OPERATIONS MANAGEMENT
MODULE- II
PRODUCT AND SERVICE DESIGN
2-2
Operations and Supply Strategy Framework
2-3
UNDERSTANDING PRODUCTIVITY
Productivity is a common
measure on how well resources
are being used. In the broadest
sense, it can be defined as the
following ratio:
Outputs
Inputs
2-4
Total Measure Productivity
Total Measure Productivity = Outputs
Inputs
or
= Goods and services produced
All resources used
2-5
Partial Measures of Productivity
• Partial measures of productivity =
• Output or Output or Output or Output
Labor
Capital
Materials
Energy
2-6
Multifactor Measures of Productivity
Multifactor measures of productivity =
Output
Labor +
Capital
+ Energy
or
Output
Labor +
Capital
+ Materials
2-7
Exercise on Productivity Measurement
• You have just determined that your service
employees have used a total of 2400 hours of labor
this week to process 560 insurance forms. Last week
the same crew used only 2000 hours of labor to
process 480 forms.
• Which productivity measure should be used?
• Is productivity increasing or decreasing?
2-8
Exercise on Productivity Measurement (Solution)
• You have just determined that your service
employees have used a total of 2400 hours of labor
this week to process 560 insurance forms. Last week
the same crew used only 2000 hours of labor to
process 480 forms.
• Which productivity measure should be used?
• Answer: Could be classified as a Total Measure or
Partial Measure.
• Is productivity increasing or decreasing?
• Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23.
So, productivity is decreasing slightly.
CASE: IKEA: Design And Pricing
What are IKEA”s competitive priorities?
• IKEA’s Corporate Mantra: “ LOW PRICE WITH
MEANING”
• MAXIMIZE VALUE at LOW COST
• Make the Product Offerings LESS EXPENSIVE
but NOT CHEAP
Describe IKEA’s process for
Developing a New Product.
• Five Stages:
(1) Pick a price.
(2) Choose a manufacturer.
(3) Design the product.
(4) Ship it.
(5) Sell it.
IKEA’s process for Developing a New Product.
(1) Pick a price. :
• Low Price begins at the Drawing Board
• Cross Functional Team comprising: Design,
Product Development & Purchase Deptts.
• All components of costing such as, Basic
Material, Size, Features, Colour,Packing,
Shipping etc. discussed for low cost operation
• Exp: Green/ Yellow/ White instead of Red
IKEA’s process for Developing a New Product.
Key Points:
• Lighter color: Green/ Yellow/ White instead
of Red
• Environment friendly, free from Lead &
Cadmium
• IKEA Code of Conduct banning Child Labor,
Health & Safety at work place
• Quality Control & Audits by External Agencies
IKEA’s process for Developing a New Product.
Key Points:
• Internal Competition to select the best design
• Competitors given brief about Key functions, materials ,
manufacturing and the price
• Best design is the one which provides maximum
functionality at indicated price like the Swiss Army Knives
• Size and handles of Mugs redesigned shorter to
accommodate 2024 mugs on each pallet
• Transportation cost optimised by increasing number to 2024
IKEA’s process for Developing a New Product.
Key Points:
• IKEA practices the concept of FLAT for packing products
• Learnt concept in 1956 from a customer carrying table
dissembled flat
• Bulky furnitures packed in rectangular flat cartons with detailed
assembly drawings with required bolts/ nuts . Clamps and screws
• In IKEA, waste is a sin. Employees wage a war against waste at all
fronts.
• Waste of Space in packing is avoided. They don’t want to ship air
• Transportation & self assembly of furniture by customers
contribute to Low cost Operations.
IKEA’s process for Developing a New Product.
Key Points:
• Child Care, Food court, Information Kiosks for guidance on home
décor, color coordination etc. and Display of yellow tagged Low
Priced products ( BTI: Breath Taking Items) are special features.
• Store Layout Guides customers through pre-determined path
which augments shopping of related items before the customer
arrives Billing counter
• IKEA educates customers ‘How to live a modern living without
expensive buying’
• Collecting big flat pickings from Bins, carrying them on trolleys to
the check out point, transporting them home in SUVs, assembling
them according to the drawings in their chosen home settings,
make millions of customers happy all over the world.
DESIGNING SEVICE OPERATIONS
Process Design in Service Operations
• Three types of Service Operations:
– Quasi-Manufacturing
– Customer-as-Participant
– Customer-as-Product
Process Design in Service Operations
• Quasi-Manufacturing ( similar to manufacturing)
– Tangible outcome receives priority over intangible
– Operation takes place according to pre designed
process flow like a manufacturing line operation
– Operations could be highly automated, which may
not visible to customers
– Little or almost no customer interaction
– Little regard for customer relations
– Example –
– Kitchen of a Hotel or a restaurant
– Back end office operations of a call center
– Pathological Lab tests
Process Design in Service Operations
• Customer-as-Participant
– Physical product may be a significant part of the
service outcome
– Requires high degree of customer involvement in the
process
– Service Products may be either standardized or
customized to needs of the customer
– Examples:
– ATM,
– Self-service petrol pumps
Process Design in Service Operations
• Customer-as-Product
–
–
–
–
–
–
–
–
–
Service outcome (Product) is the customer himself
Requires customized service on the customer
Deserves personal attention to customer needs
Involves high degree of customer contact
Quality depends upon customer perception
Examples:
Hair cutting Salon or a Beauty Parlour
Doctor’s clinic
Teaching & Training
Service
Design
Process
Copyright 2009 John Wiley &
Sons, Inc.
5-22
Process Design in Service Operations
• Service concept
– purpose of a service; it defines target market and
the extent of customer experience to be provided
• Service package
– mix of physical products, experiential and
psychological satisfaction
• Service specifications
– performance specifications
– design specifications
– delivery and after sales service
Copyright 2009 John Wiley &
Sons, Inc.
5-23
Service Process Matrix
Copyright 2009 John Wiley &
Sons, Inc.
5-24
Service
concept
Operations
Market
Narrow range
of services
Focused operations for a narrow market
Service
concept
Operations
Narrow range
of services
Market
Focused operations for a wide market
Service
concept
Operations
Market
Wide range of
services
Unfocused operations for a narrow market
Service
concept
Operations
Market
Wide range of
services
Unfocused operations for a wide market
Characteristics of Well Designed
Service Systems
1.
2.
3.
4.
5.
6.
7.
8.
4-29
Consistent with the organization mission
User friendly
Robust
Easy to sustain
Cost effective
Effective linkages between back end operations
Single unifying theme: Deliver value to customer
Ensure visibility of Quality and Reliability
Guidelines for Successful Service Design
1.
2.
3.
4.
5.
Define the service package
Focus on customer’s perspective
Make sure that managers are involved
Define quality for tangible and intangibles
Make sure that recruitment, training and rewards are
consistent with service expectations
6. Establish procedures to handle exceptions
7. Establish systems to monitor service
4-30
Mapping Process Flow
• Any manufacturing or service operation
comprises of two broad set of activities,
namely:
– Activities related to main production or service
operation
– Activities related to support functions, such as:
Inspection & quality control, Storage & movement,
Supply & distribution and other Process delays
Copyright 2009 John Wiley &
Sons, Inc.
6-31
Process Flowchart
Symbols
Operations
Inspection
Transportation
Delay
Storage
Copyright 2009 John Wiley &
Sons, Inc.
6-32
MCDONALD SERVICE FLOW CHART
S
C
B
S
S
S
K
F
S
W
I
T
F
C: Customer- B: Billing- K: Kitchen- W: Waiting- I: Inspection – T:Tray- F: Fries-F: Fill
Designing for Ease of Production
• Ease of Production (Manufacturability)
– Specifications - Precise information about the
characteristics of the product
– Tolerances - Minimum & maximum limits on a
dimension that allows the item to function as
designed
– Standardization - Reduce variety among a group of
products or parts
– Simplification - Reduce or eliminate the complexity
of a part or product
Case: Narayan Hridayalaya
Vision and Values
–
–
–
–
Make Heart Surgery affordable to poor & common man
Grow exponentially from 5000 Bed Hospital to 30000 Beds in 5 years
No poor and children would be denied medical care for lack of money
“ Hands which help are better than the lips that pray”: Mother Teresa
“ When you do your work without expecting anything in return,
just for the joy of bringing happiness to others, that’s when,
you realize it is not your hands, which do the job,
it is the hands of God.”:
Driving Motivation of Dr Devy Shetty
“
Case: Narayan Hridayalaya
Business Model:
– Seed money from philanthropist Father-in-law
– Adopting Business Model of Wal-Mart :Economy of scale is the main
Mantra
– Strategic Plans to grow from 5000 Beds to 50000 in 5 years
– 24 Operation Theatres and other infrastructure support to enable 50
major heart surgeries daily
– Large number of pathological tests per day per machine brings down
unit cost of the test
– Machines for tests hired on long term lease: suppliers are happy with
the revenue earned on Reagents sale
– Dedicated team of Doctors willing to work on even half the normal
salary
– Dr Shetty himself provides consultations to at least 2 patients every
five minutes
– Lean Staffing brings down costs as well as corrupt practices
Case: Narayan Hridayalaya
• Strategies for making the enterprise Cost Effective:
Collaborations:
– ISRO providing Satellite Service Links to smaller
Hospitals
– Telemedicine made available to remote locations
– Anesthetics in US provide support in surgery on infants
– Biocon developing new drugs which are considerably
cheaper than conventional ones
– Karnataka Govt. support through Micro Health Scheme
called ‘Yashaswini’ on small premium of Rs 10 for farmers
– Dedicated team of Doctors working at half the salary to
pursue service to humanity (Self actualization needs)