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GOODS AND SERVICE DESIGN

CHAPTER 6

DAVID A. COLLIER AND JAMES R. EVANS OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN LO1 LO2 LO3 LO4 LO5 LO6 Describe the steps involved in designing goods and services.

Explain the concept and application of Quality Function Deployment.

Describe how the Taguchi loss function, reliability, design for manufacturability, and design for sustainability are used for designing manufactured goods.

Explain the five elements of service delivery system design.

Describe the four elements of service encounter design.

Explain how goods and service design concepts are integrated at LensCrafters.

CHAPTER 6 GOODS AND SERVICE DESIGN

i n developing markets such as China and India, consumers can’t afford large, expensive cars, much less drive them in overcrowded population centers. Fuel efficiency as well as environmental concerns are also important, as developing nations seek to cap carbon emissions even as the number of vehicles on their streets continues to rise. But these consumers are not willing to buy inferior cars that simply cost less. Rather, like most of us, they want low-cost vehicles that are designed to meet their needs and still have high quality, reliability, and style—in other words, have value. Consumers in India, for instance, need cars that maximize passenger room because they use their autos primarily as family vehicles to drive around town; by contrast, in the West, with its better roads and routine long-distance driving, cargo capacity matters more.

CHAPTER 6 GOODS AND SERVICE DESIGN

Indian drivers are willing to pay a bit more for cars that offer the latest in comfort, safety, and utility, but not for cars with power windows and locks or fancy sound systems. Automatic transmissions are desirable in India and China—nobody wants to keep pressing the clutch and shifting gears in the inevitable stop-and-go traffic—but powerful engines are not. Succeeding in developing markets, therefore, requires rethinking from start to finish how new cars should be designed and built. It calls for a deep understanding of the unique needs of consumers and the ability to assemble the combination of power trains, bodies, features, and options that best match those desires—at affordable prices. OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

What do

you

think?

How important are design and style in your purchasing decisions? Provide examples for goods and services. OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Every design project—a new automobile or cell phone, a new online or financial service, and even a new pizza—is a series of trade offs: between technology and functionality, between ambition and affordability, between the desires of the people creating the object and the needs of the people using it.

CHAPTER 6 GOODS AND SERVICE DESIGN Exhibit 6.1 An Integrated Framework for Goods and Service Design (slide 1)

CHAPTER 6 GOODS AND SERVICE DESIGN Exhibit 6.1 An Integrated Framework for Goods and Service Design (slide 2)

CHAPTER 6 GOODS AND SERVICE DESIGN

Designing Goods and Services

• • • • • CBP design and configuration choices revolve around a solid understanding of customer needs and target markets, and the value that customers place on attributes, such as: • Time: Reduce waiting time, be more responsive to customer needs.

Place: Select location for customer convenience.

Information: Provide product support, user manuals.

Entertainment: Enhance customer experience.

Exchange: Multiple channels used for purchases.

Form: How well the physical characteristics of a good address customer needs.

CHAPTER 6 GOODS AND SERVICE DESIGN

Designing Goods and Services

The design of a manufactured good focuses on its physical characteristics—dimensions, materials, color, and so on. The design of a service, however, cannot be done independently from the “process” by which the service is delivered. The process by which the service is created and delivered (that is, “produced”) is, in essence, the service itself! OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Designing Goods and Services

•

Prototype testing

is the process by which a model (real or simulated) is constructed to test the good’s physical properties or use under actual operating conditions, as well as consumer reactions to the prototype.

CHAPTER 6 GOODS AND SERVICE DESIGN

•

Customer-Focused Design

Customer requirements, as expressed in the customer’s own terms, are called the

voice of the customer

•

Quality function deployment (QFD)

voice of the customer into all decisions. is an approach to guide the design, creation, and marketing of goods and services by integrating the • QFD translates customer wants and needs into technical requirements of a product or service.

CHAPTER 6 GOODS AND SERVICE DESIGN

The House of Quality

Building the House of Quality: 1. Determine customer requirements through the voice of the customer (VOC).

2. Define technical requirements of the product.

3. Determine interrelationships between the technical requirements.

4. The relationship matrix defines what technical requirements satisfy VOC needs.

5. Customer priorities and competitive evaluation help select which VOC requirements the product should focus on.

Exhibit 6.2 The House of Quality CHAPTER 6 GOODS AND SERVICE DESIGN

Exhibit Extra A House of Quality for Building a Better Pizza CHAPTER 6 GOODS AND SERVICE DESIGN

CHAPTER 6 GOODS AND SERVICE DESIGN

Tolerance Design and the Taguchi Loss Function

• For most manufactured goods, design blueprints specify a target dimension (called the nominal ), along with a range of permissible variation (called the tolerance ). For example, 0.500  0.020 cm. • The nominal dimension is 0.500 cm, but may vary anywhere in the range from 0.480 to 0.520 cm. • This is sometimes called the

“goal post model.” 16

CHAPTER 6 GOODS AND SERVICE DESIGN Exhibit 6.3 Traditional Goal Post View of Conforming to Specifications

CHAPTER 6 GOODS AND SERVICE DESIGN

Tolerance Design and the Taguchi Loss Function

Genichi Taguchi, a Japanese engineer, maintained that the traditional practice of setting design specifications is inherently flawed. Taguchi argued that the smaller the variation about the nominal specification, the better is the quality. In turn, products are more consistent, would fail less frequently, and thus, be less costly in the long run.

CHAPTER 6 GOODS AND SERVICE DESIGN

Tolerance Design and the Taguchi Loss Function

Taguchi loss function:

L ( x ) = k ( x – T ) 2 [6.1] Where: L ( x ) is the monetary value of the loss associated with deviating from the target, T ; x k is the actual value of the dimension; is a constant that translates the deviation into dollars.

Exhibit 6.4 Nominal-Is-Best Taguchi Loss Function CHAPTER 6 GOODS AND SERVICE DESIGN

CHAPTER 6 GOODS AND SERVICE DESIGN

Solved Problem

Suppose that the specification on a part is 0.500 costs $50 for repair. ± 0.020 cm. A detailed analysis of product returns and repairs has discovered that many failures occur when the actual dimension is near the extreme of the tolerance range (that is, when the dimensions are approximately 0.48 or 0.52) and Thus, in Equation 6.1, the deviation from the target, x L ( x ) = $50. Substituting these values, we have: – T , is 0.02 and 50 = k(0.02) 2 or k = 50/0.0004 = 125,000 Therefore, the loss function for a single part is L ( x ) = 125000( x – T ) 2 . This means when the deviation is 0.10, the firm can still expect a loss per unit of: L (0.51) = 125,000(0.10) 2 = $12.50 per part OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Design for Reliability

•

Reliability

conditions.

is the probability that a manufactured good, piece of equipment, or system performs its intended function for a stated period of time under specified operating OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Design for Reliability

• Reliability is a probability, that is, a value between 0 and 1.

 Example: A reliability of 0.97 means that on average, 97 of 100 times the item will perform its function for a given period of time under specified operating conditions. • Many designs have components arranged in series; others consist of parallel components that function independently of each other.

CHAPTER 6 GOODS AND SERVICE DESIGN Design for Reliability

In a series system, if one component fails, the entire system fails. The reliability of a series system is the product of the individual probabilities of each process in a system.

R s = ( p 1 )( p 2 )( p 3 ). . . ( p n ) [6.2]

Exhibit 6.5 Structure of a Serial System

Design for Reliability

In parallel systems , functions are independent and the entire system will fail only if all components fail. The reliability of a parallel system is computed as:

CHAPTER 6 GOODS AND SERVICE DESIGN Exhibit 6.6 Structure of a Parallel System

R p = 1 – (1 – p 1 )(1 – p 2 )(1 – p 3 ). . . (1 – p n ) [6.3] OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Design for Reliability

Example: The reliability of this series system is: R s = (.98)(.91)(.99) = .883 or 88.3%

Exhibit 6.7 Subassembly Reliabilities

CHAPTER 6 GOODS AND SERVICE DESIGN

Design for Reliability

Series-Parallel Systems: The reliability of the parallel system for subassembly B is: 0.9919. R p = 1 – (1 – .91)(1 – .91) = 1 – 0.0081 =

Exhibit 6.8 Modified Design

Thus, the reliability of the entire system is: R s = (.98)(.9919)(.99) = .962 or 96.2%. OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Design for Reliability

•

Design failure-mode-and-effects analysis (DFMEA)

is a technique for identifying how a product may fail; the effect of a failure on the customer; seriousness, likelihood of occurrence, and ability to detect a potential failure; cause of failure, and how it can be corrected by improving the design.

CHAPTER 6 GOODS AND SERVICE DESIGN

Design for Manufacturability

•

Design for manufacturability (DFM)

process of designing a product for efficient production at the highest level of quality . is the •

Product simplification

is the process of trying to simplify designs to reduce complexity and costs and thus improve productivity, quality, flexibility, and customer satisfaction.

CHAPTER 6 GOODS AND SERVICE DESIGN

• •

Design for Sustainability

Many products are discarded simply because the cost of maintenance or repair is too high when compared with the cost of a new item. One aspect of designing for sustainability is designing products that can easily be repaired and refurbished or otherwise salvaged for reuse.

Design for Environment (DfE)

is the explicit consideration of environmental concerns during the design of goods, services, and processes and includes such practices as designing for recycling and disassembly .

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Delivery System Design

• • • •

Service delivery system design

following: • Facility location and layout includes the The servicescape Process and job design Technology and information support systems Organizational structure OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Delivery System Design

Facility Location and Layout

• Location creates customer’s convenience.

• Great store layout, process design, and service encounter design are meaningless if the store is in the wrong location. • The Internet is making physical locations less important for some information-intensive services such as Charles Schwab, Vanguard, and Scottrade.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Delivery and System Design

Servicescape

• All of the physical evidence a customer might use to form an impression.

• The servicescape provides the behavioral setting where service encounters take place. • Standardization of the servicescape and service processes enhances efficiency, especially for multiple site organizations.

CHAPTER 6 GOODS AND SERVICE DESIGN

• • •

Three Dimensions of a Servicescape

Ambient conditions— manifest by sight, sound, smell, touch, and temperature; five human senses; e.g., leather chairs in the lobby, cartoon characters in children’s hospital, music at a coffee shop. Spatial layout and functionality— streets, parking lots, stadiums, etc. how furniture, equipment, and office spaces are arranged; also Signs, symbols, and artifacts— explicit signals that communicate an image of the firm; e.g., diplomas hanging on the wall in a medical clinic, company logos and uniforms, artwork, mission statements.

CHAPTER 6 GOODS AND SERVICE DESIGN

Types of Servicescapes

• • Some servicescapes, termed

lean servicescape environments

, are very simple.

 Examples: Ticketron outlets, FedEx drop-off kiosks More complicated designs and service systems are termed

elaborate servicescape environments

 Examples: Hospitals, airports, universities OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Process and Job Design Service process design

is t he activity of developing an efficient sequence of activities to satisfy internal and external customer requirements.

Develop procedures to ensure that: • Things are done right the first time.

• Interactions between customers and service providers are simple and quick.

• Human error is avoided.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Process and Job Design

Technology and Information Support Systems

• What technology does each job require?

• What information technology best integrates all parts of the value chain?

• Technology ensures speed, accuracy, customization, and flexibility.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Process and Job Design

Organizational Structure

• Pure functional organization requires more handoffs between work activities and results in increased opportunity for error and slower processing times.

• Process-based organization leverages cross functionality of service processes.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Encounter Design

Service encounter design

focuses on the interaction, directly or indirectly, between the service provider(s) and the customer.

Principal elements: • Customer contact behavior and skills • Service provider selection, development, and empowerment • Recognition and reward • Service recovery and guarantees

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Encounter Design

Customer Contact Behavior and Skills

•

Customer contact

refers to the physical or virtual presence of the customer in the service delivery system during a service experience.

• • Customer contact is measured by the percentage of time the customer must be in the system relative to the total time it takes to provide the service. Systems in which the percentage is high are called

high-contact systems

; those in which it is low are called

low-contact systems

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Encounter Design

•

Customer-contact requirements

representatives of an organization.

are measurable performance levels or expectations that define the quality of customer contact with • Examples: – Answering a telephone within two rings – Using a customer’s name whenever possible OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Encounter Design

Service Provider Selection, Development and Empowerment

• Recruit and train employees to exceed customer expectations.

•

Empowerment

simply means giving people authority to make decisions based on what they feel is right, to have control over their work, to take risks and learn from mistakes, and to promote change.

– Ritz-Carlton Hotel employees can spend up to $2,000 to resolve customer complaints with no questions asked.

Service Encounter Design

Recognition and Reward

• Key motivational factors:  Recognition    Advancement Achievement Nature of the work

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Encounter Design

Service Guarantees and Recovery

• A

service upset

is any problem a customer has—real or perceived—with the service delivery system and includes terms such as service failure, error, defect, mistake, or crisis.

• A

service guarantee

is a promise to reward and compensate a customer if a service upset occurs during the service experience. OM3 Chapter 6 Goods and Service Design © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 6 GOODS AND SERVICE DESIGN

Service Encounter Design

Service Guarantees and Recovery

•

Service recovery

is the process of correcting a service upset and satisfying the customer.

    Begin immediately after a service upset.

Document the process and train employees.

Listen to the customer and respond. sympathetically.

Resolve the problem quickly, provide an apology, offer compensation.

CHAPTER 6 GOODS AND SERVICE DESIGN

An Integrative Case Study of LensCrafters

• LensCrafters’ ( www.lenscrafters.com

) mission statement suggests that time and service quality are the most important competitive priorities and potential order winners.

• CBP is the integrated set of goods (eyewear) and services (accurate eye exam and one-hour service).

CHAPTER 6 GOODS AND SERVICE DESIGN

An Integrative Case Study of LensCrafters

• Eyewear is produced in “store backroom factory” in rapid response without sacrificing quality, efficient production procedures.

• Service delivery system design:  Located in high-traffic areas for convenience.

   Servicescape of quality and professionalism.

11 different in-store job roles.

Customers can see glasses being made in the optical lab.

CHAPTER 6 GOODS AND SERVICE DESIGN Exhibit 6.9 One Example View of LensCrafters’ Customer Benefit Package

CHAPTER 6 GOODS AND SERVICE DESIGN Exhibit 6.10 A Schematic View of a Typical LensCrafters Store Layout

CHAPTER 6 GOODS AND SERVICE DESIGN

Gulf Coast Bank Case Study

1. What are the objectives of the service guarantee program?

2. Is a total payout of $860 over 10 months for 300 branches good or bad?

3. Are the bank’s services and their processes truly redesigned to meet the service guarantee promises?

4. Is GCB’s service guarantee program well-designed and executed?

5. What are your final recommendations over the short and long term?