ATTY. MICAH DANIELLE S.

TORMON, CPA

OPERATIONS MANAGEMENT SIGNIFICANT DIFFERENCES

AND TOTAL QUALITY BETWEEN GOODS AND
MANAGEMENT SERVICES:

Chapter 1: Operations  Goods are tangible vs Services

Management and Value Chains are experienced
 Customers participate in many
Operations Management service processes, activities and
- Science and art of ensuring transactions
that goods and services are
created and delivered Service Encounter – interaction
successfully to customers between the customer and the
service provider
- Design of goods, services and
the process that create them,  Demand for service is more
the day-to-day management difficult to predict than the
of those processes, and the demand for goods
continual improvement of  Service can not be stored as
those goods, services and physical inventory
processes  Service management skills are
paramount to a successful
- Make companies successful service encounter
 Service facilities typically need
OM in Workplace and its to be close proximity to the
Usage: customer
 Patent do not protect service
1. Process Design – introducing
new product HOW GOODS AND SERVICES
AFFECT OM ACTIVITIES
2. Inventory Management –
controls and track down cost to OM GOODS SERVICE
avoid extra cost ACTIVIT
Y
3. Scheduling – ensures enough Forecasti Forecasts Forecast
production ng involve horizon
long- are short
4. Quality Management – conform term
standards of products Facility Productio Facility
Location n should should be
Understanding Goods and be near close to
Services to raw customer
materials
Good – physical product that you Facility Warehou Designed
can see, touch or possibly consume Lay-out se for good
and designed customer
a. Durable Good – does not Design for interaction
quickly wear out and typically efficiency
last at least three years Technolog Productio Rely on
y n on info-based
b. Nondurable Good – no longer automati HDWE
useful once it is used or last on
for more than 3 years Quality Define Account
clear and for
Service – primary or measura customer
complementary activity that does ble perception
not directly produce a physical quality of quality
product Inventory Use Quality
- Non-goods part of a / Capacity physical measurem
transaction and inventory ent
Design efficiency
Process Controlla Extensivel
Design ble y
ATTY. MICAH DANIELLE S. TORMON, CPA

(automat participate c. General Management

ed) d Processes – accounting IT
Job/ Productio Behavioral systems, HR and marketing
Service n skills and
Encounte required service VALUE CHAIN FRAMEWORK
r Design skills
Schedulin Revolves Focus on 3 Different Perspective
g around assigned
the employee Input-Output Framework
location (cradle-to-grave) – begins with
Supply Focus on Focus on suppliers of materials to goods and
Chain physical flow of services providing process
Managem flow of people
ent goods Pre- and Postproduction
Service Framework:
CONCEPT OF VALUE
 Pre- include customized and
Value – perception of the benefits team oriented product
associated with a good, service, or design, consulting services
bundle of goods and services in and other
relation to what buyers are willing  Post- include on-site
to pay for them installations or application
= perceived benefits / price services
(cost) to customer
Hierarchical Supply Chain
CUSTOMER BENEFIT PACKAGES Framework – foundations of most
- defined set of tangible and value chain
intangible features that the
customer recognizes, pay for, OM: History of Change and
uses or experience Challenge

 Bundling on goods and services, 7 Major ERAs of Operations

and digital content is a certain Management
way to provide value to
customers that differentiates 1. Focus on Cost and Efficiency
product from competitor – industrial revolution where
many inventions came to being
VALUE CHAINS
- Network of facilities and 2. The Quality Revolution – US
processes that describes the and Japanese focused on this
flow of materials, finished after the 2nd WW
goods and services,
3. Customization and Design –
information, and financial
companies emphasized
transaction from suppliers,
innovative designs
through the facilities and
processes that create goods 4. Time-Based Competition –
and services and those that quick response to competition
deliver them to the customer by continually improving and
reengineering processes
Key Processes in Business:
5. The Service Revolution –
a. Core Processes – focus on 1955, 50% of US workforce
production and delivery of were employed in goods
products producing industries and 50%
at service
b. Support Processes –
purchasing of materials and o Today, 90% of employees are
supplies and other already in service process

6. Sustainability – ability to
strategically address current
ATTY. MICAH DANIELLE S. TORMON, CPA

business needs and

successfully develop a long-
term strategy to preserve future
generations

7. Data Analytics – very

important in evaluating
operations performance

OTHER AND TERMS

3 Perspectives of Sustainability
a. Environmental Sustainability
– organization’s commitment
to the long-term quality of
our environment

b. Social Sustainability –
organizations commitment to
maintain a healthy
communities and a society
that improves the quality of
life

c. Economic Sustainability –
organizations commitment to
address current business
needs and economic vitality

Business Analytics – process of

transforming data into actions
through analysis and insights in the
context of organizations decision
making and problem solving
ATTY. MICAH DANIELLE S. TORMON, CPA

 Understand customer desires

and also to understand how
customers evaluate goods
and services

Customers (with unique wants and

needs) must be segmented based
on;
 Buying behavior
 Geography
 Demographics
 Sales volume
 Profitability
 Expected level of service

 Company can design the

most appropriate customer
benefit packages,
OPERATIONS MANAGEMENT competitive strategies, and
AND TOTAL QUALITY processes to create the
MANAGEMENT goods and services to meet
the unique needs of each
Chapter 2: Operation Strategy segment

Competitive Advantage
- Denotes a firm’s ability to
achieve market and financial Close to customers:
superiority over tis - Having employees visit and
competitors talk to customers
- Having managers talk to
Fundamental understanding two customers
things to create competitive - Doing formal marketing
advantage: research

 Management must Order qualifiers

understand customer needs - Basic customer expectations
and expectations and how are generally considered the
the value chain can best minimum performance level
meet these required to stay in business.
 Management must build and
leverage operational Example:
capabilities to support a. Radio and driver-side
desired competitive priorities air bag are generally
expected by all
 Organizations must have customer for an
many strategic choices in automobile
designing and operating their b. A highly competitive
domestic and global value pizza business -efficient
chains delivery
 Choice must be driven by
current and emerging Order Winner
customer needs and - Are goods and services
expectations features and performance
characteristics that
Understanding Customer Wants differentiate on customer
and Needs benefit package from another
and win the customer’s
Fundamental purpose: provide business.
goods and services of value to
customer Example:
ATTY. MICAH DANIELLE S. TORMON, CPA

a) Collision avoidance system or  Customer perceive greater

voice risks when buying services
activated music system on than when buying goods
automobile
COMPETITIVE PRIORITIES
b) Papa John’s Pizza focused on - Represents the strategic
“better emphasis that a firm places
ingredients, better pizza” on certain performance
measures and operational
In order to differentiate the capabilities within a value
business from the competitors chain

EVALUATING GOODS AND A. Cost

SERVICES o Some firms achieve their
competitive advantage
Three Types of Attributes: through low prices
o Do this through high volumes
A. Search Attributes – those that a and the efficient design and
customer can determine prior to operation of their supply chain
purchasing the goods and/or o Low prices cannot be achieved
services without strict attention to cost
and the design and
 Color, prices, freshness, management of operations
style, fit, feel, hardness,
smell Walmart – gain competitive
advantage by establishing
B. Experience Attributes – those themselves as the low cost leader
that can be discerned only after in an industry
purchasing or during consumption
or use General Electric – design
determines 75% of its
 Friendliness, taste, manufacturing costs
wearability, safety, fun, - Through good design and by
customer satisfaction chipping away at costs,
operations managers help to
C. Credence Attributes – any support a firm’s strategy to
aspects of a good or service that be a low-price leader
the customer must believe in but
cannot personally evaluate even o Low cost can result from high
after purchase and consumption productivity and high-capacity
utilization
 Expertise of surgeon, Improvements in quality ->
expertise of mechanic, improvements in productivity ->
knowledge of a tax advisor, lower cost
accuracy of tax preparation
software A Strategy of continuous
improvements is essential to
Few ways on how customers achieve a low-cost
evaluate services in ways that competitive advantage
are often different from good
along with significant issues B. Quality
that affect operations: o Business offering premium-
quality goods usually have
 Customers seek and rely large market shares and were
more on information from early entrants into their
personal sources than from markets
non-personal sources when o Quality is positively and
evaluating services prior to significantly related to a
purchase higher return on investment
for almost all kinds of
situations
ATTY. MICAH DANIELLE S. TORMON, CPA

o A strategy of quality and for a global organization, from

improvement usually leads to any place in the world
increased market share, but
at a cost in terms of reduced Examples:
short-run profitability  Sign tic company-uniquely
o Producers of high-quality designed for each customer
goods can usually charge  Levi’s jeans – cut to exact
premium prices measurements
 Motorola pagers – customized
in different colors, size,
shapes
 Modular furniture –
configured to customer’s
unique needs and taste

o Customer can configure to

their unique needs and taste
 Value of a good / service in o Customer involvement might
the marketplace is influenced
occur at the design,
by the quality of its design
fabrication, assembly, or
 Improvements in
postproduction stages of
performance, features, and
value chain
reliability will differentiate the
good or service from its
 Mass customization requires
competitors, improve a firm’s
companies to align their activities
quality reputation, and
around differentiated customer
improve the perceived vale of
segments and design goods,
the customer benefit
services, and operations around
package
flexibility.
C. Time
E. Innovation
o Most important source of
o The discovery and practical
competitive advantage
application or
o Speeding up processes in
commercialization of a
supply chains improves device, method, or idea that
customer response differs from existing norms
Time reduction can only be o In manufacturing equipment
accompanied by streamlining and
and management practices
simplifying processes to eliminate
have allowed organizations to
non-value added steps (rework and
become more efficient and
waiting time)
better meet customer’s need
o Designing processes and
using technology efficiently Example: Apple
to improve speed and time  These companies focus on
reliability are some of the outstanding product research,
most important activities for design, and development; high
operations managers product quality; and the ability
to modify production facilities to
D. Flexibility produce new products
o Manifest in mass- frequently
customization strategies that
are becoming increasingly Organizations generally make
prevalent today trade-offs among these competitive
priorities and focus their efforts
Mass customization – being able to along one or two key dimensions
make whatever goods and services
the customer wants, at any Example:
volume, at any time for any body,  Amazon – competes primarily
on time, cost and flexibility
ATTY. MICAH DANIELLE S. TORMON, CPA

 Apple – competes on quality - Defined as families of goods

and innovation or services having similar
characteristics or methods of
OM AND STRATEGIC PLANNING: creation
The Concept of Strategy
2. Business Strategy
Strategy – pattern or plan that - Defines the focus for SBUs
integrates an organization’s major - Major decisions involve which
goal, policies and action sequence markets to pursue and how
into a cohesive whole best to compete in those
- Approach by which an markets
organization seeks to develop
the capabilities required of 3. Functional Strategy
achieving its competitive - Means by which business
advantage strategies are accomplished
- Set of decisions that each
 The direction an organization functional area (marketing,
takes and the competitive finance, operations, research
priorities it chooses are and development,
driven by its strategy ‘ engineering) develops to
support its particular
Strategic Planning business strategy
- Process of determining long-
term goals, policies, and OPERATIONS STRATEGY
plans for the organization - Set of decisions across the
value chain that supports the
 Strategy is the result of a series implementation of higher-
hierarchical decision about level business strategies
goals, directions and resources - Defines how an organization
will execute its chosen
THREE LEVELS OF STRATEGY business strategies
(Corporate, Business, Functional)
Example:
 Progressive automobile
insurance has developed a
competitive advantage
around superior customer
service.
 To accomplish this, its
operating decisions have
included on-the-spot claims
processing at accident sites:
"Total LossConcierge" service
to help customers with
unrepairable vehicles get a
replacement vehicle

Two Types of Business

Strategies for a
1. Corporate Strategy Manufacturer
- Necessary to define the
business in which the (1)Produce a well-defined set of
corporation will participate products in a fairly stable
and develop plans for the market environment as a low-
acquisition and allocation of cost leader
resources among those
businesses  Firm would be best served by
emphasizing quality and
Strategic business units – the cost reduction to make their
business in which the firm will make-to-stock strategy
participate
ATTY. MICAH DANIELLE S. TORMON, CPA

(2)Provide high product variety  Incorporating refurbishing

and customization in a and recycling activities into
turbulent market that requires the manufacturer’s value
innovative designs to meet chain. As many as 130million
customer specific phones are retired each
requirements year .
 Creating more secondary
 Firm would need to be able to markets for refurbished
operate at different levels of phones.
production volume while also  Developing a new process to
achieving high quality and collect and refurbish old
flexibility phones
 Product design would require
constant innovation and FRAMEWORK FOR
shorter development OPERATIONAL STRATEGY
cycles
Operations design choices –
SUSTAINABILITY OPERATIONAL decisions managament must make
STRATEGY as to what type of process
structure is best suited to produce
Sustainability goods or create services
- An organizational strategy,
broader than competitive Infrastructure – focuses on the
priority nonprocess features and
capabilities of the organization and
 Stakeholders such as the includes the workforce, operating
community, green advocacy plans, and control systems, quality
groups and the government control, organizational structure,
drive environmental compensation systems, learning
sustainability and innovation sstems, and support
 Social sustainability is driven services
by ethics and human ideals
of protecting the planet and
its people
 Economic sustainability is
driven by shareholders such
as pension funds and
insurance companies

Example:
 Companies such as Apple,
Kaiser Parmanente, and Nike  A useful framework for
view sustainability as a strategy development that
corporate strategy. ties corporate and marketing
 A majority of global strategy to operations
consumers believe that it is strategy was proposed by
their responsibility to Professor Terry Hill at
contribute to a better Templeton College, Oxford
environment and would pay University
more for brands that
supports this aim

New Strategies for

Environmental Sustainability
 Creating better designs focus
on ease of disassembly and
lower cost for refurbishing
and recycling this might
include modular designs that
make it easier to reuse parts
than recycle them.
ATTY. MICAH DANIELLE S. TORMON, CPA

OPERATIONS MANAGEMENT
AND TOTAL QUALITY
MANAGEMENT

Chapter 3: Technology and

Operations Management

Internet of Things (IoT) –

physical products with embedded
sensors that are connected to the
internet

Example: smart watches, fitness

devices, thermostat

Technology (physical and

information)
 Dramatically changed how
work is accomplished in
every industry, from mining
to manufacturing to
education to health care

 Technological innovation in
goods, services, manufacturing,
and service delivery is a
competitive necessity

Technological innovation –
goods, services, manufacturing,
and service delivery is a
competitive necessity

Two types of basic groups of

technology:

(1) Hard Technology

 Equipment and devices that
perform a variety of tasks in
time of creation and delivery
of goods and services

Examples:
 Computers, microprocessor,
optical switches, satellites,
sensor, robots, automated
machines, bar-code scanners
and radio-frequency
identification (RFID) tags.

RFID tags
- Modern successor to bar
codes
- Tiny computer chips that can
be placed on shipping
containers, individual
products, credit cards,
prescription medicines,
ATTY. MICAH DANIELLE S. TORMON, CPA

passports, livestock and  Computer-integrated

people manufacturing systems
- Transmit radio signals to (CIMs)
identify locations and track  Enterprise resource planning
movements throughout the (ERP) systems
supply chain  Customer relationship
- Many applications in both management (CRM) systems
manufacturing and service
o Use technology to create
 Bring visibility and enhanced better and more customized
security to the handling and goods and services and
transportation of materials, deliver them faster at lower
baggage, and other cargo prices

(2) Soft Technology

 Application of the Internet,
computer software, and MANUFACTURING TECHNOLOGY
information systems to
provide data, information, Common issues regarding
and analysis technology:
 Facilitate accomplishment of
creating and delivering goods  The right technology must be
and services selected for the goods that
are produced
Examples:  Process resources (machines
 Database systems, artificial and employees) must be set
intelligence programs, and up and configured in a logical
voice-recognition software fashion to support production
efficiency
 Both type of technology are  Labor must be trained to
essential to modern operate the equipment
organizations.  Process performance must be
continually improved
Examples: The hybrid and  Work must be scheduled to
ultimately the electric vehicles meet shipping
commitments / customer
INFORMATION TECHNOLOGY promise dates
- Ability to integrate all parts of  Quality must be ensured
the value chain through
better management of data Computer-Integrated
and information Manufacturing Systems
- Union of hardware, software,
 More effective strategic and database management, and
operational decisions to communication to automate
design better CBP that and control production
support their wants and activities, from planning and
needs, achieve competitive design to manufacturing
priorities, and improve the distributions
design and operation of all
processes in the value chain  Hard and soft technologies
with a wide variety of
 Both hard and soft acronyms, vendors, and
technology are being appliances are essential to
integrated across the productivity and efficiency in
organization, allowing modern manufacturing
managers to make better
decisions and share FACTS: National Research Council
information across the value
chain  decrease engineering design
costs by up to 30 percent;
Integrated operating systems (IOS)
ATTY. MICAH DANIELLE S. TORMON, CPA

increase productivity by 40 to CAM (computer-aided

70 percent; manufacturing)
- Computer control of the
 increase equipment manufacturing process
utilization by a factor of 2 to (determining tool movements
3; reduce work-in-process and cutting speeds)
and lead times by 30 to 60
percent; Flexible Manufacturing
Systems (FMSs)
 improve quality by a factor of - Two or more computer-
3 to 4. controlled machine or robots
linked by automated handling
Numerical Control devices (transfer machines,
- Root of CIMAs began with conveyors and transport
numerical control machine systems)
tools, which enable the
machinist’s skills to be  Computers direct the overall
duplicated by a sequence of operations and
programmable device that route the work to the
controls the movement of a appropriate machine, select
tool used to make complex and load the proper tools,
shapes and control the operations
performed by the machine
Computer numerical control
(CNC) ADVANCES IN MANUFACTURING
- NC machines whose TECHNOLOGY
operations are driven by a
computer  Innovations in technology
have changed manufacturing
Robot in many industries (3-D
- Programmable machine printing technically called
designed to handle materials addictive manufacturing)
or tools in the performance of
a variety of tasks Additive Manufacturing
- Taught a large number of  This is the process of
sequences of motions and producing a three-
operations and even to make dimensional solid object from
certain logical decisions a digital object from a digital
model file.
o Useful in hazardous materials
& heavy objects Additive - means that successive
layers of materials such as plastics,
CAD/CAE (computer-aided ceramics, or glass are built up
design / computer-aided rather than attained by traditional
engineering) machining processes such as
- Enables engineers to design, milling or drilling, which remove
analyze, test, simulate, and materials
“manufacture” products
before they exist 3d printing technology has
numerous applications:
Ensure product is manufacture to
specifications when it is released Rapid Prototyping: Companies
can quickly prototype new products
 Integrated manufacturing with 3D printing, which speeds up
systems began to emerge the design and testing process
with computer-aided design /
computer-aided engineering Prosthetics and Implants: 3D
and computer-aided printing allows for the creation of
manufacturing custom prosthetics and implants
tailored to an invidual’s needs
ATTY. MICAH DANIELLE S. TORMON, CPA

Custom Clothing and

Accessories: Designers are using Digital Banking: rise of mobile
3D printing to create custom shoes, banking apps and digital wallets in
jewelry and clothing, offering new the Ph has transformed how people
levels of personalization and manage finances
creativity in fashion
Online Shopping Platforms: The
NANOTECHNOLOGY adoption of service technology in
- Manipulation of matter on the retail sector has enabled
atomic, molecular, and platforms like Lazada, Shopee, and
supramolecular scales, thus Zalora to offer seamless online
bringing with it super shopping experiences
precision manufacturing
TECHNOLOGY IN VALUE CHAINS
 Space technology and
biotechnology o Technology, especially the
 Manufacturing in the future Internet and E-
communications, is changing
Examples: the operation, speed, and
efficiency of the value chain
 Faster computer processing and presents many new
 Superconductive materials challenges to operations
based on carbon nanotubes managers.
lifting magnetic cars and
trains o Requires tighter integration
 Smaller memory cards that of many of the components
have more memory space of the value chain
 Clothes that last longer and
keep the wearer cool in the
summer o Technology provides the
 Bandages that heals wounds capability to eliminate parts
faster of the traditional value chain
structure and streamline
Service Technology operations

 Technology is used in many

services, including Business analytics – critical role
downloading music, banking, in managing value chains,
automated car washes, voice particularly for integrating and
recognition in telephone analyzing data throughout the
menus, medical procedures, value chain within an information
hotel and airline kiosks, and systems framework
entertainment
CUSTOMER RELATIONSHIP
 Other service technologies MANAGEMENT
are used behind the scenes - Business strategy designed
(hotels, airlines, hospitals, to learn more about
and retail stores) customers’ wants, needs, and
behaviors in order to build
 most common service customer relationships and
technology in use today loyalty, enhance revenues
involves the Internet. and profits
- Exploits the vast amount of
E-Service – using the Internet and data that can be collected
technology to provide services that from customers
create and deliver time, place,
information, entertainment, and
exchange value to customers
and/or support the sale of goods

Examples:
ATTY. MICAH DANIELLE S. TORMON, CPA

7. Studying and predicting what

Web characteristics are most
attractive to customers and
how the website might be
improved
8. Linking the previous
information to competitive
priorities by market segment
and process and value chain
performance

BENEFITS AND CHALLENGES OF

TECHNOLOGY

 Supermarkets, drugstores, Technology – provides many

and retail stores used benefits but at the same time
“loyalty cards” that leave poses some key challenges
behind a digital trail of data
about purchasing patterns Major benefit: impact on
 Stores can customize sustainability
advertisements, promotions,
coupons, and so on down to Information and
each individual customer and communication technology
send targeted text messages - Responsible for a
and e-mail offers phenomenon known as
dematerialization, by which
Typical CRM system: market the same or an increased
segmentation and analysis, quality and quantity of goods
customer service and relationship and/or services are created
building, effective complaint using fewer natural resources
resolution, cross-selling of goods - Enabled flexible work options
and services, and pre- and (telecommuting –
postproduction processes environmental benefits but
social benefits)
CRM helps firms gain and maintain
competitive advantage by: TECHNOLOGY DECISIONS AND
IMPLEMENTATION
1. Segmenting markets based
on demographic and o Managers must make good
behavioral characteristics decisions about introducing
2. Tracking sales trends and and using new technology
advertising effectiveness by
customer and market Goal of operations manager:
segment provide the best synthesis of
3. Identifying which customers technology, people, and processes
should be the focus of (sociotechnical system)
targeted marketing initiatives
with predicted high customer  Designing the sociotechnical
response rates system includes making
4. Forecasting customer decisions about job
retention (and defection) specialization vs
rates and providing feedback enlargement, employee
as to why customers leave empowerment, training,
the company decision support systems,
5. Identifying which teams and work groups, job
transactions are likely to design, recognition and
fraudulent reward, career advancement,
6. Studying which goods and facility and equipment layout
services are purchased
together, and what might be
good ways to bundle them
ATTY. MICAH DANIELLE S. TORMON, CPA

High Scalability – capability to

serve additional customers at zero
or extremely low incremental costs

Infinity Scalability – the incremental

cost to serve an additional
customer is very small, yet the
revenue obtained remains high

 If an organization establishes
a business where the
incremental cost to serve
more customers is zero, then
the firm is said to be infinitely
scalable

Low Scalability – serving additional

customers requires high
incremental variable costs

 Many of the [Link]

companies that failed around
the year 2000 had low
scalability and unsustainable
demand created by
extraordinary advertising
expenses and artificially low
prices

TECHNOLOGY’S IMPACT ON THE

WORKFORCE

Positive:
 Reduces monotony and
hazardous work
 Develops new skills and
talents

Negative:
 Can reduce empowerment
and creativity
 Over-reliance on technology
may limit personal initiative

Scalability
- key factor that affects
technology decisions
- Measure of the contribution
margin (R-VC) required to
deliver a good or service as
the business grows and
volumes increases OPERATIONS MANAGEMENT
- Key issue in e-commerce AND TOTAL QUALITY
MANAGEMENT
ATTY. MICAH DANIELLE S. TORMON, CPA

Chapter 4: Goods and Service

Design  Final bundle of goods and
services, the customer
Six Steps Involved in Designing benefit package is
Goods and Services advertised, marketed and
offered to customers
Step 1 & Step 2 – Strategic
Mission, Analysis, and Competitive Step 6 – Marketplace Evaluation
Priorities
 Constantly evaluate how well
 Significant amount of the goods and services are
research and innovation selling, and customers’
(marketing, engineering, reactions to them
operations, and sales
functions) CUSTOMER-FOCUSED DESIGN
 Involve customers, suppliers,
and employees throughout Quality function deployment
the value chain (QFD)
- Approach to guide the
Step 3 – Customer Benefit design, creation, and
Package Design and Configuration marketing of goods and
services by integrating the
 Revolve around a solid voice of the customer into all
understanding of customer decisions
needs and target markets
Voice of the customer
Attributes: Time, Place, - Customer requirements as
Information, Entertainment, Form expressed in the customer’s
and Exchange own words and can be
applied to a specific
Step 4 – Detailed Goods, Services, manufactured good or
and Process Design service, or to the entire CBP

Physical characteristics:
dimensions, materials, color

 Process by which the good is

manufactured can be
designed as a separate
activity with proper
communication and
coordination with the
designers of the good TOLERANCE DESIGN AND THE
 Design in service cannot be TAGUCHI LOSS FUNCTION
done independently from the
process by which the service  Design blueprints specity a
is delivered target dimentsion (nominal),
along with a range of
Two perspectives of service design: permissible variation
 The service delivery system (tolerance)
 The service encounter
Tolerance design – determining
Prototype Testing – process by the acceptable tolerance
which a model is constructed to
test the product’s performance a. Narrow tolerance – improve
under actual operating conditions, product functionality and
as well as consumer reactions to performance, but tend to
the prototypes raise manufacturing costs
because they usually require
Step 5 – Market Introduction / higher-precision technology
Deployment
ATTY. MICAH DANIELLE S. TORMON, CPA

b. Wide tolerance – reduce  Simpler design, fewer

costs, but may have a opportunities for error, faster
negative impact on product flow time, better chance of
performance high process efficiency, and
more reliable manufacturing
process
Taguchi Method of Quality
Control Design for Sustainability
- Japanese engineer and - Explicit consideration of
statistician, Genichi Taguchi environmental concerns
- Considers design to be more during the design of goods,
important than the services, and processes
manufacturing process in  Practices as designing for
quality control and aims to recycling and assembly
eliminate variances in
production before they can SERVICE-DELIVERY SYSTEM
occur DESIGN
- Approach to engineering that  Include facility location and
emphasizes the roles of layout, servicescape, service
research and development, process and job design, and
and product design and technology and information
development in reducing the support systems
occurrence of defects and
failures in manufactured Facility location – affects a
goods customer’s travel time
- Gauges quality as a - Competitive priority in a
calculation of loss to society, service business
associated with a product
Facility layout – affects process
DESIGNING MANUFACTURED flow, costs, and customer
GOODS perception and satisfaction
 Requires coordination with
operations managers to Servicescape – physical evidence
ensure that manufacturing that a customer uses to form an
processes can product the impression
design - Provides the behavioral
setting where service
Design for Reliability encounters take place

Reliability - probability that a Three principal dimensions:

manufactured good, piece of
equipment, or system perform its 1. Ambient conditions
intended function for a stated o Made manifest by sight,
period of time under specified sound, smell, touch, and
operating conditions temperature
Design for Manufacturability 2. Spatial layout and
functionality
 Process of designing a  How furniture, equipment,
product for efficient and office spaces are
production at the highest arranged
level of quality  Building footprints and
facades, streets, and parking
Product Simplification - Trying to lots
simplify designs to reduce
complexity and costs and thus 3. Signs, symbols, and
improve productivity, quality, artifacts
flexibility, and customer  More explicit signals that
satisfaction communicate an image
about a firm
ATTY. MICAH DANIELLE S. TORMON, CPA

 Mission statements and  Response time

diplomas on a wall, displayed  Service management skills
company logo (cross-selling other services)
 Behavioral requirements
Types of Servicescape Environment
 Lean servicescape Service-provider selection,
environments development, and
 Elaborate servicescape empowerment
environments - Focus on meeting and
exceeding customer
Service process design – activity expectations
developing an efficient sequence of
activities to satisfy internal and Empowerment:
external customer requirements Gives people the authority to:
 Make decisions based on
Technology and information intuition
support systems – ensure speed,  Control their work
accuracy, customization, and  Take risks and learn from
flexibility in designing services mistakes
 Promote change

Recognition and Reward

SERVICE-ENCOUNTER DESIGN - Help motivate and retain
- Focuses on the interaction, excellent service providers
directly or indirectly, between
the service providers and the Key motivational factors:
customer  Recognition
 Advancement
Principal elements:  Achievement
 Customer contact behavior  Nature of the work
and skills  Good compensation system
 Service provider selection,
development and Service Guarantee
empowerment - Promise to reward and
 Recognition and reward compensate a customer if a
 Service recovery and service upset occurs during
guarantees the service experience

Customer Contact Service Upset

- Physical or virtual presence - Problem that a customer
of customers in the service faces with the service
delivery system during a delivery system
service experience - Service failure, error, defect,
- Measured by the percentage mistake, and crisis
of time the customers must
be in the system relative to Types of Service Guarantee
the total time it takes to
provide the service 1. Explicit service guarantee
o Given in writing
Types of Customer Contact: o Included in service provider
 High-contact systems publications and
 Low-contact systems advertisements

Customer-contact 2. Implicit service guarantee

requirements o Not given in writing
- measurable performance o Implied in everything a
levels that define the quality service provider does
of customer contact with
representatives of an Service Recovery
organization
ATTY. MICAH DANIELLE S. TORMON, CPA

- Process of correcting a Example: Dell computers, Subway

service upset and satisfying sandwiches, machine tools, and
customers travel agent services

Steps: 3. Standard or make-to-

 Begin immediately after a stock Goods and Services
service upset occurs - made according to a fixed
 Document the process and design, and the customer has
train employees to use them no option from which to
 Listen to the customer and choose
respond sympathetically
 Resolve the problem quickly, Example: appliances, shoes,
provide an apology, and offer sporting goods, credit cards, online
compensation if necessary Web-based courses and bus service

FOUR TYPES OF PROCESSES

1. Projects – large scale,

customized initiatives that
consist of many smaller tasks
and activities that must be
coordinated and completed
to finish on time and within
budget

Characteristics:
 One-of-a-kind
 Large scale
 Complex
 Resources brought to site
OPERATIONS MANAGEMENT  Wide variation in specs and
AND TOTAL QUALITY tasks
MANAGEMENT
Example: legal defense
Chapter 5: Process Selection, preparation, construction,
Design, and Analysis consultation and software
development
THREE TYPES OF GOODS AND
SERVICES 2. Job Shop Processes –
organized around particular
1. Custom or make-to-order types of general purpose
Goods and Services equipment that are flexible
- produced and delivered as and capable of customizing
one-of-a-kind or in small work for individual customers
quantities and are designed - Produce a wide variety of
to meet specific customers’ goods and services, small
specifications quantities

Example: ships, internet sites, Characteristics:

weddings, taxi service, estate  Significant setup and/or
plans, buildings and surgery changeover time
 Batching
2. Option or assemble-to-  Low to moderate volume
order Goods and Services  Many routes
- configurations of standard  Many different products
parts, subassemblies, or  High work-force skills
services that ca be selected  Customized to customer’s
by customers from a limited specs
set
Example: Machine shops, Paint
shop and other factories that
ATTY. MICAH DANIELLE S. TORMON, CPA

create customized products in  Understand the product life

small batches and offer cycles because when goods
customization and services change and
mature so must the
3. Flow Shop Processes – processes and value chains
organized around a fixed that create and deliver them
sequence of activities and
process steps to product a Four phases of traditional product
limited variety of similar life cycle (PLC)
goods or services 1. Introduction
- Option oriented and standard 2. Growth
goods and services are 3. Maturity
produced 4. Decline and turnaround

Characteristics:  A product’s life cycle has

 Little to no setup time important implications in
 Dedicated to small range of terms of process design and
goods and services that are choice
similar
 Similar sequence of process PRODUCT-PROCESS MATRIX
steps - Hayes and Wheelwright
 Moderate to high volume - Model that describes the
alignment of process choice
Examples: automobiles, appliances, with the characteristics of the
insurance policies, checking manufactured good
account statements and hospital
laboratory work  Most appropriate match
between type of product and
4. Continuous Flow Process – type of process occurs along
highly standardized goods or the diagonal in the product-
services, usually around the process matrix
clock in very high volumes  One moves down the
- Work is rigid and processes diagonal, the emphasis on
used are highly specialized, both product and process
automated equipment that is structure shifts from low
often controlled by volume and high flexibility, to
computers with minimal higher volumes and more
human oversight standardization

Characteristics:
 Not made from discrete parts
 Very high volumes in fixed
processing sequence
 High investment in system
 24/7 continuous operation
 Automated
 Dedicated to a small range of
goods and services

Examples: Automated car washes,

paper and street mills, paint
factories, and many electric,
information-intense services (credit
card authorization and security
systems)

PRODUCT LIFE CYCLE SERVICE-POSITIONING MATRIX

- Characterization of product - Product-process matrix does
growth, maturity, and decline not transfer well to service
overtime businesses and processes so
new ways to think about
ATTY. MICAH DANIELLE S. TORMON, CPA

services and their processes 2. The degree of responsibility

are needed of the service-encounter
activity sequence
Pathway – unique route through a
service system PROCESS DESIGN
- Be customer or provider - Create the right combination
driven, depending on the of equipment, labor,
level of control that the software, work methods, and
service firm wants to ensure environment to produce and
deliver goods and services
Customer-routed services – those that satisfy both internal and
that offer customer broad freedom external customer
to select the pathways that are requirements
best suited for their immediate
needs and wants Four Hierarchal Levels:
1. Task – specific unit of work
 Customer decides what path required to create an output
to take through the service 2. Activity – a group of tasks
delivery system with only needed to create and deliver
minimal guidance from an intermediate or final
management output
3. Process
Provider-routed services – constrain 4. Value Chain
customers to follow a very small
number of possible and predefined
pathways through the service
system

PROCESS AND VALUE STREAM

MAPPING

Six Major Activities in designing a

goods-producing or service-
providing process:

Service Encounter Activity 1. Define the purpose and

- Consists of all the process objectives of the process
steps and associated service 2. Create a detailed process or
encounters necessary to value stream map that
complete a service describes how the process is
transactions and fulfill a currently performed
customer’s wants and needs 3. Evaluate alternative designs
4. Identify and define
Depends on two things: appropriate performance
measures for the process
1. The degree of customer 5. Select the appropriate
discretion, freedom, and equipment and technology
decision-making power in 6. Develop an implementation
selecting the service- plan to introduce the new or
encounter activity sequence revised process design

Process map (flowchart)

ATTY. MICAH DANIELLE S. TORMON, CPA

- Describes the sequence of all  Increasing product and/or

process activities and tasks service quality by reducing
necessary to create and defects, mistakes, failures, or
deliver a desired output of service upsets
outcome  Decreasing costs through
better technology or
Process Boundary elimination of non-value-
- Beginning or end of a process added activities
 Decreasing process flow time
 Flowcharts generally by reducing waiting time or
highlight the points of speeding up movement
contact with the customer through the process and
and are often called service value chain
blue-prints or service maps
Reengineering
Value Stream - Fundamental rethinking and
- All value-added activities radical redesign of business
involved in designing, processes to achieve
producing, and delivering dramatic improvements in
goods and services to critical, contemporary
customers measures performance (cost,
- quality, service, and speed)

Utilization
- Fraction of time a workstation
or individual is busy over the
long run

Two ways of computing resource

utilization:

= Resources Used / Resources

Available

= Demand Rate / (Service Rate x

Number of Servers)

Throughput and Bottlenecks

Throughput – average number of

entities completed per unit time
(output rate) from a process

PROCESS ANALYSIS AND  Measured as parts per day,

IMPROVEMENT transactions per minute,
customers per hour
Management strategies to improve
process designs usually focus on Bottleneck – work activity that
one or more of the following; effectively limits throughput of the
entire process
 Increasing revenue by
improving process efficiency LITTLE’S LAW
in creating goods and - Explains the relationship
services and delivery of the among flow time (T),
customer benefit package throughput (R), and Work in
 Increasing agility by process (WIP)
improving flexibility and
response to changes in WIP = R x T
demand and customer
expectations
ATTY. MICAH DANIELLE S. TORMON, CPA

 Flow time or cycle time –

average time it takes to
complete one cycle of a
process

 Simple way of evaluating

average process performance