• Idea development– Technology push– Marketing pull

• Product screening– Marketing criteria– Financial criteria– Operational criteria

• Preliminary design and testing– Prototyping– Trial marketing

• Final design

Product design and process selection

ReverseEngineering

ConcurrentEngineering

BreakevenAnalysis

ValueEngineering

Remanufacturing

Benchmarking

Concurrent Engineering

• Concurrent engineering can be defined as the simultaneous development of project design functions, with open and interactive communication existing among all team members for the purposes of reducing time to market, decreasing cost, and improving quality and reliability.

The product life cycle• Every product and service

follows a life cycle that spans:

– Planning

– Introduction

– Growth

– Maturity

– Decline

• Healthy companies manage their product and service offerings to insure a balanced portfolio

Sales

Profit

Plan Intro Growth Maturity Decline

Dol

lars

The process-focused Project ShopCharacteristics1. Makes a one-of-a-kind product (volume = 1)2. Uses general purpose equipment3. Has informal relationships with many vendors4. Very little vertical integration5. Flexible layout often with factors of production moving to job

The Job Shop Characteristics1. Makes many products in small volume 2. Uses general purpose equipment3. Has informal relationships with vendors4. Very little vertical integration5. Departmentalized layout with chaotic flow

The Large Batch (Cell, Flow or Hybrid Shop)

Characteristics1. Makes several families of products in moderate volume 2. Uses general purpose equipment often fixtured3. Little vertical integration4. Hybrid layout with flow lines

The Assembly LineCharacteristics1. Makes few products in large volume 2. Uses specialized high-volume equipment 3. Has formal relationships with vendors4. May use vertical integration5. Product-based layout with linear flow

Breakeven Analysis

• Used to determine volume needed to cover total costs

• Often first step in product development process

• Assumes linear costs

BreakevenF ixed t

un it price un it iab le t

co s

( ) ( v ar co s )

Fixed cost

Variable cost

Total cost

Revenue

Volume

Cost

Breakeven ExampleA firm is considering marketing a new toothbrush. The firm expects to sell each toothbrush for $2.10. The per brush cost of material, labor and overhead equals $1.45. The required investment in plant and equipment is $50,000.

How many brushes must be sold for the firm to breakeven?

5 0 0 0 0

2 1 0 1 4 57 6 9 2 3

,

. .,

If only 65,000 brushes are expected to sell, what must the variable costs be in order to allow the firm to breakeven?

6 5 0 0 0 2 1 0 5 0 0 0 0 6 5 0 0 0, ( . ) , , ( ) VC

VC 1 3 3 1.

Break-even Analysis ExampleThe Stroudwater Street Service Station is looking to invest in a new fully automated car wash. They have collected the following information on three different models.

Initial VariableInvestment Cost (car)

a) VacuClean System 250,000 1.50b) Wash n Scrub Model III 400,000 1.20c) DynoClean 550,000 0.95

2 5 0 0 0 0 1 5 5 5 0 0 0 0 9 5

5 4 5 4 5 4

, . , .

,

x x

x

2 5 0 0 0 0 1 5 4 0 0 0 0 0 1 2

5 0 0 0 0 0

, . , .

,

x x

x

4 0 0 0 0 0 1 2 5 5 0 0 0 0 9 5

6 0 0 0 0 0

, . , .

,

x x

x

a & b

b & c

a & c

Car Wash Break-even Analysis Continued

250,000

400,000

550,000

0

500,

000

600,

000

545,

4 54

VacuCleanWash n Scrub

DynoClean

Volume

Tot

al C

ost

Car Wash Break-even Analysis Continued

If we were able to charge $1.75 for a car wash, at what volumes would we breakeven?

Initial VariableInvestment Cost (car)

a) VacuClean System 250,000 1.50b) Wash n Scrub Model III 400,000 1.20c) DynoClean 550,000 0.95

a) 250,000/1.75-1.50=1,000,000b) 400,000/1.75-1.20= 727,272c) 550,000/1.75-0.95= 687,500

Note that the best profit-making process decision is Dynoclean and only if demand is greater than 687,500