F O U R T H E D I T I O N

New Product and Service Development, and Process Selection

© The McGraw-Hill Companies, Inc., 2003

chapter 3

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byCharlieCook

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–2

Chapter ObjectivesChapter ObjectivesChapter ObjectivesChapter Objectives

• Illustrate the importance of the development of new products and services to a firm’s competitiveness.

• Identify the various types of new products that are developed by companies.

• 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–3

Managerial IssuesManagerial IssuesManagerial IssuesManagerial Issues

• Product life cycles becoming shorter.–The need to bring products to market more

quickly and efficiently.

• Conducting product development on a continuous basis.–New products may represent a majority of sales

and profits.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–4

Why the Emphasis on New Why the Emphasis on New Goods and ServicesGoods and Services

Why the Emphasis on New Why the Emphasis on New Goods and ServicesGoods and Services

• Increased Competition–Improved worldwide telecommunications–Lower trade barriers (import duties and tariffs)

and the creation of trade organizations (NAFTA and European Union)

–Faster transportation of goods

• Advances in Technology–Products become obsolete faster.–Improved manufacturing processes (CAD and

CAM and industrial robots)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–5

The Benefits of Introducing The Benefits of Introducing New Products FasterNew Products Faster

The Benefits of Introducing The Benefits of Introducing New Products FasterNew 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–6

The Impact of Speed to Market on SalesThe Impact of Speed to Market on SalesThe Impact of Speed to Market on SalesThe Impact of Speed to Market on Sales

Exhibit 3.1aExhibit 3.1a

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–7

The Impact of Speed to Market on The Impact of Speed to Market on Profit MarginsProfit Margins

The Impact of Speed to Market on The Impact of Speed to Market on Profit MarginsProfit Margins

Exhibit 3.1bExhibit 3.1b

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–8

The Impact of Speed to Market on ProfitsThe Impact of Speed to Market on ProfitsThe Impact of Speed to Market on ProfitsThe Impact of Speed to Market on Profits

Exhibit 3.1cExhibit 3.1c

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–9

Categories of New ProductsCategories of New ProductsCategories of New ProductsCategories 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–10

Categories of New ProductsCategories of New ProductsCategories of New ProductsCategories 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–11

The Trend toward Shorter The Trend toward Shorter Product Development TimesProduct Development TimesThe Trend toward Shorter The Trend toward Shorter

Product Development TimesProduct Development Times

Exhibit 3.2Exhibit 3.2Source: Data: Product Development & Management Association, Business Week, January 27, 1997, p. 6.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–12

The New Product The New Product Development (NPD) ProcessDevelopment (NPD) Process

The New Product The New Product Development (NPD) ProcessDevelopment (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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–13

Sequential Flow of Activities in Sequential Flow of Activities in Product Design and Process SelectionProduct Design and Process Selection

Sequential Flow of Activities in Sequential Flow of Activities in Product Design and Process SelectionProduct Design and Process Selection

Exhibit 3.3Exhibit 3.3

Source: Reprinted with the permission of the Free Press, an imprint of Simon & Schuster from Fast Cycle Times: How to Align Purpose, Strategy, and Structure for Speed by Christopher Meyer. Copyright © 1993 by Christopher Meyer.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–14

The New Product The New Product Development (NPD) ProcessDevelopment (NPD) Process

The New Product The New Product Development (NPD) ProcessDevelopment (NPD) Process

• Concurrent Engineering–The simultaneous and coordinated efforts of all

functional areas which accelerates the time to market for new products.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–15

Concurrent Engineering Approach to NPDConcurrent Engineering Approach to NPDConcurrent Engineering Approach to NPDConcurrent Engineering Approach to NPD

Exhibit 3.4Exhibit 3.4

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–16

The New Product DevelopmentThe New Product Development (NPD) Process (cont’d) (NPD) Process (cont’d)

The New Product DevelopmentThe New Product Development (NPD) Process (cont’d) (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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–17

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

• Quality Function Deployment (QFD)–The process for translating customer

requirements into a product’s design.

• Voice of the Customer–Customer feedback is used in QFD process to

determine product specifications.–Customer attributes:

• Product needs

• Product preferences

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–18

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–19

Completed Completed House of House of

Quality MatrixQuality Matrixfor a Car Doorfor a Car Door

Completed Completed House of House of

Quality MatrixQuality Matrixfor a Car Doorfor a Car Door

Exhibit 3.5Exhibit 3.5

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–20

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–21

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–22

Design Change to ReduceDesign Change to Reducethe Number of Parts in a Bracketthe Number of Parts in a Bracket

Design Change to ReduceDesign Change to Reducethe Number of Parts in a Bracketthe Number of Parts in a Bracket

Exhibit 3.6Exhibit 3.6

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–23

Process Selection in ManufacturingProcess Selection in ManufacturingProcess Selection in ManufacturingProcess 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).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–24

Types of ProcessesTypes of ProcessesTypes of ProcessesTypes of Processes

Exhibit 3.7Exhibit 3.7

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–25

Process Selection in ManufacturingProcess Selection in ManufacturingProcess Selection in ManufacturingProcess 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–26

Matching Major Stages of Matching Major Stages of Product and Process Life CyclesProduct and Process Life Cycles

Matching Major Stages of Matching Major Stages of Product and Process Life CyclesProduct and Process Life Cycles

Exhibit 3.8Exhibit 3.8Source: Adapted from Robert Hay and Steven Wheelwright, Restoring Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons, 1984).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–27

Product and Process Life CyclesProduct and Process Life CyclesProduct and Process Life CyclesProduct and Process Life Cycles

Exhibit 3.9Exhibit 3.9

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–28

Types of Incremental and New ServicesTypes of Incremental and New ServicesTypes of Incremental and New ServicesTypes of Incremental and New Services

Exhibit 3.10Exhibit 3.10

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–29

Categories of New ServicesCategories of New ServicesCategories of New ServicesCategories 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–30

Categories of New Services (cont’d)Categories of New Services (cont’d)Categories of New Services (cont’d)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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–31

A Framework for Categorizing New A Framework for Categorizing New ServicesServices

A Framework for Categorizing New A Framework for Categorizing New ServicesServices

Exhibit 3.11Exhibit 3.11

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–32

Categories of New ServicesCategories of New ServicesCategories of New ServicesCategories 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

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–33

The New Service Development (NSD) The New Service Development (NSD) ProcessProcess

The New Service Development (NSD) The New Service Development (NSD) ProcessProcess

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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–34

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning Service Processes

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–35

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning Service Processes

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning Service Processes

High Degree High Degree of Customer of Customer

ContactContact

High Degree High Degree of Customer of Customer

ContactContact

Low Degree Low Degree of Customer of Customer

ContactContact

Low Degree Low Degree of Customer of Customer

ContactContact

Percentage of customer contact(customer influence on the system)

Difficulty in managing system

High Low

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–36

Major Differences between High- and Low-Major Differences between High- and Low-Contact Systems in a BankContact Systems in a Bank

Major Differences between High- and Low-Major Differences between High- and Low-Contact Systems in a BankContact Systems in a Bank

Exhibit 3.12Exhibit 3.12

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–37

The Service Process MatrixThe Service Process MatrixThe Service Process MatrixThe Service Process Matrix

Exhibit 3.13Exhibit 3.13

Source: Roger W. Schemenner, “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 Sloan Management Review Association, All rights reserved.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–38

Designing a New Service Designing a New Service OrganizationOrganization

Designing a New Service Designing a New Service OrganizationOrganization

• “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?

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–39

Designing a New Service Designing a New Service Organization (cont’d)Organization (cont’d)

Designing a New Service Designing a New Service Organization (cont’d)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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–40

Service-System Design MatrixService-System Design MatrixService-System Design MatrixService-System Design Matrix

Exhibit 3.14Exhibit 3.14

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–41

Strategic Uses of the Strategic Uses of the Service-System Design MatrixService-System Design Matrix

Strategic Uses of the Strategic Uses of the Service-System Design MatrixService-System Design 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–42

Process Selection in ServicesProcess Selection in ServicesProcess Selection in ServicesProcess 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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–43

Process Selection in Services Process Selection in Services (cont’d)(cont’d)

Process Selection in Services Process Selection in Services (cont’d)(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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–44

Common Characteristics of Common Characteristics of Well-Designed Service SystemsWell-Designed Service Systems

Common Characteristics of Common Characteristics of Well-Designed Service SystemsWell-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.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–45

Common Characteristics of Common Characteristics of Well-Designed Service Systems (cont’d)Well-Designed Service Systems (cont’d)

Common Characteristics of Common Characteristics of Well-Designed Service Systems (cont’d)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.