Operations

Management
Chapter 5 –
Design of Goods
and Services

© 2008 Prentice Hall, Inc. 5– 1

 Learning Objectives
When you complete this chapter you should be able
to :

1. Define product life cycle

2. Describe a product development system
3. Build a house of quality
4. Describe how time-based competition is
implemented

© 2008 Prentice Hall, Inc. 5– 2

 Learning Objectives
When you complete this chapter you should be able
to :

5. Describe how products and services are

defined
6. Prepare the documents needed for
production
7. Describe customer participation in the
design and production of services
8. Apply decision trees to product issues

© 2008 Prentice Hall, Inc. 5– 3

 Product Decision
☑ The good or service the organization
provides society
☑ Top organizations typically focus on core
products
☑ Customers buy satisfaction, not just a
physical good or particular service
☑ Fundamental to an organization's strategy
with implications throughout the
operations function

© 2008 Prentice Hall, Inc. 5– 4

 Product Strategy Options

☑ Differentiation
☑ Shouldice Hospital
☑ Low cost
☑ Taco Bell
☑ Rapid response
☑ Toyota

© 2008 Prentice Hall, Inc. 5– 5

 Product Life Cycles

☑ May be any length from a few

hours to decades
☑ The operations function must be
able to introduce new products
successfully

© 2008 Prentice Hall, Inc. 5– 6

 Product Life Cycles

Cost of development and production

Sales revenue
Sales, cost, and cash flow

Net revenue (profit)

Cash
flow

Loss

Introduction Growth Maturity Decline

Figure 5.1
© 2008 Prentice Hall, Inc. 5– 7
 Product Life Cycle
Introduction
☑ Fine tuning may warrant
unusual expenses for
☑ Research
☑ Product development
☑ Process modification and
enhancement
☑ Supplier development

© 2008 Prentice Hall, Inc. 5– 8

 Product Life Cycle
Growth

☑ Product design begins to

stabilize
☑ Effective forecasting of capacity
becomes necessary
☑ Adding or enhancing capacity
may be necessary

© 2008 Prentice Hall, Inc. 5– 9

 Product Life Cycle
Maturity

☑ Competitors now established

☑ High volume, innovative
production may be needed
☑ Improved cost control,
reduction in options, paring
down of product line

© 2008 Prentice Hall, Inc. 5 – 10

 Product Life Cycle
Decline

☑ Unless product makes a special

contribution to the organization,
must plan to terminate offering

© 2008 Prentice Hall, Inc. 5 – 11

 Product Life Cycle Costs
100
Costs committed
–

80 –
Percent of total cost

Costs incurred
60 –

40 –

Ease of change
20 –

0– Concept Detailed Manufacturing Distribution,

design design service,
prototype and disposal
© 2008 Prentice Hall, Inc. 5 – 12
 Product-by-Value Analysis
☑ Lists products in descending order of their
individual dollar contribution to the firm
☑ Lists the total annual dollar contribution
of the product
☑ Helps management evaluate alternative
strategies

© 2008 Prentice Hall, Inc. 5 – 13

 Product-by-Value Analysis
Niño’s Furniture Factory

Individual Total Annual

Contribution ($) Contribution ($)
Love Seat $102 $36,720
Arm Chair $87 $51,765
Foot Stool $12 $6,240
Recliner $136 $51,000

© 2008 Prentice Hall, Inc. 5 – 14

 Generating New Product
1. Understanding the
customer
2. Economic change
3. Sociological and
demographic change s
i n g i
4. Technological change i n s t o rm
Bra l t o o l
a u s ef u
5. Political/legal change
6. Market practice, professional
standards, suppliers, distributors
© 2008 Prentice Hall, Inc. 5 – 15
 Importance of New Products
Percentage of Sales from New Products
50%

40%

30%

20%

10%

Industry Top Middle Bottom

leader third third third
Position of Firm in Its Industry Figure 5.2
© 2008 Prentice Hall, Inc. 5 – 16
 New Products at Disney
50 –
Millions of visitors Figure 5.2

40 – Magic Kingdom
Combined data only prior to 1993
Epcot
30 – Disney-MGM Studios
Animal Kingdom

20 –

10 –

0–

84 86 88 90 92 94 96 98 00 02 04
© 2008 Prentice Hall, Inc. 5 – 17
 Product Development System
CONCEP
T Figure 5.3
Feasibility

Customer Requirements

Functional Specifications

Scope of Product Specifications Scope for

product design and
Design Review engineering
development
teams
team Test
Market
Introduction

Evaluatio
© 2008 Prentice Hall, Inc.
n 5 – 18
 Quality Function Deployment
☑ Identify customer wants
☑ Identify how the good/service will satisfy customer
wants
☑ Relate customer wants to product hows
☑ Identify relationships between the firm’s hows
☑ Develop importance ratings
☑ Evaluate competing products
☑ Compare performance to desirable technical attributes

© 2008 Prentice Hall, Inc. 5 – 19

 QFD House of Quality
Interrelationships
Customer
importance
How to satisfy
ratings
customer wants

Competitive
assessment
What the Relationship
customer matrix
wants

Target values Weighted

rating
Technical
evaluation
© 2008 Prentice Hall, Inc. 5 – 20
 House of Quality Example
Your team has been charged with designing
a new camera for Great Cameras, Inc.
The first action is
to construct a
House of Quality

© 2008 Prentice Hall, Inc. 5 – 21

 Interrelationships

How to Satisfy

House of Quality Example Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
What the Attributes and
Evaluation
customer wants

Customer
importance
rating
(5 = highest)
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color correction 1

© 2008 Prentice Hall, Inc. 5 – 22

 Interrelationships

How to Satisfy

House of Quality Example Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation
Low electricity requirements

Aluminum components

How to Satisfy
Ergonomic design Customer
Wants
Auto exposure

Paint pallet
Auto focus

© 2008 Prentice Hall, Inc. 5 – 23

 Interrelationships

How to Satisfy

House of Quality Example Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

High relationship Technical

Attributes and
Evaluation
Medium relationship
Low relationship

Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color corrections 1

Relationship matrix

© 2008 Prentice Hall, Inc. 5 – 24

 Interrelationships

How to Satisfy

House of Quality Example Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Relationships between
the things we can do

Low electricity requirements

Aluminum components

Ergonomic design
Auto exposure

Paint pallet
Auto focus

© 2008 Prentice Hall, Inc. 5 – 25

 Interrelationships

How to Satisfy

House of Quality Example Customer Wants

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
Color corrections 1
Our importance ratings 22 9 27 27 32 25

Weighted rating

© 2008 Prentice Hall, Inc. 5 – 26

 Interrelationships

How to Satisfy
Customer Wants

House of Quality Example

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Company A

Company B
How well do competing products
meet customer wants

Lightweight 3 G P
Easy to use 4 G P
Reliable 5 F G
Easy to hold steady 2 G P
Color corrections 1 P P
Our importance ratings 22 5
© 2008 Prentice Hall, Inc. 5 – 27
 Interrelationships

How to Satisfy
Customer Wants

House of Quality Example

Competitors
Analysis of
What the
Relationship
Customer
Matrix
Wants

Technical
Attributes and
Evaluation

Failure 1 per 10,000

Panel ranking
Target values
(Technical

2 circuits
2’ to ∞
attributes)

0.5 A

75%
Company A 0.7 60% yes 1 ok
Technical
evaluation G
Company B 0.6 50% yes 2 ok F
© 2008 Prentice Hall, Inc.
Us 0.5 75% yes 2 ok G 5 – 28
 House of Quality Example

Low electricity requirements

Aluminum components

Ergonomic design
Auto exposure

Paint pallet

Company A

Company B
Auto focus
Completed Lightweight 3 G
House of Easy to use 4
Reliable 5 P
Quality Easy to hold steady 2 G
Color correction 1
Our importance ratings 22 9 27 27 32 25 P
F

Failure 1 per 10,000

Target values G

Panel ranking
(Technical G
attributes)

2 circuits
2’ to ∞
0.5 A
75%
P
Company A 0.7 60% yes P
Technical 1 ok G
evaluation
Company B 0.6 50% yes P
© 2008 Prentice Hall, Inc. 2 ok F 5 – 29
 House of Quality Sequence
Deploying resources through the organization in
response to customer requirements

Quality
plan
Production
process

Production
Specific
House 4

process
components

components
House 3

Specific
Design
characteristics

characteristics
House 2
Design
requirements
Customer

House 1

Figure 5.4

© 2008 Prentice Hall, Inc. 5 – 30

 Organizing for Product
Development
☑ Historically – distinct departments
☑ Duties and responsibilities are defined
☑ Difficult to foster forward thinking
☑ A Champion
☑ Product manager drives the product through the
product development system and related
organizations

© 2008 Prentice Hall, Inc. 5 – 31

 Organizing for Product
Development
☑ Team approach
☑ Cross functional – representatives from all
disciplines or functions
☑ Product development teams, design for
manufacturability teams, value engineering teams
☑ Japanese “whole organization” approach
☑ No organizational divisions

© 2008 Prentice Hall, Inc. 5 – 32

 Manufacturability and
Value Engineering
☑ Benefits:
1. Reduced complexity of products
2. Additional standardization of products
3. Improved functional aspects of product
4. Improved job design and job safety
5. Improved maintainability (serviceability) of the
product
6. Robust design

© 2008 Prentice Hall, Inc. 5 – 33

 Cost Reduction of a Bracket via
Value Engineering

Figure 5.5
© 2008 Prentice Hall, Inc. 5 – 34
 Issues for Product Development

☑ Robust design
☑ Modular design
☑ Computer-aided design (CAD)
☑ Computer-aided manufacturing (CAM)
☑ Virtual reality technology
☑ Value analysis
☑ Environmentally friendly design

© 2008 Prentice Hall, Inc. 5 – 35

 Robust Design

☑ Product is designed so that small

variations in production or assembly
do not adversely affect the product
☑ Typically results in lower cost and
higher quality

© 2008 Prentice Hall, Inc. 5 – 36

 Modular Design
☑ Products designed in easily segmented
components
☑ Adds flexibility to both production and
marketing
☑ Improved ability to satisfy customer
requirements

© 2008 Prentice Hall, Inc. 5 – 37

 Computer Aided Design (CAD)
☑ Using computers to design
products and prepare
engineering
documentation
☑ Shorter development
cycles, improved accuracy,
lower cost
☑ Information and designs
can be deployed
worldwide

© 2008 Prentice Hall, Inc. 5 – 38

 Extensions of CAD
☑ Design for Manufacturing and Assembly (DFMA)
☑ Solve manufacturing problems during the design
stage
☑ 3-D Object Modeling
☑ Small prototype
development
☑ CAD through the
internet
☑ International data
exchange through STEP

© 2008 Prentice Hall, Inc. 5 – 39

 Computer-Aided Manufacturing
(CAM)
☑ Utilizing specialized computers and
program to control manufacturing
equipment
☑ Often driven by the CAD system
(CAD/CAM)

© 2008 Prentice Hall, Inc. 5 – 40

 Benefits of CAD/CAM

1. Product quality
2. Shorter design time
3. Production cost reductions
4. Database availability
5. New range of capabilities

© 2008 Prentice Hall, Inc. 5 – 41

 Virtual Reality Technology
☑ Computer technology used to develop an
interactive, 3-D model of a product from the
basic CAD data
☑ Allows people to ‘see’ the finished design before
a physical model is built
☑ Very effective in large-scale designs such as plant
layout

© 2008 Prentice Hall, Inc. 5 – 42

 Value Analysis
☑ Focuses on design improvement during
production
☑ Seeks improvements leading either to a better
product or a product which can be produced
more economically

© 2008 Prentice Hall, Inc. 5 – 43

 Sustainability and Life Cycle
Assesment
It is possible to enhance productivity, drive
down costs, and preserve resources

Effective at any stage of the product life cycle

☑ Design
☑ Production
☑ Destruction

© 2008 Prentice Hall, Inc. 5 – 44

 Goals for Environmentally Friendly
Designs

1. Develop safe and more environmentally sound

products
2. Minimize waste of raw materials and energy
3. Reduce environmental liabilities
4. Increase cost-effectiveness of complying with
environmental regulations
5. Be recognized as a good corporate citizen

© 2008 Prentice Hall, Inc. 5 – 45

 Guidelines for Environmentally
Friendly Designs
1. Make products recyclable
2. Use recycled materials
3. Use less harmful ingredients
4. Use lighter components
5. Use less energy
6. Use less material

© 2008 Prentice Hall, Inc. 5 – 46