Article for Reflection

Question Description

I’m trying to learn for my Management class and I’m stuck. Can you help?

you will have an opportunity to examine current ethical, social responsibility, and sustainability issues as they relate to operational management.

Review Chapter 5 in the textbook.
Read the “Ethical Dilemma” scenario below.
Write a summary answering the question proposed.

John Sloan, president of Sloan Toy Company, Inc., in Oregon, has just reviewed the design of a new pull-toy locomotive for 1- to 3-year-olds. John’s design and marketing staff are very enthusiastic about the market for the product and the potential of follow-on circus train cars. The sales manager is looking forward to a very good reception at the annual toy show in Dallas next month. John, too, is delighted, as he is faced with a layoff if orders do not improve.
John’s production people have worked out the manufacturing issues and produced a successful pilot run. However, the quality assessment staff suggests that under certain conditions, a hook to attach cars to the locomotive and the crank for the bell can be broken off. This is an issue because children can choke on small parts such as these. In the quality test, 1- to 3-year-olds were unable to break off these parts; there were no failures. But when the test simulated the force of an adult tossing the locomotive into a toy box or a 5-year-old throwing it on the floor, there were failures. The estimate is that one of the two parts can be broken off 4 times out of 100,000 throws. Neither the design nor the material people know how to make the toy safer and still perform as designed. The failure rate is low and certainly normal for this type of toy, but not at the Six Sigma level that John’s firm strives for. And, of course, someone, someday may sue. A child choking on the broken part is a serious matter. Also, John was recently reminded in a discussion with legal counsel that U.S. case law suggests that new products may not be produced if there is “actual or foreseeable knowledge of a problem” with the product.
The design of successful, ethically produced new products, as suggested in this chapter, is a complex task. What should John do?

PART TWO
Designing Operations
GLOBAL COMPANY PROFILE: Regal Marine
◆
Goods and Services Selection 162
◆
Generating New Products 165
◆
Product Development 166
◆
Issues for Product Design 171
◆
Product Development Continuum 173
◆
Defining a Product 175
◆
◆
◆
◆
Documents for Production 178
Service Design 179
Application of Decision Trees
to Product Design 182
Transition to Production 184
10
OM
STRATEGY
DECISIONS
Alaska Airlines
Alaska Airlines
C H A P TE R
OUTLINE
C H A P T E R
5
Design of Goods and Services
•
•
•
•
•
Design of Goods and Services
Managing Quality
Process Strategy
Location Strategies
Layout Strategies
•
•
•
•
•
Human Resources
Supply-Chain Management
Inventory Management
Scheduling
Maintenance
159
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C H A P T E R
5
Product Strategy Provides Competitive
Advantage at Regal Marine
GLOBAL COMPANY PROFILE
Regal Marine
F
orty years after its founding by potato farmer Paul Kuck, Regal Marine has become a powerful force on the waters of the world. The world’s third-largest boat manufacturer (by global
sales), Regal exports to 30 countries, including Russia and China. Almost one-third of its
sales are overseas.
Product design is critical in the highly competitive pleasure boat business: “We keep in
touch with our customers and we respond to the marketplace,” says Kuck. “We’re introducing six new models this year alone. I’d say we’re definitely on the aggressive end of the
spectrum.”
With changing consumer tastes, compounded by material changes and ever–improving
marine engineering, the design function is under constant pressure. Added to these pressures
Barry Render
CAD/CAM is used to design the rain
cover of a new product. This process
results in faster and more efficient
design and production.
Barry Render
Here the deck, suspended from
ceiling cranes, is being finished
prior to being moved to join
the hull. Regal is one of the
first boat builders in the world
to earn the ISO 9001 quality
certification.
160
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Barry Render
Here th
H
the fifinishing
i hi ttouches
h are bbeing
i putt on a mold
ld usedd ffor fforming
i th
the hhull.
ll
is the constant issue of cost competitiveness
Barry Render
combined with the need to provide good value
for customers.
Consequently, Regal Marine is a frequent
user of computer-aided design (CAD).
New designs come to life via Regal’s threedimensional CAD system, borrowed from automotive technology. Regal’s naval architect’s
goal is to continue to reduce the time from
concept to prototype to production. The sophisticated CAD system not only has reduced
product development time and cost, but also
has reduced problems with tooling and production, resulting in a superior product.
All of Regal’s products, from its $14,000
19-foot boat to the $500,000 52-foot Sports
yacht, follow a similar production process.
Once
a hhullll hhas bbeen pulled
the mold,
O
ll d ffrom th
ld it ttravels
l ddown a monorailil assembly
bl
path. JIT inventory delivers engines, wiring, seats, flooring, and interiors when
needed.
components—are installed at another. Racks
of electrical wiring harnesses, engineered
and rigged in-house, are then installed. An
in-house upholstery department delivers
customized seats, beds, dashboards, or
other cushioned components. Finally, chrome
fixtures are put in place, and the boat is sent
to Regal’s test tank for watertight, gauge, and
system inspection.
Hulls and decks are separately hand-produced
by spraying preformed molds with three to five
layers of a fiberglass laminate. The hulls and
decks harden and are removed to become the
lower and upper structure of the boat. As they
move to the assembly line, they are joined and
components added at each workstation.
Barry Render
Wooden components, precut in-house
by computer-driven routers, are delivered
on a just-in-time basis for installation at one
station. Engines—one of the few purchased
the fifinall stage,
smaller
this one, are placed
this ttestt ttank,
At th
t
ll bboats,
t suchh as thi
l d iin thi
k
where a rain machine ensures watertight fits.
161
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L E A RNING
OBJECTIVES
LO 5.1
Define product life cycle 164
LO 5.2
Describe a product development system 166
LO 5.3
Build a house of quality 167
LO 5.4
Explain how time-based competition is implemented by OM 173
LO 5.5
Describe how goods and services are defined by OM 175
LO 5.6
Describe the documents needed for production 179
LO 5.7
Explain how the customer participates in the design and delivery of services 180
LO 5.8
Apply decision trees to product issues 182
Goods and Services Selection
STUDENT TIP
Product strategy is critical
to achieving competitive
advantage.
VIDEO 5.1
Product Strategy at Regal Marine
Figure
Global firms like Regal Marine know that the basis for an organization’s existence is the good
or service it provides society. Great products are the keys to success. Anything less than an
excellent product strategy can be devastating to a firm. To maximize the potential for success, many companies focus on only a few products and then concentrate on those products.
For instance, Honda’s focus, its core competency, is engines. Virtually all of Honda’s sales
(autos, motorcycles, generators, lawn mowers) are based on its outstanding engine technology. Likewise, Intel’s focus is on microprocessors, and Michelin’s is on tires.
However, because 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. 3M’s goal is to produce 30%
of its profit from products introduced in the past 4 years. Apple generates almost 60% of its
revenue from products launched in the past 4 years. Benchmarks, of course, vary by industry;
Regal introduces six new boats a year, and Rubbermaid introduces a new product each day!
The importance of new products cannot be overestimated. As Figure 5.1 shows, leading
companies generate a substantial portion of their sales from products less than 5 years old. The
need for new products is why Gillette developed its multiblade razors, in spite of continuing
high sales of its phenomenally successful Sensor razor, and why Disney continues to innovate
with new rides and new parks even though it is already the world’s leading family entertainment
company.
Despite constant efforts to introduce viable new products, many new products do not succeed. Product selection, definition, and design occur frequently—perhaps hundreds of times
50%
5.1
Percent of sales from
new products
Innovation and New Products
40%
The higher the percentage of
sales from the last 5 years, the
more likely the firm is to be a
leader.
30%
20%
10%
0%
Industry Top Middle Bottom
third
leader third third
Position of firm in its industry
162
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CHAP T ER 5
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DESIGN OF GOODS AND SERVICES
for each financially successful product. DuPont estimates that it takes 250 ideas to yield one
marketable product. Operations managers and their organizations build cultures that accept
this risk and tolerate failure. They learn to accommodate a high volume of new product ideas
while maintaining the production activities to which they are already committed.
Although the term products often refers to tangible goods, it also refers to offerings by service organizations. For instance, when Allstate Insurance offers a new homeowner’s policy, it is
referred to as a new “product.” Similarly, when Citicorp opens a mortgage department, it offers
a number of new mortgage “products.”
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. As one of the 10 decisions of OM, product strategy may focus on developing a competitive advantage via differentiation, low cost, rapid response, or a combination
of these.
163
STUDENT TIP
Motorola went through 3,000
working models before it
developed its first pocket cell
phone.
Product decision
The selection, definition, and
design of products.
Product Strategy Options Support Competitive Advantage
(a) Markets: In its creative way, the market
has moved athletic shoes from utilitarian
footwear into fashionable accessories.
Dutch Boy Paints/Sherwin Williams
Gang/Fotolia
Radu Razvan/Shutterstock
A world of options exists in the selection, definition, and design of products. Product selection
is choosing the good or service to provide customers or clients. For instance, hospitals specialize in various types of patients and medical procedures. A hospital’s management may decide
to operate a general-purpose hospital or a maternity hospital or, as in the case of the Canadian
hospital Shouldice, to specialize in hernias. Hospitals select their products when they decide
what kind of hospital to be. Numerous other options exist for hospitals, just as they exist for
Taco Bell and Toyota.
Service organizations like Shouldice Hospital differentiate themselves through their product. Shouldice differentiates itself by offering a distinctly unique and high-quality product. Its
world-renowned specialization in hernia-repair service is so effective it allows patients to return
(b) Technology: Samsung’s latest technology: radical
new smart phones that are bendable.
(c) Packaging: Sherwin-Williams’ Dutch Boy
has revolutionized the paint industry with its square
Twist & Pour paint container.
Product Innovation Can Be Driven By Markets, Technology, and Packaging. Whether it is design focused on changes in the market (a), the
application of technology at Samsung (b), or a new container at Sherwin-Williams (c), operations managers need to remind themselves that the creative process is ongoing
with major production implications.
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to normal living in 8 days as opposed to the average 2 weeks—and with very few complications. The entire production system is designed for this one product. Local anesthetics are used;
patients enter and leave the operating room on their own; meals are served in a common dining
room, encouraging patients to get out of bed for meals and join fellow patients in the lounge.
As Shouldice demonstrates, product selection affects the entire production system.
Taco Bell has developed and executed a low-cost strategy through product design. By designing a product (its menu) that can be produced with a minimum of labor in small kitchens,
Taco Bell has developed a product line that is both low cost and high value. Successful product
design has allowed Taco Bell to increase the food content of its products from 27¢ to 45¢ of
each sales dollar.
Toyota’s strategy is rapid response to changing consumer demand. By executing the fastest
automobile design in the industry, Toyota has driven the speed of product development down
to well under 2 years in an industry whose standard is still over 2 years. The shorter design time
allows Toyota to get a car to market before consumer tastes change and to do so with the latest
technology and innovations.
Product decisions are fundamental to an organization’s strategy and have major implications throughout the operations function. 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.
Product Life Cycles
LO 5.1 Define product
life cycle
Products are born. They live and they die. They are cast aside by a changing society. It may be
helpful to think of a product’s life as divided into four phases. Those phases are 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.
Figure 5.2 shows the four life cycle stages and the relationship of product sales, cash flow,
and profit over the life cycle of a product. Note that typically a firm has a negative cash flow
while it develops a product. When the product is successful, those losses may be recovered.
Eventually, the successful product may yield a profit prior to its decline. However, the profit is
fleeting—hence, the constant demand for new products.
Life Cycle and Strategy
Just as operations managers must be prepared to develop new products, they must also
be prepared to develop strategies for new and existing products. Periodic examination of
Figure
5.2
$
Cost of development and production
Sales revenue
Product Life Cycle, Sales, Cost,
Profit, and Loss
Profit
Loss
Loss
Introduction
Growth
Maturity
Decline
Phase of life cycle
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DESIGN OF GOODS AND SERVICES
165
products is appropriate because strategies change as products move through their life cycle.
Successful product strategies require determining the best strategy for each product based on
its position in its life cycle. A firm, therefore, identifies products or families of products and
their position in the life cycle. Let us review some strategy options as products move through
their life cycles.
Because products in the introductory phase are still being “finetuned” for the market, as are their production techniques, they may warrant unusual expenditures for (1) research, (2) product development, (3) process modification and enhancement,
and (4) supplier development. For example, when the iPhone was first introduced, the features
desired by the public were still being determined. At the same time, operations managers were
still groping for the best manufacturing techniques.
Introductory Phase
Growth Phase In the growth phase, product design has begun to stabilize, and effective forecasting of capacity requirements is necessary. Adding capacity or enhancing existing
capacity to accommodate the increase in product demand may be necessary.
By the time a product is mature, competitors are established. So highvolume, 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.
Maturity Phase
Decline Phase Management may need to be ruthless with those products whose life
cycle is at an end. Dying products are typically poor products in which to invest resources
and managerial talent. 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.1
Product-by-Value Analysis
The effective operations manager selects items that show the greatest promise. This is the
Pareto principle applied to product mix: Resources are to be invested in the critical few and
not the trivial many. Product-by-value analysis lists products in descending order of their individual dollar contribution to the firm. It also lists the total annual dollar contribution of the
product. Low contribution on a per-unit basis by a particular product may look substantially
different if it represents a large portion of the company’s sales.
A product-by-value report allows management to evaluate possible strategies for each product. These may include 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.
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. Consider recent product changes: DVDs to video
streaming, coffee shops to Starbucks lifestyle coffee, traveling circuses to Cirque du Soleil,
landlines to cell phones, cell phone to smart phones, and an Internet of digital information
to an Internet of “things” that connects you and your smart phone to your home, car, and
doctor. And the list goes on. Knowing how to successfully find and develop new products is a
requirement.
M05_HEIZ0422_12_SE_C05.indd 165
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.
STUDENT TIP
Societies reward those who
supply new products that
reflect their needs.
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Aggressive new product development requires that organizations build structures
internally that have open communication with customers, innovative product development cultures, aggressive R&D, strong leadership, formal incentives, and training. Only
then can a firm profitably and energetically focus on specific opportunities such as the
following:
1. Understanding the customer is the premier issue in new-product development. Many commercially important products are initially thought of and even prototyped by 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.
Product Development
Product Development System
LO 5.2 Describe a
product development
system
Quality function deployment
(QFD)
A process for determining
customer requirements (customer
“wants”) and translating them
into the attributes (the “hows”)
that each functional area can
understand and act on.
House of quality
A part of the quality function
deployment process that utilizes a
planning matrix to relate customer
“wants” to “how” the firm is going
to meet those “wants.”
M05_HEIZ0422_12_SE_C05.indd 166
An effective product strategy links product decisions with other business functions, such as
R&D, engineering, marketing, and finance. A firm requires cash for product development,
an understanding of the marketplace, and the necessary human talents. The product development system may well determine not only product success but also the firm’s future. Figure 5.3
shows the stages of product development. In this system, product options go through a series
of steps, each having its own screening and evaluation criteria, but providing a continuing
flow of information to prior steps.
Optimum product development depends not only on support from other parts of the firm
but also on the successful integration of all 10 of the OM decisions, from product design to
maintenance. Identifying products that appear likely to capture market share, be cost-effective,
and be profitable but are, in fact, very difficult to produce may lead to failure rather than
success.
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.
One of the tools of QFD is the house of quality, a graphic technique for defining the relationship between customer desires and product (or service). Only by defining this relationship in a
rigorous way can managers design products and processes with features desired by customers.
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CHAP T ER 5
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DESIGN OF GOODS AND SERVICES
Figure
Concept: Ideas from
many sources
167
5.3
Product Development Stages
Feasibility: Does firm have
ability to carry out idea?
Customer requirements
to win orders
Product concepts are developed from
a variety of sources, both external and
internal to the firm. Concepts that survive
the product idea stage progress through
various stages, with nearly constant
review, feedback, and evaluation in
a highly participative environment to
minimize failure.
Functional specifications: How the
product will work
Scope
of
product
development
team
Product specifications and manufacturability:
Scope
How the product will be made
for
design
and
Design review: Are these product
engineering
specifications the best way to meet
teams
customer requirements?
Test market: Does product
meet customer expectations?
Introduction to market: Training,
promotion and channel decisions
Evaluation: Success?
Defining this relationship is the first step in building a world-class production system. To build
the house of quality, we perform seven basic steps:
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, as in Example 1, that shows this
relationship.)
4. Identify relationships between the firm’s hows. (How do our hows tie together? For
instance, in the following example, there is a high relationship between low electricity
requirements and auto focus, auto exposure, and number of pixels because they all require
electricity. This relationship is shown in the “roof” of the house in Example 1.)
5. Develop importance ratings. (Using the customer’s importance ratings and weights
for the relationships shown in the matrix, compute our importance ratings, as in
Example 1.)
6. Evaluate competing products. (How well do competing products meet customer wants?
Such an evaluation, as shown in the two columns on the right of the figure in Example 1,
would be based on market research.)
7. Determine the desirable technical attributes, your performance, and the competitor’s
performance against these attributes. (This is done at the bottom of the figure in
Example 1.)
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LO 5.3 Build a house
of quality
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The following series of overlays for Example 1 show how to construct a house of quality.
Example 1
CONSTRUCTING A HOUSE OF QUALITY
Great Cameras, Inc., wants a methodology that strengthens its ability to meet customer desires with its
new digital camera.
APPROACH c
SOLUTION c
3, and 4.
Use QFD’s house of quality.
Build the house of quality for Great Cameras, Inc. We do so here using Overlays 1, 2,
Quality Function Deployment’s (QFD) House of Quality
Relationship between
the things we can do
Customer
importance
ratings
(5 = highest)
What the
customer
wants
What we can do
(how the organization
is going to translate
customer wants into
product and process
attributes and
design targets)
G = good
F = fair
P = poor
Competitive
assessment
How well
what we do
meets the
customer’s
wants
(relationship
matrix)
Weighted rating
Target values
(technical attributes)
Technical
evaluation
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DESIGN OF GOODS AND SERVICES
169
QFD provides an analytical tool that structures design features and technical issues, as
well as providing importance rankings and competitor comparison.
INSIGHT c
If the market research for another country indicates that “lightweight” has
the most important customer ranking (5), and reliability a 3, what is the new total importance ranking
for low electricity requirements, aluminum components, and ergonomic design? [Answer: 18, 15, 27,
respectively.]
LEARNING EXERCISE c
RELATED PROBLEMS c
5.4, 5.5, 5.6, 5.7, 5.8
Another use of quality function deployment (QFD) is to show how the quality effort will be
deployed. As Figure 5.4 shows, design characteristics of House 1 become the inputs to House
2, which are satisfied by specific components of the product. Similarly, the concept is carried to
House 3, where the specific components are to be satisfied through particular production processes. Once those production processes are defined, they become requirements of House 4 to
be satisfied by a quality plan that will ensure conformance of those processes. The quality plan
is a set of specific tolerances, procedures, methods, and sampling techniques that will ensure
that the production process meets the customer requirements.
The QFD effort is devoted to meeting customer requirements. The sequence of houses is a
very effective way of identifying, communicating, and deploying production resources. In this
way we produce quality products, meet customer requirements, and win orders.
Organizing for Product Development
Let’s look at four approaches to organizing for product development. First, the traditional
U.S. approach to product development is an organization with distinct departments: a
research and development department to do the necessary research; an engineering department to design the product; a manufacturing engineering department to design a product
that can be produced; and a production department that produces the product. The distinct
advantage of this approach is that fixed duties and responsibilities exist. The distinct disadvantage is lack of forward thinking: How will downstream departments in the process deal
with the concepts, ideas, and designs presented to them, and ultimately what will the customer think of the product?
A second and popular approach is to assign a product manager to “champion” the product through the product development system and related organizations. However, a third, and
perhaps the best, product development approach used in the U.S. seems to be the use of teams.
Figure
House
1
House
2
House
3
Production
process
Specific
components
Customer
requirements
Design
characteristics
Design
characteristics
Specific
components
Production
process
Quality
plan
House
4
5.4
House of Quality Sequence Indicates How to Deploy Resources to Achieve Customer Requirements
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Product development teams
Teams charged with moving from
market requirements for a product
to achieving product success.
Concurrent engineering
Simultaneous performance of
the various stages of product
development.
Such teams are known variously as product development teams, design for manufacturability
teams, and value engineering teams.
The Japanese use a fourth approach. They bypass the team issue by not subdividing organizations into research and development, engineering, production, and so forth. Consistent with
the Japanese style of group effort and teamwork, these activities are all in one organization.
Japanese culture and management style are more collegial and the organization less structured
than in most Western countries. Therefore, the Japanese find it unnecessary to have “teams”
provide the necessary communication and coordination. However, the typical Western style,
and the conventional wisdom, is to use teams.
Product development teams are charged with the responsibility of moving from market requirements for a product to achieving a product success (refer to Figure 5.3 on page 167).
Such teams often include representatives from marketing, manufacturing, purchasing, quality assurance, and field service personnel. Many teams also include representatives from vendors. Regardless of the formal nature of the product development effort, research suggests
that success is more likely in an open, highly participative environment where those with
potential contributions are allowed to make them. The objective of a product development
team is to make the good or service a success. This includes marketability, manufacturability,
and serviceability.
Concurrent engineering implies speedier product development through simultaneous performance of the various stages of product development (as we saw earlier in Figure 5.3). Often
the concept is expanded to include all elements of a product’s life cycle, from customer requirements to disposal and recycling. Concurrent engineering is facilitated by teams representing all
affected areas (known as cross-functional teams).
Manufacturability and Value Engineering
Manufacturability and value
engineering
Activities that help improve a
product’s design, production,
maintainability, and use.
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. These include:
1.
2.
3.
4.
5.
6.
7.
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.
Manufacturability and value engineering activities may be the best cost-avoidance technique
available to operations management. They yield value improvement by focusing on achieving the functional specifications necessary to meet customer requirements in an optimal way.
Value engineering programs typically reduce costs between 15% and 70% without reducing
quality, with every dollar spent yielding $10 to $25 in savings. The cost reduction achieved for
a specific bracket via value engineering is shown in Figure 5.5.
Figure
5.5
Cost Reduction of a Bracket
via Value Engineering
STUDENT TIP
Each time the bracket is
redesigned and simplified, we
are able to produce it for less.
M05_HEIZ0422_12_SE_C05.indd 170
2
1
$3.50
3
$2.00
$.80
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Issues for Product Design
In addition to developing 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: (1) robust design, (2) modular design, (3) computer-aided design/computeraided manufacturing (CAD/CAM), (4) virtual reality technology, (5) value analysis, and
(6) sustainability/life cycle assessment (LCA).
Robust Design
Robust design means that the product is designed so that small variations in production or
assembly do not adversely affect the product. For instance, Lucent developed an integrated
circuit that could be used in many products to amplify voice signals. As originally designed,
the circuit had to be manufactured very expensively to avoid variations in the strength of
the signal. But after testing and analyzing the design, Lucent engineers realized that if the
resistance of the circuit was reduced—a minor change with no associated costs—the circuit
would be far less sensitive to manufacturing variations. The result was a 40% improvement in
quality.
Robust design
A design that can be produced to
requirements even with unfavorable conditions in the production
process.
Modular Design
Products designed in easily segmented components are known as modular designs. Modular
designs offer flexibility to both production and marketing. Operations managers find modularity helpful because it makes product development, production, and subsequent changes
easier. Marketing may like modularity because it adds flexibility to the ways customers can
be satisfied. For instance, virtually all premium high-fidelity sound systems are produced and
sold this way. The customization provided by modularity allows customers to mix and match
to their own taste. This is also the approach taken by Harley-Davidson, where relatively few
different engines, chassis, gas tanks, and suspension systems are mixed to produce a huge variety of motorcycles. It has been estimated that many automobile manufacturers can, by mixing
the available modules, never make two cars alike. This same concept of modularity is carried
over to many industries, from airframe manufacturers to fast-food restaurants. Airbus uses
the same wing modules on several planes, just as McDonald’s and Burger King use relatively
few modules (cheese, lettuce, buns, sauces, pickles, meat patties, french fries, etc.) to make a
variety of meals.
Modular design
A design in which parts or
components of a product are
subdivided into modules that are
easily interchanged or replaced.
Computer-Aided Design (CAD) and Computer-Aided
Manufacturing (CAM)
Computer-aided design (CAD) is the use of computers to interactively design products and prepare
engineering documentation. CAD uses three-dimensional drawing to save time and money by
shortening development cycles for virtually all products (see the 3-D design photo in the Regal
Marine Global Company Profile that opens this chapter). 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. Faster development, better
products, and accurate flow of information to other departments all contribute to a tremendous payoff for CAD. The payoff is particularly significant because most product costs are
determined at the design stage.
One extension of CAD is design for manufacture and assembly (DFMA) software, which focuses
on the effect of design on assembly. For instance, DFMA allows Ford to build new vehicles in
a 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.
CAD systems have moved to the Internet through e-commerce, where they link computerized design with purchasing, outsourcing, manufacturing, and long-term maintenance. This
move also speeds up design efforts, as staff around the world can work on their unique work
schedules. Rapid product change also supports the trend toward “mass customization” and,
M05_HEIZ0422_12_SE_C05.indd 171
Computer-aided design (CAD)
Interactive use of a computer to
develop and document a product.
Design for manufacture and
assembly (DFMA)
Software that allows designers
to look at the effect of design on
manufacturing of the product.
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Standard for the exchange of
product data (STEP)
A standard that provides a format
allowing the electronic transmission of three-dimensional data.
Computer-aided manufacturing
(CAM)
The use of information technology
to control machinery.
3-D printing
An extension of CAD that builds
prototypes and small lots.
Paul Drinkwater/NBC/NBCU Photo Bank/Getty Images
For prototypes, spares, and in the case of
Jay Leno’s classic car collection, difficult-toreplace parts, 3D printing is often the answer.
By scanning the original part, creating a digital
file, making the necessary modifications, and
feeding that data into a 3D printer, Jay’s shop
can make parts not otherwise available for his
1906 Stanley Steamer.
when carried to an extreme, allows customers to enter a supplier’s design libraries and make
changes. The result is faster and less expensive customized products. As product life cycles
shorten, designs become more complex, and global collaboration has grown, the European
Community (EU) has developed a standard for the exchange of product data (STEP; ISO 10303). STEP
permits 3-D product information to be expressed in a standard format so it can be exchanged
internationally.
Computer-aided manufacturing (CAM) refers to the use of specialized computer programs to direct
and control manufacturing equipment. When CAD information is translated into instructions
for CAM, the result of these two technologies is CAD/CAM. The combination is a powerful
tool for manufacturing efficiency. Fewer defective units are produced, translating into less rework and lower inventory. More precise scheduling also contributes to less inventory and more
efficient use of personnel.
A related extension of CAD is 3-D printing. This technology is particularly useful for prototype development and small lot production (as shown in the photo above). 3-D printing speeds
development by avoiding a more lengthy and formal manufacturing process, as we see in the
OM in Action box “3-D Printers Hit the Mainstream.”
Virtual Reality Technology
Virtual reality
A visual form of communication in
which images substitute for reality
and typically allow the user to
respond interactively.
OM in Action
Virtual reality is a visual form of communication in which images substitute for the real thing but
still allow the user to respond interactively. The roots of virtual reality technology in operations are in CAD. Once design information is in a CAD system, it is also in electronic digital
form for other uses, such as developing 3-D layouts of everything from retail stores and restaurant layouts to amusement parks. Procter & Gamble, for instance, builds walk-in virtual
3-D Printers Hit the Mainstream
3-D printers are revolutionizing the product design process. With instructions
from 3-D CAD models, these printers “build” products by laying down successive thin layers of plastic, metal, glass, or ceramics. Indeed, for many firms,
3-D printers have become indispensable.
The medical field uses the machines to make custom hearing aids.
Invisalign Corp. produces individualized braces for teeth. Architects use the
technology to produce models of buildings, and consumer electronics companies build prototypes of their latest gadgets. Microsoft uses 3-D printers to
help design computer mouse devices and keyboards, while Mercedes, Honda,
Boeing, and Lockheed Martin use them to fashion prototypes and to make
parts that go into final products. Eventually, “a person who buys a BMW will
want a part of the car with their name on it or to customize the seats to the
M05_HEIZ0422_12_SE_C05.indd 172
contours of their bodies,” says 3-D Systems’s CEO. And currently 3-D printing
at Hershey’s Chocolate World attraction means customers can order their
likeness or wedding cake decoration in chocolate.
The cost of 3-D printing continues to drop. Now anyone can buy a 3-D
printer, hook it up to a Wi-Fi network, and begin downloading files that will
turn into real objects. Another beauty and value of 3-D printing is that it
has the power to unleash a world of creative energy: People who previously
only thought about an invention or improved product can now quickly make
it real.
Sources: Advertising Age (January 28, 2015); BusinessWeek (April 30, 2012);
and The Wall Street Journal (July 16, 2011).
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173
stores to rapidly generate and test ideas. Changes to mechanical design, layouts, and even
amusement park rides are much less expensive at the design stage than they are later.
Value Analysis
Although value engineering (discussed on page 170) focuses on preproduction design and
manufacturing issues, value analysis, a related technique, takes place during the production
process, when it is clear that a new product is a success. Value analysis seeks improvements that
lead to either a better product, or a product made more economically, or a product with less
environmental impact. The techniques and advantages for value analysis are the same as for
value engineering, although minor changes in implementation may be necessary because value
analysis is taking place while the product is being produced.
Value analysis
A review of successful products
that takes place during the production process.
Sustainability and Life Cycle Assessment (LCA)
Product design requires that managers evaluate product options. Addressing 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. Both sustainability and LCA are discussed in depth in the supplement to this chapter.
Product Development Continuum
As product life cycles shorten, the need for faster product development increases. And as technological sophistication of new products increases, so do the expense and risk. For instance,
drug firms invest an average of 12 to 15 years and $1 billion before receiving regulatory approval
for a new drug. And even then, only 1 of 5 will actually be a success. Those operations managers who master this art of product development continually gain on slower product developers.
To the swift goes the competitive advantage. This concept is called time-based competition.
Often, the first company into production may have its product adopted for use in a variety of
applications that will generate sales for years. It may become the “standard.” Consequently, there
is often more concern with getting the product to market than with optimum product design or
process efficiency. Even so, rapid introduction to the market may be good management because
until competition begins to introduce copies or improved versions, the product can sometimes be
priced high enough to justify somewhat inefficient production design and methods.
Because time-based competition is so important, instead of developing new products from
scratch (which has been the focus thus far in this chapter), a number of other strategies can be
used. Figure 5.6 shows a continuum that goes from new, internally developed products (on the
lower left) to “alliances.” Enhancements and migrations use the organization’s existing product
strengths for innovation and therefore are typically faster while at the same time being less risky
than developing entirely new products.
Enhancements may be changes in color, size, weight, taste, or features, such as are taking
place in fast-food menu items (see the OM in Action box “Product Development at Taco Bell”
on the next page), or even changes in commercial aircraft. Boeing’s enhancements of the 737
since its introduction in 1967 has made the 737 the largest-selling commercial aircraft in history.
Boeing also uses its engineering prowess in air frames to migrate from one model to the
next. This allows Boeing to speed development while reducing both cost and risk for new
designs. This approach is also referred to as building on product platforms. Similarly, Volkswagen is using a versatile automobile platform (the MQB chassis) for small to midsize frontwheel-drive cars. This includes VW’s Polo, Golf, Passat, Tiguan, and Skoda Octavia, and it may
eventually include 44 different vehicles. The advantages are downward pressure on cost as well
as faster development. Hewlett-Packard has done the same in the printer business. Enhancements and platform migrations are a way of building on existing expertise, speeding product
development, and extending a product’s life cycle.
The product development strategies on the lower left of Figure 5.6 are internal development strategies, while the three approaches we now introduce can be thought of as external
M05_HEIZ0422_12_SE_C05.indd 173
STUDENT TIP
Fast communication, rapid
technological change, and short
product life cycles push product
development.
Time-based competition
Competition based on time; rapidly
developing products and moving
them to market.
LO 5.4 Explain how
time-based competition
is implemented by OM
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Figure
5.6
Product Development Continuum
Product Development
Continuum
External development strategies
Alliances
Joint ventures
Purchase technology or expertise
by acquiring the developer
STUDENT TIP
Managers seek a variety of
approaches to obtain speed to
market. As the president of one
U.S. firm said: “If I miss one
product cycle, I’m dead.”
Internal development strategies
Migrations of existing products
Enhancements to existing products
New internally developed products
Internal
Lengthy
High
Cost of product development
Speed of product development
Risk of product development
Shared
Rapid and/or Existing
Shared
development strategies. Firms use both. The external strategies are (1) purchase the technology,
(2) establish joint ventures, and (3) develop alliances.
Purchasing Technology by Acquiring a Firm
Microsoft and Cisco Systems are examples of companies on the cutting edge of technology
that often speed development by acquiring entrepreneurial firms that have already developed
the technology that fits their mission. The issue then becomes fitting the purchased organization, its technology, its product lines, and its culture into the buying firm, rather than a product
development issue.
Firms establishing joint ownership to pursue new products or
markets.
OM in Action
Joint Ventures
In an effort to reduce the weight of new cars, GM is in a joint venture with Tokyo-based
Teijin Ltd. to bring lightweight carbon fiber to GM’s customers. Joint ventures such as this are
Product Development at Taco Bell
Chains such as Chipotle, Carl’s Jr., and In-N-Out Burger may rely on a stable
menu of popular items, but Taco Bell creates a constant rotation of products
in hopes of not only keeping consumers coming back, but also uncovering
the next big seller. Taco Bell seeks to be the leader in fast-food innovation
and believes there is no finish line when it comes to being first and staying
relevant. Breakfast is the fastest-growing part of the fast-food market—with
dinner sales declining and lunch sales flat. Moreover, breakfast items tend to
have good margins, making the crafting of breakfast hits, such as Taco Bell’s
new A.M. Crunchwrap and Waffle Taco, lucrative additions.
In search of ideas, the product developers mine social media, consider
new ingredients, and track rivals. Some Fridays, the team does what they’ve
dubbed a “grocery store hustle” to see what’s new in retail. But the basic
pillars of anything they develop remain taste, value, and speed—all of which
must be attainable within the constraints and operations capability of the
Taco Bell kitchen. The less a restaurant has to change its kitchen operations,
ingredients, or equipment, the better.
Taco Bell’s 40-person product innovation team looks at 4,000 to 4,500 ideas
every year. From there developers come up with 300 to 500 prototypes, which
M05_HEIZ0422_12_SE_C05.indd 174
they then test on consumers in the
lab and in test restaurants. From
this huge array, Taco Bell selects
dozens of items in various permutations for further review. Usually, only
8 to 10 of the new product ideas
make the Taco Bell menu.
The typical product goes
through about 100 iterations by
the time it is launched. The Waffle
Taco, for instance, was changed
80 times through various characteristics such as shape, weight,
thickness, intensity of vanilla flavor
in the shell, and fillings.
Jonathan Leibson/Getty Images
Joint ventures
Taco Bell’s New Waffle Taco
Sources: BusinessWeek (June 2–9, 2014); The Wall Street Journal (Dec. 4,
2014); www.grubgrade.com; investorplace.com/2014/03.
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175
combined ownership, usually between just two firms, to form a new entity. Ownership can
be 50–50, or one owner can assume a larger portion to ensure tighter control. Joint ventures
are often appropriate for exploiting specific product opportunities that may not be central to
the firm’s mission. Such ventures are more likely to work when the risks are known and can
be equitably shared.
Alliances
When new products are central to the mission, but substantial resources are required and sizable risk is present, then alliances may be a good strategy for product development. Alliances
are cooperative agreements that allow firms to remain independent but use complementing
strengths to pursue strategies consistent with their individual missions. Alliances are particularly beneficial when the products to be developed also have technologies that are in ferment.
For example, Microsoft is pursuing alliances with a variety of companies to deal with the
convergence of computing, the Internet, and television broadcasting. Alliances in this case are
appropriate because the technological unknowns, capital demands, and risks are significant.
Similarly, three firms, Mercedes-Benz, Ford Motor, and Ballard Power Systems, have formed
an alliance to develop “green” cars powered by fuel cells. Alliances are much more difficult to
achieve and maintain than joint ventures because of the ambiguities associated with them. It
may be helpful to think of an alliance as an incomplete contract between the firms. The firms
remain separate.
Enhancements, migration, acquisitions, joint ventures, and alliances are all strategies for
speeding product development. Moreover, they typically reduce the risk associated with product development while enhancing the human and capital resources available.
Defining a Product
Once new goods or services are selected for introduction, they must be defined. First, 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. Management typically has a variety of options as to how a product should achieve its functional purpose. For
instance, when an alarm clock is produced, aspects of design such as the color, size, or location of buttons may make substantial differences in ease of manufacture, quality, and market
acceptance.
Rigorous specifications of a product are necessary to ensure efficient production. Equipment, layout, and human resources cannot be determined until the product is defined, designed, and documented. Therefore, every organization needs documents to define its products.
This is true of everything from meat patties, to cheese, to computers, to a medical procedure.
In the case of cheese, a written specification is typical. Indeed, written specifications or standard grades exist and provide the definition for many products. For instance, Monterey Jack
cheese has a written description that specifies the characteristics necessary for each Department of Agriculture grade. A portion of the Department of Agriculture grade for Monterey
Jack Grade AA is shown in Figure 5.7. Similarly, McDonald’s Corp. has 60 specifications for
potatoes that are to be made into french fries.
Most manufactured items, as well as their components, are defined by a drawing, usually
referred to as an 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 is shown in Figure 5.8. 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. A bill of material for a manufactured item is shown in Figure 5.9(a).
Note that subassemblies and components (lower-level items) are indented at each level to
indicate their subordinate position. An engineering drawing shows how to make one item on
the bill of material.
M05_HEIZ0422_12_SE_C05.indd 175
Alliances
Cooperative agreements that allow
firms to remain independent, but
pursue strategies consistent with
their individual missions.
STUDENT TIP
Before anything can be produced,
a product’s functions and attributes
must be defined.
LO 5.5 Describe how
products and services are
defined by OM
Engineering drawing
A drawing that shows the dimensions, tolerances, materials, and
finishes of a component.
Bill of material (BOM)
A list of the hierarchy of components, their description, and the
quantity of each required to make
one unit of a product.
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5.7
§ 58.2469 Specifications for U.S. grades of Monterey
(Monterey Jack) cheese
Monterey Jack
A portion of the general
requirements for the U.S. grades
of Monterey Jack cheese is shown
here.
Source: Based on 58.2469 Specifications
for U.S. grades of Monterey (Monterey
Jack) cheese, (May 10, 1996).
(a) U.S. grade AA. Monterey Cheese shall
conform to the following requirements:
sound, firm, and smooth, providing a good
protection to the cheese.
(1) Flavor. Is fine and highly pleasing, free
from undesirable flavors and odors. May
possess a very slight acid or feed flavor.
Code of Federal Regulation, Parts 53 to 109,
General Service Administration.
(2) Body and texture. A plug drawn from
the cheese shall be reasonably firm. It shall
have numerous small mechanical openings
evenly distributed throughout the plug. It
shall not possess sweet holes, yeast holes,
or other gas holes.
David Murray/Dorling Kindersley, Ltd.
Figure
(3) Color. Shall have a natural, uniform,
bright, attractive appearance.
(4) Finish and appearance —bandaged
and paraffin-dipped. The rind shall be
In the food-service industry, bills of material manifest themselves in portion-control standards. The portion-control standard for Hard Rock Cafe’s hickory BBQ bacon cheeseburger
is shown in Figure 5.9(b). In a more complex product, a bill of material is referenced on other
bills of material of which they are a part. In this manner, subunits (subassemblies) are part
of the next higher unit (their parent bill of material) that ultimately makes a final product.
In addition to being defined by written specifications, portion-control documents, or bills of
material, products can be defined in other ways. For example, products such as chemicals,
paints, and petroleums may be defined by formulas or proportions that describe how they are
to be made. Movies are defined by scripts, and insurance coverage by legal documents known
as policies.
Make-or-Buy Decisions
Make-or-buy decision
The choice between producing a
component or a service and purchasing it from an outside source.
5.8
.250
FINE
KNURL
.050
.055
REVISIONS
By Date
1/64 R X .010 DP.
AFTER KNURL
Tolerance Unless Specified:
1
—
Fractional: +
– 64
Decimal: +
– .005
Material
Heat Treat
Finish
.624
.625
Engineering Drawings Such as
This One Show Dimensions,
Tolerances, Materials, and
Finishes
No.
.375
Figure
For many components of products, firms have the option of producing the components themselves or purchasing them from outside sources. Choosing between these options is known as
the make-or-buy decision. 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. Examples are the standard bolts
listed twice on the bill of material shown in Figure 5.9(a), for which there will be SAE (Society
A2
58-60 RC
DRIVE ROLLER
.250 DIA. THRU
.251
.093
5-40 TAP THRU
AUX. VIEW
MARK PART NO.
M05_HEIZ0422_12_SE_C05.indd 176
Scale:
Checked:
Drawn: D. PHILLIPS
Date:
ABryce D. Jewett
Machine Mfg. Co., Inc.
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CHAP T ER 5
(a)
Bill of Material
for a Panel Weldment
NUMBER
A 60-71
(b)
DESCRIPTION
QTY
1
PANEL WELDM’T
A 60-7
R 60-17
R 60-428
P 60-2
LOWER ROLLER ASSM.
ROLLER
PIN
LOCKNUT
1
1
1
1
A 60-72
R 60-57-1
A 60-4
02-50-1150
GUIDE ASSM. REAR
SUPPORT ANGLE
ROLLER ASSEM.
BOLT
1
1
1
1
A 60-73
A 60-74
R 60-99
02-50-1150
GUIDE ASSM. FRONT
SUPPORT WELDM’T
WEAR PLATE
BOLT
1
1
1
1
|
DESIGN OF GOODS AND SERVICES
Hard Rock Cafe’s Hickory
BBQ Bacon Cheeseburger
DESCRIPTION
Bun
Hamburger patty
Cheddar cheese
Bacon
BBQ onions
Hickory BBQ sauce
Burger set
Lettuce
Tomato
Red onion
Pickle
French fries
Seasoned salt
11- inch plate
HRC flag
QTY
1
8 oz.
2 slices
2 strips
1/2 cup
1 oz.
1 leaf
1 slice
4 rings
1 slice
5 oz.
1 tsp.
1
1
Figure
177
5.9
Bills of Material Take Different
Forms in a (a) Manufacturing
Plant and (b) Restaurant, but
in Both Cases, the Product
Must Be Defined
STUDENT TIP
Hard Rock’s recipe here serves
the same purpose as a bill of
material in a factory: It defines
the product for production.
of Automotive Engineers) specifications. Therefore, there typically is no need for the firm to
duplicate this specification in another document.
Group Technology
Engineering drawings may also include codes to facilitate group technology. Group technology
identifies components by a coding scheme that specifies size, shape, and the type of processing (such as drilling). This facilitates standardization of materials, components, and processes as well as the identification of families of parts. As families of parts are identified,
activities and machines can be grouped to minimize setups, routings, and material handling.
An example of how families of parts may be grouped is shown in Figure 5.10. Group technology provides a systematic way to review a family of components to see if an existing component might suffice on a new project. Using existing or standard components eliminates all
the costs connected with the design and development of the new part, which is a major cost
reduction.
(b) Grouped Cylindrical Parts (families of parts)
(a) Ungrouped Parts
Grooved
M05_HEIZ0422_12_SE_C05.indd 177
Slotted
Threaded
Drilled
Machined
Group technology
A product and component coding
system that specifies the size,
shape, and type of processing;
it allows similar products to be
grouped.
Figure
5.10
A Variety of Group Technology
Coding Schemes Move
Manufactured Components
from (a) Ungrouped to
(b) Grouped (families of parts)
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178 PA RT 2 | D ES I G N I N G O P ERATI ONS
STUDENT TIP
Production personnel need
clear, specific documents to
help them make the product.
Assembly drawing
An exploded view of the product.
Assembly chart
A graphic means of identifying
how components flow into subassemblies and final products.
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.
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.
Figure
Documents for Production
Once a product is selected, designed, and ready for production, production is assisted by a
variety of documents. We will briefly review some of these.
An assembly drawing simply shows an exploded view of the product. An assembly drawing
is usually a three-dimensional drawing, known as an isometric drawing; the relative locations
of components are drawn in relation to each other to show how to assemble the unit [see
Figure 5.11(a)].
The assembly chart shows in schematic form how a product is assembled. Manufactured
components, purchased components, or a combination of both may be shown on an assembly
chart. The assembly chart identifies the point of production at which components flow into
subassemblies and ultimately into a final product. An example of an assembly chart is shown
in Figure 5.11(b).
The route sheet lists the operations necessary to produce the component with the material
specified in the bill of material. The route sheet for an item will have one entry for each operation to be performed on the item. When route sheets include specific methods of operation and
labor standards, they are often known as process sheets.
The work order is an instruction to make a given quantity of a particular item, usually to a
given schedule. The ticket that a waiter writes in your favorite restaurant is a work order. In a
hospital or factory, the work order is a more formal document that provides authorization to
draw items from inventory, to perform various functions, and to assign personnel to perform
those functions.
Engineering change notices (ECNs) change some aspect of the product’s definition or documentation, such as an engineering drawing or a bill of material. For a complex product that has a
long manufacturing cycle, such as a Boeing 777, the changes may be so numerous that no two
777s are built exactly alike—which is indeed the case. Such dynamic design change has fostered
the development of a discipline known as configuration management, which is concerned with
product identification, control, and documentation. Configuration management is the system by
which a product’s planned and changing configurations are accurately identified and for which
control and accountability of change are maintained.
Product Life-Cycle Management (PLM)
Product life-cycle management (PLM) is an umbrella of software programs that attempts to bring
together phases of product design and manufacture—including tying together many of
5.11
(b) Assembly Chart
(a) Assembly Drawing
Assembly Drawing
and Assembly Chart
1
2
Source: Assembly drawing and assembly
chart produced by author.
3
11/2″ * 3/8″
Hex head bolt
R 207
4
5
R 209
6
3/8″ Lock
washer
31/2″* 3/8″
Hex head bolt
3/8″
Hex nut
R 404
3/8″ Hex nut
7
8
9
10
R 207
11
M05_HEIZ0422_12_SE_C05.indd 178
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
Left
SA bracket A1
1 assembly
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
Right
SA bracket A2
2 assembly
Bolt w/nut
R 404 Roller
A3
Lock washer
Part number tag
Box w/packing material
Poka-yoke
inspection
A4
A5
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DESIGN OF GOODS AND SERVICES
179
J.R. Simplot Company
J.R. Simplot Company
Each year the JR Simplot potato-processing facility in
Caldwell, Idaho, produces billions of french fries for quickservice restaurant chains and many other customers, both
domestically and overseas (left photo). Sixty specifications
(including a special blend of frying oil, a unique steaming
process, and exact time and temperature for prefrying and
drying) define how these potatoes become french fries.
Further, 40% of all french fries must be 2 to 3 inches long,
40% must be over 3 inches long, and a few stubby ones
constitute the final 20%. Quality control personnel use a
micrometer to measure the fries (right photo).
the techniques discussed in the prior two sections, Defining a Product and Documents for
Production. The idea behind PLM software is that product design and manufacture decisions
can be performed more creatively, faster, and more economically when the data are integrated
and consistent.
Although there is not one standard, PLM products often start with product design (CAD/
CAM); move on to design for manufacture and assembly (DFMA); and then into product
routing, materials, layout, assembly, maintenance, and even environmental issues. Integration
of these tasks makes sense because many of these decision areas require overlapping pieces of
data. PLM software is now a tool of many large organizations, including Lockheed Martin,
GE, Procter & Gamble, Toyota, and Boeing. Boeing estimates that PLM will cut final assembly of its 787 jet from 2 weeks to 3 days. PLM is now finding its way into medium and small
manufacture as well.
Shorter life cycles, more technologically challenging products, more regulations regarding materials and manufacturing processes, and more environmental issues all make PLM an
appealing tool for operations managers. Major vendors of PLM software include SAP PLM
(www.mySAP.com), Parametric Technology Corp. (www.ptc.com), Siemens (www.plm
.automation.siemens.com), and Proplanner (www.proplanner.com).
Service Design
LO 5.6 Describe the
documents needed for
production
STUDENT TIP
Services also need to be
defined and documented.
Much of our discussion so far has focused on what we can call tangible products—that
is, goods. On the other side of the product coin are, of course, services. Service industries include banking, finance, insurance, transportation, and communications. The products offered by service firms range from a medical procedure that leaves only the tiniest
scar after an appendectomy, to a shampoo and cut at a hair salon, to a great sandwich.
Designing services is challenging because they have a unique characteristic—customer
interaction.
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
M05_HEIZ0422_12_SE_C05.indd 179
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.
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180 PA RT 2 | D ES I G N I N G O P ERATI ONS
Assemble sandwich
Sandwich consumer
Consumer’s process domain
Supplier’s process domain
Make sandwich in restaurant kitchen from menu
offerings with modest
modifications
Peter Titmuss/Alamy
Figure
Assemble custom
sandwich at Subway
as customer orders
photosbyehlers/Fotolia
Prepare sandwiches
at factory for resale
at convenience stores
Direct
Direct
interaction interaction
Monkey Business Images/Shutterstock
Surrogate
interaction
REDA &CO srl/Alamy
Independent
processing
Surrogate
interaction
Independent
processing
Customer assembles
sandwich from buffet
offerings
Assemble sandwich at
home using ingredients
from refrigerator
Zurijeta/Shutterstock
Sandwich supplier
5.12
Customer Interaction Is a Strategic Choice
Process chain
A sequence of steps that
accomplishes an identifiable
purpose (of providing value to
process participants).
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.
Each participant has a process domain that includes the set of activities over which it has
control. The domain and interactions between two participants for sandwich preparation are
shown in the PCN diagram (Figure 5.12). The activities are organized into three process regions
for each participant:
1. The direct interaction region includes process steps that involve interaction between participants. For example, a sandwich buyer directly interacts with employees of a sandwich
store (e.g., Subway, in the middle of Figure 5.12).
2. The surrogate (substitute) interaction region includes process steps in which one participant is acting on another participant’s resources, such as their information, materials, or
technologies. This occurs when the sandwich supplier is making sandwiches in the restaurant kitchen (left side of Figure 5.12) or, alternately, when the customer has access to
buffet ingredients and assembles the sandwich himself (right side of the figure). Under
surrogate interaction, direct interaction is limited.
3. The independent processing region includes steps in which the sandwich supplier and/or
the sandwich customer is acting on resources where each has maximum control. Most
make-to-stock production fits in this region (left side of Figure 5.12; think of the firm that
assembles all those prepackaged sandwiches available in vending machines and convenience stores). Similarly, those sandwiches built at home occur to the right, in the customer’s independent processing domain.
LO 5.7 Explain how the
customer participates in
the design and delivery of
services
M05_HEIZ0422_12_SE_C05.indd 180
All three process regions have similar operating issues—quality control, facility location and
layout, job design, inventory, and so on—but the appropriate way of handling the issues differs
across regions. Service operations exist only within the area of direct and surrogate interaction.
From the operations manager’s perspective, the valuable aspect of PCN analysis is insight
to aid in positioning and designing processes that can achieve strategic objectives. A firm’s
operations are strategic in that they can define what type of business the firm is in and what
value proposition it desires to provide to customers. For example, a firm may assume a low-cost
strategy, operating on the left of Figure 5.12 as a manufacturer of premade sandwiches. Other
firms (e.g., Subway) adopt a differentiation strategy with high customer interaction. Each of
the process regions depicts a unique operational strategy.
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CHAP T ER 5
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DESIGN OF GOODS AND SERVICES
181
Firms wanting to achieve high economies of scale or more control in their operations
should probably position toward the independent processing region of their process domain.
Firms intending to provide a value offering that focuses on customization should be positioned
more toward the consumer’s process domain. PCN analysis can be applied in a wide variety of
business settings.
Adding Service Efficiency
Service productivity is notoriously low, in part because of customer involvement in the design
or delivery of the service, or both. This complicates the product design challenge. We will now
discuss a number of ways to increase service efficiency and, among these, several ways to limit
this interaction.
Because customers may participate in the design of the service (e.g., for
a funeral or a hairstyle), design specifications may take the form of everything from a menu (in
a restaurant), to a list of options (for a funeral), to a verbal description (a hairstyle). However,
by providing a list of options (in the case of the funeral) or a series of photographs (in the case
of the hairstyle), ambiguity may be reduced. An early resolution of the product’s definition can
aid efficiency as well as aid in meeting customer expectations.
Limit the Options
Delay Customization Design the product so that customization is delayed as late in the
process as possible. This is the way a hair salon operates. Although shampoo and condition
are done in a standard way with lower-cost labor, the color and styling (customizing) are done
last. It is also the way most restaurants operate: How would you like that cooked? Which
dressing would you prefer with your salad?
Modularize the service so that customization takes the form of changing modules. This strategy allows for “custom” services to be designed as standard modular
entities. Just as modular design allows you to buy a high-fidelity sound system with just the
features you want, modular flexibility also lets you buy meals, clothes, and insurance on a mixand-match (modular) basis. Investments (portfolios of stocks and bonds) and education (college curricula) are examples of how the modular approach can be used to customize a service.
Modularization
Divide the service into small parts, and identify those parts that lend themselves to automation. For instance, by isolating check-cashing activity via ATM, banks have
been very effective at designing a product that both increases customer service and reduces
costs. Similarly, airlines have moved to ticketless service via kiosks. A technique such as kiosks
reduces both costs and lines at airports—thereby increasing customer satisfaction—and providing a win–win “product” design.
Automation
Moment of Truth High customer interaction means that in the service industry there is
a moment of truth when the relationship between the provider and the customer is crucial. At
that moment, the customer’s satisfaction with the service is defined. The moment of truth is
the moment that exemplifies, enhances, or detracts from the customer’s expectations. That
moment may be as simple as a smile from a Starbucks barista or having the checkout clerk
focus on you rather than talking over his shoulder to the clerk at the next counter. Moments
of truth can occur when you order at McDonald’s, get a haircut, or register for college courses.
The operations manager’s task is to identify moments of truth and design operations that meet
or exceed the customer’s expectations.
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. Example 2 shows the kind of documentation a bank may use to move
M05_HEIZ0422_12_SE_C05.indd 181
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182 PA RT 2 | D ES I G N I N G O P ERATI ONS
a product (drive-up window banking) to “production.” Similarly, a telemarketing service has
the product design communicated to production personnel in the form of a telephone script,
while a manuscript is used for books, and a storyboard is used for movie and TV production.
Example 2
SERVICE DOCUMENTATION FOR PRODUCTION
First Bank Corp. wants to ensure effective delivery of service to its drive-up customers.
APPROACH c Develop a “production” document for the tellers at the drive-up window that provides
the information necessary to do an effective job.
SOLUTION c
Documentation for Tellers at Drive-up Windows
Customers who use the drive-up teller windows rather than walk-in lobbies require a different customer
relations technique. The distance and machinery between the teller and the customer raises communication barriers. Guidelines to ensure good customer relations at the drive-up window are:
Be especially discreet when talking to the customer through the microphone.
Provide written instructions for customers who must fill out forms you provide.
◆ Mark lines to be completed or attach a note with instructions.
◆ Always say “please” and “thank you” when speaking through the microphone.
◆ Establish eye contact with the customer if the distance allows it.
◆ If a transaction requires that the customer park the car and come into the lobby, apologize for the
inconvenience.
◆
◆
Source: Adapted with permission from Teller Operations (Chicago, IL: The Institute of Financial Education, 1999): 32.
By providing documentation in the form of a script/guideline for tellers, the likelihood of
effective communication and a good product/service is improved.
INSIGHT c
Modify the guidelines above to show how they would be different for a
drive-through restaurant. [Answer: Written instructions, marking lines to be completed, or coming into
the store are seldom necessary, but techniques for making change and proper transfer of the order should
be included.]
LEARNING EXERCISE c
RELATED PROBLEM c
5.11
Application of Decision Trees to Product Design
STUDENT TIP
A decision tree is a great tool
for thinking through a problem.
LO 5.8 Apply decision
trees to product issues
Decision trees can
other management
ful when there are
decisions followed
procedure:
be used for new-product decisions as well as for a wide variety of
problems when uncertainty is present. They are particularly helpa series of decisions and various outcomes that lead to subsequent
by other outcomes. To form a decision tree, we use the following
1. Be sure that all possible alternatives and states of nature (beginning on the left
and moving right) are included in the tree. This includes an alternative of “doing
nothing.”
2. Payoffs are entered at the end of the appropriate branch. This is the place to develop the
payoff of achieving this branch.
3. The objective is to determine the expected monetary value (EMV) of each course of action.
We accomplish this by starting at the end of the tree (the right-hand side) and working
toward the beginning of the tree (the left), calculating values at each step and “pruning”
alternatives that are not as good as others from the same node.
Example 3 shows the use of a decision tree applied to product design.
M05_HEIZ0422_12_SE_C05.indd 182
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CHAP T ER 5
Example 3
|
DESIGN OF GOODS AND SERVICES
183
DECISION TREE APPLIED TO PRODUCT DESIGN
Silicon, Inc., a semiconductor manufacturer, is investigating the possibility of producing and marketing a microprocessor. Undertaking this project will require either purchasing a sophisticated CAD
system or hiring and training several additional engineers. The market for the product could be either
favorable or unfavorable. Silicon, Inc., of course, has the option of not developing the new product
at all.
With favorable acceptance by the market, sales would be 25,000 processors selling for $100 each. With
unfavorable acceptance, sales would be only 8,000 processors selling for $100 each. The cost of CAD
equipment is $500,000, but that of hiring and training three new engineers is only $375,000. However,
manufacturing costs should drop from $50 each when manufacturing without CAD to $40 each
when manufacturing with CAD.
The probability of favorable acceptance of the new microprocessor is .40; the probability of unfavorable acceptance is .60.
Use of a decision tree seems appropriate as Silicon, Inc., has the basic ingredients: a
choice of decisions, probabilities, and payoffs.
APPROACH c
SOLUTION c In Figure 5.13 we draw a decision tree with a branch for each of the three decisions,
assign the respective probabilities and payoff for each branch, and then compute the respective EMVs.
The expected monetary values (EMVs) have been circled at each step of the decision tree. For the top
branch:
EMV (Purchase CAD system) = (.4)(+1,000,000) + (.6)(9+20,000)
= +388,000
This figure represents the results that will occur if Silicon, Inc., purchases CAD.
The expected value of hiring and training engineers is the second series of branches:
EMV (Hire>train engineers) = (.4)($875,000) + (.6)($25,000)
= $365,000
Figure
5.13
Decision Tree for Development
of a New Product
Purchase CAD
$388,000
(.4)
High sales
(.6)
Low sales
$2,500,000
–1,000,000
– 500,000
–––––––––
$1,000,000
$800,000
–320,000
–500,000
–––––––
–$20,000
Revenue
Mfg. cost ($40 * 25,000)
CAD cost
Net
Revenue
Mfg. cost ($40 * 8,000)
CAD cost
Net loss
Hire and train engineers
$365,000
(.4)
High sales
(.6)
Low sales
STUDENT TIP
The manager’s options are
to purchase CAD, hire/train
engineers, or do nothing.
Purchasing CAD has the
highest EMV.
M05_HEIZ0422_12_SE_C05.indd 183
$2,500,000
–1,250,000
– 375,000
–––––––––
$875,000
$800,000
–400,000
–375,000
–––––––
$25,000
Revenue
Mfg. cost ($50 * 25,000)
Hire and train cost
Net
Revenue
Mfg. cost ($50 * 8,000)
Hire and train cost
Net
Do nothing $0
$0 Net
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184 PA RT 2 | D ES I G N I N G O P ERATI ONS
The EMV of doing nothing is $0.
Because the top branch has the highest expected monetary value (an EMV of $388,000 vs. $365,000
vs. $0), it represents the best decision. Management should purchase the CAD system.
Use of the decision tree provides both objectivity and structure to our analysis of the
Silicon, Inc., decision.
INSIGHT c
LEARNING EXERCISE c If Silicon, Inc., thinks the probabilities of high sales and low sales may be
equal, at .5 each, what is the best decision? [Answer: Purchase CAD remains the best decision, but with
an EMV of $490,000.]
RELATED PROBLEMS c
5.21–5.27 (5.28 is available in MyOMLab)
ACTIVE MODEL 5.1 This example is further illustrated in Active Model 5.1 in MyOMLab.
STUDENT TIP
One of the arts of management
is knowing when a product
should move from development
to production.
Transition to Production
Eventually, a product, whether a good or service, has been selected, designed, and defined.
It has progressed from an idea to a functional definition, and then perhaps to a design.
Now, management must make a decision as to further development and production or termination of the product idea. 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.
The product development staff is always interested in making improvements in a product.
Because this staff tends to see product development as evolutionary, they may never have
a completed product, but as we noted earlier, the cost of late product introduction is high.
Although these conflicting pressures exist, management must make a decision—more development or production.
Once this decision is made, there is usually a period of trial production to ensure that
the design is indeed producible. This is the manufacturability test. This trial also gives the
operations staff the opportunity to develop proper tooling, quality control procedures,
and training of personnel to ensure that production can be initiated successfully. Finally,
when the product is deemed both marketable and producible, line management will assume
responsibility.
To ensure that the transition from development to production is successful, some companies appoint a project manager; others use product development teams. Both approaches allow
a wide range of resources and talents to be brought to bear to ensure satisfactory production
of a product that is still in flux. A third approach is integration of the product development and
manufacturing organizations. This approach allows for easy shifting of resources between the
two organizations as needs change. The operations manager’s job is to make the transition
from R&D to production seamless.
Summary
Effective product strategy requires selecting, designing, and defining a product and then transitioning that
product to production. Only when this strategy is carried out effectively can the production function contribute its maximum to the organization. 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. As products move through their life cycle (introduction, growth, maturity, and decline), the options
that the operations manager should pursue change.
M05_HEIZ0422_12_SE_C05.indd 184
Both manufactured and service products have a variety
of techniques available to aid in performing this activity efficiently.
Written specifications, bills of material, and engineering drawings aid in defining products. Similarly, assembly drawings, assembly charts, route sheets, and work
orders are often used to assist in the actual production of
the product. Once a product is in production, value analysis is appropriate to ensure maximum product value.
Engineering change notices and configuration management
provide product documentation.
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DESIGN OF GOODS AND SERVICES
185
Key Terms
Standard for the exchange of product
data (STEP) (p. 172)
Computer-aided manufacturing
(CAM) (p. 172)
3-D printing (p. 172)
Virtual reality (p. 172)
Value analysis (p. 173)
Time-based competition (p. 173)
Joint ventures (p. 174)
Alliances (p. 175)
Engineering drawing (p. 175)
Bill of material (BOM) (p. 175)
Make-or-buy decision (p. 176)
Ethical Dilemma
John Sloan, president of Sloan Toy Company, Inc., in Oregon,
has just reviewed the design of a new pull-toy locomotive for
1- to 3-year-olds. John’s design and marketing staff are very
enthusiastic about the market for the product and the potential
of follow-on circus train cars. The sales manager is looking
forward to a very good reception at the annual toy show in
Dallas next month. John, too, is delighted, as he is faced with a
layoff if orders do not improve.
John’s production people have worked out the manufacturing
issues and produced a successful pilot run. However, the quality
assessment staff suggests that under certain conditions, a hook
to attach cars to the locomotive and the crank for the bell can be
broken off. This is an issue because children can choke on small
parts such as these. In the quality test, 1- to 3-year-olds were
unable to break off these parts; there were no failures. But when
the test simulated the force of an adult tossing the locomotive
into a toy box or a 5-year-old throwing it on the floor, there
were failures. The estimate is that one of the two parts can
be broken off 4 times out of 100,000 throws. Neither the design
Group technology (p. 177)
Assembly drawing (p. 178)
Assembly chart (p. 178)
Route sheet (p. 178)
Work order (p. 178)
Engineering change notice
(ECN) (p. 178)
Configuration management (p. 178)
Product life-cycle management
(PLM) (p. 178)
Process–chain–network (PCN)
analysis (p. 179)
Process chain (p. 179)
nor the material people know how to make the toy safer and still
perform as designed. The failure rate is low and certainly normal
for this type of toy, but not at the Six Sigma level that John’s
firm strives for. And, of course, someone, someday may sue. A
child choking on the broken part is a serious matter. Also, John
was recently reminded in a discussion with legal counsel that
U.S. case law suggests that new products may not be produced
if there is “actual or foreseeable knowledge of a problem” with
the product.
The design of successful, ethically produced new products,
as suggested in this chapter, is a complex task. What should
John do?
Nikolay Stefanvo Dimitrov/ Shutterstock
Product decision (p. 163)
Product-by-value analysis (p. 165)
Quality function deployment (QFD) (p. 166)
House of quality (p. 166)
Product development teams (p. 170)
Concurrent engineering (p. 170)
Manufacturability and value
engineering (p. 170)
Robust design (p. 171)
Modular design (p. 171)
Computer-aided design (CAD) (p. 171)
Design for manufacture and assembly
(DFMA) (p. 171)
Discussion Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Why is it necessary to document a product explicitly?
What techniques do we use to define a product?
In what ways is product strategy linked to product decisions?
Once a product is defined, what documents are used to assist
production personnel in its manufacture?
What is time-based competition?
Describe the differences between joint ventures and alliances.
Describe four organizational approaches to product development. Which of these is generally thought to be best?
Explain what is meant by robust design.
What are three specific ways in which computer-aided design
(CAD) benefits the design engineer?
What information is contained in a bill of material?
What information is contained in an engineering drawing?
M05_HEIZ0422_12_SE_C05.indd 185
12. What information is contained in an assembly chart? In a
process sheet?
13. Explain what is meant in service design by the “moment of
truth.”
14. Explain how the house of quality translates customer desires
into product/service attributes.
15. What strategic advantages does computer-aided design
provide?
16. What is a process chain?
17. Why are the direct interaction and surrogate interaction
regions in a PCN diagram important in service design?
18. Why are documents for service useful? Provide examples of
four types.
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186 PA RT 2 | D ES I G N I N G O P ERATI ONS
Solved Problem
Virtual Office Hours help is available in MyOMLab.
SOLVED PROBLEM 5.1
SOLUTION
Sarah King, president of King Electronics, Inc., has two design
options for her new line of high-resolution monitors for CAD
workstations. The production run is for 100,000 units.
Design option A has a .90 probability of yielding 60 good
monitors per 100 and a .10 probability of yielding 65 good
monitors per 100. This design will cost $1,000,000.
Design option B has a .80 probability of yielding 64 good
units per 100 and a .20 probability of yielding 59 good units per
100. This design will cost $1,350,000.
Good or bad, each monitor will cost $75. Each good monitor will sell for $150. Bad monitors are destroyed and have no
salvage value. We ignore any disposal costs in this problem.
We draw the decision tree to reflect the two decisions and the
probabilities associated with each decision. We then determine
the payoff associated with each branch. The resulting tree is
shown in Figure 5.14.
Figure
For design A:
EMV(design A) = (.9)(+500,000) + (.1)(+1,250,000)
= +575,000
For design B:
EMV(design B) = (.8)(+750,000) + (.2)(+0)
= +600,000
The highest payoff is design option B, at $600,000.
5.14
Decision Tree for
Solved Problem 5.1
Mean Yield 60
EMV = $575,000
Sales 60,000 at $150
Mfg. cost 100,000 at $75
Design cost
$9,000,000
–7,500,000
–1,000,000
–––––––––
$500,000
Sales 65,000 at $150
Mfg. cost 100,000 at $75
Design cost
$9,750,000
–7,500,000
–1,000,000
–––––––––
$1,250,000
Sales 64,000 at $150
Mfg. cost 100,000 at $75
Design cost
$9,600,000
–7,500,000
–1,350,000
–––––––––
$750,000
Sales 59,000 at $150
Mfg. cost 100,000 at $75
Design cost
$8,850,000
–7,500,000
–1,350,000
–––––––––
0
(.9)
(.1)
Mean Yield 65
Design A
Design B
Mean Yield 64
(.8)
(.2)
EMV = $600,000
Problems
Note: PX means the problem may be solved with POM for Windows and/or Excel OM.
Problems 5.1–5.3 relate to Goods
and Services Selection
• • • 5.1
Prepare a product-by-value analysis for the following products, and given the position in its life cycle, identify the
issues likely to confront the operations manager and his or her
possible actions. Product Alpha has annual sales of 1,000 units
and a contribution of $2,500; it is in the introductory stage.
Product Bravo has annual sales of 1,500 units and a contribution of $3,000; it is in the growth stage. Product Charlie has
annual sales of 3,500 units and a contribution of $1,750; it is in
the decline stage.
• • 5.2
Given the contribution made on each of the
three products in the following table and their position in
M05_HEIZ0422_12_SE_C05.indd 186
Mean Yield 59
the life cycle, identify a reasonable operations strategy for
each:
PRODUCT
CONTRIBUTION
(% OF SELLING
PRICE)
COMPANY
CONTRIBUTION
(%: TOTAL ANNUAL
CONTRIBUTION
DIVIDED BY TOTAL
ANNUAL SALES)
POSITION IN
LIFE CYCLE
Smart watch
30
40
Introduction
Tablet
30
50
Growth
Hand
calculator
50
10
Decline
PRODUCT
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CHAP T ER 5
Problem 5.3 is available in MyOMLab.
Problems 5.4–5.8 relate to Product
Development
• • 5.4
Construct a house of quality matrix for a wristwatch. Be sure to indicate specific customer wants that you
think the general public desires. Then complete the matrix
to show how an operations manager might identify specific
attributes that can be measured and controlled to meet those
customer desires.
• • 5.5
Using the house of quality, pick a real product (a
good or service) and analyze how an existing organization satisfies customer requirements.
• • 5.6
Prepare a house of quality for a mousetrap.
• • 5.7
Conduct an interview with a prospective purchaser of
a new bicycle and translate the customer’s wants into the specific
hows of the firm.
• • • • 5.8 Using the house of quality sequence, as described
in Figure 5.4 on page 169, determine how you might deploy
resources to achieve the desired quality for a product or service
whose production process you understand.
Problems 5.9–5.17 relate to Defining
a Product
• • 5.9
Prepare a bill of material for (a) a pair of eyeglasses
and its case or (b) a fast-food sandwich (visit a local sandwich
shop like Subway, McDonald’s, Blimpie, Quizno’s; perhaps
a clerk or the manager will provide you with details on the quantity or weight of various ingredients—otherwise, estimate the
quantities).
• • 5.10
its case.
Draw an assembly chart for a pair of eyeglasses and
• • 5.11
Prepare a script for telephone callers at the university’s annual “phone-a-thon” fund raiser.
• • 5.12
Prepare an assembly chart for a table lamp.
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DESIGN OF GOODS AND SERVICES
Problems 5.21–5.28 relate to the Application
to Product Design
187
of Decision Trees
• • 5.21
The product design group of Iyengar Electric Supplies,
Inc., has determined that it needs to design a new series of switches.
It must decide on one of three design strategies. The market forecast
is for 200,000 units. The better and more sophisticated the design
strategy and the more time spent on value engineering, the less will
be the variable cost. The chief of engineering design, Dr. W. L.
Berry, has decided that the following costs are a good estimate of the
initial and variable costs connected with each of the three strategies:
a) Low-tech: A low-technology, low-cost process consisting of
hiring several new junior engineers. This option has a fixed
cost of $45,000 and variable-cost probabilities of .3 for $.55
each, .4 for $.50, and .3 for $.45.
b) Subcontract: A medium-cost approach using a good outside
design staff. This approach would have a fixed cost of $65,000
and variable-cost probabilities of .7 of $.45, .2 of $.40, and .1 of $.35.
c) High-tech: A high-technology approach using the very best of
the inside staff and the latest computer-aided design technology. This approach has a fixed cost of $75,000 and variablecost probabilities of .9 of $.40 and .1 of $.35.
What is the best decision based on an expected monetary value
(EMV) criterion? (Note: We want the lowest EMV, as we are
dealing with costs in this problem.) PX
• • 5.22
MacDonald Products, Inc., of Clarkson, New York,
has the option of (a) proceeding immediately with production of
a new top-of-the-line stereo TV that has just completed prototype
testing or (b) having the value analysis team complete a study. If
Ed Lusk, VP for operations, proceeds with the existing prototype
(option a), the firm can expect sales to be 100,000 units at $550
each, with a probability of .6, and a .4 probability of 75,000 at
$550. If, however, he uses the value analysis team (option b), the
firm expects sales of 75,000 units at $750, with a probability of .7,
and a .3 probability of 70,000 units at $750. Value analysis, at a
cost of $100,000, is only used in option b. Which option has the
highest expected monetary value (EMV)? PX
Problems 5.13–5.17 are available in MyOMLab.
Problems 5.18–5.20 relate to Service
Design
• • 5.19
Review strategic process positioning options for the
regions in Figure 5.12, discussing the operational impact (in terms
of the 10 strategic OM decisions) for:
a) Manufacturing the sandwiches.
b) Direct interaction.
c) Establishing a sandwich buffet.
• • • 5.20 Select a service business that involves interaction
between customers and service providers, and create a PCN diagram similar to Figure 5.12. Pick a key step that could be performed either by the service provider or by the customers. Show
process positioning options for the step. Describe how the options
compare in terms of efficiency, economies of scale, and opportunity for customization.
M05_HEIZ0422_12_SE_C05.indd 187
Romanchuck Dimitry/Shutterstock
• • 5.18
Draw a two-participant PCN diagram (similar to
Figure 5.12) for one of the following processes:
a) The process of having your computer repaired.
b) The process of pizza preparation.
c) The process of procuring tickets for a concert.
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188 PA RT 2 | D ES I G N I N G O P ERATI ONS
• • 5.23
Residents of Mill River have fond memories of ice
skating at a local park. An artist has captured the experience in
a drawing and is hoping to reproduce it and sell framed copies
to current and former residents. He thinks that if the market is
good he can sell 400 copies of the elegant version at $125 each. If
the market is not good, he will sell only 300 at $90 each. He can
make a deluxe version of the same drawing instead. He feels that
if the market is good he can sell 500 copies of the deluxe version
at $100 each. If the market is not good, he will sell only 400 copies
at $70 each. In either case, production costs will be approximately
$35,000. He can also choose to do nothing. If he believes there is a
50% probability of a good market, what should he do? Why? PX
• • 5.24
Ritz Products’s materials manager, Tej Dhakar, must
determine whether to make or buy a new semiconductor for the
wrist TV that the firm is about to produce. One million units
are expected to be produced over the life cycle. If the product is
made, start-up and production costs of the make decision total
$1 million, with a probability of .4 that the product will be satisfactory and a .6 probability that it will not. If the product is
not satisfactory, the firm will have to reevaluate the decision. If
the decision is reevaluated, the choice will be whether to spend
another $1 million to redesign the semiconductor or to purchase.
Likelihood of success the second time that the make decision is
made is .9. If the second make decision also fails, the firm must
purchase. Regardless of when the purchase takes place, Dhakar’s
best judgment of cost is that Ritz will pay $.50 for each purchased
semiconductor plus $1 million in vendor development cost.
a) Assuming that Ritz must have the semiconductor (stopping or
doing without is not a viable option), what is the best decision?
b) What criteria did you use to make this decision?
c) What is the worst that can happen to Ritz as a result of this
particular decision? What is the best that can happen? PX
• • 5.25
Sox Engineering designs and constructs air conditioning and heating systems for hospitals and clinics. Currently,
the company’s staff is overloaded with design work. There is a
major design project due in 8 wee…
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