DAVIS

F O U R T H E D I T I O N AQUILANO

CHASE

chapter 3 New
New Product
Product and
and Service
Service
Development,
Development, and
and Process
Process
PowerPoint
Presentation

Selection
Selection
by
Charlie
Cook
© The McGraw-Hill Companies, Inc., 2003
 Chapter
Chapter Objectives
Objectives
• Illustrate the importance of the development of new
products and services to a firm’s competitiveness.
• Identify the various types of new products that are
developed by companies.
• Introduce the new product design process and the
concept of a product’s life cycle.
• Demonstrate the necessity of concurrent product and
process design as a new product or service is developed.
• Present a framework for understanding how new
services are developed and introduced into the
marketplace.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–2

 Managerial
Managerial Issues
Issues
• Product life cycles becoming shorter.
–The need to bring products to market more
quickly and efficiently.
• Conducting product development on a
continuous basis.
–New products may represent a majority of sales
and profits.
–3M an innovative company, having strength to
introduce new products in the market at a faster
pace with a great success record.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–3

 Why
Why the
the Emphasis
Emphasis on
on New
New
Goods
Goods and
and Services
Services
• Increased Competition
Advances in worldwide telecommunications
Lower trade barriers (import duties and tariffs) and the
creation of trade organizations (NAFTA and European
Union)
Faster transportation of goods
• Advances in Technology
Products become obsolete faster.
Cell Phone sizes & features and PC’s speed and storage
are good examples.
Improved manufacturing processes (CAD and CAM and
industrial robots)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–4

 The
The Benefits
Benefits of
of Introducing
Introducing
New
New Products
Products Faster
Faster
• Greater Market Share
Early entry captures large initial market share.
Semi-conductor industry – first two entrants share
majority of market
• Price Premiums
Ability to initially charge more for new products.
Products that are late to market have a –ve impact on
profitability in terms of cost overruns.
• Quick Reaction to Competition
Rapid response to competitor’s new products.
• Set Industry Standards
Initial product sets market/industry standards (entry
barriers).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–5

 The
The Impact
Impact of
of Speed
Speed to
to Market
Market on
on Sales
Sales

Exhibit 3.1a
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–6
 The
The Impact
Impact of
of Speed
Speed to
to Market
Market on
on
Profit
Profit Margins
Margins

Exhibit 3.1b
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–7
 The
The Impact
Impact of
of Speed
Speed to
to Market
Market on
on Profits
Profits

Exhibit 3.1c
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–8
 Categories
Categories of
of New
New Products
Products
• Incremental or Derivative Products
Cost-reduced versions of existing products or
products with added functions & features.
Are hybrids or enhancements of existing
products.
Require minimal changes in design or process,
allowing for quick development.
Require fewer resources to develop new
features or functions.
Help ensure near-term cash flows by
maintaining current market share.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–9

 Categories
Categories of
of New
New Products
Products
• Next Generation or Platform Products
Represent new “system” solutions for
customers.
Require more resources to develop.
Are key to continued product revenue growth.
Intel’s 286, 386, 486, PI, PII, PIII & PIV are
examples
Ford’s MUSTANG models
Ensure company’s growth and lay the
foundation for a series of evolutionary products
in coming years.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–10

 Categories
Categories of
of New
New Products
Products

• Breakthrough or Radical Products

Create new product categories as core
businesses.
Require substantial design and process change.
Render existing products obsolete in long-term.
First PC, first Laptop, first Cellular phone are
good example.
CDs, Optic Fiber, Teflon are another class of
examples.
These products are necessary for long term
success of the firm.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–11

 The
The Trend
Trend toward
toward Shorter
Shorter
Product
Product Development
Development Times
Times

Source: Data: Product Development & Management Exhibit 3.2

Association, Business Week, January 27, 1997, p. 6.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–12
 The
The New
New Product
Product
Development
Development (NPD)
(NPD) Process
Process
• New Product Development Process
The method by which new products evolve from
conceptualization through engineering to
manufacturing and marketing.
• Market Success Depends on NPD
Continuously generate new product ideas.
Convert ideas to reliable functional designs.
Ensure that the designs are readily producible.
Select the processes most compatible with
customer needs.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–13
 Sequential
Sequential Flow
Flow of
of Activities
Activities in
in
Product
Product Design
Design and
and Process
Process Selection
Selection

Source: Reprinted with the permission of the Free Press, an imprint of Simon &
Schuster from Fast Cycle Times: How to Align Purpose, Strategy, and Structure
for Speed by Christopher Meyer. Copyright © 1993 by Christopher Meyer. Exhibit 3.3
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–14
 The
The New
New Product
Product
Development
Development (NPD)
(NPD) Process
Process
• Concurrent Engineering
The simultaneous and coordinated efforts of all
functional areas which accelerates the time to
market for new products.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–15

 Concurrent
Concurrent Engineering
Engineering Approach
Approach to
to NPD
NPD

Exhibit 3.4
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–16
 The
The New
New Product
Product Development
Development
(NPD)
(NPD) Process
Process (cont’d)
(cont’d)
• Idea Generation
Market pull: the “voice of the customer” in providing
feedback to determine product specifications.
Technology push: a product developed by the firm’s R&D
is “pushed” into the market. Polaroid Cameras, PCs and
3M’s Post-it Notes are examples
• Concept Development
Initial product design developed and tested.
Analysis of the market and customer requirements.
Businesses today recognize the need to involve their
customers in all aspects of design, production and
delivery of goods and services.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–17

 The
The New
New Product
Product Development
Development
(NPD)
(NPD) Process
Process (cont’d)
(cont’d)
• Quality Function Deployment (QFD)
The process for translating customer requirements into a
product’s design.
• Voice of the Customer
Customer feedback is used in QFD process to determine
product specifications.
Customer attributes:
• Product needs
• Product preferences
Attributes are weighted based on their relative importance
to customer.
Consumer is asked to compare and rate the company’s
products with those of its competitors.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–18

 The
The New
New Product
Product Development
Development
(NPD)
(NPD) Process
Process (cont’d)
(cont’d)
• House of Quality
The part of the QFD process that uses customer
feedback for product design criteria.
Use of QFD teams
• Identify important customer attributes.
• Design superior product.
• Shorten product design time.
• Facilitate inter-functional cooperation.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–19

 Completed
Completed
House
Houseof of
Quality
Quality
Matrix
Matrix
for
foraaCar
Car
Door
Door

Exhibit 3.5
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–20
 QFD
QFD Details
Details
 Process used to ensure that the product meets customer
specifications

Voice of the
engineer

Voice Customer-based
benchmarks
of the
customer

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–21 21

 QFD
QFD –– House
House of
of Quality
Quality
 Adding trade-offs, targets & developing product
specifications
Trade-offs

Technical
Benchmarks
Targets

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–22

 The
The New
New Product
Product Development
Development
(NPD)
(NPD) Process
Process (cont’d)
(cont’d)
• New Product Planning
1. Build models of new product.
2. Test new elements and components.
3. Conduct detailed investment and financial
analyses of product’s anticipated life cycle.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–23

 The
The New
New Product
Product Development
Development
(NPD)
(NPD) Process
Process (cont’d)
(cont’d)
• Design for Manufacturability (DFM)
Choosing manufacturing methods and
materials.
Minimizing the number of individual parts:
• Reduces assembly time.
• Increases reliability.
 Setting product specifications.
• Output from the design activity that states all
criteria for building a product.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–24

 Design
Design Change
Change toto Reduce
Reduce
the
the Number
Number ofof Parts
Parts in
in aa Bracket
Bracket

Exhibit 3.6
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–25
 Factors
Factors contributing
contributing to
to Successful
Successful Product
Product Design
Design

• Design from the outside in. Make the customer’s use

of the product the focus of all product development.
• Partner Deeply. Involve all of the relevant functional areas
(marketing, engineering, purchasing & manufacturing) early in
the design process to assist in defining the new product
(concurrent engineering).
• Partner Widely. Organizational boundaries are becoming
fused. Designers should involve all stakeholders – internal &
external.
• Design the product upfront. Match the right product to
the right market niche. Upfront design analysis will eliminate the
faulty concepts early.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–26

 Factors
Factorscontributing
contributingto
toSuccessful
SuccessfulProduct
ProductDesign
Design––contd.
contd.

• Get physical fast. Use prototypes to visualize a concept

and to obtain quick feedback from both users and managers.
• Design for manufacturability. Always design a product
that will meet established quality, cost and delivery parameters.
Manufacturing issues are as important to success as
ergonomics, aesthetics and functionality.
• Surprise the user. Always build something extra into the
product that will unexpectedly delight the customer. This creates
customer loyalty and increases the chances of having a truly
“hot” product.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–27

 • WITH TODAY'S HUGE ARSENAL of drugs, doctors can control diabetes,
glaucoma, hypertension, and dozens of other diseases. But they can't force
people to take their medicine. Forgetful and reluctant patients rack up $25 billion
in avoidable hospital bills each year, according to the National Pharmaceutical
Council in Reston, Va., plus billions more in unnecessary nursing home
admissions.

One remedy may be for the medicine containers themselves to remind patients
when it's time to take a pop. Aprex Corp. in Fremont, Calif., builds a "smart" bottle
cap that's equipped with its own chip, alarm clock, and a tiny display. The cap
keeps track of how often the bottle is opened and can nudge patients with
electronic beeps.

Now, Aprex has added a modem that reads the cap's memory and automatically
relays to Aprex the number of times the cap was removed that day. If the count
isn't right, the patient gets a reminder call in the morning. The service, called
Dosing Partners, costs less than $2 a day--but isn't covered by insurance. Still,
Aprex has drawn some big backers. Last fall, Pfizer invested $2 million to join
Johnson & Johnson and New York Life as an equity partner.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–28

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–29
 Process
Process Selection
Selection in
in Manufacturing
Manufacturing
• Types of Processes
–Project process
• Process that focuses on making one-of-a-kind
products.
–Intermittent process
• Process that produces products in small lot sizes
(e.g., job and batch operations).
–Line-flow process
• Continuous process that produces high volume,
highly standardized products (e.g., assembly-line
and continuous operations).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–30

 Types
Types of
of Processes
Processes

Exhibit 3.7
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–31
 Process
Process Selection
Selection in
in Manufacturing
Manufacturing
• The Product-Process Matrix
–High production volumes and narrow product
lines make specialized equipment and
standardized materials economically feasible.
• Remaining in a process niche after the product
cycle has advanced to its next stage dooms a firm
to market failure.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–32

 Matching
Matching Major
Major Stages
Stages ofof
Product
Product and
and Process
Process Life
Life Cycles
Cycles

Source: Adapted from Robert Hay and Steven Wheelwright, Restoring Competitive Edge: Exhibit 3.8
Competing through Manufacturing (New York: John Wiley & Sons, 1984).
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–33
 Product
Product and
and Process
Process Life
Life Cycles
Cycles

Exhibit 3.9
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–34
New
New Service
Service Development
Development
 Types
Types of
of Incremental
Incremental and
and New
New Services
Services

Exhibit 3.10
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–36
 Categories
Categories of
of New
New Services
Services
• Incremental services
– Service line extensions
• New services that augment current services.
– New items on restaurant menu, new airline routes.
– Service improvements
• New services in which features have changed relative
to existing services.
– E-ticketing for airlines.
– Style changes
• Modest forms of new services that change only the
appearance of the service.
• Aimed to impact the customer’s perceptions, emotions
and attitudes.
– Renovation of a restaurant, exterior painting of airplane with a new
logo.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–37

 Categories
Categories of
of New
New Services
Services (cont’d)
(cont’d)
• Radical
– New service offerings that were not previously available
or new delivery system for existing service
– Major innovations
• New services in markets not fully defined. Often driven
by computer and information technology.
– Internet banking
– Start-up services
• New services in established markets already served by
existing services.
– Development of SMART card for retail transactions, customer
loyalty card by Lahore Chatkhara.
– New services for current markets
• Added services to current customers.
– PICIC Bank’s kiosk in PC Lahore.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–38

 AA Framework
Framework for
for Categorizing
Categorizing New
New Services
Services

Exhibit 3.11
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–39
 Categories
Categories of
of New
New Services
Services

Service Category Content Change

“Window Dressing” Not significantly different from other
services
Delivered in similar fashion

Breadth of Offering Significant design change in content of

service
Delivered in similar fashion

Revolutionary New in both content and delivery

method

Channel Development Delivery of same/existing service

through a different/new channel

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–40

 Categories
Categories of
of New
New Services
Services –– Contd.
Contd.

Service Category Examples

“Window Dressing” New courses at college
Could be brought into market in a relatively
short period of time.

Breadth of Offering Marriott has variety, e.g., Fairfield Inns,

Residence Inns, Marriott Courtyards and
Marriott Suites.
Delivered in similar fashion but content is
different

Revolutionary Overnight delivery service of FedEx using

airplanes

Channel Development ATM Machines of banks

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–41

 New
New Service
Service Development
Development Process
Process
• NSD is very similar to NPD.
• Designing of Product and Process is carried
out simultaneously.
• It is impossible to separate product from
process.
• The process starts with IDEA.
• R & D in services occurs primarily in the
operations process w.r.t. how the service is
delivered.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–42

 New
New Service
Service Development
Development (NSD)
(NSD) Process
Process –– Contd.
Contd.

Stage Activity
Design Formulating the objectives and strategy of the
new service.

Analysis Considering the financial implications of the

new service.
Examining supply chain issues for delivery of
service.

Development Testing the service design, training

personnel, conducting pilot runs.

Full Launch Releasing the service to the market place.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–43

 NSD
NSD Process
Process -- Propositions
Propositions
• The NSD process is more likely to be nonlinear for the services
that are less standardized or are delivered through more
industrialized service channels.
• Competence in the planning phase activities of NSD process
drives successful radical innovations, whereas competence in
execution phase activities of the NSD process drives successful
incremental innovations.
• Service failures and subsequent recovery efforts are often the
result of using an ad hoc NSD process or the lack of NSD
competence rather than from poor service execution.
• Effective portfolio management of individual NSD efforts will
decrease the total risk of a firm’s NSD program and increase the
probability of high NSD returns (Similar to the portfolio
management approvals that mutual funds use)
• Portfolio-like management of NSD efforts will increase the
fulfilment of heterogeneous customer needs.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–44

 The
The Customer
Customer Contact
Contact Approach
Approach to
to
Designing
Designing Service
Service Processes
Processes
• Service systems are generally classified along industry
lines
– Financial services, health services, transportation and etc.
– Such classification does not mention much about process
• Customer Contact
– The presence of the customer in the system.
• Extent of Contact
– The percent of time the customer is involved relative to the
time required to deliver the service.
• Creation of the Service
– The work process involved in providing the service.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–45

 The
The Customer
Customer Contact
Contact Approach
Approach to
to
Designing
Designing Service
Service Processes
Processes

High
HighDegree
Degree Low
LowDegree
Degree
of
ofCustomer
Customer of
ofCustomer
Customer
Contact
Contact Contact
Contact

Percentage of customer contact

High Low
(customer influence on the system)
Difficulty in managing system

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–46

 Major
Major Differences
Differences between
between High-
High- and
and Low-
Low-
Contact
Contact Systems
Systems in
in aa Bank
Bank

Exhibit 3.12
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–47
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–48
 The
The Service
Service Process
Process Matrix
Matrix

Source: Roger W. Schemenner, “How Can Service Businesses Survive and

Prosper?” Sloan Management Review 27, no. 3 (Spring 1986), pp. 21–32,
by permission of publisher. Copyright 1986 by Sloan Management Review Exhibit 3.13
Association, All rights reserved.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–49
 Customer
Customer Contact
Contact Approach
Approach –– Contd.
Contd.
• Degree of customer interaction and customization, closely
parallels the degree of customer contact.
• The degree of labour intensity to deliver service is also important
• Service Factory
– Low degree of labour intensity and low degree of customer
interaction and customization
• Service Shop
– Low degree of labour intensity but higher degree of customer
interaction and customization
• Mass Service
– High degree of labour intensity but has a relatively low degree of
customer interaction and customization
• Professional Service
– High degree of labour intensity as well as higher degree of
customer interaction and customization

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–50

 Generic
Generic Strategies
Strategies for
for Service
Service Organizations
Organizations
• Low Degree of labour intensity
Capital intensive with high fixed costs.
Can’t easily adjust capacity to meet changes in
demand
Must attempt to smooth out demand during
peak periods by shifting it to off-peak periods
• High Degree of labour intensity
Workforce management is paramount.
Emphasis should be on hiring training and
scheduling
• Benchmarking of best-in-class companies
could help
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–51
 Designing
Designing aa New
New Service
Service Organization
Organization
• “Service Vision” (Heskett)
–Identification of the target market
• Who is our customer?
–Defining the service concept
• How do we differentiate our service in the market?
–Developing the service strategy
• What is our service package and its operating
focus?
–Creating the service delivery system
• What processes, staff, and facilities are needed?

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–52

 Designing
Designing aa New
New Service
Service Organization
Organization –– Contd.
Contd.
• The process and the product must be developed
simultaneously.
• Service operation itself lacks the legal protection,
commonly available to goods production.
• Service package constitutes the major output of
development process.
• Many parts of the service package often are defined
by training individuals receive before they become part
of organization.
– Professional service organizations, e.g. law firms,
hospitals require certification prior to hiring
• Many service organizations can change their service
offerings virtually overnight.
– Barber shops, retail stores and restaurants

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–53

 Service-System
Service-System Design
Design Matrix
Matrix

Exhibit 3.14
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–54
 Service-System
Service-System Design
Design Matrix
Matrix –– Contd.
Contd.
• Buffered Core – physically separated from the
customer.
• Permeable System – customer can penetrate via
phone or face-to-face contact
• Reactive System – Penetrable and reactive to
customer requirements
• Greater the amount of customer contact, the greater
the opportunity to generate additional sales.
• Face-to-face loose specs
– Fast food restaurants and Disneyland, neither customer
nor server has much discretion on creating the service
• Face-to-face total customization
– Where the specs. to be developed through some
interaction b/w customer and server, e.g., legal and
medical services

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–55

 Strategic
Strategic Uses
Uses of
of the
the
Service-System
Service-System Design
Design Matrix
Matrix
1. Enabling systematic integration of operations and marketing strategy.
2. Clarifying exactly which combination of service delivery the firm is actually
providing.
 As the company incorporates the delivery options (listed on diagonal) it is
becoming diversified in production process.
3. Permitting comparison with other firms in the way specific services are
delivered.
 This helps to pinpoint a firm’s competitive advantage.
4. Indicating evolutionary or life cycle changes that might be in order as the firm
grows.
 The evolution of service delivery could move in either direction, unlike to
that in manufacturing where from intermittent operation, movement is
towards continuous operation.
5. Providing flexibility.
 One can go into depth, placing particular service products of a small firm or
cover a large service organization at more aggregated level.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–56

 Process
Process Selection
Selection in
in Services
Services
• Types of Service Organizations
– Service businesses
• Facilities-based services that provide assistance to
customers who come to the service facility. Banks,
hospitals, law firms.
• Field-based services that provide on-site services to
customers. Cleaning and home repair services.
– Customer support services
• Provide product information and services to current
external customers. Product repair and maintenance
services.
– Internal services
• Provide services for other internal organizational units.
Functions such as, maintenance, accounting.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–57
 Process
Process Selection
Selection in
in Services
Services (cont’d)
(cont’d)
• The Production Line Approach
Orientation is toward the efficient production of results—
precisely controlled execution of the “central function”.
McDonald’s Big Mac
Besides marketing and financial skills, the company carefully
controls the execution of each outlet’s central function – the
rapid delivery of a consistently uniform, high quality mix of
prepared food in a clean environment, with cheerful courtesy.
The systematic substitution of equipment for people,
combined with carefully planned use and positioning of
technology enables McDonald’s to attract customers in un-
precedented manner.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–58

 McDonald’s
McDonald’s Production
Production Line
Line Approach
Approach
 The McDonald’s french fryer allows cooking of the optimum
number of french fries at one time.
 A wide-mouth scoop is used to pick up the precise amount of
french fries for each order size. (The employee never touches
the product)
 Storage space is expressly designed for a predetermined mix of
pre-packaged and pre-measured products.
 Cleanliness is pursued by providing ample trash cans in and
outside each facility. (larger outlets have motorized sweepers for
parking areas)
 Hambergers are wrapped in color coded paper.
 Through painstaking attention to total design and facilities
planning, everything is built integrally into the (McDonald’s)
machine itself – into the technology of system. The only choice
available to the attendant is to operate it exactly as the designer
intended.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–59

 Process
Process Selection
Selection in
in Services
Services –– Contd.
Contd.

• The Customer Involvement Approach

Having the customer take a greater
participatory role in the production of the
service.
• ATMs, self-service gas stations, salad bars, in-
room coffee-making equipment in hotel rooms.
This turns customer into partial employees,
who must be trained in what to do and be
compensated primarily through lower prices
that are charged for service.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–60

 Process
Process Selection
Selection in
in Services
Services –– Contd.
Contd.
• The Personal Attention Approach
The central focus is complete customer
attention and satisfaction at all times.
It is the concept of mass-customization, applied
to services.
Each customer is treated as an individual, with
the service firm often maintaining a database of
each customer’s likes and dislikes.
This information may be available within one
particular facility or for all facilities of that
organization.
Ritz-Carlton does it for all of its guests.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–61

 Common
Common Characteristics
Characteristics of
of
Well-Designed
Well-Designed Service
Service Systems
Systems

1. Each element of the service system is consistent with

the operating focus of the firm.
2. It is user-friendly—customers can interact easily.
3. It is robust—capable of coping with variations in
demand and resources availability
4. It is structured so that consistent performance by its
people and systems is easily maintained.
 Supportive technologies are truly supportive and
reliable.
5. It provides effective links between the back office and
the front office so that nothing falls between the
cracks.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–62
 Common
Common Characteristics
Characteristics of
of
Well-Designed
Well-Designed Service
Service Systems
Systems (cont’d)
(cont’d)

6. It manages the evidence of service quality in such a

way that customers see the value of the service
provided.
 This is particularly true where a service improvement
is made. Unless customers are made aware of
improvement through explicit communication about
it, the improved performance is unlikely to gain
maximum impact.
7. It is cost-effective—there is a minimum waste of time
and resources in delivering the service.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 3–63