Chapter 3 - PRODUCT AND SERVICE DESIGN

I. PRODUCT DESIGN AND SERVICE REAL STORY

Have you ever been with a group of friends and decided to order pizzas? One person wants pizza
from Pizza Hut because he likes the taste of stuffed-crust pizza made with cheese in the crust.
Someone else wants Donato’s pizza because she likes the unique crispy-thin crust. A third wants
pizza from Spagio’s because of the wood-grilled oven taste. Even a simple product like a pizza
can have different features unique to its producer. Different customers have different tastes,
preferences, and product needs. The variety of product designs on the market appeals to the
preferences of a particular customer group. Also, the different product designs have different
processing requirements.
This is what product design and process selection are all about. We can all relate to the product
design of a pizza just from everyday life. Now consider the complexities involved in designing
more sophisticated products. For example, Palm, Inc. (www.palm.com) is a leading provider of
handheld computers whose slogan is “different people, different needs, and different handhelds.”
The company designs different products with differing capabilities, such as personal information
management, wireless Internet access, and games, intended for different types of customers. The
company also has to decide on the best process to produce the different types of handhelds.
The challenge of product design can also be illustrated by an example from the Alza
Corporation. Alza is a leader in designing new ways that pharmaceutical drugs can be
administered to different types of patients. One of their product designs is an underthe-skin
implant for pharmaceutical drugs that previously could only be administered by injection. The
product design had to include time release of the drug, as well as the best material and shape for
the implant. In addition to the product design, a process had to be designed to produce the unique
product.
These examples illustrate that a product design that meets customer needs, although challenging,
can have a large impact on a company’s success. In fact, product design is so important that
leading-edge companies routinely invest in product designs well into the future. For example, in
2009 Sony released cameras that include intelligent auto mode that give users picture-perfect
shots without fumbling with settings. This type of innovative product design can give a company
a significant competitive advantage

II. PRODUCT DESIGN AND PROCESS SELECTION ACROSS THE

ORGANIZATION

The strategic and financial impact of product design and process selection mandates that
operations work closely with other organizational functions to make these decisions. Operations
is an integral part of these decisions because it understands issues of production, ease of
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fabrication, productivity, and quality. Now let’s see how the other organizational functions are
involved with product design and process selection.

Marketing is impacted by product design issues because they determine the types of products
that will be produced and affect marketing’s ability to sell them. Marketing’s input is critical at
this stage because marketing is the function that interfaces with customers and understands the
types of product characteristics customers want. It is marketing that can provide operations with
information on customer preferences, competition, and future trends.

Process selection decisions impact marketing as well. They typically require large capital
outlays, and once made, they are typically difficult to change and are in place for a long time.
Process decisions affect the types of future products that the company can produce. Because of
this, marketing needs to be closely involved in ensuring that the process can meet market
demands for many years to come.

Finance plays an integral role in product design and process selection issues because these
decisions require large financial outlays. Finance needs to be a part of these decisions to evaluate
the financial impact on the company. Process selection decisions should be viewed as any other
financial investment, with risks and rewards. Finance must ensure that the trade-off between the
risks and rewards is acceptable.

Also, it is up to finance to provide the capital needed for this investment and to balance that
against future capital requirements.

Information systems needs to be part of the process selection decisions. Operations

decisions, such as forecasting, purchasing, scheduling, and inventory control, differ based on the
type of operation the company has. Information systems will be quite different for intermittent
versus continuous operations. Therefore, the information system has to be developed to match
the needs of the production process being planned.

Human resources provides important input to process selection decisions because it is the
function directly responsible for hiring employees. If special labor skills are needed in the
process of production, human resources needs to be able to provide information on the available
labor pool. The two types of operations discussed, intermittent and continuous, typically require
very different labor skills. Intermittent operations usually require higher-skilled labor than
continuous operations. Human resources needs to understand the specific skills that are needed.

Purchasing works closely with suppliers to get the needed parts and raw materials at a
favorable price. It is aware of product and material availability, scarcity, and price. Often certain
materials or components can use less expensive substitutes if they are designed properly. For this
reason it is important to have purchasing involved in product design issues from the very
beginning.

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Engineering needs to be an integral part of the product design and process selection decisions
because this is the function that understands product measurement, tolerances, strength of
materials, and specific equipment needs. There can be many product design ideas, but it is up to
engineering to evaluate their manufacturability.

As you can see, product design and process selection issues involve many functions and affect
the entire organization. For this reason, product design and process selection decisions need to be
made using a team eff ort, with all these functions working closely together to come up with a
product plan that is best for the company.

III. THE SUPPLY CHAIN LINK

In today’s competitive environment, companies typically have a very short window of

opportunity to enter the market with a new product design. Most companies are aware that they
must get to the market early with an innovative product before their competitors.

This requires the support of the entire supply chain, where suppliers must be involved in the
product design process. We have already learned about the time-saving advantages of concurrent
engineering and early supplier involvement.

These require a carefully integrated supply chain that allows collaboration and simultaneous
product design between suppliers and manufacturers.

Another important supply chain link relates to the technology decisions the firm makes. As
companies acquire new technologies, they must consider how these technologies will be aligned
with the technologies used by their supply chain partners. When an entire supply chain uses
technologies that are compatible, great strides can be made in the efficiency of production and
movement of goods. Consider that Wal-Mart has mandated that its top 300 suppliers must put
RFID tags on all their shipping crates and pallets. Although RFID tags are expensive, this move
has already incurred huge savings by increasing efficiency, better tracking of products, and a
reduction in inventory.

IV. THE SUSTAINABILITY LINK

Changes in product design can significantly improve environmental and social sustainability
performance.

These changes can include the use of materials, sourcing, and disposal, as well as process
modifications that can reduce pollution. Sometimes these changes can be highly innovative.

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Other times they can be simple changes that the company simply overlooked. A good example is
Nike Air basketball sneakers with their signature air bubble in the heel. The company only
recently became aware that the pocket of the sneakers contained a gas known as Sulphur
hexafluoride, or SF6, which is actually a greenhouse gas. As part of Nike’s sustainability
initiative, Nike replaced SF6 with nitrogen, which breaks up more readily upon release and is not
a greenhouse gas. This small change did not alter consumer perception of the product, nor did
cost the company money, but it offer a significant environmental impact.

Companies can also work on product design changes that can be highly innovative and bring
sustainability leadership to the firm. An excellent example is offered by PepsiCo, the world’s
second largest food and Beverage Company. PepsiCo has worked to lower the environmental
impact associated with petroleum-derived beverage bottles, which are composed of
nonrenewable fossil fuels and carry huge environmental costs. In fact, it is these plastic bottles
that litter public spaces and contribute the floating “garbage patches” that plague the world’s
oceans. First, the company lowered the amount of plastic used in its Aquafina water bottles. It
then developed a 100% recycled bottle for its Naked Juice line in 2009. Now, the company’s
R&D team is working on designing and mass-producing recyclable bottles completely made
from renewable materials. The research team is working on developing bottles using wastes from
its food businesses, including orange peels, potato peels, and oat hulls. They have already
designed the material and have considered how it would match the current process design of
PepsiCo, as changes in process design would require major capital investments.

The plant based bottles can be blown, filled, and labeled the same way as traditional plastic ones,
and would feel the same in the hands of the consumer. The company is continuing testing before
mass-producing the bottles on a large scale and tracking the environmental impacts of the bottles
to account for the environmental savings. Such a breakthrough innovation would also position
PepsiCo as the leader in the entire plastic packaging industry and the premier environmentally
responsible brand.

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