Shanti Business School

Operations Management Notes (PGDM-2020-22)

Goods & Products:

What customer buys – Physical, tangible aspect. (What can you make for me?)
Services:

How the value is provided – Intangible aspect. (How the value is provided – Intangible aspect)

Goods vs. Services

 Characteristics of Goods
• Tangible product
• Consistent product definition
• Production usually separate from consumption
• Can be inventoried
• Low customer interaction
 Characteristics of Services
• Intangible product
• Produced & consumed at same time
• Often unique
• High customer interaction
• Inconsistent product definition
• Often knowledge-based
• Frequently dispersed

Goods vs. Services

Goods / Products Services
1) Goods can be resold 1) Reselling services is unusual
2) Goods can be inventoried 2) Services cannot be inventoried
3) Some aspects of quality are measurable 3) Many aspects of quality are difficult to measure
4) Selling is distinct from production of goods 4) Selling is often a part of production of service
5) Goods are transportable 5) Service provider, not the service, is transportable
6) Often easy to automate production of goods 6) Service is often difficult to automate
7) Are tangible 7) Are intangible
8) Involve less customer interaction Services 8) Involve higher customer interaction
 Manufacturing Operations & Service Operations
Following characteristics can be considered for distinguishing manufacturing operations with service
operations:
Manufacturing is characterized by tangible outputs (products), outputs that customers consume overtime, jobs
that use less labour and more equipment, little customer contact, no customer participation in the conversion
process (in production), and sophisticated methods for measuring production activities and resource
consumption as product are made.

Manufacturing vs. Services

Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of output High Low
Labor content per unit of goods or service Low High
Uniformity of input High Low
Measurement of productivity Easy Difficult
Opportunity to correct quality problems Easy Difficult

On the other hand…Similarities in Manufacturing & Services!!

 Both use technology.
 Both have quality, productivity, & response issues.
 Both must forecast demand.
 Both will have capacity, layout, and location issues.
 Both have customers, suppliers, scheduling and staffing issues.
 Manufacturing often provides services.
 Services often provides tangible goods.
Goods - Services Continuum
Pure Goods: Buying a good with no service
 Foods products
 Chemicals
 Book publishing
Core Goods: Buying a good with some attached services.
 Appliances
 Data storage devices
  Automobiles
Core Services: Buying / Availing a service with some attached products.
 Hotel
 Airlines
 Internet service providers
Pure Services: Buying / Availing a service with no attached products.
 Teaching
 Medical advice
 Financial advising

Hybrid organizations: Some organizations are a blend of service / manufacturing are called Hybrid or semi-
manufacturing organizations.

What is a Transformation Process?

A transformation process is defined as a user of resources to transform inputs into some desired outputs.
Transformations Processes
 Physical--Manufacturing
 Locational--Transportation
 Exchange--Retailing
 Storage--Warehousing
 Physiological--Health care
 Informational--Telecommunications

Operations management
a. Operation Management is the set of activities that relate to the creation of goods and services through
the transformation of inputs into outputs OR in other words it is the management of all process and
systems that produce goods and services for external and internal customers.
b. Operations Management is the business management function responsible for planning, coordinating,
and controlling the resources needed to produce products and services for a company.
c. It is a core or rather the primary function of every management organization whether Service or
Manufacturing, profit or not for profit along with marketing and Finance. All other functions like IT, HR
are the support or secondary functions.
d. Operations management deals with the systematic design, direction, and control of processes.
  “A process is an activity or group of activities that takes one or more inputs, transforms them, and
provides one or more outputs for its customers.”
 An “Operation is a group of resources performing all or part of one or more processes.”
Operations Strategy
Operations strategy
a. Specifies the means by which operations implements corporate strategy and helps to build a customer-
driven firm.
b. It links long-term and short-term operations decisions to corporate strategy and develops the capabilities
the firm needs to be competitive.
Competitive Priorities and Capabilities
Competitive priorities are the critical operational dimensions a process or supply chain must possess to
satisfy internal or external customer, both now and in the future.
Competitive capabilities are the cost, quality, time, and flexibility dimensions that a process or supply
chain actually processes and is able to deliver. An abbreviated list with examples is provided here.
Dimension Definition Example
Low-cost Delivering a service or product at the Costco achieves low costs by designing all
operations lowest cost possible. processes for efficiency.
Top Delivering an outstanding service or Rolex is known globally for top-quality precision
quality product. timepieces
Consistent Producing services or products that McDonald’s standardizes work methods, staff
quality meet design specifications on a training processes, and procurement to achieve
consistent basis. consistency.
Delivery Quickly filling customer orders Dell engineered processes to deliver reliable and
speed inexpensive computers with short lead times.
On-time Meeting delivery-time promises United Parcel Service (UPS) uses expertise in
delivery logistics and warehousing processes to deliver on-
time.
Development Quickly introducing new services or Zara is known by its ability to bring fashions from
speed products. the runway to market quickly
Customization Satisfying unique needs of Ritz Carlton customizes services to individual
customers customers.
Variety A wide assortment of services or Amazon.com uses information technology along
products. with order fulfillment processes to deliver a vast
variety of items to customers.
 Volume Accelerating or decelerating the rate The United States Post Office (USPS) can have
flexibility of production severe demand peak fluctuations.

The Notion of Trade - Offs

 Operation cannot excel simultaneously on all competitive dimensions.
 Consequently management has to decide which parameters of performance are critical to the firm’s
success and concentrate the resources of the firm on these particular characteristics.
Using competitive priorities: an airline example (two market segments: first-class passengers and coach
passengers)
 Customer relationships
 Top quality: High levels of customer contact and lounge service for the first-class passengers
 Consistent quality: The information and service must be error free
 Delivery speed: Customers want immediate information regarding flight schedules and other
ticketing information
 Variety: The process must be capable of handling the service needs of all market segments and
promotional programs
 New service development
 Developing speed: It is important to get to the market fast to preempt the competition
 Customization: The process must be able to create unique services
 Top quality: New services must be carefully designed because the future of the airline industry
depends on them
 Order fulfillment
 Low-cost operations: Airlines compete on price and must keep operating costs in check
 Top quality: High quality meal and beverage service delivered by experienced cabin attendants
ensures that the service provided to first-class passengers is kept top notch.
 Consistent quality: Once the quality level is set, it is important to achieve it every time
 On-time delivery: The airline strives to arrive at destinations on schedule, otherwise passengers
might miss connections to other flights
 Variety: Maintenance operations are required for a variety of aircraft models
 Supplier relationship
 Low-cost operations: Costs of acquiring inputs must be kept to a minimum to allow for competitive
pricing
 Consistent quality: Quality of the inputs must adhere to the required specifications. In addition,
information provided to suppliers must be accurate
  On-time delivery: Inputs must be delivered to tight schedules
 Variety: Many different inputs must be acquired, including maintenance items, meals and beverages.
 Volume flexibility: The process must be able to handle variations in supply quantities efficiently
Order Winners and Qualifiers
 Order winner is a criterion that customers use to differentiate the services or products of one firm from
those of another, such as cost, quality, time, and flexibility. An order winner is a characteristic that will
win the bid or customer's purchase. To provide order winners, firms must be better than their
competitors.

 An order qualifier is a characteristic of a product or service that is required in order for the
product/service to even be considered by a customer. Order qualifier is the minimal requirement for
doing business in a particular market segment. To provide qualifiers, they need only to be as good as
their competitors. Failure to do so may result in lost sales.

Key Performance Indicators

 A set of measures that help managers evaluate a company’s economic performance and spot the
need for change in operation.
 KPIs include financial measures such as days’ cash on hand and operating income by unit or
division, as well as non financial metrics such as average time to respond to service calls, lead
time, or percentage of sales from new products.
What is Productivity?
 Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to
input
 Productivity = Output / Input
 Productivity is a common measure of how well a country, industry or business unit is using its
resources.
 Partial measures of productivity = Output / labor, Output/Capital, Output/ Material etc.
 Multifactor measures of productivity = Output / (Labor + Capital + Energy)
Product Design
 Product design – the process of defining the product characteristics appearance, materials,
dimensions, tolerances, and performance standards
 Product design must support product manufacturability (the ease with which a product can be made)
Product Design / Development Process
 Phase 0: Planning: It is referred to be as Phase Zero. The phase begins with corporate strategy and
includes assessment of technology developments and market objectives.
 Phase 1: Concept / Idea development: In this phase the needs of the target market are identified,
alternative product concepts are generated. A concept is a description of the form, function, and
features of a product and is usually accompanied by a set of specifications, an analysis of
competitive products, and an economic justification of the product or service. The information for
the idea development can be extracted from various sources as mentioned: existing or target
customers, suppliers, competitors, employees, industry benchmarks, designing firms, R & D
Departments, etc.
 Phase 2: Product Screening / Feasibility Study: The product concepts or the idea developed are
than evaluated and no one or more concepts are selected for further development and testing.
 Phase 3: Preliminary Design and Pilot Testing (Rapid Prototyping if applicable): It includes the
definition of the product architecture and the decomposition of the product into subsystems and
components. The output of this phase usually includes a geometric layout of the product, a
functional specification of each subsystem, and a preliminary process flow diagram classified as :
 Form Design
 Functional Design
 Production Design
 A prototype is than created and tested in the market as part of Pilot Run on a small scale in order to
get the feedback on the product design and its features, functions etc. Early prototypes are usually
 build and are tested to determine whether the product will work as designed and whether the
product satisfies customer needs.
 Phase 4: Final Design / New Product Or Service launch: Based on the feedback received from the
pilot testing a final design is being created. It includes the complete specification of the geometry,
materials, and tolerances of all the unique parts in the product and the identification of all the
standard parts to be purchased from suppliers. The output of this phase is the drawings or computer
files describing the geometry of each part and production tooling. It involves the construction and
evaluation of multiple preproduction versions of the product. The product is made using the intended
production system.
Product Design / Development Process

Approaches to Product Design

Over-The-Wall Design Process

During the industrial revolution, technology became more complex. The complexity forced employees of
companies to specialize in different areas of the product design process. No longer could one person be
responsible for the design, manufacture and sales of a product. The Large companies began to organize
their into departments with different responsibilities. Some examples of departments and responsibilities
are shown below.
1. Marketing – Tries to understand the future needs of the customer.
2. Research – Develops the technology to meet the needs identified by Marketing.
3. Design -Uses the technology developed by Research to design products to meet the needs of the
customer.
4. Manufacturing – Develops the methods to manufacture the products designed by the design department.
5. Sales – Develop plan and executes the plans to sell the products to the customer.

The design process was then organized into a linear system as shown in Figure.

Figure: The “over-the-wall” design process

Each department worked on a product until they had completed their tasks and then they handed off the
project to the next department. Not only was this serial process very slow but it also caused many problems
when the communication between departments broke down. The breakdown of communications led to
projects being thrown back over the walls that divided the departments for rework. This reverse flow of
projects is shown in Figure below.

Figure: The “over-the-wall” design process with reverse flow

Some typical reasons for reverse flow are listed below:
1. Marketing specifies a need that research cannot develop a technology to meet.
2. Research develops a technology that is too expensive or not robust enough to use in a product.
3. Design creates a design that in very difficult and expensive to manufacture.
4. After many changes to meet the demands of each department manufacturing produces a product that
does not solve the customer’s problem or is too expensive.

The concurrent engineering design process was developed to address these problems.

Concurrent engineering
Concurrent engineering can be defined as the simultaneous development of project design functions, with
open and interactive communication existing among all team members for the purposes of reducing time to
market, decreasing cost, and improving quality and reliability.
 Old “over-the –wall” sequential design process should not be used
 Each function did its work and passed it to the next function
 Replace with a Concurrent Engineering process
 All functions form a design team working together to develop specifications, involve customers
early, solve potential problems, reduce costs, & shorten time to market

Quality Function Deployment:

Many successful organizations gather and integrate the Voice of the Customer (VOC) into the design and
manufacture of their products. They actively design quality and customer perceived value into their products
and services. These companies are utilizing a structured process to define their customer’s wants and needs
and transforming them into specific product designs and process plans to produce products that satisfy the
customer’s needs. The process or tool they are using is called Quality Function Deployment (QFD).

What is Quality Function Deployment (QFD?)

Quality Function Deployment (QFD) is a process and set of tools used to effectively define customer
requirements and convert them into detailed engineering specifications and plans to produce the products
that fulfill those requirements. QFD is used to translate customer requirements (or VOC) into measureable
design targets and drive them from the assembly level down through the sub-assembly, component and
production process levels. QFD methodology provides a defined set of matrices utilized to facilitate this
progression which are called House of Quality Cascades.
Design for Manufacturing (DFM)
DFM is the process of designing parts, components or products for ease of manufacturing with an end goal
of making a better product at a lower cost. This is done by simplifying, optimizing and refining the product
design. The acronym DFMA (Design for Manufacturing and Assembly) is sometimes used interchangeably
with DFM.

Mass customization:
Mass customization is a marketing and manufacturing technique that combines the flexibility and
personalization of custom-made products with the low unit costs associated with mass production. Other
names for mass customization include made-to-order or built-to-order. A strategy of producing
standardized goods or services, but incorporating some degree of customization.

• Tactics for mass customization

• Delayed differentiation: Delayed differentiation is a postponement tactic. Producing but not quite
completing a product or service until customer preferences or specifications are known
• Modular design: Modular design is a form of standardization in which component parts are
subdivided into modules that are easily replaced or interchanged. It allows:

 easier diagnosis and remedy of failures

 easier repair and replacement
 simplification of manufacturing and assembly

Design for Manufacturing – DFM

Series of guidelines for producing a product easily and profitably
 Simplification - Minimize parts
 Standardization
 Design parts for multiple applications
 Use modular design
 Simplify operations

Value Analysis/Value Engineering

 Analysis with the purpose of simplifying products and processes by achieving equivalent or better
performance at a lower cost.
 Focuses on design improvement during production
  Seeks improvements leading either to a better product or a product which can be more economically
produced.VA/VE does this by identifying and eliminating unnecessary cost.
 Analysis with the purpose of simplifying products and processes by achieving equivalent or better
performance at a lower cost.
 Focuses on design improvement during production
 Seeks improvements leading either to a better product or a product which can be more economically
produced.
 VA/VE does this by identifying and eliminating unnecessary cost.
VA/VE approach involves brainstorming such questions.
 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 eliminated?

Design of Services
 Service design is unique in that the service and entire service concept are being designed must define
both the service and concept
 Physical elements, aesthetic & psychological benefits e.g. promptness, friendliness, ambiance
 Product and service design must match the needs and preferences of the targeted customer group
Service Blueprinting
• Service blueprinting: A method used in service design to describe and analyze a proposed service
• A useful tool for conceptualizing a service delivery system
• Major Steps in Service Blueprinting
1. Establish boundaries
2. Identify steps involved
3. Prepare a flowchartf
4. Identify potential failure points
5. Establish a time frame
6. Analyze profitability
 Physical
Evidences

Customer Line of Influence

Actions

Onstage Line of Interaction

Technology
Actions
Onstage
Employee
Actions
Backstage Line of Customer Visibility
Employee
Actions
Line of Internal Interaction
Support
Process - I

Line of Employee Visibility

Support
Process - II

Physical
A B C D E
Evidences

Customer Line of Influence

Actions 1 2 3 4 5 6 7 8
Line of Interaction
Onstage
Technology
Actions
Onstage
Employee 9 10 11 12
Actions
Backstage Line of Customer Visibility
Employee
13 14 15 16 17
Actions
Line of Interaction
Support
Process - I 18 19

Line of Employee Visibility

Support
Process - II 20

Service Quality
Service quality is
–A measure of how well the service delivered matches with expectations
–Pre-dominantly is a function of perceptions of the customers
• Quality evaluations are
– Not made solely on the outcome of the service
– They also involve evaluation of the process of delivery
• (Example of Airline Delays & the way it was handled)
• (Example of e-retailers inability to deliver Christmas Gifts)
• Points to difficulty in Service Recovery (after a failure)
The five gaps model

Gaps in Service Quality

Why do they occur?
• Gap 1: Service firm executives may not always understand
– What the consumer wants?
– What features a service must have?
– What levels of performance?
• Gap 2: Means to meet the expectations absent
– Knowledge of consumer expectations exist but not the perceived means to deliver
– Absence of management commitment to quality
• Gap 3: Variability in employee performance
• Gap 4: Problems arising out of communication
– Firms tend to promise more in communications than what they deliver in reality
– Firms tend to neglect to inform consumers of special efforts to assure quality that are not visible to consumers
Gap 5 = f (Gap 1, Gap 2, Gap 3, Gap 4)
• Service Quality is more challenging than product quality as it is a function of the perceptions of the
customers
• Organizations can use the notion of gaps in service delivery to identify specific improvement
opportunities in the service delivery process.