Mark M. Davis
Janelle Heineke
OPERATIONS MANAGEMENT
INTEGRATING MANUFACTURING AND SERVICES
FIFTH EDITION
PowerPoint Presentation by
Charlie Cook, The University of West Alabama
Copyright ©2005, The McGraw-Hill Companies, Inc.
CHAPTER
6
New Product and
Service Development,
and Process Selection
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
CHAPTER OBJECTIVES
• Illustrate the importance of developing new products and
services to a firm’s competitiveness.
• Identify the types of new products that companies
develop.
• Introduce the new product design process and the
concept of a product’s life cycle.
• Demonstrate the necessity of concurrent product and
process design as a new product or service is developed.
• Present a framework for understanding how new services
are developed and introduced into the marketplace.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–3
Managerial Issues
• Competition in globalized markets
–Pursuing a product differentiation strategy.
• Product life cycles becoming shorter.
–Engaging in continuous product development as new
products become a majority of sales and profits.
–Having flexibility in manufacturing processes
• Increasing demand for services
–Increasing the efficiency and reducing the costs of
delivering services.
–Effectively using the Internet to deliver extend current
services and offer new services.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–4
Continued Emphasis on
New Goods and Services
• Increased Competition
–Improved worldwide telecommunications
–Better logistics; faster transportation of goods
–Lower trade barriers (import duties and tariffs) and the
creation of trade organizations (NAFTA and European
Union)
• Advances in Technology
–Products are becoming obsolete faster.
–Improved manufacturing processes: CAD, CAM,
industrial robots, and rapid prototyping.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–5
The Benefits of Introducing
New Products Faster
• Greater Market Share
–Early entry captures large initial market share.
• Price Premiums
–Ability to initially charge more for new products.
• Quick Reaction to Competition
–Rapid response to competitor’s new products.
• Set Industry Standards
–Initial product sets market/industry standards.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–6
The Impact of Speed to Market
on Sales
Exhibit 6.1a
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–7
The Impact of Speed to Market
on Profit Margins
Exhibit 6.1b
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McGraw-Hill/Irwin 6–8
The Impact of Speed to Market
on Gross Profits
Exhibit 6.1c
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–9
Categories of New Products
• Incremental or Derivative Products
–Are hybrids or enhancements of existing products.
–Require minimal changes in design or process, allowing
for quick development.
–Require fewer resources to develop new features or
functions.
–Help ensure near-term cash flows by maintaining
current market share.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–10
Categories of New Products
• Next Generation or Platform Products
–Represent new “system” solutions for customers.
• Require more resources to develop.
• Are key to continued product revenue growth.
• Breakthrough or Radical Products
–Create new product categories as core businesses.
–Require substantial design and process change.
–Render existing products obsolete in long-term.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–11
The New Product Development (NPD)
Process
• New Product Development Process
–The method by which new products evolve from
conceptualization through engineering to
manufacturing and marketing.
• Market Success Depends on NPD
–Continuously generate new product ideas.
–Convert ideas to reliable functional designs.
–Ensure that the designs are readily producible.
–Select the processes most compatible with customer
needs.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–12
Sequential Flow of Activities in Product Design
and Process Selection
Source: Reprinted with the permission of The Free Press, a Division of Simon & Schuster Adult
Publishing Group, from Fast Cycle Time: How to Align Purpose, Strategy, and Structure for
Speed by Christopher Meyer. Copyright © 1993 by Christopher Meyer. All rights reserved.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
Exhibit 6.2
McGraw-Hill/Irwin 6–13
The New Product
Development (NPD) Process
• Concurrent Engineering
–The simultaneous and coordinated efforts of all
functional areas which accelerates the time to market
for new products.
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McGraw-Hill/Irwin 6–14
Concurrent Engineering Approach to NPD
Exhibit 6.3
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–15
The New Product Development
(NPD) Process (cont’d)
• Idea Generation
–Market pull: the “voice of the customer” in providing
feedback to determine product specifications.
–Technology push: a product developed by the firm’s
R&D is “pushed” into the market.
• Concept Development
–Initial product design developed and tested.
–Analysis of the market and customer requirements.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–16
The New Product Development
(NPD) Process (cont’d)
• Quality Function Deployment (QFD)
–The process for translating customer requirements into
a product’s design.
–Customer feedback is used in the QFD process to
determine product specifications.
• Customer attributes:
– Product needs
– Product preferences
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–17
The New Product Development
(NPD) Process (cont’d)
• House of Quality
–The part of the QFD process that uses customer
feedback for product design criteria.
–Use of QFD teams
• Identify important customer attributes.
• Design superior product.
• Shorten product design time.
• Facilitate interfunctional cooperation.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–18
Completed
House of
Quality Matrix
for a Car Door
Exhibit 6.4
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–19
The New Product Development
(NPD) Process (cont’d)
• New Product Planning
–Build models of new product.
–Test new elements and components.
–Conduct detailed investment and financial analyses of
product’s anticipated life cycle.
–Get project/program approved by management
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–20
The New Product Development
(NPD) Process (cont’d)
• Early Design Collaboration
–Benefits of partnering with suppliers and customers
• Reduced engineering costs of product design.
• Reduced costs for later engineering changes
• Increased efficiencies in choosing most effective production
processes
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–21
Comparing Traditional and Collaborative Approaches
to Bringing New Products to Market
Source: Adapted from Navi Radjou, “Deconstruction of the Supply Chain,” Supply Chain Management Review,
November/December 2000, pp. 30–38. Copyright © 2000, Reed Business Information. Used with permission.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
Exhibit 6.5
McGraw-Hill/Irwin 6–22
The New Product Development
(NPD) Process (cont’d)
• Design for Manufacturability (DFM)
–Choosing manufacturing methods and materials.
–Minimizing the number of individual parts:
• Reduces assembly time.
• Increases reliability.
– Setting product specifications.
• Output from the design activity that states all criteria for
building a product.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–23
Design Change to Reduce
the Number of Parts in a Bracket
Source: Bart Huthwaite. “Managing at the Starting Line: How to Design Competitive Products,”
Workshop at the University of Southern California–Los Angeles, January 14, 1991, p. 7.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
Exhibit 6.6
McGraw-Hill/Irwin 6–24
Process Selection in Manufacturing
• Types of Processes
–Project process
• Process that focuses on making one-of-a-kind products.
–Intermittent process
• Process that produces products in small lot sizes (e.g., job and
batch operations).
–Line-flow process
• Continuous process that produces high volume, highly
standardized products (e.g., assembly-line and continuous
operations).
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–25
Types of Processes
Exhibit 6.7
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–26
Process Selection in Manufacturing
• The Product-Process Matrix
–High production volumes and narrow product lines
make specialized equipment and standardized materials
economically feasible.
• Remaining in a process niche after the product cycle has
advanced to its next stage dooms a firm to market failure.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–27
Matching Major Stages of Product and Process Life Cycles
Source: Adapted from Robert Hayes and Steven Wheelwright, Restoring Our Competitive Edge:
Competing through Manufacturing (New York: John Wiley & Sons, 1984). Copyright © 1984,
John Wiley & Sons, Inc. This material is used by permission of John Wiley & Sons, Inc.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
Exhibit 6.8
McGraw-Hill/Irwin 6–28
Product and Process Life Cycles
Exhibit 6.9
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McGraw-Hill/Irwin 6–29
Types of Incremental and Radical Services
Exhibit 6.10
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–30
Categories of New Services
• Incremental services
–Service line extensions
• New services that augment current services.
–Service improvements
• New services in which features have changed relative to
existing services.
–Style changes
• Modest forms of new services that change only the appearance
of the service.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–31
Categories of New Services (cont’d)
• Radical
–Major innovations
• New services in markets not fully defined.
–Start-up services
• New services in established markets already served by existing
services.
–New services for current markets
• Added services to current customers.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–32
A Framework for Categorizing New Services
Exhibit 6.11
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–33
Categories of New Services
Service Category
Content Change
“Window Dressing”
Not significantly different from other
services
Delivered in similar fashion
Breadth of Offering
Significant design change in content of
service
Delivered in similar fashion
Revolutionary
New in both content and delivery
method
Channel Development
Delivery of same/existing service
through a different/new channel
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–34
The New Service Development (NSD) Process
• New Service Development (NSD) Process
– The method by which new services evolve from
conceptualization through to marketing and delivery
to the customer.
•
•
•
•
Design
Analysis
Development
Full launch
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McGraw-Hill/Irwin 6–35
The New Service Development (NSD) Process
Stage
Activity
Design
Formulating the objectives and strategy of the
new service.
Analysis
Considering the financial implications of the
new service.
Examining supply chain issues for delivery of
service.
Development
Testing the service design, training
personnel, conducting pilot runs.
Full Launch
Releasing the service to the market place.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–36
The Customer Contact Approach to
Designing Service Processes
• Customer Contact
–The presence of the customer in the system.
• Extent of Contact
–The percent of time the customer is involved relative to
the time required to deliver the service.
• Creation of the Service
–The work process involved in providing the service.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–37
The Customer Contact Approach to
Designing Service Processes
High Degree
of Customer
Contact
High
Low Degree
of Customer
Contact
Percentage of customer contact
(customer influence on the system)
Difficulty in managing system
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
Low
McGraw-Hill/Irwin 6–38
Major Differences between High- and LowContact Systems in a Bank
Exhibit 6.12
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McGraw-Hill/Irwin 6–39
Major Differences between High- and LowContact Systems in a Bank (cont’d)
Exhibit 6.12 (cont’d)
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–40
Service Process Matrix: Categories of Services
• Service factory
– Low degree of labor intensity and a low degree of customer
interaction and customization.
• Service shop
– Low degree of labor intensity; a higher degree of customer
interaction and customization.
• Mass service
– A high degree of labor intensity; has a relatively low degree of
customer interaction.
• Professional service
– A high degree of labor intensity and a high degree of customer
interaction and customization.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–41
The Service Process Matrix
Source: Roger W. Schmenner, “How Can Service Businesses Survive and Prosper?”
Sloan Management Review 27, no. 3 (Spring 1986), pp. 21–32, by permission of
publisher. Copyright 1986 by Massachusetts Institute of Technology. All rights reserved.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
Exhibit 6.13
McGraw-Hill/Irwin 6–42
Designing a New Service Organization
• “Service Vision” (Heskett)
–Identification of the target market
• Who is our customer?
–Defining the service concept
• How do we differentiate our service in the market?
–Developing the service strategy
• What is our service package and its operating focus?
–Creating the service delivery system
• What processes, staff, and facilities are needed?
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–43
Designing a New Service Organization
(cont’d)
• Differences in service design and manufacturing
product development:
–Service design and process development are
simultaneous.
–Service operations cannot be copyrighted to protect
them from imitation by competitors.
–The service package is the major output of NSD.
–Prior training strongly influences the service package.
–Service organizations can change their service offerings
very rapidly.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–44
Service-System Design Matrix
Exhibit 6.14
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–45
Strategic Uses of the Matrix
1. Enabling systematic integration of operations and
marketing strategy.
2. Clarifying exactly which combination of service
delivery the firm is actually providing.
3. Permitting comparison with other firms in the way
specific services are delivered.
4. Indicating evolutionary or life cycle changes that
might be in order as the firm grows.
5. Providing flexibility.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–46
Process Selection in Services
• Types of Service Organizations
–Service businesses
• Facilities-based services that provide assistance to customers
who come to the service facility.
• Field-based services that provide on-site services to customers.
–Customer support services
• Provide product information and services to current external
customers.
–Internal services
• Provide services for other internal organizational units.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–47
Process Selection in Services (cont’d)
• The Production Line Approach
–Orientation is toward the efficient production of
results—precisely controlled execution of the “central
function”.
• The Customer Involvement Approach
–Having the customer take a greater participatory role in
the production of the service.
• The Personal Attention Approach
–The central focus is complete customer attention and
satisfaction at all times.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–48
Common Characteristics of
Well-Designed Service Systems
1. Each element of the service system is consistent with
the operating focus of the firm.
2. It is user-friendly—customers can interact easily.
3. It is robust—capable of coping with variations in
demand and resources availability
4. It is structured so that consistent performance by its
people and systems is easily maintained.
5. It provides effective links between the back office and
the front office so that nothing falls between the cracks.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–49
Common Characteristics of
Well-Designed Service Systems (cont’d)
6. It manages the evidence of service quality in such a
way that customers see the value of the service
provided.
7. It is cost-effective—there is a minimum waste of time
and resources in delivering the service.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
McGraw-Hill/Irwin 6–50