Design of Goods

and Services 5

Copyright © 2017 Pearson Education Ltd 5-1

 Learning Objectives
When you complete this chapter you
should be able to :
❑ Describe a product development system
❑ Describe how goods and services are defined
by OM
❑ Explain how the customer participates in the
design and delivery of services
❑ Apply decision trees to product issues

Copyright © 2017 Pearson Education Ltd 5-2

 Product Strategy Options
Support Competitive Advantage
▶ A world of options exists in the selection, definition, and
design of products.

▶ Product selection is choosing the good or service to

provide customers or clients.

▶ For instance, hospitals specialize in various types of

patients and medical procedures.

▶ An effective product strategy links product decisions with

investment, market share, and product life cycle, and
defines the breadth of the product line.

Copyright © 2017 Pearson Education Ltd 5-3

Copyright © 2017 Pearson Education Ltd 5-4
 Product Decision

The objective of the product decision

is to develop and implement a
product strategy that meets the
marketplace demand with a
competitive advantage

Copyright © 2017 Pearson Education Ltd 5-5

Copyright © 2017 Pearson Education Ltd 5-6
 Product Life Cycles

► Products born and die due to fast changing of

consumer’s preferences.
► May be any length from a few days to decades.
► The operations function must be able to introduce new
products successfully.
► It may be helpful to think of a product’s life as divided
into four phases.
► Those phases are introduction, growth, maturity, and
decline.
Copyright © 2017 Pearson Education Ltd 5-7
 Product Life Cycle

Cost of development and production

$ Sales revenue

Loss Profit
Loss
Introduction Growth Maturity Decline

Figure 5.2

Copyright © 2017 Pearson Education Ltd 5-8

 Life Cycle and Strategy
Introductory Phase
► Products are still being fine-tuned for the market,
and production techniques are being developed.

► Unusual expenditures are often required for

research, product development, process
modification, and supplier development.

► Example: When the iPhone was first introduced,

features and market preferences were still
evolving, and manufacturing techniques were
being optimized.
Copyright © 2017 Pearson Education Ltd 5-9
Samsung to spend $228 billion on t
he world's largest chip facility

Copyright © 2017 Pearson Education Ltd 5 - 10

 Product Life Cycle

Growth
Phase
► The product design becomes more stable, and
effective capacity forecasting is essential.

► The company may need to add capacity or

enhance existing capacity to meet the increasing
product demand.

Copyright © 2017 Pearson Education Ltd 5 - 11

 Product Life Cycle
Maturity Phase
► Focus shifts to high-volume, innovative
production.

► Improved cost control, reduction in product

options, and streamlining the product line may
be necessary for profitability and market share.

Copyright © 2017 Pearson Education Ltd 5 - 12

 Product Life Cycle
Decline Phase
► It may be necessary for management to make tough
decisions about products reaching the end of their life
cycle.

► Dying products are typically not ideal for resource

investment and managerial talent unless they have a
unique contribution to the firm's reputation, or product
line, or can be sold with a high contribution.

► Production of dying products should be terminated if it

does not serve a strategic purpose.

Copyright © 2017 Pearson Education Ltd 5 - 13

 Product-by-Value Analysis

► Lists products in descending order of their $

$ individual dollar contribution to the firm
► Lists the total annual dollar contribution of
the product
► Helps management evaluate alternative
strategies

Copyright © 2017 Pearson Education Ltd 5 - 14

 Generating New Products
▶ As products die or terminated throughout the
Product life cycle, it can be weeded out and
replaced.

▶ Because firms generate most of their revenue

and profit from new products.

▶ Therefore, product selection, definition, and

design take place continuingly.

Copyright © 2017 Pearson Education Ltd 5 - 15

 Generating New Products

1. Understanding the customer

2. Economic change
3. Sociological and demographic change
4. Technological change
5. Political and legal change
6. Market practice, professional standards, suppliers,
distributors

Copyright © 2017 Pearson Education Ltd 5 - 16

 Product Development Stages
Concept

Feasibility Figure 5.3

Customer Requirements

Functional Specifications

Product Specifications Scope for

Scope of design and
product Design Review engineering
development teams
team Test Market

Introduction

Evaluation

Copyright © 2017 Pearson Education Ltd 5 - 17

 Quality Function Deployment
►Quality function deployment (QFD)
►Determine what will satisfy the customer
►Translate those customer desires into the
target design
►House of quality
►Utilize a planning matrix to relate
customer wants to how the firm is going
to meet those wants

Copyright © 2017 Pearson Education Ltd 5 - 18

 Quality Function Deployment
1. Identify customer wants
2. Identify how the good/service will satisfy customer
wants
3. Relate customer wants to product hows
4. Identify relationships between the firm’s hows
5. Develop our importance ratings
6. Evaluate competing products
7. Compare performance to desirable technical
attributes

Copyright © 2017 Pearson Education Ltd 5 - 19

 QFD House of Quality
Interrelationships
Customer
importance
How to satisfy
ratings
customer wants

assessment
Competitive
What the Relationship
customer matrix
wants

Target values Weighted

rating
Technical
evaluation

Copyright © 2017 Pearson Education Ltd 5 - 20

 House of Quality

Low electricity requirements

Example

Aluminum components

High number of pixels

Ergonomic design
Auto exposure

Company B
Company A
Auto focus
Completed
House of Lightweight 3
Easy to use 4
G

Quality Reliable 5
Easy to hold steady
P
G
2
High resolution 22 9 27 27 32 P
25
1 F

Failure 1 per 10,000

Our importance ratings
Target values

Panel ranking
(Technical G
attributes) G

2 circuits
2’ to ∞
0.5 A
75%
P
Company A 0.7 60% P
Technical
evaluation yes 1
© 2014 Pearson Education, ok G P 5 - 21
Inc. Company B 0.6 50%
 House of Quality Sequence
Deploying resources through the organization in response
to customer requirements

Quality
plan
Production
process

Production
Specific
House

process
components

components
House 4

Specific
Design
characteristics
characteristics

3
House
Design

2
requirements
Customer

House
1

Figure 5.4
Copyright © 2017 Pearson Education Ltd 5 - 22
 Organizing for Product
Development
►Traditionally – distinct departments
► Duties and responsibilities are defined
► Difficult to foster forward-thinking
►A Champion
► Product manager drives the product
through the product development
system and related organizations

Copyright © 2017 Pearson Education Ltd 5 - 23

 Organizing for Product
Development
►Team approach
► Cross functional – representatives from
all disciplines or functions
► Product development teams, design for
manufacturability teams, value
engineering teams
►Japanese “whole organization”
approach
► No organizational divisions
Copyright © 2017 Pearson Education Ltd 5 - 24
 Manufacturability and
Value Engineering
Activities that help improve a product’s design, production, maintainability, and
use.

►Benefits:
1. Reduced complexity of the product
2. Reduction of environmental impact
3. Additional standardization of components
4. Improvement of functional aspects of the product
5. Improved job design and job safety
6. Improved maintainability (serviceability) of the
product
7. Robust design

Copyright © 2017 Pearson Education Ltd 5 - 25

Copyright © 2017 Pearson Education Ltd 5 - 26
 Manufacturability and
Value Engineering
▶ Best cost-avoidance technique available to
operations management.

▶ Produce value improvement by focusing on

achieving the functional specifications necessary to
meet customer requirements in an optimal way.

Copyright © 2017 Pearson Education Ltd 5 - 27

 Cost Reduction of a Bracket via
Value Engineering Each time the
bracket is
redesigned and
simplified, we
are able to
produce it for
less.

Figure 5.5

Copyright © 2017 Pearson Education Ltd 5 - 28

 Issues for Product Design
In addition to developing an effective system and organization structure for product development,
several considerations are important to the product design.

►Robust design
►Modular design
►Computer-aided design (CAD)
►Computer-aided manufacturing (CAM)

Copyright © 2017 Pearson Education Ltd 5 - 29

 Robust Design

► Product is designed so that small

variations in production or assembly
without significantly impacting their
performance or quality.
► Typically results in lower cost and higher
quality.

Copyright © 2017 Pearson Education Ltd 5 - 30

 Modular Design

►Products designed in easily segmented

components
►Adds flexibility to both production and
marketing
►Improved ability to satisfy customer
requirements

Copyright © 2017 Pearson Education Ltd 5 - 31

Copyright © 2017 Pearson Education Ltd 5 - 32
 Computer Aided Design (CAD)
►Using computers to
design products and
prepare engineering
documentation
►Shorter development
cycles, improved
accuracy, lower cost
►Information and designs
can be deployed
worldwide
Copyright © 2017 Pearson Education Ltd 5 - 33
 Computer-Aided Manufacturing
(CAM)

► Utilizing specialized computers and

program to control manufacturing
equipment
► Often driven by the CAD system
(CAD/CAM)

Copyright © 2017 Pearson Education Ltd 5 - 34

 Benefits of CAD/CAM

1. Product quality
2. Shorter design time
3. Production cost reductions
4. Database availability
5. New range of capabilities

Copyright © 2017 Pearson Education Ltd 5 - 35

 Application of Decision Trees
to Product Design
• Decision trees can be used for new-product decisions as well as for a wide
variety of other management problems when uncertainty is present.

• They are particularly helpful when there are a series of decisions and various
outcomes that lead to subsequent decisions followed by other outcomes.

► Particularly useful when there are a series of decisions and outcomes that lead
to other decisions and outcomes.

Copyright © 2017 Pearson Education Ltd 5 - 36

Copyright © 2017 Pearson Education Ltd 5 - 37
 Service Design
► Service typically includes direct
interaction with the customer
► Process – chain – network (PCN)
analysis focuses on the ways in
which processes can be designed
to optimize interaction between
firms and their customers

Copyright © 2017 Pearson Education Ltd 5 - 38

 Process-Chain-Network (PCN)
Analysis

Figure 5.12

Copyright © 2017 Pearson Education Ltd 5 - 39

 Process-Chain-Network (PCN)
Analysis
1. Direct interaction region includes process steps
that involve interaction between participants
2. The surrogate (substitute) interaction region
includes process steps in which one participant
is acting on another participant’s resources
3. The independent processing region includes
steps in which the supplier and/or the customer
is acting on resources where each has
maximum control.

Copyright © 2017 Pearson Education Ltd 5 - 40

 Revision
❑ What is the main objective of production decision?
❑ What are the three main product strategy options?
❑ What are the stages involved in product
development?
❑ What are the relevant issues to be considered
when organizing product development?
❑ How can the process chain network analysis be
applied to service design?
❑ How can the decision trees be applied to product
issues?

Copyright © 2017 Pearson Education Ltd 5 - 41