BS-OM Session 4c

Business Systems - Operations Management
Session 4 Product & Service Design, Supply Network Design
Business Systems
Operations Management
Session 4 Product & Service Design, Supply
Network Design
Facilitator:
Dr. Jonathan Farrell
This Evenings Program
Product & Service Design

Why is it important?
What are the stages
Quality Function Deployment (QFD)
Case Study Chatsworth House (pp 143-144)

Exercises (refer to the Folder of Readings)
Supply Network Design
Why?
What is involved?
Location & Capacity?

Some Definitions
Product: A thing produced by any action or operation, or
by labour
Service: The supplying of any articles, commodities or
activities, etc., required or demanded
Activity: A specific deed or action
Process: A systematic series of actions directed to some
end*
*Source, Macquarie Dictionary
The product / service design feedback loop
Interpretation of
expectations
Product
or service
design
Marketing
Product
or service
specification
Operations
Expectations
Product
or service
Customer

Design for Manufacture vs

Manufacture for Design
Design of
the product
or service
Design of
the process or
service
delivery
system
Decisions taken during the design of the

product/service impact upon the process
which produces it and vice versa
Design for Manufacture vs

Manufacture for Design
Products/services
should be designed so
that they can be
created effectively
Design of
the product
or service
Processes should be
designed so that they can
create all products/services
the operation may introduce
Design of
the process or
service
delivery
system
Decisions taken during the design of the

product/service impact upon the process
which produces it and vice versa

Design is itself a transformation process

TRANSFORMED
RESOURCES
Technical information
Market information
Time information
INPUTS
THE DESIGN
ACTIVITY
OUPUT
FINISHED
DESIGNS
Test and design equipment

Design and technical staff
TRANSFORMING
RESOURCES
Product Design
Value adding through design or form.

How can a toilet brush sell for $2 at K-Mart and for
$60 at David Jones?
Trade-offs between function and form.

Product Design The Five Steps

1.
2.
3.
4.
5.
Concept Generation
Establish Customer Requirements
Evaluation of Requirements
Preliminary Design
Final Design & Prototyping
Step 1 Concept Generation

External sources
Internal sources
Marketing
department
Analysis of
customer needs
Market
surveys
Suggestions coming from

customer contact staff
Suggestions coming
from customers
Ideas from research and

development
Actions of
competitors
Concept generation
10

Conceptual Map Of Breakfast Cereals
Good taste
Cocoa Pops
Muesli
High nutrition
Low nutrition
Rice
Bubbles
Nutri-Grain
Wheaties
Shredded
Wheat
1998 by Prentice-Hall Inc

Russell/Taylor Oper Mgt 2/e
Bad taste
11
Step 2 Establish Customer Requirements
Market Research
Customer Complaints
Sales Enquiries
Quality Function Deployment
12

Quality Function Deployment
Find out what the customer wants in the product

Weight the customers requirements based on
customer importance
Get the customer to rank your product against the
competition based on these weighted requirements
Construct a House of Quality matrix
13
House of
Quality
matrix
How you are

going to
provide it
Hows
Who the
competitors
are
Who
Whos
What the
customer
wants
Whats
Target values
of what we
will do
How muchs
14

QFD Cascade
Hows
Whats
How
Muchs
Hows
Whats
How
Muchs
Hows
Whats
e.g. packaging problem
How
Muchs
15
Step 3 Evaluation of Requirements

Screening filters
Marketing
screen
Operations
screen
Financial
screen
16

Value Analysis / Value Engineering
Achieve equivalent or better performance at a lower

cost while maintaining all functional requirements
defined by the customer.
Does the item have any design features that are not
necessary?
Can two or more parts be combined into one?
How can we cut down the weight?
Are there nonstandard parts that can be exchanged for
standard parts?
17
Step 4 - Preliminary Design
Create functional design

Build prototype
Test prototype
Revise prototype
Retest
DesignDesign-BuildBuild-Test
Test cycle
18

Prototyping
Prototypes are needed so products and services
can be tested
Prototypes come in various forms:
- card models;
- clay models;
- computer simulations.
CAD has considerably simplified the production of
prototypes
19
Step 5 - Final Design & Process Planning
Produce detailed drawings & specifications

Create workable instructions for manufacture or
delivery of service
Select tooling & equipment
Prepare job descriptions
Determine operation & assembly order
Set KPIs
20
10

Flow process chart

symbols
An inspection,
A movement
of materials or
check or
information or
examination of
people from one
materials or
place to another information or
people
An operation,
task or work
activity
A delay or
pause in the
process
A storage of
materials or file
of information
or queue of
people
21
Flow process chart for one day on an

adventure holiday
Flow process chart
Activity ..
Location .
Description of element
1
Get up
Go to washroom
Wash, brush teeth
Return to bedroom
Dress
Go to dining room
Await serving
Eat
Go to rifle range
10 Await instructor and equipment

11 Check equipment
12 Rifle shooting
22
11

Product Design vs Service Design
Design of the
product
Design of the
process
In manufacturing operations,
overlapping the activities of the product
and process design is beneficial.
Design
of the
service
Design of
the
process
In most service operations, the overlap

between service and process design is
implicit in the nature of the service.
23
Characteristics of Services
Customer participates in the service process
Simultaneous production and consumption
Experience versus Consumption
A service is a perishable commodity not always

repeatable
24
12

Characteristics of Services (cont.)
Customer and provider must meet (although not

necessarily physically) for the service to be
performed
Most services are labour intensive however more

services are becoming technology intensive
Services are intangible (ideas & concepts) you only

see the result (or not) of a service
Services typically have a high holding cost and low

service delivery cost
25
The Service Package

A mix of tangible and intangible attributes
Supporting Facilities:
Infrastructure (eg ski lift)
Facilitating goods:
Physical item (eg skis)
Information:
Customer info.
Explicit services:
Observed, felt benefits
Implicit services:
Psychological benefits
26
13

Service Design Elements
Structural
Delivery system (front & back office)
Facility design (aesthetics, layout)
Location (competition, site characteristics)
Capacity planning (number of servers)
Managerial
Service encounter (culture, empowerment)
Quality (measurement, guarantee)
Managing capacity and demand (queues)
Information (data collection, resource)
27
In Planning Services, there are

several factors to consider . . .
Who are the customers?
What are the services they want / need?
How are they delivered?
What are their expectations?
Who are the consumers?
28
14

Customers & Consumers Are

Becoming More Demanding
More focused services
High quality
Better response times
Better value for money
Customers & consumers are more informed
29
Customers versus Consumers
With products, the customer and the consumer are

typically the same person not so with services
Most service centres dont recognise the

differences, and their very different needs
Customers and consumers have different

requirements for the same service
Different resources are usually required to service

customer / consumer
30
15

The Difference Between

Customers and Consumers
The customer:
Negotiates the need for the services
Driven by his/her goals and objectives
Cost conscious
The consumer:
Requires the service to carry out his/her job
Not necessarily interested in cost
Not interested in processes, procedures, etc.
Focus on time to complete the service
31
Customers & Consumers Are Becoming

More Demanding
More focused services
High quality
Better response times
Better value for money
Customers & consumers are more
informed
32
16

Why Define Services?
Poor Service Definitions are recognised as the single

biggest cause of failure in any agreement between provider
and customer
Poorly defined services lead to:
Confusion over whats being delivered, and how &

when it is to be delivered
Differences in expectations
out of scope increases in service provision costs
33
Designing Services
The most difficult aspects of any service:

understanding just what the service comprises
Why would a customer want the service
How much does it cost to deliver?
Service Definitions are essential
So are Service Level Agreements
34
17

Defining Services
Describe the Service is it a service or just an activity?
What are the benefits?
What are the deliverables?
What resources will be required?
35
Defining Services (cont.)
When will they be required?
How will the service be delivered (i.e. what are the

processes)?
What are the obligations of both parties provider and

customer?
36
18

Service Level Agreements (SLAs)
Comprise a set of Service Definitions between provider and

customer
Define the scope and level of service delivery between

provider and customer
Sometimes includes the cost of service delivery

transactional or time based
37
Why SLAs?
Establish response and resolution times
Set expectations for both parties
Define escalation procedures for the time when things go

wrong
Define dispute resolution procedures
38
19

Setting up SLAs
Its not a small task it can take three to six months

including the service definitions
Plan well ahead
Who are the key customer staff
Who will be involved from your staff?
Set customer expectations early
Identify your resources requirements early
39
Implementing SLAs
It doesnt happen overnight!
Services, customers, consumers, resources, etc. all

need to be identified, defined described and agreed
upon
The services must align with and support the

organisations objectives
Business plans must be clearly defined and in place
40
20

Services as Competitive Advantage
As products become more and more commoditised an

organisations competitive difference lies in the services
Services can be full of variables i.e. they are hard to

duplicate
41
Services as Competitive Advantage

(cont.)
How will the service be delivered, or will the customer selfdeliver?
How will the service deliverer treat the customer?
What flexibility with service delivery does the deliverer have?
What is the desired speed of service delivery fast, slow or

somewhere in between?
42
21

Services as Competitive Advantage (cont.)
How often is the service to be delivered?
How will service quality be measured?
Which resources will be used human, technological, etc.
Will they deliver the service or support its delivery?
What is the price of the service?
43
Benefits to the Organisation
Services are well defined
Resource utilisation can be planned
Service skills / resource skills can be analysed and matched
The overall cost of support to the organisation is lowered
Productivity is increased
However the organisation has to plan for it
44
22

Benefits to the Customers
(Usually) A fairer means of cost allocation
User choice - core services versus optional services
Better utilisation of resources - supporting the

organisations objectives
Lower cost of operations
45
Benefits to the Services Department
The true cost of providing the services is highlighted
Resource utilisation can be planned
The services must be cost-effective - or be outsourced
Quality is always raised
46
23

The Cost of Services

Activity Based Costing (ABC) doesnt work with
services
Resources are typically used in services, not
consumed
The same resource can be used in many services
A service may use many, different resources
47
The Cost of Services (cont.)
You need to calculate the total cost of each resource, then

apportion its cost across all the services that use it.
However, some resources are costed based on time, but the

services use them on a transactional basis e.g. a training
room
Costing needs to take into account the availability of the

resource and the time spent in service delivery
Each service has a holding cost and a delivery cost

(dependent on the processes for delivery)
48
24

Case Study
Chatsworth House Adventure Playground
What do you think comprise the concept, package

and process for the adventure playground?
Describe the four options highlighted in the case

in terms of their feasibility, acceptability and
vulnerability.
What does the concept of interactive design mean

for a service such as the adventure playground
described in this case study?
49
Exercises - Process Design
50
25

Supply Networks
What is a supply network?

Why are they important?
How do we put one together?
What are the key factors in designing a
supply network?
51
Supply Network vs Supply Chain
A Supply Chain is the linkage of a set of operations passing

from supplier through the organisation to the customer. The
typical organisation will have numerous supply chains
A Supply Network is all the operations that are linked i.e. all
the supply chains), passing from all suppliers through the
organisation so as to product goods and services to the
customers
52
26

A Typical Supply Network

Raw Materials
Supplier
Component
Manufacturer
Upstream
Integration
Product
Manufacturer
Downstream
Integration
Wholesaler
Retailer
53
Supply Network Design

Processes that produce
products & services
Layout
& Flow
Process
Technology
Job Design
54
27

Advantages of taking a network perspective

Location of the
operation
Vertical integration
How much of the network
should the operation seek
to own?
Where should the

operation be located?
Taking a network
perspective helps
businesses address
the three key network
design decisions.
Balance of capacity
How should capacity be
managed in the long-term?
55
Direction, extent and balance of vertical

integration
Should excess capacity be used
to supply other companies?
Raw
material
suppliers
Component
maker
Assembly
operation
Wholesaler
Retailer
Narrow process span

Wide process span
Upstream
vertical
integration
Downstream
vertical
integration
56
28

The Location of Operations

SupplySupply-side
factors
DemandDemand-side
factors
Operation
Labour costs
Labour skills
Land costs
Suitability of
site
Energy costs
Image
Transportation
costs
Convenience
for customers
Community
factors
57
Firms in the same industry may configure

their supply networks in different ways
Corp.
Market
HP
Home
Office
Market
Suppliers
Retailers
Corp.
Market
DELL
Home
Office
Market
Suppliers
Dell
Direct
Store
58
29

Supply Networks
What does your Supply Network look like?

Is it effective with regards your organisation?
What changes, if any would you make?
Location?
Outsourcing?
Supply-side?
Customer-side?
How much vertical integration?
59
30

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Business Systems - Operations Management

Session 4 Product & Service Design, Supply Network Design

This Evenings Program

Product & Service Design

Case Study Chatsworth House (pp 143-144)

Business Systems - Operations Management

*Source, Macquarie Dictionary

The product / service design feedback loop

Business Systems - Operations Management

Design for Manufacture vs

Decisions taken during the design of the

Design for Manufacture vs

Decisions taken during the design of the

Business Systems - Operations Management

Design is itself a transformation process

Test and design equipment

Value adding through design or form.

Business Systems - Operations Management

Product Design The Five Steps

Step 1 Concept Generation

Suggestions coming from

Ideas from research and

Business Systems - Operations Management

Conceptual Map Of Breakfast Cereals

1998 by Prentice-Hall Inc

Step 2 Establish Customer Requirements

Business Systems - Operations Management

Quality Function Deployment

Find out what the customer wants in the product

How you are

Business Systems - Operations Management

e.g. packaging problem

Step 3 Evaluation of Requirements

Business Systems - Operations Management

Value Analysis / Value Engineering

Achieve equivalent or better performance at a lower

Step 4 - Preliminary Design

Create functional design

Business Systems - Operations Management

Step 5 - Final Design & Process Planning

Produce detailed drawings & specifications

Business Systems - Operations Management

Flow process chart

Flow process chart for one day on an

Wash, brush teeth

10 Await instructor and equipment

Business Systems - Operations Management

Product Design vs Service Design

In most service operations, the overlap

Customer participates in the service process

Simultaneous production and consumption

Experience versus Consumption

A service is a perishable commodity not always

Business Systems - Operations Management

Characteristics of Services (cont.)

Customer and provider must meet (although not

Most services are labour intensive however more

Services are intangible (ideas & concepts) you only

Services typically have a high holding cost and low

The Service Package

Infrastructure (eg ski lift)

Physical item (eg skis)

Observed, felt benefits

Business Systems - Operations Management