Opening Prayer

Dear Lord, We give you thanks for

bringing us together in this virtual
space. May your light shine
through our words and actions as
we learn and grow together. Help
us to always seek out new ways of
learning and sharing in the spirit of
unity and love. Amen.

https://amosii.com/teachers-prayer-before-class-online-
class-or
.
.
Attendance
 Product and
Service Innovation
REVIEW: CHAPTER 4
References:
Design Evaluation and
Improvement

➢Computer-aided design (CAD)

➢CAD systems provide the computer-aided ability to create and
modify product drawings.
➢These systems allow conventionally used shapes such as
points, lines, arcs, circles and text to be added to a computer-
based representation of the product
➢Once incorporated into the design, these entities can be
copied, moved about, rotated through angles, magnified or
deleted.
➢The designs thus created can be saved in the memory of the
system and retrieved for later use.
 Design Evaluation and Improvement

➢Alpha and beta testing

➢ Most software products include both alpha and beta test phases, both of which are intended to
uncover ‘bugs’ errors in the product.
➢ Alpha testing is essentially an internal process where the developers or manufacturers examine
the product for errors.
➢ Although it is intended to look for errors that otherwise would emerge when the product is in use,
it is in effect performed in a virtual or simulated environment, rather than in ‘the real world’.
➢ After alpha testing, the product is released for beta testing.
➢ Beta testing is when the product is released for testing by selected customers.
➢ It is an external ‘pilot test’ that takes place in the ‘real world’ before commercial production.
➢ By the time a product gets to the beta stage most of the worst defects should have been
removed, but the product may still have some minor problems that may only become evident with
user participation.
➢ Beta testing is also sometimes called ‘field testing’, pre-release testing, customer validation,
customer acceptance testing, or user acceptance testing.
 Benefits of Interactive Product and Service
Innovation

➢ It is generally considered a mistake to separate product and service design

from process design.
➢ Merging the stages of the design innovation process is sometimes called
‘interactive design’.
➢ The main benefit of merging stages is seen to be a reduction in the elapsed
time for the whole design innovation activity, from concept through to market
introduction -often called the time to market (TTM).
➢ The argument in favor of reducing time to market is that doing so gives
increased competitive advantage.
Three factors in particular have been
suggested which can significantly
reduce time to market for a service or
product:

▪ Simultaneous development of the

various stages in the overall process.

▪ An early resolution of design conflict

and uncertainty.

▪ An organizational structure which

reflects the development project.
 Benefits of Interactive Product and
Service Innovation

Simultaneous development
▪ We described the design innovation
process as essentially a set of
individual, predetermined stages,
each with a clear starting and an
ending point.
▪ Indeed, this step-by-step, or
sequential, approach has traditionally
been the typical form of
product/service development.
▪ The process is easy to manage and
control because each stage is clearly
defined.
▪ In addition, each stage is completed
before the next stage is begun, so
each stage can focus its skills and
expertise on a limited set of tasks
 Benefits of Interactive Product and Service
Innovation

Early conflict resolution

▪ Characterizing the design innovation activity as a
whole series of decisions is a useful way of
thinking about design
▪ However, a decision, once made, need not totally
and utterly commit the organization.
▪ Under those circumstances the designers might
very well want to change their decision.
▪ There are other, more avoidable, reasons for
designers changing their minds during the design
activity, however.
▪ Perhaps one of the initial design decisions was
made without sufficient discussion among those
in the organization who have a valid contribution
to make.
 Benefits of Interactive Product and Service
Innovation

Project-based organizational
structures
▪ The total process of developing concepts
through to market will almost certainly
involve personnel from several different
areas of the organization.
▪ All these different functions will have some
part to play in making the decisions which
will shape the final design.
▪ Yet any design project will also have an
existence of its own.
▪ It will have a project name, an individual
manager or group of staff who are
championing the project, a budget and,
hopefully, a clear strategic purpose in the
organization.
 Project-based Organizational Structures

➢Some members of a design team may even be

from other companies.
➢In between these two extremes there are various
types of matrix organization with varying emphasis
on these two aspects of the organization
➢Although the ‘task force’ type of organization,
especially for small projects, can sometimes be
a little cumbersome, it seems to be generally
agreed that, for substantial projects at least, it is
more effective at reducing overall time to market.
➢One well-known organizational structure that is
claimed to release the design and development
creativity of a group has been called ‘a
Skunkworks’.
➢It is usually taken to mean a small team who are
taken out of their normal work environment and
granted freedom from their normal management
activities and constraints – what we have called
here a pure ‘project-based’ structure
Coffee Break ( five minutes)
 Chapter 5
The Structure And Scope Of
Operation
Learning Outcomes
▪Define “structure” and “scope” of operations supply
networks
▪Describe the supply network configuration
▪Understand the capacity level of the operations
▪Recognize the importance of the location to the
operation
▪Explain how vertically integrated should an operation’s
network be.
▪Describe what to do in-house and what to outsource.
 Structure and Scope of Operations
Supply Networks
▪Both the structure and the scope of an operation’s
supply network are decisions that shape how the
operation interacts with other operations, with its
markets, with its suppliers
▪All operations are part of a larger and interconnected
network of other operations.
▪ This is called the operation’s supply network.
▪ It will include the operation’s suppliers and
customers.
▪At a strategic level, operations managers are involved
in deciding the shape and form of their network.
▪ This is called the structure of the network.
▪ It involves deciding the overall shape of the
network, the location of each operation, and how
big the parts of the network that the operation owns
should be.
 Structure and Scope of
Operations Supply Networks
➢The ‘structure’ of an operation’s supply network
relates to the shape and form of the network.
➢The scope of an operation’s supply network
relates to the extent that an operation decides to
do the activities performed by the network itself,
as opposed to requesting a supplier to do them .
➢The structure and scope of an operation’s supply
network is important because it helps an
understanding of competitiveness, it helps identify
significant links in the network, and it helps focus
on long-term issues.
 Why is the structure and scope of an
operation’s supply network important?

1. It helps an understanding of
competitiveness
2. It helps identify significant links
in the network
3. It helps focus on long-term issues
 The structure of an operation’s supply
network is determined by three sets of
decisions:
▪ How should the network be configured?
▪ What physical capacity should each part of the network have (the long-term
capacity decision)?
▪ Where should each part of the network be located (the location decision)?

➢The scope of an operation’s activities within the network is determined by

two decisions:
◦ The extent and nature of the operation’s vertical integration.
◦ The nature and degree of outsourcing it engages in
 Supply Network Configuration
▪Configuring’ a supply network means determining its overall pattern.
▪Even when an operation does not directly own, or even control, other
operations in its network, it may still wish to change the shape of the
network.
▪ This involves attempting to manage network behavior by reconfiguring
the network so as to change the nature of the relationships between
them.
▪ Reconfiguring a supply network sometimes involves parts of the
operation being merged – not necessarily in the sense of a change of
ownership of any parts of an operation, but rather in the way
responsibility is allocated for carrying out activities.
Supply Network Configuration
➢Disintermediation
➢Another trend in some supply networks is that of companies within a network
bypassing customers or suppliers to make contact directly with customers’
customers or suppliers’ suppliers. ‘Cutting out the intermediaries’ in this way is
called disintermediation.

➢Co-opetition
➢One approach to thinking about supply networks sees any business as being
surrounded by four types of players: suppliers, customers, competitors and
complementors. Complementors enable one’s products or services to be valued
more by customers because they also can have the complementor’s products or
services, as opposed to when they have yours alone.
➢All the players in the network, whether they are customers, suppliers,
competitors or complementors, can be both friends and enemies at different
times. The term used to capture this idea is ‘co-opetition’.
Supply Network Configuration
The idea of the ‘business ecosystem’
▪ An idea that is closely related to that of co-opetition in supply networks is
that of the ‘business ecosystem’.
▪ It can be defined as: ‘An economic community supported by a foundation of
interacting organizations and individuals – the organisms of the business
world.
▪ The economic community produces goods and services of value to
customers, who are themselves members of the ecosystem.
▪ The member organisms also include suppliers, lead producers, competitors,
and other stakeholders.
▪ Over time, they coevolve their capabilities and roles, and tend to align
themselves with the directions set by one or more central companies.
 Supply Network
Configuration
Describing supply networks – dyads and triads
There are many operations, all interacting in different ways, to produce
end products and services.
To understand better, supply network professionals often choose to
focus on the individual interaction between two specific operations in
the network.
This is called a ‘dyadic’ (simply meaning ‘two’) interaction, or dyadic
relationship, and the two operations are referred to as a ‘dyad’.
Triads have been proposed as the smallest unit of a network because
they make possible the analysis of the impact of a third party on a
relationship between two other exchange partners (Mena et. al., 2013)
Supply Network Configuration
Even when an operation does not directly own other operations in its
network, it may still wish to change the shape of the network by
reconfiguring it so as to change the nature of the relationships.
Changing the shape of the supply network may involve reducing the
number of suppliers to the operation so as to develop closer
relationships, and bypassing or disintermediating operations in the
network.
One may also use the idea of complementors that enable one’s
products or services to be valued more by customers because they also
can have the complementor’s products or services.
An idea that is closely related to that of co-opetition in supply networks
is that of the ‘business ecosystem’, defined as: ‘An economic community
supported by a foundation of interacting organizations and individuals.’
 The Capacity of the
Operations Plan
➢The amount of capacity an organization will have depends on its view
of current and future demand. It is when its view of future demand is
different from current demand that this issue becomes important.
➢When an organization has to cope with changing demand, a number of
capacity decisions need to be taken. These include choosing the
optimum capacity for each site, balancing the various capacity levels of
the operation in the network, and timing the changes in the capacity of
each part of the network.
➢ Important influences on these decisions include the concepts of
economy and diseconomy of scale
➢Economy of scale - a proportionate saving in costs gained by an
increased level of production.
The Capacity Level of the
Operations Plan
➢Operations principle:
➢All types of operation exhibit economy of scale effects
where operating costs reduce as the scale of the capacity
increases
➢Diseconomies of scale increase operating costs above a
certain level of capacity resulting in a minimum cost level
of capacity
➢Capacity-leading strategies increase opportunities to
meet demand. Capacity –lagging strategies increase
capacity utilization.
➢Using inventories to overcome demand-capacity
imbalance tends to increase working capital requirements
 The Capacity Level of the Operations
Plan
Changing the capacity of any operation in supply network is not just a
matter of deciding on its optimum capacity. The operation also needs to
decide when to bring new capacity on –stream. In deciding when new
capacity is to be introduced the company can mix three strategies
➢Capacity is introduced generally to lead demand – timing the introduction
of capacity in such a way that there is always sufficient capacity to meet
forecast demand.
➢Capacity is introduced generally to lag demand – timing the introduction of
capacity so that demand is always equal to or greater than capacity.
➢ Capacity is introduced to sometimes lead and sometimes lag demand,
but inventory built up during the ‘lead’ times is used to help meet demand
during the ‘lag’ times. This is called ‘smoothing with inventory’.
❖An alternative view of capacity expansion can be gained by examining the cost
implications of adding increments of capacity on a break-even basis
Capacity of Operations Plan
The Location of the
Operations

➢When operations change their location, their

assumption is that the potential benefits of a new
location will outweigh any cost and disruption
involved in changing location.
➢When operations do move, it is usually because
of changes in demand and/or changes in supply.
➢The factors that determine a location are such
things as labor, land and utility costs, the image of
the location, its convenience for customers and the
suitability of the site itself.
 Reasons For Location Decisions

1. Changes in Demand - A change in location may be prompted by customer

demand shifting. For example, as garment manufacture moved to Asia,
suppliers of zips, threads, etc., started to follow them. Changes in the volume
of demand can also prompt relocation. To meet higher demand, an operation
could expand its existing site, or choose a larger site in another location, or
keep its existing location and find a second location for an additional
operation; the last two options will involve a location decision.
The Objectives of the Location
Decisions

The aim of the location decision is to achieve an appropriate

balance between three related objectives:
➢The spatially variable costs of the operation (spatially
variable means that something changes with
geographical location).
➢The service the operation is able to provide to its
customers.
➢The revenue potential of the operation.
The location decision for any operation is
determined by the relative strength of a number
of factors, as follows:
❖labor cost
❖labor skills availability
❖land costs
❖energy costs
❖transportation costs
❖community factors
❖the suitability of the site itself
❖image of the location
❖convenience for customers
Vertically integrated operation network
How Vertically Integrated should an
Operation’s Network be?
➢The scope to which an operation controls its
supply network is the extent that it does things
itself as opposed to relying on other operations to
do things for it. This is often referred to as ‘vertical
integration’.
➢ An organization’s vertical integration strategy can
be defined in terms of the direction of integration,
the extent of integration, and the balance among
the vertically integrated stages.
➢The decision as to whether to vertically integrate
is largely a matter of a business balancing the
advantages and disadvantages as they apply to it.
 The Perceived Advantages of Vertical
Integration
It secures dependable access to
supply or markets
It may reduce costs
It may help to improve product or
service quality
It helps in understanding other
activities in the supply network
 How do Operations Decide What to do In-
house and What to Outsource?

➢ Theoretically ‘vertical integration’ and

‘outsourcing’ are the same thing.
➢ Vertical integration is ‘the extent to which an
organization owns the network of which it is a
part’.
➢ Outsourcing is ‘an arrangement in which one
company provides services for another
company that could also be, or usually have
been, provided in-house’. It is based on the idea
that no single business does everything that is
required to produce its products and services.
Outsourcing
Outsourcing is also known as the ‘do-or-buy’ decision. It has become an
important issue for most businesses.
Many indirect and administrative processes are now being outsourced.
This is often referred to as business process outsourcing (BPO). Financial
service companies in particular are outsourcing some of their more
routine back-office processes. In a similar way many processes within
the HR function, from simply payroll services through to more complex
training and development processes, are being outsourced to specialist
companies.
 Outsourcing
The processes may still be physically
located where they were before, but
the outsourcing service provider
manages the staff and technology.
The reason for doing this is often
primarily to reduce cost.
What is the difference between
vertical integration and outsourcing?

It is largely a matter of scale and direction

Vertical integration is a term that is usually applied to whole operations.
So, buying a supplier because you want to deny its products to a
competitor, or selling the part of your business that services your
products to a specialist servicing company that can do the job better, is
a vertical integration decision.
Outsourcing usually applies to smaller sets of activities that have
previously been performed in-house. Deciding to ask a specialist
laboratory to perform some quality tests that your own quality control
department used to do, or having your call (contact) center taken over
and run by a larger call center company, are both outsourcing decisions.
How do operations decide what to do in-
house and what to outsource?
➢Outsourcing is ‘an arrangement in which one company
provides services for another company that could also be,
or usually have been, provided in-house’ .
➢The difference between vertical integration and
outsourcing is largely a matter of scale and
➢direction .
➢Like the vertical integration decision, it is often a matter of
balancing advantages against disadvantages under
particular circumstances .
➢Assessing the advisability of outsourcing should also
include consideration of the strategic importance of the
activity and the operation’s relative performance
Making the Outsourcing
Decision
Assessing the advisability of outsourcing should include how it impacts
relevant performance objectives.
Operations in different circumstances with different objectives are likely
to take different decisions.
Assessing the advisability of outsourcing should include consideration of
the strategic importance of the activity and the operation’s relative
performance
Two supply network strategies that are often confused are those of
outsourcing and offshoring. Outsourcing means deciding to buy in
products or services rather than perform the activities in-house.
Offshoring means obtaining products and services from operations that
are based outside one’s own country.