Chapter 3
Product & Process Design
Part 1: Product Design
Product/Service Design Process

A process that defines the

Appearance and features,

Quality characteristics,

Spec limits and target levels

Inputs (labor, capital, materials)

Transformation process

Supply chain – suppliers, channels of
distribution
of a product/service that a company is
planning to produce.
Steps in Product Design
Process




Idea Development
Product Screening
Preliminary Design and Testing
Final Design
Idea Development


Someone thinks of a unsatisfied need
Then someone thinks of a
product/service to satisfy it

e.g. customers, marketing, engineering,
reverse engineering
Idea Development





2006 Industrial Design Excellent
Awards (IDEAs) Winners - (BW,
7/10/06, p. 77)
“Bumpbrella” Concept Umbrella
Company: RKS Design
An inflatable umbrella that uses a
bicycle pump in the center for the arm.
A totally new design looking for a
company to make it.
Idea Development




2-Second Tent
Designer: Decathlon, France
Spring hoops allow you to throw this 2person tent into the air, and it opens
before hitting the ground.
Two second to open, 15 seconds to
close.
Idea Development
Idea Development

“How Failure Breeds Success” (BW,
7/10/06, p. 48)



“Everyone fears failure. But breakthroughs
depend on it.”
“Innovation requires risk-taking.”
“Many companies have found success in
the ashes of the memorable misses.”
Idea Development

McDonald’s Hula Burger (1962)



Cheese-topped grilled pineapple on a bun
for Chicagoans who avoided eating meat
on Fridays.
Big flop!
McDonald’s decided to try something less
extreme:

Came up with tastier hamburger-fee
alternative: the Filet-O-Fish, now a McDonald’s
classic.
Idea Development




Ford’s biggest mistake – 1958 Edsel—lead to its
greatest success.
Edsel was called the “Titanic of the auto
industry.”
Came in two sizes – big and bigger
Overhyped, oversized, overpriced.
Idea Development
Idea Development






Designed based on a “hunch” about what
consumers want.
Abandoned in 1960, just after 2,800 cars
produced.
Ford substituted “research” for “hunches.”
Found out that consumers wanted style and
affordability
Result?
1964 Mustang
Idea Development



How do companies get employees to come
up with creative and innovative ideas?
By shifting from risk-adverse culture to a
risk-taking culture.
In risk-taking culture, employees are
encouraged to




Explore,
Experiment,
Foul-up, sometimes
Then repeat.
Idea Development

Shift not easy



Fear of blame for mistakes makes
employees want to play it safe and not
take risks.
Companies must design performancemanagement systems that reward risktaking.
Coca-Cola, Intuit, GE
Idea Development

Coke’s Head of Marketing, Strategy, and
Innovation, Mary Minnick idea
development strategy



Stop thinking in terms of existing drink
categories
Start thinking broadly abut why people
consume beverages in the first place.
Then come up with products that satisfy
those needs before the competition.
Step 2 - Product Screening


Screen ideas
Some screening criteria are






fit with existing facilities and labor skills,
size of potential market,
expected market share,
share of potential market
expected profit,
break-even point
Step 3 – Preliminary
Design and Testing



Suppliers involved,
Transformation process is designed,
Prototype built,



Tricycle developed system for digitally modeling
carpets and textiles so manufactures can make
prototypes of new designs without making
samples for architects and interior designers.
Cuts development costs. (BW, 7/10/06, p.81)
Prototype tested for


Functionality
Acceptance by potential customers
Design and Testing

Corning




Developed new chip in 1998 that would
help in DNA research
Killed in 2001
Customers had not been brought in early
enough to help assess its marketability.
Market potential was too small to breakeven in a reasonable amount of time.
Step 4 – Final Design



Prototype design is modified based on
test results
Final design approved
Production begins
Product Design Process vs.
Deming’s PDCA Cycle?

PDCA




P = plan
D = do
C = check (or study)
A = act

Product Design




Idea development
Product screening
Preliminary design
and testing
Final design
How is Product Design Process
Related to Deming’s PDCA
Cycle?

Plan



Do


Idea Development
Product screening
Preliminary Design and Testing
Check, Act

Final Design
Good Product Design
Process Should:



Design products/services that match
the needs and preferences of the
targeted customer group
Design products that are as easy as
possible to make (product
manufacturability).
Use concurrent engineering
Product Manufacturability

Achieve it by

Simplification


Standardization


Minimize number of parts
Design parts for multiply products
Modular (prefabricated) design
Product Manufacturability




Matsushita, Electronic Giant in Japan
One division has 7 factories that make 35
million phone, fax machines, printers and
other products annually.
1,500 shape and color variations in phones
alone
Engineers had to rearrange as many as 77
circuit-board parts for each new model.
Product Manufacturability



Setting up production for every type of
board was too time consuming.
Company designed a new circuit board
that would need only slight changes for
each model.
Reduced cycle time and lowered defect
rate to under 1%.
Product Manufacturability




Bo Andersson, GM’s head of purchasing,
wants GM cars to share more parts, the
way Japanese automakers do.
Shared parts results in fewer parts
Fewer parts saves millions.
Also want to ax many of GM’s 3,200
suppliers by weeding out weak
suppliers.
Product Manufacturability

Andersson is asking:



Why do we have two dozen different seat
frames when Toyota has only two?
Answer?
Why do we have 12 V6 engines when
Toyota has just a few?
Progress has been made:


GM once had 20 fuel pumps, now it has 5.
Wants to use savings to make better
interiors.
Product Manufacturability

Goal is twofold:


to make one part for many models
To reduce number of components in each
part.
Product Manufacturability




GM discovered that door hinges on big
SUVs and trucks could be made out of 3
components instead of 5.
This would save $21 a truck, or about
$100 million over several years.
Designing a new hinge requires months
of testing, which is costly.
Must weight costs and benefits.
“Over-the–wall” vs. Concurrent
Engineering Design Process

Old “over-the-wall” sequential design
process should not be used


Each function did its work and passed it to the next
function
Replace with a Concurrent Engineering,
where cross functional design teams
work together to

involve customers early, develop specifications,
solve potential problems, reduce costs, &
shorten time to market
Concurrent Engineering
Concurrent Engineering



GMs North American operations had
completely separate engineering groups
for cars and trucks.
Within each group, there were separate
teams for almost every type of vehicle.
Each team worked independently
Concurrent Engineering


Engineers and designers had no idea
how much money was being wasted
making different version of the same
things.
Andersson is pushing a company wide
effort to break down silos and get
divisions talking to one another about
how to share parts and save money.
Global Trends in Design


China, Twain, Korea, Hong Kong
companies are committing huge
resources to product design in order to
build global brands. (BW, 7/10/06, p.
77)
They’re competing less and less on
price and more on differentiation and
value to consumer.
Coke’s Design Process

Anticipate the customer


Coke’s marketers are encouraged to think
more creatively about consumer’s needs
Retool tired brands


Cost of launching new brands is expensive
Reposition existing brands


Coke used its Tab brand to create a new energy
drink for women
Using Sprite name for a new energy drink in
France.
Coke’s Design Process

Engage partners


Coke brings bottlers into the decisionmaking process to get their input and
brings them on board from the outset.
Don’t fear failure
Product Screening Tool –
Break-Even Analysis



Is expected sales large enough to
exceed the break-even point?
Break-even point (BE) is the number
of units of a product/service that a
company must sell to cover its total
cost.
Break-even point is where total
revenue equals total cost, or profit
equals zero.
Break-Even Analysis
Total Revenue = Total cost
or
Profit = Total Revenue – Total Cost = 0
Notation




Q = expected sales in number of units
sold
SP = selling price per unit
F = Total fixed costs
VC = Variable cost per unit
Notation

Total Revenue = (SP)*Q

Total Cost = Total Fixed Cost + Total
Variable Cost

Total fixed costs = F

Total Variable Cost = (VC)*Q

Total Cost = F + (VC)*Q
Finding the Break-Even
Point

Total Revenue = Total cost

(SP)*Q = F + (VC)*Q
(SP)*Q - (VC)*Q = F
Q(SP - VC) = F
Q = QBE = F/(SP - VC)
Break-Even Decision Rule


If Q > QBE, Total Rev. > Total Cost and
Profit > 0
If Q < QBE, Total Rev. < Total Cost and
Profit < 0
Break-Even Analysis
Example 1






A company is planning to introduce a new
product.
The expect to sell 875 units of the new
product.
The sales price is set at $25 per unit.
The fixed cost of producing the product is
$10,000.
The variable cost per units is $15.
Should the company develop the new
product?
Solution to Example 1
Q = expected sales
SP = selling price per unit =$25
F = Total fixed costs = $10,000
VC = Variable cost per unit = $15
Solution to Example 1
QBE
F

SP  VC
$10,000

$25  $15
 1,000 units
Solution to Example 1




If the company sells 1,000 units of the new
product, it will breakeven.
If the company expects to sell more than
1,000, it will make a profit.
If the company sells less than 1,000 units, it
will incur a loss.
Since the company expects to sell 875 units,
which is less than the BE quantity, the
company should not develop the new
product.
Example 2

A company is planning to establish a chain of
movie theaters. It estimates that each new
theater will cost approximately $1 Million. The
theaters will hold 500 people and will have 4
showings each day with average ticket prices
at $8. They estimate that concession sales
will average $2 per patron. The variable costs
in labor and material are estimated to be $6
per patron. They will be open 300 days each
year.
Example 2
1. What must average occupancy be to
break-even?
2. What is the annual capacity utilization
rate?
3. What is the chains profit if they sell
300,000 ticket next year?
Solution 1. What must average
occupancy be to break-even?






Q = ticket sales per year
Total cost = $1,000,000
Ticket SP = $8
Concession sales/patron= $2
Sales revenue/patron = $8 + $2 =
$10
VC = $6
Solution 1. What must average
occupancy be to break-even?
QBE
F

SP  VC
$1,000,000

$10  $6
 250,000 ticket per year
Solution 2. What is the capacity
utilization rate?


Annual Capacity (AC) = 4 shows per
day x 300 days per year x 500 people
= 600,000 patrons
Capacity utilization rate (CUR) = (QBE/AC) x
100%
CUR = (250,000/600,000) x 100% = 41.7%
Solution 3. What is the chains
profit if they sell 300,000 ticket
next year?
Total Revenue = 10Q
Total Cost = 1,000,000 + 6Q
Profit = Total Revenue – Total Costs
Profit = $10Q – (1,000,000 + $6Q)
= -1,000,000 + 4Q
Solution 3. What is the chains
profit if they sell 300,000 ticket
next year?
Q = 300,000
P = -1,000,000 + 4(300,000)
= $200,000
Product life cycle


Due to changing product demand over
time
Stages of product life cycle stages





Introduction
Growth
Maturity
Decline
Is it long enough to justify launching
new product?
Product life cycle
Product life cycle


Where is break-even point on product
life cycle?
The earlier it is on the product life
cycle, the ???