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The new product process
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  1. 1. Production and Operations Management Transformation Process Model 1
  2. 2. 2 • Management of Any Activity / Process that create goods and provide services: − Forecasting, − Scheduling, − Quality Management • The business function responsible for Planning, Coordinating, and Controlling the Resources Needed to Produce Products and Services For a Company Operations Management
  3. 3. Why to study P & OM? At a Typical Manufacturing Company 3 Profit 5% OM Cost 21% Marketing Cost 26% Manufacturing Cost 48%
  4. 4. Manufacturers vs Service Organizations 4 Services: • Intangible product • Product cannot be inventoried • High customer contact • Short response time • Labour intensive Manufacturers: • Tangible product • Product is inventoried • Low customer contact • Longer response time • Capital intensive
  5. 5. Organization of Businesses 5 Operations / Production 1. Goods oriented (manufacturing and assembly) 2. Service oriented (health care, transportation, retailing) 3. Value-added (the essence of the operations functions) Finance-Accounting 1. Budgets (plan financial requirements) 2. Economic analysis of investment proposals 3. Provision of funds (the necessary funding for operations) Marketing 1. Selling / Promoting 2. Assessing customer wants and needs 3. Communicating those needs to operations
  6. 6. 6 Operations Finance Marketing The Need for Working Closely
  7. 7. Operations Interfaces 7
  8. 8. 8 Types of Operations Operation Examples Goods producing Farming, mining, construction Storage/transportation Warehousing, trucking, mail, taxis, buses, hotels, location Exchange Trade, retailing, wholesaling, renting, leasing, loans Entertainment Radio, movies, TV, concerts, recording Communication Newspapers, journals, magazines, radio, TV, telephones, satellite
  9. 9. • The goal of the production/operations department is to transform the inputs (using labor, machines and materials) into desired qualities of goods and services at the minimum cost. • Alteration of materials and components adds value and changes them into goods / services that customers want to own. • The raw materials and components before transformation could not be used—and therefore had no utility—for the customer. • The raw materials for glass, steel, food, and paper have no utility without technological transformations. • New processes are constantly get invented for improving the transformations and the products obtained from them. Transformation Process 9
  10. 10. Generalized Input - Output Transformation Model o It is a standard form that could be applied to any system where conversions are taking place. Inputs are fed into the transformation box representing the process. o The ‘‘process’’ often includes many sub-processes. 10
  11. 11. Transformation Process - Services Service conversions have customer utility even if no transfer of goods takes place. The conversion may be a change of location or related to the customer’s state of well-being. Transformations are being accomplished when: • People are served in Restaurants. • When they give blood to the Red Cross. • They have their teeth cleaned by the dentist. • They visit Disney World to be entertained. • Depositing a check in bank results in the electronic transfer of funds (ETF), clearly an input–output transformation • People are being moved from one place to another by an airline. 11
  12. 12. Classification of Operations Management: You can think of operations management at three levels: Strategic, Tactical, and Operational Planning & Control. i. Strategic (Broad, Long Term) : Product Planning, Capacity, Locations – Holds good for several years ii. Tactical (Constraints and Controls, Intermediate) : Raw Material and Manpower Planning, Finished Goods Inventory – Weeks and Months iii. Operational ( Routine Decisions) : Daily Production Plan, Shift Management, Deliveries – Days and Weeks 12
  13. 13. Responsibilities of an Operations Manager 13 1. Planning the Process One of the main roles an operations manager is responsible for is, of course, planning. Without a plan, there will be no product, and with a bad plan, things will go wrong, or your product will not turn out the way it was intended. Operations managers need to make clear, detailed plans about each stage of production to make sure that the whole process goes as smoothly as possible.
  14. 14. 2. Maintaining A Professional Workforce An operations manager isn’t just in charge of the production process; they’re also in charge of people. Managing employees has many different aspects – Making sure that efficiency is being maintained and employees are doing what they can to keep the process going smoothly. Concern towards satisfaction and wellbeing of the subordinates: Low motivation, bad moods, lack of comfort, and bad conditions can all contribute to workers feeling uncomfortable and unhappy in their work, decreasing the efficiency and quality of production. 14
  15. 15. 3. Location, Facilities, and Equipment Decisions An operations manager is also responsible for deciding what sort of facilities are required, and what equipment and machinery will be needed in the process. Should take into account where your raw materials are coming from as well as where you plan on shipping your final products to. This will minimize transport and shipping costs as much as possible. Needs to consider what sort of facilities need to be put in place for the staff, keeping in mind the health and safety regulations 15
  16. 16. Typical Responsibilities • Ensure all operations are carried on in an appropriate, cost- effective way • Improve operational management systems, processes and best practices • Purchase materials, plan inventory and oversee warehouse efficiency • Help the organization’s processes remain legally compliant • Formulate strategic and operational objectives • Examine financial data and use them to improve profitability • Manage budgets and forecasts • Perform quality controls and monitor production KPIs • Recruit, train and supervise staff • Find ways to increase quality of customer service 16
  17. 17. New Product Development • New product development is the process of converting an idea into a workable product. • The New Product Development (NPD) process is about grabbing the market opportunity that revolves around customer needs, checking the idea’s feasibility, and delivering the Product. • The New Product Development approach revolves around working on an entirely new idea, where the uncertainty around its development and subsequent adoption is high. • The stages of the NPD process include — idea generation, idea screening, concept development and testing, building a market strategy, product development, and market commercialization. 17
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  19. 19. Stage 1: Idea Generation • The goal should be to generate many worthy ideas that can form the foundation for the New Product Development strategy. The major focus for stage 1 should be to arrange brainstorming sessions where solving customer problems is given precedence. • This phase is not about generating fool-proof ideas that are ready for implementation. Instead, raw and unproven ideas that can be shortlisted later should be discussed.  Emphasize on Customer Problems  Qualify Each of the Listed Problems  Coming Up With Possible Solutions  Narrowing Down Problems + Solutions 19
  20. 20. Stage 2: Idea Screening • This New Product Development stage revolves around choosing the one idea that has the highest potential for success. Put all the ideas available on the table for internal review. That is, turn to people with industry knowledge and experience in the field for idea screening. • For a new product development idea, having a proof of concept (POC) should hold precedence as it helps check the feasibility of the idea. There is no point in zeroing in on an idea that is not technically feasible to build. • SWOT ( Strengths, Weaknesses, Opportunities, and Threats) analysis can be another good practice to consider when shortlisting New Product Development ideas. 20
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  22. 22. Stage 3: Concept Development & Testing Meaningful insight can be gained by focusing on four critical aspects: • Identification of the focus group, i.e., people who would benefit from the new product under development. • Assessment of other alternatives that can be presented to the focus group. • Development of a detailed plan for the New Product Development that includes all stages from feature development, marketing, pricing, and distribution. • Positioning of the product’s unique features into the customers’ minds to enhance findability and discoverability. 22
  23. 23. Stage 4: Market Strategy/Business Analysis Marketing strategy is all about drafting a way to reach out to the targeted audience. Perhaps the best and most straightforward method is to follow McCarthy’s 4Ps of marketing for a New Product Development project. Product, Price, Promotion and Placement 1. Cost-Based Pricing Model Here, the initial production cost is added to the mark up percentage to come up with the new product’s final price. 2. Market-Focused Pricing This pricing is inferred after a thorough analysis of the pricing model of similar products in the target market. 23
  24. 24. Stage 5: Product Development This is where you get to decide how your product will look and experience it in your own hands! Not only will the actual product be able to be reviewed, but also the packaging, as that is an important aspect of your product. 1. Prototype This helps in visualizing how the product will look and whether it complies with the idea and the basic manufacturing feasibility 2. Minimum Viable Product (MVP) Once the design, development, and testing are done, the MVP is launched in the market with minimal features. The future iterations depend on the initial response. 24
  25. 25. Stage 6: Market Testing • This step in New Product Development aims to reduce the uncertainty revolving around the success of the product. • In other words, this step revolves around checking the viability of the new product or its marketing campaign. • The users should be allowed to use the product, and then their feedback should be recorded. • Their feedback can form the foundation for further improvements. 25
  26. 26. Stage 7: Market Entry/Commercialization • Commercialization is an umbrella term that entails varied strategies to ensure the success of the new product. Commercialization includes: 26
  27. 27. 27
  28. 28. • Helps check the technical feasibility of the idea • Ensures faster time to market • Effectively addresses the customer needs • Multiplies the chances of success • Reduces Efforts and Expenses 28 Benefits of the New Product Development Process
  29. 29. Schmcnner (1986) proposed the Service Process Matrix (SPM), based on three characteristics of service delivery systems. 1. Labour intensity, 2. Customer contact 3. Service customization. o Labour intensity is defined as the ratio of the labour cost incurred to the value of the plant and equipment. o A service with a high level of interaction is one in which the customer can actively intervene in the service process. o A service with high customization will work to satisfy an individual's particular preferences. 29 Process Types in Services
  30. 30. The Services are classified in 4 types: Service Factory • Services with both low customer contact / customization and a low degree of labour intensity are classified as Service Factories. • Similar to line type processes in manufacturing, the facilities and equipment account for a large fraction of costs. • Much of the transportation industry (airlines, trucking companies), hotels and fast-food establishments can be classified as Service Factories. 30
  31. 31. Service Shop. • Services with low labour intensity but high customer contact / customization are classified as Service Shops. • Similar to a Job-Shop type of operation in manufacturing industry. • Service Shops can provide various types of customized services for their customers. Hospitals, auto and other repair services arc excellent examples of Service Shops. Mass Service • Mass Services have low customer contact/customization in combination with high labour intensity. • Retail companies, wholesaling and schools are examples of Mass Service. 31
  32. 32. Professional Service • These services have both high customer contact / customization and a high degree of labour intensity. • Services provided by doctors, lawyers, accountant and architect all have a very high labour costs due to the education associated with these professions. • These services lend to be highly customized according to the particular situation/need of each customer. 32
  33. 33. POM Models  Models are a way for P/OM to represent and study the real production environment.  The P/OM input-output model can be written in simple math form,  P/OM models also take the form of algorithms.  Algorithms are logical step-by-step procedures for solving problems.  Companies often create models which show how to lower costs, improve quality, speed up delivery, enhance productivity, and improve competitive capabilities ( ) y f x 
  34. 34. Expanded Input-Output P/OM Model o Figure below illustrates an expanded version of the input– output transformation model. o There are many boxes now within the transformation grid. o Each box represents operations that generate the product line, which can be goods or services. o Productive P/OM systems have well-designed transformations. 34
  35. 35. Costs & Revenues Associated with Input - Output (I/O) Models Cost management is a key function associated with all aspects of P/OM. A major portion of the cost of goods or services originates with operations. Figure below is meant to illustrate how costs are related to input-output models. Controlling costs is of prime concern to all managers.
  36. 36. P/OM Input- Output Profit Model • The inputs are materials, labor, and other direct costs associated with each unit of work made or services delivered. • The basic equations are: • Profit (P) = Revenue (R) minus Total Costs (TC) • P = R - TC • TC = Fixed Costs plus Total Variable Costs 36
  37. 37. I/O Profit Model with Sales Volume (V ) Period (t) Output Variables Input Variables Transformation Revenue: R Total Cost: TC Volume: V Units sold at price/unit, p R = pV TC = FC + vc (V) Net Profit: R - TC p = price per unit vc = variable costs per unit Margin = p - vc What volume V can be sold in period t at price p? FC = fixed costs for time period, t Productivity is the Output/Input = (R)/ (vc) V
  38. 38. 38 Centralized Manufacturing A single factory reduces per unit production costs by allowing the company to achieve economies of scale. Research from the APQC shows that centralized organizations have manufacturing costs that are about 3 percent lower than decentralized companies. Raw material inventory turn rates and production schedule efficiency is higher with centralized manufacturing. Overall RM costs are also generally lower. Centralized manufacturing enables better forecasting, more local jobs, consistent production and more effective use of limited resources.
  39. 39. 39 However, there are certain disadvantages: Centralized manufacturing tends to be inflexible because of the cost of customization. If a product has to change, the entire system must be retooled and this is extremely costly and time consuming. The cost of labour can also be disadvantage, especially if a company maintains its central plant in a region or country where wages rising.
  40. 40. 40 Decentralized Manufacturing Companies with decentralized manufacturing enjoy many benefits that often elude companies with centralized plants. These advantages include flexibility, being closer to their customers. Better and timelier information, more motivated employees, and the ability to take advantage of low labour costs in different areas. When a company is physically close to its customers, it can be more flexible in meeting increasingly diverse demands, country wise, even location wise. Decisions can be more quick.
  41. 41. 41 Often a company decentralizes in response to increased demand or expanding markets. Decentralized manufacturing has disadvantages as well. Multiple sites require a larger investment of capital to set up, the per-unit costs are higher than mass-produced products made in central plant, and maintaining organization-wide consistency in products and processes is a challenge. For companies that manufacture highly specialized products and distribute them locally, decentralized manufacturing may not be the best solution.
  42. 42. 42 Chase Strategy: Production Matches Demand The chase strategy refers to the notion that you are chasing the demand set by the market. Production is set to match demand and doesn't carry any leftover products. This is a lean production strategy, saving on costs until the demand – the order – is placed. Inventory costs are low, and the cost of goods for products sold is kept to a minimum and for a shorter length of time. The chase strategy is common in industries where perishables are an issue or with a company that doesn't have a lot of extra cash on hand and doesn't want the added risks of loss, theft or unsold products. The production schedule is based on orders and immediate demand.
  43. 43. 43 Level Production: Constant Production Over Time As the title suggests, level production is a strategy that produces the same number of units equally. This is common in industries where demand is cyclical and production capabilities are limited or capped. For example, assume a manufacturing plant can only produce 10,000 calculators per month. The demand for calculators changes based on consumer cycles that peak during the start of the school year and tax season. If the demand in peak seasons is 20,000 per month, the plant could not meet the demand. By consistently producing 8,000 per month, the manufacturer keeps new inventory flowing during nonpeak seasons but is still prepared for peak seasons.
  44. 44. 44 Make to Stock: Enough Product to Stock Shelves A manufacturer can choose to make-to-stock producing enough to stock the shelves of retailers. This is a common strategy for rolling out a new product such as a cellphone or car. Products are made and put in the inventory so consumers can see what is available. This strategy is similar to level production, using the efficiency of constant production that lowers costs and keeps inventory at a minimum. Buyers can access products readily and don't need to wait, keeping demand consistent. The difference between make-to-stock and level production is the schedule considers the cyclical demands of buyers and produces according to those anticipated demands, reducing production if the stock remains in inventory for extended periods.
  45. 45. 45 Assemble to Order: For Perishables The assemble to order strategy is a common production strategy for restaurants or any company that has perishables to consider. A florist may have supplies to make 100 arrangements but won't make an arrangement until the order is placed. This reduces spoilage and allows for customization and freshness of perishable products. By assembling-to-order, the business can meet the customer's demand and improve satisfaction while reducing the costs of supplies and spoilage.