Operations Management - Chapter 5: Goods and Service Design

Goods and Service Design Notes

Introduction

• Customers base purchase decisions on expectations of attributes:
  • Price
  • Quality
  • Value
  • Design
• Design strategy is key to business strategy.
• Companies use product design to meet customer demand for new/improved goods and services.
• Supply chains impact goods and services design.
• Product designers innovate by:
  • Lowering shipping costs via volume/weight reduction.
  • Using recyclable containers for reuse.

An Integrated Framework for Goods and Service Design

• The design process involves several steps applicable to both manufactured goods and services:
  • Step 1: Strategic Mission and Vision
  • Step 2: Strategic and Market Analysis, and Understanding Competitive Priorities
  • Step 3: Customer Benefit Package (CBP) Design and Configuration
    • Understanding customer needs and target markets.
    • Value customers place on time, place, information, entertainment, exchange, and form.
  • Step 4: Detailed Goods, Services, and Process Design
    • Includes prototype testing: testing a model's performance under actual operating conditions and assessing consumer reactions.
  • Step 5: Market Introduction/Deployment
    • Advertising, marketing, and offering the CBP to customers.
  • Step 6: Marketplace Evaluation
    • Evaluating sales and customer reactions.

Customer-Focused Design

• Design should reflect customer wants and needs.
• Customer-focused design integrates the voice of the customer into all decisions.
• Voice of the Customer:
  • Customer's requirements expressed in their own words.
• Quality Function Deployment (QFD):
  • Design process that translates customer voice into specific technical features.
  • Provides the blueprint for manufacturing or service delivery.
  • Applied to a specific manufactured good, service, or the entire Customer Benefit Package (CBP).

The House of Quality

• QFD process starts with a matrix called the House of Quality.
• The matrix relates the voice of the customer to technical features.
• Designers use a Likert scale to evaluate how well a design reflects customer requirements.

Designing Manufactured Goods

• Design involves determining technical specifications:
  • Dimensions
  • Tolerances
  • Materials
  • Purchased components
  • Choice of fonts and page layout.
• Coordination with operations managers is required to ensure manufacturability.

Tolerance Design

• Design blueprints provide:
  • Nominal Specification: The target dimension.
  • Tolerance: A range of permissible variation.
• Example:
  • Nominal specification: 0.500 cm
  • Tolerance: 0.020 cm
• Tolerance design determines acceptable tolerance levels.
• Narrow tolerances improve functionality but increase costs.
• Wide tolerances reduce costs but may negatively affect product performance.

The Taguchi Loss Function

• Taguchi measured quality as the variation from the target value.
• Translated variation into an economic loss function.
• Formula: L(x) = k(x - T)^2
  • L(x) : Monetary loss associated with deviating from the target
  • x : Actual value of the dimension
  • T : Target value
  • k : Constant that translates the deviation into dollars

Problem 5.1: Finding the Taguchi Loss Function

• Adjusting the speed of a cassette tape costs $20.
• Customers return devices if the tape speed is off by at least 0.15 inches per second.
• Target speed: 1.875 inches per second.
• Acceptable interval: (1.725, 2.025).

Solution 5.1: Finding the Taguchi Loss Function

1. Solve the Taguchi loss function for k.
2. Substitute the values of |x - T| = 0.15 inches per second and L(x) = 20.
   • L(x) = k(x - T)^2
   • k = L(x) / (x - T)^2
   • k = 20 / (0.15)^2 = 888.9

• The Taguchi loss function is:
  • L(x) = 888.9(x - 1.875)^2

Design for Reliability

• Reliability is the probability that a product performs its function for a stated period.
• Reliability is computed for each component.
  • Individual reliabilities are denoted by r1, r2, …, r_n.
• Series System:
  • An n-component series system fails if at least one component fails.
  • Rs = (r1)(r2)(r3)…(r_n)
• Parallel System:
  • An n-component parallel system fails only if all components fail.
  • Rp = 1 - (1 - r1)(1 - r2)(1 - r3)…(1 - r_n)

Problem 5.3: Computing Reliability of a Series System

• A blood analysis machine has three subassemblies: A, B, and C.
• Reliabilities:
  • A: 0.98
  • B: 0.91
  • C: 0.99
• What is the system reliability?

Solution:

• R_s = (0.98)(0.91)(0.99) = 0.883
• System reliability is 88.3%.

Problem 5.4: Computing Reliability of a Parallel System

• An electronic component has a reliability of 0.91.
• A parallel (backup) system is considered.

Solution:

• R_p = 1 - (1 - 0.91)(1 - 0.91)
• R_p = 1 - (0.09)(0.09) = 1 - 0.0081 = 0.9919
• Reliability increases from 91% to over 99%.

Problem 5.5: Computing Reliability of a Parallel System

• A series system with parallel redundancy for component B.

Solution:

1. Compute the reliability of the parallel subsystem for component B:
   • R_B = 1 - (1 - 0.9)^3 = 0.999
2. Compute the reliability of the equivalent series system:
   • R_s = (0.99)(0.999)(0.96)(0.98) = 0.93

Problem 5.6: Computing Reliability of a Parallel System with Series Subsystems

• The problem describes a parallel system consisting of two series subsystems.

Solution:

1. Convert each series subsystem to an individual component:
   • R_1 = (0.95)(0.98)(0.99) = 0.92167
   • R_2 = (0.99)(0.97) = 0.9603
2. Compute the equivalent parallel system:
   • R_p = 1 - (1 - 0.92167)(1 - 0.9603) = 0.9969
   • The reliability of the system is 99.7%.

Design for Manufacturability

• Design for Manufacturability (DFM) is designing a product for efficient production at the highest quality.
• Product Simplification: Simplifying designs to reduce complexity and costs.
  • Improves productivity, quality, flexibility, and customer satisfaction.
• Simpler designs reduce errors, decrease flow time, and increase process efficiency.

Design for Sustainability

• Increased pressure from environmental groups, states, municipalities, and consumers.
• Design for Environment (DfE) explicitly considers environmental concerns.
  • Includes designing for recycling and disassembly.

Service-Delivery System Design

• Design revolves around designing the service-delivery system and service encounters.
• Service-delivery system design includes:
  • Facility location and layout.
  • The servicescape.
  • Service process and job design.
  • Technology and information support systems.
• All components must be successfully addressed to enhance customer satisfaction.

Facility Location and Layout

• Location affects customer travel time and is an important competitive priority.
• Service facilities depend on good location decisions.
  • Examples: health clinics, rental car firms, post offices, health clubs, branch banks, libraries, hotels, and emergency rooms.
• Layout affects:
  • Process flow
  • Costs
  • Customer perception and satisfaction.

Servicescape

• Servicescape is all the physical evidence a customer might use to form an impression.
• Three principal dimensions:
  1. Ambient conditions
  2. Spatial layout and functionality
  3. Signs, symbols, and artifacts
• Servicescape environments vary in complexity:
  • Lean servicescape environments are simple.
  • Elaborate servicescape environments are more complicated.

Service Process and Information Support Systems

• Service process design involves developing an efficient sequence of activities.
• Customers and service providers often coproduce the service.
• Hard technology and information support systems ensure speed, accuracy, customization, and flexibility.
• Designing effective customer experiences is called service-encounter design.

Service-Encounter Design

• Focuses on the points of contact between the service provider and customers.
• Perception of the firm is created during these points of contact.
• Principal elements:
  • Customer-contact behavior and skills
  • Service-provider selection, development, and empowerment
  • Recognition and reward
  • Service recovery and guarantees

Customer-Contact Behavior and Skills

• Customer contact is the physical or virtual presence of customers in the service delivery system.
• High- or low-contact systems.
• Customer-contact requirements define the quality of customer contact.
  • Include response time, service management skills, and behavioral requirements.

Service-Provider Empowerment and Recognition

• Empowerment means giving people the authority to:
  • Make decisions based on what they feel is right.
  • Have control over their work.
  • Take risks and learn from mistakes.
  • Promote change.
• Key factors for motivation and retention:
  • Recognition
  • Advancement
  • Achievement
  • Nature of the work
  • Good compensation system

Service Guarantees

• A service upset is a problem that a customer faces with the service delivery system.
  • Includes service failure, error, defect, mistake, and crisis.
• A service guarantee is a promise to reward and compensate a customer if a service upset occurs.
• Types of service guarantees:
  • Explicit: Given in writing.
  • Implicit: Not given in writing, implied in everything a service provider does.

Service Recovery

• When a service upset occurs, companies need to recover customer trust and confidence.
• Service recovery is the process of correcting a service upset and satisfying customers.
• Steps:
  • Begin immediately after a service upset occurs.
  • Document the process and train employees to use them.
  • Listen to the customer and respond sympathetically.
  • Resolve the problem quickly, provide an apology, and offer compensation, if necessary.

LensCrafter: An Integrative Case Study

• LensCrafters is an optical chain with on-site eyeglass production.
• Mission Statement: focused on being the best by:
  • creating customers for life by delivering legendary customer service
  • developing and energizing its employees in the world’s best workplace
  • crafting perfect-quality eyewear in about an hour
  • delivering superior overall value to meet customers’ individual needs.
• CBP includes eyewear (goods) and eye exam/one-hour service (primary services).
• Manufacturing process is integrated into the service facility to provide rapid order response while not sacrificing quality.

Service-Delivery System Design Considerations:

• Location and store layout
• Servicescape
• Service processes
• Job designs
• Technology
• Organizational structure

Service Encounter Design

• Each job requires technical and service management skills.
• Considerations:
  • Human resource management processes and systems
  • Recognitions and rewards
  • Customer waiting time management
  • Standards for grooming and appearance
  • Training on service upsets and service recovery
  • Behavioral standards in customer interactions
  • Measurement and evaluation of employee performance
• Challenges include replicating the design concept in new locations and introducing changes into existing locations.

Check Your Knowledge

• 5.1 From which of the following perspectives must service design be addressed? The benefit package configuration, the service encounter
• One aspect of designing for sustainability is designing products that can be salvaged for reuse.
• 5.2 Which principal dimension of the servicescape is designed to please the five human senses? Ambient conditions
• When compared to low-contact systems, service-delivery systems with high customer contact are more difficult to design.