Product Development Process

Development of AEH by Philips

• Development of AEH by Philips: By going through this example you will
be able to understand how organisations go through the process of
product development and how they conduct changes in their product
design.
Why Product Development Process is Important
Because it gives
Competitive Advantage,
Helps in Innovation,
Increases profitability
and enhances market reputation
Sometimes, it is also needed for process improvements and cost savings, waste
management and sustainability issues. For example – Sensor based taps and
lights are designed for waste management, cost savings and sustainability
 Product Development Process

• Operations management enables firms with distinctiveness in their offerings

through product development process
• Product development process is
• A broad set of tools, techniques and concepts that
• Enables firms to bring out new products & services
• faster and at a lower cost
• Organisations have experienced several tangible benefits from a good product
development process.
• By introducing products six months ahead of the competitors, a firm can
gain as much as three times of the profit
 Product Development Process
Four Stages

• Concept Generation: understanding what the customer needs are and

translating them into ideas for products
• Product Design: detailed specifications are first drawn about the
product/service
• Development: physical development of the product; during this stage, the
details arrived at the drawing board are physically transferred to reality
(Prototype development)
• Production: physical development of the product. During this stage, the final
products are manufactured
 A Typical Development Process

Concept Generation Design

Yes
Idea Feasibility Preliminary Process Cost
Feasible?
Generation Study Design Planning Planning
No

No
Final Design Yes Prototype Yes
Commercial
Manufacturing Prototype OK? Development & Design OK?
Production
Specifications Testing
No

Production Development
In the first stage we think of an idea for a new product but we all know that
all ideas are not practically feasible so they need to be discussed, though out
and finalized after which the few final ideas are moved into the design stage
where designs are being created to understand the technical nitty gritties and
reduce faults which are than tested, studied and evaluated after which
prototypes are being developed that are again tested for feasibility and other
stuff of quality checks which then moves into the final production stage
 Product Development Funnel
Stage-Gates

Gate 1 Gate 2 Gate 3

Concept Product Development Prototype

Generation Design Testing Production

0 7 12 20 24
Time (Months)
Product Development Process
Possible outcomes/benefits
Dimensions Customer Dimensions: New product
Sustained P: If organisation innovates than it
stays in the market for example: Kodak could
Customer Dimensions not sustain in marketplace

Operational advantages: Processes gets

improved ; people also think that we are good
at process and innovations level and process
Sustained Performance
improvement takes place along with
improvements in quality (1 stage better in
most cases)
Operational Advantages

Strategic Advantages
Strategic advantages: Customers and consumers feel that this organisation is able to understand
the customers needs, requirements and so it brings loyalty. Example of Milton (Plastic bottles but
they realized that plastic is not good and they made steel thermos which keep hot and cold for
more than 24 hours giving them strategic advantage over other competitors)
Video Insight
Maruti Suzuki Limited – The R & D Process

Right click on the URL below to open the hyperlink in the web browser…

https://www.youtube.com/watch?v=sN-ZN6MMFek
 Organization for Product Development Process:
Traditional Approach

Customers Suppliers

Marketing Design Planning Procurement Production Finance

Organization for Product Development Process: Concurrent
Engineering

Planning

Concurrent Engineering
Team Structure

Suppliers
Tools for efficient product development
Understanding customers needs

Quantitative Analysis
Market Research • Statistical analysis
• Hypothesis Testing

Focus Groups
Qualitative Analysis
•Reproduce customers
In-depth qualitative own words
interviews
Translate

Hierarchy of Create Bundles of

Customer Needs Customer Attributes
 Tools for Efficient Product Development
Value Engineering

• Refers to a set of activities undertaken to investigate the design of

components in a product development process
• Strictly from a cost – value perspective
• To alert the product development team to alternatives that
• could either bring down the cost or
• increase the value
• By improving on the functionalities and performance without
increasing the cost
• Rane group (maker of rack and pinion steering system) focused on reducing the
weight of the materials used , replacing the steel rod of the steering with a steel
tube, which turned out to be a major cost reducer.

• GKN designed a shaft of smaller diameter, which made it lighter and saved on material
costs
• Tata Nano was having ambitious cost target to bring to the market Rs 1 L car.
Expectedly, suppliers have to make use of value engineering efforts. The
components in the Nano had been studied from the view points of
functionality, cost and performance.

• Tata worked with Bosch to take the ECU down to an unprecedented price by
reducing the sensors used by the ECU to govern the engine down to half the usual
number
 Value Engineering
Agenda for brainstorming

• Can we eliminate certain features from the design?

• Are there certain features of design that cost more than what it is
worth?
• Is it possible to replace the proposed method of manufacture with a less
costly one?
• Is it possible for someone else (suppliers) to produce certain
components cheaper, faster and better?
• Can we eliminate parts and replace them with more universal parts?
 Product Development Process
Highlights…

• Product development process consists of a structured set of activities including

concept generation, design, development and production
• Concurrent engineering is an approach to build a cross-functional team of
professionals cutting across various departments and suppliers to accelerate the new
product development process
Caselets

• Tata Swatch
Application of Decision Trees to Product Design

► Particularly useful when there are a series of decisions and

outcomes that lead to other decisions and outcomes
Application of Decision Trees to
Product Design
Procedure
1. Include all possible alternatives and states
of nature – including “doing nothing”
2. Enter payoffs at end of branch
3. Determine the expected value of each
branch and “prune” the tree to find the
alternative with the best expected value
Example 1
A semiconductor manufacturer wants to produce microprocessors, he has three options:
(i) Purchase sophisticated CAD system (ii) to hire and train additional staff (iii) do not
produce because the market may be either favorable or un favorable.
In case of favorable condition sales would be 25,000 processors per year and the selling
price is Rs. 100 per unit.
In case of unfavorable condition sales would be 8,000 processors per year and the selling
price is Rs. 100 per unit.
Cost of CAD equipment is Rs 500,000. Cost of hiring and training additional staff Rs
375,000.
In case CAD is used, cost price will be Rs. 40 and In case CAD is not used, cost price will be
Rs. 50
Probability of favorable condition is .4 for both scenarios
Probability of unfavorable condition is .6 for both scenarios
Use Decision Tree approach for arriving at a decision about the profitable option
 Decision Tree Example
(.4)
Purchase CAD
High sales

(.6) Low sales

Hire and train engineers

(.4)
High sales

(.6)
Low sales
Do nothing
 Decision Tree Example
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD – 500,000 CAD cost
High sales
$1,000,000 Net

$800,000 Revenue
(.6) Low sales – 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
Hire and train engineers – $20,000 Net loss

(.4)

EMV (purchase CAD system)High sales= (.4)($1,000,000) + (.6)(– $20,000)

(.6)
Low sales
Do nothing
 Decision Tree Example
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD – 500,000 CAD cost
$388,000 High sales
$1,000,000 Net

$800,000 Revenue
(.6) Low sales – 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
Hire and train engineers – $20,000 Net loss

(.4)

EMV (purchase CAD system)High sales= (.4)($1,000,000) + (.6)(– $20,000)

= $388,000
(.6)
Low sales
Do nothing
 Decision Tree Example
$2,500,000 Revenue
(.4) – 1,000,000 Mfg cost ($40 x 25,000)
Purchase CAD – 500,000 CAD cost
$388,000 High sales
$1,000,000 Net

$800,000 Revenue
(.6) Low sales – 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
Hire and train engineers – $20,000 Net loss
$365,000
$2,500,000 Revenue
(.4) – 1,250,000 Mfg cost ($50 x 25,000)
High sales – 375,000 Hire and train cost
$875,000 Net

$800,000 Revenue
(.6) – 400,000 Mfg cost ($50 x 8,000)
Low sales – 375,000 Hire and train cost
Do nothing $0 $25,000 Net

$0 Net
Example 1 - Extension
If in the above problem the probabilities of both conditions in both scenarios
become .5 each, what will be the effect on your decision
Example 2
King electronics wants to launch new line of monitors. It has two design options
Design A: Probability to yield 60 good monitors per 100 is .9
Probability to yield 65 good monitors per 100 is .1
Cost for Design A is Rs. 1000,000

Design B: Probability to yield 64 good monitors per 100 is .80

Probability to yield 59 good monitors per 100 is .20
Cost for Design B is Rs. 135,0000
- Production run in both the cases is 100000 units
- Each monitor good or bad will cost Rs 75 per unit for manufacturing and will be sold for Rs 150
per unit
- Bad monitors will be destroyed and disposal cost is ignored
Use Decision Tree analysis to help King electronics choose the best design
 Sales 60000 at Rs. 150 = Rs 9000000
Mfg cost 100000 @ Rs 75= Rs - 7500000
Design Cost = Rs - 1000000
A 500000

Sales 65000 at Rs. 150 = Rs 9750000

Mfg cost 100000 @ Rs 75= Rs - 7500000
Design Cost = Rs - 1000000
1250000

Sales 64000 at Rs. 150 = Rs 9600000

Mfg cost 100000 @ Rs 75= Rs - 7500000
Design Cost = Rs - 1350000
750000
B
Sales 59000 at Rs. 150 = Rs 8850000
Mfg cost 100000 @ Rs 75= Rs - 7500000
Design Cost = Rs - 1350000
0
• EMV for option A = (.9)(Rs. 500000)+(.1)(Rs. 1250000) = Rs. 575000

• EMV for option B = (.8)(Rs. 750000)+(.2)(Rs. 0) = Rs. 600000

Hence option B seems to be a better option

Revision Exercise
 The output of a process is valued at $100 per unit. The cost of
labor is $50 per hour including benefits. The accounting
C department provided the following information about the
process for the past 4 weeks.

Week 1 Week 2 Week 3 Week 4

Units 1,124 1,310 1,092 981

produced
Labor ($) 12,735 14,842 10,603 9,526

Material 21,041 24,523 20,442 18,364

($)

OH ($) 8,992 10,480 8,736 7,848

A. Use the TFP ratio to see if recent process
improvements had any effect and if so, when the
effect was noticeable
B. Has labor productivity changed. Use the labor
productivity (units / hr) to support your answer
AP 6
The BBC has a large order for special plastic lined military uniforms
to be used in an urgent military operation. Working the normal shifts
of 40 hours each per week, The BBC production process usually
produces 2500 uniforms per week at a standard cost of $120 each.
Seventy employees work the first shift and 30 the second. The
selling price is $200 per uniform.
Because of the urgent need BBC is authorized to use around the
clock production, six days per week, when each of the two shifts
works 72 hours per week, production increases to 4,000 uniforms
per week but at a costs of $144 each.
a. Did the TFP ratio increase, Decrease or remain the same
b. Did the labor productivity ratio increase, Decrease or remain the
same
c. Did weekly profits increase, Decrease or remain the same