UNIT III.

GOODS AND SERVICES DESIGN

LEARNING OUTCOMES:
After completing this study unit, you should be able to:
1. Learn the steps involved in designing goods and services
2. Discuss the different design considerations
3. Describe the elements of service design

ENGAGE:
Ask the students what features they are looking for when buying:
a. Mobile Phones
b. Jeans
c. Shoes

EXPLORE:
Name a product that you like to have and tell us what features the product has that you
liked about.

TOPIC 8. DESIGNING GOODS AND SERVICES

EXPLAIN:
The essence of a business organization is the products and services it offers, and every
aspect of the organization and its supply chain are structured around those products and
services. Organizations that have well-designed products or services are more likely to
realize their goals than those with poorly designed products or services. Hence,
organizations have a strategic interest in product and service design.

KEY QUESTIONS IN CREATING GOODS AND SERVICES

From a buyer’s standpoint, most purchasing decisions entail two fundamental considerations; one
is cost and the other is quality or performance. Right? When we buy things, our most important
considerations are price and quality.

In creating goods and services, however, business organizations will have to answer these key
questions:
1. Is there demand for it? What is the potential size of the market, and what is the expected
demand profile? Will demand be long term or short term, will it grow slowly or quickly?

2. Can we do it? Does the company have the necessary knowledge, skills, equipment, capacity, and
supply chain capability? For products, this is known as manufacturability- the capability of an
organization to produce an item at an acceptable profit; for services, this is known as
serviceability- the capability of an organization to provide a service at an acceptable cost or
profit. Also, is outsourcing some or all of the work an option?

3. What level of quality is appropriate? What do customers expect? What level of quality do
competitors provide for similar items? How would it fit with the firm’s current offerings?

4. Does it make sense from an economic standpoint? What are the potential liability issues, ethical
considerations, sustainability issues, costs, and profits?

REASONS FOR PRODUCT AND SERVICE DESIGN OR REDESIGN

• Economic One of the motivations for designing new products or redesigning existing products
are low demand, excessive warranty claims, and the need to reduce costs.
 Operatio ns Management and TQM
First Semester 2020 -2021

• Social and demographic. Which refers to changes in tastes and preferences of your target
brought about by demographic factors such as age, relative income levels, and composition in
terms of sex (e.g. population shift, millennials)
• Political, liability, or legal. (e.g., government changes, safety issues, new regulations) For
instances if there are policy changes in the government and if there are safety issues related to
the product. For example, when fastfood businesses were pointed out as one of the causes of
obesity, more and more fastfood establishments are offering healthy options in their menu.
• Competitive (e.g., new or changed products or services, new advertising/promotions). If rival
companies introduced new or changed products or services or new advertising/promotions
content and theme, the company will follow suit otherwise your target market segment will shift
to the competition
• Cost or availability (e.g., of raw materials, components, labor, water, energy).
• Technological (e.g., in product components, processes). If there are new technologies that can
be used in the transformation process, the product design will be redesigned to suit to the
capabilities of the new technology.

Figure No. 4. Phases of Product Design and Development

Idea Feasibility Product Process Prototype Product Follow-up

Design Review Market Test
Generation Analysis Specifications Specifications Development Introduction Evaluation

1. Product development begins with idea generation. Ideas can come from a variety of sources.

IDEA GENERATION

As we have mentioned earlier, ideas can come from various sources. They can be:
a. Supply-chain based. A supply chain can be a rich source of ideas. Customers, suppliers,
distributors, employees, and even maintenance and repair personnel can provide valuable
insights. Customers input can be obtained from surveys, focus groups, complaints, and
unsolicited suggestions. Input from suppliers, distributors, and repair personnel might come
from interviews, direct or indirect suggestions and complaints.

b. Competitor based. One of the strongest motivators for new and improved products or
services is competitors’ products and services. By studying competitors’ products and
services and how they operate, a business firm can learn many ideas. Others will resort to
reverse engineering-which refers to the dismantling and inspecting a competitor’s product
to discover product improvements.

c. Research based or Research and Development (R&D). Research and Development (R&D)
refers to organized efforts that are directed toward increasing scientific knowledge and
product or process innovation. Most of the advances in semiconductors, medicine,
communications, and space technology can be attributed to various R&D efforts.

Page 2 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

2. Feasibility analysis entails market analysis (demand), economic analysis (development costs and
production costs, profit potential), and technical analysis (capacity requirements and availability and
the skills needed). It requires collaboration among marketing, finance, accounting, engineering and
operations.

3. Product specifications. This involves detailed descriptions of what is needed to meet (or exceed)
customer wants. This includes all aspects and features required to be present in the product. For
example in a mobile device, product specifications would include color, dimensions, type of
materials to be used, screen-to-body ratio, how many cameras and its respective capabilities,
internal specification such as processor needed, ram and rom sizes, battery capacity and the like.

4. Process specifications. This refers to specifications for the process that will be needed to produce
the product. In short this refers to the systems and processes needed to convert the inputs into the
final product. What technology, equipment, and machineries and how many people will be needed
to produce the product. Does the company have to produce all the components? How much of it
will be outsourced and how much will be done in-house. These alternatives must be weighed in
terms of cost, availability of resources, profit potential, and quality.

5. Prototype development. A prototype is a first full-scale and usually functional form of a new type or
design of a construction. Prototype development is the production of one (or a few) units to see if
there are any problems with the product or process specifications.

6. Design review. At this stage, any necessary changes are made, or the project is abandoned. For
example, there were rumors in the techworld before that Apple will produce a wireless charging mat
that will allow your device to charge wirelessly when placed anywhere on the mat, unlike the
common Qi charger for android that requires one to place the device on a specific location on the
mat otherwise the device will not charge. But apple ended up abandoning the project because of
the dangers in the design. They found out that the product will pose a fire risk due to its design. In
this phase, Marketing, finance, engineering, design, and operations collaborate to determine
whether to proceed or abandon.

7. Market test. A market test is used to determine the extent of consumer acceptance. If unsuccessful,
will undergo design review. This phase is handled by marketing.

8. Product introduction. If there is a positive feedback from market testing, the new product is
launched and promoted through extensive marketing campaign. This phase is also handled by
marketing.

9. Follow-up evaluation. Further assessment will have to be made and Based on user feedback, changes
may be made, or forecasts will be refined. Or as a customary practice of most businesses, more
variants will be introduced in the future to appeal to a wider market. This phase is handled by
marketing.

DESIGN CONSIDERATIONS

1. Legal & Ethical.

Designers are often under pressure to Speed up the design process and cut costs.
These pressures force trade-off decisions.
What if a product has bugs? Will they Release the product and risk damage to your
reputation or work out the bugs and forego revenue

Page 3 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

Designers must be careful to take into account a wide array of legal and ethical considerations.
Moreover, if there is a potential to harm the environment, then those issues also become important.
Most organizations are subject to numerous government agencies that regulate them.

Product liability can be a strong incentive for design improvements. Product liability is the
responsibility of a manufacturer for any injuries or damages caused by a faulty product because of
poor workmanship or design.

It is extremely important to design products that are reasonably free of hazards. When hazards do
exist, it is necessary to install safety guards or other devices for reducing accident potential, and to
provide adequate warning notices of risks.

2. Sustainability. This refers to the use of resources in ways that do not harm ecological systems that
support human existence

Key aspects of designing for sustainability:

• Cradle-to-grave assessment. Cradle-to-grave assessment, also known as life cycle analysis, is the
assessment of the environmental impact of a product or service throughout its useful life,
focusing on such factors as global warming (the amount of carbon dioxide released into the
atmosphere), smog formation, oxygen depletion, and solid waste generation.

Figure No. 5. Product Life Cycle

Cost of development and

production Sales
revenue
Net revenue (profit)
Sales, cost, and cash

Cash flow
flow

Negative
cash flow Loss

Introduction Growth Maturity Decline

Products and services go through a series of stages over their useful life, referred to as their life cycle.
And the stages of the products life cycle include introduction, growth, maturity, and decline. These
stages are not dictated by the number of months or years that the product is in the market but is
usually determine by sales, cost, and cash flow. In the introduction stage, costs are relatively higher
while sales are low, thus cash flow is negative. In the growth stage, sales started to pick up and costs

Page 4 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

will start to stabilize, thus cash flow will also start to rise, even attaining a positive cash flow. In the
maturity stage, costs have stabilized, sales are stable and cash flows are relatively higher and stable
as well. In the decline stage, sales will start to dwindle, with a relative stable cost, cash flow will start
to decline.

Products and services go through a series of stages over their useful life, referred to as their life cycle.
Demand typically varies by phase. Different phases call for different strategies. In every phase,
forecasts of demand and cash flow are key inputs for strategy.

For products, cradle-to-grave analysis takes into account impacts in every phase of a product’s life
cycle, from raw material extraction from the earth, or the growing and harvesting of plant materials,
through fabrication of parts and assembly operations, or other processes used to create products,
as well as the use or consumption of the product, and final disposal at the end of a product’s useful
life.

• End-of-Life Programs. End-of-life (EOL) programs deal with products that have reached the end
of their useful lives. The products include both consumer products and business equipment. The
purpose of these programs is to reduce the dumping of products, particularly electronic
equipment, in landfills or third-world countries, as has been the common practice, or
incineration, which converts materials into hazardous air and water emissions and generates
toxic ash.

• Filipinos however are fond of buying used clothing, appliances, furniture and even vehicle
dumped by first world countries to developing countries like the Philippines. This has become a
perennial problem, but still being accepted by most Filipinos.

Figure No. 6. Example of Life Cycle Assessment

Page 5 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

• Here is an example of a life cycle assessment. Let me just highlight the procurement stage and
the end-of-life stage. In the procurement stage, green procurement and resource savings
strategies can be introduced. Green procurement would mean adoption of parts and materials
that are compliant with international environmental standards, while resource saving would
mean reduction of components and miniaturization of printed circuit boards. In the end-of-life
stage, designing for recycling can be introduced to provide ease of disassembly of component
parts.

• This brings us to the third aspect which is the Three Rs, Reduce, Reuse and Recycle.

• The Three Rs: Reduce, Reuse, and Recycle

Designers often reflect on three particular aspects of potential cost saving and reducing
environmental impact reducing the use of materials through value analysis, refurbishing and
then reselling returned goods that are deemed to have additional useful life, which is referred
to as remanufacturing, and reclaiming parts of unusable products for recycling.

REDUCE: VALUE ANALYSIS

Value analysis refers to an examination of the function of parts and materials in an effort to
reduce the cost and/or improve the performance of a product.

For example, bottled mineral water produced by nature spring used to have a thick bottle cap
but in recent years, and as part of the companies effort to reduce costs and materials, nature
spring’s bottled water have a smaller and thinner cap.

Common questions used in value analysis

• Is the item necessary; does it have value; could it be eliminated?
• Are there alternative sources for the item?
• Could another material, part, or service be used instead?
• Can two or more parts be combined?
• Can specifications be less stringent to save time or money?
• Do suppliers/providers have suggestions for improvements?
• Can packaging be improved or made less costly?

REUSE: REMANUFACTURING
An emerging concept in manufacturing is the remanufacturing of products. Remanufacturing
refers to refurbishing used products by replacing worn-out or defective components, and
reselling the products. This can be done by the original manufacturer, or another company.
Designing products so that they can be more easily taken apart has given rise to yet another
design consideration: Design for disassembly (DFD).

For example, printer cartridges were remanufactured by printer companies. These companies
will buy back print cartridges and will remanufacture them by putting fresh ink and replacing
these “bronze metallic film” located at the bottom of the ink cartridge.

RECYCLE
Recycling means recovering materials for future use. This applies not only to manufactured parts
but also to materials used during production, such as lubricants and solvents. The pressure to
recycle has given rise to the term design for recycling (DFR), referring to product design that
considers the ability to disassemble a used product to recover the recyclable parts.

Page 6 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

3. Degree of Standardization. An important issue that often arises in both product/service design and
process design is the degree of standardization. Standardization refers to the extent to which there
is absence of variety in a product, service, or process. Standardized products are made in large
quantities of identical items. Standardized service implies that every customer or item processed
receives essentially the same service. Standardized processes deliver standardized service or
produce standardized goods.

4. Designing for Mass Customization. Mass customization is a strategy of producing basically

standardized goods or services but incorporating some degree of customization in the final product
or service.

There are two facilitating techniques that will make mass customization possible:

• Delayed differentiation is a postponement tactic. It is the process of producing, but not quite
completing, a product or service, postponing completion until customer preferences or
specifications are known.

Delayed differentiation will result to product or service with customized features than can be
quickly produced appealing to the customer’s desire for variety and speed of deliver. For the
most part production is standardized, enabling the producer to realize the benefits of
standardized production

Do you remember the Regal Marine case? Basically, delayed differentiation is how Regal Marine
manufactures their yacht. They produce a standardized yacht based the minimum specifications
of the 22 designs, but will introduce customization of the final product based on the unique
specifications of the final buyer.

Some examples of delayed differentiation are:

• Paint – Paints can be formulated from three or more base mixes
• Automobile – mass produce base models and add minor customizations where car is
actually ordered, e.g. audio systems
• Fashion – produce certain items in white and not perform the final coloring process until
they know what colors are selling

• Modular design is a form of standardization. Modules represent groupings of component parts

into subassemblies, usually to the point where the individual parts lose their separate identity.
Examples of modular designs are personal computers.

For mass customization, modular design enables producers to quickly assemble products with
modules to achieve a customized configuration for an individual customer, avoiding the long
customer wait.

5. Reliability is a measure of the ability of a product, a part, a service, or an entire system to perform
its intended function under a prescribed set of conditions.

Reliabilities are always specified with respect to certain conditions, called normal operating
conditions. These can include load, temperature, and humidity ranges as well as operating
procedures and maintenance schedules.

For example, Christmas lights since Christmas is fast approaching. Christmas lights are usually labeled
as for indoor use only and for outdoor use. If you install and indoor Christmas lights outside, do not

Page 7 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

expect that it will last long since it is not designed to withstand the operating conditions outside the
house.

The importance of reliability includes the following:

• used by prospective buyers in comparing alternatives
• used by sellers as one determinant of price
• have an impact on repeat sales
• reflect on the product's image
• Can create legal implications
• a consideration for sustainability

6. Robust Design. Some products or services will function as designed only within a narrow range of
conditions, while others will perform as designed over a much broader range of conditions. The latter
have robust design or design that results in products or services that can function over a broad range
of conditions.

The more robust a product or service, the less likely it will fail due to a change in the environment in
which it is used or in which it is performed. Hence, the more designers can build robustness into the
product or service, the better it should hold up, resulting in a higher level of customer satisfaction.

When I was looking for an example for this design consideration, I came across this product, a mobile
phone called Blackview BV9900 Pro. Ring a bell? BV9900 Pro is world’s fastest thermal rugged
smartphone. It comes with a solid predictive tool for maintenance that a user can reply on for
troubleshoot everything ranging from electrical systems to mechanical equipment, plumbing,
rescue, agriculture to fire, and first responders. The smartphone can perform basic four functions
even when the device is located in negative 30-degree temperature. This is considered military
grade, and this is an example of robust design.

Another design consideration for the manufacturing of goods is the use of computer aided design
software.

SERVICE DESIGN
We have learned in topic 1.3 that a service refers to an act, something that is done to or for a
customer (client, patient, etc.). It is provided by a service delivery system, which includes the facilities,
processes, and skills needed to provide the service. Many services are not pure services, but part of a product
bundle —which is the combination of goods and services provided to a customer.

System design involves development or refinement of the overall service package. A Service package
may include:
a. The physical resources needed.
b. The accompanying goods that are purchased or consumed by the customer or provided with the
service.
c. Explicit services which refers to the essential/core features of a service, such as tax preparation.
d. Implicit services refer to ancillary/extra features, such as friendliness, courtesy.

Overview of Service Design

Service design begins with the choice of a service strategy, which determines the nature and focus
of the service, and the target market. This requires an assessment by top management of the potential
market and profitability of a particular service, and an assessment of the organization’s ability to provide the
service. Once decisions on the focus of the service and the target market have been made, the customer
requirements and expectations of the target market must be determined.

Page 8 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

Two key issues in service design are the degree of variation in service requirements and the degree
of customer contact and customer involvement in the delivery system. These have an impact on the degree
to which service can be standardized or must be customized. The lower the degree of customer contact and
service requirement variability, the more standardized the service can be. Service design with no contact and
little or no processing variability is very much like product design. Conversely, high variability and high
customer contact generally mean the service must be highly customized. A related consideration in service
design is the opportunity for selling: The greater the degree of customer contact, the greater the
opportunities for selling.

Phases in service design process

1. Conceptualize.
• Idea generation
• Assessment of customer wants/needs (marketing)
• Assessment of demand potential (marketing)
2. Identify service package components needed (operations and marketing).
3. Determine performance specifications (operations and marketing).
4. Translate performance specifications into design specifications.
5. Translate design specifications into delivery specifications.

Looking at the phases of service design process, they are quite similar with the phases of product
development, except that the service delivery system must be designed. A useful tool for conceptualizing a
service delivery system is the service blueprint, which is a method for describing and analyzing a service
process. A service blueprint is much like an architectural drawing, but instead of showing building dimensions
and other construction features, a service blueprint shows the basic customer and service actions involved
in a service operation.

Figure No. 6. A simple service blueprint for a restaurant

ELABORATE
As an assignment for this module, individually, you are required to write a brief essay about the
possible impact of the COVID-19 pandemic on (a) design of goods and (b) design of services.
Support discussions with examples. As you view this lecture, this assignment is already available
in our canvas site.

Page 9 of 10 | (@eremojo)
 Operatio ns Management and TQM
First Semester 2020 -2021

Prepared by: Recommending Approval:

ERWIN P. REMOJO TRISTAN JUN G. ESCLAMADO, CPA, MBA

MNGT 2 – INSTRUCTOR Dean, College of Accountancy

Page 10 of 10 | (@eremojo)