Operations Management - Session 2

Design of Goods and Services

Engagement model:

• Session PPT

• Video clips

• Knowledge sharing by colleagues

• Demo from a tier 1 ERP software (Oracle JD Edwards)

• Few break out sessions – Real time industry issues, you can
deliberate and find an answer
 Design of Goods and Services

Goods and Services Selection

• The basis for an organization’s existence is the good or service it

provides society

• Anything less than an excellent product strategy??

• focus on only a few products and then concentrate on those

products

• Most products have a limited and even predictable life cycle,

companies must constantly be looking for new products to design,
develop, and take to market. Operations managers insist on strong
communication among customer, product, processes, and suppliers
that results in a high success rate for their new products.
 Design of Goods and Services
Innovation and New Products
 Design of Goods and Services

Product strategy:

An effective product strategy links product decisions with investment,

market share, and product life cycle, and defines the breadth of the
product line.

The objective of the product decision is to develop and implement a

product strategy that meets the demands of the marketplace with a
competitive advantage.

Product strategy may focus on developing a competitive advantage via

differentiation, low cost, rapid response, or a combination of these.
 Design of Goods and Services

Product Strategy Vs Competitive Advantage

Product selection is choosing the good or service to provide customers

or clients.

Differentiated products – Service sector – Hospitals

Goods – Electric scooter manufacturers

Product decisions are fundamental to an organization’s strategy and

have major implications throughout the operations function.

Ex: For instance, GM’s steering columns are a good example of the
strong role product design plays in both quality and efficiency. The
redesigned steering column is simpler, with about 30% fewer parts
than its predecessor. The result: Assembly time is one-third that of
the older column, and the new column’s quality is about seven times
higher. As an added bonus, machinery on the new line costs a third
less than that on the old line.
 Design of Goods and Services

Product Life Cycles

Products are born. They live and they die. They are cast aside by a changing
society.
Introduction, growth, maturity, and decline.

Product life cycles may be a matter of a few days (a concert t-shirt), months
(seasonal fashions), years (Madden NFL football video game), or decades
(Boeing 737).

Regardless of the length of the cycle, the task for the operations manager is
the same: to design a system that helps introduce new products successfully.

If the operations function cannot perform effectively at this stage, the firm
may be saddled with losers—products that cannot be produced efficiently and
perhaps not at all.
 Design of Goods and Services

Life Cycle and Strategy

Same operations strategy treatment for all phases?

 Design of Goods and Services

Various operations strategies:

Introductory Phase Production techniques, they may warrant unusual

expenditures for (1) research, (2) product development, (3) process modification
and enhancement, and (4) supplier development. At the same time, operations
managers were still groping for the best manufacturing techniques.

Growth Phase Product design has begun to stabilize, and effective forecasting of
is necessary. Capacity decisions to accommodate the increase in product capacity
requirements demand may be necessary.

Maturity Phase Competitors are established. So high-volume, innovative

production may be appropriate. Improved cost control, reduction in options, and
a paring down of the product line may be effective or necessary for profitability
and market share.

Decline Phase Management may need to be ruthless with those products whose
life cycle is at an end.. Unless dying products make some unique contribution to
the firm’s reputation or its product line or can be sold with an unusually high
contribution, their production should be terminated
 Design of Goods and Services

Product-by-Value Analysis
Pareto principle applied to product mix - Critical few and not the
trivial many.

Product-by-value analysis lists products in descending order of their

individual dollar contribution to the firm.

Product-by-value analysis
A list of products, in descending order of their individual dollar
contribution to the firm, as well as the total annual dollar
contribution of the product.

Possible strategies for each product - Increasing cash flow (e.g., increasing contribution
by raising selling price or lowering cost), increasing market penetration (improving
quality and/or reducing cost or price), or reducing costs (improving the production
process). The report may also tell management which product offerings should be
eliminated and which fail to justify further investment in research and development or
capital equipment. Product-by-value analysis focuses attention on the strategic
direction for each product.
 Design of Goods and Services

Generating New Products

Because products die; because products must be weeded out and replaced;
because firms generate most of their revenue and profit from new
products—product selection, definition, and design take place on a
continuing basis.

DVDs to video streaming

coffee shops to Starbucks lifestyle coffee
landlines to cell phones, cell phone to smart phones
Internet of digital information to an Internet of “things” that connects you
and your smart phone to your home, car, and doctor.

“Knowing how to successfully find and develop new products is a

requirement”
 Design of Goods and Services
Generating New Products

Open communication with customers, innovative product development cultures, aggressive R&D, strong leadership,
formal incentives, and training.

Specific focus on the following:

1.Understanding the customer is the premier issue in new-product development. Users rather than producers. Such
products tend to be developed by “lead users”—companies, organizations, or individuals that are well ahead of market
trends and have needs that go far beyond those of average users. The operations manager must be “tuned in” to the
market and particularly these innovative lead users.

2.Economic change brings increasing levels of affluence in the long run but economic cycles and price changes in the
short run. In the long run, for instance, more and more people can afford automobiles, but in the short run, a recession
may weaken the demand for automobiles.

3.Sociological and demographic change may appear in such factors as decreasing family size. This trend alters the size
preference for homes, apartments, and automobiles.

4.Technological change makes possible everything from smart phones to iPads to artificial hearts.

5.Political and legal change brings about new trade agreements, tariffs, and government requirements.

6.Other changes may be brought about through market practice, professional standards, suppliers, and distributors.

Operations managers must be aware of these dynamics and be able to anticipate changes in product opportunities, the
products themselves, product volume, and product mix.
 Design of Goods and Services
Product Development

Quality Function Deployment (QFD)

Quality function deployment (QFD) refers to both (1) determining what
will satisfy the customer and (2) translating those customer desires into
the target design.

The idea is to capture a rich understanding of customer wants and to

identify alternative process solutions. This information is then integrated
into the evolving product design. QFD is used early in the design process
to help determine what will satisfy the customer and where to deploy
quality efforts.
 Design of Goods and Services
Quality Function Deployment (QFD)

1.Identify customer wants.

2.Identify how the good/service will satisfy customer wants. (Identify specific
product characteristics, features, or attributes and show how they will satisfy
customer wants.)

3.Relate customer wants to product hows.

4.Identify relationships between the firm’s hows

5.Develop importance ratings.

6.Evaluate competing products.

7.Determine the desirable technical attributes, your performance, and the

competitor’s performance against these attributes
 Design of Goods and Services

Quality Function Deployment (DFD)

 Operations Management Basics

Quality Function Deployment (DFD)

 Design of Goods and Services
Product Development Stages
 Design of Goods and Services

Manufacturability and Value Engineering

activities are concerned with improvement of design and specifications at the
research, development, design, and preproduction stages of product
development. In addition to immediate, obvious cost reduction, design for
manufacturability and value engineering may produce other benefits.

Reduced complexity of the product.

Reduction of environmental impact.
Additional standardization of components.
Improvement of functional aspects of the product.
Improved job design and job safety.
Improved maintainability (serviceability) of the product.
Robust design.
 Design of Goods and Services
Issues for Product Design

(1) robust design, (2) modular design, (3) computer-aided design/computer-

aided manufacturing (CAD/CAM), (4) virtual reality technology, (5) value
analysis, and (6) sustainability/life cycle assessment (LCA)

Robust design – A design that can be produced to requirements even with

unfavorable conditions in the production process. Product is designed so that
small variations in production or assembly do not adversely affect the product.

Versatile, sturdy, proven - Ex: Toyota vehicles, Nokia early model phone,
Royal Enfield Bullet

Modular design - Products designed in easily segmented components are

known as modular designs. Modular designs offer flexibility to both production
and marketing.

Ex: Online book shelf ordering, hotel exp.

 Design of Goods and Services
Issues for Product Design

(1) robust design, (2) modular design, (3) computer-aided design/computer-

aided manufacturing (CAD/CAM), (4) virtual reality technology, (5) value
analysis, and (6) sustainability/life cycle assessment (LCA)

CAD – The speed and ease with which sophisticated designs can be
manipulated, analyzed, and modified with CAD makes review of numerous
options possible before final commitments are made.
The speed and ease with which sophisticated designs can be manipulated,
analyzed, and modified with CAD makes review of numerous options possible
before final commitments are made

Design for manufacture and assembly (DFMA) - virtual factory where

designers examine how to put a transmission in a car on the production line,
even while both the transmission and the car are still in the design stage.

CAM – The use of information technology to control machinery.

 Design of Goods and Services
Issues for Product Design

(1) robust design, (2) modular design, (3) computer-aided design/computer-

aided manufacturing (CAD/CAM), (4) virtual reality technology, (5) value
analysis, and (6) sustainability/life cycle assessment (LCA)

VR – A visual form of communication in which images substitute for reality

and typically allow the user to respond interactively.

Value analysis – Value analysis seeks improvements that lead to either a

better product, or a product made more economically, or a product with less
environmental impact.

LCA– ddressing sustainability and life cycle assessment (LCA) are two ways of
doing this. Sustainability means meeting the needs of the present without
compromising the ability of future generations to meet their needs. An LCA is
a formal evaluation of the environmental impact of a product.
 Design of Goods and Services

Product Development Continuum

Time-based competition
Competition based on time; rapidly developing products and moving
them to market
 Design of Goods and Services

Defining a Product:
Before anything can be produced, a product’s functions and attributes must be
defined.
A good or service is defined in terms of its functions —that is, what it is to do.
The product is then designed, and the firm determines how the functions are
to be achieved

a written specification is typical. Indeed, written specifications or standard

grades exist and provide the definition for many products.

Most manufactured items - engineering drawing. An engineering drawing

shows the dimensions, tolerances, materials, and finishes of a component.

The engineering drawing will be an item on a bill of material. An engineering

drawing

The bill of material (BOM) lists the hierarchy of components, their

description, and the quantity of each required to make one unit of a product
 Design of Goods and Services
Make-or-Buy Decisions

The make-or-buy decision distinguishes between what the firm wants to

produce and what it wants to purchase. Because of variations in quality, cost,
and delivery schedules, the make-or-buy decision is critical to product
definition. Many items can be purchased as a “standard item” produced by
someone else.
 Design of Goods and Services

Documents for Production

Assembly drawing
An exploded view of the product

Route sheet
A listing of the operations necessary to produce a component with the material
specified in the bill of material.

Work order
An instruction to make a given quantity of a particular item

Engineering change notice (ECN)

A correction or modification of an engineering drawing or bill of material

Product Life-Cycle Management (PLM) softwares - Windchill

 Design of Goods and Services

Service Design

Process–Chain–Network (PCN) Analysis

Process–chain–network (PCN) analysis, developed by Professor Scott Sampson,
focuses on the ways in which processes can be designed to optimize interaction
between firms and their customers.2 A process chain is a sequence of steps that
accomplishes an activity, such as building a home, completing a tax return, or
preparing a sandwich. A process participant can be a manufacturer, a service
provider, or a customer. A network is a set of participants.

Process–chain–network (PCN) analysis

Analysis that focuses on the ways in which processes can be designed to
optimize interaction between firms and their customers.

Process chain
A sequence of steps that accomplishes an identifiable purpose (of providing
value to process participants).
 Design of Goods and Services
Customer Interaction Is a Strategic Choice

Service operations exist only within the area of direct and surrogate
interaction.
 Design of Goods and Services
Adding Service Efficiency

Limit the Options: By providing a list of options

Delay Customization : Design the product so that customization is delayed as

late in the process as possible

Modularization Modularize the service so that customization takes the form of

changing modules. Ex: Insurance function for home loan products

Automation: ATM’s

Moment of Truth : The operations manager’s task is to identify moments of

truth and design operations that meet or exceed the customer’s expectations
 Design of Goods and Services

Documents for Services

Because of the high customer interaction of most services, the documents for
moving the product to production often take the form of explicit job
instructions or script.

For instance, regardless of how good a bank’s products may be in terms of

checking, savings, trusts, loans, mortgages, and so forth, if the interaction
between participants is not done well, the product may be poorly received.
 Design of Goods and Services

Transition to Production

project manager ; others use product development teams.

 LET US SUM UP

- The operations manager must build a product development system that

has the ability to conceive, design, and produce products that will yield
a competitive advantage for the firm.

- Both manufactured and service products have a variety of techniques

available to aid in performing this activity efficiently.