Operations Management 1 Operations Management the science of getting things done New Product Development Funnel Offers a structured process to manage innovation Only one out of four new product introduction NPI projects a winner Operations Management 2 Determinants of Product Cost Target Costing Process The target markets in which the organization needs to compete The wants and needs of the target customer in terms of quality and price The target profit and returns required by investors Target Costing Principles Price led costing market prices are used to determine allowable or target costs o Target Cost Market price required profit margin other costs Focus on customer customer requirements for quality cost and time are simultaneously incorporated in product and process decisions and guide cost analysis o The value of any features and functionality build into the product must be greater than the cost of providing Focus on design cost control is emphasized at the product and process design stage o Engineering changes must occur before production begins resulting in lower costs and reduced time to those features and functionality market for new products Cross functional Involvement cross functional product and process teams are responsible for the entire product from initial concept through final production Value chain Involvement all member of the value chain suppliers distributors service providers etc are included in the target costing process Life cycle Orientation total life cycle costs are minimized for both the producer and the customer o Life cycle costs include purchase price operating costs maintenance and distribution costs Target Costing for Start up Companies Estimated Retail Price Channel Margin 50 Net Sales Price to Team Gross Margin 50 Target Cost Operations Management 3 Product and Service Design After determining the Target cost identify the actual costs to make the product Compare your actual costs with the target cost Conduct research on markets customers competition and channels of distribution Translate customer wants and needs into a product and service requirement Marketing Operations Refine existing products and services Marketing Develop new products and services Marketing Operations Construct and test prototype Operations Marketing Engineering Document specifications Formulate quality goals Marketing Operations Formulate cost targets Operations Finance Accounting Translate product and service specifications into process specifications Engineering Operations Reasons for Product Design or Redesign Economic ex Low demand excessive warranty claims need to reduce costs Social and demographic ex Aging baby boomers population shifts Political liability or legal ex Government changes safety issues new regulations Competitive ex New or changed products new advertising Cost or availability ex Raw materials components labor Technological ex In product components processes Key Questions when considering Product Design Is there a demand for it o Size of the potential market o Expected demand profile Can we do it What level of quality is appropriate o Expectations of customers o Level of quality provided by competitors o How does it fit with our current offerings o Manufacturability the capability of an organization to produce an item at an acceptable profit o Serviceability the capability of an organization to provide a service at an acceptable cost or profit Does it make sense from an economic standpoint o Potential liability issues o Ethical considerations o Sustainability issues costs profits Product Development Challenges Trade offs Dynamics Details Economics Time Pressure Legal and Ethical Considerations Product Liability the responsibility of a manufacturer for any injuries or damages caused by a faulty product Uniform Commercial Code UCC products carry an implication of merchantability and fitness a product must be usable for its intended purposes Produce designs that are consistent with the goals of the organization Give customers the value they expect Make health and safety a primary concern Phases in Product Design and Development Idea Generation o Sources of ideas can be supply chain based competitor based or research based o Reverse engineering dismantling and inspecting a competitor s product to discover product improvements o Research and Development organized efforts to increase scientific knowledge or product innovation Basic Research objective of advancing the state of knowledge about a subject without any near term expectation of commercial applications Applied Research objective of achieving commercial applications Development converts the results of applied research into useful commercial applications Feasibility Analysis entails market analysis demand economic analysis development cost and production cost profit potential and technical analysis capacity requirements and availability and skills needed Production Specifications involves detailed descriptions of what is needed to meet customer wants and requires collaboration between legal marketing and operations o Concurrent Design bringing engineering design and manufacturing personnel together early in the design phase so that manufacturing personnel are able to identify production capabilities and capacities early opportunities for design or procurement of critical tooling some of which might have long lead times early consideration of technical feasibility of a particular design or a portion of a design and emphasis is placed on problem resolution instead of conflict resolution o Over the Wall Approach designers develop new products without any input from manufacturing and then turned over the design to manufacturing which would then have to develop a process for making the new product o Computer aided Design CAD product design using computer graphics which increases productivity of designers and a creation of a database for manufacturing that can supply needed information on product dimensions and specifications o Design for Manufacturing DFM the designing of products that are compatible with an organization s capabilities taking into account manufacturability which is important for cost productivity and quality o Design for Assembly design that focuses on reducing the number of parts in a product and on assembly methods and sequence o Manufacturability the ease of fabrication or assembly Process Specifications alternatives must be weighed in terms of cost availability of resources profit