MIDTERM-Reporting PDF - Operations Management

UNIT OPERATIONS MANAGEMENT OPERATION STRATEGY 5 Part I PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 53  OPERATIONS MANAGEMENT LET’S GET STARTED After studying this Unit, you will be able to: Identify different strategy in business...

UNIT OPERATIONS MANAGEMENT OPERATION STRATEGY 5 Part I PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 53  OPERATIONS MANAGEMENT LET’S GET STARTED After studying this Unit, you will be able to: Identify different strategy in business Correlate the role of operation strategy Learn the how in developing business strategy OPERATION STRATEGY No organization can plan in detail every aspect of its current or future actions, but all organizations need some strategic direction and so can benefit from some idea of where they are heading and how they could get there. Once the operations function has understood its role in the business and after it has articulated its performance objectives, it needs to formulate a set of general principles which will guide its decision-making. This is the operations strategy of the company. Yet the concept of ‘strategy’ itself is not straightforward; neither is operations strategy. Operations strategy concerns the pattern of strategic decisions and actions which set the role, objectives and activities of the operation. The term ‘operations strategy’ sounds at first like a contradiction. How can operations’, a subject that is generally concerned with the day-to-day creation and delivery of goods and services, be strategic? ‘Strategy’ is usually regarded as the opposite of those day-to-day routine activities. But ‘operations’ is not the same as ‘operational’. ‘Operations’ are the resources that create products and services. ‘Operational’ is the opposite of strategic, meaning day-to-day and detailed. So, one can examine both the operational and the strategic aspects of operations. It is also conventional to distinguish between the ‘content’ and the ‘process’ of operations strategy. The content of operations strategy is the specific decisions and actions which set the operations role, objectives and activities. The process of operations strategy is the method that is used to make the specific ‘content’ decisions PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 54  OPERATIONS MANAGEMENT Surprisingly, ‘strategy’ is not particularly easy to define. Linguistically the word derives from the Greek word ‘strategos’ meaning ‘leading an army’. And although there is no direct historical link between Greek military practice and modern ideas of strategy, the military metaphor is powerful. Both military and business strategy can be described in similar ways and include some of the following. Setting broad objectives that direct an enterprise towards its overall goal. Planning the path (in general rather than specific terms) that will achieve these goals. Stressing long-term rather than short-term objectives. Dealing with the total picture rather than stressing individual activities. Being detached from, and above, the confusion and distractions of day-to-day activities. Here, by ‘strategic decisions’ we mean those decisions which are widespread in their effect on the organization to which the strategy refers, define the position of the organization relative to its environment, and move the organization closer to its long-term goals. But ‘strategy’ is more than a single decision; it is the total pattern of the decisions and actions that influence the long- term direction of the business. Thinking about strategy in this way helps us to discuss an organization’s strategy even when it has not been explicitly stated. Observing the total pattern of decisions gives an indication of the actual strategic behavior. The role of operations strategy is to provide a plan for the operations function so that it can make the best use of its resources. Operations strategy specifies the policies and plans for using the organization’s resources to support its long-term competitive strategy. Remember that the operations function is responsible for managing the resources needed to produce the company’s goods and services. Operations strategy is the plan that specifies the design and use of resources to support the business strategy. This includes the location, size, and type of facilities available; worker skills and talents required; use of technology, special processes needed, special equipment; and quality control methods. The operations strategy must be aligned with the company’s business strategy and enable the company to achieve its long-term plan. For example, the business strategy of FedEx, the world’s largest provider of expedited delivery services, is to compete on time and dependability of deliveries. The operations strategy of FedEx developed a plan for resources to support its business strategy. To provide speed of delivery, FedEx acquired its own fleet of airplanes. To provide dependability of deliveries, FedEx invested in a sophisticated bar-code technology to track all packages. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 55  OPERATIONS MANAGEMENT THE IMPORTANCE OF OPERATIONS STRATEGY Operations strategy did not come to the forefront until the 1970s. Up to that time, U.S. companies emphasized mass production of standard product designs. There were no serious international competitors, and U.S. companies could pretty much sell anything they produced. However, that changed in the 1970s and 1980s. Japanese companies began offering products of superior quality at lower cost, and U.S. companies lost market share to their Japanese counterparts. In an attempt to survive, many U.S. companies copied Japanese approaches. Unfortunately, merely copying these approaches often proved unsuccessful; it took time to really understand the Japanese approaches. It became clear that Japanese companies were more competitive because of their operations strategy; that is, all their resources were specifically designed to directly support the company’s overall strategic plan. Harvard Business School professor Michael Porter says that companies often do not understand the differences between operational efficiency and strategy. Operational efficiency is performing operations tasks well, even better than competitors. Strategy, on the other hand, is a plan for competing in the marketplace. An analogy might be that of running a race efficiently, but the wrong race. Strategy is defining in what race you will win. Operational efficiency and strategy must be aligned; otherwise, you may be very efficiently performing the wrong task. The role of operations strategy is to make sure that all the tasks performed by the operations function are the right tasks. Consider a software company that recently invested millions of dollars in developing software with features not provided by competitors, only to discover that these were features customers did not particularly want. Now that we know the meaning of business strategy and operations strategy and their importance, let’s look at how a company would go about developing a business strategy. Then we will see how an operations strategy would be developed to support the company’s business strategy. DEVELOPING BUSINESS STRATEGY A company’s business strategy is developed after its managers have considered many factors and have made some strategic decisions. These include developing an understanding of what business the company is in (the company’s mission), analyzing and developing an understanding of the market (environmental scanning), and identifying the company’s strengths (core competencies). These three factors are critical to the development of the company’s long-range plan, or business strategy. In this section we describe each of these elements in detail and show how they are combined to formulate the business strategy. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 56  OPERATIONS MANAGEMENT MISSION Every organization, from IBM to the Boy Scouts, has a mission. The mission is a statement that answers three overriding questions: What business will the company be in (“selling personal computers,” “operating an Italian restaurant”)? Who will the customers be, and what are the expected customer attributes (“homeowners,” “college graduates”)? How will the company’s basic beliefs define the business (“gives the highest customer service,” “stresses family values”)? Following is a list of some well-known companies and parts of their mission statements: Dell Computer Corporation: “to be the most successful computer company in the world” Delta Air Lines: “worldwide airlines choice” IBM: “translate advanced technologies into values for our customers as the world’s largest information service company” Lowe’s: “helping customers build, improve and enjoy their homes” Ryder: “offers a wide array of logistics services, such as distribution management, domestically and globally” The mission defines the company. In order to develop a long-term plan for a business, you must first know exactly what business you are in, what customers you are serving, and what your company’s values are. If a company does not have a well-defined mission, it may pursue business opportunities about which it has no real knowledge or that are in conflict with its current pursuits, or it may miss opportunities altogether. For example, Dell Computer Corporation has become a leader in the computer industry in part by following its mission. If it did not follow its mission, Dell might decide to pursue other opportunities, such as producing mobile telephones similar to those manufactured by Motorola and Nokia. Although there is a huge market for mobile telephones, it is not consistent with Dell’s mission of focusing on computers. ENVIRONMENTAL SCANNING A second factor to consider is the external environment of the business. This includes trends in the market, in the economic and political environment, and in society. These trends must be analyzed to determine business opportunities and threats. Environmental scanning is the process of monitoring the external environment. To remain competitive, companies have to continuously monitor their environment and be prepared to change their business strategy, or long-range plan, in light of environmental changes. WHAT DOES ENVIRONMENTAL SCANNING TELL US? Environmental scanning allows a company to identify opportunities and threats. For example, through environmental scanning we could see gaps in what customers need and what PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 57  OPERATIONS MANAGEMENT competitors are doing to meet those needs. A study of these gaps could reveal an opportunity for our company, and we could design a plan to take advantage of it. On the other hand, our company may currently be a leader in its industry, but environmental scanning could reveal competitors that are meeting customer needs better—for example, by offering a wider array of services. In this case, environmental scanning would reveal a threat and we would have to change our strategy so as not to be left behind. Just because a company is an industry leader today does not mean it will continue to be a leader in the future. In the 1970s Sears, Roebuck and Company was a retail leader, but it fell behind the pack in the 1990s. WHAT ARE TRENDS IN THE ENVIRONMENT? The external business environment is always changing. To stay ahead of the competition, a company must constantly look out for trends or changing patterns in the environment, such as marketplace trends. These might include changes in customer wants and expectations and ways in which competitors are meeting those expectations. For example, in the computer industry customers are demanding speed of delivery, high quality, and low price. Dell has become a leader in the industry because of its speed of delivery and low price. Other computer giants, such as Compaq, have had to redesign their business and operations strategies to compete with Dell. Otherwise, they would be left behind. It is through environmental scanning that companies like Compaq can see trends in the market, analyze the competition, and recognize what they need to do to remain competitive. There are many other types of trends in the marketplace. For example, we are seeing changes in the use of technology, such as point-of-sale scanners, automation, computer assisted processing, electronic purchasing, and electronic order tracking. One rapidly growing trend is e-commerce. For retailers like The Gap, Eddie Bauer, Fruit of the Loom, Inc., Barnes & Noble, and others, e-commerce has become a significant part of their business. Victoria’s Secret has even used the Internet to conduct a fashion show in order to boost sales. Some companies began using e-commerce early in their development. Others, like Sears, Roebuck, waited and then found themselves working hard to catch up to the competition. In addition to market trends, environmental scanning looks at economic, political, and social trends that can affect the business. Economic trends include recession, inflation, interest rates, and general economic conditions. Suppose that a company is considering obtaining a loan in order to purchase a new facility. Environmental scanning could show that interest rates are particularly favorable and that this may be a good time to go ahead with the purchase. Political trends include changes in the political climate—local, national, and international—that could affect a company. For example, the creation of the European Union has had a significant impact on strategic planning for such global companies as IBM, Hewlett-Packard, and PepsiCo. Similarly, changes in trade relations with China have opened opportunities that were not available earlier. There has been a change in how companies view their environment, a shift from a national to a global perspective. Companies seek customers and suppliers all over the globe. Many have changed their strategies in order to take advantage of global opportunities, such as forming partnerships with international firms, called strategic alliances. For example, companies PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 58  OPERATIONS MANAGEMENT like Motorola and Xerox want to take advantage of opportunities in China and are developing strategic alliances to help them break into that market. Finally, social trends are changes in society that can have an impact on a business. An example is the awareness of the dangers of smoking, which has made smoking less socially acceptable. This trend has had a huge impact on the tobacco industry. In order to survive, many of these companies have changed their strategy to focus on customers overseas, where smoking is still socially acceptable, or have diversified into other product lines. CORE COMPETENCIES The third factor that helps define a business strategy is an understanding of the company’s strengths. These are called core competencies. In order to formulate a long-term plan, the company’s managers must know the competencies of their organization. Core competencies could include special skills of workers, such as expertise in providing customized services or knowledge of information technology. Another example might be flexible facilities that can handle the production of a wide array of products. To be successful, a company must compete in markets where its core competencies will have value. Highly successful firms develop a business strategy that takes advantage of their core competencies or strengths. To see why it is important to use core competencies, think of a student developing plans for a successful professional career. Table 1-6: Let’s say that this student is particularly good at mathematics but not as good in verbal communication and persuasion. Taking advantage of core competencies would mean developing a career strategy in which the student’s strengths could provide an advantage, such as engineering or computer science. On the other hand, pursuing a career in marketing would place the student at a disadvantage because of a relative lack of skills in persuasion. Figure 1-4: Three inputs in developing a business strategy PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 59  OPERATIONS MANAGEMENT PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 60  OPERATIONS MANAGEMENT PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 61  OPERATIONS MANAGEMENT PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 62  OPERATIONS MANAGEMENT UNIT OPERATION STRATEGY 6 Part II PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 63  OPERATIONS MANAGEMENT LET’S GET STARTED After studying this Unit, you will be able to: Demonstrate how to develop operation strategy Learn about competitive strategies and Productivity DEVELOPING OPERATION STRATEGY Once a business strategy has been developed, an operations strategy must be formulated. This will provide a plan for the design and management of the operations function in ways that support the business strategy. The operations strategy relates the business strategy to the operations function. The operations strategy focuses on specific capabilities of the operation that give the company a competitive edge. These capabilities are called competitive priorities. By excelling in one of these capabilities, a company can become a winner in its market. These competitive priorities and their relationship to the design of the operations function are shown in Figure 1-5. Each part of this figure is discussed next. COMPETITIVE PRIORITIES Operations managers must work closely with marketing in order to understand the competitive situation in the company’s market before they can determine which competitive priorities are important. There are four broad categories of competitive priorities: 1. Cost Competing based on cost means offering a product at a low price relative to the prices of competing products. The need for this type of competition emerges from the business strategy. The role of the operations strategy is to develop a plan for the use of resources to support this type of competition. Note that a low-cost strategy can result in a higher profit margin, even at a competitive price. Also, low cost does not imply low quality. Let’s look at some specific characteristics of the operations function we might find in a company competing on cost. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 64  OPERATIONS MANAGEMENT Business Defines the long range plans for the Strategy company Develops a plan for the operations function focusing on specific competitive priorities in order to meet the long-range plan. Competitive priorities Operation Cost Strategy Quality Time Flexibility Developed to focus on the identified competive properties Design of the Structure: operations Facilities, flow of goods,technology Infrastructure: Figure 1-5: Operations strategy and the Function Planning &control system, workers, pay, quality design of the operations function To develop this competitive priority, the operations function must focus primarily on cutting costs in the system, such as costs of labor, materials, and facilities. Companies that compete based on cost study their operations system carefully to eliminate all waste. They might offer extra training to employees to maximize their productivity and minimize scrap. Also, they might invest in automation in order to increase productivity. Generally, companies that compete based on cost offer a narrow range of products and product features, allow for little customization, and have an operations process that is designed to be as efficient as possible. A company that successfully competes on cost is Southwest Airlines. Southwest’s entire operations function is designed to support this strategy. Facilities are streamlined: only one type of aircraft is used, and flight routes are generally short. This serves to minimize costs of scheduling crew changes, maintenance, inventories of parts, and many administrative costs. Unnecessary costs are completely eliminated: there are no meals, printed boarding passes, or seat assignments. Employees are trained to perform many functions and use a team approach to maximize customer service. Because of this strategy, southwest has been a model for the airline industry for a number of years. 2. Quality Many companies claim that quality is their top priority, and many customers say that they look for quality in the products they buy. Yet quality has a subjective meaning; it depends on who is defining it. For example, to one person quality could mean that the product lasts a long time, such as with a Volvo, a car known for its longevity. To another person quality might mean high PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 65  OPERATIONS MANAGEMENT performance, such as a BMW. When companies focus on quality as a competitive priority, they are focusing on the dimensions of quality that are considered important by their customers. Quality as a competitive priority has two dimensions. The first is high-performance design. This means that the operations function will be designed to focus on aspects of quality such as superior features, close tolerances, high durability, and excellent customer service. The second dimension is goods and services consistency, which measures how often the goods or services meet the exact design specifications. A strong example of product consistency is McDonald’s, where we know we can get the same product every time at any location. Companies that compete on quality must deliver not only high-performance design but goods and services consistency as well. A company that competes on this dimension needs to implement quality in every area of the organization. One of the first aspects that needs to be addressed is product design quality, which involves making sure the product meets the requirements of the customer. A second aspect is process quality, which deals with designing a process to produce error-free products. This includes focusing on equipment, workers, materials, and every other aspect of the operation to make sure it works the way it is supposed to. Companies that compete based on quality have to address both of these issues: the product must be designed to meet customer needs, and the process must produce the product exactly as it is designed. To see why product and process quality are both important, let’s say that your favorite fast-food restaurant has designed a new sandwich called the “Big Yuck.” The restaurant could design a process that produces a perfect “Big Yuck” every single time. But if customers find the “Big Yuck” unappealing, they will not buy it. The same would be true if the restaurant designed a sandwich called the “Super Delicious” to meet the desires of its customers. Even if the “Super Delicious” were exactly what the customers wanted, if the process did not produce the sandwich the way it was designed, often making it soggy and cold instead, customers would not buy it. Remember that the product needs to be designed to meet customer wants and needs, and the process needs to be designed to produce the exact product that was intended, consistently without error. 3. Time Time or speed is one of the most important competitive priorities today. Companies in all industries are competing to deliver high-quality products in as short a time as possible. Companies like FedEx, LensCrafters, United Parcel Service (UPS), and Dell compete based on time. Today’s customers don’t want to wait, and companies that can meet their need for fast service are becoming leaders in their industries. Making time a competitive priority means competing based on all time-related issues, such as rapid delivery and on-time delivery. Rapid delivery refers to how quickly an order is received; on-time delivery refers to how often deliveries are made on time. Another time-competitive priority is development speed, which is the time needed to take an idea to the marketplace. This is especially critical in technology and computer software fields. When time is a competitive priority, the job of the operations function is to critically analyze the system and combine or eliminate processes in order to save time. Often companies use technology to speed up processes, rely on a flexible workforce to meet peak demand periods, and eliminate unnecessary steps in the production process. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 66  OPERATIONS MANAGEMENT FedEx is an example of a company that competes based on time. The company’s claim is to “absolutely, positively” deliver packages on time. To support this strategy, the operation function had to be designed to promote speed. Barcode technology is used to speed up processing and handling, and the company uses its own fleet of airplanes. FedEx relies on a very flexible part-time workforce, such as college students who are willing to work a few hours at night. FedEx can call on this part-time workforce at a moment’s notice, providing the company with a great deal of flexibility. This allows FedEx to cover workforce requirements during peak periods without having to schedule full-time workers. 4. Flexibility As a company’s environment changes rapidly, including customer needs and expectations, the ability to readily accommodate these changes can be a winning strategy. This is flexibility. There are two dimensions of flexibility. One is the ability to offer a wide variety of goods or services and customize them to the unique needs of clients. This is called product flexibility. A flexible system can quickly add new products that may be important to customers or easily drop a product that is not doing well. Another aspect of flexibility is the ability to rapidly increase or decrease the amount produced in order to accommodate changes in the demand. This is called volume flexibility. You can see the meaning of flexibility when you compare ordering a suit from a custom tailor to buying it off the rack at a retailer. Another example would be going to a fine restaurant and asking to have a meal made just for you, versus going to a fast-food restaurant and being limited to items on the menu. The custom tailor and the fine restaurant are examples of companies that are flexible and will accommodate customer wishes. Another example of flexibility is Empire West Inc., a company that makes a variety of products out of plastics, depending on what customers want. Empire West makes everything from plastic trays to body guards for cars. Companies that compete based on flexibility often cannot compete based on speed because it generally requires more time to produce a customized product. Also, flexible companies typically do not compete based on cost because it may take more resources to customize the product. However, flexible companies often offer greater customer service and can meet unique customer requirements. To carry out this strategy, flexible companies tend to have more general-purpose equipment that can be used to make many different kinds of products. Also, workers in flexible PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 67  OPERATIONS MANAGEMENT companies tend to have higher skill levels and can often perform many different tasks in order to meet customer needs. PRODUCTIVITY One of the primary responsibilities of a manager is to achieve productive use of an organization's resources. The term productivity is used to describe this. Productivity is an index that measures output (goods and services) relative to the input (labor, materials, energy, and other resources) used to produce them. It is usually expressed as the ratio of output to input: Productivity= Output/Input A productivity ratio can be computed for a single operation, a department, an organization, or an entire country. Productivity has important implications for business organizations and for entire nations. For nonprofit organizations, higher productivity means lower costs; for profit-based organizations, productivity is an important factor in determining how competitive a company is. For a nation, the rate of productivity growth is of great importance. Productivity growth is the increase in productivity from one period to the next relative to the productivity in the preceding period. Thus, Productivity growth= current period productivity – Previous period productivity Previous period productivity For example: 84-80 =.05 or 5% 80 COMPUTING PRODUCTIVITY Productivity measures can be based on a single input (partial productivity), on more than one input (multifactor productivity), or on all inputs (total productivity). Table 1-7 lists some examples of productivity measures. The choice of productivity measure depends primarily on the purpose of the measurement. If the purpose is to track improvements in labor productivity, then labor becomes the obvious input measure. Partial measures are often of greatest use in operations management. Table 1-8 provides some examples of partial productivity measures. The units of output used in productivity measures depend on the type of job performed. The following are examples of labor productivity: PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 68  OPERATIONS MANAGEMENT Table 1-7: Some examples of diff. types of Table 1-8: Some examples of partial productivity measures productivity measures Calculations of multifactor productivity measure inputs and outputs using a common unit of measurement, such as cost or value. For instance, the measure inputs and outputs using a common unit of measurement, such cost of inputs and price of the input: Quantity of production at standard price Labor cost + Materials Cost + Overhead Determine the multifactor productivity for the combined input of labor and machine time using the following data: Figure 1-6: Bottleneck Operation Output: 7,040 units Input Labor: $1000 Materials $520 Overhead: $2000 PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 69  OPERATIONS MANAGEMENT IMPROVING PRODUCTIVITY A company or a department can take a number of key steps toward improving productivity: 1. Develop productivity measures for all operations; measurement is the first step in managing and controlling an operation. 2. Look at the system as a whole in deciding which operations are most critical; it is overall productivity that is important. This concept is illustrated in Figure 1-6, which shows several operations feeding their output into a bottleneck operation. The capacity of the bottleneck operation is less than the combined capacities of the operations that provide input, so units queue up waiting to be processed; hence the term bottleneck. Productivity improvements to any non-bottleneck operation will not affect the productivity of the system. Improvements in the bottleneck operation will lead to increased productivity, up to the point where the output rate of the bottleneck equals the output rate of the operations feeding it. 3. Develop methods for achieving productivity improvements, such as soliciting ideas from workers (perhaps organizing teams of workers, engineers, and managers), studying how other firms have increased productivity, and reexamining the way work is done. 4. Establish reasonable goals for improvement. 5. Make it clear that management supports and encourages productivity improvement. Consider incentives to reward workers for contributions. 6. Measure improvements and publicize them. 7. Don't confuse productivity with efficiency. Efficiency is a narrower concept that pertains to getting the most out of a fixed set of resources; productivity is a broader concept that pertains to effective use of overall resources. For example, an efficiency perspective on mowing a lawn given a hand mower would focus on the best way to use the hand mower; a productivity perspective would include the possibility of using a power mower. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 70  OPERATIONS MANAGEMENT PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 71  OPERATIONS MANAGEMENT PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 72 UNIT OPERATIONS MANAGEMENT 7 PRODUCT DESIGN LET’S GET STARTED After studying this Unit, you will be able to: Understand product design and its process, and factors PRODUCT DESIGN Most of us might think that the design of a product is not that interesting. After all, it probably involves materials, measurements, dimensions, and blueprints. When we think of design, we usually think of car design or computer design and envision engineers working on diagrams. However, product design is much more than that. Product design brings together marketing analysts, art directors, sales forecasters, engineers, finance experts, and other members of a company to think and plan strategically. It is exciting and creative, and it can spell success or disaster for a company. Product design is the process of defining all the features and characteristics of just about anything you can think of, from Starbucks’ cafe latte or Jimmy Dean’s sausage to GM’s Saturn or HP’s DeskJet printer. Product design also includes the design of services, such as those provided by PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 73  OPERATIONS MANAGEMENT Salazar’s Beauty Salon, La Petite Academy Day Care Center, or FedEx. Consumers respond to a product’s appearance, color, texture, and performance. All of its features, summed up, are the product’s design. Someone came up with the idea of what this product will look like, taste like, or feel like so that it will appeal to you. This is the purpose of product design. Product design PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 74  OPERATIONS MANAGEMENT defines a product’s characteristics, such as its appearance, the materials it is made of, its dimensions and tolerances, and its performance standards. DESIGN OF SERVICES VERSUS GOODS The design elements discussed are typical of industries such as manufacturing and retail in which the product is tangible. For service industries, where the product is intangible, the design elements are equally important, but they have an added dimension. Service design is unique in that both the service and the entire service concept are being designed. As with a tangible product, the service concept is based on meeting customer needs. The service design, however, adds the aesthetic and psychological benefits of the product. These are the service elements of the operation, such as promptness and friendliness. They also include the ambiance, image, and “feelgood” elements of the service. Consider the differences in service design of a company like Canyon Ranch, which provides a pampering retreat for health-conscious but overworked professionals, versus Gold’s Gym, which caters to young athletes. As with a tangible product, the preference for a service is based on its product design. Service design defines the characteristics of a service, such as its physical elements, and the aesthetic and psychological benefits it provides. THE PRODUCT DESIGN PROCESS Certain steps are common to the development of most product designs: idea generation, product screening, preliminary design and testing, and final design. These steps are shown in Figure 3-1. Notice that the arrows show a circular process. Product designs are never finished, but are always updated with new ideas. Let’s look at these steps in more detail. IDEA DEVELOPMENT All product designs begin with an idea. The idea might come from a product manager who spends time with customers and has a sense of what customers want, from an engineer with a flare for inventions, or from anyone else in the company. To remain competitive, companies must be innovative and bring out new products regularly. In some industries, the cycle of new product development is predictable. We see this in the auto industry, where new car models come out every year, or the retail industry, where new fashion is designed for every season. In other industries, new product releases are less predictable but just as important. The Body Shop, retailer of plant-based skin care products, periodically comes up with new ideas for its product lines. The timing often has to do with the market for a product and whether sales are declining or continuing to grow. IDEAS FROM CUSTOMERS, COMPETITORS, AND SUPPLIERS The first source of ideas is customers, the driving force in the design of goods and services. Marketing is a vital link between customers and product design. Market researchers collect customer information by studying customer buying patterns and using tools such as customer surveys and focus groups. Management may love an idea, but if market analysis shows that PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 75  OPERATIONS MANAGEMENT customers do not like it, the idea is not viable. Analyzing customer preferences is an ongoing process; customer preferences next year may be quite different from what they are today. For this reason, the related process of forecasting future consumer preferences is important, though difficult. Competitors are another source of ideas. A company learns by observing its competitors’ products and their success rate. This includes looking at product design, pricing strategy, and other aspects of the operation. Studying the practices of companies considered “best-in-class” and comparing the performance of one’s own company against theirs is called benchmarking. We can benchmark against a company in a completely different line of business and still learn from some aspect of that company’s operation. For example, Lands’ End is well known for its successful catalog business, and companies considering catalog sales often benchmark against Lands’ End. Similarly, American Express is a company known for its success at resolving complaints, and it, too, is used for benchmarking. Figure 1-7: Some examples of partial productivity measures Reverse Engineering Another way of using competitors’ ideas is to buy a competitor’s new product and study its design features. Using a process called reverse engineering, a company’s engineers carefully disassemble the product and analyze its parts and features. Ford Motor Company used this approach to design its Taurus model. Ford engineers disassembled and studied many other car models, such as BMW and Toyota, and adapted and combined their best features. Product design ideas are also generated by a company’s R & D (research and development) department, whose role is to develop product and process innovation. Suppliers are another source of product design ideas. To remain competitive, more companies are developing partnering relationships with their suppliers to jointly satisfy the end customer. Suppliers participate in a program called early supplier involvement (ESI), which involves them in the early stages of product design. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 76  OPERATIONS MANAGEMENT PRODUCT SCREENING After a product idea has been developed, it is evaluated to determine its likelihood of success. This is called product screening. The company’s product screening team evaluates the product design idea according to the needs of the major business functions. In their evaluation, executives from each function area may explore issues such as the following: Operations What are the production needs of the proposed new product, and how do they match our existing resources? Will we need new facilities and equipment? Do we have the labor skills to make the product? Can the material for production be readily obtained? Marketing What is the potential size of the market for the proposed new product? How much effort will be needed to develop a market for the product, and what is the long-term product potential? Finance The production of a new product is a financial investment like any other. What is the proposed new product’s financial potential, cost, and return on investment? Unfortunately, there is no magic formula for deciding whether or not to pursue a particular product idea. Managerial skill and experience, however, are key. Companies generate new product ideas all the time, whether for a new brand of cereal or a new design for a car door. Approximately 80 percent of ideas do not make it past the screening stage. Management analyzes operations, marketing, and financial factors and then makes the final decision. Fortunately, we have decision-making tools to help us evaluate new product ideas. A popular one is break-even analysis, which we look at next. Break-Even Analysis: A Tool for Product Screening Break-even analysis is a technique that can be useful when evaluating a new product. It computes the quantity of goods a company needs to sell just to cover its costs, or break even, called the “break-even” point. When evaluating an idea for a new product, it is helpful to compute its break-even quantity. An assessment can then be made as to how difficult or easy it will be to cover costs and make a profit. A product with a break-even quantity that is hard to attain might not be a good product choice to pursue. Next we look at how to compute the break-even quantity. The total cost of producing a product or service is the sum of its fixed and variable costs. A company incurs fixed costs regardless of how much it produces. Fixed costs include overhead, taxes, and insurance. For example, a company must pay for overhead even if it produces nothing. Variable costs, on the other hand, are costs that vary directly with the amount of units produced and include items such as direct materials and labor. Together, fixed and variable costs add up to total cost: Where: Total cost =F+VC(Q) F =fixed cost VC =variable cost per unit Q = number of units sold quantity. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 77  OPERATIONS MANAGEMENT Fixed cost is represented by a horizontal line as this cost is the same regardless of how much is produced. Adding variable cost to fixed cost creates total cost, represented by the diagonal line above fixed cost. When Q _ 0, total cost is only equal to fixed cost. As Q increases, total cost increases through the variable cost component. The blue diagonal in the figure is revenue, the amount of money brought in from sales: Revenue SP(Q) Where SP = selling price per unit When Q = 0, revenue is zero. As sales increase, so does revenue. Remember, however, that to cover all costs we have to sell the break-even amount. This is the quantity QBE, where revenue equals total cost. If we sell below the break-even point, we incur a loss, since costs exceed revenue. To make a profit, we have to sell above the break-even point. Since revenue equals total cost at the break-even point, we can use the previous equations to compute the value of the break-even quantity: Total Cost =Total Revenue F+ (VC) Q = (SP)Q Solving for Q, we get the following equation: Note that we could also find the break-even point by drawing the graph and finding where the total cost and revenue lines cross. Break-even analysis is useful for more than just deciding between different products. It can be used to make other decisions, such as evaluating different processes or deciding whether the company should make or buy a product. Figure 1-8: PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 78  OPERATIONS MANAGEMENT Fred Boulder, owner of Sports Feet Manufacturing, is considering whether to produce a new line of footwear. Fred has considered the processing needs for the new product as well as the market potential. He has also estimated that the variable cost for each product manufactured and sold is $9 and the fixed cost per year is $52,000. (a) If Fred offers the footwear at a selling price of $25, how many pairs must he sell to break even? (b) If Fred sells 4000 pairs at the $25 price, what will be the contribution to profit? Solution: (a) To compute the break-even quantity: Q= F SP + VC Q= $52,000 = 3250 pairs $25-$9 The break-even quantity is 3250 pairs. This is how much Fred would have to sell to cover costs. (b) To compute the contribution to profit with sales of 4000 pairs, we can go back to the relationship between cost and revenue: Profit = total revenue - total cost = (SP)Q - [F+ (VC)Q] Profit = $25(4000) - [$52,000 + $9(4000)] =$12,000 The contribution to profit is $12,000 if Fred can sell 4000 pairs from his new line of footwear. PRELIMINARY DESIGN AND TESTING Once a product idea has passed the screening stage, it is time to begin preliminary design and testing. At this stage design engineers translate general performance specifications into technical specifications. Prototypes are built and tested. Changes are made based on test results, and the process of revising, rebuilding a prototype, and testing continues. For service companies this may entail testing the offering on a small scale and working with customers to refine the service offering. Fast-food restaurants are known for this type of testing, where a new menu item may be tested in only one particular geographic area. Product refinement can be time-consuming, and the company may want to hurry through this phase to rush the product to market. However, rushing creates the risk that all the “bugs” have not been worked out, which can prove very costly. FINAL DESIGN Following extensive design testing, the product moves to the final design stage. This is where final product specifications are drawn up. The final specifications are then translated into specific PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 79  OPERATIONS MANAGEMENT processing instructions to manufacture the product, which include selecting equipment, outlining jobs that need to be performed, identifying specific materials needed and suppliers that will be used, and all the other aspects of organizing the process of product production. FACTORS IMPACTING PRODUCT DESIGN Here are some additional factors that need to be considered during the product design stage. DESIGN FOR MANUFACTURE When we think of product design, we generally first think of how to please the customer. However, we also need to consider how easy or difficult it is to manufacture the product. Otherwise, we might have a great idea that is difficult or too costly to manufacture. Design for manufacture (DFM) is a series of guidelines that we should follow to produce a product easily and profitably. DFM guidelines focus on two issues: 1. Design simplification means reducing the number of parts and features of the product whenever possible. A simpler product is easier to make, costs less, and gives higher quality. 2. Design standardization refers to the use of common and interchangeable parts. By using interchangeable parts, we can make a greater variety of products with less inventory and significantly lower cost and provide greater flexibility. Table 1-9: Table 1-9 shows guidelines for DFM. An example of the benefits of applying these rules is seen in Figure 1-9.We can see the progression in the design of a toolbox using the DFM approach. All of the pictures show a toolbox. However, the first design shown requires 20 parts. Through simplification and use of modular design, the number of parts required has been reduced to 2. It would certainly be much easier to make the product with 2 parts versus 20 parts. This means fewer chances for error, better quality, and lower costs due to shorter assembly time. Figure 1-9: PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 80  OPERATIONS MANAGEMENT PRODUCT LIFE CYCLE Another factor in product design is the stage of the life cycle of the product. Most products go through a series of stages of changing product demand called the product life cycle. There are typically four stages of the product life cycle: introduction, growth, maturity, and decline. These are shown in Figure 1-10 Products in the introductory stage are not well defined, and neither is their market. Often all the “bugs” have not been worked out, and customers are uncertain about the product. In the growth stage, the product takes hold and both product and market continue to be refined. The third stage is that of maturity, where demand levels off and there are usually no design changes: the product is predictable at this stage and so is its market. Many products, such as toothpaste, can stay in this stage for many years. Finally, there is a decline in demand because of new technology, better product design, or market saturation. The first two stages of the life cycle can collectively be called the early stages because the product is still being improved and refined and the market is still in the process of being developed. The last two stages Figure 1-10: Product Cycle of the life cycle can be referred to as the later stages because here both the product and market are well defined. Understanding the stages of the product life cycle is important for product design purposes, such as knowing at which stage to focus on design changes. Also, when considering a new product, the expected length of the life cycle is critical in order to estimate future profitability relative to the initial investment. The product life cycle can be quite short for certain products, as seen in the computer industry. For other products it can be extremely long, as in the aircraft industry. A few products, such as paper, pencils, nails, milk, sugar, and flour, do not go through a life cycle. However, almost all products do, and some may spend a long time in one stage. Concurrent Engineering Concurrent engineering is an approach that brings many people together in the early phase of product design in order to simultaneously design the product and the process. This type of approach has been found to achieve a smooth transition from the design stage to actual production in a shorter amount of development time with improved quality results. The old approach to product and process design was to first have the designers of the idea come up with PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 81  OPERATIONS MANAGEMENT the exact product characteristics. Once their design was complete they would pass it on to operations, who would then design the production process needed to produce the product. This was called the “over-the-wall” approach because the designers would throw their design “over- the-wall” to operations, who then had to decide how to produce the product. There are many problems with the old approach. First, it is very inefficient and costly. For example, there may be certain aspects of the product that are not critical for product success but are costly or difficult to manufacture, such as a dye color that is difficult to achieve. Since manufacturing does not understand which features are not critical, it may develop an unnecessarily costly production process with costs passed down to the customers. Because the designers do not know the cost of the added feature, they may not have the opportunity to change their design or may do so much later in the process, incurring additional costs. Concurrent engineering allows everyone to work together so these problems do not occur. Figure 1-11 shows the difference between the “over-the-wall” approach and concurrent engineering. The first illustration shows sequential design with walls between functional areas. The second illustration shows concurrent design with walls broken down. Figure 1-11 PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 82  OPERATIONS MANAGEMENT PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 83  OPERATIONS MANAGEMENT PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 84  OPERATIONS MANAGEMENT UNIT Product Design 8 Part II PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 85  OPERATIONS MANAGEMENT LET’S GET STARTED After studying this Unit, you will be able to: Understand process selection and its importance Learn about product linking product and process selection PROCESS SELECTION So far, we have discussed issues involved in product design. Though product design is important for a company, it cannot be considered separately from the selection of the process. In this section we will look at issues involved in process design. Then we will show how product design and process selection issues are linked together. TYPES OF PROCESSES When you look at different types of companies, ranging from a small coffee shop to IBM, it may seem like there are hundreds of different types of processes. Some locations are small, like your local Starbucks, and some are very large, like a Ford Motor Company plant. Some produce standardized “off-the-shelf” products, like Pepperidge Farm’s frozen chocolate cake, and some work with customers to customize their product, like cakes made to order by a gourmet bakery. Though there seem to be large differences between the processes of companies, many have certain processing characteristics in common. In this section we will divide these processes into groups with similar characteristics, allowing us to understand problems inherent with each type of process. All processes can be grouped into two broad categories: intermittent operations and repetitive operations. These two categories differ in almost every way. Once we understand these differences, we can easily identify organizations based on the category of process they use. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 86  OPERATIONS MANAGEMENT INTERMITTENT OPERATIONS Intermittent operations are used to produce a variety of products with different processing requirements in lower volumes. Examples are an auto body shop, a tool and die shop, or a healthcare facility. Because different products have different processing needs, there is no standard route that all products take through the facility. Instead, resources are grouped by function and the product is routed to each resource as needed. Think about a healthcare facility. Each patient, “the product,” is routed to different departments as needed. One patient may need to get an X-ray, go to the lab for blood work, and then go to the examining room. Another patient may need to go to the examining room and then to physical therapy. To be able to produce products with different processing requirements, intermittent operations tend to be labor intensive rather than capital intensive. Workers need to be able to perform different tasks, depending on the processing needs of the products produced. Often we see skilled and semiskilled workers in this environment, with a fair amount of worker discretion in performing their jobs. Workers need to be flexible and able to perform different tasks as needed for the different products. Equipment in this type of environment is more general-purpose to satisfy different processing requirements. Automation tends to be less common because automation is typically product-specific. Given that many products are being produced with different processing requirements, it is usually not cost efficient to invest in automation for only one product type. Finally, the volume of goods produced is directly tied to the number of customer orders. Repetitive Operations Repetitive operations are used to produce one or a few standardized products in high volume. Examples are a typical assembly line, cafeteria, or automatic car wash. Resources are organized in a line flow to efficiently accommodate production of the product. Note that in this environment it is possible to arrange resources in a line because there is only one type of product. This is directly the opposite of what we find with intermittent operations. To efficiently produce a large volume of one type of product, these operations tend to be capital intensive rather than labor intensive. An example is “mass-production” operations, which usually have much invested in their facilities and equipment to provide a high degree of product consistency. Often these facilities rely on automation and technology to improve efficiency and increase output rather than on labor skill. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 87  OPERATIONS MANAGEMENT Table 1-10: Differences between Intermittent and Repetitive Operations The volume produced is usually based on a forecast of future demands rather than on direct customer orders. The most common differences between intermittent and repetitive operations relate to two dimensions: (1) the amount of product volume produced, and (2) the degree of product standardization. Product volume can range from making a unique product one at a time to producing a large number of products at the same time. Product standardization refers to a lack of variety in a particular product. Examples of standardized products are white undershirts, calculators, toasters, and television sets. The type of operation used, including equipment and labor, is quite different if a company produces one product at a time to customer specifications instead of mass production of one standardized product. Specific differences between intermittent and repetitive operations are shown in Table 1-11. THE CONTINUUM OF PROCESS TYPES Dividing processes into two fundamental categories of operations is helpful in our understanding of their general characteristics. To be more detailed, we can further divide each category according to product volume and degree of product standardization, as follows. Intermittent operations can be divided into project processes and batch processes. Repetitive operations can be divided into line processes and continuous processes. Figure 1-12 shows a continuum of process types. Next we look at what makes these processes different from each other. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 88  OPERATIONS MANAGEMENT Figure 1-12: Types of processes based on product volume and product standardization Project processes are used to make one-of-a-kind products exactly to customer specifications. These processes are used when there is high customization and low product volume, because each product is different. Examples can be seen in construction, shipbuilding, medical procedures, and creation of artwork, custom tailoring, and interior design. With project processes the customer is usually involved in deciding on the design of the product. The artistic baker you hired to bake a wedding cake to your specifications uses a project process. Batch processes are used to produce small quantities of products in groups or batches based on customer orders or product specifications. They are also known as job shops. The volumes of each product produced are still small, and there can still be a high degree of customization. Examples can be seen in bakeries, education, and printing shops. The classes you are taking at the university use a batch process. Line processes are designed to produce a large volume of a standardized product for mass production. They are also known as flow shops, flow lines, or assembly lines. With line processes the product that is produced is made in high volume with little or no customization. Think of a typical assembly line that produces everything from cars, computers, television sets, shoes, candy bars, even food items. Continuous processes operate continually to produce a very high volume of a fully standardized product. Examples include oil refineries, water treatment plants, and certain paint PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 89  OPERATIONS MANAGEMENT facilities. The products produced by continuous processes are usually in continual rather than discrete units, such as liquid or gas. They usually have a single input and a limited number of outputs. Also, these facilities are usually highly capital intensive and automated. Figure 1-13: Elements of flowchart development Note that both project and batch processes have low product volumes and offer customization. The difference is in the volume and degree of customization. Project processes are more extreme cases of intermittent operations compared to batch processes. Also, note that both line and continuous processes primarily produce large volumes of standardized products. Again, the difference is in the volume and degree of standardization. Continuous processes are more extreme cases of high volume and product standardization than are line processes. Figure 1-12 positions these four process types along the diagonal to show the best process strategies relative to product volume and product customization. Companies whose process strategies do not fall along this diagonal may not have made the best process decisions. Bear in mind, however, that not all companies fit into only one of these categories: a company may use both batch and PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 90  OPERATIONS MANAGEMENT project processing to good advantage. For example, a bakery that produces breads, cakes, and pastries in batches may also bake and decorate cakes to order. DESIGNING PROCESSES Now that we know about different types of processes, let’s look at a technique that can help with process design. Process flow analysis is a technique used for evaluating a process in terms of the sequence of steps from inputs to outputs with the goal of improving its design. One of the most important tools in process flow analysis is a process flowchart. A process flowchart is used for viewing the sequence of steps involved in producing the product and the flow of the product through the process. It is useful for seeing the totality of the operation and for identifying potential problem areas. There is no exact format for designing a flowchart. It can be very simple or highly detailed. The typical symbols used are arrows to represent flows, triangles to represent decision points, inverted triangles to represent storage of goods, and rectangles as tasks. Let’s begin by looking at some elements used in developing a flowchart, as shown in Figure 1-13 Shown first, in Figure 1-13 (a), are flows between stages in a simple multistage process, which is a process with multiple activities (“stages”). You can see that the arrows indicate a simple flow of materials between the different stages. Often, multiple stages have storage areas or “buffers” between them for placement of either partially completed (work-in-process) or fully completed (finished goods) inventory, shown in Figure 1-13 (b). This enables the two stages to operate independently of each other. Otherwise, the first stage would have to produce a product at the same exact rate as the second stage. For example, let’s say that the first stage of a multistage process produces one product in 40 seconds and the second stage in 60 seconds. That means that for every unit produced the first stage would have to stop and wait 20 seconds for the second stage to finish its work. Because the capacity of the second stage is holding up the speed of the process, it is called a bottleneck. Now let’s see what happens if the first stage takes 60 seconds to produce a product and the second stage 40 seconds. In this case the first stage becomes the bottleneck, and the second stage has to wait 20 seconds to receive a product. Obviously, the best is for both stages to produce at the same rate, though this is often not possible. Inventory is then placed between the stages to even out differences in production capacity. Often stages in the production process can be performed in parallel, as shown in Figure 1-13 (c) and (d). The two stages can produce different products (c) or the same product (d). Notice that in the latter case this would mean that the capacity of the stage performed in parallel has effectively been doubled. LINKING PRODUCT DESIGN AND PROCESS SELECTION Decisions concerning product design and process selection are directly linked and cannot be made independently of one another. The type of product a company produces defines the type of operation needed. The type of operation needed, in turn, defines many other aspects of the organization. This includes how a company competes in the marketplace (competitive priorities), the type or equipment and its arrangement in the facility, the type of organizational structure, PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 91  OPERATIONS MANAGEMENT and future types of products that can be produced by the facility. Table 3-4 summarizes some key decisions and how they differ for intermittent and repetitive types of operations. Next we look at each of these decision areas. PRODUCT DESIGN DECISIONS Intermittent and repetitive operations typically focus on producing products in different stages of the product life cycle. Intermittent operations focus on products in the early stage of the life cycle because facilities are general purpose and can be adapted to the needs of the product. Because products in the early stage of the life cycle are still being refined, intermittent operations are ideally suited to them. Also, demand volumes for these products are still uncertain, and intermittent operations are designed to focus on producing lower volumes of products with differing characteristics. Once a product reaches the later stages of the life cycle, both its product features and its demand volume are predictable. As volumes are typically larger at this stage, a facility that is dedicated to producing a large volume of one type of product is best from both efficiency and cost perspectives. This is what a repetitive operation provides. Recall that repetitive operations are capital intensive, with much automation dedicated to the efficient production of one type of product. It would not be a good decision to invest such a large amount of resources for a product that is uncertain relative to its features or market. However, once a product is well defined with a sizable market, repetitive types of operations are a better business alternative. This is why repetitive operations tend to focus on products in the later stages of their life cycle. Table 1-11: Differences in Key Organizational Decisions for Different Types The product focus of both types of operations has significant implications for a company’s future product choices. Once a company has an intermittent operation in place, designed to produce a variety of products in low volumes, it is a poor strategic decision to pursue production of a highly standardized product in the same facility. The same holds true for attempting to produce a newly introduced product in a repetitive operation. PHILIPPINE WOMEN’S UNIVERSITY-CDCEC Page 92  OPERATIONS MANAGEMENT The differences between the two types of operations are great, including the way they are managed. Not understanding their differences is a mistake often made by companies. A company may be very successful at managing a repetitive operation that produces a standardized product. Management may then see an opportunity involving products in the early stage of the life cycle. Not understanding the differences in the operational requirements, management may decide to produce this new product by applying their “know-how.” The results can prove disastrous. The problems that can arise when a company does not understand the differences between intermittent and repetitive operations are illustrated by the experience of The Babcock & Wilcox Company in the late 1960s. B & W was very successful at producing fossil-fuel boilers, a standardized product made via repetitive operation. Then the company decided to pursue production of nuclear pressure vessels, a new product in the early stages of its life cycle that required an intermittent operation. B & W saw the nuclear pressure vessels as a wave of the future. Because they were successful at producing boilers, they believed they could apply those same skills to production of the new product. They began managing the production of nuclear pressure vessels—an intermittent operation—as if it were a repetitive operation. They focused primarily on cost rather than delivery, did not give enough time for product refinement, and did not invest in labor skills necessary for a new product. Consequently, the venture failed, and the company almost went out of business. It was saved by its success in the production of boilers, to which it was able to return. 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