Design for market systems

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A new set of [[Design for X]] tools is emerging to help engineers avoid the old “throw-it-over-the-wall” approach to product development. Engineering researchers studying design for market systems aim to integrate market and production models into the [[optimization]] of engineered products by measuring and accounting for the downstream market consequences of design choices.  
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A new set of [[Design for X]] tools is emerging to help engineers avoid the old “throw-it-over-the-wall” approach to product development. Engineering researchers studying design for market systems aim to understand, predict, and account for market implications of engineering design decisions.  
-
“Some products can be launched with scant knowledge of engineering details, but when high-tech products are involved, engineering analysis is critical to making good business decisions,” says [[Jeremy J. Michalek]], Assistant Professor in the Department of Mechanical Engineering and the Department of Engineering and Public Policy at Carnegie Mellon University.  
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“Some products can be launched with scant knowledge of engineering details, but when high-tech products are involved, engineering analysis is critical to making good business decisions,” says [[Jeremy J. Michalek]], Assistant Professor in the Department of Mechanical Engineering and the Department of Engineering and Public Policy at Carnegie Mellon University and part of the Design for Market Systems community. “We talk of market systems because we are looking at systems-level economic interactions among producers, consumers, retailers, regulators, and other stakeholders and decision-makers to understand their implications in engineering design,” says Michalek.  
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Mechanical engineers learn fundamental physical principles that allow them to design products for technical objectives like minimum weight or maximum efficiency. But when it comes to understanding what these technical tradeoffs mean in the marketplace, suddenly science turns into black magic. “Mechanical engineering students are often surprised to learn that quantitative tools based on fundamental principals can also be used to understand and predict the market consequences of design choices,” says Michalek.
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Mechanical engineers learn fundamental physical principles that allow them to design products for technical objectives like minimum weight or maximum efficiency. But when it comes to understanding what these technical tradeoffs mean in the marketplace, suddenly science turns into black magic.  
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+
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A group of researchers around the world is working to integrate engineering and market analysis to support interdisciplinary decision-making and train the next generation of engineers to proactively support the firm’s strategic goals, advise policymaking, and drive innovation. Design for market systems research, some of which originated with the [[decision-based design]] program supported by the National Science Foundation, emphasizes predicting the market implications of design choices and making informed, intentional tradeoffs in design toward achieving market objectives. “We talk of market systems because we are looking into issues like the influence that competitive reactions, strategic retailer behavior, changes in public policy, and diverse dynamic consumer preferences have on engineering design. We are looking at systems-level economic interactions and the role they play in detailed engineering design decision-making.”
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Michalek’s efforts have included the creation of a new course called [[DTEDE|Decision Tools for Engineering Design and Entrepreneurship]], co-taught this past spring with [[Erica Fuchs]], Assistant Professor of Engineering and Public Policy. Students in the course learned methods for developing manufacturing cost plans, including the implications of design choices on yield rates, labor, capital costs and ultimately the net present value of future cash flows. They also learned to build consumer choice models based on past purchase data and design-of-experiments-based survey data that allow students to predict how competitive a new product or technology is likely to be. Students formed teams and applied their tools to study several new technologies, including LEDs for stage lighting, a new surfboard design, lithium-ion laptop batteries, electrical power transmission components, and a patented dosimeter invention. One team even traveled to China to study manufacturing operations at the sponsor’s facility.
Michalek’s efforts have included the creation of a new course called [[DTEDE|Decision Tools for Engineering Design and Entrepreneurship]], co-taught this past spring with [[Erica Fuchs]], Assistant Professor of Engineering and Public Policy. Students in the course learned methods for developing manufacturing cost plans, including the implications of design choices on yield rates, labor, capital costs and ultimately the net present value of future cash flows. They also learned to build consumer choice models based on past purchase data and design-of-experiments-based survey data that allow students to predict how competitive a new product or technology is likely to be. Students formed teams and applied their tools to study several new technologies, including LEDs for stage lighting, a new surfboard design, lithium-ion laptop batteries, electrical power transmission components, and a patented dosimeter invention. One team even traveled to China to study manufacturing operations at the sponsor’s facility.
Michalek also received the National Science Foundation’s prestigious CAREER award to examine the effect that public policies, such as the [[CAFE|new fuel economy standards]] passed by Congress last December, and market forces, such as rising gas prices, changing consumer preferences, and competitive pressures, will have on automotive design. “With all of the technical tradeoffs involved in designing automobiles and selecting among technologies like hybrids, plug-ins, and alternative fuel vehicles, it’s hard to understand the market and get policy right without some understanding of what’s physically possible to produce – and at what cost. Engineers have this experience and intuition, and they know how to build these models. Engineers need to have a stronger role in market planning and policymaking.”
Michalek also received the National Science Foundation’s prestigious CAREER award to examine the effect that public policies, such as the [[CAFE|new fuel economy standards]] passed by Congress last December, and market forces, such as rising gas prices, changing consumer preferences, and competitive pressures, will have on automotive design. “With all of the technical tradeoffs involved in designing automobiles and selecting among technologies like hybrids, plug-ins, and alternative fuel vehicles, it’s hard to understand the market and get policy right without some understanding of what’s physically possible to produce – and at what cost. Engineers have this experience and intuition, and they know how to build these models. Engineers need to have a stronger role in market planning and policymaking.”
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Some of the research in Design for Market Systems grew out of the Decision-Based Design initiative supported by the National Science Foundation in the 1990s. Researchers working to establish a solid basis in decision theory to support engineering design found that the ability to predict market behavior was often key to supporting sound decision-making in product design.
Professor Wei Chen, Director of the Integrated DEsign Automation Laboratory (IDEAL) at Northwestern University, is leading her group to integrate the modeling of heterogenous consumer preference into configuring complex engineering systems. Chen thinks the critical need for designing marketing systems is to develop methods for assessing the impact of engineering decisions upon customer choices. “Existing approaches are limited in their scope and have not sufficiently modeled the heterogeneity in consumer preference; nor have they adequately considered consumer perceptions and emotional aspects in product selection”.  Collaborating with market research experts at J.D.Power & Associates and engineering design groups at the Ford Motor Company, Chen’s research group has been developing analytical modeling approaches to study the impact of various types of consumer heterogeneity, e.g., social economic, anthropometric, usage context, and purchase history.  An example of their work is the development of an information-based hierarchical choice modeling approach for managing and analyzing consumer preference data from multiple sources in setting vehicle interior package design targets.  
Professor Wei Chen, Director of the Integrated DEsign Automation Laboratory (IDEAL) at Northwestern University, is leading her group to integrate the modeling of heterogenous consumer preference into configuring complex engineering systems. Chen thinks the critical need for designing marketing systems is to develop methods for assessing the impact of engineering decisions upon customer choices. “Existing approaches are limited in their scope and have not sufficiently modeled the heterogeneity in consumer preference; nor have they adequately considered consumer perceptions and emotional aspects in product selection”.  Collaborating with market research experts at J.D.Power & Associates and engineering design groups at the Ford Motor Company, Chen’s research group has been developing analytical modeling approaches to study the impact of various types of consumer heterogeneity, e.g., social economic, anthropometric, usage context, and purchase history.  An example of their work is the development of an information-based hierarchical choice modeling approach for managing and analyzing consumer preference data from multiple sources in setting vehicle interior package design targets.  
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The third group of researchers active in this area has been working with Shapour Azarm, Professor of Mechanical Engineering at the University of Maryland, College Park (UMCP). Azarm’s group started working on this problem in 1997 with a grant from NSF, and matching support from Black and Decker (B&D) and Maryland Industrial Partnerships (MIPS). In 2002, P. K. Kannan, Associate Professor of Marketing at UMCP’s R.H. Smith School of Business joined Azarm’s group for a second NSF grant in this area.  This program also included a partnership with B&D and MIPS and focused on developing new product designs that are robust from two perspectives – robustness from the engineering perspective in terms of accounting for uncertain parameters and robustness from the market perspective in terms of considering variability in customer preference measurement. The developed methodology for both product design and product-line design applies a multi-objective genetic algorithm that incorporates multifunction criteria in order to identify better designs while incorporating the robustness criteria in the selection process.  Design managers would find the approach helpful for obtaining customers’ buy-in as well as internal buy-in early on in the product development cycle and thereby for reducing the cost and time involved in developing robust prototypes that can withstand variability not only in engineering performance but also in market performance.  The methodology can also incorporate consumer heterogeneity in considering the variability in customer preferences, which can have a significant impact on the ultimate design.  
+
A third group of researchers at the University of Maryland, College Park (UMCP), lead by Professor Shapour Azarm, started working on this problem in 1997 with a grant from NSF, and matching support from Black and Decker (B&D) and Maryland Industrial Partnerships (MIPS). Working with P. K. Kannan, Associate Professor of Marketing at UMCP’s R.H. Smith School of Business, the group is working to developing new product designs that are robust from two perspectives – from the engineering perspective in terms of accounting for uncertain parameters and from the market perspective in terms of accounting for variability in customer preference measurement. Design managers would find their approaches helpful for obtaining customers’ buy-in as well as internal buy-in early on in the product development cycle and thereby for reducing the cost and time involved in developing robust prototypes that can withstand variability not only in engineering performance but also in market performance.  The methodology can also incorporate consumer heterogeneity in considering the variability in customer preferences, which can have a significant impact on the ultimate design.  
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The group has also been studying the influence of an emerging stakeholder, the big-box retailers such as Wal-Mart, Home Depot, and Lowes, who control in excess of 70% of the market share for some product categories. The strategic position enjoyed by these firms allows them to demand cost reductions from manufacturers as well as dictate acceptable characteristics of new products allowed to occupy valuable shelf space. But what impact will these retailers have on product design?
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Finally, under a current NSF grant, since 2007, the above UMCP researchers have been considering in addition to heterogeneous consumer segments, an emerging stakeholder, the big-box retailers such as Wal-Mart, Home Depot, and Lowes, who control in excess of 70% of the market share for certain product categories.  The strategic position enjoyed by these firms allows them to demand cost reductions from manufacturers as well as dictate acceptable characteristics of new products allowed to occupy valuable shelf space.  This emerging reality has been the recent focus of Assistant Professor Nathan Williams (now at Washington State University), who together with Azarm and Kannan have focused on this phenomenon and its impact on engineering design.  Their research suggests that manufacturers can ill afford to ignore the objectives of other stakeholders (retailers) in the retail channel.  Designs that do not consider the retail pricing environment and the retailers’ acceptance criteria are suboptimal in terms of profit and ultimately risk denial of market access.  Since it is unlikely that the recent retailer consolidation will dissolve to the “mom and pop” shops of eras past, engineers of the future will need to understand the impact of the resulting strategic pricing forces, competitive positioning of product attributes, cost modeling, and customer preferences.
+
This emerging reality has been the recent focus of Assistant Professor Nathan Williams (now at Washington State University), whose research suggests that manufacturers can ill afford to ignore the objectives of other stakeholders (retailers) in the retail channel.  Designs that do not consider the retail pricing environment and the retailers’ acceptance criteria make decisions that are suboptimal in terms of profit and ultimately risk denial of market access.  Since it is unlikely that the recent retailer consolidation will dissolve to the “mom and pop” shops of eras past, engineers of the future will need to understand the impact of the resulting strategic pricing forces, competitive positioning of product attributes, cost modeling, and customer preferences. “The next step will be to proactively develop new marketing/design strategies that lead or influence the market (i.e., disruptive design strategies) rather than those that just concur and optimize for the recent changes” said Nathan Williams.
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This most recent research effort has also focused on product bundling (the sale of complimentary groups of products) through retail channels which has become common place. Manufacturers and retailers are able to create greater margins by increasing value to customers through these bundles.  While it is possible to simply sell two products in one package for one price the best opportunities for firms is to “design product bundles for customer preferences from the outset to take advantage of cost and usage synergies amongst the products” said Nathan Williams.  One example is the recent approach by power tool manufacturers to bundle cordless tools that operate off of a single battery and charger.  This approach has significant impacts on costs (less batteries) and designs (less variety in battery voltage and energy content for unique tool usage).  These investigations by the UMCP team, not surprisingly, show that optimal engineering designs change as we incorporate market forces that are commonly observed.  “The next step will be to proactively develop new marketing/design strategies that lead or influence the market (i.e., disruptive design strategies) rather than those that just concur and optimize for the recent changes” said Nathan Williams.
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"With increased importance placed on innovation for maintaining international competitiveness in the globalized economy, engineers need more than strong technical skills," says Professor Michalek. The Design for Market Systems movement is working to provide engineers with the tools they need to understand how the systems they design interact with broader market systems so that they can identify opportunities and make well-informed strategic decisions.

Revision as of 14:41, 29 July 2008

A new set of Design for X tools is emerging to help engineers avoid the old “throw-it-over-the-wall” approach to product development. Engineering researchers studying design for market systems aim to understand, predict, and account for market implications of engineering design decisions.

“Some products can be launched with scant knowledge of engineering details, but when high-tech products are involved, engineering analysis is critical to making good business decisions,” says Jeremy J. Michalek, Assistant Professor in the Department of Mechanical Engineering and the Department of Engineering and Public Policy at Carnegie Mellon University and part of the Design for Market Systems community. “We talk of market systems because we are looking at systems-level economic interactions among producers, consumers, retailers, regulators, and other stakeholders and decision-makers to understand their implications in engineering design,” says Michalek.

Mechanical engineers learn fundamental physical principles that allow them to design products for technical objectives like minimum weight or maximum efficiency. But when it comes to understanding what these technical tradeoffs mean in the marketplace, suddenly science turns into black magic.

Michalek’s efforts have included the creation of a new course called Decision Tools for Engineering Design and Entrepreneurship, co-taught this past spring with Erica Fuchs, Assistant Professor of Engineering and Public Policy. Students in the course learned methods for developing manufacturing cost plans, including the implications of design choices on yield rates, labor, capital costs and ultimately the net present value of future cash flows. They also learned to build consumer choice models based on past purchase data and design-of-experiments-based survey data that allow students to predict how competitive a new product or technology is likely to be. Students formed teams and applied their tools to study several new technologies, including LEDs for stage lighting, a new surfboard design, lithium-ion laptop batteries, electrical power transmission components, and a patented dosimeter invention. One team even traveled to China to study manufacturing operations at the sponsor’s facility.

Michalek also received the National Science Foundation’s prestigious CAREER award to examine the effect that public policies, such as the new fuel economy standards passed by Congress last December, and market forces, such as rising gas prices, changing consumer preferences, and competitive pressures, will have on automotive design. “With all of the technical tradeoffs involved in designing automobiles and selecting among technologies like hybrids, plug-ins, and alternative fuel vehicles, it’s hard to understand the market and get policy right without some understanding of what’s physically possible to produce – and at what cost. Engineers have this experience and intuition, and they know how to build these models. Engineers need to have a stronger role in market planning and policymaking.”

Some of the research in Design for Market Systems grew out of the Decision-Based Design initiative supported by the National Science Foundation in the 1990s. Researchers working to establish a solid basis in decision theory to support engineering design found that the ability to predict market behavior was often key to supporting sound decision-making in product design.

Professor Wei Chen, Director of the Integrated DEsign Automation Laboratory (IDEAL) at Northwestern University, is leading her group to integrate the modeling of heterogenous consumer preference into configuring complex engineering systems. Chen thinks the critical need for designing marketing systems is to develop methods for assessing the impact of engineering decisions upon customer choices. “Existing approaches are limited in their scope and have not sufficiently modeled the heterogeneity in consumer preference; nor have they adequately considered consumer perceptions and emotional aspects in product selection”. Collaborating with market research experts at J.D.Power & Associates and engineering design groups at the Ford Motor Company, Chen’s research group has been developing analytical modeling approaches to study the impact of various types of consumer heterogeneity, e.g., social economic, anthropometric, usage context, and purchase history. An example of their work is the development of an information-based hierarchical choice modeling approach for managing and analyzing consumer preference data from multiple sources in setting vehicle interior package design targets.

A third group of researchers at the University of Maryland, College Park (UMCP), lead by Professor Shapour Azarm, started working on this problem in 1997 with a grant from NSF, and matching support from Black and Decker (B&D) and Maryland Industrial Partnerships (MIPS). Working with P. K. Kannan, Associate Professor of Marketing at UMCP’s R.H. Smith School of Business, the group is working to developing new product designs that are robust from two perspectives – from the engineering perspective in terms of accounting for uncertain parameters and from the market perspective in terms of accounting for variability in customer preference measurement. Design managers would find their approaches helpful for obtaining customers’ buy-in as well as internal buy-in early on in the product development cycle and thereby for reducing the cost and time involved in developing robust prototypes that can withstand variability not only in engineering performance but also in market performance. The methodology can also incorporate consumer heterogeneity in considering the variability in customer preferences, which can have a significant impact on the ultimate design.

The group has also been studying the influence of an emerging stakeholder, the big-box retailers such as Wal-Mart, Home Depot, and Lowes, who control in excess of 70% of the market share for some product categories. The strategic position enjoyed by these firms allows them to demand cost reductions from manufacturers as well as dictate acceptable characteristics of new products allowed to occupy valuable shelf space. But what impact will these retailers have on product design?

This emerging reality has been the recent focus of Assistant Professor Nathan Williams (now at Washington State University), whose research suggests that manufacturers can ill afford to ignore the objectives of other stakeholders (retailers) in the retail channel. Designs that do not consider the retail pricing environment and the retailers’ acceptance criteria make decisions that are suboptimal in terms of profit and ultimately risk denial of market access. Since it is unlikely that the recent retailer consolidation will dissolve to the “mom and pop” shops of eras past, engineers of the future will need to understand the impact of the resulting strategic pricing forces, competitive positioning of product attributes, cost modeling, and customer preferences. “The next step will be to proactively develop new marketing/design strategies that lead or influence the market (i.e., disruptive design strategies) rather than those that just concur and optimize for the recent changes” said Nathan Williams.

"With increased importance placed on innovation for maintaining international competitiveness in the globalized economy, engineers need more than strong technical skills," says Professor Michalek. The Design for Market Systems movement is working to provide engineers with the tools they need to understand how the systems they design interact with broader market systems so that they can identify opportunities and make well-informed strategic decisions.

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