Reading: Lesson 1 - Developing New Products

10.1.A - Developing New Products

1. PRODUCT DEVELOPMENT

1. Laresa’s experience in the opening scenario demonstrates that businesses are constantly trying to find better ways to please customers. As consumers, we are offered a growing number of choices of products and services to satisfy our wants and needs. Businesses compete to develop and sell the products that consumers want. If consumers in Laresa’s city decide that the new business offers them a better shopping experience, other stores will have to change in order to compete. Before a business can offer new products to consumers, it must complete three steps.
   
   1. Develop an idea for a new product that consumers want to buy.
   2. Turn the idea into a workable product design.
   3. Produce the product and make it available to consumers at a price they are willing to pay.
   
   
2. If any one of the steps cannot be completed successfully, the product will fail. The Figure above outlines some of the activities associated with the three steps. Developing new products for sale is a very difficult and expensive task. For example, a national fast-food restaurant spent over a million dollars on research to develop a new sandwich for its menu. Then it spent additional millions of dollars developing a production process that would maintain a consistent taste and quality for the sandwich, no matter where the customer purchased it. In this case, the sandwich was popular with consumers as soon as it was introduced, so the company was able to recover all of its costs and make a profit. However, companies sometimes spend that much money and more, only to find that not enough customers want the product. Their new product fails, and they lose all of the money they spent to develop it. Only a small number of new product ideas ever reach the market. Even for those that do, over half do not survive in the market for five years. Therefore, producers risk large amounts of money in buildings, equipment, materials, and personnel to provide the products that we consume.
3. Product development is the process of creating or improving a product or service. As a result of many factors, products are continuously changing—old products go out of use or are improved, and new products appear. Most of the products you will be using in ten years are not available today. For a company to survive, it must continually search for ways to improve even its most successful products and regularly develop new products. Product development drives other business activities. Before a company can market, advertise, distribute, and sell a product, it must create and produce it. Think of the millions of dollars that were invested to develop the new store, Millennium, described at the beginning of the chapter. The investors in that business are excited by the new business idea, but to earn a return on their investment, the product must succeed.
4. The first step in product development is to come up with a good new product idea. You have probably seen a new product and said to yourself, “I could have thought of that.” But developing successful product ideas is not easy. The process for coming up with product ideas is both creative and scientific. Ideas for new products can come from many sources. People inside and outside the company may suggest new product ideas. A company may get ideas from salespeople and production personnel, from other businesspeople, and from research projects. Many companies employ people whose primary responsibility is to create and test new products.
5. Many companies gather information to help in product development by contacting the people who are likely to purchase the product. One of the best sources of ideas for product improvements or new products is a company’s customers. They have used the company’s products and know what they like and don’t like, and what new products they would like to have. Companies can get this information from customers in many ways. Some companies send questionnaires to people who recently bought a product, asking for their opinions. Others have telephone numbers that customers can call or email addresses they can use when they have questions or problems. Salespeople can also gather information from customers. Because salespeople regularly talk to customers, they collect valuable information that can help the company improve its products. Managers should encourage salespeople to learn as much as they can about customer likes and dislikes. Many companies have specific procedures and forms for salespeople to use when they gather important information from customers. The procedures ensure that the information is communicated to the people responsible for product development.
6. If a company wants to get in-depth information from consumers about possible new products, it might form a consumer panel—a group of people who offer opinions about a product or service. The panel consists of several people who have bought or are likely to buy the company’s products. Panel members meet with trained interviewers to discuss their feelings about new products and what they think the company can do to improve its current products. Have you ever been shopping in a location where you used a research terminal to answer questions or had someone ask you to participate in a short interview or product review? Companies often conduct research in places where customers shop. The research may involve a simple process whereby customers are asked a short series of questions about their experiences with products or a more complicated process in which consumers are shown samples of new products and asked detailed questions about them. The developers of Millennium, the large store described earlier that was so exciting to Laresa, likely used a great deal of consumer research to design the best combination of products, services, and store layout to meet customer needs.
7. Product research is performed by engineers and other scientists to develop new products or to discover improvements for existing products. There are two types of product research—pure research and applied research. Pure research is done without a specific product in mind. Researchers in many companies are continually searching for new processes, materials, or ideas. They are experts in specific areas, such as biology, chemistry, robotics, electronics, or energy sources. They conduct experiments and tests in order to make discoveries that might lead to new products. Many products we use today have been developed as a result of such research. The latest computer technology, life-saving drugs, energy-efficient appliances and homes, and improved food products have resulted from pure research projects. Many of the products we consume have been changed and improved through chemical research. Some examples are low-calorie sweeteners, meat substitutes made from soybean products, and vitamin-enhanced soft drinks. Insulation used in beverage coolers and nonstick surfaces on cooking utensils and razor blades are products that have been developed through research conducted by scientists involved in the space program. Universities, medical research facilities, and government-sponsored research programs are heavily involved in pure research. Because of those efforts, we will likely see products in the near future that use energy more efficiently, apply laser technology, provide more effective treatments for diseases, and result in improved prediction and control of the weather.
8. Applied research is research that studies existing product problems or possible design improvements for current products. Improvements in electric battery storage and the mechanics of engines were critical in the development of hybrid automobiles that combine a small combustion engine with a battery that can recharge while you drive. Fiber-optics research continues to increase the amount of voice and data communications that can move on the same transmission line while maintaining security and quality. Innovations in cell phone technology allow users to send and receive live video. Phones that support high-speed Internet connection and a wide variety of applications are redefining the way people communicate and access information. To be successful for a long time, products must be constantly changed and improved. Many types of improvements result from product research. Changes can be made in the physical product, or new features can be added to existing products. Researchers may discover new uses for the product or ways to make the product easier to use. Sometimes changes in the package itself—without actual product changes—can improve a product.
9. In planning and producing a new product, businesses should involve all major departments, including production, finance, human resources, and marketing. The product should be designed to meet customer needs. Customers should be able to identify features of the new product that are different from and better than those of competing products. Also, products must be safe and easy to use. They must meet all state and federal laws for product quality and environmental and consumer safety. If research results in a new product idea that has a good chance for consumer acceptance, the company begins to design the product. In this step, engineers and researchers build models of the product and test them to be sure that the company can produce a quality product. The design process should include factors such as durability, ease of use, and a pleasing appearance. Usually a great deal of testing is conducted to ensure that the product meets all requirements for success before the company makes the large investment needed to produce it.
10. Once a model has been built and tested, the company must determine what resources it will need to produce the product in large quantities. It may have to buy production facilities and equipment or modify those it is currently using to produce other products. If the company can use existing facilities and equipment, it must develop a production schedule that shows how it can produce the new products without disrupting the production of current products. The company will have to determine the costs of producing the product and compare those costs to the price it will charge for the product. It is possible that the product cannot be sold at a price that will cover all the research, design, and production costs. In this case, the company will decide not to produce the product. If the company makes the decision to halt development at this point, it will incur less financial loss than if it produces a large quantity that goes unsold or must be sold at a loss.

2. PRODUCING THE PRODUCT

1. can begin producing it for sale. This is an expensive step. The company may have to build or remodel its manufacturing facilities. It must purchase raw materials and hire and train enough employees to produce the product. Then it must promote, distribute, and sell the product. However, if the company has carefully planned and produced the product, the product has a better chance of succeeding and earning a profit for the company when customers purchase it. Production involves making a product or providing a service. Manufacturing is a form of production in which raw and semi-finished materials are processed, assembled, or converted into finished products. Manufacturing is a complex process, even when only one product is produced. Examine any product you purchased recently. Very likely, it is made of several parts. The company must either manufacture those parts or purchase them from other companies. The manufacturer must store the parts until it needs them. Then people and machinery must assemble the parts. Once assembled, the product must be packaged. Many products are packed together for shipping and then stored in a warehouse for delivery to the businesses that will sell them. In addition to the activities just described, the manufacturing process involves many other tasks. The manufacturer must maintain equipment, purchase supplies, and train people to operate the equipment. And often, manufacturers produce many products at the same time.
   
2. When you think of a manufacturing business, you may have an image of a large factory with a long assembly line. Workers perform specific activities on the assembly line as the product moves past. Many products, all looking exactly alike, are produced on assembly lines each day. But assembly lines are only one of several ways to manufacture products. Brief descriptions and examples of six different types of manufacturing appear in the Figure below. 
   

   
   

3. Mass production is an assembly process that produces a large number of identical products. It usually involves an assembly line in which employees at each workstation continuously perform the same task to assemble the product. Many products you use are assembled through mass production. Automobiles, cameras, home appliances, and many brands of computers are mass-produced. Mass production enables companies to manufacture products at a low cost and in large quantities. But many changes have occurred in mass production since Henry Ford first used assembly lines to produce cars in the early 1900s. Now manufacturers often train assembly line workers to perform several different activities. Workers can then switch tasks periodically to make the job more interesting. Teams of workers and supervisors meet regularly to identify problems and develop solutions. Computers monitor the assembly process to ensure that needed parts and materials are available at the right time and the right place. Robots stationed at many places along assembly lines complete tasks such as painting, welding, and quality control testing.
   

4. Raw materials usually need to be processed before they can be consumed. With continuous processing, raw materials constantly move through specially designed equipment that changes their form to make them more usable for consumption or further manufacturing. Steel mills, for example, convert iron ore into steel to be used by other manufacturers. Oil refineries change crude oil into a variety of petroleum products, including gasoline and heating oil. Cereal manufacturers process many different kinds of grain into the cereals you eat for breakfast. Production runs may last days, weeks, or months without equipment shutdowns.
   

5. Some companies use repetitive production, which is a type of mass production where the same thing is done over and over to produce a product. The activity is usually rather simple and can be completed in a short time. Repetitive production often uses modules (pre-assembled parts or units) in the mass production assembly process. For example, the repetitive process is used to produce washing machine parts. First, the motor is assembled as a separate module. Then it is installed in the frame, which has been assembled separately. Controls, hoses, and other features may be added in yet another process. Mobile homes and recreational vehicles are often assembled using repetitive production. Individual sections are constructed and then brought together for final assembly on the frame or chassis.
   

6. Intermittent processing uses short production runs to make predetermined quantities of different products. The most common form of intermittent processing is the manufacturing or assembly of a specific product to meet a customer’s order or specifications. An example of a business using intermittent manufacturing is a printing company. Each printing job varies in quantity, type of printing process, binding, color of ink, and type of paper. When the company receives an order, the printer assigned to the job assembles the necessary materials, selects the correct printing equipment, and completes the printing. A bakery uses intermittent processing, as does a company that roasts, blends, and grinds many varieties of coffee beans to order.
   

7. Custom manufacturing is the process used to design and build a unique product to meet the specific needs of the purchaser. Custom manufacturing can be used to build one unit or a very limited number of units of a product. Buildings, bridges, and computer programs are all examples of custom manufacturing. These products may be very large or complex and take a long time to build. If a company needs a single specialized piece of equipment built, it can hire a custom manufacturer. A custom manufacturer must be able to work with a customer to develop a unique product. The company must be flexible enough to build a different product each time, and it may need to build part of a product or the entire product at a new location each time.
   

8. Changes in technology now allow for mass customization, or the use of manufacturing techniques that use technology to produce customized products at a low per-unit cost. Using a computer application known as computer-aided design (CAD), engineers can design and test products before they are even built. CAD systems control computer-aided manufacturing (CAM) systems that build all or part of a product, which then can be assembled. CAD systems allow individuals to input product choices that control the material cutting and manufacturing process. A number of shoe companies, including Nike, allow customers to design shoes online and have them shipped to their home address. CAD systems are now being used with 3D printers to create models and final products. 3D printers act mechanically like an inkjet printer, but instead of ink, they spray melted plastic or metal compounds in additive layers. A combination of CAD systems and 3D printers has lowered the cost of customized manufacturing. The use of 3D printers also allows for rapid prototyping, or the quick production of prototypes (models) to test new part or product designs at very low costs. While 3D printers are often used for small products and prototypes, the same technology is now being used in Big Area Additive Manufacturing (BAAM), which allows manufacturing of components that are yards long and wide. BAAM technology has been used to build a car from an additive printer. The manufacturing process is being revolutionized as a result of 3D additive printing.