Product Design and Process Selection


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Product Design and Process Selection

CHAPTER3

Before studying this chapter you should know or, if necessary, review
1. Differences between manufacturing and service organizations, Chapter 1, pp. 5 – 7. 2. Differences between strategic and tactical decisions, Chapter 1, pp. 00 – 00. 3. Competitive priorities, Chapter 2, pp. 36 – 39.

LEARNING OBJECTIVES
After completing this chapter you should be able to
1 Define product design and explain its strategic impact on the organization. 2 Describe the steps used to develop a product design. 3 Use break-even analysis as a tool in deciding between alternative products. 4 Identify different types of processes and explain their characteristics. 5 Understand how to use a process flowchart. 6 Understand how to use process performance metrics. 7 Understand current technological advancements and how they impact process and product design. 8 Understand issues of designing service operations.

CHAPTER OUTLINE
Product Design 55 The Product Design Process 56 Links to Practice: IBM Corporation 57 Factors Impacting Product Design 61 Process Selection 64 Designing Processes 68 Process Performance Metrics 71 Linking Product Design and Process Selection 73 Links to Practice: The Babcock & Wilcox
Company 75

Technology Decisions 78 Links to Practice: Using GPS Technology
in Product Advertising 79
Links to Practice: Performing Robotic Surgery 81
Designing Services 83 OM Across the Organization 88 Inside OM 88 Case: Biddy’s Bakery (BB) 94 Case: Creature Care Animal Clinic (B) 94

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54 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION
Have you ever been with a group of friends and decided to order pizzas? One person wants pizza from Pizza Hut because he likes the taste of stuffed-crust pizza made with cheese in the crust. Someone else wants Donatos pizza because she likes the unique crispy-thin crust. A third wants pizza from Spagio’s because of the woodgrilled oven taste. Even a simple product like a pizza can have different features unique to its producer. Different customers have different tastes, preferences, and product needs. The variety of product designs on the market appeal to the preferences of a particular customer group. Also, the different product designs have different processing requirements. This is what product design and process selection are all about.
We can all relate to the product design of a pizza just from everyday life. Now consider the complexities involved in designing more sophisticated products. For example, Palm, Inc. (www.palm.com) is a leading provider of handheld computers whose slogan is “different people, different needs, different handhelds.” The company designs different products with differing capabilities, such as personal information management, wireless Internet access, and games, intended for different types of customers. The company also has to decide on the best process to produce the different types of handhelds. The challenge of product design can also be illustrated by an example of the Alza Corporation. Alza is a leader in designing new ways that pharmaceutical drugs can be administered to different types of patients. One of their product designs is an under the skin implant for pharmaceutical drugs that previously could only be administered by injection. The product design had to include time release of the drug, as well as the best material and shape of the implant. In addition to the product design, a process had to be designed to produce the unique product. These examples illustrate that a product design that meets customer needs, although challenging, can have a large impact on a company’s success. In fact, product design is so important that leading edge companies routinely invest in product designs well into the future. For example, Daimler Chrysler has been conducting research to design intelligent technologies for their vehicles that would have pedestrian and street sign recognition systems. This type of innovative product design can give a company a significant competitive advantage.

PRODUCT DESIGN • 55

In this chapter we will learn about product design, which is the process of deciding on the unique characteristics and features of the company’s product. We will also learn about process selection, which is the development of the process necessary to produce the designed product. Product design and process selection decisions are typically made together. A company can have a highly innovative design for its product, but if it has not determined how to make the product in a cost effective way, the product will stay a design forever.
Product design and process selection affect product quality, product cost, and customer satisfaction. If the product is not well designed or if the manufacturing process is not true to the product design, the quality of the product may suffer. Further, the product has to be manufactured using materials, equipment, and labor skills that are efficient and affordable; otherwise, its cost will be too high for the market. We call this the product’s manufacturability — the ease with which the product can be made. Finally, if a product is to achieve customer satisfaction, it must have the combined characteristics of good design, competitive pricing, and the ability to fill a market need. This is true whether the product is pizzas or cars.

᭤ Manufacturability The ease with which a product can be made.

PRODUCT DESIGN

Most of us might think that the design of a product is not that interesting. After all, it probably involves materials, measurements, dimensions, and blueprints. When we think of design we usually think of car design or computer design and envision engineers working on diagrams. However product design is much more than that. Product design brings together marketing analysts, art directors, sales forecasters, engineers, finance experts, and other members of a company to think and plan strategically. It is exciting and creative, and it can spell success or disaster for a company.
Product design is the process of defining all the features and characteristics of just about anything you can think of, from Starbuck’s cafe latte or Jimmy Dean’s sausage to GM’s Saturn or HP’s DeskJet printer. Product design also includes the design of services, such as those provided by Salazar’s Beauty Salon, La Petite Academy Day Care Center, or FedEx. Consumers respond to a product’s appearance, color, texture, performance. All of its features, summed up, are the product’s design. Someone came up with the idea of what this product will look like, taste like, or feel like so that it will appeal to you. This is the purpose of product design. Product design defines a product’s characteristics, such as its appearance, the materials it is made of, its dimensions and tolerances, and its performance standards.

Marketing, Finance
᭤ Product design The process of defining all of the product’s characteristics.

Design of Services Versus Goods
The design elements discussed are typical of industries such as manufacturing and retail in which the product is tangible. For service industries, where the product is intangible, the design elements are equally important, but they have an added dimension.
Service design is unique in that we are designing both the service and the entire service concept. As with a tangible product, the service concept is based on meeting customer needs. The service design, however, adds the esthetic and psychological benefits of the product. These are the service elements of the operation, such as prompt-

The Sony Clié is one of the latest product designs in handheld computer devices that combine portability, power, and features.

56 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

᭤ Service design The process of establishing all the characteristics of the service, including physical, sensual, and psychological benefits.

ness and friendliness. They also include the ambiance, image, and “feel-good” elements of the service. Consider the differences in service design of a company like Canyon Ranch, which provides a pampering retreat for health-conscious but overworked professionals, versus Gold’s Gym, which caters to young athletes. As with a tangible product, the preference for a service is based on its product design. Service design defines the characteristics of a service, such as its physical elements, and the esthetic and psychological benefits it provides.

THE PRODUCT DESIGN PROCESS
Certain steps are common in the development of most product designs. They are idea generation, product screening, preliminary design and testing, and final design. These steps are shown in Figure 3-1. Notice that the arrows show a circular process. Product designs are never finished, but are always updated with new ideas. Let’s look at these steps in more detail.

Idea Development
All product designs begin with an idea. The idea might come from a product manager who spends time with customers and has a sense of what customers want, from an engineer with a flare for inventions, or from anyone else in the company. To remain competitive, companies must be innovative and bring out new products regularly. In some industries, the cycle of new product development is predictable. We see this in the auto industry, where new car models come out every year, or the retail industry, where new fashion is designed for every season.
In other industries, new product releases are less predictable but just as important. The Body Shop, retailer of plant-based skin care products, periodically comes up with new ideas for its product lines. The timing often has to do with the market for a product, and whether sales are declining or continuing to grow.

FIGURE 3-1
Steps in the product design process

Ideas from Customers, Competitors, and Suppliers The first source of ideas are customers, the driving force in the design of goods and services. Marketing is a vital

Idea Development
Product idea developed; Sources can be customers,
competitors, or suppliers

Product Screening
Product idea evaluated; Need to consider operations,
marketing, and financial requirements

Preliminary Design & Testing
Product prototypes built, tested, and refined

Final Design
Final product specifications
completed

THE PRODUCT DESIGN PROCESS • 57

link between customers and product design. Market researchers collect customer information by studying customer buying patterns and using tools such as customer surveys and focus groups. Management may love an idea, but if market analysis shows that customers do not like it, the idea is not viable. Analyzing customer preferences is an ongoing process. Customer preferences next year may be quite different from what they are today. For this reason, the related process of forecasting future consumer preferences is important, though difficult.
Competitors are another source of ideas. A company learns by observing its competitors’ products and their success rate. This includes looking at product design, pricing strategy, and other aspects of the operation. Studying the practices of companies considered “best in class” and comparing the performance of our company against theirs is called benchmarking. We can benchmark against a company in a completely different line of business and still learn from some aspect of that company’s operation. For example, Lands’ End is well known for its successful catalog business, and companies considering catalog sales often benchmark against Lands’ End. Similarly, American Express is a company known for its success at resolving complaints, and it, too, is used for benchmarking.

Marketing
᭤ Benchmarking The process of studying the practices of companies considered “best in class” and comparing your company’s performance against theirs.

The importance of benchmarking can be seen by the efforts taken by IBM to improve its distribution system. In 1997 IBM found its distribution costs increasing, while customers were expecting decreasing cycle times from factory to delivery. It appeared that IBM’s supply chain practices were not keeping up with those of its competitors. To evaluate and solve this problem IBM hired Mercer Management Consultants, who performed a large benchmarking study. IBM’s practices were compared to those of market leaders in the personal computer (PC) industry, as well as to the best logistics practices outside the technology area. The objective was to evaluate IBM’s current performance, that of companies considered best-in-class, and identify the gaps. Through the study, IBM discovered which specific costs exceeded industry benchmarks and which parts of the cycle time were excessively long. It also uncovered ways to simplify and reorganize its processes to gain efficiency. Based on findings from the benchmarking effort, IBM made changes in its operations. The results were reduced costs, improved delivery, and improved relationships with suppliers. IBM found benchmarking so beneficial that it plans to perform similar types of studies on an ongoing basis in the future.

LINKS TO PRACTICE
IBM Corporation www.ibm.com

Reverse Engineering Another way of using competitors’ ideas is to buy a competitor’s new product and study its design features. Using a process called reverse engineering, a company’s engineers carefully disassemble the product and analyze its parts and features. This approach was used by the Ford Motor Company to design its Taurus model. Ford engineers disassembled and studied many other car models, such as BMW and Toyota, and adapted and combined their best features. Product design

᭤ Reverse engineering The process of disassembling a product to analyze its design features.

58 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

᭤ Early supplier involvement (ESI) Involving suppliers in the early stages of product design.
Marketing, Finance

ideas are also generated by a company’s R & D (research and development) department, whose role is to develop product and process innovation.
Suppliers are another source of product design ideas. To remain competitive more companies are developing partnering relationships with their suppliers, to jointly satisfy the end customer. For example, Daimler Chrysler chooses its suppliers well before parts are designed. Suppliers participate in a program called early supplier involvement (ESI) where suppliers are involved in the early stages of product design.
Product Screening
After a product idea has been developed it is evaluated to determine its likelihood of success. This is called product screening. The company’s product screening team evaluates the product design idea according to the needs of the major business functions. In their evaluation, executives from each function area may explore issues such as the following:
• Operations What are the production needs of the proposed new product and how do they match our existing resources? Will we need new facilities and equipment? Do we have the labor skills to make the product? Can the material for production be readily obtained?
• Marketing What is the potential size of the market for the proposed new product? How much effort will be needed to develop a market for the product and what is the long-term product potential?
• Finance The production of a new product is a financial investment like any other. What is the proposed new product’s financial potential, cost, and return on investment?
Unfortunately, there is no magic formula for deciding whether or not to pursue a particular product idea. Managerial skill and experience, however, are key. Companies generate new product ideas all the time, whether for a new brand of cereal or a new design for a car door. Approximately 80 percent of ideas do not make it past the screening stage. Management analyzes operations, marketing, and financial factors, and then makes the final decision. Fortunately, we have decision-making tools to help us evaluate new product ideas. A popular one is break-even analysis, which we look at next.

᭤ Break-even analysis A technique used to compute the amount of goods a company would need to sell to cover its costs.
᭤ Fixed costs Costs a company incurs regardless of how much it produces. ᭤ Variable costs Costs that vary directly with the amount of units produced.

Break-Even Analysis: A Tool for Product Screening Break-even analysis is a technique that can be useful when evaluating a new product. This technique computes the quantity of goods a company needs to sell just to cover its costs, or break even, called the “break-even” point. When evaluating an idea for a new product it is helpful to compute its break-even quantity. An assessment can then be made as to how difficult or easy it will be to cover costs and make a profit. A product with a break-even quantity that is hard to attain might not be a good product choice to pursue. Next we look at how to compute the break-even quantity.
The total cost of producing a product or service is the sum of its fixed and variable costs. A company incurs fixed costs regardless of how much it produces. Fixed costs include overhead, taxes, and insurance. For example, a company must pay for overhead even if it produces nothing. Variable costs, on the other hand, are costs that vary directly with the amount of units produced, and include items such as direct

THE PRODUCT DESIGN PROCESS • 59
materials and labor. Together, fixed and variable costs add up to total cost:
Total cost ϭ F ϩ (VC) Q
where F ϭ fixed cost VC ϭ variable cost per unit Q ϭ number of units sold
Figure 3-2 shows a graphical representation of these costs as well as the break-even quantity. Fixed cost is represented by a horizontal line as this cost is the same regardless of how much is produced. Adding variable cost to fixed cost creates total cost, represented by the diagonal line above fixed cost. When Q ϭ 0, total cost is only equal to fixed cost. As Q increases, total cost increases through the variable cost component. The blue diagonal in the figure is revenue, the amount of money brought in from sales:
Revenue ϭ (SP) Q
where SP ϭ selling price per unit
When Q ϭ 0, revenue is zero. As sales increase, so does revenue. Remember, however, that to cover all costs we have to sell the break-even amount. This is the quantity QBE, where revenue equals total cost. If we sell below the break-even point we incur a loss, since costs exceed revenue. To make a profit, we have to sell above the break-even point. Since revenue equals total cost at the break-even point, we can use the previous equations to compute the value of the break-even quantity:
Total cost ϭ total revenue F ϩ (VC) Q ϭ (SP) Q
Solving for Q, we get the following equation:
F QBE ϭ SP Ϫ VC
Note that we could also find the break-even point by drawing the graph and finding where the total cost and revenue lines cross.

Dollars ($)

Total Revenue

Profit

FIGURE 3-2
Graphical approach to break-even analysis

Loss

Total Cost Break-even
Quantity
Fixed Costs

QBE Quantity (in units)

60 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

EXAMPLE 3.1
Computing the Break-Even Quantity

Fred Boulder, owner of Sports Feet Manufacturing, is considering whether to produce a new line of footwear. Fred has considered the processing needs for the new product as well as the market potential. He has also estimated that the variable cost for each product manufactured and sold is $9 and the fixed cost per year is $52,000.
(a) If Fred offers the footwear at a selling price of $25, how many pairs must he sell to break even? (b) If Fred sells 4000 pairs at the $25 price, what will be the contribution to profit?
• Solution
(a) To compute the break-even quantity:
Qϭ F SP Ϫ VC
ϭ $52,000 ϭ 3250 pairs $25 Ϫ $9
The break-even quantity is 3250 pairs. This is how much Fred would have to sell to cover costs. (b) To compute the contribution to profit with sales of 4000 pairs we can go back to the relation-
ship between cost and revenue:
Profit ϭ total revenue Ϫ total cost ϭ (SP) Q Ϫ [F ϩ (VC) Q]
Profit ϭ $25 (4000) Ϫ [$52,000 ϩ $9 (4000)] ϭ $12,000
The contribution to profit is $12,000 if Fred can sell 4000 pairs from his new line of footwear.

Break-even analysis is useful for more than just deciding between different products. It can be used to make other decisions, such as evaluating different processes or deciding whether the company should make or buy a product.
Preliminary Design and Testing
Once a product idea has passed the screening stage, it is time to begin preliminary design and testing. At this stage, design engineers translate general performance specifications into technical specifications. Prototypes are built and tested. Changes are made based on test results, and the process of revising, rebuilding a prototype, and testing continues. For service companies this may entail testing the offering on a small scale and working with customers to refine the service offering. Fast-food restaurants are known for this type of testing, where a new menu item may be tested in only one particular geographic area. Product refinement can be time consuming, and there may be a desire on the part of the company to hurry through this phase to rush the product to market. However, rushing creates the risk that all the “bugs” have not been worked out, which can prove very costly.

FACTORS IMPACTING PRODUCT DESIGN • 61
Final Design
Following extensive design testing the product moves to the final design stage. This is where final product specifications are drawn up. The final specifications are then translated into specific processing instructions to manufacture the product, which include selecting equipment, outlining jobs that need to be performed, identifying specific materials needed and suppliers that will be used, and all the other aspects of organizing the process of product production.

FACTORS IMPACTING PRODUCT DESIGN
Here are some additional factors that need to be considered during the product design stage.

Design for Manufacture
When we think of product design we generally first think of how to please the customer. However, we also need to consider how easy or difficult it is to manufacture the product. Otherwise, we might have a great idea that is difficult or too costly to manufacture. Design for manufacture (DFM) is a series of guidelines that we should follow to produce a product easily and profitably. DFM guidelines focus on two issues:
1. Design simplification means reducing the number of parts and features of the product whenever possible. A simpler product is easier to make, costs less, and gives us higher quality.
2. Design standardization refers to the use of common and interchangeable parts. By using interchangeable parts we can make a greater variety of products with less inventory and significantly lower cost and provide greater flexibility. Table 3-1 shows guidelines for DFM.
An example of the benefits of applying these rules is seen in Figure 3-3. We can see the progression in the design of a toolbox using the DFM approach. All of the pictures show a toolbox. However, the first design shown requires 20 parts. Through simplification and use of modular design the number of parts required has been reduced to 2. It would certainly be much easier to make the product with 2 parts versus 20 parts. This means fewer chances for error, better quality, and lower costs due to shorter assembly time.

᭤ Design for manufacture (DFM) A series of guidelines to follow in order to produce a product easily and profitably.

DFM guidelines include the following:
1. Minimize parts. 2. Design parts for different products. 3. Use modular design. 4. Avoid tools. 5. Simplify operations.

TABLE 3-1 Guidelines for DFM

62 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION
FIGURE 3-3 Progressive design of a toolbox using DFM

᭤ Product life cycle A series of stages that products pass through in their lifetime, characterized by changing product demands over time.

Product Life Cycle
Another factor in product design is the stage of the life cycle of the product. Most products go through a series of stages of changing product demand called the product life cycle. There are typically four stages of the product life cycle: introduction, growth, maturity, and decline. These are shown in Figure 3-4.
Products in the introductory stage are not well defined and neither is their market. Often all the “bugs” have not been worked out and customers are uncertain about the product. In the growth stage, the product takes hold and both product and market continue to be refined. The third stage is that of maturity, where demand levels off and there are usually no design changes: The product is predictable at this stage and so is its market. Many products, such as toothpaste, can stay in this stage for many years. Finally, there is a decline in demand, because of new technology, better product design, or market saturation.
The first two stages of the life cycle can collectively be called the early stages of the product life cycle because the product is still being improved and refined, and the

FIGURE 3-4 Stages of the product life cycle

Early Stages of Product Life Cycle

Later Stages of Product Life Cycle
Maturity

Demand

Growth

Decline

Introduction

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Product Design and Process Selection