© 2006 Prentice Hall, Inc.5 – 1 Operations Management Chapter 5 - Design of Goods and Services Chapter 5 - Design of Goods and Services © 2006 Prentice Hall, Inc. PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 6e Operations Management, 8e

© 2006 Prentice Hall, Inc.5 – 2 Product Strategy Options  Differentiation  Shouldice Hospital  Low cost  Taco Bell  Rapid response  Toyota

© 2006 Prentice Hall, Inc.5 – 3 Product Life Cycles  May be any length from a few hours to decades  The operations function must be able to introduce new products successfully

© 2006 Prentice Hall, Inc.5 – 4 Product Life Cycles Negative cash flow IntroductionGrowthMaturityDecline Sales, cost, and cash flow Cost of development and production Cash flow Net revenue (profit) Sales revenue Loss Figure 5.1

© 2006 Prentice Hall, Inc.5 – 5 Customer participationCustomer participation SimultaneitySimultaneity PerishabilityPerishability IntangibilityIntangibility HeterogeneityHeterogeneity Characteristics of Services

© 2006 Prentice Hall, Inc.5 – 6 The customer is more involved in the delivery of services than products and can play an integral roleThe customer is more involved in the delivery of services than products and can play an integral role Providing services means that you must pay attention to the service facilityProviding services means that you must pay attention to the service facility Customer Participation

© 2006 Prentice Hall, Inc.5 – 7 (c) Customer participation in design and delivery such as counseling, college education, financial management of personal affairs, or interior decorating Service Design Figure 5.12 (a) Customer participation in design such as pre-arranged funeral services or cosmetic surgery (b) Customer participation in delivery such as stress test for cardiac exam or delivery of a baby

© 2006 Prentice Hall, Inc.5 – 8 Services are consumed simultaneously (as they are provided)Services are consumed simultaneously (as they are provided) Simultaneity

© 2006 Prentice Hall, Inc.5 – 9 A service is a perishable commodity (can’t be saved)A service is a perishable commodity (can’t be saved) The full utilization of service capacity is a management concernThe full utilization of service capacity is a management concern Demand for services is often cyclicalDemand for services is often cyclical Perishability

© 2006 Prentice Hall, Inc.5 – 10 Services are not tangible thingsServices are not tangible things Difficult to patentDifficult to patent Customer relies on reputation sinceCustomer relies on reputation since there is no product to touch or try out Intangibility

© 2006 Prentice Hall, Inc.5 – 11 There are variations of service between customersThere are variations of service between customers Direct customer-employee contactDirect customer-employee contact Heterogeneity

© 2006 Prentice Hall, Inc.5 – 12 Moments of Truth  Concept created by Jan Carlzon of Scandinavian Airways  Critical moments between the customer and the organization that determine customer satisfaction  There may be many of these moments  These are opportunities to gain or lose business

© 2006 Prentice Hall, Inc.5 – 13 The technician was sincerely concerned and apologetic about my problem He asked intelligent questions that allowed me to feel confident in his abilities The technician offered various times to have work done to suit my schedule Ways to avoid future problems were suggested Experience Enhancers Only one local number needs to be dialed I never get a busy signal I get a human being to answer my call quickly and he or she is pleasant and responsive to my problem A timely resolution to my problem is offered The technician is able to explain to me what I can expect to happen next Standard Expectations Moments-of-Truth Computer Company Hotline I had to call more than once to get through A recording spoke to me rather than a person While on hold, I get silence,and wonder if I am disconnected The technician sounded like he was reading a form of routine questions The technician sounded uninterested I felt the technician rushed me Experience Detractors Figure 5.13

© 2006 Prentice Hall, Inc.5 – 14 Documents for Services  High levels of customer interaction necessitates different documentation  Often explicit job instructions for moments-of-truth  Scripts and storyboards are other techniques

© 2006 Prentice Hall, Inc.5 – 15 The “design” process is never finished.The “design” process is never finished. Modifications or innovation in the service delivery system should be introduced as neededModifications or innovation in the service delivery system should be introduced as needed System ElementsSystem Elements –Structural –Managerial Designing a Service

© 2006 Prentice Hall, Inc.5 – 16 Structural ElementsStructural Elements –Delivery system –Facility design –Location –Capacity planning Designing a Service

© 2006 Prentice Hall, Inc.5 – 17 Managerial ElementsManagerial Elements –Service encounter –Quality –Managing capacity and demand –Information Designing a Service

© 2006 Prentice Hall, Inc.5 – 18 Generic ApproachesGeneric Approaches –Production-Line Approach –Customer as Co-producer –Customer Contact Approach –Information Empowerment Designing a Service

© 2006 Prentice Hall, Inc.5 – 19 Limited discretionary action of personnelLimited discretionary action of personnel Division of laborDivision of labor Substitution of technology for peopleSubstitution of technology for people Service standardizationService standardization Production-Line Approach

© 2006 Prentice Hall, Inc.5 – 20 Self-serviceSelf-service Smoothing service demandSmoothing service demand Customer as Co-Producer

© 2006 Prentice Hall, Inc.5 – 21 Degree of customer contactDegree of customer contact Separation of high- and low-contact operationsSeparation of high- and low-contact operations Customer Contact Approach

© 2006 Prentice Hall, Inc.5 – 22 Employee empowermentEmployee empowerment Customer empowermentCustomer empowerment Information Empowerment