parts of the operation to be decoupled. This means that they can
operate independently to suit their own constraints and convenience while the stock of items
between them absorbs short-term differences between supply and demand. In many ways this is
the most significant advantage of inventory.

The disadvantages of inventory include,

It is expensive. Keeping inventory means the company has to fund the gap between paying for the
stock to be produced and getting revenue in by selling it. This is known as working capital. There
is also the cost of keeping the stock in warehouses or containers.

Items can deteriorate while they are being kept. Clearly this is significant for the food industry
whose products have a limited life. However, it is also an issue for any other company because
stock could be accidentally damaged while it is being stored.

Products can become obsolescent while they are being stored. Fashion may change or commercial
rivals may introduce better products.

Stock is confusing. Large piles of inventory around the place need to be managed. They need to
be counted, looked after and so on.

The objectives of inventory planning and control

Generally the operations objectives of managing the companys inventories include the
following.

Quality products need to be maintained in as good a condition as possible while they are being
stored. For perishable products this means not storing them for very long.

Speed inventories must be in the right place to ensure fast response to customer requests.

Dependability the right stock must be in the right place at the right time to satisfy customer
demand. There is no point having the wrong products in stock.

Flexibility stock should be managed to allow the operation to be flexible. For example, that
may mean keeping sufficient stock to allow the operations processes to switch to producing
something else and yet being able to satisfy customers during that period from existing stock
levels.

Cost if possible the total cost of managing stock levels should be minimised. This is the
objective of the various quantitative models covered in the chapter.

Stock sometimes has unexpected advantages

In some organisations stock may increase in value while it is being kept. For example the two
photographs on page 378 give examples of the value-adding characteristic of stock. In the first one wine
is being matured. When it is first harvested the wine is of relatively low value. Keeping it in special casks
under the right conditions enhances its value considerably. Similarly the computer monitors illustrated are
increasing in value in so much as the ones which are likely to fail early in their life are being identified.
They will therefore not be shipped to customers and fail in use, which could damage the companys
reputation. Another example is where a company deliberately purchases more stock than it needs because
it feels the availability of the material or the price of the material is likely to change. Of course this is
risky. Many companies have suffered severely by speculative purchasing of this type to avoid price
increases only to see the prices drop.

What Are the Benefits of Inventory Planning & Control?

Inventory planning and control are functions relating to inventory management. Business owners pay close attention
to inventory as it usually represents the second largest expense in their businesses. Inventory planning includes
creating forecasts to determine how much inventory should be on hand to meet consumer demand. Inventory control
is the process by which managers count and maintain inventory items in the business.

Facts
Business owners usually create internal policies and procedures for inventory planning and control. Managers and
employees must follow these policies and procedures when handling the companys inventory. Policies and
procedures outline who can order inventory, how inventory flows through the company, accounting policies for
valuing inventory and procedures to deal with obsolete goods. Inventory planning and control has several benefits
for companies who derive the majority of their revenue sales from inventory.

Better Cash Flow

Inventory planning and control can help companies manage cash flow. Small businesses do not have large capital
balances for purchasing copious amounts of inventory. Business owners implement policies and procedures to limit
the amount of money spent on inventory. Cash flow improvements also come from purchasing the lowest cost
inventory available in the business environment. Not only does low-cost inventory save the company money, but it
also allows companies to develop a cost advantage in the economic market.

Higher Profits
Business owners can use inventory planning and control to generate higher profits. Purchasing the right type of
inventory to meet consumer demand often leads to higher business profits. Companies who sell through their entire
inventory multiple times each year also increases business profits. Inventory planning and control procedures can
also limit the amount of obsolete inventory in the company. Obsolete inventory must be disposed of and written off
by the company. Writing off obsolete inventory creates a loss on the income statement.

Limits Abuse
Inventory policies and procedures prevent employee abuse of inventory. Loose work environments can allow
employees to steal inventory items for personal use. Stolen inventory results in a financial loss for the company.
Employees can also use a companys inventory items in the workplace for personal reasons. Previously used
inventory may be unsellable depending on the companys operating industry. Proper employee behavior is a
significant factor relating to inventory cash flow and profitability.

Considerations
Business owners should consider implementing business technology to help manage inventory. Business and
accounting software provides business owners with electronic methods to order, receive, manage and sell inventory.
Technology usually helps business owners spend less time on inventory planning and control functions. Spending
less time on these back office functions allows business owners to remain at the forefront of business sales in
increasing their companys profitability.

UNIT-2
PRODUCT DEVELOPMENT PROCESS
Product Development
The development of competitive new products is a prerequisite for many companies'
success. Product development does not necessarily mean discovering revolutionary new
inventions, nor does it just involve re-vamping old solutions. A successful product often
results from thinking along new lines, free from conventional approaches and traditional
choices of materials and designs.
Today, the word product can have many different meanings. Here, we will be using the
term in the sense of a mechanical product. To a car salesman, a car is the product. But a
car consists of a number of components which are often supplied by independent
manufacturers. To an engine supplier, an engine is the product. To take this analogy one
step further, an engine is also comprised of a number of different components, all of
which may be viewed as separate products.
The task of developing a new product and, to an even greater extent, the task of
designing a new product, may rightfully be called "creating" a product. Each individual
step of the process has to be examined and approached as though it were a "development
project" in its own right, whether we look at the car as a whole or at one of thecomponents used
to make it.

New Product Development

Development of original products, product improvements, product

modifications, and new brands through the firms own R & D efforts.
New

products can be obtained via acquisition or development.

New

products suffer from high failure rates.

Several reasons account for failure.

THE EIGHT STAGES

1. Idea Generation is often called the "NPD" of the NPD process.[1]

Ideas for new products can be obtained from basic research using a SWOT
analysis (Strengths, Weaknesses, Opportunities & Threats). Market and consumer
trends,

company's R&D department,

competitors,

focus

groups,

employees,

salespeople, corporate spies, trade shows, or ethnographic discovery methods

(searching for user patterns and habits) may also be used to get an insight into new
product lines or product features.

Lots of ideas are generated about the new product. Out of these ideas many are
implemented. The ideas are generated in many forms. Many reasons are responsible
for generation of an idea.

Idea Generation or Brainstorming of new product, service, or store concepts - idea

generation techniques can begin when you have done your OPPORTUNITY
ANALYSIS to support your ideas in the Idea Screening Phase (shown in the next
development step).

2. Idea Screening

The object is to eliminate unsound concepts prior to devoting resources to them.

The screeners should ask several questions:

Will the customer in the target market benefit from the product?

What is the size and growth forecasts of the market segment / target
market?

What is the current or expected competitive pressure for the product idea?

What are the industry sales and market trends the product idea is based
on?

Is it technically feasible to manufacture the product?

Will the product be profitable when manufactured and delivered to the

customer at the target price?

3. Concept Development and Testing

Develop the marketing and engineering details

Investigate intellectual property issues and search patent databases

Who is the target market and who is the decision maker in the purchasing
process?

What product features must the product incorporate?

What benefits will the product provide?

How will consumers react to the product?

How will the product be produced most cost effectively?

Prove feasibility through virtual computer aided rendering and rapid

prototyping

What will it cost to produce it?

Testing the Concept may involve asking a number of prospective customers to

evaluate the idea.

4. Business Analysis

Estimate likely selling price based upon competition and customer feedback

Estimate sales volume based upon size of market and such tools as the FourtWoodlock equation

Estimate profitability and break-even point

5. Beta Testing and Market Testing

Produce a physical prototype or mock-up

Test the product (and its packaging) in typical usage situations

Conduct focus group customer interviews or introduce at trade show

Make adjustments where necessary

Produce an initial run of the product and sell it in a test market area to determine
customer acceptance

6. Technical Implementation

New program initiation

Finalize Quality management system

Resource estimation

Requirement publication

Publish technical communications such as data sheets

Engineering operations planning

Department scheduling

Supplier collaboration

Logistics plan

Resource plan publication

Program review and monitoring

Contingencies - what-if planning

7. Commercialization (often considered post-NPD)

Launch the product

Produce and place advertisements and other promotions

Fill the distribution pipeline with product

Critical path analysis is most useful at this stage

8. New Product Pricing

Impact of new product on the entire product portfolio

Value Analysis (internal & external)

Competition and alternative competitive technologies

Differing value segments (price, value and need)

Product Costs (fixed & variable)

Forecast of unit volumes, revenue, and profit

CONCURRENT ENGINEERING
What is Concurrent Engineering?
Concurrent engineering, also known as simultaneous engineering, is a method of designing and
developing products, in which the different stages run simultaneously, rather than consecutively.
It decreases product development time and also the time to market, leading to improved
productivity and reduced costs.
Concurrent Engineering is a long term business strategy, with long term benefits to business.
Though initial implementation can be challenging, the competitive advantage means it is
beneficial in the long term. It removes the need to have multiple design reworks, by creating an
environment for designing a product right the first time round.
Why do companies adopt concurrent engineering methods?

The notable business benefits of concurrent engineering make it a compelling strategy to adopt.
Introducing concurrent engineering can lead to:
Competitive Advantage- reduction in time to market means that businesses gain an edge over
their competitors.
Enhanced Productivity- earlier discoveries of design problems means potential issues can be
corrected soon, rather than at a later stage in the development process.
Decrease Design and Development Time- make products which match their customers needs,
in less time and at a reduced cost.

concurrent Engineering - which is sometimes called Simultaneous Engineering or

Integrated Product Development (IPD) - was defined by the Institute for Defense
Analysis (IDA) in its December 1988 report 'The Role of Concurrent Engineering in
Weapons System Acquisition' as a systematic approach to the integrated, concurrent
design of products and their related processes, including manufacture and support.
This approach is intended to cause the developers, from the outset, to consider all
elements of the product life cycle from conception through disposal, including quality,
cost, schedule, and user requirements.

Concurrent Engineering is not a quick fix for a company's problems and it's not just a
way to improve Engineering performance. It's a business strategy that addresses
important company resources. The major objective this business strategy aims to
achieve is improved product development performance. Concurrent Engineering is a
long-term strategy, and it should be considered only by organizations willing to make
up front investments and then wait several years for long-term benefits. It involves
major organizational and cultural change.

The problems with product development performance that Concurrent Engineering

aims to overcome are those of the traditional serial product development process in
which people from different departments work one after the other on successive
phases of development.

In traditional serial development, the product is first completely defined by the design
engineering department, after which the manufacturing process is defined by the
manufacturing engineering department, etc. Usually this is a slow, costly and lowquality approach, leading to a lot of engineering changes, production problems,
product introduction delays, and a product that is less competitive than desired.
Concurrent Engineering brings together multidisciplinary teams, in which product
developers from different functions work together and in parallel from the start of a
project with the intention of getting things right as quickly as possible, and as early as
possible.

he implementation of Concurrent Engineering addresses three main areas: people,

process, and technology. It involves major organizational changes because it requires
the integration of people, business methods, and technology and is dependent on
cross-functional working and teamwork rather than the traditional hierarchical
organization. One of the primary people issues is the formation of teams.
Collaboration rather than individual effort is standard, and shared information is the
key to success. Team members must commit to working cross-functionally, be
collaborative, and constantly think and learn. The role of the leader is to supply the
basic foundation and support for change, rather than to tell the other team members
what to do. Training addressed at getting people to work together in teams plays an
important role in the successful implementation of Concurrent Engineering.
An example of the use of Concurrent Engineering can be found in General Electric's
Aircraft Engines Division's approach for the development of the engine for the new
F/A-18E/F. It used several collocated, multi-functional design and development teams
to merge the design and manufacturing process. The teams achieved 20% to 60%
reductions in design and procurement cycle times during the full-scale component
tests which preceded full engine testing. Problems surfaced earlier and were dealt with
more efficiently than they would have been with the traditional development process.
Cycle times in the design and fabrication of some components have dropped from an
estimated 22 weeks to 3 weeks.
Another example concerns Boeing's Ballistic Systems Division where Concurrent
Engineering was used in 1988 to develop a mobile launcher for the MX missile and
was able to reduce design time by 40% and cost by 10% in building the prototype.
Polaroid Corp.'s Captiva instant camera is also the result of a Concurrent Engineering
approach, as a result of which Polaroid was able to make literally hundreds of
working prototypes. Throughout the process, development was handled by crossfunctional teams.
To be successful with Concurrent Engineering, companies should initially:
compare themselves to their best competitors (i.e. benchmark)
develop metrics
identify potential performance improvements and targets

 develop a clear Vision of the future environment

get top management support
get cross-functional endorsement
develop a clear Strategy to attain the envisioned environment
get top management support
get cross-functional endorsement
develop a detailed implementation plan
get top management support
get cross-functional endorsement
Concurrent Engineering is a business strategy, not a quick fix. It will take many years
to implement. If management doesn't have the time or budget to go through the above
steps, then it is unlikely that Concurrent Engineering will be implemented.
Many companies have problems introducing Concurrent Engineering. Warning signs
include:
unwillingness to institutionalize Concurrent Engineering
maintenance of traditional functional reward systems
maintenance of traditional reporting lines
no training in teamwork
unrealistic schedules
no changes in relationships with vendors
a focus on computerization rather than process improvement.

QUALITY FUNCTION DEPLOYMENT

Quality Function Deployment (QFD) is a structured approach to defining customer needs or
requirements and translating them into specific plans to produce products to meet those needs.
The "voice of the customer" is the term to describe these stated and unstated customer needs or
requirements.
The voice of the customer is captured in a variety of ways: direct discussion or
interviews, surveys, focus groups, customer specifications, observation, warranty data, field
reports, etc. This understanding of the customer needs is then summarized in a product planning
matrix or "house of quality". These matrices are used to translate higher level "what's" or needs
into lower level "how's" - product requirements or technical characteristics to satisfy these needs.

While the Quality Function Deployment matrices are a good communication tool at each step in
the process, the matrices are the means and not the end. The real value is in the process of
communicating and decision-making with QFD. QFD is oriented toward involving a team of
people representing the various functional departments that have involvement in product
development: Marketing, Design Engineering, Quality Assurance,
Manufacturing Engineering, Test Engineering, Finance, Product Support, etc.

Manufacturing/

The aim of any organization is to produce quality products and services. In today's competitive
environment, quality is a requirement that customers expect. Quality function deployment (QFD)
is a critical aspect of the quality control policy of an organization. It is a process for translating
customer requirements into manufacturing standards. QFD is used for new product development.
It is very powerful as it incorporates customer needs into the design parameters so the final
product
will
be
better
designed
to
meet
customer
expectations.

Features of QFD

basis of QFD is customer requirements. The customer's requirements dictate various

business functions like production, manufacturing marketing and sales. The essence of QFD is
The

first to break down the product into parameters that will be viewed by potential customers as
most beneficial, influencing them to purchase. Attention is paid to the quality cues, that is, those
features of the product that communicate its overall level of quality. These quality cues are
incorporated as very precise engineering standards that provide measurements for implementing
and monitoring the manufacturing process.

A Customer-driven Process
The main advantage of QFD is that it is a customer- and not technology-driven process.
Allowing only technological innovations to dictate new product policies is not always beneficial.
For instance, technology enables smaller keypads in mobile phones, making the end product
more compact. However, potential phone users require a certain level of keypad size to be able to
use their phone effectively. QFD helps you determine exactly what your customer wants and how
this input can be used in new product development.

DESIGN FOR MANUFACTURABILITY

Design for manufacturability (also sometimes known as design for manufacturing or DFM) is the
general engineering art of designing products in such a way that they are easy to manufacture.
The basic idea exists in almost all engineering disciplines, but of course the details differ widely
depending on the manufacturing technology. This design practice not only focuses on the design
aspect of a part but also on the producibility. In simple language it means relative ease to
manufacture a product, part or assembly. DFM describes the process of designing or engineering
a product in order to facilitate the manufacturing process in order to reduce its manufacturing
costs. DFM will allow potential problems to be fixed in the design phase which is the least
expensive place to address them. The design of the component can have an enormous effect on
the cost of manufacturing. Other factors may affect the manufacturability such as the type of raw
material, the form of the raw material, dimensional tolerances, and secondary processing such as
finishing.
The design stage is very important in product design. Most of the product lifecycle costs are
committed at design stage. The product design is not just based on good design but it should be
possible to produce by manufacturing as well. Often an otherwise good design is difficult or
impossible to produce. Typically a design engineer will create a model or design and send it to
manufacturing for review and invite feedback. This process is called a design review. If this
process is not followed diligently, the product may fail at the manufacturing stage.
If these DFM guidelines are not followed, it will result in iterative design, loss of manufacturing
time and overall resulting in longer time to market. Hence many organizations have adopted
concept of Design for Manufacturing.

Design for assembly

Design for assembly (DFA) is a process by which products are designed with ease of assembly
in mind. If a product contains fewer parts it will take less time to assemble, thereby reducing
assembly costs. In addition, if the parts are provided with features which make it easier to grasp,
move, orient and insert them, this will also reduce assembly time and assembly costs. The
reduction of the number of parts in an assembly has the added benefit of generally reducing the
total cost of parts in the assembly. This is usually where the major cost benefits of the application
of design for assembly occur.

Quality by Design
Quality by Design (QbD) is a concept first outlined by quality expert Joseph M.
Juran in publications, most notably Juran on Quality by Design Juran believed that
quality could be planned, and that most quality crises and problems relate to the
way in which quality was planned.
While Quality by Design principles have been used to advance product and process
quality in every industry, and particularly the automotive industry, they have most
recently been adopted by the U.S. Food and Drug Administration (FDA) as a
vehicle for the transformation of how drugs are discovered, developed, and
commercially manufactured.

Mass customization
Mass customization is enabling a customer to decide the exact specification or
personal attributes of a product or service, at or after the time of purchase, and
have that product or service supplied to them at a price close to that for an ordinary
mass produced alternative, or have this exact requirement supplied using the
vendor's knowledge of the individual customer's needs".

the process of delivering wide-market goods and services that are modified to satisfy a specific
customer need. Mass customization is a marketing and manufacturing technique that combines
the flexibility and personalization of "custom-made" with the low unit costs associated with mass
production. Many applications of mass customization include software-based product
configurations that allow end-users to add and/or change certain functionalities of a core product.
Sometimes called "made to order" or "built to order."

Describes four types of mass customization:

1. Collaborative Customization - where companies work in partnership with individual
customers to develop precise product offerings to best suit each customer's needs.
2. Adaptive Customization - where companies produce standardized products that are
customizable
by
the
end-user.
3. Transparent Customization - where companies provide unique products to individual
customers
without
overtly
stating
the
products
are
customized.
4.

Cosmetic Customization - where companies produce standardized products but market the
products in different ways to various customers.

PROCESS SELECTION AND FACILITIES LAYOUT

Process Selection is basically the way goods or services are made or delivered, which
influences numerous aspects of an organization, including capacity planning, layout of facilities,
equipment and design of work systems. Process selection is primarily used during the planning
of new products or services that is subject to technological advances and competition. Process
selection is dependent on the company's process strategy, which has two main components:
capital intensity and process flexibility..
Facility Layout is simply the way a facility is arranged in order to maximize processes that are
not only efficient but effective towards the overall organizational goal. It is also dependent on
process selection.
Process selection influences

Capacity planning

Layout of facilities

Equipment

Design of work systems

Capacity is significantly impacted by

process selection and facility layout.

LINE BALANCING
Line Balancing is the process of assigning tasks to workstations in such a way that
the workstations have approximately equal time requirements.
The process of deciding how to assign tasks to workstations is referred to as line
balancing. The goal of line balancing is to obtain task groupings that represent
approximately equal time requirements.
Line balancing involves assigning tasks to workstations. Usually, each workstation has
one worker who handles all of the tasks at that station, although an option is to have
several workers at a single workstation. For purposes of illustration, however, all of the
examples and problems in this chapter have workstations with one worker. A manager
could decide to use anywhere from one to five workstations to handle five tasks. With
one workstation, all tasks would be done at that station; with five stations, for example,

one task would be assigned to each station. If two, three, or four workstations are used,
some or all of the stations will have multiple tasks assigned to them. How does a manager
decide how many stations to use?

work measurement is the application of techniques designed to establish the time for an average
worker to carry out a specified manufacturing task at a defined level of performance.[1] It is
concerned with the length of time it takes to complete a work task assigned to a specific job .
Work measurement helps to uncover non-standardization that exist in the workplace and nonvalue adding activities and waste. A work has to be measured for the following reasons:
1. To discover and eliminate lost or ineffective time.
2. To establish standard times for performance measurement.
3. To measure performance against realistic expectations.
4. To set operating goals and objectives.

Quality
In manufacturing, a measure of excellence or a state of being free from defects, deficiencies and
significant variations. It is brought about by strict and consistent commitment to certain
standards that achieve uniformity of a product in order to satisfy specific customer or user
requirements. ISO 8402-1986 standard defines quality as "the totality of features and
characteristics of a product or service that bears its ability to satisfy stated or implied needs." If
an automobile company finds a defect in one of their cars and makes a product recall, customer
reliability and therefore production will decrease because trust will be lost in the car's quality.

'Quality Management'
The act of overseeing all activities and tasks needed to maintain a desired level of excellence.
This includes creating and implementing quality planning and assurance, as well as quality
control and quality improvement. It is also referred to as total quality management (TQM).
While quality control and quality assurance departments have been around for a long time, the
concept of quality management is relatively new. In a sense, it is a "first cause" approach to
quality assurance, as it approaches the issue of quality from many different angles
Management activities and functions involved in determination of quality policy and its
implementation through means such as quality planning and quality assurance (including quality
control).
http://asq.org/learn-about-quality/cost-of-quality/overview/overview.html
http://friendsnrc.org/continuous-quality-improvement
http://www.health.gov.au/internet/publications/publishing.nsf/Content/oatish-accreditationmanual_toc~sn1%3Aterms_definitions~cont-qty-improvement

What is ISO 9000?

ISO 9000 is a series of standards that has been deemed to represent good quality management
practices by international consensus, consisting of a set of standards and guidelines related to
quality management systems.

It is designed to help businesses ensure that they are meeting the needs of their customers and
shareholders. The system is published by the International Organization of Standards (ISO), and
deals with the fundamentals of quality management as well as the eight management principles
on which they are based.
ISO 9000 was first published in 1987, although its roots go back to the MIL-Q-9858 United
States Department of Defense standard that was published in 1959. ISO 9000 is based on the
standards put forth by the British Standards Institution (BSI) that were presented to the ISO
committee in 1979. MIL-Q-985 was revised into a NATO AQAP standard in 1969, which were
then revised into the BS 5179 standard in 1974, which were once again revised to become the BS
5750 standard submitted to ISO to become ISO 9000.
The ISO 9000 series consists of the following standards: ISO 9000, ISO 9001, and ISO 9004.
They are used when necessary with the ISO 10000 series of guidelines, as well as ISO 16949 and
ISO 19011, specific guidelines for the automotive and environmental industries respectively. In
its latest edition, ISO 9000 is ISO 9000:2005, and provides the fundamentals and establishes the
vocabulary used in the remainder of the ISO 9000 series.
The main standard, ISO 9001:2008, lists the requirements for a QMS, and is the basis for all of
the other ISO standards and guidelines in the 9000 and 10000 series. It is the only auditable
standard in the series. ISO 9004:2000, the latest edition of that standard, provides guidelines for
performance improvements in a wider spectrum than does ISO 9001 for sustained success in
quality systems.
The ISO 9001:2008 standard consists of eight sections, with the last five being specific to the
establishment of a quality management system that is sustainable and auditable. Specifically,
they are:

Chapter 4: Overview of Systemic Requirements This is a general introduction to the

requirements of Chapters 5 through 8, and establishes the baseline for developing a
quality management system based on ISO 9000:2008. This section requires a business to
develop and maintain a quality manual, control quality documents, and maintain all
records related to quality. It states that your procedures manual and documents must
reflect what the business is doing and the manner in which it is to be accomplished.

Chapter 5: Overview of Management Requirements This section defines the six sets
of requirements that the management of a business must follow. It states that management
must satisfy customers, support quality requirements, establish the policy for quality
within an organization, perform periodic reviews, carry out the quality policy laid out,
and control the quality system.

Chapter 6: Overview of Resource Requirements Chapter 6 requires the recognition

and establishment of quality resources within the business, including personnel, work
environments, and infrastructure. Personnel placed in quality roles must be competent.
Work environments must be fit to ensure a quality product is built. Infrastructure to fit the
needs of the quality program must exist and maintained.

Chapter 7: Overview of Realization Requirements This section of ISO 9001:2008

requires a business to recognize the processes that bring a product or service into being. A
business must control customer processes, planning processes, and production processes.
The quality aspects of the businesss product must be identified and controlled, and
customer communication processes must be developed and controlled. Product design
and development outputs must be controlled, and must be approved prior to
implementation. These outputs must then be used to control product quality. Chapter 7
also establishes the need for validation, review, and design of a process, as well as the
need to manage changes required of the product.

Chapter 8: Overview of Remedial Requirements This final section requires that a

business execute remedial actions as necessary based on a plan devised and provided by
the organization. This includes the measurement and monitoring of processes used to
demonstrate conformance with the ISO standard, and improve the quality of the
processes and product. Chapter 8 sets forth requirements for the control of nonconforming products, including records establishment and maintenance, controlling their
use, and verifying that the non-conformances have been corrected. This chapter also lays
out the requirements of a continuous quality improvement process to prevent future nonconformities from occurring.

Presently, there are over 350,000 companies in over 100 different countries that are certified in
the ISO 9000 process.
Organizations who invest the time and effort to become certified under the ISO 9000 process
demonstrate to the business community that they are committed to creating their product based
on a set of internationally-accepted standards.
Certification involves creating a QMS based on the criteria set forth in ISO 9001:2008, and then
agreeing to commit to audits, both internal and external to the organization, to ensure that they
are maintaining those standards.
ISO 9000 certification helps a business not only helps the organization develop and maintain an
actionable QMS, but can also help it market that quality commitment to other businesses and
consumers to expand its presence in its market niche.

ISO 9000 - Quality management

The ISO 9000 family addresses various aspects of quality management and contains some of
ISOs best known standards. The standards provide guidance and tools for companies and
organizations who want to ensure that their products and services consistently meet customers
requirements, and that quality is consistently improved.
Standards in the ISO 9000 family include:

ISO 9001:2008 - sets out the requirements of a quality management system

ISO 9000:2005 - covers the basic concepts and language

ISO 9004:2009 - focuses on how to make a quality management system more efficient
and effective

ISO 19011:2011 - sets out guidance on internal and external audits of quality
management systems.

ISO 14000 - Environmental management

The ISO 14000 family addresses various aspects of environmental management. It provides
practical tools for companies and organizations looking to identify and control their
environmental impact and constantly improve their environmental performance. ISO 14001:2004
and ISO 14004:2004 focus on environmental management systems. The other standards in the
family focus on specific environmental aspects such as life cycle analysis, communication and
auditing.
ISO 14000 is a family of standards related to environmental management that exists to help
organizations (a) minimize how their operations (processes, etc.) negatively affect the
environment (i.e., cause adverse changes to air, water, or land); (b) comply with applicable laws,
regulations, and other environmentally oriented requirements, and (c) continually improve in the
above.
ISO 14000 is similar to ISO 9000 quality management in that both pertain to the process of how
a product is produced, rather than to the product itself. As with ISO 9000, certification is
performed by third-party organizations rather than being awarded by ISO directly. The ISO
19011 audit standard applies when auditing for both 9000 and 14000 compliance at once.
The requirements of ISO 14001 are an integral part of the European Unions Eco-Management
and Audit Scheme (EMAS). EMASs structure and material requirements are more demanding,
mainly concerning performance improvement, legal compliance, and reporting duties

http://novellaqalive2.mhhe.com/sites/dl/free/0070601690/27158
1/ISO14000.pdf
http://en.wikipedia.org/wiki/Malcolm_Baldrige_National_Qualit
y_Award