Ch. 3: Design of Products and Services
Getting new products to market fast is difficult in any industry. A lot of companies now hand design or production to outside parties. A contract manufacturer is a firm that carries out manufacturing and/or purchasing to make a product on behalf of another company rather than for its own use. As a result, a company must determine its core competency: what it does better than its rivals and what gives it a lasting competitive advantage (Honda: engines; Stanley Black & Decker: small electric motors found in tools, cleaning devices and kitchen appliances).
(1) It may open the door to many different markets, (2) it raises the benefits customers perceive, and (3) competitors find it difficult to copy.
The generic product development process
- Phase 0, Planning: precedes project approval; starts from corporate strategy, technology and market objectives. Output: the mission statement (target market, business goals, key assumptions, constraints).
- Phase 1, Concept development: identify target market needs, generate and evaluate alternative concepts (form, function, features, specifications, economic justification).
- Phase 2, System-level design: product architecture, decomposition into subsystems and components, preliminary final assembly scheme.
- Phase 3, Detail design: full specification of geometry, materials and tolerances of unique parts, standard parts to buy, process plans and tooling.
- Phase 4, Testing and refinement: build and test preproduction prototypes.
- Phase 5, Production ramp-up: produce with the intended system, train the workforce, fix remaining problems; gradual transition to launch.
Marketing, design and manufacturing are involved in every phase. The generic process fits a market-pull situation (start from a market need, then select technologies). Common variants:
| Variant | Distinct feature | Examples |
|---|---|---|
| Technology-push | Start with a new proprietary technology, then find a market | Gore-Tex products |
| Platform products | Built around an established, proven technological subsystem shared by several products | Consumer electronics, EV platforms |
| Process-intensive | Product properties constrained by the production process; product and process often developed together | Snack foods, cereals, chemicals, semiconductors |
| Customized | Slight variations of standard configurations; highly structured process | Motors, switches, batteries |
| High-risk | Large technical or market uncertainty; address biggest risks early, test early, parallel solution paths | Pharmaceuticals, space systems |
| Quick-build | Repeated design-build-test cycles by feature priority | Software, cell phones |
| Complex systems | Decomposition into many subsystems developed in parallel, then integration | Airplanes, cars |
Concurrent engineering stresses cross-functional integration and parallel development of the product and its processes, instead of the traditional "over-the-wall" approach where designers hand finished drawings to manufacturing.
Product design criteria
Designing for the customer (industrial design) uses two tools:
- Quality function deployment (QFD): an interfunctional approach (marketing, engineering, manufacturing) that captures the voice of the customer. Customer requirements are gathered, weighted by importance, and customers compare the firm's product with competitors. The house of quality is the matrix that translates customer requirements into technical (engineering) characteristics and targets.
- Value analysis / value engineering (VA/VE): simplify products and processes to get equal or better performance at lower cost while keeping all customer functions. VA is applied to products already in production (cost reduction, often by purchasing); VE is applied before production (cost avoidance). Typical questions: are there unnecessary features, can parts be combined, can weight be cut, can nonstandard parts be eliminated?
Design for manufacturing and assembly (DFMA) reduces production cost mainly by cutting the number of separate parts. Each part is tested against three questions: does it move relative to parts already assembled; must it be of a different material or isolated; must it be separate to allow disassembly for adjustment or maintenance? If all answers are no, the part is a candidate to be combined or eliminated. In the book's motor drive example, the proposed design has 19 parts, the theoretical minimum is 4, and the practical redesign uses 7 parts with a snap-on plastic cover.
Ecodesign integrates environmental considerations into design on three levels: the complete life cycle (extraction to waste treatment), the product as a system (consumables, packaging, energy), and a multicriteria approach (avoid shifting impact between categories such as resource depletion and toxicity). It benefits producers (lower cost), users (durable, efficient products) and society.
Designing service products
Direct customer involvement creates variability in service time and in the knowledge required of employees. When adding or changing a service, consider three factors: similarity to current services (fit with the service experience), similarity to current processes (operational support, for example grocery home delivery needs new skills) and financial justification (including retaining customers). Complexity is the number of steps and possible actions at each step; divergence is how much the customer/server interaction can vary at each step. A family restaurant can move toward lower complexity/divergence (buffet, self-service) or higher (maitre d', table-side preparation).
Economic analysis of development projects
Economic analysis supports go/no-go milestones and operational design decisions (for example spend extra to save development time). Build a base-case financial model: estimate the timing and size of cash flows (development cost, ramp-up cost, marketing and support, production cost, sales revenue) and compute the net present value (NPV). Past spending is a sunk cost and is ignored.
PV of a cash flow CF received after t periods at discount rate r per period = CF / (1 + r)^t. NPV = sum of the present values of all period cash flows.
Example (CI-700 printer): in year 3, quarter 1 the period cash flow is 4,000,000 revenue minus 2,000,000 production minus 250,000 marketing = 1,750,000. Discounted at 2.5 percent per quarter over 9 quarters: 1,750,000 / 1.025^9 = about 1,401,275. The project NPV is about $8.0 million, which supports proceeding.
Sensitivity analysis ("what if") changes one factor and recalculates NPV: development cost (20 percent lower raised NPV by about 11.8 percent), development time, sales volume, and unit price or cost. Limitations: the model is only as good as its assumptions, captures only measurable factors, and heavy analysis can itself slow development.
Measuring product development performance
- Time-to-market: frequency of new product introductions and time from concept to launch.
- Productivity: engineering hours, material and tooling cost, actual versus planned.
- Quality: conformance quality (specifications are met, reliability in use), design quality (inherent value in the market, features versus expectations) and process capability, for example defects per million opportunities (DPMO).