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Mark M.

Davis
Janelle Heineke

OPERATIONS MANAGEMENT
INTEGRATING MANUFACTURING AND SERVICES
FIFTH EDITION

PowerPoint Presentation by
Charlie Cook, The University of West Alabama
Copyright ©2005, The McGraw-Hill Companies, Inc.

CHAPTER

6

New Product and
Service Development,
and Process Selection

PowerPoint Presentation by Charlie Cook
The University of West Alabama
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.

CHAPTER OBJECTIVES
• Illustrate the importance of developing new products and
services to a firm’s competitiveness.
• Identify the types of new products that companies
develop.
• Introduce the new product design process and the
concept of a product’s life cycle.
• Demonstrate the necessity of concurrent product and
process design as a new product or service is developed.
• Present a framework for understanding how new services
are developed and introduced into the marketplace.
Copyright © 2005 The McGraw-Hill

McGraw-Hill/Irwin

Managerial Issues
• Competition in globalized markets
– Pursuing a product differentiation strategy.

• Product life cycles becoming shorter.
– Engaging in continuous product development as
new products become a majority of sales and
profits.
– Having flexibility in manufacturing processes

• Increasing demand for services
– Increasing the efficiency and reducing the costs of
delivering services.
– Effectively using the Internet to deliver extend
current services and offer new services.
Copyright © 2005 The McGraw-Hill

McGraw-Hill/Irwin

Continued Emphasis on
New Goods and Services
• Increased Competition
– Improved worldwide telecommunications
– Better logistics; faster transportation of goods
– Lower trade barriers (import duties and tariffs)
and the creation of trade organizations (NAFTA
and European Union)

• Advances in Technology
– Products are becoming obsolete faster.
– Improved manufacturing processes: CAD, CAM,
industrial robots, and rapid prototyping.
Copyright © 2005 The McGraw-Hill

McGraw-Hill/Irwin

• Price Premiums – Ability to initially charge more for new products. • Quick Reaction to Competition – Rapid response to competitor’s new products.The Benefits of Introducing New Products Faster • Greater Market Share – Early entry captures large initial market share. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . • Set Industry Standards – Initial product sets market/industry standards.

The Impact of Speed to Market on Sales Copyright © 2005 The McGraw-Hill Exhibit 6.1a McGraw-Hill/Irwin .

1b McGraw-Hill/Irwin .The Impact of Speed to Market on Profit Margins Copyright © 2005 The McGraw-Hill Exhibit 6.

The Impact of Speed to Market on Gross Profits Copyright © 2005 The McGraw-Hill Exhibit 6.1c McGraw-Hill/Irwin .

– Help ensure near-term cash flows by maintaining current market share.Categories of New Products • Incremental or Derivative Products – Are hybrids or enhancements of existing products. – Require minimal changes in design or process. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . allowing for quick development. – Require fewer resources to develop new features or functions.

• Require more resources to develop.Categories of New Products • Next Generation or Platform Products – Represent new “system” solutions for customers. • Breakthrough or Radical Products – Create new product categories as core businesses. – Render existing products obsolete in long-term. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . – Require substantial design and process change. • Are key to continued product revenue growth.

– Convert ideas to reliable functional designs.The New Product Development (NPD) Process • New Product Development Process – The method by which new products evolve from conceptualization through engineering to manufacturing and marketing. • Market Success Depends on NPD – Continuously generate new product ideas. – Ensure that the designs are readily producible. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . – Select the processes most compatible with customer needs.

2 McGraw-Hill/Irwin . from Fast Cycle Time: How to Align Purpose. a Division of Simon & Schuster Adult Publishing Group. and Structure for Speed by Christopher Meyer. All rights reserved.Sequential Flow of Activities in Product Design and Process Selection Source: Reprinted with the permission of The Free Press. Copyright © 2005 The McGraw-Hill Exhibit 6. Copyright © 1993 by Christopher Meyer. Strategy.

The New Product Development (NPD) Process • Concurrent Engineering – The simultaneous and coordinated efforts of all functional areas which accelerates the time to market for new products. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

3 McGraw-Hill/Irwin .Concurrent Engineering Approach to NPD Copyright © 2005 The McGraw-Hill Exhibit 6.

– Analysis of the market and customer requirements.The New Product Development (NPD) Process (cont’d) • Idea Generation – Market pull: the “voice of the customer” in providing feedback to determine product specifications. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . • Concept Development – Initial product design developed and tested. – Technology push: a product developed by the firm’s R&D is “pushed” into the market.

– Customer feedback is used in the QFD process to determine product specifications.The New Product Development (NPD) Process (cont’d) • Quality Function Deployment (QFD) – The process for translating customer requirements into a product’s design. • Customer attributes: – Product needs – Product preferences Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

• Facilitate interfunctional cooperation. – Use of QFD teams • Identify important customer attributes.The New Product Development (NPD) Process (cont’d) • House of Quality – The part of the QFD process that uses customer feedback for product design criteria. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . • Design superior product. • Shorten product design time.

Completed House of Quality Matrix for a Car Door Copyright © 2005 The McGraw-Hill Exhibit 6.4 McGraw-Hill/Irwin .

– Get project/program approved by management Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . – Conduct detailed investment and financial analyses of product’s anticipated life cycle. – Test new elements and components.The New Product Development (NPD) Process (cont’d) • New Product Planning – Build models of new product.

• Reduced costs for later engineering changes • Increased efficiencies in choosing most effective production processes Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .The New Product Development (NPD) Process (cont’d) • Early Design Collaboration – Benefits of partnering with suppliers and customers • Reduced engineering costs of product design.

30–38.” Supply Chain Management Review. “Deconstruction of the Supply Chain. Copyright © 2005 The McGraw-Hill Exhibit 6. Reed Business Information. Copyright © 2000. pp. November/December 2000.Comparing Traditional and Collaborative Approaches to Bringing New Products to Market Source: Adapted from Navi Radjou. Used with permission.5 McGraw-Hill/Irwin .

The New Product Development (NPD) Process (cont’d) • Design for Manufacturability (DFM) – Choosing manufacturing methods and materials. – Minimizing the number of individual parts: • Reduces assembly time. – Setting product specifications. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . • Output from the design activity that states all criteria for building a product. • Increases reliability.

January 14. “Managing at the Starting Line: How to Design Competitive Products. 7.Design Change to Reduce the Number of Parts in a Bracket Source: Bart Huthwaite.6 McGraw-Hill/Irwin . p. Copyright © 2005 The McGraw-Hill Exhibit 6. 1991.” Workshop at the University of Southern California–Los Angeles.

assembly-line and continuous operations).g. job and batch operations).g. – Line-flow process • Continuous process that produces high volume. highly standardized products (e.. – Intermittent process • Process that produces products in small lot sizes (e.. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .Process Selection in Manufacturing • Types of Processes – Project process • Process that focuses on making one-of-a-kind products.

7 McGraw-Hill/Irwin .Types of Processes Copyright © 2005 The McGraw-Hill Exhibit 6.

Process Selection in Manufacturing • The Product-Process Matrix – High production volumes and narrow product lines make specialized equipment and standardized materials economically feasible. • Remaining in a process niche after the product cycle has advanced to its next stage dooms a firm to market failure. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

8 McGraw-Hill/Irwin . John Wiley & Sons.Matching Major Stages of Product and Process Life Cycles Source: Adapted from Robert Hayes and Steven Wheelwright. Inc. Inc. 1984). This material is used by permission of John Wiley & Sons. Restoring Our Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons. Copyright © 2005 The McGraw-Hill Exhibit 6. Copyright © 1984.

9 McGraw-Hill/Irwin .Product and Process Life Cycles Copyright © 2005 The McGraw-Hill Exhibit 6.

10 McGraw-Hill/Irwin .Types of Incremental and Radical Services Copyright © 2005 The McGraw-Hill Exhibit 6.

– Style changes • Modest forms of new services that change only the appearance of the service. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .Categories of New Services • Incremental services – Service line extensions • New services that augment current services. – Service improvements • New services in which features have changed relative to existing services.

– New services for current markets • Added services to current customers.Categories of New Services (cont’d) • Radical – Major innovations • New services in markets not fully defined. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . – Start-up services • New services in established markets already served by existing services.

A Framework for Categorizing New Services Copyright © 2005 The McGraw-Hill Exhibit 6.11 McGraw-Hill/Irwin .

Categories of New Services Service Category Content Change “Window Dressing” Not significantly different from other services Delivered in similar fashion Breadth of Offering Significant design change in content of service Delivered in similar fashion Revolutionary New in both content and delivery method Channel Development Delivery of same/existing service through a different/new channel Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

• • • • Design Analysis Development Full launch Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .The New Service Development (NSD) Process • New Service Development (NSD) Process – The method by which new services evolve from conceptualization through to marketing and delivery to the customer.

The New Service Development (NSD) Process Stage Activity Design Formulating the objectives and strategy of the new service. Analysis Considering the financial implications of the new service. Development Testing the service design. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . conducting pilot runs. training personnel. Examining supply chain issues for delivery of service. Full Launch Releasing the service to the market place.

• Creation of the Service – The work process involved in providing the service. • Extent of Contact – The percent of time the customer is involved relative to the time required to deliver the service.The Customer Contact Approach to Designing Service Processes • Customer Contact – The presence of the customer in the system. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

The Customer Contact Approach to Designing Service Processes High HighDegree Degree of ofCustomer Customer Contact Contact High Low LowDegree Degree of ofCustomer Customer Contact Contact Percentage of customer contact (customer influence on the system) Difficulty in managing system Copyright © 2005 The McGraw-Hill Low McGraw-Hill/Irwin .

Major Differences between High.and LowContact Systems in a Bank Copyright © 2005 The McGraw-Hill Exhibit 6.12 McGraw-Hill/Irwin .

Major Differences between High.12 (cont’d) McGraw-Hill/Irwin .and LowContact Systems in a Bank (cont’d) Copyright © 2005 The McGraw-Hill Exhibit 6.

a higher degree of customer interaction and customization. has a relatively low degree of customer interaction. • Mass service – A high degree of labor intensity.Service Process Matrix: Categories of Services • Service factory – Low degree of labor intensity and a low degree of customer interaction and customization. • Service shop – Low degree of labor intensity. • Professional service – A high degree of labor intensity and a high degree of customer interaction and customization. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

13 McGraw-Hill/Irwin . pp. Schmenner. no. “How Can Service Businesses Survive and Prosper?” Sloan Management Review 27. by permission of publisher.The Service Process Matrix Source: Roger W. Copyright © 2005 The McGraw-Hill Exhibit 6. 3 (Spring 1986). 21–32. Copyright 1986 by Massachusetts Institute of Technology. All rights reserved.

Designing a New Service Organization • “Service Vision” (Heskett) – Identification of the target market • Who is our customer? – Defining the service concept • How do we differentiate our service in the market? – Developing the service strategy • What is our service package and its operating focus? – Creating the service delivery system • What processes. and facilities are needed? Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . staff.

– The service package is the major output of NSD. – Service organizations can change their service offerings very rapidly. – Service operations cannot be copyrighted to protect them from imitation by competitors. – Prior training strongly influences the service package.Designing a New Service Organization (cont’d) • Differences in service design and manufacturing product development: – Service design and process development are simultaneous. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

14 McGraw-Hill/Irwin .Service-System Design Matrix Copyright © 2005 The McGraw-Hill Exhibit 6.

Enabling systematic integration of operations and marketing strategy. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . 2. 4. Clarifying exactly which combination of service delivery the firm is actually providing.Strategic Uses of the Matrix 1. Indicating evolutionary or life cycle changes that might be in order as the firm grows. Providing flexibility. Permitting comparison with other firms in the way specific services are delivered. 5. 3.

• Field-based services that provide on-site services to customers. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .Process Selection in Services • Types of Service Organizations – Service businesses • Facilities-based services that provide assistance to customers who come to the service facility. – Internal services • Provide services for other internal organizational units. – Customer support services • Provide product information and services to current external customers.

• The Personal Attention Approach – The central focus is complete customer attention and satisfaction at all times. • The Customer Involvement Approach – Having the customer take a greater participatory role in the production of the service.Process Selection in Services (cont’d) • The Production Line Approach – Orientation is toward the efficient production of results—precisely controlled execution of the “central function”. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin .

Common Characteristics of Well-Designed Service Systems 1. 2. It is structured so that consistent performance by its people and systems is easily maintained. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . It provides effective links between the back office and the front office so that nothing falls between the cracks. It is robust—capable of coping with variations in demand and resources availability 4. 3. It is user-friendly—customers can interact easily. 5. Each element of the service system is consistent with the operating focus of the firm.

Common Characteristics of Well-Designed Service Systems (cont’d) 6. It is cost-effective—there is a minimum waste of time and resources in delivering the service. It manages the evidence of service quality in such a way that customers see the value of the service provided. Copyright © 2005 The McGraw-Hill McGraw-Hill/Irwin . 7.