Chapter 6 Product Development: A Team Approach

Chapter 6Chapter 6Product Development:Product Development:

A Team ApproachA Team Approach

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Product DevelopmentProduct Development

Product Development is a process which generates concepts, designs, and plans to create services and goods to meet customer needs

1. Analyze market to assess need

2. Design product

3. Design process for making product

4. Develop plan to market product

5. Develop plan for full-scale production

6. Analyze financial feasibility

Transparency 6.1

Product Life CycleProduct Life Cycle

Transparency 6.2 (Exhibit 6.1)

Increasing Importance ofIncreasing Importance ofProduct Development Product Development (Slide 1 of 2)(Slide 1 of 2)

1. Customers demand greater product variety

2. Advances in technology make rapid introduction of replacement products possible

3. These factors have a multiplicative factor on the number of new products a firm must introduce

Transparency 6.3a

Increasing Importance ofIncreasing Importance ofProduct Development Product Development (Slide 2 of 2)(Slide 2 of 2)

Example:» If the number of products a firm sells increases from 1 to 3,» If the product life cycle for each product declines from 10

to 5 years» Then, the number of new products introduced over a 10

year period increases from:

Transparency 6.3b

Global Aspects of Product Global Aspects of Product DesignDesign

Global trade initially involved shipping existing products to foreign countries

Followed by location of production facilities in foreign countries

Organizations develop strategies which consider the world-wide marketplace

Organizations develop products and production systems for global distribution

Transparency 6.4

Mortality Rate of New ProductsMortality Rate of New Products


Marketing’s Role inMarketing’s Role inProduct Development Product Development (Slide 1 of 3)(Slide 1 of 3)

Examine needs of potential customers» Study markets for

existing products» Consider emerging

technologies to create new products for new markets

Transparency 6.8a


Measure consumer needs to determine» Features» Market size» Market price» Performance

characteristics Work with R & D to create

imaginative new products

Transparency 6.8b


Measure competitive pressure

Measure other factors in external environment» Economic conditions» Status of technology» Social, legal and political

factors

Transparency 6.8c

Product DesignProduct Design

Product design shapes the product. Concepts drawn from market research are transformed into features, characteristics and performance

Transparency 6.10

Product TechnologyProduct Technology

Product technology = application of practical or industrial arts to develop new or improved products

Transparency 6.11

Bill of MaterialsBill of Materials

Describes type and quantity of each component needed to build the good

Bill of Materials for a Pencil

Part # Description Quantity

16841 woodenhalves

2

2824 1/8” diameterlead

1

5134 1/2” eraser 1

1621 1/2” metalband

1

7771 yellow paint 1/2 oz

29494 glue 1/4 oz

Transparency 6.14

Ethical Issues in Product DesignEthical Issues in Product Design

Safe products Ethics and potential for

law suits encourage» Fail safe features» Safety devices

reducing risk of improper operation

Correct problems with product design promptly

Transparency 6.19

Issues in DeterminingIssues in DeterminingMethod of ProductionMethod of Production

Required machinery Sequence of operations Facility layout Procedures and job

training Safety of employees

Transparency 6.23

Human EngineeringHuman Engineering (Slide 1 of 2) (Slide 1 of 2)

Consideration of people in the design of products and facilities

Ergonomics enhance functional effectiveness of product and improve the health, safety and satisfaction of the user

Transparency 6.25a

Human Engineering Human Engineering (Slide 2 of 2)(Slide 2 of 2)

Strategic advantage: improve product comfort and safety which improves its value to customer

Operating advantage: increases productivity by making a job easier

Legal advantage: makes products and facilitates safer which reduces law suits

Human Engineering

Transparency 6.26b

Role of Operations ManagementRole of Operations Management

Produce product» As design» By process selected» With available

equipment, people and materials

Overcoming problems in full-scale production

Facility design and layout Material management Training

Transparency 6.26

Role of Suppliers inRole of Suppliers inProduct DevelopmentProduct Development

Customers and suppliers share design responsibilities and capabilities

Involved suppliers respond more quickly and better meet the needs of the customer

Suggest alterations in product design for better quality and lower cost

Improved participation to benefit overall product design

GM

Transparency 6.27

Role of Finance inRole of Finance inProduct DesignProduct Design

Capital formation Evaluation of

product and profit potential

Transparency 6.28

Information for Decision MakingInformation for Decision Making

Product design decisions require significant amounts of information beginning with market research studies through the final launch of the product. This information is critical to effective decision making.

Transparency 6.29

Quality Function Deployment Quality Function Deployment (QFD)(QFD)

Technique used to:» Focus the attention of the product development team on the quality object» Focus attention on customer needs

Customer requirements are “attributes” Each attribute or group of attributes are assessed Attributes are then translated into design characteristics

Transparency 6.31

Chapter 8Chapter 8Process Selection: Volume Drives Process Selection: Volume Drives

Costs and ProfitsCosts and Profits

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Problem Number10

Carder Kitchen Utensil Production makes steak knives and salad forks in thesame facility.

Steak Knives Salad ForksProduct mix .7 .3Selling price/unit $.80 $.40Variable cost/unit $.50 $.25

Annual fixed costs are estimated at $250,000.

a. At what volume will Carder cover its costs, given the present mix?

b. At what volume will Carder report a $150,000 annual profit given thepresent mix?

c. If the mix changes to .6 for steak knives and .4 for salad forks,recalculate the answers to parts a and b.

d. If the price of a steak knife is raised $.05, what is the impact of this newmix on the volume required to make a $150,000 profit?

a. At what volume will Carder cover its costs, given the present mix?

a. At what volume will Carder cover its costs, given the present mix?Contribution for steak knives = .30Contribution for salad forks = .15

WC = .7(.3) + .3(.15) = .255


WC = .7(.3) + .3(.15) = .255

X = (P + FC) / WC = (0+250,000)/.255 = 980,392 units


WC = .7(.3) + .3(.15) = .255

X = (P + FC) / WC = (0+250,000)/.255 = 980,392 units

Therefore, they should make 980,392 (.7) = 686,275 steak knives and 980,392 (.3) = 294,117 salad forks



X= (P+FC)/WC = (150,000+250,000)/.255 = 1,568,627 units


X= (P+FC)/WC = (150,000+250,000)/.255 = 1,568,627 units

Steak knives: 1,568,627(.7) = 1,098,039 unitsSalad forks: 1,568,627(.3) = 470,588 units



WC = .6(.3) + .4(.15) = .24

Just covering costs, x= (0+250,000)/.24 = 1,041,667 units

Therefore, steak knives = 1,041,667(.6) = 625,000 unitsand salad forks = 1,041,667(.4) = 416,667 units

If desired profit = 150,000, then x=(150,000+250,000)/.24 = 1,666,667 units

Therefore, steak knives = 1,666,667(.6) = 1,000,000 unitsand salad forks = 1,666,667(.4) = 666,667 units



WC = .7(.35)+.3(.15) = .29

X=(150,000+250,000)/.29 = 1,379,310 unitsNote that the volume decreased from that of part b, above.


WC = .7(.35)+.3(.15) = .29

X=(150,000+250,000)/.29 = 1,379,310 unitsNote that the volume decreased from that of part b, above.

Therefore, steak knives = 1,379,310(.7) = 965,517 unitsand salad forks = 1,379,310(.3) = 413,793 units

Problem Number 12

Winken, Blinken, and Knod, Inc. is considering three different machines to grind contact lenses. Theannual costs and operating costs are listed below.

Annualized VariableSystem Fixed Costs Operating Costs

Manual Grinder $9000 $5.00/lens

Automatic grinder $30000 $2.50/lens

Computer-controled $50000 $0.75/lensAutomatic grinder

A. If 10,000 lenses are needed, which option has the lowest cost?

Grinder Technology Choice

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B. If 20,000 lenses are needed, which option has the lowest cost?


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C. At what volume(s) of lens production do the alternatives have equal cost?


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D. How would you explain these options to management?


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Process SelectionProcess Selection

Process selection includes:» Technical issues–basic technology used to

produce a service or good» Volume or scale decision–using the proper

amount of mechanization to leverage the organization’s work force

MECHANIZATION

Work Force

Transparency 8.1

Product Design, Process Product Design, Process Selection, and Capacity Selection, and Capacity

DecisionsDecisions


Understanding the Scale FactorUnderstanding the Scale Factor

Economies of scale doctrine » most efficient size for a facility » most efficient size for a firm

» Put a large volume of the same product across the same equipment or fixed cost base.

Economies of scope occurs when a large volume and high variety of products are produced by the same equipment for fixed cost base

Transparency 8.5

Scale Factor: Cost-VolumeScale Factor: Cost-VolumeProfit Model Profit Model (Slide 1 of 3)(Slide 1 of 3)

TR= (SP) (Xs)

TR = Total Revenue

SP = Selling price/unit

Xs = Number of units sold

TC = FC + (VC) (Xp)

TC = Total cost

FC = Fixed cost

VC = Variable cost/unit

Xp = Number of units produced

Transparency 8.6a


The profit (P) equation is

P = TR -TC

P = SP(Xs) - {FC + VC(Xp)}

If X= Xs = Xp, then

P = SP(X) - {FC + VC(X)}

P = SP(X) - VC(X) - FC

P + FC = (SP - VC)(X)

Transparency 8.6b


Solve for X as follows:

X =

If C is defined as contribution/unit, then C = (SP - VC).

Then the equation becomes

X=

(P + FC)

(SP - VC)

C

(P + FC)

Transparency 8.6c

Cost-Volume-Profit ModelCost-Volume-Profit Model


Assumptions of theAssumptions of theCost-Volume-Profit ModelCost-Volume-Profit Model

Sales volume is equal to production volume Total cost and total revenue are linear functions of volume Historical data on costs and selling price are representative of

what will happen in the future The organization has only one product

Transparency 8.8

Cost Structure of Cost Structure of Low-Volume ProducerLow-Volume Producer


Cost Structure ofCost Structure ofHigh-Volume ProducerHigh-Volume Producer


Operating LeverageOperating Leverage


Matching Process Alternatives Matching Process Alternatives with Product Characteristicswith Product Characteristics


Characteristics of theCharacteristics of theProcess AlternativesProcess Alternatives


Process Flows Before and After Process Flows Before and After Applying Group Technology Applying Group Technology (Slide 1 of 2)(Slide 1 of 2)

Transparency 8.15a (Exhibit 8.8)

Process Flows Before and After Process Flows Before and After Applying Group Technology Applying Group Technology (Slide 2 of 2)(Slide 2 of 2)

Transparency 8.15b (Exhibit 8.8)

Problems with Managing Large, Problems with Managing Large, Unfocused Operations Unfocused Operations (Slide 1 of 2)(Slide 1 of 2)

Growing facilities add more levels of management and make coordination and control difficult

New products are added to the facility as customers demand greater product variety

Hidden overhead costs increase as managers add staff to deal with increased complexity

Transparency 8.17a

Problems with Managing Large, Problems with Managing Large, Unfocused Operations Unfocused Operations (Slide 2 of 2)(Slide 2 of 2)

The result is higher operating costs

» Productive time is being taken to do setups

» More mistakes are made by attempting to manage increasing complexity with control systems designed for a single product facility

Transparency 8.17b

Focused FactoryFocused Factory

Smaller facility (less than 500 employees) concentrates on one or few products

Limits scope of operations to a few process technologies

Strives only for highest level of quality

Strives for simplicity in management and control

Transparency 8.18

Documents

Chapter 6 Product Development: A Team Approach