COMMERCE 3QC3 Chapter 5: 2OC3 - Chapter 5.docx

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7 Apr 2015
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CHAPTER FIVE: DESIGN OF GOODS AND SERVICES
Goods and Services Selection
Product Strategy Options Support Competitive Advantage
Differentiation: offer distinctly unique and high-quality product
Low-cost strategy: low cost and high value
Rapid response: respond quickly to changing customer demands before
competitors can
Life Cycle and Strategy
Introductory Phase:
oNegative cash flow
oMay warrant unusual expenditures for: research, product development,
process modification, supplier development
Growth Phase:
oNegative cash flow turns into positive cash flow
oProduct design has begun to stabilize
oForecasting of capacity requirements is necessary
oAdding capacity may be necessary to accommodate increase in demand
Maturity Phase:
oRising positive cash flows
oCompetitors is established
oImproved cost control, reduction in options, paring down of product line
may be necessary
Decline Phase:
oShould not reinvest resources into dying products
oProducts should be terminated
oStart to make a loss on them
Product-by-Value Analysis
Operations manager selects items that show the greatest promise to invest
resources in
Product-by-value analysis lists products in descending order of their
oIndividual dollar contribution to the firm and their
oTotal annual dollar contribution
Low contribution per unit may not be bad if represent large portion of company’s
sales
Generating New Products
New Product Development
1. Understanding the customer is premier issue in new product development
2. Economic change: brings increasing levels of affluence in the long run but
economic cycles and price changes in the short run
3. Sociological and demographic change: ex. decreasing family size
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