Operations and Supply Chain Management 15th Edition

Chapter 3 – Design of Products and Services
CHAPTER 3
DESIGN OF PRODUCTS AND SERVICES
Discussion Questions
1. Describe the generic product development process described in this chapter. How does this
process change for technology push products?
Products that are developed using the “technology push” would be more narrowly focused in
phase 0 and phase 1 of Marketing. The focus would be narrower because you would only
look at market segments that could benefit from the application of your technology. The rest
of the generic process may be somewhat less complex as well since the technology of the
product currently exists in your manufacturing facilities
2. How does the QFD approach help? What are some limitations of this approach?
QFD helps to get the voice of the customer into the design process using interfunctional
teams. The limitations of QFD relate to the culture of the organization. In the United States,
we tend to be vertically oriented and try to promote breakthrough. This can work against
interfunctional teamwork, which is needed for QFD success. If a breakthrough culture can be
maintained with a continuous improvement mentality through interfunctional teams, this
would lead to tremendous improvements in productivity.
3. Discuss the product design philosophy behind industrial design and design for manufacture
and assembly. Which one do you think is more important in a customer-focused product
development?
Industrial design is concerned with designing a product from the end-user’s point of view,
such as aesthetics and user-friendliness of the product. Design for manufacturability, on the
other hand, makes the product design less complicated and easier to manufacture. Very
often it results in fewer parts, smaller size, increased reliability, and lower cost.
Both philosophies are equally important for a customer-focused product development. In

order to attract customers, the product must be aesthetically pleasing and user-friendly
(industrial design). However, to sustain customer interests, it should also have a lower cost
and higher reliability (design for manufacturability).
4. Discuss design-based incrementalism, which is frequent product redesign throughout the

product’s life. What are the pros and cons of this idea?
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Pro: enhanced function, higher quality, and lower cost through continuously advancing
technology.
Con: time and money spent on frequent product and process redesigns, low priority given in
servicing the existing and older products. Consumer reaction to frequent changes may be
negative.
5. Do the concepts of complexity and divergence apply to an online sales company such as Dell
Computer?
Due to the size of Dell and the number of market segments they serve, these concepts
certainly apply. Consider as one example the technical support process for an existing
customer. Service can vary from very simple like an individual customer needing a particular
driver for her new computer to very complex in troubleshooting a network load problem in a
server farm for an Internet service provider. In the first example there is a straightforward
solution to the problem in emailing the customer a copy of the driver. In the latter, the
service process may be quite divergent, with the process being adapted based on the
symptoms of the problem and the skill of the customer’s technical workforce.
For a pure sales company like Amazon, the complexity and divergence would be much less.
6. What factors must be traded off in the product development process before introducing a
new product?
The factors that need careful attention for new products are product performance,
development speed, product cost, and development program expense. Smith and Reinertsen
identify six pairs of trade-offs in their book. These include all possible pairs among the four
factors noted above.
7. Coca-Cola is a well-established consumer products company with a strong position in the

global market. The sales of their core soda products have remained relatively stable for
decades, yet the company has continued to grow and has remained extremely profitable.
Discuss Coca-Cola’s history in light of the statement that “generating a steady stream of new
products to market is extremely important to competitiveness.” Does Coca-Cola’s success
disprove that statement? Is the company an exception to the rule or an example of its
application?
By growing into a global company, one could argue they have been introducing new
products into markets they never served before, even though the products are not new to the
company. They have also grown by acquisition of other drink companies and introduction of
new drink products outside of their core soda business. As the products are not subject to
great innovation or technological advances, Coca-Cola has needed to expand their product
lines and global reach to continue to grow.
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Objective Questions
1. Which phase of the generic development process involves construction and evaluation of
multiple preproduction versions of the product?
Testing and refinement
2. A process that emphasizes cross-functional integration and concurrent development of a

product and its associated processes is known as _________________________.
Concurrent engineering
3. Match the following product types to the appropriate product development description.
Entail unusually large uncertainties about the technology or market. The

B Technology-push products A:
development process takes steps to address those uncertainties.
A firm with a new proprietary technology seeks out a market where that
E Platform products B:
technology can be applied.
Uses a repeated prototyping cycle. Results from one cycle are used to modify
D Process-intensive products C:
priorities in the ensuing cycle.
The production process has an impact on the product properties. Therefore,

A High-risk products D:
product design and process design cannot be separated.
Products are designed and built around a preexisting technological

C Quick-build products E:
subsystem.
4. Designing products for aesthetics and with the user in mind is generally called what?
Industrial design
5. The first step in developing a house of quality is to develop a list of

______________________.
customer requirements for the product
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6. The purpose of value analysis/value engineering is to

_________________________________.
simplify products and processes
7. What is it about service processes that makes their design and operation so different from
manufacturing processes?
Direct customer involvement in the process
8. What are the three general factors that determine the fit of a new or revised service
process?
Service experience fit, operational fit, and financial impact.
9. Measures of product development success can be organized in what three categories?
Time to market, productivity, quality.
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10. Tuff Wheels Kiddy Dozer
a. Base case
Project Schedule Year 1 Year 2 Year 3 Year 4
Kiddy Dozer Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Development 333 333 333
Pilot Testing 100 100
Ramp-up 200 200
Marketing and
38 38 38 38 38 38 38 38 38 38 38 38 38
Support
Production
15 15 15 15 15 15 15 15 15 15 15 15
Volume
Unit Production
100 100 100 100 100 100 100 100 100 100 100 100
Cost
150 150 150 150 150 150 150 150 150 150 150 150
Production Costs
0 0 0 0 0 0 0 0 0 0 0 0
Sales Volume 15 15 15 15 15 15 15 15 15 15 15 15
Unit Price 170 170 170 170 170 170 170 170 170 170 170 170
255 255 255 255 255 255 255 255 255 255 255 255
Sales Revenue
0 0 0 0 0 0 0 0 0 0 0 0
101 101 101 101 101 101 101 101 101 101 101 101
Period Cash Flow -333 -333 -633 -338
3 3 3 3 3 3 3 3 3 3 3 3
PV Year 1 r = 8 -333 -327 -609 -318 935 917 899 881 864 847 831 814 798 783 767 752
Project NPV 8503
b. The results are shown below for both scenarios. If sales are only 50,000 then the project is
still worthwhile since the NPV decrease to $6,759,000. If Tuff Wheels has under estimated
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the sales and it ends up being 70,000 per year then NPV will increase from $8,503,000 base
case to $10,247,000 with the higher sales rate.
Sales Revised to 50,000 per Year
Ramp-up 200 200
Marketing and
38 38 38 38 38 38 38 38 38 38 38 38 38
Support
Production Volume 13 13 13 13 13 13 13 13 13 13 13 13
Unit Production
100 100 100 100 100 100 100 100 100 100 100 100
Cost
125 125 125 125 125 125 125 125 125 125 125 125
Production Costs
0 0 0 0 0 0 0 0 0 0 0 0
Sales Volume 13 13 13 13 13 13 13 13 13 13 13 13
Unit Price 170 170 170 170 170 170 170 170 170 170 170 170
212 212 212 212 212 212 212 212 212 212 212 212
Sales Revenue
5 5 5 5 5 5 5 5 5 5 5 5
Period Cash Flow -333 -333 -633 -338 838 838 838 838 838 838 838 838 838 838 838 838
PV Year 1 r = 8 -333 -327 -609 -318 774 759 744 729 715 701 687 674 660 647 635 622
Project NPV 6759
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Sales Revised to 70,000 per Year
Ramp-up 200 200
Marketing and
38 38 38 38 38 38 38 38 38 38 38 38 38
Support
Production
18 18 18 18 18 18 18 18 18 18 18 18
Volume
Unit Production
100 100 100 100 100 100 100 100 100 100 100 100
Cost
175
Production Costs 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750
0
Sales Volume 18 18 18 18 18 18 18 18 18 18 18 18
Unit Price 170 170 170 170 170 170 170 170 170 170 170 170
297
Sales Revenue 2975 2975 2975 2975 2975 2975 2975 2975 2975 2975 2975
5
118
Period Cash Flow -333 -333 -633 -338 1188 1188 1188 1188 1188 1188 1188 1188 1188 1188 1188
8
PV Year 1 r = 8 -333 -327 -609 -318 1097 1076 1054 1034 1014 994 974 955 936 918 900 882
Project NPV 10247
c. The impact of changing the interest rate is shown below. There is still a positive NPV but it
shrinks the interest rate increases. This would be expected since a higher the interest rate
reduces the present value of future cash flows.
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Base Case 8% $8,503,043
9% $8,283,241
10% $8,069,666
11% $7,862,116
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11. Perot Corporation Patay2 Chip.
a. In the base case the Patay2 Chip Project has a very good NPV of $10,460,000, see below.
Patay2 Chip 1st half 2nd half 1st half 2nd half 1st half 2nd half 1st half 2nd half
Development Cost 5,000 5,000 5,000 5,000
Pilot Testing Cost 2,500 2,500
Debug Cost 1,500 1,500
Ramp-up Cost 3,000
Advance Marketing Cost 5,000
Ongoing Marketing and Support 500 500 500 500
Production Volume 125 125 75 75
Unit Production Cost 655 655 545 545
Production Costs 81,875 81,875 40,875 40,875
Sales Volume 125 125 75 75
Unit Price 820 820 650 650
Sales Revenue 102,500 102,500 48,750 48,750
Period Cash Flow -5,000 -5,000 -9,000 -17,000 20,125 20,125 7,375 7,375
PV Year 1 r = 12 -5,000 -4,762 -8,163 -14,685 16,557 15,768 5,503 5,241
Project NPV 10,460
b. Additional 10 million for higher price is clearly worthwhile as it raises the NPV from $10.46
million to $16.654 million. See results below.
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Ramp-up Cost 3,000
Unit Price 870 870 700 700
Sales Revenue 108,750 108,750 52,500 52,500
Period Cash Flow -7,500 -7,500 -11,500 -19,500 26,375 26,375 11,125 11,125
PV Year 1 r = 12 -7,500 -7,143 -10,431 -16,845 21,699 20,666 8,302 7,906
Project NPV 16,654
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c. Reduced sales estimates have a significant impact on the NPV. It reduces the NPV all
the way down to $10,000. The success of the Patay2 Chip is very dependent on the sales
estimates. It would be wise for Perot to make sure that there is sufficient demand for
Patay2 Chips.
Ramp-up Cost 3,000
Unit Price 820 820 650 650
Sales Revenue 82,000 82,000 32,500 32,500
Period Cash Flow -5,000 -5,000 -9,000 -17,000 16,000 16,000 4,750 4,750
PV Year 1 r = 12 -5,000 -4,762 -8,163 -14,685 13,163 12,536 3,545 3,376
Project NPV 10
12. Answers will vary based upon the product selected and the student. Issues that should be
considered in the design and manufacture of a product include design process (traditional
vs. concurrent engineering), customer needs and expectations, legal considerations (EPA,
OSHA, etc.), service life, reliability, appearance, standardization, any industry standards that
should be considered (e.g., television set and the type of signal received from stations),
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method of shipment, material cost and availability, stage of the product life cycle, design for
manufacturability, design for assembly, packaging, environmental, unit cost, pricing,
availability of purchased material, availability of capacity, availability of subcontractors,
setup cost, manufacturing time, volume, and expected product life.
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13. Answers may vary. Following is just one possible result.
Grounds maintenance Tournament Activities

(per text)
Helpful service
attendants
Fair handicapping
system
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CASE: IKEA: Design and Pricing
Questions:
1. What are IKEA”s competitive priorities?
Probably the key priority is maximizing value to the customer in each product offered through
their stores. Low cost is certainly a major priority as well.
2. Describe IKEA’s process for developing a new product.
This is described in the case: (1) Pick a price, (2) Choose a manufacturer, (3) Design the product,
(5) Ship it. The key here is to recognize that they pick a price point early in the product
development process and then work with a manufacturer to ensure they can meet this price
point. This is a very innovative approach to product design.
3. What are additional features of the IKEA concept (beyond their design process) that
contribute to creating exceptional value for the customer?
Customer can easily view the product in a setting similar to theirs (i.e. apartments) in the IKEA
store. Also, the product can be easily brought home by the customer eliminating delivery and
setup charges. This creates more value in the product by eliminating these costs.
4. What would be important criteria for selecting a site for an IKEA store?
Need to be located in a high density area where many people live in smaller apartments where
space is a premium. The IKEA products really appeal to young, affluent customers.
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CASE: Dental Spa
Questions:
1. Which one of the three new service requirements would a dental spa least likely pass: service
experience fit, operational fit, or financial impact? Why?
The dental spa is least likely to have operational fit because new personnel must be hired and
the layout of current operations must be changed in order to offer this new service. Although
service experience fit might seem logical, distracting the patient from possible pain would
improve the service experience of the core service, dentistry. Often the services are given away.
Dental Associates must “buy in” to the new services and see the obvious patient comfort
benefits to the dental business and experience.
2. What are some of the main areas of complexity and divergence in this kind of operation
relative to the standard dental clinic?
Complexity: By providing two services at once, the complexity is automatically increased. For
example, if cleaning teeth requires two steps and a hand massage requires one, then together
the new service at the dental spa would take three steps. Besides just being a combination of
two services normally provided separately, timing or coordination issues could add extra steps to
this new process. However some steps, such as billing, would be combined in comparison to
two services and it might be simple addition (often these services are free and do not affect
billing).
Divergence: Any customer service that can possibly inflict pain, such as a visit to a dentist,
requires a large degree of judgment on the part of the service provider of how best to deal with
a painful situation. For example, some patients need empathy. Almost completely opposite, a
visit to a spa can be like going to a psychiatrist as a customer tells their problems as they are
getting their manicure. This allows for divergence as a customer service provider must decide
how to react to hearing all of the issues in someone’s life. However, being at the dentist would
limit this verbal interaction much like a dentist who only asks questions when he has instruments
in the patients mouth preventing a real answer.
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Chapter 3 – Design of Products and Services

DESIGN OF PRODUCTS AND SERVICES

Both philosophies are equally important for a customer-focused product development. In

4. Discuss design-based incrementalism, which is frequent product redesign throughout the

7. Coca-Cola is a well-established consumer products company with a strong position in the

Testing and refinement

2. A process that emphasizes cross-functional integration and concurrent development of a

Entail unusually large uncertainties about the technology or market. The

The production process has an impact on the product properties. Therefore,

Products are designed and built around a preexisting technological

5. The first step in developing a house of quality is to develop a list of

customer requirements for the product

6. The purpose of value analysis/value engineering is to

simplify products and processes

Direct customer involvement in the process

Service experience fit, operational fit, and financial impact.

9. Measures of product development success can be organized in what three categories?

Time to market, productivity, quality.

10. Tuff Wheels Kiddy Dozer

Project Schedule Year 1 Year 2 Year 3 Year 4

Development 333 333 333

Pilot Testing 100 100

Ramp-up 200 200

Project NPV 8503

Sales Revised to 50,000 per Year

Project Schedule Year 1 Year 2 Year 3 Year 4

Development 333 333 333

Pilot Testing 100 100

Ramp-up 200 200

Project NPV 6759

Sales Revised to 70,000 per Year

Project Schedule Year 1 Year 2 Year 3 Year 4

Development 333 333 333

Pilot Testing 100 100

Ramp-up 200 200

Project NPV 10247

Base Case 8% $8,503,043

11. Perot Corporation Patay2 Chip.

Project Schedule Year 1 Year 2 Year 3 Year 4

Development Cost 5,000 5,000 5,000 5,000

Pilot Testing Cost 2,500 2,500

Debug Cost 1,500 1,500

Ramp-up Cost 3,000

Advance Marketing Cost 5,000

Ongoing Marketing and Support 500 500 500 500

Production Volume 125 125 75 75

Unit Production Cost 655 655 545 545

Production Costs 81,875 81,875 40,875 40,875

Sales Volume 125 125 75 75

Unit Price 820 820 650 650

Sales Revenue 102,500 102,500 48,750 48,750

PV Year 1 r = 12 -5,000 -4,762 -8,163 -14,685 16,557 15,768 5,503 5,241

Project NPV 10,460

Project Schedule Year 1 Year 2 Year 3 Year 4

Development Cost 7,500 7,500 7,500 7,500

Pilot Testing Cost 2,500 2,500

Debug Cost 1,500 1,500

Ramp-up Cost 3,000

Advance Marketing Cost 5,000

Ongoing Marketing and Support 500 500 500 500

Production Volume 125 125 75 75

Unit Production Cost 655 655 545 545

Production Costs 81,875 81,875 40,875 40,875

Sales Volume 125 125 75 75