Operations
Management
Chapter 5 Design of Goods
and Services
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
© 2006
Prentice
Hall, Inc. Hall, Inc.
©
2006
Prentice
5–1
Product Strategy Options
 Differentiation
 Shouldice Hospital
 Low cost
 Taco Bell
 Rapid response
 Toyota
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5–2
Product Life Cycles
 May be any length from a few
hours to decades
 The operations function must
be able to introduce new
products successfully
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5–3
Sales, cost, and cash flow
Product Life Cycles
Cost of development and production
Sales revenue
Net revenue (profit)
Cash
flow
Negative
cash flow
Introduction
Loss
Growth
Maturity
Decline
Figure 5.1
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5–4
Characteristics of Services
• Customer participation
• Simultaneity
• Perishability
• Intangibility
• Heterogeneity
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5–5
Customer Participation
• The 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
facility
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5–6
Service Design
(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
(c) Customer participation in design and
delivery such as counseling, college
education, financial management of
personal affairs, or interior decorating
Figure 5.12
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5–7
Simultaneity
• Services are consumed
simultaneously (as they are
provided)
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5–8
Perishability
• A service is a perishable commodity
(can’t be saved)
• The full utilization of service capacity
is a management concern
• Demand for services is often cyclical
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5–9
Intangibility
• Services are not tangible things
• Difficult to patent
• Customer relies on reputation since
there is no product to touch
or try out
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5 – 10
Heterogeneity
• There are variations of service
between customers
• Direct customer-employee contact
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5 – 11
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
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5 – 12
Moments-of-Truth
Computer Company Hotline
Experience Enhancers
Standard Expectations
Experience Detractors
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
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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
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
Figure 5.13
5 – 13
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
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5 – 14
Designing a Service
• The “design” process is never
finished.
• Modifications or innovation in the
service delivery system should be
introduced as needed
• System Elements
– Structural
– Managerial
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5 – 15
Designing a Service
• Structural Elements
– Delivery system
– Facility design
– Location
– Capacity planning
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5 – 16
Designing a Service
• Managerial Elements
– Service encounter
– Quality
– Managing capacity and demand
– Information
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5 – 17
Designing a Service
• Generic Approaches
– Production-Line Approach
– Customer as Co-producer
– Customer Contact Approach
– Information Empowerment
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5 – 18
Production-Line Approach
• Limited discretionary action of
personnel
• Division of labor
• Substitution of technology for people
• Service standardization
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5 – 19
Customer as Co-Producer
• Self-service
• Smoothing service demand
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5 – 20
Customer Contact Approach
• Degree of customer contact
• Separation of high- and low-contact
operations
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5 – 21
Information Empowerment
• Employee empowerment
• Customer empowerment
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5 – 22