Operations Management

F O U R T H E D I T I O N

New Product and Service Development, and Process Selection

New Product and Service Development, and Process Selection

© The McGraw-Hill Companies, Inc., 2003

chapter 3

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Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–2

Chapter ObjectivesChapter ObjectivesChapter ObjectivesChapter Objectives

• Illustrate the importance of the development of new products and services to a firm’s competitiveness.

• Identify the various types of new products that are developed by companies.

• Introduce the new product design process and the concept of a product’s life cycle.

• Demonstrate the necessity of concurrent product and process design as a new product or service is developed.

• Present a framework for understanding how new services are developed and introduced into the marketplace.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–3

Managerial IssuesManagerial IssuesManagerial IssuesManagerial Issues

• Product life cycles becoming shorter.–The need to bring products to market more

quickly and efficiently.

• Conducting product development on a continuous basis.–New products may represent a majority of sales

and profits.–3M an innovative company, having strength to

introduce new products in the market at a faster pace with a great success record.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–4

Why the Emphasis on New Why the Emphasis on New Goods and ServicesGoods and Services

Why the Emphasis on New Why the Emphasis on New Goods and ServicesGoods and Services

• Increased CompetitionAdvances in worldwide telecommunicationsLower trade barriers (import duties and tariffs) and the

creation of trade organizations (NAFTA and European Union)

Faster transportation of goods

• Advances in TechnologyProducts become obsolete faster.Cell Phone sizes & features and PC’s speed and storage

are good examples.Improved manufacturing processes (CAD and CAM and

industrial robots)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–5

The Benefits of Introducing The Benefits of Introducing New Products FasterNew Products Faster

The Benefits of Introducing The Benefits of Introducing New Products FasterNew Products Faster

• Greater Market ShareEarly entry captures large initial market share.Semi-conductor industry – first two entrants share

majority of market• Price Premiums

Ability to initially charge more for new products.Products that are late to market have a –ve impact on

profitability in terms of cost overruns.• Quick Reaction to Competition

Rapid response to competitor’s new products.• Set Industry Standards

Initial product sets market/industry standards (entry barriers).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–6

The Impact of Speed to Market on SalesThe Impact of Speed to Market on SalesThe Impact of Speed to Market on SalesThe Impact of Speed to Market on Sales

Exhibit 3.1aExhibit 3.1a

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–7

The Impact of Speed to Market on The Impact of Speed to Market on Profit MarginsProfit Margins

The Impact of Speed to Market on The Impact of Speed to Market on Profit MarginsProfit Margins

Exhibit 3.1bExhibit 3.1b

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–8

The Impact of Speed to Market on ProfitsThe Impact of Speed to Market on ProfitsThe Impact of Speed to Market on ProfitsThe Impact of Speed to Market on Profits

Exhibit 3.1cExhibit 3.1c

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–9

Categories of New ProductsCategories of New ProductsCategories of New ProductsCategories of New Products

• Incremental or Derivative ProductsCost-reduced versions of existing products or

products with added functions & features.Are hybrids or enhancements of existing

products.Require minimal changes in design or process,

allowing for quick development.Require fewer resources to develop new

features or functions.Help ensure near-term cash flows by

maintaining current market share.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–10

Categories of New ProductsCategories of New ProductsCategories of New ProductsCategories of New Products

• Next Generation or Platform ProductsRepresent new “system” solutions for

customers.Require more resources to develop.Are key to continued product revenue growth.

Intel’s 286, 386, 486, PI, PII, PIII & PIV are examples

Ford’s MUSTANG modelsEnsure company’s growth and lay the

foundation for a series of evolutionary products in coming years.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–11

Categories of New ProductsCategories of New ProductsCategories of New ProductsCategories of New Products

• Breakthrough or Radical ProductsCreate new product categories as core

businesses.Require substantial design and process

change.Render existing products obsolete in long-term.First PC, first Laptop, first Cellular phone are

good example.CDs, Optic Fiber, Teflon are another class of

examples.These products are necessary for long term

success of the firm.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–12

The Trend toward Shorter The Trend toward Shorter Product Development TimesProduct Development TimesThe Trend toward Shorter The Trend toward Shorter

Product Development TimesProduct Development Times

Exhibit 3.2Exhibit 3.2Source: Data: Product Development & Management Association, Business Week, January 27, 1997, p. 6.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–13

The New Product The New Product Development (NPD) ProcessDevelopment (NPD) Process

The New Product The New Product Development (NPD) ProcessDevelopment (NPD) Process

• New Product Development ProcessThe method by which new products evolve from

conceptualization through engineering to manufacturing and marketing.

• Market Success Depends on NPDContinuously generate new product ideas.Convert ideas to reliable functional designs.Ensure that the designs are readily producible.Select the processes most compatible with

customer needs.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–14

Sequential Flow of Activities in Sequential Flow of Activities in Product Design and Process SelectionProduct Design and Process Selection

Sequential Flow of Activities in Sequential Flow of Activities in Product Design and Process SelectionProduct Design and Process Selection

Exhibit 3.3Exhibit 3.3

Source: Reprinted with the permission of the Free Press, an imprint of Simon & Schuster from Fast Cycle Times: How to Align Purpose, Strategy, and Structure for Speed by Christopher Meyer. Copyright © 1993 by Christopher Meyer.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–15

The New Product The New Product Development (NPD) ProcessDevelopment (NPD) Process

The New Product The New Product Development (NPD) ProcessDevelopment (NPD) Process

• Concurrent EngineeringThe simultaneous and coordinated efforts of all

functional areas which accelerates the time to market for new products.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–16

Concurrent Engineering Approach to NPDConcurrent Engineering Approach to NPDConcurrent Engineering Approach to NPDConcurrent Engineering Approach to NPD

Exhibit 3.4Exhibit 3.4

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–17

The New Product DevelopmentThe New Product Development (NPD) Process (cont’d) (NPD) Process (cont’d)

The New Product DevelopmentThe New Product Development (NPD) Process (cont’d) (NPD) Process (cont’d)

• Idea GenerationMarket pull: the “voice of the customer” in providing

feedback to determine product specifications.Technology push: a product developed by the firm’s R&D

is “pushed” into the market. Polaroid Cameras, PCs and 3M’s Post-it Notes are examples

• Concept DevelopmentInitial product design developed and tested.Analysis of the market and customer requirements.Businesses today recognize the need to involve their

customers in all aspects of design, production and delivery of goods and services.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–18

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

• Quality Function Deployment (QFD)The process for translating customer requirements into a

product’s design.

• Voice of the CustomerCustomer feedback is used in QFD process to determine

product specifications.Customer attributes:

• Product needs• Product preferences

Attributes are weighted based on their relative importance to customer.

Consumer is asked to compare and rate the company’s products with those of its competitors.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–19

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

• House of QualityThe part of the QFD process that uses customer

feedback for product design criteria.Use of QFD teams

• Identify important customer attributes.

• Design superior product.

• Shorten product design time.

• Facilitate inter-functional cooperation.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–20

Completed Completed House of House of Quality Quality MatrixMatrix

for a Car for a Car DoorDoor

Completed Completed House of House of Quality Quality MatrixMatrix

for a Car for a Car DoorDoor

Exhibit 3.5Exhibit 3.5

QFD DetailsQFD DetailsQFD DetailsQFD Details

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–21 21

Process used to ensure that the product meets customer specifications

Voice of theengineer

Voice of the

customer

Customer-basedbenchmarks

QFD – House of QualityQFD – House of QualityQFD – House of QualityQFD – House of Quality

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–22

Adding trade-offs, targets & developing product specifications

Trade-offs

Targets

TechnicalBenchmarks

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–23

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

• New Product Planning1. Build models of new product.

2. Test new elements and components.

3. Conduct detailed investment and financial analyses of product’s anticipated life cycle.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–24

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

The New Product Development The New Product Development (NPD) Process (cont’d)(NPD) Process (cont’d)

• Design for Manufacturability (DFM)Choosing manufacturing methods and

materials.Minimizing the number of individual parts:

• Reduces assembly time.

• Increases reliability. Setting product specifications.

• Output from the design activity that states all criteria for building a product.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–25

Design Change to ReduceDesign Change to Reducethe Number of Parts in a Bracketthe Number of Parts in a Bracket

Design Change to ReduceDesign Change to Reducethe Number of Parts in a Bracketthe Number of Parts in a Bracket

Exhibit 3.6Exhibit 3.6

Factors contributing to Successful Product Factors contributing to Successful Product DesignDesign

Factors contributing to Successful Product Factors contributing to Successful Product DesignDesign

• Design from the outside in. Make the customer’s use of the product the focus of all product development.

• Partner Deeply. Involve all of the relevant functional areas (marketing, engineering, purchasing & manufacturing) early in the design process to assist in defining the new product (concurrent engineering).

• Partner Widely. Organizational boundaries are becoming fused. Designers should involve all stakeholders – internal & external.

• Design the product upfront. Match the right product to the right market niche. Upfront design analysis will eliminate the faulty concepts early.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–26

Factors contributing to Successful Product Design – contd.Factors contributing to Successful Product Design – contd.Factors contributing to Successful Product Design – contd.Factors contributing to Successful Product Design – contd.

• Get physical fast. Use prototypes to visualize a concept and to obtain quick feedback from both users and managers.

• Design for manufacturability. Always design a product that will meet established quality, cost and delivery parameters. Manufacturing issues are as important to success as ergonomics, aesthetics and functionality.

• Surprise the user. Always build something extra into the product that will unexpectedly delight the customer. This creates customer loyalty and increases the chances of having a truly “hot” product.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–27

• WITH TODAY'S HUGE ARSENAL of drugs, doctors can control diabetes, glaucoma, hypertension, and dozens of other diseases. But they can't force people to take their medicine. Forgetful and reluctant patients rack up $25 billion in avoidable hospital bills each year, according to the National Pharmaceutical Council in Reston, Va., plus billions more in unnecessary nursing home admissions.

One remedy may be for the medicine containers themselves to remind patients when it's time to take a pop. Aprex Corp. in Fremont, Calif., builds a "smart" bottle cap that's equipped with its own chip, alarm clock, and a tiny display. The cap keeps track of how often the bottle is opened and can nudge patients with electronic beeps.

Now, Aprex has added a modem that reads the cap's memory and automatically relays to Aprex the number of times the cap was removed that day. If the count isn't right, the patient gets a reminder call in the morning. The service, called Dosing Partners, costs less than $2 a day--but isn't covered by insurance. Still, Aprex has drawn some big backers. Last fall, Pfizer invested $2 million to join Johnson & Johnson and New York Life as an equity partner.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–28

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–29

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–30

Process Selection in ManufacturingProcess Selection in ManufacturingProcess Selection in ManufacturingProcess Selection in Manufacturing

• Types of Processes–Project process

• Process that focuses on making one-of-a-kind products.

–Intermittent process• Process that produces products in small lot sizes

(e.g., job and batch operations).

–Line-flow process• Continuous process that produces high volume,

highly standardized products (e.g., assembly-line and continuous operations).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–31

Types of ProcessesTypes of ProcessesTypes of ProcessesTypes of Processes

Exhibit 3.7Exhibit 3.7

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–32

Process Selection in ManufacturingProcess Selection in ManufacturingProcess Selection in ManufacturingProcess Selection in Manufacturing

• The Product-Process Matrix–High production volumes and narrow product

lines make specialized equipment and standardized materials economically feasible.• Remaining in a process niche after the product

cycle has advanced to its next stage dooms a firm to market failure.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–33

Matching Major Stages of Matching Major Stages of Product and Process Life CyclesProduct and Process Life Cycles

Matching Major Stages of Matching Major Stages of Product and Process Life CyclesProduct and Process Life Cycles

Exhibit 3.8Exhibit 3.8Source: Adapted from Robert Hay and Steven Wheelwright, Restoring Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons, 1984).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–34

Product and Process Life CyclesProduct and Process Life CyclesProduct and Process Life CyclesProduct and Process Life Cycles

Exhibit 3.9Exhibit 3.9

New Service DevelopmentNew Service DevelopmentNew Service DevelopmentNew Service Development

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–36

Types of Incremental and New ServicesTypes of Incremental and New ServicesTypes of Incremental and New ServicesTypes of Incremental and New Services

Exhibit 3.10Exhibit 3.10

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–37

Categories of New ServicesCategories of New ServicesCategories of New ServicesCategories of New Services

• Incremental services–Service line extensions

• New services that augment current services.– New items on restaurant menu, new airline routes.

–Service improvements• New services in which features have changed relative

to existing services.– E-ticketing for airlines.

–Style changes• Modest forms of new services that change only the

appearance of the service.• Aimed to impact the customer’s perceptions, emotions

and attitudes.– Renovation of a restaurant, exterior painting of airplane with a new

logo.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–38

Categories of New Services (cont’d)Categories of New Services (cont’d)Categories of New Services (cont’d)Categories of New Services (cont’d)

• Radical–New service offerings that were not previously available

or new delivery system for existing service–Major innovations

• New services in markets not fully defined. Often driven by computer and information technology.

– Internet banking

–Start-up services• New services in established markets already served by

existing services.– Development of SMART card for retail transactions, customer

loyalty card by Lahore Chatkhara.

–New services for current markets• Added services to current customers.

– PICIC Bank’s kiosk in PC Lahore.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–39

A Framework for Categorizing New A Framework for Categorizing New ServicesServices

A Framework for Categorizing New A Framework for Categorizing New ServicesServices

Exhibit 3.11Exhibit 3.11

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–40

Categories of New ServicesCategories of New ServicesCategories of New ServicesCategories of New Services

Service Category Content Change

“Window Dressing” Not significantly different from other services

Delivered in similar fashion

Breadth of Offering Significant design change in content of service

Delivered in similar fashion

Revolutionary New in both content and delivery method

Channel Development Delivery of same/existing service through a different/new channel

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–41

Categories of New Services – Contd.Categories of New Services – Contd.Categories of New Services – Contd.Categories of New Services – Contd.

Service Category Examples

“Window Dressing” New courses at college

Could be brought into market in a relatively short period of time.

Breadth of Offering Marriott has variety, e.g., Fairfield Inns, Residence Inns, Marriott Courtyards and Marriott Suites.

Delivered in similar fashion but content is different

Revolutionary Overnight delivery service of FedEx using airplanes

Channel Development ATM Machines of banks

New Service Development ProcessNew Service Development ProcessNew Service Development ProcessNew Service Development Process

• NSD is very similar to NPD.• Designing of Product and Process is carried

out simultaneously.• It is impossible to separate product from

process.• The process starts with IDEA.• R & D in services occurs primarily in the

operations process w.r.t. how the service is delivered.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–42

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–43

New Service Development (NSD) Process – New Service Development (NSD) Process – Contd.Contd.

New Service Development (NSD) Process – New Service Development (NSD) Process – Contd.Contd.

Stage Activity

Design Formulating the objectives and strategy of the new service.

Analysis Considering the financial implications of the new service.

Examining supply chain issues for delivery of service.

Development Testing the service design, training personnel, conducting pilot runs.

Full Launch Releasing the service to the market place.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–44

NSD Process - PropositionsNSD Process - PropositionsNSD Process - PropositionsNSD Process - Propositions

• The NSD process is more likely to be nonlinear for the services that are less standardized or are delivered through more industrialized service channels.

• Competence in the planning phase activities of NSD process drives successful radical innovations, whereas competence in execution phase activities of the NSD process drives successful incremental innovations.

• Service failures and subsequent recovery efforts are often the result of using an ad hoc NSD process or the lack of NSD competence rather than from poor service execution.

• Effective portfolio management of individual NSD efforts will decrease the total risk of a firm’s NSD program and increase the probability of high NSD returns (Similar to the portfolio management approvals that mutual funds use)

• Portfolio-like management of NSD efforts will increase the fulfilment of heterogeneous customer needs.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–45

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning Service Processes

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning Service Processes

• Service systems are generally classified along industry lines–Financial services, health services, transportation and etc.–Such classification does not mention much about process

• Customer Contact–The presence of the customer in the system.

• Extent of Contact–The percent of time the customer is involved relative to

the time required to deliver the service.

• Creation of the Service–The work process involved in providing the service.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–46

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning Service Processes

The Customer Contact Approach to The Customer Contact Approach to Designing Service ProcessesDesigning Service Processes

High Degree High Degree of Customer of Customer

ContactContact

High Degree High Degree of Customer of Customer

ContactContact

Low Degree Low Degree of Customer of Customer

ContactContact

Low Degree Low Degree of Customer of Customer

ContactContact

Percentage of customer contact(customer influence on the system)

Difficulty in managing system

High Low

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–47

Major Differences between High- and Major Differences between High- and Low-Contact Systems in a BankLow-Contact Systems in a Bank

Major Differences between High- and Major Differences between High- and Low-Contact Systems in a BankLow-Contact Systems in a Bank

Exhibit 3.12Exhibit 3.12

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–48

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–49

The Service Process MatrixThe Service Process MatrixThe Service Process MatrixThe Service Process Matrix

Exhibit 3.13Exhibit 3.13

Source: Roger W. Schemenner, “How Can Service Businesses Survive and Prosper?” Sloan Management Review 27, no. 3 (Spring 1986), pp. 21–32, by permission of publisher. Copyright 1986 by Sloan Management Review Association, All rights reserved.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–50

Customer Contact Approach – Contd.Customer Contact Approach – Contd.Customer Contact Approach – Contd.Customer Contact Approach – Contd.

• Degree of customer interaction and customization, closely parallels the degree of customer contact.

• The degree of labour intensity to deliver service is also important• Service Factory

– Low degree of labour intensity and low degree of customer interaction and customization

• Service Shop– Low degree of labour intensity but higher degree of customer

interaction and customization

• Mass Service– High degree of labour intensity but has a relatively low degree of

customer interaction and customization

• Professional Service– High degree of labour intensity as well as higher degree of

customer interaction and customization

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–51

Generic Strategies for Service Generic Strategies for Service OrganizationsOrganizations

Generic Strategies for Service Generic Strategies for Service OrganizationsOrganizations

• Low Degree of labour intensityCapital intensive with high fixed costs.Can’t easily adjust capacity to meet changes in

demandMust attempt to smooth out demand during

peak periods by shifting it to off-peak periods

• High Degree of labour intensityWorkforce management is paramount.Emphasis should be on hiring training and

scheduling

• Benchmarking of best-in-class companies could help

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–52

Designing a New Service Designing a New Service OrganizationOrganization

Designing a New Service Designing a New Service OrganizationOrganization

• “Service Vision” (Heskett)–Identification of the target market

• Who is our customer?

–Defining the service concept• How do we differentiate our service in the market?

–Developing the service strategy• What is our service package and its operating

focus?

–Creating the service delivery system• What processes, staff, and facilities are needed?

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–53

Designing a New Service Organization – Designing a New Service Organization – Contd.Contd.

Designing a New Service Organization – Designing a New Service Organization – Contd.Contd.

• The process and the product must be developed simultaneously.

• Service operation itself lacks the legal protection, commonly available to goods production.

• Service package constitutes the major output of development process.

• Many parts of the service package often are defined by training individuals receive before they become part of organization.–Professional service organizations, e.g. law firms,

hospitals require certification prior to hiring• Many service organizations can change their service

offerings virtually overnight.–Barber shops, retail stores and restaurants

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–54

Service-System Design MatrixService-System Design MatrixService-System Design MatrixService-System Design Matrix

Exhibit 3.14Exhibit 3.14

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–55

Service-System Design Matrix – Contd. Service-System Design Matrix – Contd. Service-System Design Matrix – Contd. Service-System Design Matrix – Contd.

• Buffered Core – physically separated from the customer.

• Permeable System – customer can penetrate via phone or face-to-face contact

• Reactive System – Penetrable and reactive to customer requirements

• Greater the amount of customer contact, the greater the opportunity to generate additional sales.

• Face-to-face loose specs–Fast food restaurants and Disneyland, neither customer

nor server has much discretion on creating the service• Face-to-face total customization

–Where the specs. to be developed through some interaction b/w customer and server, e.g., legal and medical services

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–56

Strategic Uses of the Strategic Uses of the Service-System Design MatrixService-System Design Matrix

Strategic Uses of the Strategic Uses of the Service-System Design MatrixService-System Design Matrix

1. Enabling systematic integration of operations and marketing strategy.

2. Clarifying exactly which combination of service delivery the firm is actually providing.

As the company incorporates the delivery options (listed on diagonal) it is becoming diversified in production process.

3. Permitting comparison with other firms in the way specific services are delivered.

This helps to pinpoint a firm’s competitive advantage.

4. Indicating evolutionary or life cycle changes that might be in order as the firm grows.

The evolution of service delivery could move in either direction, unlike to that in manufacturing where from intermittent operation, movement is towards continuous operation.

5. Providing flexibility. One can go into depth, placing particular service products of a small firm or

cover a large service organization at more aggregated level.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–57

Process Selection in ServicesProcess Selection in ServicesProcess Selection in ServicesProcess Selection in Services

• Types of Service Organizations–Service businesses

• Facilities-based services that provide assistance to customers who come to the service facility. Banks, hospitals, law firms.

• Field-based services that provide on-site services to customers. Cleaning and home repair services.

–Customer support services• Provide product information and services to current

external customers. Product repair and maintenance services.

– Internal services• Provide services for other internal organizational units.

Functions such as, maintenance, accounting.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–58

Process Selection in Services Process Selection in Services (cont’d)(cont’d)

Process Selection in Services Process Selection in Services (cont’d)(cont’d)

• The Production Line ApproachOrientation is toward the efficient production of results—

precisely controlled execution of the “central function”.McDonald’s Big Mac

Besides marketing and financial skills, the company carefully controls the execution of each outlet’s central function – the rapid delivery of a consistently uniform, high quality mix of prepared food in a clean environment, with cheerful courtesy.

The systematic substitution of equipment for people, combined with carefully planned use and positioning of technology enables McDonald’s to attract customers in un-precedented manner.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–59

McDonald’s Production Line ApproachMcDonald’s Production Line ApproachMcDonald’s Production Line ApproachMcDonald’s Production Line Approach

The McDonald’s french fryer allows cooking of the optimum number of french fries at one time.

A wide-mouth scoop is used to pick up the precise amount of french fries for each order size. (The employee never touches the product)

Storage space is expressly designed for a predetermined mix of pre-packaged and pre-measured products.

Cleanliness is pursued by providing ample trash cans in and outside each facility. (larger outlets have motorized sweepers for parking areas)

Hambergers are wrapped in color coded paper.Through painstaking attention to total design and facilities

planning, everything is built integrally into the (McDonald’s) machine itself – into the technology of system. The only choice available to the attendant is to operate it exactly as the designer intended.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–60

Process Selection in Services – Contd.Process Selection in Services – Contd.Process Selection in Services – Contd.Process Selection in Services – Contd.

• The Customer Involvement ApproachHaving the customer take a greater

participatory role in the production of the service.• ATMs, self-service gas stations, salad bars, in-

room coffee-making equipment in hotel rooms.This turns customer into partial employees,

who must be trained in what to do and be compensated primarily through lower prices that are charged for service.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–61

Process Selection in Services – Contd.Process Selection in Services – Contd.Process Selection in Services – Contd.Process Selection in Services – Contd.

• The Personal Attention ApproachThe central focus is complete customer

attention and satisfaction at all times.It is the concept of mass-customization, applied

to services.Each customer is treated as an individual, with

the service firm often maintaining a database of each customer’s likes and dislikes.

This information may be available within one particular facility or for all facilities of that organization.

Ritz-Carlton does it for all of its guests.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–62

Common Characteristics of Common Characteristics of Well-Designed Service SystemsWell-Designed Service Systems

Common Characteristics of Common Characteristics of Well-Designed Service SystemsWell-Designed Service Systems

1. Each element of the service system is consistent with the operating focus of the firm.

2. It is user-friendly—customers can interact easily.3. It is robust—capable of coping with variations in

demand and resources availability4. It is structured so that consistent performance by its

people and systems is easily maintained. Supportive technologies are truly supportive and

reliable.

5. It provides effective links between the back office and the front office so that nothing falls between the cracks.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–63

Common Characteristics of Common Characteristics of Well-Designed Service Systems (cont’d)Well-Designed Service Systems (cont’d)

Common Characteristics of Common Characteristics of Well-Designed Service Systems (cont’d)Well-Designed Service Systems (cont’d)

6. It manages the evidence of service quality in such a way that customers see the value of the service provided. This is particularly true where a service improvement

is made. Unless customers are made aware of improvement through explicit communication about it, the improved performance is unlikely to gain maximum impact.

7. It is cost-effective—there is a minimum waste of time and resources in delivering the service.