4 Solution*McDonald’s is not in the business of selling haute cuisine, but ‘fuel’ – a standardized product.The new franchisee has to learn the McDonald’s production system – a typical assembly line.An assembly line requires low labor skills, but high mechanization. Hence, unskilled teenagers are used.
5 Product and Service Design Major factors in design strategyCostQualityTime-to-marketCustomer satisfactionCompetitive advantageProduct and service design – or redesign – should beclosely tied to an organization’s strategy
6 Product or Service Design Activities Translate customer wants and needs into product and service requirementsRefine existing products and servicesDevelop new products and servicesFormulate quality goalsFormulate cost targetsConstruct and test prototypesDocument specifications
7 Reasons for Product or Service Design EconomicSocial and demographicPolitical, liability, or legalCompetitiveTechnological
8 Objectives of Product and Service Design Main focusCustomer satisfactionSecondary focusFunction of product/serviceCost/profitQualityAppearanceEase of production/assemblyEase of maintenance/service
9 Designing For Operations Taking into account the capabilities of the organization in designing goods and services
10 Legal, Ethical, and Environmental Issues FDA, OSHA, IRSProduct liabilityUniform commercial codeEthicalReleasing products with defectsEnvironmentalEPA
11 Regulations & Legal Considerations Product Liability - A manufacturer is liable for any injuries or damages caused by a faulty product.Uniform Commercial Code - Products carry an implication of merchantability and fitness.
12 Order Losers, Qualifiers, and Winners Order Loser: a product or service characteristic that repels customers.Order Qualifier: a product or service characteristic that is necessary, but not sufficient to win the order.Order Winner: a product or service characteristic most important to a particular customer.Beware Order Winners Becoming Order Qualifiers!!
13 Other Issues in Product and Service Design Product/service life cyclesHow much standardizationProduct/service reliabilityRange of operating conditions
14 Standardization Standardization Extent to which there is an absence of variety in a product, service or processStandardized products are immediately available to customers
15 Advantages of Standardization Fewer parts to deal with in inventory & manufacturingDesign costs are generally lowerReduced training costs and timeMore routine purchasing, handling, and inspection procedures
16 Advantages of Standardization (Cont’d) Orders fillable from inventoryOpportunities for long production runs and automationNeed for fewer parts justifies increased expenditures on perfecting designs and improving quality control procedures.
17 Delayed Differentiation Delayed differentiation is a postponement tacticProducing but not quite completing a product or service until customer preferences or specifications are known
18 Reverse Engineering Reverse engineering is the dismantling and inspecting of a competitor’s product to discover product improvements.
20 The Product/Process Matrix Process Choice:The Product/Process MatrixProcess TypesProject – Unique, one-of-a-kind, products or customers. Generally large in size (building a bridge, installing a software system, implementing a major improvement effort)Job Shop –Manufacturing and Service high customization and flexibility, but higher volume than project.Batch Production – Groups of identical products or customers processed together through one step and then moved together to the next step. More limited product variety, higher production volume.
21 The Product/Process Matrix Process Choice:The Product/Process MatrixProcess TypesAssembly Line – Narrowly defined processes, made up of equipment with limited flexibility. Much higher volume. Still the possibility of some flexibility.Continuous (Repetitive) Processing – Equipment and workstations dedicated to a single thing. Very high volume. Very low flexibility. Best chance for automation.
22 Process DecisionsInvolve determining how to produce a product or provide a serviceObjectiveMeet or exceed customer requirementsMeet cost & managerial goalsHas long-run effectsProduct & volume flexibilityCosts & quality
23 Types of Process Strategies Process strategies follow a continuumWithin a given facility, several strategies may be usedContinuum
24 Types of Process Strategies The strategies are often classified as:Process-FocusedProduct-FocusedContinuum
26 Process-Focused Strategy Facilities are organized by processSimilar processes are togetherExample: All drill presses are togetherLow volume, high variety products‘Jumbled’ flowOther namesIntermittent processJob shopProduct AOper.123Product B
28 Process-Focused Strategy Pros & Cons AdvantagesGreater product flexibilityMore general purpose equipmentLower initial capital investmentDisadvantagesMore highly trained personnelMore difficult production planning & controlLow equipment utilization (5% to 25%)
29 Process Oriented Layout Process-oriented (“functional”) LayoutOrganized by functionSteps completed in any sequenceAdvantagesFlexibility and customization DisadvantagesHigher cost per unitHigher skilled, high cost employeesTransport/wait time between departmentsLess consistency across products or services
31 Product-Focused Strategy Facilities are organized by productHigh volume, low variety productsOther namesLine flow productionContinuous productionWhere foundDiscrete unit manufacturingContinuous process manufacturingProducts A & BOper.123
33 Product Oriented Layout AdvantagesEfficient production of standardized goods and servicesHigh processing speedLow cost per unitDisadvantagesLack of flexibility or customizationEmployee boredom/ dissatisfactionQuality problems
34 Product-Focused Strategy Pros & Cons AdvantagesLower variable cost per unitLower but more specialized labor skillsEasier production planning & controlHigher equipment utilization (70% to 90%)DisadvantagesLower product flexibilityMore specialized equipmentUsually higher capital investment
35 Product vs. Process Layouts Transition from Process to Product Layout may be triggered by age of the productEarly in life-cycleNot much information on what customers wantAdopt process-orientation to remain flexible and produce many varietiesLate in life-cycleMuch better understanding of what customers wantShift to product-orientation with fewer options
38 Process Investment Evaluation Long-term factorsFit with company strategic planCompetitive advantageProduct life cycleOperating factors (e.g., scrap, training)Financial returnBreak-even analysisCash flow analysis (IRR, NPV)
39 Questions for Process Analysis and Design Is the process designed to achieve competitive advantage in terms of differentiation, response, or low cost?Does the process eliminate steps that do not add value?Does the process maximize customer value as perceived by the customer?Will the process win orders?
40 Volume and Variety of Products Low Volume HighRepetitiveHigh VolumeVariety ofVariety ProcessProcessLow VarietyProducts(Intermittent)(Modular)Process(Continuous)One or very fewProjectsMass Customizationunits per lotVery small runs, highJob ShopsvarietyModest runs, modestDisconnectedvarietyRepetitiveLong runs, modestPoor Strategy(High variable costs)ConnectedvariationsRepetitiveVery long runs,Continuouschanges inattributesEquipment utilization5%-25%20%-75%70%-80%
41 Mass Customization Mass customization: A strategy of producing standardized goods or services, but incorporating some degree degree of customizationDelayed differentiationModular design
42 Mass CustomizationUsing technology and imagination to rapidly mass-produce products that cater to sundry unique customer desires.Under mass customization the three process models become so flexible that distinctions between them blur, making variety and volume issues less significant.
44 Phases in Service Design ConceptualizeIdentify service package componentsDetermine performance specificationsTranslate performance specifications into design specificationsTranslate design specifications into delivery specifications
45 Service Blueprinting Process Mapping A method used in service design to describe and analyze a proposed/existing serviceA useful tool for conceptualizing a service delivery systemExcellent tool for continuous improvement
46 Process mapping provides a graphical representation of a process, using arrows, boxes and other tools to indicate the ‘flow’ of the process, what steps are taken, what decisions are made and what records are created. It is a methodology used in systems design.
47 Using a process map may assist in graphically documenting your analysis of the work flow produced by different activities. The value of a process map is in building a picture of activities with which you are less familiar, helping you to identify the different steps in the process and what records should result.
48 Creating a Process MapTo create a process map, it is important to determine the start and stop points because you will create the process map between those points. The Once you have determined the beginning and ending activity steps, start mapping what is done between the two. Make sure to:Keep it simple.Start at a high level first.Involve the people closest to the process.Walk through the process yourself.Think end to end.Work with a small group of 3-7 people. A larger group can make the activity unwieldy.
49 Major Steps in Service Blueprinting/Mapping Choose a process. You have to first decide what you want to improve. Some examples are the process of making reservations at a corporate travel center, handling a customer's repair order at a car dealership, or registering students at a college. The best bet is a process which is time-consuming, error-prone, or critical to success; starting where there is a strong potential for improvement will build morale and help launch later mapping projects.Assemble a team. Preferably, the team will include people from the lowest and highest levels directly involved in the operation, such as customer service agents, their supervisors and managers, and the head of operations. The team must be empowered (given the responsibility and sufficient authority or leeway) to make significant changes in the work flow.Map out the way work is currently done. Diagram each step, showing decision branches, time spent, any distances traveled or people contacted, and other important aspects of the work. It is often be easier to sketch out the individual tasks first, then go back and fill in the details.
50 Identify problem areas Identify problem areas. These are areas where people feel there are currently major issues to be resolved, such as poor customer satisfaction, "dropping the ball," large expenses, or significant delays. Where there are many areas to choose from, try to follow the 80/20 rule: work on the 20% of the areas that cause 80% of the problems.Brainstorm solutions. Identify all possible action steps for each problem area, without evaluating them.Evaluate action steps. Set up a set of "final" action steps by group consensus.Assign responsibilities. Ask people to volunteer to take responsibility for each action step judged to be worthwhile by the group, and to set deadlines.Create a master plan. Summarize who has responsibility for what actions and the deadlines. Distribute the plan and make sure everyone agrees with it and that it accurately reflects the decisions made during the sessions.Follow through. The meetings are useless without appropriate follow-through. Try meeting again every two weeks to see what went well and what did not. When the time is right, try having another brainstorming session. This is where having a detailed, clear, and well communicated master plan is invaluable.
51 Characteristics of Well Designed Service Systems Consistent with the organization missionUser friendlyRobustEasy to sustainCost effectiveValue to customersEffective linkages between back operationsSingle unifying themeEnsure reliability and high quality
52 Challenges of Service Design Variable requirementsDifficult to describeHigh customer contactService – customer encounter
58 Service Blueprinting (Bank Lending Operation Example) Loan application Branch Officer Pay book30min--1hr.Line of visibilityDeny1 day days daysFail point Customer wait Employee decision============$ 0 $=========wwReceivePaymentFinalpaymentDeclineNotifycustomerIssuecheckConfirmFFVerifyincomedataPrintpaymentbookCreditcheckAcceptDelinquentCloseaccountInitialscreeningFVerifypayerConfirmEmployerCreditbureauFBranchrecordsFBankaccountsFAccountingData baserecordsFW
59 Process Mapping Mistakes Map all the details, losing track of the big picture.Focus on the seller, instead of the customer.Map the process without showing how the results will be measured.Buy somebody else's "ideal" process.
60 Strategic Positioning Through Process Structure Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital.Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.
61 Customer Contact View of Services Degree of Customer Contact Influences Potential Efficiency of ServiceSeparate High- and Low-Contact OperationsConsider Sales Opportunity and Production Efficiency Tradeoff