ETM 5111 Introduction to Strategy, Technology and Integration

1. ETM 5111 Introduction to Strategy, Technology and Integration Instructor: Gregory H. Watson Session 4 – Part 1

2. Session 4:Managing Projects for Rapid Time-to-Market Instructor: Gregory H. Watson Introduction to Strategy, Technology and Integration ETM 5111 – Summer 2003

3. Today’s topics: • Part 1: • Managing Projects for Rapid Time-to-Market • Design for Excellence (DFX) Principles • Global Manufacturing & Supply Chain Integration • Part 2: • Best Practice Engineering Management Methods • Core Competence, Process Capability & Staffing • Part 3: • Course Summary • Extra Credit Project • Final Examination Instructions

4. Managing Projects for Rapid Time-to-MarketDoes it really make a difference? Instructor: Gregory H. Watson Introduction to Strategy, Technology and Integration ETM 5111 – Summer 2003 Session 4 – Part 1

5. Product success factors - It takes all three! As Perceived by the Customer: 1) Unique and superior product • Superior quality with respect to competitors • Good value for the money with respect to customer price tolerance • Superior price/performance with respect to alternate choices • Fills customer needs, wants and preferences • Provides a useful benefit – highly visible to economic buyer • Unique features and attributes not available from competitors 2) Superior marketing and customer service – aligned to requirements 3) Correctly introduced to the market • Time-to-Market: How long it takes to develop the product. • Timing-to-Market: When the product is introduced.

6. Leading the market or lagging the market? Being first in a new market has definite [obvious] advantages, but there may be legitimate reasons not to lead into a newmarket: • Technology uncertainty drives significant business risk • Market requirements or potential acceptance is uncertain • Initial market size not sufficient to support a new product • Pricing of new technology is not yet commercially viable • Company established in older technology and wants to milk the cash cow – waiting to launch the new product when competition determines the market timing 1993 Printer War: Compaq verses Hewlett-Packard

7. “Time-to-Enter” vs. “Time-to-Market” • When to enter markets is a strategic planning decision. (There are good reasons to support either a Leading or a Lagging new product introduction strategy) • “Time-to-Market” is an implementation result, with reference to the planned schedule for launch date and it has penalties for being late. • Commercial success requires both time and timing = RHYTHM

8. Market diffusion Product rollover O P P O R T U N I T Y O P P O R T U N I T Y Not This! Opportunity is not uniformly distributed! More Like This! TIME TIME What does a “market window” look like? The majority of sales are in the mature product life cycle phase. Opportunity is not uniformly distributed throughout product life.

9. Study assumes: • 20% market growth • 12% annual price erosion • 5 year product life • Dynamic high-tech market 33% Loss 22% Loss % Loss in After Tax Profit 3.5% Loss Six months late to the market Production cost is 9% too high R&D cost over budget by 50% What drives business success? In a McKinsey study that was reported in Fortune Magazine (February 1989), the loss to total lifetime profitability from three different R&D problems: time to market slippage of 6 months, overrun of cost of production by 9% and 50% overrun of the product development budget. Although this study uses very aggressive business assumptions, the relative impact of time-to-market is clear. Product development teams must focus on the time-to-market as a critical dimension of new product development success!

10. Two important relationships to remember: Accuracy for reduced TTM % Accuracy of market analysis Accuracy for normal TTM Project Cost Accuracy Curve Time-to-market Time-to-market Speed means Faster response – fewer surprises! • Shorter development time leads to: • Increased product life-cycle revenue and market penetration • Success in time-sensitive markets due to improved predictability of release • More successful products at lower engineering costs • Less development waste and better resource use

11. Planned Duration (months) = X 100% Actual Duration (months) Slip Rate Missing time-to-market – project slip rate: • Slip rate is a measure of the project team’s ability to maintain it’s forecast project schedule. • Slip rate can be calculated for the project as a whole or for the components of its design (thus indicating where the slippage is occurring) all the way down to the individual task measure. • The improvement of project-level slip rate is a measure that can be used to track improvement in project development from one new product development to the next. • The calculation of slip rate is easy: • Slip rate must be re-estimated at regularly in order to determine if a project is in serious difficulty or risk to slip introduction date.

12. T12 T11 T10 T9 T8 T7 T6 T5 T4 T3 T2 T1 T0  Scheduled Product Launch Date  Predicted Completion Date  Reality Line T0 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 Date of Prediction Managing project deliverables using slip rate: One way to manage a project using slip rate is to graphically plot the slip rate for each item in the development, so that their intersection with market launch can be observed. As the new product development progresses, the convergence with a ‘reality line’ can be observed for those elements that are on schedule. Development items that are not on schedule will not be converging with the reality line prior to the schedule product launch date. Managing using slip rate allows project managers to reallocate their resources to the project deliverables that are on the critical path for making the scheduled market release date.

13. Lost Revenue Product Revenue ($) Market Peak Time Late TIME Slip impact on revenue loss (no competition): This is a “best case” scenario!

14. Quarter Volume Unit Price Company1 Company 2 Company3 MS GP MS GP MS GP 1 2 3 4 5 6 7 8 9 10 11 12 5,000 30,000 65,000 73,000 74,000 73,500 73,000 68,000 60,000 50,000 35,000 10,000 $375 $350 $325 $300 $285 $271 $257 $244 $232 $221 $220 $185 100% 70 50 45 42 42 41 41 40 40 40 39 30% 38 35 35 33 32 31 31 30 28 19 18 0% 30 35 40 42 42 41 41 40 40 40 39 0% 30 32 33 33 32 31 31 30 28 19 18 0% 0 15 15 16 16 18 18 20 20 20 22 0% 0 22 28 27 26 26 26 26 25 17 16 The business impact of product launch timing: Illustration:

15. $4 0 0 e $3 0 0 c i r P $2 0 0 0 5 1 0 Q u a r t e r Price erosion as product approaches maturity:

16. 8 0 0 0 0 1 0 0 7 0 0 0 0 6 0 0 0 0 5 0 0 0 0 e % m m u 5 0 4 0 0 0 0 l u o C V 3 0 0 0 0 2 0 0 0 0 Enter Company #3 Enter Company #2 1 0 0 0 0 0 0 0 5 1 0 0 5 1 0 Q u a r t e r Q u a r t e r Total Market Sales (# units) Product S-Curve (% total unit volume) Market volume profile of product sales:

17. $20,000,000 e u n e v e R t $10,000,000 e k r a M 0 0 5 1 0 Q u a r t e r Market revenue across the product life cycle:

18. $7,500,000 t i $5,000,000 f o r P t e k r a M $2,500,000 0 0 5 1 0 Q u a r t e r Gross profit from product life cycle revenue:

19. First place = 13% more units sold 300,000 273,010 242,610 250,000 200,000 150,000 100,880 100,000 50,000 0 Competitor 1 Competitor 2 Competitor 3 Total units sold – broken down by competitor:

20. $80,000,000 $74,872,527 First place = 16% more revenue $70,000,000 $64,533,777 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $26,180,696 $20,000,000 $10,000,000 $0 Company 1 Company 2 Company 3 Total revenue broken down by competitor:

21. $30,000,000 First place = 23% more gross profit $24,165,846 $25,000,000 $19,690,821 $20,000,000 $15,000,000 $10,000,000 $6,714,453 $5,000,000 $0 Competitor 1 Competitor 2 Competitor 3 Total gross profit broken down by competitor:

22. Summary – competitive impact of late-to-market: • There will be a smaller total market opportunity. • There will also be a smaller market share available to capture. • It will be extremely difficult to displace the incumbent: • Increased displacement cost • Price to buy-in (reduces revenue and profit) • Increased marketing effort • Business concessions • Impact of being second-to-market: • Must overcome incumbent’s customer loyalty and ease customer’s pain to change or switch buying to your product. • Being first in a NEW market may or may not be a good strategy – it all depends on the customer’s time-to-acceptance of the technology. • Time-to-market can be a major factor in the economic success or failure of a product – especially in short life-cycle products. • Time-to-market is more important to product success than R&D cost. • Being “late-to-plan” almost always leads to difficult market problems that are seldom overcome.

23. Personal reflection: Think about your company’s latest experience in introducing a new product. How would you describe that product – a variant of prior products or a departure into totally new design? How fast was that product brought into the market? Was it first or second into the field or was it a late arriver into the market? What was your company’s strategy for launching and introducing the product? Did it compete on price or did it compete on the feature performance? If you were to describe your company’s time-to-market performance would you classify it as competitive? If not, what should be changed to make it more competitive?

24. Design for Excellence (DFX) Principles Instructor: Gregory H. Watson Introduction to Strategy, Technology and Integration ETM 5111 – Summer 2003

25. What is Design for Excellence (DFX)? • DFX is a planned approach to more rapid new product development. • A knowledge-based approach to design to maximize all the desirable characteristics of the ‘extended product’ while concurrently minimizing total lifetime cost of the product. The DFX emphasis is on both the elements of product design and ‘downstream’ activities such as cost-effective distribution, installation, operation and service. Other DFX objectives include: reliability, safety, conformance to environmental regulations and product liability prevention. • Without DFX many of the ‘ilities’ would be developed in a haphazard manner and would not be implemented in a consistent style across the product lines. • NOTE: Some classifications would replace DFX by Design for Manufacturability (DFM) – as the definition for all of the ‘ilities’ related to designing a product appropriately for its intended market. This definition does disservice to both the content of DFM and the importance of all other ‘ilities’ which have their own engineering support communities.

26. What are the attributes of good design? • Functions – what the product does • Performance – how well it does it • Features – how the product is presented • Appearance – how well a product appears aesthetically • Safety – how the product prevents harm to people • + “the X-ilities” of DFX – in addition to profitability: • Quality, reliability, availability and durability • Serviceability, maintainability and repair-ability • Manufacturability, testability and ship-ability • Install-ability, upgrade-ability, and customize-ability • Sustainability, portability and recycle-ability • Usability and access-ability • Cost – lowest total or ‘lifetime’ cost – acquisition, operation as well as the cost of obsolescence.

27. What should be the DFX design objectives? Fastest time-to-market plus: • Lowest total cost – viewed as a cost to “society” after the style of Genichi Taguchi’s quality loss function: • Quality loss function – poor quality cost includes the cost borne external to the organization (beyond scrap or defect repair) and must comprehend the cost to the customer as well as the loss in productivity by the society as it performs corrective action, expediting to adjust for the impact of the failure as well as the cost of rework on the entire ‘chain’ of productivity that will reach the ultimate customer. • Align to external product requirements – the best way to reduce the cost to society is to understand its requirements and mistake-proof those potential failures that drive the elements of total cost. • Right the first time – preventive action prior to release of the design to full scale production is the most cost-effective design approach. This means that the Test-Analyze-Fix sequence used in design must effectively and efficiently find product defects.

28. Quality, reliability, availability, & durability: • Quality: the performance of the product as delivered which includes delivery, installation, initial use, as well as appropriateness of the application. • Reliability: the useful product life once installed and operating correctly. • Availability: the ability to use the product as desired by the customer (eliminates downtime due to either scheduled or unscheduled maintenance). • Durability: ruggedness of design – ability to withstand punishment during use.

29. Serviceability, maintainability & repair-ability • Serviceability: the ease of conducting service on the product – one way to mitigate reliability issues is to anticipate failure and provide proactive service prior to the expected service problem. • Maintainability: the ability to maintain a product which includes its documentation, preventive maintenance schedule as well as spare parts usage prediction and stocking process. • Repair-ability: the ease of diagnosis and repair once a failure has been observed.

30. Manufacturability, testability, & ship-ability: • Manufacturability: the ease of final assembly and the manufacture of parts by their basic production method (e.g., machining, casting, stamping, forming, etc.). • Testability: the ability to test the critical performance parameters of the product which includes built-in-test capability, data capture and recording, and closed-loop engineering process control. • Ship-ability: the ability to securely ship and distribute products to the ultimate customer from the production point – includes packaging design, material handling, container reuse, labeling, and recycling elements.

31. Install-ability, upgrade-ability, & customize-ability: • Install-ability: the ease of installation of the product at its point of ultimate use – including instructions for installation, initial training of operators, tutorials in the use of key functions, and accompanying equipment. • Upgrade-ability: the ability to enhance the feature set of a product through a system of accessories or additional features that increase performance. • Customize-ability: the ability to make the product perform as desired by each individual customer – this capability may be delivered using customer-modified menu selections or factory-installed options.

32. Sustainability, portability & recycle-ability: • Sustainability: the friendliness to the environment of the product and its production processes (this need is typically met by an ISO14000 management system). • Portability: the ability to move the product from one site to another or from one workstation to another – it includes the ability to change system components independently of the performance of sub-systems (e.g., changing a CPU without changing printers, etc.). • Recycle-ability: the ability to recycle the product or its parts at the time of its obsolescence.

33. Usability & access-ability: • Usability: the attention to safety, ergonomics and the support functions (i.e., help functions, user tutorials, and problem diagnostics) required in a product to make it as friendly as possible for operator use. • Access-ability: the ability of disabled people to use the equipment (e.g., support for hearing disabled or blind people).

34. DFX and the pressure of time-to-market: People make it work! • Without a structured approach to DFX, many product compromises are likely to be made in the rush to get the product into the market – and the product may not fulfill a ‘competitive’ design intent. • Without a coordinated effort like DFX, many of the design support services that have ‘special interests’ in one or more of the DFX elements may not be as ‘supportive’ of the sense of urgency to get the product to the market due to concern that their perspective will not be adequately addressed in the design process – this creates a resistance to rapid development. • Without a comprehensive communication as occurs in DFX, effort to achieve many of the DFX sub-objectives of the product design could prove counter-productive as each element sub-optimizes the total time-to-market initiative in order to achieve its component of a rapid development process.

35. Personal reflection: Think about the last new product that your company brought into the market. What was the management approach used relative to the DFX disciplines? How does your organization manage the DFX disciplines to assure that your product maximizes its limited window of revenue opportunity?

36. Global Manufacturing & Supply Chain Integration Instructor: Gregory H. Watson Introduction to Strategy, Technology and Integration ETM 5111 – Summer 2003

37. What has influenced the plant location decision? • Past influences included: • Union and labor support • Transportation and proximity to markets • Location of key suppliers or technologies • Community (education, quality of life, etc.) • Taxes (state and local) and incentives • Communities of technology excellence (e.g., steel in Pittsburgh, automobiles in Detroit, tires in Akron and semiconductors in Santa Clara).

38. Expansion Plant 1 Expansion Plant 2 Original Location Expansion Plant 3 Plant expansion under the traditional model: All functions are duplicated at each facility – each operates independently.

39. Why the interest in global manufacturing? • Why move production overseas? • A big reason is the potential for increased profit: • Operating costs are lower • Taxation is more beneficial • A second big reason is the ease of doing business: • Product legal issues are less complex • Less regulation and government interference • BUT, what is the impact on product development?

40. LABOR COST & AVAILABILITY LOWEST AVAILABLE • TAXES & DUTIES GLOBAL • INTERNATIONAL AGREEMENTS GATT, NAFTA, E.C. • GOVERNMENT ASSISTANCE GRANTS, LOANS • GOVERNMENT TYPE & STABILITY • GOVERNMENT REGULATIONS/LAWS ENVIRONMENTAL SAFETY BENEFITS TORT SYSTEM • COMMUNICATION FACILITIES GLOBAL CONNECTIVITY • LOCATION TRANSPORTATION PROXIMITY TO MARKETS & SUPPLIERS • TECHNICAL SUPPORT RESOURCES LOCAL EDUCATION SYSTEM • FINANCIAL & MONETARY SYSTEMS LOCAL CAPITAL FUNDS Today’s influencing factors on plant location:

41. How does location impact product development? • Materials – potential decrease in parts cost • Product Development – potential coordination difficulty • Sales – potential decrease in product availability • Administration – potential increase in admin costs • Transportation – potential increase in transportation • Labor & Overhead – potential decrease in labor cost • Taxes – potential decrease in tax expense exposure • Tariffs – potential decrease in cost of trade tariffs Most of the benefits relate to cost while most of the disadvantages relate to coordination.

42. U.S. FAR EAST Profitability comparison – USA vs. Far East: $25.00 $20.90 $20.00 $15.00 $13.75 $11.51 $10.00 $5.21 $5.00 $3.26 $2.75 $1.55 $0.23 $0.00 LABOR & OH TARIFFS TAXES PROFIT AFTR TAX & TARIFFS

43. US US LABOR & OH=FE FAR EAST $25.00 $20.90 $20.00 $15.00 $13.75 $11.51 $11.51 $10.00 $6.79 $6.27 $5.21 $4.55 $5.00 $3.26 $2.75 $1.55 $0.23 $0.00 LABOR & OH TARIFFS TAXES PROFIT AFTR TAX & TARIFFS Labor neutral comparison of tax and tariff impact:

44. Disadvantages of USA industrial policy: • Taxes: • Flat tax system won’t help. • Sales tax as revenue source would level the playing field if: • Domestic and imported products both taxed same in U.S. • U.S. exports should not be taxed by U.S. • Regulation: • OSHA (safety & health) • EPA (environment) • ERISA (retirement) • American Disabilities Act • Striker replacement • Family medical leave • Legal system: • Product liability costs over $80 Billion/year – more than all manufacturing capital investment! This is a tort lawyer’s idea of heaven!

45. MANUFACTURING Focus areas MARKETING PM QUALITY ENGINEERING Off-shore manufacturing first steps:

46. Develop remote production capability: Global Plant 1 Global Plant 2 Original Location Off-Shore Global Plant 3 Typical first step in a global expansion strategy: Only manufacturing and quality functions are duplicated at each facility. Initial production is typically final assembly using pre-shipped “kitted” parts.

47. Develop remote production maturity: Global Plant 1 Global Plant 2 Sales, Admin, R&D and Corporate Office Off-Shore Global Plant 3 Match global production output to local demand: Local investment driven by ‘local content’ requirements and individual market demand for the region served. Flexibility is created to serve all regions from any production facility.

48. Thailand Component B Component A Final assembly shipped Malaysia Sub-assembly Singapore The complexity of today’s global production: Production of parts is done in different locations than where sub-assemblies are completed which is also different from the point where final assembly is conducted. All tasks are divided into distinct ‘focused factories’ that accomplish part of the work at the lowest total cost. Cost is the decision driver!

49. DISTANCE The dominant strategic concept: The emerging global manufacturing strategy – “VIRTUAL CO-LOCATION”

50. Communication is THE critical success factor! Good communication turns ‘virtual’ location into a ‘reality’ show! • All information must be available in your information system – in real time – as if the sites were all local! • All sites must appear to an outsider as if they were one! • Rules for communication system design: • Information must be available instantly – 24 X 7! • All information systems must be networked. • All locations should have the same capability. • All locations should use the same software. • All communication systems must be seamless and available in an interactive mode to facilitate dialog: • Voice, video and data • Wired, wireless and satellite