New Product Development

1) Exercise. In order to implement a plan a workshop has to manufacture preliminary models

for the test objectives. To make a particular component requires an overhead (fixed) cost of
USD5000 and a variable unit cost of USD6.50 per unit. What is the total cost and the
average cost of producing a lot of 3000? If the selling price is USD15 per unit, what is the
break-even point? (5 grades)

Unit (average) cost= total cost/ number of units

Total cost = fixed cost + (variable cost per unit) * (number of units)
Total cost = fixed cost/number of units + variable cost per unit

Total cost = USD 5000 + (USD 6.50 * USD 3000)

Total cost = USD 24,500
Average cost = USD 24,500/3000 = USD 8.17 per unit

Break-even point: Let X = number of units sold

USD15*X=USD5000+USD6.5*X
USD8.50*X=USD5000 X=588.2 units.
Break-even occurs when 588.2 units are made and sold.

2) Exercise. A new innovative product component made on a particular work center has a
setup time of 100 minutes and a run time of 3 minutes per piece. An order for 1500 is to be
processed on 2 machines simultaneously. The machines can be set up at the same time.
Calculate the elapsed operation time. (5 grades)

Elapsed operation time=100+3*(1500/2)=2350 min=39h and 10min.

3) Exercise. Production of the construction bricks, thousand cubic meters, is indicated in the
table below mentioned. What control measures can be implemented in Risks Assessment
techniques to recover brickworks in case of the economic recession in Azerbaijan in the
years 2021-2022? Apply the Risks Assessment using the MS Excel template. (5 grades)

2012 2013 2014 2015 2016 2017 2018 2019

213. 388.
2 450 426.1 280.6 234.1 303.1 7 462.8

4) Exercise. A manufacturing enterprise is planning to introduce an Emission Monitoring and

Reporting equipment which is connected via the internet on an offshore oil platform in
Azerbaijan in the year 2021. Apply the Reporting technique form using MS Excel. What are
the probable prevention measures and risk assessment in case of the low sales and
unexpected failure of this equipment? (5 grades)

See MS Excel Table.

5) Essay. Analysis of new product development concepts in the manufacturing industry. (5

grades)

MBA_PRT 1203_New Product Development_ Midterm _____ _____________, 2021 Page 1

The PCP is a comprehensive product development management process. It characterizes all areas of
product creation while maintaining the focus of customer requirements. The aim of the process is to
ensure that all information necessary for an efficient and effective short-term and long-term plan is
collected at the right time. The process is performed on a product category basis and project-oriented,
which means each category is handled individually and a new project is created each time the process
is initiated. In a given product category, all projects are managed by a company manager who is
responsible for the project progress.

The PCP consists of four phases, including steps, activities and control points to be addressed during
product development. The aim of the first phase (strategic market planning) is to make sure
opportunities are clearly identified and prioritized by creating a strategic market plan for the category
of products. In addition to industry analyzes, the plan is based on corporate pre-requisites (for
example, strategy for product innovation, brand and design, and global needs).

Phase two involves parallel steps: business and primary development. During the business
opportunity step, customer insight gained an understanding of customer needs in the specific product
category. The case company uses a range of techniques such as observations, surveys and assessments
to gather client insights. Observations are preferable, as the behavior observed is richer than the
behaviour. Such research, however, is difficult to employ, because local product production processes
develop global products and demands can vary significantly from region to region. The case company
then seeks to identify the means by which products that meet the identified needs are developed. It
then describes the requirements and proposes a solution in a project proposal (PP). There is a product
council in each product category to decide whether or not proposed project for product development is
accepted. Technical solutions are developed in the primary development category to create verified
ideas or hardware solutions for the relevant product development projects.

The third phase (development of products) is aimed at developing products based on an accepted
project proposal. The phase consists of three phases, each with several phases. Each phase comprises
several activities that need to be addressed and a check point must be passed before the project is
approved in the next phase.

The aim of the first step (project specification) is to develop a requirement specification based on the
project proposal and to later carry out several theoretical examinations of how the specification can be
carried out. In this step the most information is gathered to ensure an efficient process forward
loading. This strategy is defensible, as the projects at this stage are still quite cheap. The product
specifications for the information collected and theoretical studies are then verified. This means that
more than one product development project can result from a project proposal. Prototyping refers to
the production of a prototype of the verified product specification as a last stage in the draft
specification step. The prototypes are highly accurate and several tests are performed. Cross-
functional teams from several departments, including acquisition, manufacturing, service, laboratory,
research and development are involved in these tests. The next step is project industrialization if the
prototype is accepted. This step is different in length between categories of products. The case
company must invest in real machinery and tools during the industrialisation step. These investments
can be quite extensive, and it is thus important to make the industrialization step in both cost and time
as efficient as possible so as to provide income as quickly as possible.

The project is approved for the final stage of manufacturing after the case company has secured the
processes. So the company is now beginning to produce and market the product. The case company
continually assesses the results at the beginning of this stage to determine whether any changes or
improvements are necessary. The company also assesses whether or not the project has been
successful during this assessment period. The project is finally closed and production goes on. The
aim of the final phase is to ensure that the product range is updated to life cycles and obsolete
products are properly updated. The final phase (phase-out) These two goals depend on a consistent
follow-up.

MBA_PRT 1203_New Product Development_ Midterm _____ _____________, 2021 Page 2