Chapter 3 Product & Process Design Part 1: Product Design

Chapter 3Product & Process Design

Part 1: Product Design

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.

Steps in Product Design Process

Idea Development Product Screening Preliminary Design and Testing Final Design

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

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.

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.

Idea Development

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.”

Idea Development

McDonald’s Hula Burger (1962) Cheese-topped grilled pineapple on a

bun for Chicagoans who avoided eating meat on Fridays.

Big flop! McDonald’s decided to try something

less extreme: Came up with tastier hamburger-fee

alternative: the Filet-O-Fish, now a McDonald’s classic.

Idea Development Ford’s biggest mistake – 1958 Edsel—lead

to its greatest success. Edsel was called the “Titanic of the auto

industry.” Came in two sizes – big and bigger Overhyped, oversized, overpriced.

Idea Development

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

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.

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

Idea Development Coke’s 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.

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

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

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.

Step 4 – Final Design

Prototype design is modified based on test results

Final design approved Production begins

Product Design Process vs. Deming’s 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

How is Product Design Process Related to Deming’s PDCA Cycle?

Plan Idea Development Product screening

Do Preliminary Design and Testing

Check, Act Final Design

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

Product Manufacturability

Achieve it by Simplification

Minimize number of parts

Standardization Design parts for multiply products

Modular (prefabricated) design

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.

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%.

Product Manufacturability

Bo Andersson, GM’s 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 GM’s 3,200

suppliers by weeding out weak suppliers.

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.

Product Manufacturability

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

each part.

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.

“Over-the–wall” 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

Concurrent Engineering

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

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.

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)

They’re competing less and less on price and more on differentiation and value to consumer.

Coke’s Design Process Anticipate the customer

Coke’s marketers are encouraged to think more creatively about consumer’s 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.

Coke’s Design Process

Engage partners Coke brings bottlers into the decision-

making process to get their input and brings them on board from the outset.

Don’t fear failure

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.

Break-Even Analysis

Total Revenue = Total cost

or

Profit = Total Revenue – Total Cost = 0

Notation

Q = expected sales in number of units sold

SP = selling price per unit F = Total fixed costs VC = Variable cost per unit

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

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)

Break-Even Decision Rule

If Q > QBE, Total Rev. > Total Cost and Profit > 0

If Q < QBE, Total Rev. < Total Cost and Profit < 0

Break-Even Analysis

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?

Solution to Example 1

Q = expected salesSP = selling price per unit =$25F = Total fixed costs = $10,000VC = Variable cost per unit = $15

Solution to Example 1

units 000,1

15$25$

000,10$

VCSP

FQBE

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.

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.

Example 2

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

2. What is the annual capacity utilization rate?

3. What is the chains profit if they sell 300,000 ticket next year?

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

yearper ticket 000,250

6$10$

000,000,1$

VCSP

FQBE

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

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%

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

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

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?

Product life cycle

Product life cycle

Where is break-even point on product life cycle?

The earlier it is on the product life cycle, the ???