Designing Operations OUTLINE | Goods and Services Selection 192 Generating New Products 195 Product Development 196 Issues for Product Design 201 Product Development Continuum 203 Defining a Product 205 Documents for Production 208 Service Design 209 Application of Decision Trees to Product Design 272 Transition to Production 214 * Human Resources * Supply-Chain Management ® Inventory Management Scheduling Maintenance Managing Quality Process Strategy Location Strategies Layout StrategiesCHAPTER 5 TOU Ta) Wren} GLOBAL COMPANY PROFILE Regal Marine crty years after its founcing by potato farmer Paul Kuck, Regal Marine has become a pow- erful force on the waters ofthe world, The world’s third-largest boat manufacturer (by global sales), Regal exports to 90 countries, including Russia and China. Almost one-third of ts sales are overseas. Product design is critical in the highly competitive pleasure boat business: “We keep in touch with our customers and we re pond to the marketplace,” says Kuck. “We're intro- ducing six new models this year alone. I'd say we're defritely on the aggressive end of the spectrum.” \With changing consumer tastes, compounded by material changes and ever-improving marine engineering, the design function is under constant pressure. Added to these pressures is the J CADICAM suse to design he rain cover of anew product. This process result in aster and mare efit design end production. Here te deck, suspended from cling anes, i being fished Prior being moved Join the ul Regal one of the first tet bulers inthe word to eam the $0 9001 qualty 190Constant issue of cost competitiveness com- bined with the need to provide good value for customers. Consequently, Regal Marine is a frequent user of computer-aided design (CAD). New designs come to life via Regal’ three-cimensional CAD sys- tem, borrowed from automotive technology. Regal’s ‘aval architect's goal is to continue to reduce the ‘time from concept to prototype to production. The ‘sophisticated CAD system not only has reduced product development time and cost, but also has educed problems with tooling and production, re- suiting ina superior product. All of Rega's products, from its $14,000 19- foot boat to the $500,000 52-foot Sports yacht, follow a similar production process. Hulls and decks are separately hand-produced by spray- ing preformed moids with three to five layers of a fiberglass laminate, The hulls and decks harden and are removed to become the lower and upper structure of the boat. As they move to the assembly line, they are joined and com- ponents acded at each workstation Wooden components, precut in-house by ‘computer-criven routers, ere delivered on a just- in-time basis for installation at one station. En- {gines—one of the few purchased components— are installed at another. Racks of electrical wiring Hore he rishing touches are beng put ena mold used fr farming the fl ae (Once ahulhas been piled om the mal, travels down a manor assembly ath, JIT inventory delvers engines, wing, seats, Noon, andinterios when needed. harnesses, engineered and rigged in-house, are then installed. An in-house upholstery depart- ment delivers customized seats, beds, dash- boards, or other cushioned components. Finally, chrome fixtures are put in place, and the boat is sent to Regal’s test tank for watertight, gauge, and system inspection. ‘At he final stage, smaler boa’, suc a this one, ae placed inthis test enk, vibe a ran macrne ensures watertigt fts, 191| LEARNING to2 OBJECTIVES 9s STUDENT TIP 3 Product raogys otal twastevng compatine ‘advaige peo 5. Protuc Srey toga ne Figure 5.1 Innovation and Now Products 192 Define product life cycle 194 Describe a product development system 196 Build house of quality 197 Explain how time-based competition is implemented by OM 203 Describe how goods and services are defined by OM. 205, Describe the documents needed for production 208 Explain how the customer participates in the design and delivery of services 210 Apply decision trees to product issues 212 Goods and Services Selection Global firms like Regal Marine know that the basis for an organization's existence is the good ‘or service it provides society. Great products are the keys to success. Anything less than an excellent product strategy can be devastating to a firm. To maximize the potential for sue- ‘cess, many companies focus on only a few products and then concentrate on those products. For instance, Honda’s focus, its core competency, is engines. Virtually all of Honda’s sales (autos, motoreycles, generators, lawn mowers) are based on its outstanding engine technol- ogy. Likewise, Intel’s focus is on microprocessors, and Michelin’s is om tires. However, because most products have a limited and even predictable life cycle, companies ‘must constantly be looking for new products to design, develop, and take to market. Opera~ tions managers insist on strong communication among customer, product, processes, and suppliers that results in a high success rate for their new products. 3M's goal is to produce 30% of its profit from products introduced in the past 4 years, DuPont generates almost 40% of its revenue from produets launched in the past $ years. Benchmarks, of course, vary by industry; Regal introduces six new boats a year, and Rubbermaid introduces a new product each day! ‘The importance of new products cannot be overestimated, As Figure 5.1 shows, leading companies generate a substantial portion of their sales from products less than $ years old. The need for new products is why Gillette developed its multiblade razors, in spite of continuing high sales of its phenomenally successful Sensor razor, and why Disney continues to innovate with new rides and new parks even though it is already the world’s leading family entertain- ment company. Despite constant efforts to introduce viable new products, many new products do not suc- ceed. Product selection, definition, and design occur frequently—perhaps hundreds of times for each financially successful product, DuPont estimates that it takes 250 ideas to yield one ‘marketable product. Operations managers and their organizations build cultures that accept 8 z ‘The higher the percentage of alee from the last 8 years, the a 38 Se ‘more likely the firm is to be a ee leader 2 20m 2 10% on incuty Top. Middle Botom Noncer ies "yee" thd Position of firm in its industryCHAPTER 5 this risk and tolerate failure. They learn to accommodate @ high volume of new product ideas while maintaining the production activities to which they are already committed. Note that many service firms also refer to their offerings as products, For instance, when Allstate Insurance offers a new homeowner's policy, itis referred to as a new “product.” Simi- larly, when Citicorp opens a mortgage department, it offers a number of new mortgage “prod ucts.” Although the term products may often refer to tangible goods, it also refers to offerings by service organizations. An effective product strategy links product decisions with investment, market share, and product life cycle, and defines the breadth of the product line. The objective of the product decision is to develop and implement a product strategy that meets the demands of the marketplace with a competitive advantage. As one of the 10 decisions of OM, product strategy may focus on devel- oping a competitive advantage via differentiation, low cost, rapid response, ot a combination of these. 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 special- ize in various types of patients and medical procedures. A hospital's management may decide to operate a general-purpose hospital or a maternity hospital or, as in the case of the Canadian hospital Shouldice, to specialize in hernias. Hospitals select their products when they decide what kind of hospital to be. Numerous other options exist for hospitals, just as they exist for Taco Bell and Toyota Service organizations like Shouldice Hospital differentiate themselves through their prod~ uct. Shouldice differentiates itself by offering a distinctly unique and high-quality product. lis world-renowned specialization in hernia-repair service isso effective it allows patients to return PRODUCT DESIGN 193 ‘te STUDENT TIP etc went trough 3000 erkng medals etre eveloped ts fst pact cl pane Product decision The seezton definition, and esin of procs, i z 3 (a) Markets: in is creative way, the (b) Technology: Michelin's letest 6] Packaging: Sherwin Williams's market has moved athletic shoes trom technology: radical new tires that don't Dutch Boy has revolutionized the paint Utliterian footwear into fashionable go fat, industry with its square Twist & Pour accessories. paint container. Pho cut Th eh oy Gop Product Innovation Can Be Driven By Markets, Technology, and Packaging. Whetho itis design focused on changes in the mar~ ket (a), the application of technology at Michelin (b), or a new container at Sherwin-Wiliams (), operations managers need to remind ‘themselves that the creative process is ongoing with major production implications.194 Parr 2 | DESIGNING OPERATIONS LO4 Define product lite cycle Figure 6.2 Product Lite Cyote, Sales, Cost, and Profit Huormsl living in 8 days as opposed to the average 2 weeks—and with very few complications {The entte production system is designed for this one product. Local anesthetics are used: pa. tats enter and leave the operating room on their own; meals are served in a common dining re staat aging patients to get out of bed for meals and join fellow patients in the lounge As Shouldice demonstrates, product selection affects the entire production system, 77200 Bell has developed and executed a low-cost strategy through product design. By designing a product (its menu) that ean be produced with a minimum of labor in small Kitchen dice Bell has developed a product line that is both low cost and high value, Successful product Gesign has allowed Taco Bel to increase the food content of its products from 27¢ to 45¢ of ‘each sales dollar. Toyota's strategy is rapid response to changing consumer demand. By executing the fastest automobile design in the industry, Toyota has driven the speed of product development down to Nell under 2 years in an industry whose standard i still ver 2 years. The shorter desiga time allows Toyota to get a car to market before consumer tastes change and to do so with the latest technology and innovations Product decisions are fundamental to an organization’ strategy and have major implica- tions throughout the operations function. For instance, GM's steering columns are a good Sxample of the strong role product design plays in both quality and efficiency. The redesigned Steering column is simpler, with about 30% fewer parts than its predecessor. The results As- sembly time is one-third that of the older column, and the new column's quality is about seven times higher. As an added bonus, machinery on the new line costs a third less than that on the old fine. Product Life Cycles products are born. They live and they de, They are cast aside by a changing society. It may be helpful to think of a product's ife as divided into four phases, Those phases are introduction, growth, maturity, and decline, Product life cycles may be a matter of a few days (a concert t-shirt), months (seasonal fash: ions), years (Madden NFL football video game), or decades (Boeing 737). Regardless of the jpnath ofthe cyee, the ask forthe operations manager isthe same: to design a system that helps introduce new products sucessfully. IF the operations function cannot perform effectively at this State; the firm may be saddled with losers—products that cannot be produced efficiently and perhaps not at al {Figure 5.2 shows the four life eycle stages and the relationship of product sales, cashflow, and profit over the life cycle of a product. Note that typically a firm has a negative cash flows While it develops a product. When the product is successful, those losses may be recovered, Fventualy, the successful product may yield a profit prior to is decline. However, the profit is fleeting—hence, the constant demand for new products, Life Cycle and Strategy just as operations managers must be prepared to develop new products, they must also be prepared to develop strategies for new and existing products. Periodic examination of ‘Cost of development and production Sales reverue / / Sales, cost, and cash flow Introduction | Growth | Maturty | BeelineCHAPTER 5 products is appropriate because strategies change as products move through their life cycle Successful product strategies require determining the best strategy for each product based on its position in its life eycle. A firm, therefore, identifies products or families of products and their position in the life cycle. Let us review some strategy options as products move through their life cycles. Introductory Phase Because products in the introductory phase are still being “fine- tuned” for the market, as are their production techniques, they may warrant unusual expen- ditures 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 c: pacity to accommodate the increase in product demand may be necessary Maturity Phase By the time a product is mature, competitors are established. So high- volume, innovative produetion may be appropriate. Improved cost control, reduction in op- tions, 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.! Product-by-Value Analysis The effective operations manager sclects items that show the greatest promise. This is the Pareto principle applied to product mix: Resources are to be invested in the critical few and not the trivial many. Product-by-ralue analysis lists products in descending order of their indi- vidual dollar contribution to the firm, It also lists the total annual dollar contribution of the product. Low contribution on a per-unit basis by a particular product may look substantially different if it represents a large portion of the company's sales. A product-by-value report allows management to evaluate possible strategies for each product. These may include increasing cash flow (c.g., increasing contribution by raising sell- ing price or lowering cost), increasing market penetration (improving quality and/or reducing cost or price), or reducing costs (improving the production process). The report may also tell management which product offerings should be eliminated and which fail to justify further in- ‘vestment in research and development or capital equipment. Produet-by-value analysis focuses attention on the strategic direction for each product PRODUCT DESIGN 195 Product-by-value analysis Ali of products, n escen ing order of ter indvdulcla. crit to the fm, as wall 2s {he oa ann cer cernduton of th pret, Generating New Products deerme re 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, defini- tion, and design take place on a continuing basis. Consider recent product changes: TV to HDTV, radio to satellite radio, coffee shops to Starbucks lifestyle coffee, traveling circuses to Cirque du Soleil, landlines to cell phones, cell phone to iPhone, Walkman to iPod, mops to Swilfers—and the list goes on. Knowing how to successfully find and develop new products is a requirement. "Contribution is defined asthe difference between direct cost and selling price. Direct costs are labor and ‘material tht go into the product. Socets reward thse wo suply nw produc hat rele the nes,196 PART 2 | DESIGNING OPERATIONS LO2 Describe a product development system Quality function deployment (FD) A proces fr determining tuster reeuiemerts(ustomer vant") and trast then nto the atiibates the hows) Pat ach uncial stand and act House of quality A pat of the quality function Cepayment process at utes a Panning mati to oat customer "wants to “how the fim is ping ‘to meet these “wants, Aggressive new product development requires that organizations build structures internally that have open communication with customers, innovative product develop- ment cultures, aggressive R&D, strong leadership, formal incentives, and training. Only then can a firm profitably and energetically focus on specifie opportunities such as the following: 1. Understanding the customer is the premier issue in new-product development. Many com- mercially important products are initially thought of and even prototyped by users rather than producers. Such products tend to be developed by “lead users”—companies, or zations, or individuals that are well ahead of market trends and have needs that go far beyond those of average users. The operations manager must be “tuned in” to the market, and particularly these innovative lead users. 2. Economic change brings increasing levels of affluence in the long run but economic cycles and price changes in the short run. In the long run, for instance, more and more people can afford automobiles, but in the short run, a recession may weaken the demand for automobiles, 3. Sociological and demographic change may appear in such factors as decreasing family size. This trend alters the size preference for homes, apartments, and automobiles. 4. Technological change makes possible everything from cell phones to iPads to artificial hearts 5. Political and legal change brings about new trade agreements, tarifis, and government requirements, 6 Other changes may be brought about through market practice, professional standards, suppliers, and distributors. Operations managers must be aware of these dynamics and be able to anticipate changes in product opportunities, the products themselves, product volume, and product mix Product Development Product Development System An effective product strategy links product decisions with other business functions, such as R&D, engineering, marketing, and finance. A firm requires cash for product development, an understanding of the marketplace, and the necessary human talents. The product develop ment system may well determine not only product success but also the firm's future. Figure 5.3 shows the stages of product development. In this system, product options go through a series ‘of steps, each having its own screening and evaluation criteria, but providing a continuing flow of information to prior steps. Optimum product development depends not only on support from other parts of the firm but also on the successful integration of all 10 of the OM decisions, from product design to maintenance. Identifying products that appear likely to capture market share, be cost- effective, and be profitable but are, in fact, very difficult to produce may lead to fuilure rather than success. Quality Function Deployment (QFD) ‘uaity function deployment (QFD) refers to both (1) determining what will satisfy the customer and (2) translating those customer desires into the target design. The idea is to capture a rich understanding of customer wants and to identify alternative process solutions. This information is then integrated into the evolving product design. 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, a graphic technique for defining the relation- ship between customer desires and product (or service). Only by defining this relationship in a rigorous way can managers design products and processes with features desired by customers.CHAPTER 5 WK Wy to acta secret Z WS Product specifications: How the protect bs made Scope ‘for %Y, ‘cesign Y yy Y naa Design ig: Nees vos) egbing 7 Z cefeators tre test way fo ee! d ar isomer equematte? pe ] YY Y GY ‘meet customer expectations? ZY Y juction rainin« Y AWN Y \ Evaluation: Success? eee Defining this relationship is the first step in building a world-class production system. To build the house of quality, we perform seven basie steps: 1, Identify customer wants. (What do customers want in this product?) 2, Identily how the goodiservice will satisfy customer wants. (Identify specific product characteristics, features, or attributes and show how they will satisfy customer wants.) 3. Relate customer wants to product hows. (Build a matrix, as in Example 1, that shows this relationship.) 4. Identify relationships between the firm’s hows. (How do our hows tie together? For instance, in the following example, there is a high relationship between low electricity requirements and auto focus, auto exposure, and number of pixels because they all require electricity. This relationship is shown in the “roof” of the house in Example 1.) 5. Develop importance ratings. (Using the customer's importance ratings and weights for the relationships shown in the matrix, compute our importance ratings, as in Example 1.) 6. Evaluate competing products. (How well do competing products meet customer wants? Such an evaluation, as shown in the two columns on the right of the figure in Example 1, would be based on market research.) 7. Determine the desirable technical attributes, your performance, and the competitor's performance against these attributes. (This is done at the bottom of the figure in Example 1.) PRODUCT DESIGN 197 Figure 5.3 Product Dovelopment Stages Product once ra dewoped ‘roma varity of sores, toh ‘etal an tral tote te, Concepts tat sure the product dea stage progres trough vus stage, vi early constart ve, feethack and eran in high partatve envaament to iii ale LOS Build a house of qualitya 198 PART 2 DESIGNING OPERATIONS Example 1 vera. Fst, through market research, Great area, In, aterinad what the castomer wants. Tose wants ae shown nthe let afte house faulty ‘Secon, he product evelopment ‘eum ceterined how the organization is going to translate ‘hove customer want int product sign and procs atibute targets. “hase hows ae entered zens he ‘op prion of hehause of quality. ‘The following series of overlays for Example | show how to construct a house of quality. CONSTRUCTING A HOUSE OF QUALITY Great Cameras, Inc., wants a methodology that strengthens its ability to meet customer desires with its new digital camera, APPROACH ® Use QFD's house of quality SOLUTION ® Build the house of quality for Great Cameras, Inc, We do so here using Overlays 1, 2, 3,and 4 ‘Quality Function Deployment's (QFD) House of Quality, Rolationship botwoon ‘he things we can do What we can do (how the organization 'S going to vanslate feustomar wants into icustones product and process are atiibutes and cee design targets) What the customer How well what we do meets the customors, warts, (eelationship matrix) | | i | | i Weigrted ring198 PART 2 DESIGNING OPERATIONS The following series of overlays for Example 1 show how to construct a house of quality. Sane Example 1 CONSTRUCTING A HOUSE OF QUALITY Great Cameras, Inc., wants a methodology that strengthens its ability to meet customer desires with its new digital camera, | APPROACH B Use QFD's house of quality ta Fest hgh ae | teeter eethmatt SOLUTION Build thc hovse of quality for Great Cameras, Tac. We do so hers wang Overay 1,2, dermis vate customer 3.and 4. wants. Those wants are shown on tele of the nouse of ually. ‘Second the prose deronment i eee See eee organization is going to transtate bs (Gen) 7 | Sc ieee Renny tan @ Horror) Reet cras move the things we can do (© Medium relationship (5) | | * Low relationship (1) ee a is ooo ae Sion pee : cpue mre Sees es rare ees ae eae ‘house, indicates the relationship ratings design targets) between the atributes. Fh, the (S=nighest) oe p orues wae Bae Gee cee ee on a5 se ee Se stencnee | So - penne eas [amet oe The velusin he “Our importnce ay t0use ad pee sises Sores : eae reat ‘ves being the most real to ‘what we do successtl product meets the as oe as a was exe Qxs) | | |198 Parr 2 | DESIGN! ING OPERATIONS ‘The following series of overlays for Example I show how to construct a house of quality. EEE I Example 1 Overtay 1 Fret, trough arkat research, Great Cameras Ic ‘ermied wat the customer ants. Those wans are shou ‘on eet of the house of uty. ‘Second, the product development team determines ow te ‘rganazatonis goin ta tans ‘ose eustmer wan into product Build the house of quality for Great Cameras, Inc. We do so here using Overlays 1,2 Cdtemied viet casomer 3, and 4 vans. These wan ae sown ntl ofte hue of uy Sect te pod devepeat team cetera tbe feces pe a rgzieenis ong to tarsate ‘Gtity Function Deployments (GFD) Houes of Quality thse coe wats pratt des and proces abe rye. Thess hoard ashe Felatonship between © Hen ratonsrp (6) top prin ofthe hose of quay. the things we can do © Medium rlatonship (3) | ac * Low lationship (1) | dveay2 Ti team ates a fzeh etme wars epanst What we ean do (how the organization the hows. nt elationsip mati 's going to translate othe nouse, th team erst customer wants into how wali éesion mets cisomer Customer need Fourth, he “ea ofthe importance Desctone nove howe inde the etostip ratings ‘design targets) tweets abt. bo ae ‘eam ceveopet importance ratings (G=hignes!) forts deson atts te What the ator ro fie Tis was ane by assning vas (fei, Ser metum and oro wach | extn eltomip aan | | or mutiphjeg ea of eso vas | byteaustones importers aa Compative i | Thevaesinte“Ow importance sesezsrent ‘igs ru rose = arking a hoo proces win pod ans proces des, with gest How wot "aes ba he mst cal 2 what me do | Rosset pedut n meets he I Gh customers Overtay 3. Sixth, the house of quality, wants is aso used forthe evaluation of {relationship omg Te v9 clues on mati) ‘bergtingcalePow mare, zion research thinks competitors, A and = 2 Bais cube wane God, 25-005) t Fat or Peo) Pros rom ober erga | trnsandeven be roocsed product carte add nee corpary 3. | ovat. seer tan | oust cc aes | omeuresan | Gleason teams | Skeeter Hoste te ced oe ed weal conan