F O U R T H E D I T I O N New Product and Service Development, and Process Selection © The McGraw-Hill Companies, Inc., 2003 chapter 3 DAVIS AQUILANO CHASE PowerPoint Presentation by Charlie Cook

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–2 Chapter Objectives Illustrate the importance of the development of new products and services to a firm’s competitiveness. Identify the various types of new products that are developed by companies. Introduce the new product design process and the concept of a product’s life cycle. Demonstrate the necessity of concurrent product and process design as a new product or service is developed. Present a framework for understanding how new services are developed and introduced into the marketplace.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–3 Managerial Issues Product life cycles becoming shorter. –The need to bring products to market more quickly and efficiently. Conducting product development on a continuous basis. –New products may represent a majority of sales and profits.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–4 Why the Emphasis on New Goods and Services Increased Competition –Improved worldwide telecommunications –Lower trade barriers (import duties and tariffs) and the creation of trade organizations (NAFTA and European Union) –Faster transportation of goods Advances in Technology –Products become obsolete faster. –Improved manufacturing processes (CAD and CAM and industrial robots)

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–5 The Benefits of Introducing New Products Faster Greater Market Share –Early entry captures large initial market share. Price Premiums –Ability to initially charge more for new products. Quick Reaction to Competition –Rapid response to competitor’s new products. Set Industry Standards –Initial product sets market/industry standards.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–6 The Impact of Speed to Market on Sales Exhibit 3.1a

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–7 The Impact of Speed to Market on Profit Margins Exhibit 3.1b

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–8 The Impact of Speed to Market on Profits Exhibit 3.1c

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–9 Categories of New Products Incremental or Derivative Products –Are hybrids or enhancements of existing products. –Require minimal changes in design or process, allowing for quick development. –Require fewer resources to develop new features or functions. –Help ensure near-term cash flows by maintaining current market share.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–10 Categories of New Products Next Generation or Platform Products –Represent new “system” solutions for customers. Require more resources to develop. Are key to continued product revenue growth. Breakthrough or Radical Products –Create new product categories as core businesses. –Require substantial design and process change. –Render existing products obsolete in long-term.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–11 The Trend toward Shorter Product Development Times Exhibit 3.2 Source: Data: Product Development & Management Association, Business Week, January 27, 1997, p. 6.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–12 The New Product Development (NPD) Process New Product Development Process –The method by which new products evolve from conceptualization through engineering to manufacturing and marketing. Market Success Depends on NPD –Continuously generate new product ideas. –Convert ideas to reliable functional designs. –Ensure that the designs are readily producible. –Select the processes most compatible with customer needs.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–13 Sequential Flow of Activities in Product Design and Process Selection Exhibit 3.3 Source: Reprinted with the permission of the Free Press, an imprint of Simon & Schuster from Fast Cycle Times: How to Align Purpose, Strategy, and Structure for Speed by Christopher Meyer. Copyright © 1993 by Christopher Meyer.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–14 The New Product Development (NPD) Process Concurrent Engineering –The simultaneous and coordinated efforts of all functional areas which accelerates the time to market for new products.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–15 Concurrent Engineering Approach to NPD Exhibit 3.4

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–16 The New Product Development (NPD) Process (cont’d) Idea Generation –Market pull: the “voice of the customer” in providing feedback to determine product specifications. –Technology push: a product developed by the firm’s R&D is “pushed” into the market. Concept Development –Initial product design developed and tested. –Analysis of the market and customer requirements.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–17 The New Product Development (NPD) Process (cont’d) Quality Function Deployment (QFD) –The process for translating customer requirements into a product’s design. Voice of the Customer –Customer feedback is used in QFD process to determine product specifications. –Customer attributes: Product needs Product preferences

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–18 The New Product Development (NPD) Process (cont’d) House of Quality –The part of the QFD process that uses customer feedback for product design criteria. –Use of QFD teams Identify important customer attributes. Design superior product. Shorten product design time. Facilitate interfunctional cooperation.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–19 Completed House of Quality Matrix for a Car Door Exhibit 3.5

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–20 The New Product Development (NPD) Process (cont’d) New Product Planning –Build models of new product. –Test new elements and components. –Conduct detailed investment and financial analyses of product’s anticipated life cycle.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–21 The New Product Development (NPD) Process (cont’d) Design for Manufacturability (DFM) –Choosing manufacturing methods and materials. –Minimizing the number of individual parts: Reduces assembly time. Increases reliability. – Setting product specifications. Output from the design activity that states all criteria for building a product.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–22 Design Change to Reduce the Number of Parts in a Bracket Exhibit 3.6

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–23 Process Selection in Manufacturing Types of Processes –Project process Process that focuses on making one-of-a-kind products. –Intermittent process Process that produces products in small lot sizes (e.g., job and batch operations). –Line-flow process Continuous process that produces high volume, highly standardized products (e.g., assembly-line and continuous operations).

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–24 Types of Processes Exhibit 3.7

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–25 Process Selection in Manufacturing The Product-Process Matrix –High production volumes and narrow product lines make specialized equipment and standardized materials economically feasible. Remaining in a process niche after the product cycle has advanced to its next stage dooms a firm to market failure.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–26 Matching Major Stages of Product and Process Life Cycles Exhibit 3.8 Source: Adapted from Robert Hay and Steven Wheelwright, Restoring Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons, 1984).

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–27 Product and Process Life Cycles Exhibit 3.9

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–28 Types of Incremental and New Services Exhibit 3.10

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–29 Categories of New Services Incremental services –Service line extensions New services that augment current services. –Service improvements New services in which features have changed relative to existing services. –Style changes Modest forms of new services that change only the appearance of the service.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–30 Categories of New Services (cont’d) Radical –Major innovations New services in markets not fully defined. –Start-up services New services in established markets already served by existing services. –New services for current markets Added services to current customers.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–31 A Framework for Categorizing New Services Exhibit 3.11

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–32 Categories of New Services

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–33 The New Service Development (NSD) Process

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–34 The Customer Contact Approach to Designing Service Processes Customer Contact –The presence of the customer in the system. Extent of Contact –The percent of time the customer is involved relative to the time required to deliver the service. Creation of the Service –The work process involved in providing the service.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–35 The Customer Contact Approach to Designing Service Processes High Degree of Customer Contact Low Degree of Customer Contact Percentage of customer contact (customer influence on the system) Difficulty in managing system HighLow

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–36 Major Differences between High- and Low- Contact Systems in a Bank Exhibit 3.12

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–37 The Service Process Matrix Exhibit 3.13 Source: Roger W. Schemenner, “How Can Service Businesses Survive and Prosper?” Sloan Management Review 27, no. 3 (Spring 1986), pp. 21–32, by permission of publisher. Copyright 1986 by Sloan Management Review Association, All rights reserved.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–38 Designing a New Service Organization “Service Vision” (Heskett) –Identification of the target market Who is our customer? –Defining the service concept How do we differentiate our service in the market? –Developing the service strategy What is our service package and its operating focus? –Creating the service delivery system What processes, staff, and facilities are needed?

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–39 Designing a New Service Organization (cont’d) Differences in service design and manufacturing product development: –Service design and process development are simultaneous. –Service operations cannot be copyrighted to protect them from imitation by competitors. –The service package is the major output of NSD. –Prior training strongly influences the service package. –Service organizations can change their service offerings very rapidly.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–40 Service-System Design Matrix Exhibit 3.14

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–41 Strategic Uses of the Service-System Design Matrix 1.Enabling systematic integration of operations and marketing strategy. 2.Clarifying exactly which combination of service delivery the firm is actually providing. 3.Permitting comparison with other firms in the way specific services are delivered. 4.Indicating evolutionary or life cycle changes that might be in order as the firm grows. 5.Providing flexibility.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–42 Process Selection in Services Types of Service Organizations –Service businesses Facilities-based services that provide assistance to customers who come to the service facility. Field-based services that provide on-site services to customers. –Customer support services Provide product information and services to current external customers. –Internal services Provide services for other internal organizational units.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–43 Process Selection in Services (cont’d) The Production Line Approach –Orientation is toward the efficient production of results—precisely controlled execution of the “central function”. The Customer Involvement Approach –Having the customer take a greater participatory role in the production of the service. The Personal Attention Approach –The central focus is complete customer attention and satisfaction at all times.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–44 Common Characteristics of Well-Designed Service Systems 1.Each element of the service system is consistent with the operating focus of the firm. 2.It is user-friendly—customers can interact easily. 3.It is robust—capable of coping with variations in demand and resources availability 4.It is structured so that consistent performance by its people and systems is easily maintained. 5.It provides effective links between the back office and the front office so that nothing falls between the cracks.

Fundamentals of Operations Management 4e© The McGraw-Hill Companies, Inc., 20033–45 Common Characteristics of Well-Designed Service Systems (cont’d) 6.It manages the evidence of service quality in such a way that customers see the value of the service provided. 7.It is cost-effective—there is a minimum waste of time and resources in delivering the service.