PRODUCT AND

SERVICE DESIGN
 3.1. Introduction
 Product and service design plays a strategic role in the degree

to which an organization is able to achieve its goals.

It is a major factor in customer satisfaction, product and

service quality, and production cost.

New-product development is a crucial part of business.

New products serve to provide growth opportunities and a

competitive advantage for the firm.

Operations are greatly affected by new product introduction.

New products must be defined with not only the market in mind

but the production process that will be used to make the product.
3.2. Reasons for Product or Service Design
To be competitive: for competing with no or less
competitive pressure.
The need for growth and expansion.

As an alternative against downsizing.

 Greater Market Share

Early entry captures large initial market share.
 Price Premiums
Ability to initially charge more for new products
 Con’t…
 Set Industry Standards
Initial product sets market/industry standards.

 To achieve cost reductions in labor or materials

Besides, Redesign may be required for;

 Customer complaints
 Accidents or injuries
 Excessive warranty claims
 Low demand
 3.3. Trends in Product and Service Design
Over the last few years, the designing of
products and services has increased emphasis on
a number of aspects of design:
Increased emphasis on customer satisfaction
Increased pressure to competition
Increased emphasis on reducing the development cycle
time
Increased emphasis on production time
 Greater attention to environmental concerns, including
waste minimization, recycling parts, disposal of worn-
out products, and packaging.
 Con’t…
 Increased emphasis on reducing production cost

 Greater attention to the capabilities of the organization to

produce or deliver the item
 Increased emphasis on designing products and services that
are user-friendly
 Increased effort to use less material for products and less
packaging
 3.4 Importance of New Product Introduction
New product is important in that it can:
Create differential advantages
Enhance the firm’s image
Support continued growth
Limit risk through diversification
Capitalize on technological breakthroughs- for customers
Improve the firms’ productivity or be responsive to
recycling issues
Help firms respond to changing demographics and
lifestyles
3.5. Product Development Process

A product process is the entire set of activities

required to bring a new concept to a state of
market readiness.

A design process is the set of technical

activities within a product development process. It
does not include business, financial, or marketing
activities.
 Steps:
1. Idea generation
Sources:
a) Internal Sources
Research and development unit
Employees
b) External Sources
Customers
Competitors- reverse engineering
Distributors
Suppliers
 Cont…
2) Idea Screening
Factors against which each ideas has to be rated include:
Market Size
Stability of demand
Sustainability of demand
 Product Price
 Development Time
 Manufacturing Costs
 Rate of Return
Operations compatibility
Financial feasibility
Operational feasibility
Fitness to the overall strategy
 3. Business Analysis
Break-Even Analysis
Breakeven analysis examines the short run relationship

between changes in volume and changes in total sales

revenue, expenses and net profit

Also known as C-V-P analysis (Cost Volume Profit Analysis)

 F C
+
VC )
Amount ($)

= (V C
o st o st
ta lc le
c
T o ia b
var
t al
To Fixed cost (FC)

Q (volume in units)
 enue fit
t al re v Pr o
To
Amount ($)

l
Tota
cost

Loss

0 BEP units
Q (volume in units)
 BEPx = Break-even point x = Number of units
in units produced
BEP$ = Break-even point TR= Total revenue = Px
in dollars F = Fixed costs
P = Price per unit V = Variable costs
(after all discounts) TC= Total costs = F + Vx

Break-even point occurs

when
BEPx= FC
TR = TC
or P-V
Px = F + Vx
 BEPx = Break-even point
in units x = Number of units
produced
BEP$ = Break-even point TR= Total revenue =
in dollars Px
F = Fixed costs
P = Price per unit V = Variable costs
(after all discounts) TC= Total costs = F
BEP$= BEPx.P F Profit = TR+ -Vx
TC
F p 1-V/P = Px - (F + Vx)
P-V = Px - F - Vx
F = (P - V)x - F
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit

F $10,000
BEP$ = 1 - (V/P) = 1 - [(1.50 + .75)/(4.00)]
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit

F $10,000
BEP$ = 1 - (V/P) = 1 - [(1.50 + .75)/(4.00)]

$10,000
= .4375 = $22,857.14

F $10,000
BEPx = =P - V 4.00 - (1.50 + .75)

= 5,714.29
A small firm intends to increase the capacity of a
bottleneck operation by adding a new machine. Two
alternatives, A and B, have been identified, and the
associated costs and revenues have been estimated.
Annual fixed costs would be $40,000 for A and $30,000 for
B; variable cost per unit would be $10 for A and $12 for B;
and revenue per unit would be $ 15 for A and $16 for B.
Required:
a.Determined each alternative’s break even point in
units
b.At what volume of output would the two
alternatives yield the same profit?
c. If expected annual demand is 12,000 units, which
alternative would yield the higher profit?
 Exercise
Joe Jenkins, owner of Jenkins Manufacturing, is
considering whether to produce a new product. He has
considered the operations requirements for the product
as well as the market potential. Joe estimates the fixed
costs per year to be $40,000 and variable costs for each
unit produced to be $50.
(a) If Joe sells the product at a price of $70, how many units
of product does he have to sell in order to break even?
Use both the algebraic and graphical approach.
(b) If Fred sells 3000 units at the product price of $70, what
will be his contribution to profit?
Cont…
4) Preliminary product design

5) Prototype construction
6. Prototype testing
Daimler is currently road-testing its
prototype NECAR 5 (New Electric Car)
Cont…
7) Final product design

8) Production and Commercialization

 3.6. Factors to be Considered in Design

1) Product Lifecycle

2) Concurrent Engineering

3) Modular Design

4) Emphasis on Design for Manufacturing

5) Degree of standardization
1) Product Lifecycle
Understanding the stages of the product life cycle is important for product design
purposes,
 2) Concurrent Engineering
A design approach that uses multifunctional teams to

simultaneously design the product & process

Replaces a traditional ‘over-the-wall’ approach where

one group does its part & then hands off the design to the
next group
Sequential Design
Concurrent Engineering
 Benefits of Concurrent Engineering
Representatives from the different groups can better
consider trade-offs in cost & design choices as each
decision is being made.

Development time is reduced due to less rework

(traditionally, groups would argue with earlier
decisions & try to get them changed).

Emphasis is on problem-solving (not placing blame on

the ‘other group’ for mistakes)
 3) Modular Design
Modular design, or "modularity in design", is
a design approach that subdivides a system into smaller
parts called modules, that can be independently created
and then used in different systems.
Cont…
 4) Design for Manufacturing
Design for manufacture (DFM) is a series of
guidelines that we should follow to produce a
product easily and profitably.
DFM guidelines focus on two issues:
1. Design simplification means reducing the number
of parts and features of the product whenever
possible. A simpler product is easier to make, costs
less, and gives us higher quality.
2. Design standardization refers to the use of
common and interchangeable parts.
 Benefits of Design for Manufacturing
Lower costs:
Lower inventories (fewer, standardized
components)
Less labor required (simpler flows, easier
tasks)
Higher quality:
Simple, easy-to-make products means fewer
opportunities to make mistakes
 5) Degree of Standardization
Refers to the extent to which there exists no product variability.

Benefits of Standardization

 Fewer parts to deal within inventory & manufacturing

 Design costs are generally lower

 Reduced training costs and time

 More routine purchasing, handling, and inspection procedures

 Cont…
Orders fill able from inventory

Opportunities for long production runs and automation

Need for fewer parts justifies increased expenditures on

perfecting designs and improving quality control

procedures.

Quality is more consistent

Disadvantages of Standardization
Designs may be frozen with too many imperfections

remaining.

High cost of design changes increases resistance to

improvements.

Decreased variety results in less consumer appeal.

 3.7. Service Design
A service is any primary or complementary activity that

does not directly produce a physical product.

Simultaneous production and consumption is a

critical aspect of service, because it implies that the

customer must be in the production system while
production takes place.
Similarities between Goods and Services
Goods and services provide value and satisfaction to

customers who purchase and use them.

They both can be standardized and customized to

individual wants and needs.

A process creates and delivers each good or service, and

therefore, OM is a critical skill.

 Distinctive Characteristics of Service
Customer participation

Simultaneity

Perishability

Intangibility

Heterogeneity

Functional inseparability of sales and production

 Customer Participation
The customer is more involved in the delivery of

services than products

Providing services means that you must pay
attention to the service facility
Customers can play an integral role in the delivery of

the service
 Simultaneity
Services are consumed simultaneously (as they are

provided)
There is no inventory

Services operate as an open system

 Perishability
A service is a perishable commodity (can’t be saved)

The full utilization of service capacity is a management

concern
Demand for services is often cyclical
Intangibility
Services are not tangible things

Difficult to patent

Customer relies on reputation since

there is no product to touch or try out before

consumption
Heterogeneity
There are variations of service between customers

Direct customer-employee contact required

during service provisions

 Each customer has unique needs and/or wants.
Service Framework/Triangle
The
service
strategy

The
customer
The The
systems people
 Service Strategy: Focus and Advantage Performance
Priorities
• Treatment of the customer

• Speed and convenience of service delivery

• Price

• Variety

• Quality of the tangible goods

• Unique skills that constitute the service offering

 Characteristics of a Well-Designed Service System

1. Each element of the service system is consistent with the

operating focus of the firm.

2. It is user-friendly.

3. It is robust.

4. It is structured so that consistent performance by its people

and systems is easily maintained.
3 - 47
Characteristics of a Well-Designed Service System
(Continued)

5. It provides effective links between the back office

and the front office so that nothing falls between
the cracks.

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.

3 - 48
1.Identification of the target market-Who is the customer?

2.Defining the service concept –How do we differentiate

our service in the market?

3.Defining the service strategy-What is our service

package and the operating focus of our service?

4.Defining the service delivery system-What are the actual

processes , staff and facilities by which the service is
created?
 3.8. PROCESS SELECTION
Though product design is very important for a company, it
cannot be done separately from the selection of the process.
Process Selection refers to the strategic decision of selecting
which kind of production processes to have in the plant .
 Process Selection is basically the way goods or services are made
or delivered, which influences numerous aspects of an
organization, including capacity planning, layout of facilities,
equipment and design of work systems.
 Process selection is primarily used during the planning of new
products or services that is subject to technological advances and
competition.
Process selection is dependent on the company's process strategy,
which has two main components: capital intensity and process
flexibility.
 Type of Process
All processes can be grouped into two broad categories:
1) Intermittent operations and
2) Repetitive operations.
1) Intermittent operations
Intermittent operations are used to produce a variety of
products with different processing requirements in
lower volumes.
Examples are an auto body shop, a tool and die shop, or
a health-care facility.

Think about a health-care facility. Each patient, “the

product,” is routed to different departments as needed
The volume of goods produced is directly tied to the
number of customer orders.
 Intermittent operations

Intermittent operations can be divided into:

i) Project processes are used to make one-of-a-kind
products exactly to customer specifications.
These processes are used when there is high
customization and low product volume, because
each product is different. Renaissance

Examples can be seen in construction, shipbuilding,

medical procedures, and creation of artwork,
custom tailoring, and interior design.
Intermittent Operations
ii) Batch processes are used to produce small
quantities of products in groups or batches based on
customer orders or product specifications.
They are also known as job shops. The volumes of
each product produced are still small and there can still
be a high degree of customization.

Examples can be seen in bakeries, education, and

printing shops.
The classes you are taking at the university use a batch
process.
 Type of Process…..Cont’d
2) Repetitive Operations
Repetitive operations are used to produce one or
a few standardized products in high volume.
Examples are a typical assembly line, cafeteria, or
automatic car wash.

Resources are organized in a line flow to

efficiently accommodate production of the product.
 To efficiently produce a large volume of one type
of product these operations tend to be capital
intensive rather than labor intensive
Repetitive Operations
Repetitive operations can be divided into:
i) Line processes are designed to produce a large
volume of a standardized product for mass
production.
They are also known as flow shops, flow lines, or
assembly lines.
With line processes the product that is produced
is made in high volume with little or no
customization.
Think of a typical assembly line that produces
everything from cars, computers, television sets,
shoes, candy bars, even food items.
Repetitive Operations…Cont’d
ii) continuous processes operate continually to
produce a very high volume of a fully standardized
product.
Examples include oil refineries, water treatment
plants, and certain paint facilities.

The products produced by continuous processes

are usually in continual rather than discrete units,
such as liquid or gas.
They usually have a single input and a limited
number of outputs
Table Differences between Intermittent and Repetitive
Operations
Types of processes based on product volume and product
standardization
Intermittent VS. Repetitive Facility Layouts
 I Thank U!
The End of Chapter Three