SYSTEM DESIGN

 CHAPTER # 04.
 Operation management 7th ed.
 BY Russell And Taylor.
SYSTEM DESIGN

 New products and services are the lifeblood of an organization.

 Designs:
• can provide a competitive edge by
 bringing new ideas to the market quickly,
 doing a better job of satisfying customer needs,
 or being easier to manufacture, use, and repair.
 Design capitalizes on a firm’s core competencies.
THE DESIGN PROCESS

 Design has a tremendous impact on the quality of a product or

service.
 Poor designs may not meet customer needs or may be so
difficult to make that quality suffers.
 Costly designs overpriced products loose market
share.
 If the design process is too lengthy, a competitor may capture
the market by being the first to introduce new products,
services, or features.
 But, too much speed may also result in design flaw and poor
performance.
THE DESIGN PROCESS

 An effective design process:

 Matches product or service characteristics with customer
requirements,
 Ensures that customer requirements are met in the simplest
and least costly manner,
 Reduces the time required to design a new product or service,
and
 Minimizes the revisions necessary to make a design workable.
STEPS IN DESIGN PROCESS

 IDEA GENERATION
 Explain from diagram on page 158
 Perceptual map: visual method of comparing customer perceptions of
different products or services.
 Benchmarking: comparing a product or process against the best-in-class
product.
 Reverse engineering: carefully dismantling a competitor’s product to
improve your own product.
 Feasibility study: A feasibility study consists of:
 A market analysis; (evaluate customer surveys, interviews, focus groups,
or market tests)
STEPS IN DESIGN PROCESS

 An economic analysis; it involves

o estimates of production and development costs and compares them to
estimated sales volume.
o A price range for the product is discussed.
o Quantitative techniques such as:
a) cost/benefit analysis,
b) decision theory,
c) net present value, or
d) internal rate of return are commonly used to evaluate the profit potential
of the project.
o Risk should also be considered.
STEPS IN DESIGN PROCESS

 A technical/strategic analysis.
 answer such questions as:
 Does the new product require new technology?
 Is the risk or capital investment excessive?
 Does the company have sufficient labor and management skills to support
the required technology?
 Is sufficient capacity available for production?
 Does the new product provide a competitive advantage for the company?
Etc.
 Performance specifications are written for product concepts that pass the
feasibility study and are approved for development. They describe the
function of the product
STEPS IN DESIGN PROCESS

 RAPID PROTOTYPING AND CONCURRENT DESIGN

Designers take
physical
general
transform product or
performance
service
specifications

The process involves building a prototype, testing the

prototype, revising the design, retesting, and so on until a
viable design is determined.
RAPID PROTOTYPING AND CONCURRENT DESIGN

 Rapid prototyping, as the name implies, creates preliminary design

models that are quickly tested and either discarded (as fast failures) or
further refined.
 Design decisions must be performed concurrently at the rapid prototype
stage.
 Design decisions overlap and early changes in the design are less
disruptive than those made late in the process.
 Effective designs, as shown in Figure 4.3, break down the series of walls
between functional areas and involve persons from different backgrounds
and areas of expertise early in the design process. This process of jointly
and iteratively developing a design is called concurrent design. Concurrent
design improves both the quality of the design and the time-to-market.
(fig 4.3 page 161)
RAPID PROTOTYPING AND CONCURRENT DESIGN

 FORM DESIGN
 Form design refers to the physical appearance of a product—its shape,
color, size, and style.
 Aesthetics such as image, market appeal, and personal identification are
also part of form design.
 FUNCTIONAL DESIGN
 Functional design is concerned with how the product performs. It seeks to
meet the performance specifications of fitness for use by the customer.
 Three performance characteristics considered during this phase of design
are reliability, maintainability, and usability.
RAPID PROTOTYPING AND CONCURRENT DESIGN

 RELIABILITY
 The probability that a product will perform its intended function for a
specified period of time.
 You may be familiar with reliability information from product warranties.
 A product or system’s reliability is a function of the reliabilities of its
component parts and how the parts are arranged. If all parts must function
for the product or system to operate, then the system reliability is the
product of the component part reliabilities.
RAPID PROTOTYPING AND CONCURRENT DESIGN

 Rs = (R1)(R2) . . . (Rn), where Rn is the reliability of the nth component.

 For example, if two component parts are required and each has a
reliability of 0.90, the reliability of the system is 0.90 0.90 0.81, or 81%.
The system can be visualized as a series of components as follows:

 Diagram in book at page 163

RELIABILITY

 Note that the system reliability of 0.81 is considerably less than the
component reliabilities of 0.90.
 As the number of serial components increases, system reliability will
continue to deteriorate.
 This makes a good argument for simple designs with fewer components!
Failure of some components in a system is more critical than others—the
brakes on a car, for instance.
 To increase the reliability of individual parts (and thus the system as a
whole), redundant parts can be built in to back up a failure.
 Providing emergency brakes for a car is an example.
 Consider the following redundant design with R1 representing the reliability
of the original component and R2 the reliability of the backup component.
 Example 4.1 page 164
Maintainability

 Maintainability (also called serviceability) refers to the ease and/or cost

with which a product or service is maintained or repaired.
 Instructions that teach consumers how to anticipate malfunctions and
correct them themselves can be included with the product.
 Specifying regular maintenance schedules is part of maintainability, as is
proper planning for the availability of critical replacement parts.
Maintainability

 One quantitative measure of maintainability is mean time to repair (MTTR).

Combined with the reliability measure of MTBF, we can calculate the average
availability or “uptime” of a system as
 System Availability, SA =MTBF/ MTBF + MTTR
 Example 4.2
 USABILITY
 Usability is what makes a product or service easy to use and a good fit for its
targeted customer.
 It is a combination of factors that affect the user’s experience with a product,
including;
 ease of learning,
 ease of use, and
 ease of remembering how to use, frequency and severity of errors, and user
satisfaction with the experience.
RAPID PROTOTYPING AND CONCURRENT DESIGN

 PRODUCTION DESIGN
 Production design is concerned with how the product will be made.
 Designs that are difficult to make often result in poor-quality products.
 Engineers tend to overdesign products, with too many features, options,
and parts.
 Lack of knowledge of manufacturing capabilities can result in designs that
are impossible to make or require skills and resources not currently
available.
RAPID PROTOTYPING AND CONCURRENT DESIGN

 Recommended approaches to production design include simplification,

standardization, modularity, and design for manufacture.
 Simplification: reduces the number of parts, assemblies, or options in a
product.
 Standardization: Using standard parts in a product or throughout many
products saves design time, tooling costs, and production worries.
 Modular design: combines standardized building blocks, or modules, to
create unique finished products.
 Last two steps from diagram 4.1
Strategic Capacity Planning

 Goal
• To achieve a match between the long-term supply capabilities of an
organization and the predicted level of long-term demand.
• Overcapacity: operating costs that are too high
• Undercapacity: strained resources and possible loss of customers
Strategic Capacity Planning

 Capacity decisions
 1. impact the ability of the organization to meet future demands
 2. affect operating costs
 3. are a major determinant of initial cost
 4. often involve long-term commitment of resources.
 Capacity decisions are important b/c it shows Balance between level of
output and operating cost.
Capacity Planning

 Capacity
◦ The upper limit or ceiling on the load that an operating unit can handle
◦ Capacity needs include
 Equipment
 Space
 Employee skills

 Capacity planning involves long-term and short term considerations. 

Types of capacity

 Common strategies include:

 leading capacity, where capacity is increased to meet expected demand,
and 
 Following capacity, where companies wait for demand increases before
expanding capabilities.
 A third approach is tracking capacity which adds incremental capacity
over time to meet demand.
Capacity Planning Questions

 Key Questions:
◦ What kind of capacity is needed?
◦ How much is needed to match demand?
◦ When is it needed?
 Related Questions:
◦ How much will it cost?
◦ What are the potential benefits and risks?
◦ Are there sustainability issues?
◦ Should capacity be changed all at once, or through several smaller
changes
◦ Can the supply chain handle the necessary changes?

5-22
Student Slides
Steps in the Capacity Planning Process

 1. Estimate future capacity requirements

2. Evaluate existing capacity and facilities and identify gaps
3. Identify alternatives for meeting requirements
4. Conduct financial analyses of each alternative
5. Assess key qualitative issues for each alternative
6. Select the alternative to pursue that will be best in the long term
7. Implement the selected alternative
8. Monitor results
 Capacity

Design capacity
◦ Maximum output rate or service capacity an operation, process, or
facility is designed for
Effective capacity
◦ Design capacity minus allowances such as personal time, maintenance,
and scrap
Actual output
• Rate of output actually achieved
 cannot exceed effective capacity.

Student Slides 5-24

 Measuring System Effectiveness

 Actual output
◦ The rate of output actually achieved
◦ It cannot exceed effective capacity
 Efficiency
actual output
Efficiency 
effective capacity
Utilization actual output

Utilization 
design capacity

Measured as percentages

Student Slides 5-25

Example in Computing Efficiency and Utilization
Decision theory
 There are 4 basic elements in decision theory:
 Acts, events, outcomes, and payoffs.
 Acts are the actions being considered by the agent -in the example below,
taking the raincoat or not;
 Events are occurrences taking place outside the control of the agent (rain
or lack thereof);
 Outcomes are the result of the occurrence (or lack of it) of acts and events
(staying dry or not; being burdened by the raincoat or not);
 Payoffs are the values the decision maker is placing on the occurrences
(for example, how much being free of the nuisance of carrying an raincoat
is worth to one).
 Payoffs can be positive (staying dry) or negative (the raincoat nuisance). It
is often useful to represent a decision problem by a tree.
 In the above table, Square indicates a node in the tree where a
decision is made and a circle where events take place.
 Maximin (choose the alternative with the best of
the worst possible payoffs)
 Maximax (choose the alternative with the best
possible payoffs)
 Laplace (choose the alternative with the best
average payoff of any of the alternative)
 Minimax Regret (choose the alternative that has the
least of the worst regrets)
 Consider the following payoff matrix where acts are rows, events columns,
and the resulting squares contain the payoffs (outcomes are not represented
to avoid clutter).
 However, when the probabilities of events are available (that
is, in decision under risk) and the agent is indifferent to risk,
as when the payoffs involved are significant but not too
significant, the criterion usually put forth in decision theory is
that of the expected maximum payoff  (EMP), the counterpart
of the principle in gambling enjoining us to choose the bet
with the greatest expected value.  So, suppose that we could
provide the relevant probabilitis, as in the following matrix:
 Then, EMP would tell us to produce B, as the expected payoff
is the greatest.  Most business decisions fall into this
category.  For example, if a company makes dozens of
decisions with comparable payoffs every day, then EMP is the
best business strategy, as it is for a casino.
Lesson 9.1

Decision Theory with

Unknown State Probabilities
Decision Theory

•Most management decisions are

made in an environment of
uncertainty.
•Decision theory provides a orderly
way of choosing among several
alternative strategies when decisions
are made under uncertainty or risk.
Decision Theory

• Uncertainty exists when the

decision maker is unable to ascertain
or subjectively estimate the
probabilities of the various states of
nature.
• Risk exists when the decision maker
does not know with certainty the state
of nature, but the probabilities of
various outcomes is known.
 Payoff Matrix

States of Naturej
s1 s2 s3
a1 s4
Alternativesi

a2

a3
 Payoff Matrix

States of Naturej
s1 s2 s3
a1 c11
s4 c12 c13
Alternativesi c14
c21 c22 c23
a2
c24
c31 c32 c33
a3 c34
 Payoff Matrix

States of Naturej
s1 s2 s3
a1 c11
s4 c12 c13
Alternativesi c14
c21 c22 c23
a2
c24
c31 c32 c33
Cij
a 3 c 34 of state I under alternative j
is the consequence
 Home Health Example

Suppose a home health agency is considering adding

physical therapy (PT) services for its clients. There
are three ways to do this:
Option A: contract with an independent practitioner
at $60 per visit.
Option B: hire a staff PT at a monthly salary of $4000
plus $400/mo. for a leased car plus $7/visit for
supplies and travel.
Option C: independent practitioner at $35/visit but
pay for fringe benefits at $200/mo. and cover the car
and expenses as in Option B.
Source: Austin, CJ and Boxerman, SB, Quantitative Analysis for Health Services
Administration, AUPHA/Health Administration Press, Ann Arbor, Michigan, 1995
THE SERVICE DESIGN PROCESS

 The service concept defines the target customer and the

desired customer experience. It also defines how our service is
different from others and how it will compete in the
marketplace.
 A service package is created to meet customer needs. The
package consists of a mixture of physical items, sensual
benefits, and psychological benefits. For a restaurant the
physical items consist of the facility, food, drinks, tableware,
napkins, and other touchable commodities. The sensual
benefits include the taste and aroma of the food and the sights
and sounds of the people. Psychological benefits are rest and
relaxation, comfort, status, and a sense of well-being.
THE SERVICE DESIGN PROCESS

 Performance specifications outline expectations and requirements

for general and specific customers. Performance specifications are
converted into design specifications and, finally, delivery
specifications.
 Design specifications must describe the service in sufficient detail for
the desired service experience to be replicated for different
individuals at numerous locations.
 The specifications typically consist of activities to be performed, skill
requirements and guidelines for service providers, and cost and time
estimates.
 Delivery specifications outline the steps required in the work
process, including the work schedule, deliverables, and the locations
at which the work is to be performed
WAITING LINE ANALYSIS FOR SERVICE
IMPROVEMENT
 Waiting takes place in virtually every productive process or service.
 The reduction of waiting time is an important aspect of operations
management.
 Companies are able to reduce waiting time and provide faster
service by increasing their service capacity.
 But increasing capacity, the monetary cost also increased on the
firm, so a company must maintain a right balance in increasing
capacity and reducing the waiting time for the customers after
analysis.
 Waiting lines are analyzed with a set of mathematical formulas
which comprise a field of study called queuing theory.
 Mathematical formula are not pertinent to our understanding.