What and how many to produce

Computer technology assists the manager in product design:

Design for manufacture (DFM): One of the most promising trends in this area is design for manufacture (DEM), which streamlines design to simply assembly. Bell labs successfully used this technique to design a new digital lop carrier, a device that transmits phone signals through fiber optic cable. Instead of ironing out production problems on the factory floor, design engineers and production engineers worked together to select plastics that could stand up to the heat of manufacture and to identity and eliminate potentially costly engineering mistakes before production began. This technique is also used at Boeing Corporation, where cross functional “design build” teams bring together people from design engineering and manufacturing long before an aircraft goes into production.

CAD: At one time product design was a time consuming multi-step process that involved the creation and testing of prototypes, or working models. Today this process is faster and cheaper thanks to computer aided design (CAD), which allows product design, drafting, and simulated testing to be performed interactively on a computer.

Because much of a product’s cost is determined by its design, most manufacturers are turning to simultaneous or concurrent engineering, where design and manufacturing engineers work together to simplify a design. General Motors now uses CAD to design the metal stamping dies for its new cars. Car bodies are made from sheet metal that is stamped in large presses that use different dies, or stamping forms, to bend the metal into hoods, fenders, and so on. These dies must be carefully designed to prevent wrinkling or tearing the sheet metal during the process. With CAD, GM designers can create and test computer models of proposed dies early in the design process. Before CAD, it took about 27 months to create the tooling for new car models. With CAD, GM officials estimated, the time has been cut by up to 7 months.

The benefits of CAD do not stop there. Because the design is stored in the computer system, it can be “exploded” to create a bill of materials, a listing of the types and number of parts needed to make each unit. As we will see later, this information is crucial for ensuring that the organization has adequate supplies of the right materials on hand when needed.

How many to produce:

The second decision in designing the operations system is how many products or how much service will be produced. This is called capacity planning, a process of forecasting demand and then deciding what resources will be needed to meet that demand.

Long range technological forecasting which can extend five or ten years into the future, may be needed to anticipate or forecast future capacity demands. Unforeseeable events new technological discoveries, wars, recessions, embargoes, and the effects of an unknown inflation rate cannot always be factored into forecasting equations.

Capacity planning at Boeing is an excellent example. In the commercial aviation marketplace, passenger airline executives place orders for aircraft to be delivered well in to the future say, 5 years. As a consequence, manufacturers such as Boeing build what is known as an order backlog. Boeing’s order backlog totalled nearly $100 billion in future revenues! But backlog orders are not always firm. Passenger airlines have suffered major financial setbacks in recent years, causing some to cancel some, or all, of their aircraft orders. So, long range forecasting at Boeing must address, among other factors, backlog “stability”.

Completed forecasts must be translated in to capacity requirements. This implies that existing capacity must be measured. In some cases, measuring capacity is easy enough. For example, gauging the number of tons of steel produced by a steel mill is not difficult. For a system with a diverse and less readily classified product or service, such as a legal office, measuring capacity is less straightforward. Input measures are generally used for such systems; that is, capacity may be defined as the number of lawyers in the legal office. Ernst & Young managers deal with a kind of capacity issue when they arrange hoteling. After all, Ernst & Young revenues come from fees charged to clients. Hoteling is a way to increase the public accounting firm’s capacity by intense use of the available “production facilities” by Ernst & Young accountants. At Boeing, executives like order backlogs, because they are then able to maintain steady capacity and production levels.