MODULE 2:

NEW PRODUCT DEVELOPMENT PROCESS

PRODUCT LIFE CYCLE
PRODUCT LIFE CYCLE AND PROFIT LOSS
INTRODUCTORY PHASE
 Because products in the introductory phase are still being
“finetuned” for the market, as are their production techniques,
they may warrant unusual expenditures for (1) research, (2)
product development, (3) process modification and enhancement,
and (4) supplier development.
 For example, when the iPhone was first introduced, the features
desired by the public were still being determined. At the same
time, operations managers were still groping for the best
manufacturing techniques.
GROWTH PHASE
 In the growth phase, product design has begun to stabilize, and
effective forecasting of capacity requirements is necessary.
 Adding capacity or enhancing existing capacity to accommodate
the increase in product demand may be necessary.
MATURITY PHASE
 By the time a product is mature, competitors are established.
 High volume, innovative production may be appropriate.

 Improved cost control, reduction in options, and a paring down of

the product line may be effective or necessary for profitability and
market share.
DECLINE PHASE
 Management may need to be ruthless with those products whose
life cycle is at an end.
 Dying products are typically poor products in which to invest
resources and managerial talent.
 Unless dying products make some unique contribution to the
firm’s reputation or its product line or can be sold with an
unusually high contribution, their production should be
terminated.
GENERATING NEW PRODUCTS
 Because products die; because products must
be weeded out and replaced; because firms
generate most of their revenue and profit
from new products—product selection,
definition, and
design take place on a continuing basis.
 An effective product strategy links product
decisions with other business functions, such
as R&D, engineering, marketing, and
finance.
PRODUCT DEVELOPMENT STAGES
QUALITY FUNCTION DEPLOYMENT (QFD)
 A process for determining customer requirements (customer
“wants”) and translating them into the attributes (the “hows”)
that each functional area can understand and act on.
 QFD is used early in the design process to help determine what
will satisfy the customer and where to deploy quality efforts.
 One of the tools of QFD is the house of quality

 House of Quality: A part of the quality function deployment

process that utilizes a planning matrix to relate customer “wants”
to “how” the firm is going to meet those “wants.”
HOUSE OF QUALITY MATRIX
HOUSE OF QUALITY SEQUENCE INDICATES HOW TO DEPLOY
RESOURCES TO ACHIEVE CUSTOMER REQUIREMENTS
KANO MODEL
 The Kano Model of Customer (Consumer) Satisfaction classifies
product attributes based on how they are perceived by customers
and their effect on customer satisfaction.
 These classifications are useful for guiding design decisions in that
they indicate when good is good enough, and when more is better.
ORIGINS OF THE KANO MODEL
 Developed by Noriaki Kano
 Professor at Tokyo Rika University
 International Consultant
 Received individual Deming Prize in 1997
 Developed foundation for an approach on “Attractive Quality Creation”
commonly referred to as the “Kano Model”
 Challenged traditional Customer Satisfaction Models that More is
better, i.e. the more you perform on each service attribute the more
satisfied the customers will be.
 Proposed new Customer Satisfaction model (Kano Model)
 Performance on product and service attributes is not equal in the eyes of
the customers
 Performance on certain categories attributes produces higher
levels of satisfaction than others.
PROJECT ACTIVITIES IN WHICH THE KANO MODEL IS
USEFUL:

 Identifying customer needs

 Determining functional requirements

 Concept development

 Analyzing competitive products

OTHER TOOLS THAT ARE USEFUL IN CONJUNCTION
WITH THE KANO MODEL:

 Prioritization Matrices
 Quality Function Deployment

 Value Analysis
KEY ELEMENTS
 Identify the Voice of the Customer
 Translate Voice of the Customer into Critical to Quality
Characteristics (CTQs)
 Rank the CTQs into three categories:

- Dissatisfier - Must be’s - Cost of Entry

- Satisfier - More is better - Competitive
- Delighter - Latent Need - Differentiator
 Evaluate Current Performance
 Kano Model Procedure

Analyze & Plot &

Research Strategize
Brainstorm Diagram

•Research available •Analyze results from •Develop Customer •Determine Project

data sources data collection Requirement Matrix selection
•Determine data •Brainstorm list of •Record Questionnaire •Product Development
collection strategy features and results in Matrix and •Service Development
•Design data collection functionality Summarize •Identify Marketing
instruments •Develop Functional and •Plot results on Kano Strategy
•Collect and Dysfunctional Model
summarize data Questionnaire
•Distribute
Questionnaire
 The Kano Model of Customer satisfaction divides product
attributes into three categories:
 Threshold
 Performance
 excitement.

 A competitive product meets basic attributes, maximizes

performances attributes, and includes as many “excitement”
attributes as possible at a cost the market can bear.
THRESHOLD ATTRIBUTES
 Threshold (or basic) attributes are the expected attributes or
“musts” of a product, and do not provide an opportunity for
product differentiation.
 Increasing the performance of these attributes provides
diminishing returns in terms of customer satisfaction, however
the absence or poor performance of these attributes results in
extreme customer dissatisfaction.
 Threshold attributes are not typically captured in QFDs (Quality
Function Deployment) or other evaluation tools.
PERFORMANCE ATTRIBUTES
 Performance attributes are those for which more is generally
better, and will improve customer satisfaction.
 Conversely, an absent or weak performance attribute reduces
customer satisfaction. Of the needs customers verbalize, most will
fall into the category of performance attributes.
 These attributes will form the weighted needs against which
product concepts will be evaluated.
 The price for which customer is willing to pay for a product is
closely tied to performance attributes. For example, customers
would be willing to pay more for a car that provides them with
better fuel economy.
EXCITEMENT ATTRIBUTES
 Excitement attributes are unspoken and unexpected by customers
but can result in high levels of customer satisfaction, however
their absence does not lead to dissatisfaction.
 Excitement attributes often satisfy latent needs – real needs of
which customers are currently unaware.
 In a competitive marketplace where manufacturers’ products
provide similar performance, providing excitement attributes that
address “unknown needs” can provide a competitive advantage.
Although they have followed the typical evolution to a
performance then a threshold attribute, cup holders were initially
excitement attributes.
APPLICATION OF THE KANO MODEL ANALYSIS
 A relatively simple approach to applying the Kano Model Analysis
is to ask customers two simple questions for each attribute:
1. Rate your satisfaction if the product has this attribute? and
2. Rate your satisfaction if the product did not have this attribute?
 Customers should be asked to answer with one of the following
responses:
1. Satisfied
2. Neutral (Its normally that way)
3. Dissatisfied
4. Don’t care
MANUFACTURABILITY AND VALUE ENGINEERING
 Manufacturability and value engineering activities are concerned
with improvement of design and specifications at the research,
development, design, and preproduction stages of product
development.
 In addition to immediate, obvious cost reduction, design for
manufacturability and value engineering may produce other
benefits.
 Reduced complexity of the product.
 Reduction of environmental impact.
 Additional standardization of components.
 Improvement of functional aspects of the product.
 Improved job design and job safety.
 Improved maintainability (serviceability) of the product.
 Robust design
FORECASTING
FORECASTING
 Forecasting is the art and science of predicting future events.
 Forecast may involve taking historical data and projecting them
into the future with some sort of mathematical model.
 It may be subjective or intuitive prediction. Or may be involve a
combination of these.
FORECASTING TIME HORIZONS
 Short range forecast: This forecast has a time span of up to 1
year but is generally less than 3 months. It is used for planning
purchasing, job scheduling, workforce levels, job assignment and
production levels.
 Medium range forecast: A medium-range forecast generally
spans from 3 months to 3 years. It is useful in sales planning,
production planning and budgeting, cash budgeting and analysis
of various operating plans.
 Long range forecast: Generally 3 years or more in time span,
long range forecasts are used in planning for new products,
capital expenditures, facility location or expansion and research
and development.
TYPES OF FORECAST
 Economic forecasts address the business cycle by predicting
inflation rates, money supplies, housing starts and other
planning indicators.
 Technology forecasts are concerned with rate of
technological progress, which can result in the birth of
exciting new product, requiring new plants and equipment.
 Demand Forecasts are projection of demand for a company’s
products or services. These forecasts, also sales forecasts,
drive a company’s production, capacity and scheduling
systems and serves as inputs to financial, marketing and
personnel planning.
FORECASTING APPROACHES
 Quantitative forecasts: use a variety of mathematical models
that rely on historical data.
 Qualitative forecasts: incorporate such factors as the decisions
makers intuition, emotions, personal experience, and value
system in reaching.
QUANTITATIVE METHODS
 Time Series Models:
 Naïve approach
 Moving average
 Exponential smoothing
 Trend projection
 Associative Model
 Linear regression
TIME SERIES FORECASTING
 A forecasting techniques that uses a series of past data points to
make a forecast.
 A time series has four components:

 Trends: the gradual upward or downward movement of data

over time. Changes in income, population, age distribution, or
cultural views may account for movement in trend.
 Seasonality: data pattern that repeats itself after a period of
days, weeks, months or quarters.
 Cycles: Pattern in data that occurs every several years.
 Random variations: ‘blip’ in the data caused by chance and
unusual situation.
NAIVE APPROACH
 A forecasting technique which assumes that demand in the next
period is equal to demand in the most recent period.
 Nokia cell phones—were 68 units in January, we can forecast that
February’s sales will also be 68 phones.
MOVING AVERAGE
 A forecasting method that uses an average of the n most recent
periods of data to forecast the next period.
 Moving averages are useful if we can assume that market
demands will stay fairly steady over time.

𝐷𝑒𝑚𝑎𝑛𝑑 𝑓𝑜𝑟 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑

𝑀𝑜𝑣𝑖𝑛𝑔 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 =
𝑛
WEIGHTED MOVING AVERAGE
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑚𝑜𝑣𝑖𝑛𝑔 𝑎𝑣𝑒𝑟𝑎𝑔𝑒
(𝑊𝑒𝑖𝑔ℎ𝑡 𝑓𝑜𝑟 𝑝𝑒𝑟𝑖𝑜𝑑 𝑛)(𝐷𝑒𝑚𝑎𝑛𝑑 𝑖𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 𝑛)
=
𝑊𝑒𝑖𝑔ℎ𝑡
PROBLEMS FACED BY MOVING AVERAGE
TECHNIQUE
 Increase the size of n does smooth out fluctuations better, but it
makes the method less sensitive to real change in data.
 Moving average cannot pick up trend very well. Because they are
average, they are always stay within past levels and will not
predict changes to either higher or lower levels.
 Moving average requires extensive use of past data.
EXPONENTIAL SMOOTHING

 A weighted moving average forecasting technique in which

data points are weighted by an exponential function.
 𝑁𝑒𝑤 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 =
𝐿𝑎𝑠𝑡 𝑝𝑒𝑟𝑖𝑜𝑑 ′ 𝑠 𝑓𝑜𝑟𝑒𝑐𝑎𝑠𝑡 + 𝛼(𝐿𝑎𝑠𝑡 𝑝𝑒𝑟𝑖𝑜𝑑 ′ 𝑠 𝑎𝑐𝑡𝑢𝑎𝑙 𝑑𝑒𝑚𝑎𝑛𝑑 −
Last period′ s forecast
 𝛼 = 𝑠𝑚𝑜𝑜𝑡ℎ𝑖𝑛𝑔 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡

 𝐹𝑡 = 𝐹𝑡−1 + 𝛼 𝐴𝑡−1 − 𝐹𝑡−1 = α 𝐴𝑡−1 + (1 − 𝛼)𝐹𝑡−1

 The old forecast for May was 220, and the actual demand for May
was 190. If alpha (𝛼) is 0.15, calculate the forecast for June. If
June demand turns out to be 218, calculate the forecast for July.

June forecast = 0.15(190) + (1 - 0.15)220 = 215.5

July forecast = 0.15(218) + (0.85)215.5 = 215.9
 During the past 8 quarters, the Port of Baltimore has unloaded
large quantities of grain from ships. The port’s operations
manager wants to test the use of exponential smoothing to see
how well the technique works in predicting tonnage unloaded. He
guesses that the forecast of grain unloaded in the first quarter
was 175 tons. Two values of a are to be examined: 𝛼= .10 and 𝛼 =
.50.

Quarter 1 2 3 4 5 6 7 8 9
Demand 180 168 159 175 190 205 180 182
FORECAST ERROR
 Forecast Error=Actual demand – Forecast Value
 3 popular measures for calculating the forecast error are

 Mean Absolute Deviation (MAD)

 Mean Squared Error (MAE)
 Mean Absolute Percent Error (MAPE)
MEAN ABSOLUTE DEVIATION
 A measure of the overall forecast error for a model.

𝐴𝑐𝑡𝑢𝑎𝑙 − 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡
𝑀𝐴𝐷 =
𝑛
MEAN SQUARED ERROR
 MSE is the average of the squared differences between the
forecasted and observed values.
𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝐸𝑟𝑟𝑜𝑟 2
𝑀𝑆𝐸 =
𝑛
 Compute the MSE for 𝛼 = 0.1
MEAN ABSOLUTE PERCENTAGE ERROR

 The average of the absolute differences between the

forecast and actual values, expressed as a percent of actual
values.

𝑛 100 𝐴𝑐𝑡𝑢𝑎𝑙𝑖 − 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑖

𝑖=1 𝐴𝑐𝑡𝑢𝑎𝑙𝑖
𝑀𝐴𝑃𝐸 =
𝑛
EXPONENTIAL SMOOTHING WITH TREND ADJUSTMENT
EXPONENTIAL SMOOTHING WITH TREND ADJUSTMENT
 Step 1: Compute 𝐹𝑡 , the exponentially smoothed forecast for
period t, using the following equation:
𝐹𝑡 = 𝛼 𝐴𝑡−1 + (1 − 𝛼)(𝐹𝑡−1 + 𝑇𝑡−1 )

 Step 2: Compute the smooth trend, 𝑇𝑡 using the following equation

𝑇𝑡 = 𝛽 𝐹𝑡 − 𝐹𝑡−1 + (1 − 𝛽)𝑇𝑡−1
 Step 3: Calculate the forecast including trend, 𝐹𝐼𝑇𝑡 = 𝐹𝑡 + 𝑇𝑡
 The monthly sales for Telco Batteries, Inc., were as follows
TREND PROJECTION
 A time-series forecasting method that tits a trends line to a series
of historic data points and then project the line into the future for
forecasts.
 If we decide to develop a linear trend line by a precise statistical
method, we can apply the least-squares method. This approach
results in a straight line that minimizes the sum of the squares of
the vertical differences or deviations from the line to each of the
actual observations.
 𝑦 = 𝑎 + 𝑏𝑥

𝑦 =value of the dependent variable

a= y axis intercept
b= slope of the regression line
x= independent variable

𝑥𝑦 − 𝑛𝑥𝑦
Slope 𝑏 =
𝑥 2 − 𝑛𝑥 2

𝑎 = 𝑦 − 𝑏𝑥
SEASONAL VARIATIONS IN DATA
IF WE EXPECTED THE 2010 ANNUAL DEMAND TO BE 1200 UNITS.
ASSOCIATIVE FORECASTING METHOD: REGRESSION
ANALYSIS
 Linear Regression Analysis: A straight-line mathematical model
to describe the functional relationship between independent and
dependent variables.
𝑦 = 𝑎 + 𝑏𝑥

𝑦 =value of the dependent variable

a= y axis intercept
b= slope of the regression line
x= independent variable
PROBLEM
 Room registration in the Toronto Towers Plaza Hotel have been
recorded for the past 9 years. To project future occupancy,
management would like to determine the mathematical trend of
guest registration. This estimate will help the hotel determine
whether future expansion will be needed. Given the following time
series data, develop a regression equation relating registrations to
time. Then forecast 2011 registrations. Room registrations are in
thousands:
 Y= -8.135+109.229X