5

C H A P T E R

Design of Goods and Services

DISCUSSION QUESTIONS 10. A bill of materials lists the components, their description,
1. Explicit documentation accomplishes two things: and the quantity of each required to make one unit of the product.
(a)  It provides the information necessary to produce (capacity, 11. An engineering drawing shows the dimensions, tolerances,
training, routing, costs, etc.) the product in the appropriate materials, and finishes of a component.
fashion 12. An assembly chart shows in schematic form how a product
(b)  If the product we produce does not perform as we is assembled. Along with a list of the operations necessary to
anticipated, the documentation provides the basis for produce a component, the process sheet includes specific methods
finding and correcting the problems in a logical manner. of operation and labor standards.
2. Product definition includes engineering drawings, written 13. The moment-of-truth is the moment that exemplifies,
specifications, bills-of-material, formulas, storyboards, portion detracts from, or enhances the customer’s expectations.
control documents, scripts, insurance policies, etc. 14. House of quality is a rigorous method aimed at that specific
3. Investment, market share, product life cycle, and breadth of result. It identifies customer wants, and relates them to product
the product line are all linked to the product decision. attributes and firm abilities. It orders the wants and measures the
strength of the links between wants and attributes.
4. Once a manufactured product is defined, the documents used
are: 15. CAD advantages include:
  lower cost and better designs
  assembly drawings
  assembly charts  feeding information to such departments as purchasing,
  route sheets manufacturing, and technical documentation
  job instructions  encouraging integration of information with all
  standards manuals departments of a manufacturing organization
  work orders
16. CAD aids all three strategy concepts—differentiation, low
5. Time-based competition uses a competitive strategy of getting cost, and response.
products to market rapidly and may include rapid design, efficient
  CAD allows more designs to be developed, evaluated, and
delivery systems, and JIT manufacturing.
submitted to production faster. It does this by fostering
6. Joint ventures are combined ownership between two firms to evaluation of options faster and simultaneously provides a
form a new entity with a new mission. Alliances are cooperative more analytical evaluation that increases opportunities for
agreements that allow firms to remain independent, but use differentiation and cost reduction. Drawings, tooling
complementing strengths to pursue strategies that support their information, and control information for numerical
individual missions. controlled machinery are submitted faster.
7. Japanese—integrate product development into one
organization; Traditional—different phases of development done ETHICAL DILEMMA
in distinct departments; Champion (or Product Manager)—a
We begin with an observation regarding toys and torts. (Some of
manager shepherds the product through the development process;
the following comes from an unknown source and some from the
Teams—product development teams, design for manufacturability
U.S. Consumer Products Safety Commission.)
teams, value engineering teams. This last version seems to work
Parker Brothers had big plans for a toy called Riviton.
best in the West.
Riviton consisted of plastic parts, rubber rivets and a riveting
8. Robust design means the product is designed so that small tool with which children could put together anything from a
variations in production or assembly do not adversely affect the windmill to an airplane. In the first year on the market, Riviton
product. seemed on its way to becoming one of those classic toys that
9. CAD benefits: maintain various kinds of engineering parents would buy everlastingly. However, one of the 450,000
standards; check interference on parts that must fit together; and Riviton sets ended up under the Christmas tree of an 8-year-old
efficiently analyze existing and new designs for technical boy. He played with it daily for three weeks. Then he put one of
attributes such as strength, stress, and heat transfer. the quarter-inch long rubber rivets into his mouth and choked to

44
 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S 45

death. Ten months later, with Riviton sales well on their way to an Active Model Exercise
expected $8.5 million for the year, a second child strangled on a
rivet. ACTIVE MODEL 5.1: Decision Tree
Parker Brothers could have ignored the strangulations, as- 1. For what range of probabilities of high sales should we
cribed the deaths to chance, and tried to shift the blame to parental purchase the CAD system?
failure to supervise and police their children at play; or it could have Any probability above .27
assigned responsibility to the child’s abnormal misuse or abuse of
the product. “After all, peanuts are the greatest cause of strangula- 2.  “Favorable market sales” has been defined as 25,000 units.
tion among children and nobody advocates the banning of the Suppose this is optimistic. At what value would we change our de-
peanut.” cision and hire engineers?
However, when you manufacture for children, you produce 19,200
for the improvident, the impetuous, and the irresponsible. As a 3. “Unfavorable market sales” has been defined as 8,000 units.
judge put it: “the concept of a prudent child, God forbid, is a Suppose this is optimistic. At what value would we change our de-
grotesque combination.” The motto of childhood seems to be: cision and hire engineers?
“when in doubt, eat it.” Knowledge of such childish propensity is 4,100
imputed to all manufacturers who produce products, especially 4. How does the price affect our decision?
toys, which are intended for the use of or exposure to children. At low prices we hire engineers while at high prices we
Cases abound to document this axiom. use CAD. The break-even point is $74.
Considering the many stakeholders of a firm and the legal
5. How sensitive is the decision to the manufacturing costs
setting sketched above, what is the proper response for the ethical
without CAD?
dilemma in the text?
At low costs we hire engineers. At high costs we use CAD.
Parker Brothers provides an example. When management
The break-even point is $48.
learned of the second child’s death from strangulation on the
quarter-inch rubber rivet they could have tried to tough it out or 6. How sensitive is the decision to the manufacturing costs with
luck it out in the well-known “do nothing and wait and see”. CAD?
However, the company was sensitive not only to the constraints of At low costs we purchase CAD while at high costs we hire
the law (liability follows the chain for defective products), but engineers. The break-even point is $41.
also to the imperatives of moral duty and social responsibility, and
the commercial value of an untarnished public image. Parker END-OF-CHAPTER PROBLEMS
Brothers with 125,000 units in inventory decided to halt sales and 5.1 Shown below is a house of quality for a sports watch in the
recall 900,000 Riviton sets. As the company president succinctly under $50 market. Students can find similar watches in stores or
stated: “Were we supposed to sit back and wait for death No. 3?”
The conduct of Parker Brothers is commendable.
However, we can assume that Parker Brothers was in better
financial condition than the manufacturer in our Ethical Dilemma.
Our manufacturer will be “laying off” his employees while further
product refinement takes place or new products are developed.
46 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S

on the Web. This house includes features and comparisons for

three options. Importance and rating of features are subjective and
just developed for this example.
5.2 For an existing organization, the student should build a
house of quality, entering the wants on the left and entering the
hows at the top, similar to those shown in Problem 5.1. An example
of a House of Quality for a lunch is shown in the text in
“Solutions to Even Numbered Problems” (Appendix V).
5.3 

Source: American Supplier Institute; www.amsup.com/qfd/chart.html.

 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S 47

5.4 Individual answer for a bicycle customer in the style of 5.6 An assembly chart for the eyeglasses is shown below:
Problem 5.1.
5.5 A typical bill-of-material is shown here:
(a)
Bill of Material for a Pair of Glasses in a Case
Part Number Description Quantity
G1001 Sun Ban Large in Black Case 1
CBL101 Black Leather Case 1
BF101 Black Leather Front 1
BB101 Black Leather Back 1
BC101 Black Leather Pocket Clip 1
SBL101 Sun Ban Large Glasses 1
SFA101 Frame Assembly 1
SF101 Alloy Frame 1
RL101 Right Sun Ban Large Lens 1
LL101 Left Sun Ban Large Lens 1
LTA101 Left Temple Assembly—Large 1
LT101 Left Temple 1
LTH101 Left Temple Hinge 1
LTE101 Left Temple Ear Pad 1
RTA101 Right Temple Assembly—Large 1
RT101 Right Temple 1
RTH101 Right Temple Hinge 1
RTE101 Right Temple Ear Pad 1
S1001 Hinge Screws 2

(b) There are obviously a very large number of possibilities,

Quizno’s honey-bacon-turkey club, regular size, uses a
toasted 6 bun (white or wheat), two slices of bacon,
three ounces of smoked sliced turkey, 2 Tbsp. shredded
lettuce, 1 Tbsp. chopped onion, and 1/2 oz. honey-
mustard sauce. It is wrapped in a 12 square deli paper.
48 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S

 5.7 Services need documents for the transition to production. 5.10 Possible strategies:

More creative students may have fun with this assignment, and Notebook computers (growth phase):
you may have students who have actually done “cold calls” for a  Increase capacity and improve balance of production
firm or the university and can discuss in detail the strong and system
weak points of the scripts they used. Some scripts provide only
 Attempt to make production facilities more efficient
the high points of how to greet, warm up, ask, and close. Other
scripts are very explicit and provide the exact wording, with Palm-held computer (introductory phase):
phrases to be used to overcome objections.  Increase R&D to better define required product

 5.8 Assembly chart for a table lamp: characteristics

 Modify and improve production process
 Develop supplier and distribution systems

Hand calculator (decline phase):

 Concentrate on production and distribution cost reduction
 Attempt to develop improved product
 Attempt to develop supplementary product
 Unless product is of special importance to overall com-
petitive strategy, consider terminating production

5.11

The firm should utilize the low technology approach for a cost of
$145,000.
5.12

 5.9 
Product Alpha: 1,000 units  $2,500 = $2,500,000
Introductory
Product Bravo: 1,500 units  $3,000 = $4,500,000 Growth
Product Charlie: 3,500 units  $1,750 = $6,125,000 Decline
A product-by-value report such as this poses an interesting
challenge for management. Here we have product Charlie, whose
sales are declining producing the highest annual contribution to
the firm. What can/should the firm do? What kind of product
extensions, modifications, enhancements are possible to breath
new life into the product?
Products Alpha and Bravo appear to be doing well on modest The company should complete the value analysis for an
sales. And because they are in the introductory and growth stages expected payoff of $55,025,000.
respectively, both may warrant more capacity and R&D. Product
Bravo may also warrant a focus on more efficient production and
supplier and distribution development.
 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S 49

5.13

Produce the deluxe version; EMV is highest.

5.14

(a) The best decision would be to buy the semiconductors.

This decision has an expected payoff (cost) of $1,500,000.
(b) Expected monetary value, minimum cost.
(c) The worst that can happen is that Ritz fails at its attempt
to make semiconductors, ends up buying them instead,
and spends $3,500,000.
  The best that can happen is that they make the
semiconductors and spend only $1,000,000.
50 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S

5.15 The decision tree is shown here:

The joint design provides the lowest EMV and hence the lowest expected cost.
 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S 51

5.16 The modified decision tree and the new payoffs are shown.
We have made a second decision on those branches where the
yield was only 59 per 100 and have modified the payoffs by
adding the revenue and costs associated with the corrections of
5 units per 100. We then pruned those branches with the lowest
payoff (which, in both cases, was the branch labeled “Do not
correct”). Here are the EMV calculations:

EMV (Design A) = (0.9)($850,000) + (0.1)($1,100,000)

= $875,000
EMV (Design B) = (0.8)($750,000) + (0.2)($500,000)
= $700,000
Using the high payoff branches, we conclude that the ex-
pected monetary values are $875,000 from Design A and
$700,000 from Design B. Therefore, the decision when King
Electronics has the option of correcting 5 units per 100 is to
correct them and use Design A.
Decision Tree for Problem 5.16
52 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S

5.17 House of Quality Sequence for Ice Cream

5.18 
Outcome calculations:

–$100,000  90  500  300  $1.20  10  500  300  $1.30 

 100 100
–$100,000  $162,000 – $19,500  $42,500
–$100,000  70  150,000  $1.20  30  150,000  $1.30 
 100 100
–$100,000  $126,000 – $58,500  $32,500
    
EMV K1  .80 42,500  .20 –32,500  $27,500 
–$130,000  90  150,000  $1.20  10  150,000  $1.30 
 100 100
–$130,000  $162,000 – $19,500  $12,500
–$130,000  75  150,000  $1.20 – 25  150,000  $1.30 
 100 100
–$130,000  $135,000 – $48,750  –$43,750
    
EMV K2  .85 12,500  .15 –43,750  $4,062.50
–$180,000  95  150,000  $1.20  5  150,000  $1.30 
 100 100
–$180,000  $171,000 – $9,750  $18,750
–$180,000  80  150,000  $1.20  20  150,000  $1.30 
 100 100
EMV: $27,500—use K1 –$180,000  $144,000 – $39,000  $75,000
     
EMV K3  .9 –18,750  .1 –75,000  –$24.375
 CHAPTER 5 D E S I G N O F G O O D S A N D S E R V I C E S 53

CASE STUDY Inventory:

 The proper inventory and the accurate documentation and

DE MAR’S PRODUCT STRATEGY locations of that inventory are also important.

1. De Mar’s product is primarily service. There is a tangible Scheduling:
product (air conditioners and plumbing components—pipe,  These clients will expect effective scheduling—having the

valves, faucets, blowers, ductwork, etc.), but the distinguishing right part and personnel available as needed and then
product is service. meeting the established delivery/repair schedule.
2. Marketing needs to support the product by selling a special, Maintenance:
reliable, quality service. Finance needs to support the product by  Repair and maintenance of trucks and test equipment may

providing friendly, easily obtained financing. Personnel needs to be the most critical maintenance elements here.
be careful to convey the service and attitude that goes with a
premium service and price. Particularly because of the service VIDEO CASE STUDY
nature of much of the product, all functional areas must help
develop and deliver the product. PRODUCT DESIGN AT REGAL MARINE
3. Quality: The 7-minute video available from Prentice Hall, filmed specifically
 Must permeate all of the product/service activities. See the
for this text, supplements the written case. A 2-minute edited
service quality discussion in Chapter 6. version of the video also appears on the student DVD in the text.
Design of the Good and Service: 1. The concept of product life cycle applies to Regal Marine because
 Both the product and service components must be selected
Regal is constantly under pressure to introduce new products—and
and designed to fulfill high quality aspects of the mission. those products have life cycles of relatively few years. As the
Some aspects of this design will have customer input. video suggests, it is a matter of typically less than five years
Process Strategy: before a boat is out of style and its life cycle terminated. This is a
 How the product is prepared and delivered will impact long life cycle compared to a newspaper or magazine, but if you
customer satisfaction. In addition to installation and/or are the production manager it seems rather short.
repair issues like packaging, neatness, and cleanup will all 2. Regal Marine uses a strategy of product differentiation, which
be part of the process. constantly introduces new products with new innovations and new
Location: styling to stay competitive in the luxury performance boat market.
 May not be critical at De Mar because the product is
3. The cost and time saving at Regal Marine through use of
delivered. CAD is typical of the use of CAD everywhere. It allows a variety
Layout: of designs and styles to be tested very economically. The ratio of
 Warehouse and truck layout may impact efficiency and savings of engineering talent is about four to one. Most
speed of delivery for those emergency calls. importantly, it allows them to be creative economically and
Human Resources: rapidly.
 Are very important because of the customer contact 4. The payoff from CAD is not only evident in efficiency,
inherent in the product/service and the critical element of creative designs, and styling but by production of the code
estimating that must be done very accurately; substantial necessary for the numerical machines, such as the machines used
training. to make the plugs in Washington state and for those applications
Supply Chain: of the numerical control machines at Regal Marine. CAD also
 The quality of the equipment chosen for initial installation provides, as a by-product, very effective and comprehensive
and parts will make substantial difference in the product/ documentation of design variables.
service delivered. Consequently, the relationship between
De Mar and its suppliers is very important.