CHAPTER 5: DESIGN OF GOODS AND SERVICES
Goods and Services Selection
► Organizations exist to provide goods or services to
society
► Great products are the key to success
► Top organizations typically focus on core products
► Customers buy satisfaction, not just a physical good or
particular service
► Fundamental to an organization's strategy with
implications throughout the operations function
► Goods or services are the basis for an organization's
existence
► Limited and predicable life cycles requires constantly
looking for, designing, and developing new products
► New products generate substantial revenue
Product Decision
The objective of the product decision is to develop and
implement a product strategy that meets the demands of the
marketplace with a competitive advantage
- The selection, definition, and design of products.
Product Life Cycles
► May be any length from a few days to decades
► The operations function must be able to introduce new
products successfully
Life Cycle and Strategy
Introductory Phase
► Fine tuning may warrant unusual expenses for
1.
Research
2. Product development
3. Process modification and enhancement
4. Supplier development
Ex. cellular phone
Growth Phase
► Product design begins to stabilize
► Effective forecasting of capacity becomes necessary
► Adding or enhancing capacity may be necessary
Maturity Phase
► Competitors are now established
► High volume, innovative production may be needed
► Improved cost control, reduction in options, paring
down of product line
Decline Phase
► Unless product makes a special contribution to the
organization, must plan to terminate offering
Product-by-Value Analysis
► Lists products in descending order of their individual
dollar contribution to the firm
 ► Lists the total annual dollar contribution of the product ▶ House of Quality – a part of the quality function
► Helps management evaluate alternative strategies deployment process that utilizes a planning matrix to
relate customer wants to how the firm is going to meet
Generating New Products those wants.
1. Understanding the customer
2. Economic change Quality Function Deployment
3. Sociological and demographic change
4. Technological change 1. Identify customer wants
5. Political and legal change 2. Identify how the good/service will satisfy customer
6. Market practice, professional standards, suppliers, wants
distributors 3. Relate customer wants to product hows
4. Identify relationships between the firm’s hows
Product Development Stages 5. Develop customer importance ratings
6. Evaluate competing products
7. Compare performance to desirable technical attributes

Organizing for Product Development

► Traditionally –organization with distinct departments
► Duties and responsibilities are defined
► Difficult to foster/lack of forward thinking
► A Champion
► Product manager drives the product through
the product development system and related
organizations
► Team approach
► Cross functional – representatives from all
▶ Quality function deployment (QFD) – a process of disciplines or functions
determining customer requirements (customer wants) ► Product development teams, design for
and translating them into the attributes (the hows) manufacturability teams, value engineering
that each functional area can understand and act on. teams
► Japanese “whole organization” approach
 ► No organizational divisions
Robust Design
Product development team – teams charged with moving ► Product is designed so that small variations in
from market requirements for a product to achieving product production or assembly do not adversely affect the
success. product
Concurrent engineering – use of participating teams in design ► Typically results in lower cost and higher quality
and engineering activities.
Manufacturability and value engineering – activities that help Modular Design
improve a product’s design, production, maintainability, and ► Products designed in easily segmented components
use. ► Adds flexibility to both production and marketing
► Improved ability to satisfy customer requirements
Manufacturability and
Value Engineering Computer Aided Design (CAD)
► Benefits: ► Using computers to design products and prepare
1. Reduced complexity of the product engineering documentation
2. Reduction of environmental impact ► Shorter development cycles, improved accuracy, lower
3. Additional standardization of components cost
4. Improvement of functional aspects of the ► Information and designs can be deployed worldwide
product
5. Improved job design and job safety Extensions of CAD
6. Improved maintainability (serviceability) of the ► Design for Manufacturing and Assembly (DFMA)
product ex.cars transmission
7. Robust design ► Solve manufacturing problems during the
Issues for Product Design design stage
► Robust design ► 3-D Object Modeling
► Modular design ► Small prototype
► Computer-aided design (CAD) development
► Computer-aided manufacturing (CAM) ► CAD through the
► Virtual reality technology internet
► Value analysis ► International data
► Sustainability and Life Cycle Assessment (LCA) exchange through STEP
 Sustainability and Life Cycle Assessment (LCA)
► Sustainability means meeting the needs of the present
Computer-Aided Manufacturing (CAM) without compromising the ability of future generations
to meet their needs.
► Utilizing specialized computers and program to control ► - a production system that supports conservation and
manufacturing equipment renewal of resources.
► Often driven by the CAD system (CAD/CAM) ► LCA is a formal evaluation of the environmental impact
of a product, from material and energy inputs to
Benefits of CAD/CAM disposal and environmental releases, Part of ISO 14000
1. Product quality
2. Shorter design time Product Development Continuum
3. Production cost reductions ► Product life cycles are becoming shorter and the rate
4. Database availability of technological change is increasing
5. New range of capabilities ► Developing new products faster can result in a
competitive advantage
Virtual Reality Technology ► Time-Based Competition

► Computer technology used to develop an interactive, Product Development Continuum

3-D model of a product from the basic CAD data
► Allows people to ‘see’ the finished design before a
physical model is built
► Very effective in large-scale designs such as plant
layout

Value Analysis

► Focuses on design improvement during production

► Seeks improvements leading either to a better product
or a product which can be produced more
economically with less environmental impact

Product Development Continuum
► Purchasing technology by acquiring a firm
► Speeds development
► Issues concern the fit between the acquired
organization and product and the host
► Joint Ventures
► Both organizations learn
► Risks are shared
► Through Alliances
► Cooperative agreements between independent
organizations
► Useful when technology is developing
► Reduces risks
Defining a Product
► First definition is in terms of functions
► Rigorous specifications are developed during the
design phase
► Manufactured products will have an engineering
drawing
► Bill of material (BOM) lists the components of a
product
Product Documents
► Engineering drawing
► Shows dimensions, tolerances, and materials
► Shows codes for Group Technology
► Bill of Material
► Lists components, quantities and where used
► Shows product structure
Group Technology
► Parts grouped into families with similar characteristics
► Coding system describes processing and physical
characteristics
► Part families can be produced
in dedicated manufacturing cells
Group Technology Benefits
1. Improved design
2. Reduced raw material and purchases
3. Simplified production planning and control
4. Improved layout, routing, and machine loading
5. Reduced tooling setup time, work-in-process, and
production time
Documents for Production
► Assembly drawing
► Assembly chart
► Route sheet
► Work order
► Engineering change notices (ECNs)
Assembly Drawing
► Shows exploded view of product
► Details relative locations to show
how to assemble the product
Assembly Chart Work Order

Identifies the point of Instructions to produce a

production where given quantity of a particular
components flow into item, usually to a schedule
subassemblies and
ultimately into the final
product

Engineering Change Notice (ECN)

► A correction or modification to a product’s definition
or documentation
► Engineering drawings
► Bill of material

► Quite common with long product life cycles, long

manufacturing lead times, or rapidly changing
Route Sheet technologies
Lists the operations and times required to produce a
component Configuration Management
► The need to manage ECNs has led to the development
of configuration management systems
► A product’s planned and changing components are
accurately identified and control and accountability for
change are identified and maintained
Product Life-Cycle Management (PLM) Process-Chain-Network (PCN) Analysis
► Integrated software that brings together most, if not
all, elements of product design and manufacture ▶ Direct interaction region includes process steps that
► Product design involve interaction between participants
► CAD/CAM, DFMA ▶ The surrogate (substitute) interaction region includes
► Product routing process steps in which one participant is acting on
► Materials another participant’s resources
► Assembly ▶ The independent processing region includes steps in
► Environmental which the supplier and/or the customer is acting on
resources where each has maximum control
Service Design ▶ All three regions have similar operating issues but the
► Service typically includes direct interaction with the appropriate way of handling the issues differs across
customer regions
► Process – chain – network (PCN) analysis focuses on ▶ Service operations exist only within the area of direct
the ways in which processes can be designed to and surrogate interaction
optimize interaction between firms and their ▶ PCN analysis provides insight to aid in positioning and
customers designing processes that can achieve strategic
objectives

Process-Chain-Network (PCN) Analysis Adding Service Efficiency

▶ Service productivity is notoriously low partially

because of customer involvement in the design or
delivery of the service, or both
▶ Complicates product design

▶ Limit the options

▶ Improves efficiency and ability to meet
customer expectations
▶ Delay customization
 ▶ Modularization ► Know when to move to production
▶ Eases customization of a service ► Product development can be viewed as
▶ Automation evolutionary and never complete
▶ Reduces cost, increases customer service ► Product must move from design to production
▶ Moment of truth in a timely manner
▶ Critical moments between the customer and ► Most products have a trial production period to
the organization that determine customer insure producibility
satisfaction ► Develop tooling, quality control, training
► Ensures successful production
Documents for Services ► Responsibility must also transition as the product
► High levels of customer interaction necessitates moves through its life cycle
different documentation ► Line management takes over from design
► Often explicit job instructions ► Three common approaches to managing transition
► Scripts and storyboards are other techniques ► Project managers
► Product development teams
First Bank Corp. Drive-up Teller Service Guidelines ► Integrate product development and
• Be especially discreet when talking to the customer manufacturing organizations
through the microphone.
• Provide written instructions for customers who must
fill out forms you provide.
• Mark lines to be completed or attach a note with
instructions.
• Always say “please” and “thank you” when speaking
through the microphone.
• Establish eye contact with the customer if the
distance allows it.
• If a transaction requires that the customer park the
car and come into the lobby, apologize for the
inconvenience.
Transition to Production
CHAPTER 6: MANAGING QUALITY Implications of Quality
1. Company reputation
Learning Objectives ► Perception of new products
When you complete this chapter you should be able to: ► Employment practices
► Supplier relations
1. Define quality and TQM 2. Product liability
► Reduce risk
2. Describe the ISO international quality standards
3. Global implications
3. Explain what Six Sigma is ► Improved ability to compete

4. Explain how benchmarking is used in TQM Malcolm Baldrige National Quality Award
5. Explain quality robust products and ► Established in 1988 by the U.S. government
► Designed to promote TQM practices
Taguchi concepts
► Recent winners include
6. Use the seven tools of TQM Lockheed Martin Missiles and Fire Control, MESA Products
Inc., North Mississippi Health Services, City of Irving,
Defining Quality Concordia Publishing House, Henry Ford Health System,
An operations manager’s objective is to build a total MEDRAD, Nestlé Purina PetCare Co., Montgomery County
quality management system that identifies and satisfies Public Schools
customer needs
Baldrige Criteria
The totality of features and characteristics of a product Applicants are evaluated on:
or service that bears on its ability to satisfy stated or implied
needs
Different Views
► User-based: better performance, more features
► Manufacturing-based: conformance to standards,
making it right the first time
► Product-based: specific and measurable attributes of
the product
ISO 9000 International Quality Standards Takumi

► International recognition A Japanese character that symbolizes a broader

► Encourages quality management procedures, detailed
documentation, work instructions, and recordkeeping
► 2009 revision emphasized sustained success
► Over one million certifications in 178 countries
► Critical for global business
dimension than quality, a deeper process than
education, and a more perfect method than
persistence
Leaders in Quality

► Management principles
► Top management leadership
► Customer satisfaction
► Continual improvement
► Involvement of people
► Process analysis
► Use of data-driven decision making
► A systems approach to management
► Mutually beneficial supplier relationships

Costs of Quality

► Prevention costs - reducing the potential for defects

► Appraisal costs - evaluating products, parts, and
services
► Internal failure costs - producing defective parts or
service before delivery
► External failure costs - defects discovered after
delivery
Ethics and Quality Management

► Operations managers must deliver healthy, safe,

quality products and services
► Poor quality risks injuries, lawsuits, recalls, and
regulation
► Ethical conduct must dictate response to problems
► All stakeholders much be considered
Seven Concepts of TQM
Total Quality Management
1. Continuous improvement
► Encompasses entire organization from supplier to 2. Six Sigma
customer 3. Employee empowerment
► Stresses a commitment by management to have a 4. Benchmarking
continuing companywide drive toward excellence in all 5. Just-in-time (JIT)
aspects of products and services that are important to 6. Taguchi concepts
the customer 7. Knowledge of TQM tools

Deming’s Fourteen Points Continuous Improvement

► Never-ending process of continual improvement

► Covers people, equipment, materials, procedures
► Every operation can be improved
Shewhart’s PDCA Model Six Sigma Program
► Originally developed by Motorola, adopted and
enhanced by Honeywell and GE
► Highly structured approach to process improvement
► A strategy
► A discipline – DMAIC
► A set of 7 tools
Six Sigma
Continuous Improvement
1. Defines the project’s purpose, scope, and outputs,
identifies the required process information keeping in
► Kaizen describes the ongoing process of unending
improvement mind the customer’s definition of quality
► TQM and zero defects also used to describe continuous 2. Measures the process and collects data
improvement
3. Analyzes the data ensuring
Six Sigma repeatability and reproducibility
► Two meanings
4. Improves by modifying or
► Statistical definition of a process that is
99.9997% capable, 3.4 defects per million redesigning existing
opportunities (DPMO) processes and procedures
► A program designed to reduce defects, lower 5. Controls the new process
costs, save time, and improve customer
to make sure performance
satisfaction
levels are maintained
► A comprehensive system for achieving and sustaining
business success
Implementing Six Sigma Benchmarking
Selecting best practices to use as a standard for performance
► Emphasize defects per million opportunities as a 1. Determine what to benchmark
standard metric 2. Form a benchmark team
► Provide extensive training 3. Identify benchmarking partners
► Focus on corporate sponsor support (Champions) 4. Collect and analyze benchmarking information
► Create qualified process improvement experts (Black 5. Take action to match or exceed the benchmark
Belts, Green Belts, etc.)
► Set stretch objectives Best Practices for Resolving Customer Complaints
Employee Empowerment
► Getting employees involved in product and process
improvements
► 85% of quality problems are due
to process and material
► Techniques
► Build communication networks
that include employees
► Develop open, supportive supervisors
► Move responsibility to employees
Internal Benchmarking
► Build a high-morale organization
► Create formal team structures  When the organization is large enough
 Data more accessible
Quality Circles  Can and should be established in a variety of areas

► Group of employees who meet regularly to solve Just-in-Time (JIT)

problems Relationship to quality:
► Trained in planning, problem solving, and statistical ► JIT cuts the cost of quality
methods ► JIT improves quality
► Often led by a facilitator ► Better quality means less inventory and better, easier-
► Very effective when done properly to-employ JIT system
Just-in-Time (JIT) ► Costs include customer dissatisfaction, warranty
► ‘Pull’ system of production scheduling including supply and service, internal
management scrap and repair, and costs to society
► Production only when signaled ► Traditional conformance specifications are too
► Allows reduced inventory levels simplistic
► Inventory costs money and hides process and  TARGET- ORIENTED QUALITY
material problems
► Encourages improved process and product quality TQM Tools

Taguchi Concepts ► Tools for Generating Ideas

► Engineering and experimental design methods to ► Check Sheet
improve product and process design ► Scatter Diagram
► Identify key component and process variables ► Cause-and-Effect Diagram
affecting product variation ► Tools to Organize the Data
► Taguchi Concepts ► Pareto Chart
► Quality robustness ► Flowchart (Process Diagram)
► Quality loss function TQM Tools
► Target-oriented quality
► Tools for Identifying Problems
Quality Robustness ► Histogram
► Statistical Process Control Chart
► Ability to produce products uniformly in adverse
manufacturing and environmental conditions Seven Tools of TQM
► Remove the effects of adverse conditions
► Small variations in materials and process do not (a) Check Sheet: An organized method of recording data
destroy product quality
Quality Loss Function

► Shows that costs increase as the product moves away

from what the customer wants
Statistical Process Control (SPC) ► Detect a defective product
► Does not correct deficiencies in process or
► Uses statistics and control charts to tell when to take product
corrective action ► It is expensive
► Drives process improvement ► Issues
► Four key steps ► When to inspect
► Measure the process ► Where in process to inspect
► When a change is indicated, find the
assignable cause When and Where to Inspect
► Eliminate or incorporate the cause
► 1. At the supplier’s plant while the supplier is producing
► Restart the revised process 2. At your facility upon receipt of goods from your
supplier
3. Before costly or irreversible processes
4. During the step-by-step production process
5. When production or service is complete
6. Before delivery to your customer
7. At the point of customer contact

Inspection

► Many problems
► Worker fatigue
► Measurement error
► Process variability
► Cannot inspect quality into a product
Inspection ► Robust design, empowered employees, and sound
processes are better solutions
► Involves examining items to see if an item is good or
defective
Source Inspection
► Also known as source control
► The next step in the process is your customer
► Ensure perfect
product to your
customer

Poka-yoke is the concept of foolproof devices or techniques

designed to pass only acceptable product

Checklists ensure
consistency and
completeness

Attributes Versus Variables

► Attributes
► Items are either good or bad, acceptable or
unacceptable
► Does not address degree of failure
► Variables
► Measures dimensions such as weight, speed,
height, or strength
► Falls within an acceptable range
► Use different statistical techniques

TQM In Services
  Understanding/knowing the customer involves
► Service quality is more difficult to measure than the making the effort to understand the customer’s needs
quality of goods
► Service quality perceptions depend on  Tangibles include the physical evidence of the service
1) Intangible differences between products
2) Intangible expectations customers have of Service Recovery Strategy
those products
Service Quality ► Managers should have a plan for when services fail
The Operations Manager must recognize: ► Marriott’s LEARN routine
► Listen
► The tangible component of services is important ► Empathize
► The service process is important ► Apologize
► The service is judged against the customer’s ► React
expectations ► Notify
► Exceptions will occur

Determinants of Service Quality

 Reliability involves consistency of performance and

dependability
 Responsiveness concerns the willingness or readiness
of employees to provide service
 Access involves approachability and ease of contact
 Courtesy involves politeness, respect, consideration,
and friendliness
 Communication means keeping customers informed
and listening to them
 Credibility involves trustworthiness, believability, and
honesty
 Security is the freedom from danger, risk, or doubt