Operations Management and TQM

Chapter 5: Design of Goods and Services

Goods and Services Selection

a. Goods
- Goods are tangible products that you own and are available for sale.
Examples: clothes, food, cell phones, books, bags, accessories, etc.
- It satisfies people’s needs and wants because goods offer some kind of benefits to consumers.
b. Services
- Are intangible products performed to customers, in contrast with goods we can touch and own.
Examples: repairing services, transportation services, coaching services, etc.

o The basis for an organization’s existence is the goods or services it provides.

o To maximize the potential for success, many companies focus on only a few products and concentrate on those
products.
o Companies must constantly be looking for new products to design, develop, and take to market.
o Product strategy is critical to achieving competitive advantage.

Product Decision

o The objective of product decisions is to develop and implement a product strategy that meets the demands of
the marketplace with a competitive advantage.

Product Life Cycles

o May be a matter of few days, months, years, or decades.

o It maps a product’s journey from its launch until its discontinuation.

Life Cycle and Strategy

o There should be periodic examinations of products because as products move through their life cycle,
strategies change.

4 Phases of Product Life Cycle:

1. Introductory Phase
- Where the product life cycle starts.
- Products in this phase are still being “fine-tuned”.
- High costs are involved in this stage as they may warrant unusual expenditures for:
o Research
o Product development
o Process modification & enhancement
o Supplier development
2. Growth Phase
- The next stage after successfully introducing the product to the target market.
- In here, the product design begins to stabilize.
- The goal of the management is to have as much market penetration as possible to reach full sales
potential.
- To increase product demand.
o Effective forecasting of capacity requirements and,
o Adding or enhancing capacity to accommodate the increase in product demand may be necessary.
3. Maturity Phase
 -This stage is the most profitable, but competitors are now established.
-Best version of the product and enjoys peak market.
-Improved cost control, reduction in options, and a paring down of the product line may be effective or
necessary for profitability and market share.
- The stage where you ideally want to hold your product as long as possible.
4. Decline Phase
- Products are born. They live and they die.
- The company may either discontinue its product or update its product to match its competitors.
- The company may also use the “product-by-value analysis” to know which products should be eliminated
and which products contribute the most to the firm.

Product-by-Value Analysis

o A list of products in descending order of their dollar contribution to the firm, as well as the total annual dollar
contribution of the product.
o Helps the management evaluate alternative strategies for each product.
o It focuses its attention on the strategic direction of each product.

Generating New Products

o The main reason why a business must generate new products continuously is because they have a limited life

Changes in product opportunities may arise from:

1. Understanding the customer

2. Economic change
3. Sociological and demographic change
4. Technological change
5. Political and legal change
6. Market practice, professional standards, suppliers, and distributors

Product Development. The process of creating and improving products efficiently.

Quality Function Deployment (QFD). The process of determining customer needs and wants, and translating
those requirements into the target design.

House of Quality

- Primary tool of QFD.

- Is a graphic technique that defines the relationship between customer desires and product/service.

7 Basic Steps to Build a House of Quality:

1. Identify customer wants - What do customers want in this product?

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 - Build a matrix that shows this relationship.
4. Identify relationships between the firm’s hows - How do our “hows” tie together?
5. Develop importance ratings - Using the customer’s importance ratings and weights for the relationships,
compute our importance ratings.
6. Evaluate competing products - How well do the competitors' products meet the customers' wants?
7. Determine the desirable technical attributes, your performance, and the competitor’s performance against
these attributes.
Issues for Product Design. To develop an effective system and organization structure for product development,
several considerations are important to the design of a product. We will now review six of these:

a. Robust Design. Robust design is an approach used in engineering and manufacturing to create products that
can perform well despite variations in production or assembly processes. By identifying and addressing
potential sources of variation, engineers can design products that are more resilient and less susceptible to
defects or performance issues. This can lead to improved quality, reduced costs, and increased customer
satisfaction.
b. Modular Design. Modular design is an approach used in product development where products are designed
as easily segmented, interchangeable components or modules.
c. Computer-aided Design/Computer-aided Manufacturing (CAD/CAM). Computer-aided design (CAD) is a
software application used to create, modify, analyze, and simulate the design of products and their associated
processes. It allows engineers and designers to create detailed, three-dimensional models of their designs,
which can be manipulated, analyzed, and modified with ease. CAD helps to speed up the development
process, improve product quality, and facilitate the accurate flow of information to other departments.
d. Virtual Reality Technology. Virtual reality (VR) is a technology that simulates a three-dimensional
environment that can be experienced and interacted with in a seemingly real way.
e. Value Analysis. Value analysis is a technique that focuses on improving products during the production
process when it is clear that a new product is a success. It seeks improvements that lead to either a better
product, a product made more economically, or a product with less environmental impact.
f. Modular Design. Sustainability and life cycle assessment (LCA) are two key considerations in product design.
Sustainability involves meeting the needs of the present without compromising the ability of future
generations to meet their needs. LCA is a formal evaluation of the environmental impact of a product.

Product Development Continuum

o The product development continuum is a concept that emphasizes the importance of faster product
development in today’s competitive market. As product life cycles shorten and technological sophistication
increases, the expense and risk associated with new product development also increase. Mastering the art of
product development can give companies a competitive advantage in a time-based competition. The first
company to bring a product to market can often become the “standard” and generate sales for years.
However, there is often more focus on getting the product to market quickly than on optimizing product
design or process efficiency.

Defining a Product

o Defining a product is a crucial step in the product development process. Once new goods or services are
selected for introduction, they must be clearly defined in terms of their functions, or what they are intended
to do. This involves determining how the product’s functions will be achieved through the design process.
o Management typically has various options for how a product should achieve its functional purpose, and these
decisions can significantly impact aspects such as ease of manufacture, quality, and market acceptance.

Documents for Production:

1. Assembly Drawing - An exploded view of the product.

2. Assembly Chart - A graphic means of identifying how components flow into subassemblies and final
products.
3. Route Sheet - A listing of the operations necessary to produce a component with the material specified in the
bill of material.
4. Work Order - An instruction to make a given quantity of a particular item.
5. Engineering Change Notice (ECN) - A correction or modification of an engineering drawing or bill of
material.
 6. Configuration Management - A system by which a product’s planned and changing components are
accurately identified.

Product Life-Cycle Management (PLM). Software programs that tie together many phases of product design and
manufacture.

Service Design

Process–Chain–Network (PCN) Analysis - Analysis that focuses on how 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).

Three Process Regions for Each Participant:

1. The direct interaction region includes process steps that involve interaction between participants.
2. The surrogate (substitute) interaction region includes process steps in which one participant is acting on
another participant’s resources, such as information, materials, or technologies. Under surrogate interaction,
direct interaction is limited.
3. The independent processing region includes the areas of a process domain for process steps that are
performed independently from other process entities in the process chain networks.

To Enhance Service Efficiency Companies:

1. Limit options
2. Delay customization
3. Modularize
4. Automate
5. Design for the “moment of truth”

Application of Decision Trees to Production Design

o To form a decision tree, (1) include all possible alternatives (including “do nothing”) and states of nature; (2)
enter payoffs at the end of the appropriate branch; and (3) determine the expected value of each course of
action by starting at the end of the tree and working toward the beginning, calculating values at each step and
“pruning” inferior alternatives.

Transition to Production

o One of the arts of management is knowing when to move a product from development to production; this
move is known as transition to production.

Corporate Social Responsibility

o Business is about more than just making a profit.

o Balance innovation with responsibility.
o Shared value.

Sustainability
What is Sustainability?

o Meeting the needs of the present without compromising the ability of future generations to meet their needs.
o More than "going green".
o Includes employees, customers, community, and company reputations.
Systems Helpful for Making Sustainability Decisions

Systems View. Looking at the product line from design to disposal, including all the resources required.

Commons. Inputs to a production system held by the public are called common resources (water, air, land,
minerals).

Possible Solutions Include: (1) moving some of the common to private property (e.g., selling radio frequency
spectrum), (2) allocation of rights (e.g., establishing fishing boundaries), and (3) allocation of yield (e.g., only a
given quantity of fish can be harvested). As managers understand the issues of the commons, they have further
insight into sustainability and the obligation of caring for the commons.

Triple Bottom Line. Consider the systems necessary to support 3Ps: People, Planet, and Profit.
Design and Production for Sustainability

Life Cycle Assessment - Evaluates the environmental impact of a product, from raw material and energy inputs
to the disposal of the product at its end-of-life.

The goal is to make decisions that help reduce the environmental impact of a product throughout its entire life.

The 3Rs: Reduce, Reuse, and Recycle.

1. Reduce – This means to make smaller/less in amount

2. Reuse - This means to use something again, either for its original purpose or repurposed for a different task.
3. Recycle - Recycle means to convert waste into material that can be used to remake the item, or to make
something else.

Product Design

o The decisions that are made during this phase greatly affect materials, quality, cost, processes, related
packaging and logistics, and ultimately how the product will be processed when discarded or end of its useful
life.
o Incorporate systems view to lower environmental impact.
o (1st R-Reduce) - Reduce waste and energy costs. Example: New detergent clean using cold water - tide cold
water - saving 3/4 of energy usage in typical wash.

Design for Disassembly. Deciding design alternatives using “design for disassembly cost-benefit analysis”– (focus on
reuse and recycle) 2 speaker designs.

o Collect data
o Resale value of components
o Revenue collected from recycling
o Processing costs, including disassembly, sorting, cleaning, packaging
o Disposal costs, including transportation, fees, taxes, and processing time

Revenue Retrieval = Total resale revenue + total recycling revenue - total processing cost - total disposal cost
Revenue Retrieval for Harmonizer = 35.49 + 11.94 - 22.33 - 2.97 = 22.13
Revenue Retrieval for Rocker = 23.00 + 12.75 -18.39 - 5.95 = 11.41

Analysis
 o Harmonizer - better environmental design alternative - higher revenue retrieval opportunity.

Regulations and Sustainability Standards

a. Product Design
o Food and Drug Administration
o Consumer Products Safety Commission
o National Highway Safety Administration
b. Manufacturing and Assembly Activities - own set of standards, including:
o Occupational Safety and Health Administration (OSHA)
o Environmental Protection Agency (EPA)
o State and Local Agencies

OSHA (R.A. 11058) - Provide a workplace free from recognized hazards that are causing, or are likely to cause,
death or serious physical harm to employees regardless of the size.

EPA - The Environmental Protection Agency of the Philippines is such an agency. It shall only deal with matters
that have a relation only to the protection, preservation, and enhancement of the environment.

State and Local Agencies - Where you can locate your agencies and factories. Laws that regulate workers.

Employment Standards - Salaries or wages. Even the overtime.

Disassembly and Disposal of Hazardous Products

o EPA
o Department of Transportation
o Design for Disassembly

Nearly all industries have regulations:

- Commercial builders are required to manage water runs and have pollution prevention plans.
- Public drinking systems must meet federal Safe Drinking Water Act arsenic standards.
- Hospitals must meet the Resource Conservation and Recovery Act - governing the storage and handling of
hazardous materials.

ISO 14000. Environmental Management Standard:

1. Environmental Management
2. Auditing
3. Performance Evaluation
4. Labeling
5. Life Cycle Assessment