Operations Management: Design of Goods and Services - Vocabulary Flashcards

Operations Management: Design of Goods and Services

Competitive Strategy

• Firms compete through strategies like:
  • Differentiation
  • Cost leadership
  • Responsiveness

Product Design as a Competitive Advantage

• Some firms use product design to gain a competitive edge.
• Apple's X Factor demonstrates this concept.
  • X Factor: Variable with the most significant impact on the outcome.
  • Example: Facial recognition in iPhone X, which removed the physical button.
• Competitive advantage involves creating a system that has a unique advantage over competitors.
• Apple manipulates customer taste through quick design and innovation.
• Competitors like Samsung often follow Apple's lead.

Product Strategy

• Objective: To develop and implement a product strategy that fits the firm's competitive strategy.
• A competitive advantage is an attribute that allows an organization to outperform its competitors.
• Examples:
  • Mercedes: High quality product strategy focused on reliability.
  • Hyundai: More affordable product strategy.
  • Mercedes vs. Tesla: Mercedes needs a sustainable product strategy.
• Walmart: Competitive strategy based on availability, variety, and low price.
• McMaster-Carr: Competitive advantage is business responsiveness with next-day delivery.
• Blue Nile: Online diamond retailing with high variety and low profit margins, competing with Zales.

Achieving Strategic Fit

• Manufacturing strategy should align with the target market segment.
  • Mercedes (quality): Requires reliable manufacturing.
  • Low Cost: Requires Lean manufacturing - systematic elimination of waste.
    • Toyota competes with BMW through lean manufacturing.
  • Variety: Flexible Manufacturing.
    • Dell business model offers high customization.
    • HP competes on timeliness.

Understanding Customer Expectations and Supply Chain

• Steps to achieve a strategic fit:
  1. Understand customer expectations.
     • Mercedes: Quality.
  2. Understand supply chain capabilities.
     • Access to reliable suppliers for quality.
• Trade-off between cost and response time.
• Two supply chain design options:
  • Responsive Supply Chain: Focus on being responsive.
  • Efficient Supply Chain: Focus on cost.

Demand Uncertainty

• Functional Products (e.g., table salt) vs. Innovative Products (e.g., smartphone).
• Characteristics:
  • Demand Uncertainty: Low (functional) vs. High (innovative).
  • Demand Predictability: Predictable (functional) vs. Difficult to forecast (innovative).
  • Product Life: Long (functional) vs. Short (innovative).
  • Inventory Cost: Low (functional) vs. High (innovative).
  • Profit Margin: Low (functional) vs. High (innovative).
  • Product Variety: Low (functional) vs. High (innovative).
  • Stock out Cost: Lowest (functional) vs. Highest (innovative).

Supply Uncertainty

• Gas Engine Vehicle (stable supply) vs. Battery Electric Vehicle (evolving supply).
• Stable Supply Characteristics:
  • Stable supply chain with known suppliers.
  • Well-established manufacturing processes.
• Evolving Supply Characteristics:
  • Manufacturing processes are under development.
  • Rapidly changing technology.
• Questions to identify supply stability:
  • Breakdowns: Low (stable) vs. High (evolving).
  • Quality Problems: Less (stable) vs. More (evolving).
  • Supply Sources: More (stable) vs. Limited (evolving).
  • Supplier Reliability: Reliable (stable) vs. Unreliable (evolving).
  • Capacity Constraints: Less (stable) vs. High (evolving).
  • Lead Time: Less variable (stable) vs. More variable (evolving).

Product Type Characterization

• Functional Products:
  • Low demand uncertainty and stable supply.
  • Examples: Table salt, grocery basics.
  • Focus: Efficiency and cost reduction.
• Products with High Demand Uncertainty and Stable Supply:
  • Examples: Fashion apparel, electronics.
• Products with Functional Demand and Evolving Supply:
  • EVs: High demand, but unreliable supply chain.
• Products with High Demand and Supply Uncertainty:
  • Examples: Telecom products, high-end computers.

Supply Chain Capabilities

• Supply chain management should vary based on product type.
• Efficient Supply Chain: For stable demand and reliable supply sources.
• Responsive Supply Chain: For competitive markets like smartphones.

Responsive vs. Efficient Supply Chains

• Responsive: Being a pioneer, first to market.
• Efficient: Cost-focused.
• Supply Chain Responsiveness capabilities:
  • Respond to wide ranges of quantities demanded.
  • Meet short lead times.
  • Handle a large variety of products.
  • Build highly innovative products.
  • Meet a high level of service level.
  • Handle supply uncertainty.
• Responsiveness comes at a cost.
• Strategic Fit Zone: Balancing uncertainty and responsiveness.

Zone of Strategic Fit

• Low Uncertainty: Functional Products.
• High Uncertainty: Innovative Products.
• Strategic Fit: Aligning product type with appropriate supply chain.
  • Functional products: Efficient supply chain.
  • Innovative products: Responsive supply chain.

Examples

• McMaster-Carr: Responsive supply chain due to next-day delivery.
• IKEA: Efficient supply chain.
  • Limited variety to manage customer tastes.
  • High inventory to manage quantity demanded.
  • Production in low-cost countries.

Strategic Fit Practice

• Toothpaste: Location C (Functional Products).
• iMac Pro: Location A (Innovative Products).
• Swatch Watch: Location B (Spectrum between Functional and Innovative).

Product Life Cycle

• Stages:
  • Introduction
  • Growth
  • Maturity
  • Decline
• Introduction Phase:
  • Investment in research and development.
  • Understanding customer taste.
  • Product design investment.
• Growth Phase:
  • Focus on capacity.
  • Ramping up production.
• Maturity Phase:
  • Competitors emerge.
  • Pricing decisions to increase sales.
• Decline Phase:
  • Terminate production and launch a new product.
• Cash Flow:
  • Negative during introduction and growth.
  • Peak profit during maturity.
  • Decline phase requires launching new products.

Project Examples

• Successful Project: Xbox 360
  • Microsoft needed to quickly design, develop, and produce a new product to compete with Sony's PlayStation 2.
  • Developed such a product Xbox three sixty, four phases
    • Design: collaboration to design processing chip, console controller, graphic chip
    • Analysis estimations to estimate future sales for new product to best previous xbox data.
    • Capacity: decided capacity to increase production for market share to launch new xbox before competitive rivals
    • Launching product: To Launch the product to over 36 countries from the first year for great sales
• Failed Project: Sony Betamax
  • Failed due to not studying market opportunities.
  • Potential customers should have been identified before mass production.
  • Lower price of VHS camcorders and competitors decision. The firm failed to analyze prices and features preferred by customer.

Scope of Product Development Team

• New Product Ideas:
  • Response to consumer wishes.
  • Competitive product strategy.
  • The firm must have resources, talent, and cash.
• Customer Requirements:
  • Functional specifications.
  • Product specifications.
  • Manufacturability assessment.
  • Test market.
  • Product launch and evaluation.
  • If it's successful or Failed

Quality Function Deployment (QFD)

• Used to transform customer voice into engineering characteristics.
• House of Quality: Graphic technique to define the relationship between customer desires and product/service characteristics.
• Example: The Great Cameras Inc.
  • Customer Wants (Whats):
    • Lightweight, easy to use, reliable, easy to hold steady, color correction.
  • How to Satisfy Customer Wants (Hows):
    • Low electricity requirements, aluminum components, autofocus, auto exposure, paint palette, ergonomic design.
• Relationship Matrix: How these two are how they are related.

Importance Ratings

• Weighted ratings to find how effective features address customer wants.
• Example: paint palette with the weighted rating of 32 has the highest overall impact on satisfying the customer wants.
• Interrelationships: Relationship between technical aspects.
• Competitor Analysis: Understanding how competitors satisfy customer wants.

Design Considerations

• Robust Design: Materials that work in all weather conditions.
• Virtual Reality Technology: Ensure design meets customer taste before production.
• Value Analysis: Seek improvements to reduce production costs.
• Modular Design:
  • Update the product when there's a better component by technology.
  • Companies for Harvey Davidson apply modular design to quickly implement a modern design.

Computer-Aided Design (CAD)

• Use of computers to interactively design products and prepare engineering documentations.
• Benefits include:
  • Very accurate design.
  • Drawings can be created and rotated in two or three dimension.
  • Can easily modify your drawings to view and experiment

Computer-Aided Manufacturing (CAM)

• Employ CAM to create the CNC programs and production process through coordinates of CNC computer numerical control

Decision Trees

• Involves 3 Key features: Decision, chance and terminal nodes to help decide in business and management.

• It can involve costs profits consequences. The technique can show a complex and effective potential action to make against uncertainty

• Nodes:

  • Decision node (square).
  • Chance node (circle).
  • Terminal node (triangle).

• Example: King Electronics Inc.

  Sara King, president, has two design options for high-resolution cathode ray tubes (CRTs).

  Lifecycle sales forecast: 100,000 units.

  • Option A:

    • Investment cost: 1,000,000
    • 90% chance: 59 good items per 100
    • 10% chance: 64 good items per 100

  • Option B:

    • Investment cost: 1,350,000
    • 80% chance: 64 good items per 100
    • 20% chance: 59 good items per 100

    Assumptions:

  • Each CRT costs 75 (fixed).

  • Good CRT sells for 150.

  • Bad CRT has no value.

    Analysis:

  • Option A:

    • 90% chance: Revenue = 59,000 \times 150 = 8,850,000; Profit = 8,850,000 - 1,000,000 - (75 \times 100,000) = 350,000
    • 10% chance: Revenue = 64,000 \times 150 = 9,600,000; Profit = 9,600,000 - 1,000,000 - (75 \times 100,000) = 1,100,000
    • EMV = (0.9 \times 350,000) + (0.1 \times 1,100,000) = 425,000

  • Option B:

    • 80% chance: Revenue = 64,000 \times 150 = 9,600,000; Profit = 9,600,000 - 1,350,000 - (75 \times 100,000) = 750,000
    • 20% chance: Revenue = 59,000 \times 150 = 8,850,000; Profit = 8,850,000 - 1,350,000 - (75 \times 100,000) = 0
    • EMV = (0.8 \times 750,000) + (0.2 \times 0) = 600,000

  • Decision: Choose Option B.