1
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
1
Business Systems Business Systems ––Operations ManagementOperations Management
Facilitator:Facilitator:Dr. Jonathan FarrellDr. Jonathan Farrell
Session 4 – Product & Service Design, Supply Network Design
2
This EveningThis Evening’’s Programs Program
• Product & Service Design– Why is it important?– What are the stages– Quality Function Deployment (QFD)
• Case Study – Chatsworth House (pp 143-144)• Exercises (refer to the Folder of Readings) • Supply Network Design
– Why?– What is involved?– Location & Capacity?
2
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
3
Some DefinitionsSome Definitions
Product: “A thing produced by any action or operation, or by labour”
Service: “The supplying of any articles, commodities or activities, etc., required or demanded”
Activity: “A specific deed or action”
Process: “A systematic series of actions directed to some end”*
*Source, Macquarie Dictionary*Source, Macquarie Dictionary
4
The product / service design feedback loopThe product / service design feedback loop
Marketing
OperationsProduct
or service design
Customer
ExpectationsInterpretation of expectations
Productor service specification
Productor service
3
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
5
Design of Design of the productthe productor serviceor service
Design of Design of the process or the process or service service delivery delivery systemsystem
Decisions taken during the design of theDecisions taken during the design of theproduct/service impact upon the processproduct/service impact upon the process
which produces it and vice versawhich produces it and vice versa
Design for Manufacture vs Design for Manufacture vs Manufacture for DesignManufacture for Design
6
Design of Design of the productthe productor serviceor service
Design of Design of the process or the process or service service delivery delivery systemsystem
Decisions taken during the design of theproduct/service impact upon the process
which produces it and vice versa
Products/services should be designed so
that they can be created effectively
Processes should bedesigned so that they can
create all products/servicesthe operation may introduce
Design for Manufacture vs Design for Manufacture vs Manufacture for DesignManufacture for Design
4
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
7
Design is itself a transformation processDesign is itself a transformation process
TRANSFORMED RESOURCES
Technical informationMarket informationTime information
TRANSFORMING RESOURCES
Test and design equipmentDesign and technical staff
INPUTSTHE DESIGN
ACTIVITY OUPUT FINISHED DESIGNS
8
Product DesignProduct Design
• Value adding through design or form.• How can a toilet brush sell for $2 at K-Mart and for
$60 at David Jones?• Trade-offs between function and form.
5
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
9
Product Design Product Design –– The Five StepsThe Five Steps
1. Concept Generation2. Establish Customer Requirements3. Evaluation of Requirements4. Preliminary Design5. Final Design & Prototyping
10
Concept generation
Marketing department
Internal sourcesInternal sources External sourcesExternal sources
Analysis of customer needs
Suggestions coming from customer contact staff
Ideas from research and development
Market surveys
Suggestions coming from customers
Actions of competitors
Step 1 Concept GenerationStep 1 Concept Generation
6
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
11
© 1998 by Prentice-Hall IncRussell/Taylor Oper Mgt 2/e
Conceptual Map Of Breakfast CerealsConceptual Map Of Breakfast Cereals
Good tasteGood taste
Bad tasteBad taste
High nutritionHigh nutritionLow nutritionLow nutrition
•Cocoa Pops
•Rice Bubbles
•Wheaties
•Nutri-Grain
•Shredded Wheat
•Muesli
12
Step 2 Step 2 –– Establish Customer RequirementsEstablish Customer Requirements
• Market Research• Customer Complaints• Sales Enquiries• Quality Function Deployment
7
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
13
Quality Function Deployment Quality Function Deployment
• Find out what the customer wants in the product• Weight the customer’s requirements based on
customer importance• Get the customer to rank your product against the
competition based on these weighted requirements• Construct a “House of Quality matrix”
14
WhatsWhats
How you are How you are going to going to provide itprovide it
What theWhat thecustomercustomerwantswants
Who theWho thecompetitorscompetitorsare are
How How muchsmuchs
HowsHows WhWhooss
Target values Target values of what we of what we will dowill do
House of House of Quality Quality matrixmatrix
8
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
15
Hows
Whats
HowMuchs
Hows
Whats
HowMuchs
Hows
Whats
HowMuchs
QFD CascadeQFD Cascade
e.g. packaging probleme.g. packaging problem
16
Screening filtersScreening filters
Marketing Marketing screenscreen
Operations Operations screenscreen
FinancialFinancialscreenscreen
Step 3 Evaluation of RequirementsStep 3 Evaluation of Requirements
9
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
17
Value AnalysisValue Analysis // Value EngineeringValue Engineering
• Achieve equivalent or better performance at a lower cost while maintaining all functional requirementsdefined by the customer.
Does the item have any design features that are not necessary?Can two or more parts be combined into one?How can we cut down the weight?Are there nonstandard parts that can be exchanged for standard parts?
18
Step 4 Step 4 -- Preliminary DesignPreliminary Design
• Create functional design• Build prototype• Test prototype• Revise prototype• Retest
““DesignDesign--BuildBuild--TestTest”” cyclecycle
10
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
19
PrototypingPrototyping
Prototypes are needed so products and services can be tested
Prototypes come in various forms:
- card models;
- clay models;
- computer simulations.
CAD has considerably simplified the production of prototypes
20
Step 5 Step 5 -- Final Design & Process PlanningFinal Design & Process Planning
• Produce detailed drawings & specifications• Create workable instructions for manufacture or
delivery of service• Select tooling & equipment• Prepare job descriptions• Determine operation & assembly order• Set KPIs
11
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
21
Flow process chart Flow process chart symbolssymbols
An operation, task or work
activity
A movementof materials or information or
people from one place to another
An inspection, check or
examination of materials or
information or people
A delay or pause in the
process
A storage of materials or file of information
or queue of people
22
Flow process chart for one day on an Flow process chart for one day on an adventure holidayadventure holiday
Flow process chartActivity ÉÉÉÉÉÉÉÉÉÉÉ.ÉÉÉ. . Location ÉÉÉÉÉÉÉÉÉÉ.
Description of element1 Get up
2 Go to washroom
3 Wash, brush teeth
4 Return to bedroom
5 Dress
6 Go to dining room
7 Await serving
8 Eat
9 Go to rifle range
10 Await instructor and equipment
11 Check equipment
12 Rifle shooting
12
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
23
In most service operations, the overlap In most service operations, the overlap between service and process design is between service and process design is implicitimplicit in the nature of the service.in the nature of the service.
Design of the Design of the productproduct
Design of the Design of the processprocess
Design Design of the of the serviceservice
Design of Design of the the processprocess
In manufacturing operations, In manufacturing operations, overlapping the activities of the product overlapping the activities of the product and process design is and process design is beneficial.beneficial.
Product Design Product Design vsvs Service DesignService Design
24
Characteristics of ServicesCharacteristics of Services
• Customer participates in the service process
• Simultaneous production and consumption
• Experience versus Consumption
• A service is a perishable commodity – not always repeatable
13
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
25
Characteristics of Services (cont.)Characteristics of Services (cont.)
• Customer and provider must meet (although not necessarily physically) for the service to be performed
• Most services are labour intensive – however more services are becoming technology intensive
• Services are intangible (ideas & concepts) – you only see the result (or not) of a service
• Services typically have a high holding cost and low service delivery cost
26
The Service PackageThe Service Package
Supporting Facilities:Supporting Facilities: Infrastructure (eg ski lift)Infrastructure (eg ski lift)
Facilitating goods:Facilitating goods: Physical item (eg skis)Physical item (eg skis)
Information:Information: Customer info.Customer info.
Explicit services:Explicit services: Observed, felt benefitsObserved, felt benefits
Implicit services:Implicit services: Psychological benefitsPsychological benefits
A mix of tangible and intangible attributesA mix of tangible and intangible attributes
14
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
27
Service Design ElementsService Design ElementsService Design Elements
•• StructuralStructuralDelivery systemDelivery system (front & back office)(front & back office)Facility designFacility design (aesthetics, layout)(aesthetics, layout)LocationLocation (competition, site characteristics)(competition, site characteristics)Capacity planningCapacity planning (number of servers)(number of servers)
•• ManagerialManagerialService encounterService encounter (culture, empowerment)(culture, empowerment)QualityQuality (measurement, guarantee)(measurement, guarantee)Managing capacity and demandManaging capacity and demand (queues)(queues)Information Information (data collection, resource)(data collection, resource)
28
In Planning Services, there are In Planning Services, there are several factors to consider . . .several factors to consider . . .
• Who are the customers?
• What are the services they want / need?
• How are they delivered?
• What are their expectations?
• Who are the consumers?
15
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
29
Customers & Consumers Are Customers & Consumers Are Becoming More DemandingBecoming More Demanding
• More focused services
• High quality
• Better response times
• Better value for money
• Customers & consumers are more informed
30
Customers versus ConsumersCustomers versus Consumers
• With products, the customer and the consumer are typically the same person – not so with services
• Most service centres don’t recognise the differences, and their very different needs
• Customers and consumers have different requirements for the same service
• Different resources are usually required to service customer / consumer
16
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
31
The Difference Between The Difference Between Customers and ConsumersCustomers and Consumers
• The customer:– Negotiates the need for the services– Driven by his/her goals and objectives– Cost conscious
• The consumer:– Requires the service to carry out his/her job– Not necessarily interested in cost– Not interested in processes, procedures, etc. – Focus on time to complete the service
32
Customers & Consumers Are Becoming Customers & Consumers Are Becoming More DemandingMore Demanding
• More focused services
• High quality
• Better response times
• Better value for money
• Customers & consumers are more informed
17
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
33
Why Define Services?Why Define Services?
• Poor Service Definitions are recognised as the single biggest cause of failure in any agreement between provider and customer
• Poorly defined services lead to:
– Confusion over what’s being delivered, and how & when it is to be delivered
– Differences in expectations
– “out of scope” increases in service provision costs
34
Designing ServicesDesigning Services
• The most difficult aspects of any service:– understanding just what the service comprises– Why would a customer want the service– How much does it cost to deliver?
• Service Definitions are essential
• So are Service Level Agreements
18
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
35
Defining ServicesDefining Services
• Describe the Service – is it a service or just an activity?
• What are the benefits?
• What are the deliverables?
• What resources will be required?
36
Defining Services (cont.)Defining Services (cont.)
• When will they be required?
• How will the service be delivered (i.e. what are the processes)?
• What are the obligations of both parties – provider and customer?
19
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
37
Service Level Agreements (SLAs)Service Level Agreements (SLAs)
• Comprise a set of Service Definitions between provider and customer
• Define the scope and level of service delivery between provider and customer
• Sometimes includes the cost of service delivery –transactional or time based
38
Why SLAs?Why SLAs?
• Establish response and resolution times
• Set expectations for both parties
• Define escalation procedures for the time when things go wrong
• Define dispute resolution procedures
20
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
39
Setting up SLAsSetting up SLAs
• It’s not a small task – it can take three to six months including the service definitions
• Plan well ahead• Who are the key customer staff• Who will be involved from your staff?• Set customer expectations early• Identify your resources requirements early
40
Implementing SLAsImplementing SLAs
• It doesn’t happen overnight!
• Services, customers, consumers, resources, etc. all need to be identified, defined described and agreed upon
• The services must align with and support the organisation’s objectives
• Business plans must be clearly defined and in place
21
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
41
Services as Competitive AdvantageServices as Competitive Advantage
• As products become more and more commoditised – an organisation’s competitive difference lies in the services
• Services can be full of variables – i.e. they are hard to duplicate
42
Services as Competitive Advantage Services as Competitive Advantage (cont.)(cont.)
• How will the service be delivered, or will the customer self-deliver?
• How will the service deliverer treat the customer?
• What flexibility with service delivery does the deliverer have?
• What is the desired speed of service delivery – fast, slow or somewhere in between?
22
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
43
Services as Competitive Advantage (cont.)Services as Competitive Advantage (cont.)
• How often is the service to be delivered?
• How will service quality be measured?
• Which resources will be used – human, technological, etc.
• Will they deliver the service or support its delivery?
• What is the price of the service?
44
Benefits to the OrganisationBenefits to the Organisation
• Services are well defined
• Resource utilisation can be planned
• Service skills / resource skills can be analysed and matched
• The overall cost of support to the organisation is lowered
• Productivity is increased
• However the organisation has to plan for it
23
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
45
Benefits to the CustomersBenefits to the Customers
• (Usually) A fairer means of cost allocation
• User choice - core services versus optional services
• Better utilisation of resources - supporting the organisation’s objectives
• Lower cost of operations
46
Benefits to the Services DepartmentBenefits to the Services Department
• The true cost of providing the services is highlighted
• Resource utilisation can be planned
• The services must be cost-effective - or be outsourced
• Quality is always raised
24
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
47
The Cost of ServicesThe Cost of Services
• Activity Based Costing (ABC) doesn’t work with services
• Resources are typically used in services, not consumed
• The same resource can be used in many services
• A service may use many, different resources
48
The Cost of Services (cont.)The Cost of Services (cont.)
• You need to calculate the total cost of each resource, then apportion its cost across all the services that use it.
• However, some resources are costed based on time, but the services use them on a transactional basis e.g. a training room
• Costing needs to take into account the availability of the resource and the time spent in service delivery
• Each service has a holding cost and a delivery cost (dependent on the processes for delivery)
25
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
49
Case Study Case Study ––Chatsworth House Adventure PlaygroundChatsworth House Adventure Playground
• What do you think comprise the concept, package and process for the adventure playground?
• Describe the four options highlighted in the case in terms of their feasibility, acceptability and vulnerability.
• What does the concept of interactive design mean for a service such as the adventure playground described in this case study?
50
Exercises Exercises -- Process DesignProcess Design
26
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
51
Supply NetworksSupply Networks
• What is a supply network?• Why are they important?• How do we put one together?• What are the key factors in designing a
supply network?
52
Supply Network Supply Network vsvs Supply ChainSupply Chain
• A Supply Chain is the linkage of a set of operations passing from supplier through the organisation to the customer. The typical organisation will have numerous supply chains
• A Supply Network is all the operations that are linked i.e. all the supply chains), passing from all suppliers through the organisation so as to product goods and services to the customers
27
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
53
A Typical Supply NetworkA Typical Supply NetworkRaw Materials
Supplier
ComponentManufacturer
ProductManufacturer
Wholesaler
Retailer
UpstreamUpstreamIntegrationIntegration
DownstreamDownstreamIntegrationIntegration
54
Supply Network Design Supply Network Design
Layout & Flow
Process Technology Job Design
Processes that produce products & services
28
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
55
Advantages of taking a network perspectiveAdvantages of taking a network perspective
Vertical integrationVertical integrationHow much of the network should the operation seek to own?
Taking a network perspective helps
businesses address the three key network
design decisions.
Location of the Location of the operationoperationWhere should the operation be located?
Balance of capacityBalance of capacityHow should capacity be managed in the long-term?
56
Direction, extent and balance of vertical Direction, extent and balance of vertical integrationintegration
Raw material
suppliersComponent
makerAssembly operation Wholesaler Retailer
Downstream vertical integration
Upstream vertical integration
Narrow process span
Wide process span
Should excess capacity be used to supply other companies?
29
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
57
The Location of OperationsThe Location of Operations
OperationSupplySupply--side side factorsfactors
DemandDemand--side side factorsfactors
Labour costs
Land costs
Energy costs
Transportation costs
Community factors
Labour skills
Suitability of site
Image
Convenience for customers
58
Firms in the same industry may configure Firms in the same industry may configure their supply networks in different waystheir supply networks in different ways
Home Office Market
Corp. Market
Suppliers
Retailers
HP
Home Office Market
Corp. Market
Suppliers
Dell Direct Store
DELL
30
Business Systems - Operations ManagementSession 4 – Product & Service Design, Supply Network Design
59
Supply NetworksSupply Networks
• What does your Supply Network look like?• Is it effective with regards your organisation?• What changes, if any would you make?
– Location?– Outsourcing?– Supply-side?– Customer-side?– How much vertical integration?