Tag: product enhancement

OM in the News (with video): Boeing’s 4th Generation 737 Takes Shape

If you’ve ever flown, chances are you’ve ridden on a 737. Boeing’s strategy of product enhancement (Ch.5) has made the 737 the best-selling commercial aircraft in history, with 9,745 built since 1968. The newest version, the 737 Max, which is scheduled to make its debut in 2017, is designed with new engines to burn less fuel than its three predecessors, to help airlines’  costs and leave less of a carbon footprint on the environment.

Before the Max, writes USA Today (April 14-15, 2012), there were three versions of the plane: the Original that took flight  in February 1968; the Classics, which began flying passengers in 1984; and the Next Generation, which made its debut in 1998 with new wings and engines that enabled it to go farther and faster  while burning less fuel. All represented enhancements in the original concept of a narrow-body jet with the ability to fly medium to long-haul distances.  (Here is a great time-lapse 2.5 minute video of a 737 being built for Southwest that you can show in class).

At its most basic, the Max will be the same 737 stalwart the public has come to know. It’s a single-aisle jet that will ferry up to 215 passengers, but with higher efficiency. Outfitted with new engines, the Max will use 10% to 12% less fuel than its most current peer, the Next-Generation. That holds particular appeal for airlines, with jet fuel making up 25% to 40% of their costs, and whose profitability is threatened as the price of crude oil stays around $100 a barrel.

Even with Max, demand remains so high for the 737 that Boeing in January began delivering current model 737s at the unprecedented production pace of 35 a month. It plans to ramp up to 42 a month at the start of 2014 . Will a  completely new single-aisle plane will arrive eventually? “It’s something that we’ll definitely do at some point,” says Boeing.

Discussion questions:

1. Why has Boeing chosen product enhancement over a new single aisle plane?

2. How have cell phones been enhanced over the past 2 decades?

Teaching Tip: Old Ketchup Packets Heading for the Trash?

If you want to enhance your lecture on product development and enhancement (Chapter 5), just stop by your McDonald’s or Burger King and grab some of the old and new packages of ketchup and bring them to class. The Wall Street Journal (Sept.19,2011) describes how Heinz spent 3 years developing its new “Dip and Squeeze” packet to replace the traditional packet used since 1968. As the name promises, Dip and Squeeze can be squeezed out through one end of the lid or the lid can be peeled back for dipping.

Ask your students what they think. Did they like ripping off the corners of the old style with their teeth  while driving? Did they squirt the ketchup right into their mouths and then add fries?

For decades, Heinz has been searching for a better solution for single-serve packets. And some research showed that traditional packets were so annoying (and drippy) that people don’t order fries as often at drive-thrus ( a problem, since 2/3 of all revenue at these restaurants comes from the drive-thru). To develop the new packet, Heinz staffers sat behind a one-way mirror, watching customers in 20 fake minivan interiors putting ketchup on burgers and fries. ( We all know how messy the process can be).

Although the new packets are 3 times as expensive as the old ones, they signal to users: “This is a serving. This is a bottle of ketchup. You actually don’t need 16 bags”. Cost is king in fast food,  but customers have strongly preferred the new packaging—to the point that some consumers started hoarding the new packages, a trend that will likely wear off as the novelty fades.

This is a great example of building a better mousetrap.

OM in the News: Product Enhancement and the McDonald’s Happy Meal

Under pressure from 550 health organizations to stop marketing  “junk food”  to children and to retire Ronald McDonald (the clown mascot), McDonald’s has chosen the path of product enhancement (Ch.5) as a preemptive strike. The New York Times (July 27, 2011) reports today that the firm will start to fill its Happy Meal boxes with apple slices and smaller portions of french fries this September. By next April, the new menu will be rolled out to all 14,000 restaurants.

The food industry overall has come under increased scrutiny as childhood obesity levels have risen. San Francisco last year banned the inclusion of toys in kids’ meals unless there is a fruit and vegetable included. New York City has a similar rule in the works. Instead of developing all new kids’ products (or including vegetables), McDonald’s is responding with 1/2 the number of fries and a 20% lower calorie count.

The new Happy Meal, containing 4 chicken nuggets and a small Coke, weighs in at 410 calories (vs. 520 in the older product), 17 grams of fat (vs. 23 g), and 58 grams of carbs (vs. 69 g). The firm decided against making apples a total replacement for fries when only 11% of customers showed an interest in that option. While some critics praised the changes (Mrs. Obama called them “positive steps”), one NYU prof called the move a “sham”, in part because McDonald’s is not limiting sodas. In fact, sugar levels go up with the Coke and apple together.

Discussion questions:

1. What are the operations challenges in changing the Happy Meal?

2. Do students believe legislation is an appropriate means to make menus healthier?

3. How are other restaurants responding with children’s menu options.

OM in the News: Making the 737 a Better Product

The hottest fashion sensation on the runway this spring  is a new design from the house of aluminum couture, Boeing. Rather than a major redesign of its all-time best-seller, the 737, Boeing has chosen the route of product enhancement (which we discuss in Ch.5). The Wall Street Journal (Feb.24,2011) reports that airlines have been pushing for an update on the plane, which has been around since 1967.

But what makes Boeing’s action to redesign the jet more interesting is that for the first time, it went directly to passengers, not the airline buyers, for direct feedback. Focus groups around the world were put in different mockups of cabin interiors to get their reactions. (This reminds me of how Arnold Palmer Hospital mocked up  rooms in a warehouse to see what future patients thought would be a good layout...see our video case in Ch.9). In the past Boeing’s primary design goal was function, not passenger psychology.

In the new design/layout, which does not impact the 737’s exterior or performance, or even interior seat width or leg room, overhead bins have been reshaped to fit into the ceiling at an angle. This dramatically opens up headroom so tall passengers can stand up straight under the bins.  Because the bins are flat before takeoff, then angle up when loaded, they also have a power motor to make the flight attendant’s job easier. Boeing also redesigned the window shades and side walls to make the cabin look roomier. Fancy lighting systems also make the ceiling appear to be higher. All these changes, by the way, were developed for the long-delayed 787, and intended to make flying more comfortable.

Sixty airlines have opted for this new interior and 1,700 of the 2,200 737s slated for production have been ordered with this more expensive option.

Discussion questions:

1. Why did Boeing choose product enhancement of the 737 over product migration (making a new plane)?

2. Why are the vast majority of customers opting for the new layout?

OM in the News: Boeing Goes Long with New 747-8 Jet

Eighteen feet. That may not sound like much, but it’s the length added to Boeing’s new version of the 747, called the 747-8 Intercontinental commercial jet. This added length makes the 747-8 the longest jetliner in the world, says USA Today (Feb.14,2011), trumping Airbus’ A380 superjumbo by 12 feet.

The 747-8 is a great example of  what we call “product enhancement” in Chapter 5. Rather than develop an all new plane, as Boeing did with the 787 Dreamliner and Airbus did with the A380,  Boeing chose the less risky and cheaper  path of  enhancing a successful, trusted plane that has been selling since 1969. As you probably know, both the 787 and the A380 have run into multi-year delays. Boeing’s strategy had worked well in the past, taking the world’s best-selling plane, the 737 (first introduced in 1967) and adding numerous enhancements over the decades.

The 747-8 actually took advantage of some of the new technology the firm created for the 787. The new wing design, engines, larger windows and storage bins all came from 787 innovations. The range, now 8,000 miles and more fuel-efficient engines make the updated plane a match for airlines with long, intercontinental flights. Lufthansa and Korean Air have ordered 25 planes so far.

The A380 is still the biggest plane by seating capacity (525 vs. 467 for the 747-8), height (79 ft. vs. 63 ft.), and range (300 miles more). But Boeing calls its enhanced jet  “that sweet spot in the market”.

Discussion questions:

1.  What is the difference between product enhancement and product migration?

2. Why was it important for Boeing to introduce the 747-8 model?

3. What were the major problems with the 787? (see our earlier blogs)

OM in the News: What Should Boeing and Airbus Do?

If you used just one industry and product line to illustrate every aspect of OM in your course, it could easily be Boeing’s 737  and  Airbus’ A320. From supply chain to outsourcing to quality/reliability to assembly lines, these competitors provide a plethora of OM examples.

Yesterday’s New York Times  raises the  topics of time -based competition and product enhancements (see Ch. 5).  Boeing’s enhancements of the 737,  introduced in 1967, have made the plane the largest selling commercial aircraft in history. Together with the A320, another narrow-body plane, the pair make up 3/4 of the fleets at the major airlines. There are more than 10,000 in service in the US and abroad.

Now the problem: airlines, facing $80/ barrel oil, want better fuel economy—and this hasn’t happened in the 737 and A320 in well over a decade. Airbus leans towards investing $1.5-$2 billion in new fuel-efficient engines–product enhancement. Boeing has announced it will hold off on new engines and instead create a new plane by 2020–product migration.

While dominating the market for commercial planes over the past 20 years, the 2 companies have loved leapfrogging each other with bold advances. But as demand for new planes bounces back from the recession, Boeing and Airbus are hamstrung by OM problems.

Boeing is 3 years late on its most important plane, the 787, made of lightweight carbon composites to slash fuel use. (And a fire on its test flight last week did nothing to help). Airbus is being hammered with the need to fix its superjumbo A380 after an engine blew up on a Qantas flight (see our blog on 11/10/10). And now new competitors from China, Russia, and Canada are entering the narrow body market. The newcomers will soon find that making quality planes is much harder than it might look.

Discussion questions:

1. What are the advantages and disadvantages of enhancement vs. migration for these 2 firms?

2. Why doesn’t Boeing  jump right in the make a new jet to replace the 737?

3. What is China’s goal vis-a-vis the commercial jet industry?

OM in the News: The Shrinking Roll of Toilet Paper

As Fortune points out in its latest issue (Nov.15,2010, p.21), in an article called “When Less is….Less?”, everything shrinks during a recession: GDP, your stock portfolio, and most definitely, products on a store shelf.

In Chapters 5 and 7 we allude to the  choices the OM manager has to help increase profits when price increases are a bad option. Here are three: (1) cut your raw material costs, if possible; (2) cut the quantity—did you notice that OJ and ice cream containers are smaller?;  (3) enhance the product –maybe a richer ice cream, or a stronger rake, or more miles between oil changes?

As one example, here is Fortune’s sad tale of your shrinking roll of  Scott 1000 toilet paper over the past 15 years:

1995 –size of a sheet is 4.5 x 4.5″ when Kimberly Clark buys Scott Paper.

1999–size now 4.5 x 4.1″–called a “softness enhancer”.

2006–size drops to 4.5 x 3.7″–a nice pattern is added.

2010 –size reduced to 4.1 x 3.7″–“a 10% stronger tissue”.

The OM implications: not only less raw material usage, but smaller packages mean 12-17% more units fit on a truck. With fewer trucks, fuel use drops by 345,000 gallons per year.

Discussion questions:

1. Ask your students to name some other products that have “been enhanced” to increase profits or save money.

2. Besides smaller sheet size, what else can be done to reduce costs? (This was an alternative strategy chosen by Georgia-Pacific and P&G’s toilet paper changes).

3. How does sustainability enter the picture as an OM tool?