Operations

Management

Chapter 5
Design of Goods
and Services
2008 Prentice Hall, Inc. 51
 Product Decision
The good or service the organization
provides society
Top organizations typically focus on
core products
Customers buy satisfaction, not just
a physical good or particular service
Fundamental to an organization's
strategy with implications
throughout the operations function
2008 Prentice Hall, Inc. 52
 Product Strategy Options

Differentiation
Shouldice Hospital
Low cost
Taco Bell
Rapid response
Toyota

2008 Prentice Hall, Inc. 53

 Product Life Cycles

May be any length from a few

hours to decades
The operations function must
be able to introduce new
products successfully

2008 Prentice Hall, Inc. 54

 Product Life Cycles

Cost of development and production

Sales, cost, and cash flow

Sales revenue
Net revenue (profit)

Cash
flow

Negative
cash flow Loss

Introduction Growth Maturity Decline

Figure 5.1
2008 Prentice Hall, Inc. 55
 Product Life Cycle
Introduction
Fine tuning may warrant
unusual expenses for
Research
Product development
Process modification and
enhancement
Supplier development
2008 Prentice Hall, Inc. 56
 Product Life Cycle
Growth

Product design begins to

stabilize
Effective forecasting of
capacity becomes necessary
Adding or enhancing capacity
may be necessary

2008 Prentice Hall, Inc. 57

 Product Life Cycle
Maturity

Competitors now established

High volume, innovative
production may be needed
Improved cost control,
reduction in options, paring
down of product line

2008 Prentice Hall, Inc. 58

 Product Life Cycle
Decline

Unless product makes a

special contribution to the
organization, must plan to
terminate offering

2008 Prentice Hall, Inc. 59

 Product Life Cycle Costs
100
Costs committed

80
Percent of total cost

60
Costs incurred

40

20
Ease of change

Concept Detailed Manufacturing Distribution,

design design service,
prototype and disposal
2008 Prentice Hall, Inc. 5 10
 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

2008 Prentice Hall, Inc. 5 11

 Product-by-Value Analysis
Sams Furniture Factory

Individual Total Annual

Contribution ($) Contribution ($)
Love Seat $102 $36,720
Arm Chair $87 $51,765
Foot Stool $12 $6,240
Recliner $136 $51,000

2008 Prentice Hall, Inc. 5 12

 New Product Opportunities
1. Understanding the
customer
2. Economic change
3. Sociological and
demographic change
4. Technological change
5. Political/legal change
6. Market practice, professional
standards, suppliers, distributors
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 Importance of New Products
Percentage of Sales from New Products
50%

40%

30%

20%

10%

Industry Top Middle Bottom

leader third third third
Position of Firm in Its Industry Figure 5.2
2008 Prentice Hall, Inc. 5 14
 New Products at Disney
Millions of visitors Figure 5.2
50
Magic Kingdom
Combined data only prior to 1993
40 Epcot
Disney-MGM Studios
Animal Kingdom
30

20

10

0
84 86 88 90 92 94 96 98 00 02 04
2008 Prentice Hall, Inc. 5 15
 Product Development
System
Ideas

Ability Figure 5.3

Customer Requirements

Functional Specifications

Scope of Product Specifications Scope for

product design and
Design Review engineering
development teams
team Test Market

Introduction

Evaluation
2008 Prentice Hall, Inc. 5 16
 Quality Function
Deployment
Identify customer wants
Identify how the good/service will satisfy
customer wants
Relate customer wants to product hows
Identify relationships between the firms hows
Develop importance ratings
Evaluate competing products
Compare performance to desirable technical
attributes
2008 Prentice Hall, Inc. 5 17
 QFD House of Quality
Interrelationships
Customer
importance
How to satisfy
ratings
customer wants

Competitive
assessment
What the Relationship
customer matrix
wants

Target values Weighted

rating
Technical
evaluation
2008 Prentice Hall, Inc. 5 18
 House of Quality Example
Your team has been charged with
designing a new camera for Great
Cameras, Inc.
The first action is
to construct a
House of Quality

2008 Prentice Hall, Inc. 5 19

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
What the Attributes and
Evaluation

customer
wants Customer
importance
rating
(5 = highest)
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color correction 1

2008 Prentice Hall, Inc. 5 20

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Low electricity requirements
Attributes and
Evaluation

Aluminum components

Ergonomic design
Auto exposure
How to Satisfy
Customer Wants
Paint pallet
Auto focus

2008 Prentice Hall, Inc. 5 21

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

High relationship Technical

Attributes and
Evaluation

Medium relationship
Low relationship

Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color corrections 1

Relationship matrix
2008 Prentice Hall, Inc. 5 22
 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Low electricity requirements

Relationships
between the
things we can do

Aluminum components

Ergonomic design
Auto exposure

Paint pallet
Auto focus

2008 Prentice Hall, Inc. 5 23

 Interrelationships

House of Quality Example

How to Satisfy
Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color corrections 1
Our importance ratings 22 9 27 27 32 25

Weighted
rating
2008 Prentice Hall, Inc. 5 24
 Interrelationships

How to Satisfy
Customer Wants

House of Quality Example

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and

Company B
Company A
Evaluation

How well do
competing products
meet customer wants

Lightweight 3 G P
Easy to use 4 G P
Reliable 5 F G
Easy to hold steady 2 G P
Color corrections 1 P P
Our importance ratings 22 5
2008 Prentice Hall, Inc. 5 25
 Interrelationships

How to Satisfy
Customer Wants

House of Quality Example

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and

Failure 1 per 10,000

Evaluation

Panel ranking
Target

2 circuits
values
(Technical

2 to
0.5 A
attributes)

75%
Company A 0.7 60% yes 1 ok G
Technical
evaluation Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G
2008 Prentice Hall, Inc. 5 26
 House of Quality Example

Low electricity requirements

Aluminum components

Ergonomic design
Auto exposure

Company A

Company B
Paint pallet
Auto focus
Completed
Lightweight 3 G P
House of Easy to use 4 G P

Quality Reliable
Easy to hold steady 2
5 F G
G P
Color correction 1 P P
Our importance ratings 22 9 27 27 32 25

Failure 1 per 10,000

Panel ranking
Target values
(Technical

2 circuits
attributes)

2 to
0.5 A
75%
Company A 0.7 60% yes 1 ok G
Technical
Company B 0.6 50% yes 2 ok F
evaluation
Us 0.5 75% yes 2 ok G
2008 Prentice Hall, Inc. 5 27
 House of Quality Sequence
Deploying resources through the
organization in response to
customer requirements

Quality
plan
Production
process

Production
Specific

process
components House

components
4

Specific
Design House
characteristics

characteristics
3
House
Design
requirements

2
Customer

House
1

Figure 5.4

2008 Prentice Hall, Inc. 5 28

 Organizing for Product
Development
Historically 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

2008 Prentice Hall, Inc. 5 29

 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
2008 Prentice Hall, Inc. 5 30
 Manufacturability and
Value Engineering
Benefits:
1. Reduced complexity of products
2. Additional standardization of products
3. Improved functional aspects of product
4. Improved job design and job safety
5. Improved maintainability (serviceability)
of the product
6. Robust design
2008 Prentice Hall, Inc. 5 31
 Cost Reduction of a Bracket
via Value Engineering

Figure 5.5
2008 Prentice Hall, Inc. 5 32