Chapter 3 Product & Process Design

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Chapter 3Product Process Design

• Part 1 Product Design

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Product/Service Design Process

• A process that defines the
• Appearance and features,
• Quality characteristics,
• Spec limits and target levels
• Inputs (labor, capital, materials)
• Transformation process
• Supply chain suppliers, channels of
  distribution
• of a product/service that a company is planning
  to produce.

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Steps in Product Design Process

• Idea Development
• Product Screening
• Preliminary Design and Testing
• Final Design

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Idea Development

• Someone thinks of a unsatisfied need
• Then someone thinks of a product/service to
  satisfy it
• e.g. customers, marketing, engineering, reverse
  engineering

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Idea Development

• 2006 Industrial Design Excellent Awards (IDEAs)
  Winners - (BW, 7/10/06, p. 77)
• Bumpbrella Concept Umbrella
• Company RKS Design
• An inflatable umbrella that uses a bicycle pump
  in the center for the arm.
• A totally new design looking for a company to
  make it.

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Idea Development

• 2-Second Tent
• Designer Decathlon, France
• Spring hoops allow you to throw this 2-person
  tent into the air, and it opens before hitting
  the ground.
• Two second to open, 15 seconds to close.

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Idea Development
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Idea Development

• How Failure Breeds Success (BW, 7/10/06, p. 48)
  
• Everyone fears failure. But breakthroughs
  depend on it.
• Innovation requires risk-taking.
• Many companies have found success in the ashes
  of the memorable misses.

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Idea Development

• McDonalds Hula Burger (1962)
• Cheese-topped grilled pineapple on a bun for
  Chicagoans who avoided eating meat on Fridays.
• Big flop!
• McDonalds decided to try something less extreme
• Came up with tastier hamburger-fee alternative
  the Filet-O-Fish, now a McDonalds classic.

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Idea Development

• Fords biggest mistake 1958 Edsellead to its
  greatest success.
• Edsel was called the Titanic of the auto
  industry.
• Came in two sizes big and bigger
• Overhyped, oversized, overpriced.

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Idea Development
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Idea Development

• Designed based on a hunch about what consumers
  want.
• Abandoned in 1960, just after 2,800 cars
  produced.
• Ford substituted research for hunches.
• Found out that consumers wanted style and
  affordability
• Result?
• 1964 Mustang

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Idea Development

• How do companies get employees to come up with
  creative and innovative ideas?
• By shifting from risk-adverse culture to a
  risk-taking culture.
• In risk-taking culture, employees are encouraged
  to
• Explore,
• Experiment,
• Foul-up, sometimes
• Then repeat.

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Idea Development

• Shift not easy
• Fear of blame for mistakes makes employees want
  to play it safe and not take risks.
• Companies must design performance-management
  systems that reward risk-taking.
• Coca-Cola, Intuit, GE

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Idea Development

• Cokes Head of Marketing, Strategy, and
  Innovation, Mary Minnick idea development
  strategy
• Stop thinking in terms of existing drink
  categories
• Start thinking broadly abut why people consume
  beverages in the first place.
• Then come up with products that satisfy those
  needs before the competition.

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Step 2 - Product Screening

• Screen ideas
• Some screening criteria are
• fit with existing facilities and labor skills,
• size of potential market,
• expected market share,
• share of potential market
• expected profit,
• break-even point

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Step 3 Preliminary Design and Testing

• Suppliers involved,
• Transformation process is designed,
• Prototype built,
• Tricycle developed system for digitally modeling
  carpets and textiles so manufactures can make
  prototypes of new designs without making samples
  for architects and interior designers.
• Cuts development costs. (BW, 7/10/06, p.81)
• Prototype tested for
• Functionality
• Acceptance by potential customers

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Design and Testing

• Corning
• Developed new chip in 1998 that would help in DNA
  research
• Killed in 2001
• Customers had not been brought in early enough to
  help assess its marketability.
• Market potential was too small to break-even in a
  reasonable amount of time.

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Step 4 Final Design

• Prototype design is modified based on test
  results
• Final design approved
• Production begins

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Product Design Process vs. Demings PDCA Cycle?

• PDCA
• P plan
• D do
• C check (or study)
• A act

• Product Design
• Idea development
• Product screening
• Preliminary design and testing
• Final design

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How is Product Design Process Related to Demings
PDCA Cycle?

• Plan
• Idea Development
• Product screening
• Do
• Preliminary Design and Testing
• Check, Act
• Final Design

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Good Product Design Process Should

• Design products/services that match the needs and
  preferences of the targeted customer group
• Design products that are as easy as possible to
  make (product manufacturability).
• Use concurrent engineering

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Product Manufacturability

• Achieve it by
• Simplification
• Minimize number of parts
• Standardization
• Design parts for multiply products
• Modular (prefabricated) design

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Product Manufacturability

• Matsushita, Electronic Giant in Japan
• One division has 7 factories that make 35 million
  phone, fax machines, printers and other products
  annually.
• 1,500 shape and color variations in phones alone
• Engineers had to rearrange as many as 77
  circuit-board parts for each new model.

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Product Manufacturability

• Setting up production for every type of board was
  too time consuming.
• Company designed a new circuit board that would
  need only slight changes for each model.
• Reduced cycle time and lowered defect rate to
  under 1.

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Product Manufacturability

• Bo Andersson, GMs head of purchasing, wants GM
  cars to share more parts, the way Japanese
  automakers do.
• Shared parts results in fewer parts
• Fewer parts saves millions.
• Also want to ax many of GMs 3,200 suppliers by
  weeding out weak suppliers.

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Product Manufacturability

• Andersson is asking
• Why do we have two dozen different seat frames
  when Toyota has only two? Answer?
• Why do we have 12 V6 engines when Toyota has just
  a few?
• Progress has been made
• GM once had 20 fuel pumps, now it has 5.
• Wants to use savings to make better interiors.

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Product Manufacturability

• Goal is twofold
• to make one part for many models
• To reduce number of components in each part.

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Product Manufacturability

• GM discovered that door hinges on big SUVs and
  trucks could be made out of 3 components instead
  of 5.
• This would save 21 a truck, or about 100
  million over several years.
• Designing a new hinge requires months of testing,
  which is costly.
• Must weight costs and benefits.

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Over-thewall vs. Concurrent Engineering Design
Process

• Old over-the-wall sequential design process
  should not be used
• Each function did its work and passed it to the
  next function
• Replace with a Concurrent Engineering, where
  cross functional design teams work together to
• involve customers early, develop specifications,
• solve potential problems, reduce costs,
• shorten time to market

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Concurrent Engineering
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Concurrent Engineering

• GMs North American operations had completely
  separate engineering groups for cars and trucks.
• Within each group, there were separate teams for
  almost every type of vehicle.
• Each team worked independently

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Concurrent Engineering

• Engineers and designers had no idea how much
  money was being wasted making different version
  of the same things.
• Andersson is pushing a company wide effort to
  break down silos and get divisions talking to one
  another about how to share parts and save money.

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Global Trends in Design

• China, Twain, Korea, Hong Kong companies are
  committing huge resources to product design in
  order to build global brands. (BW, 7/10/06, p.
  77)
• Theyre competing less and less on price and more
  on differentiation and value to consumer.

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Cokes Design Process

• Anticipate the customer
• Cokes marketers are encouraged to think more
  creatively about consumers needs
• Retool tired brands
• Cost of launching new brands is expensive
• Reposition existing brands
• Coke used its Tab brand to create a new energy
  drink for women
• Using Sprite name for a new energy drink in
  France.

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Cokes Design Process

• Engage partners
• Coke brings bottlers into the decision-making
  process to get their input and brings them on
  board from the outset.
• Dont fear failure

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Product Screening Tool Break-Even Analysis

• Is expected sales large enough to exceed the
  break-even point?
• Break-even point (BE) is the number of units of a
  product/service that a company must sell to cover
  its total cost.
• Break-even point is where total revenue equals
  total cost, or profit equals zero.

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Break-Even Analysis

• Total Revenue Total cost
• or
• Profit Total Revenue Total Cost 0

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Notation

• Q expected sales in number of units sold
• SP selling price per unit
• F Total fixed costs
• VC Variable cost per unit

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Notation

• Total Revenue (SP)Q
• Total Cost Total Fixed Cost Total Variable
  Cost
• Total fixed costs F
• Total Variable Cost (VC)Q
• Total Cost F (VC)Q

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Finding the Break-Even Point

• Total Revenue Total cost
• (SP)Q F (VC)Q
• (SP)Q - (VC)Q F
• Q(SP - VC) F
• Q QBE F/(SP - VC)

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Break-Even Decision Rule

• If Q gt QBE, Total Rev. gt Total Cost and Profit gt
  0
• If Q lt QBE, Total Rev. lt Total Cost and Profit lt
  0

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Break-Even Analysis
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Example 1

• A company is planning to introduce a new product.
  
• The expect to sell 875 units of the new product.
  
• The sales price is set at 25 per unit.
• The fixed cost of producing the product is
  10,000.
• The variable cost per units is 15.
• Should the company develop the new product?

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Solution to Example 1

• Q expected sales
• SP selling price per unit 25
• F Total fixed costs 10,000
• VC Variable cost per unit 15

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Solution to Example 1
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Solution to Example 1

• If the company sells 1,000 units of the new
  product, it will breakeven.
• If the company expects to sell more than 1,000,
  it will make a profit.
• If the company sells less than 1,000 units, it
  will incur a loss.
• Since the company expects to sell 875 units,
  which is less than the BE quantity, the company
  should not develop the new product.

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Example 2

• A company is planning to establish a chain of
  movie theaters. It estimates that each new
  theater will cost approximately 1 Million. The
  theaters will hold 500 people and will have 4
  showings each day with average ticket prices at
  8. They estimate that concession sales will
  average 2 per patron. The variable costs in
  labor and material are estimated to be 6 per
  patron. They will be open 300 days each year.

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Example 2

• What must average occupancy be to break-even?
• What is the annual capacity utilization rate?
• What is the chains profit if they sell 300,000
  ticket next year?

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Solution 1. What must average occupancy be to
break-even?

• Q ticket sales per year
• Total cost 1,000,000
• Ticket SP 8
• Concession sales/patron 2
• Sales revenue/patron 8 2 10
• VC 6

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Solution 1. What must average occupancy be to
break-even?
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Solution 2. What is the capacity utilization
rate?

• Annual Capacity (AC) 4 shows per day x 300 days
  per year x 500 people 600,000 patrons
• Capacity utilization rate (CUR) (QBE/AC) x 100
• CUR (250,000/600,000) x 100 41.7

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Solution 3. What is the chains profit if they
sell 300,000 ticket next year?
Total Revenue 10Q Total Cost 1,000,000
6Q Profit Total Revenue Total Costs Profit
10Q (1,000,000 6Q) -1,000,000 4Q
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Solution 3. What is the chains profit if they
sell 300,000 ticket next year?
Q 300,000 P -1,000,000 4(300,000)
200,000
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Product life cycle

• Due to changing product demand over time
• Stages of product life cycle stages
• Introduction
• Growth
• Maturity
• Decline
• Is it long enough to justify launching new
  product?

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Product life cycle
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Product life cycle

• Where is break-even point on product life cycle?
• The earlier it is on the product life cycle, the
  ???