Guimaras State College

McLain, Buenavista, Guimaras

Graduate School

PRODUCT AND SERVICE DESIGN

(BA 212 - Operations Management)
Reporter: Jejomar H. Baban

Strategic Importance of Product and Service Design

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. Product or service
design should be closely tied to an organization’s strategy. It is a major factor in cost, quality,
time-to-market, customer satisfaction, and competitive advantage. Consequently, marketing,
finance, operations, accounting, IT, and HR need to be involved. Demand forecasts and
projected costs are important, as is the expected impact on the supply chain. It is significant
to note that an important cause of operations failures can be traced to faulty design. Designs
that have not been well thought out, or incorrectly implemented, or instructions for assembly
or usage that are wrong or unclear, can be the cause of product and service failures, leading
to lawsuits, injuries and deaths, product recalls, and damaged reputations.

The introduction of new products or services, or changes to product or service designs, can
have impacts throughout the organization and the entire supply chain. Some processes may
change very little, while others may have to change considerably in terms of what they do or
how and when they do it. New processes may have to be added, and some current ones
may be eliminated. New suppliers and distributors may need to be found and integrated into
the system, and some current suppliers and distributors may no longer be an appropriate fit.
Moreover, it is necessary to take into account projected impact on demand as well as
financial, marketing, and distribution implications. Because of the potential for widespread
effects, taking a “big picture” systems approach early and throughout the design or redesign
process is imperative to reduce the chance of missing some implications and costs, and to
understand the time it will take. Likewise, input from engineering, operations, marketing,
finance, accounting, and supply chains is crucial.

As businesses continue to reduce costs to achieve competitive advantage, design issues are
becoming increasingly important aspects of business strategy. Because product and service
design touches every part of a business organization, from operations and supply chains to
finance, marketing, accounting, and information systems, design decisions have far-reaching
implications for the organization and its success in the marketplace.

What Does Product and Service Design Do?

The various activities and responsibilities of product and service design include the following:

 Translate customer wants and needs into product and service requirements
(marketing, operations)
 Refine existing products and services (marketing)
 Develop new products and/or services (marketing, operations)

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  Formulate quality goals (marketing, operations)
 Formulate cost targets (accounting, finance, operations)
 Construct and test prototypes (operations, marketing, engineering)
 Document specifications
 Translate product and service specifications into process specifications (engineering,
operations)

Key Questions of Product and Service Design

From a buyer’s standpoint, most purchasing decisions entail two fundamental

considerations:

 Cost
 Quality or Performance

From the organization’s standpoint, the key questions are:

 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)?
 Can we do it? Do we have the necessary knowledge, skills, equipment, capacity, and
supply chain capability? For products, this is known as manufacturability; for
services, this is known as serviceability. Also, is outsourcing some or all of the work
an option?
 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 our current offerings?
 Does it make sense from an economic standpoint? What are the potential liability
issues, ethical considerations, sustainability issues, costs, and profits? For
nonprofits, is the cost within budget?

Reasons for Product and Service Design or Redesign

Organizations become involved in product and service design or redesign for a variety of
reasons. The main forces that initiate design or redesign are market opportunities and
threats.

The factors that give rise to market opportunities and threats can be one or more changes:

 Economic (e.g., low demand, excessive warranty claims, the need to reduce costs)
 Social and demographic (e.g., aging baby boomers, population shifts)
 Political, liability, or legal (e.g., government changes, safety issues, new regulations)
 Competitive (e.g., new or changed products or services, new advertising/promotions)
 Cost or availability (e.g., of raw materials, components, labor, water, energy)
 Technological (e.g., in product components, processes)

Main Sources of Design Ideas

1. Customers – can come from surveys, focus groups, complaints and unsolicited
suggestions for improvement
2. Suppliers – can be obtained from interviews, direct or indirect suggestions
3. Competitors – studying products or services and operations of competitors and
through reverse engineering

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 4. Employees - can be obtained from interviews, direct or indirect suggestions, surveys
and complaints
5. Research – through research and development

Research and Development (R&D) – Organized efforts to increase scientific knowledge

or product innovation.

a. Basic Research – primarily focused on the advancement of knowledge rather

than solving a specific problem. It does not usually lead to near-term commercial
applications
b. Applied Research – used to solve a specific, practical issue affecting the
business and has the objective of achieving commercial applications
c. Development – converts the results of applied research into useful commercial
applications.

The Three Rs

1. Reduce (Value Analysis)

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

Typical questions that would be asked as part of the analysis include:

a. Could a cheaper part or material be used?

b. Is the function necessary?
c. Can the function of two or more parts or components be performed by a
single part for a lower cost?
d. Can a part be simplified?
e. Could product specifications be relaxed, and would this result in a lower
price?
f. Could standard parts be substituted for nonstandard parts?

2. Reuse (Remanufacturing)

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. Among the products that have remanufactured
components are automobiles, printers, copiers, cameras, computers, and
telephones.

3. Recycle (Recycling)

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. Reclaimed metal or plastic parts may be melted down and used to
make different products.

Reasons why companies recycle products

a. Cost Savings
b. Environmental Concerns
c. Environmental Regulations

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Product or Service Life Cycle

The product or service life cycle has four stages:

1. Introduction – when the product is introduced and struggles to gain brand

recognition.
2. Growth – advertising and word of mouth helps the product to increase sales. As
sales growth, more firms are willing to stock the product which helps the product
to grow even further.
3. Maturity – When the product reaches peak market penetration.
4. Decline – the product gets eclipsed by new products

Strategies for Product or Service Life Stages

a. Introduction phase

 Raising product awareness through advertising / word of mouth.

 Offering the product at discount – penetration pricing to tempt customers to
try the product.
 Target early adopters and influential market leaders. For example, firms may
offer free product reviews to influential bloggers in the market.
 Firms need to find willing suppliers who are willing to stock.
 This phase will not be profitable because costs are high, but revenue
relatively low.

b. Growth

 Firms need to capitalize on growth to extend product sales from small

retailers to big supermarkets.
 Firms can change marketing from niche areas to a more mass market.

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  The firm can adapt to consumer feedback and offer new features/better
consumer support.

c. Maturity

 With peak market penetration, the firm may seek to increase prices to
increase profitability. However, if the market is very competitive the firm may
feel the need to keep prices low to defend market share.
 The firm may concentrate on seeking to improve the product to gain market
differentiation and extend the period of maturity.

d. Decline

 In the decline phase, the firm may feel it is best to let the product go – e.g.
diesel cars cannot solve issues of pollution and damage to its brand
reputation. However, with an iPhone, Apple let old models go, to be replaced
by the next model. Decline and discontinuing the product can be a way to
force customers to buy an upgrade – next time their contract expires.
 Managed decline by targeting on a niche market. For example, vinyl records
have declined, but now they have become a very profitable niche for record
labels. Total sale revenues from vinyl are close to sale revenues from digital
downloads because record companies can charge a premium price for the
good.

Key Issues in Product or Service Design

a. Product Life Cycle Management

Product life cycle management (PLM) – a systematic approach to managing the

series of changes a product goes through, from its conception, design, and
development, through production and any redesign, to its end of life. PLM
incorporates everything related to a particular product. That includes data pertaining
to production processes, business processes, people, and anything else related to
the product. One of its goals is to eliminate waste and improve efficiency.

Three phases of PLM application:

1. Beginning of life, which involves design and development

2. Middle of life, which involves working with suppliers, managing product
information and warranties
3. End of life, which involves strategies for product discontinuance, disposal,
or recycling.

b. Degree of Standardization

Advantages

 Fewer parts to deal with in inventory and in manufacturing.

 Reduced training costs and time.
 More routine purchasing, handling, and inspection procedures.
 Orders fillable from inventory.

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  Opportunities for long production runs and automation.
 Need for fewer parts justifies increased expenditures on perfecting designs and
improving quality control procedures.

Disadvantages

 Designs may be frozen with too many imperfections remaining.

 High cost of design changes increases resistance to improvements.
 Decreased variety results in less consumer appeal.

c. Designing for Mass Customization

Mass customization – a strategy of producing standardized goods or services, but

incorporating some degree of customization in the final product or service.
Tactics employed in mass customization:

1. Delayed Differentiation – the process of producing, but not quite completing, a

product or service until customer preferences are known. Manufacturers of men’s
clothing, for example, produce suits with pants that have legs that are unfinished,
allowing customers to tailor choices as to the exact length and whether to have
cuffs or no cuffs.

2. Modular Design – a form of standardization in which component parts are

grouped into modules that are easily replaced or interchanged. One familiar
example of modular design is computers, which have modular parts that can be
replaced if they become defective.

d. Reliability

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. The
importance of reliability is underscored by its use by prospective buyers in comparing
alternatives and by sellers as one determinant of price. Reliability also can have an
impact on repeat sales, reflect on the product’s image, and, if it is too low, create
legal implications. Reliability is also a consideration for sustainability; the higher the
reliability of a product, the fewer the resources that will be needed to maintain it, and
the less frequently it will involve the three Rs. Reliabilities are always specified with
respect to certain conditions, called normal operating conditions.

Failure – a situation in which an item does not perform as intended. This includes not
only instances in which the item does not function at all, but also instances in which
the item’s performance is substandard or it functions in a way not intended.

Potential ways to improve reliability:

 Improve component design

 Improve production and/or assembly techniques
 Improve testing
 Use backups
 Improve preventive maintenance procedures
 Improve user education
 Improve system design

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e. Robust Design

Robust design – a design that results in products or services that can function over a
broad range of conditions. For example, the rubber boots have a design that is more
robust than that of the fine leather boots.
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.

Taguchi’s Approach

Japanese engineer Genichi Taguchi’s approach is based on the concept of robust

design. His premise is that it is often easier to design a product that is insensitive to
environmental factors, either in manufacturing or in use, than to control the
environmental factors.

f. Degree of Newness

Product or service design change can range from the modification of an existing
product or service to an entirely new product or service:

1. Modification of an existing product or service

2. Expansion of an existing product line or service offering
3. Clone of a competitor’s product or service
4. New product or service

The degree of change affects the newness to the organization and the newness to
the market. For the organization, a low level of newness can mean a fairly quick and
easy transition to producing the new product, while a high level of newness would
likely mean a slower and more difficult, and therefore more costly, transition. For the
market, a low level of newness would mean little difficulty with market acceptance,
but possibly low profit potential. A high level of newness, on the other hand, might
mean more difficulty with acceptance, or it might mean a rapid gain in market share
with a high potential for profits.

g. Quality Function Deployment

Quality function deployment (QFD) - a structured approach for integrating the “voice
of the customer” into both the product and service development process.

The purpose is to ensure that customer requirements are factored into every aspect
of the process. Listening to and understanding the customer is the central feature of
QFD.

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 Example matrix for QFD (House of Quality Matrix):

h. The Kano Model

Three Definitions of Quality based on the Kano Model:

1. Basic Quality – refers to customer requirements that have only a limited effect on
customer satisfaction if present, but lead to dissatisfaction if not present. For
example, putting a very short cord on an electrical appliance will likely result in
customer dissatisfaction, but beyond a certain length (e.g., 4 feet), adding more
cord will not lead to increased levels of customer satisfaction.

2. Performance Quality – refers to customer requirements that generate satisfaction

or dissatisfaction in proportion to their level of functionality and appeal. For
example, increasing the tread life of a tire or the amount of time house paint will
last will add to customer satisfaction.

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 3. Excitement Quality – refers to a feature or attribute that was unexpected by the
customer and causes excitement (the “wow” factor), such as a voucher for dinner
for two at the hotel restaurant when checking in.

Illustration of the Kano Model

The concept of the Kano model is that design elements that fall into each aspect of
quality must first be determined. Once basic needs have been met, additional efforts
in those areas should not be pursued. For performance features, cost–benefit
analysis comes into play, and these features should be included as long as the
benefit exceeds the cost. Excitement features pose somewhat of a challenge.
Customers are not likely to indicate excitement factors in surveys because they don’t
know that they want them. However, small increases in such factors produce
disproportional increases in customer satisfaction and generally increase brand
loyalty, so it is important for companies to strive to identify and include these features
when economically feasible.

Phases in Product Design and Development

1. Feasibility Analysis – entails market analysis (demand), economic analysis

(development cost and production cost, profit potential), and technical analysis
(capacity requirements and availability, and the skills needed). Also, it is necessary to
answer the question: Does it fit with the mission? It requires collaboration among
marketing, finance, accounting, engineering, and operations.

2. Product Specifications – involves detailed descriptions of what is needed to meet (or

exceed) customer wants, and requires collaboration between legal, marketing, and
operations.

3. Process Specifications – once product specifications have been set, attention turns
to specifications for the process that will be needed to produce the product.

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 Alternatives must be weighed in terms of cost, availability of resources, profit
potential, and quality. This involves collaboration between accounting and
operations.

4. Prototype Development – with product and process specifications complete, one (or
a few) units are made to see if there are any problems with the product or process
specifications.

5. Design Review – any necessary changes are made or the project is abandoned.
Marketing, finance, engineering, design, and operations collaborate to determine
whether to proceed or abandon.

6. Market Test – used to determine the extent of consumer acceptance. If unsuccessful,

the product returns to the design review phase. This phase is handled by marketing.

7. Product Introduction – The new product is promoted. This phase is handled by

marketing.

8. Follow-up Evaluation – based on user feedback, changes may be made or forecasts

refined. This phase is handled by marketing.

Considerations in Designing for Production

a. Concurrent Engineering – bringing design and manufacturing engineering people

together early in the design phase to simultaneously develop the product and the
processes for creating the product. Also known as simultaneous development.

b. Computer-Aided Design (CAD) – uses computer graphics for product design. The
designer can modify an existing design or create a new one on a monitor by means
of a light pen, a keyboard, a joystick, or a similar device.

c. Production Requirements/Capabilities – designers need to clearly understand the

capabilities of production (e.g., equipment, skills, types of materials, schedules,
technologies, special abilities). Manufacturability needs to be considered when
designing products.

d. Component Commonality – companies can realize significant benefits when a part

can be used in multiple products. For example, car manufacturers employ this tactic
by using internal components such as water pumps, engines, and transmissions on
several automobile nameplates. In addition to the savings in design time, companies
reap benefits through standard training for assembly and installation, increased
opportunities for savings by buying in bulk from suppliers, and commonality of parts
for repair, which reduces the inventory dealers and auto parts stores must carry.

Service Design

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—the combination of goods and services provided to a customer.

Service Package – the physical resources needed to perform the service, the accompanying
goods, and the explicit and implicit services included.

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Differences between Service Design and Product Design

1. Products are generally tangible; services are generally intangible. Consequently,

service design often focuses more on intangible factors (e.g., peace of mind,
ambiance) than does product design.
2. In many instances, services are created and delivered at the same time (e.g., a
haircut, a car wash). In such instances there is less latitude in finding and correcting
errors before the customer has a chance to discover them. Consequently, training,
process design, and customer relations are particularly important.
3. Services cannot be inventoried. This poses restrictions on flexibility and makes
capacity issues very important.
4. Services are highly visible to consumers and must be designed with that in mind; this
adds an extra dimension to process design, one that usually is not present in product
design.
5. Some services have low barriers to entry and exit. This places additional pressures
on service design to be innovative and cost-effective.
6. Location is often important to service design, with convenience as a major factor.
Hence, design of services and choice of location are often closely linked.
7. Service systems range from those with little or no customer contact to those that
have a very high degree of customer contact. If there is little or no customer contact,
service system design is like product system design.
8. Demand variability alternately creates waiting lines or idle service resources.

Phases in the 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.

Service Blueprinting

Service blueprint – a method used in service design to describe and analyze a proposed
service. 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.

The major steps in service blueprinting are as follows:

1. Establish boundaries for the service and decide on the level of detail needed.
2. Identify and determine the sequence of customer and service actions and
interactions. A flowchart can be a useful tool for this.
3. Develop time estimates for each phase of the process, as well as time variability.
4. Identify potential failure points and develop a plan to prevent or minimize them, as
well as a plan to respond to service errors.

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A simple service blueprint for a restaurant

Characteristics of Well-Designed Service Systems

1. Being consistent with the organization’s mission.

2. Being user-friendly.
3. Being robust if variability is a factor.
4. Being easy to sustain.
5. Being cost-effective.
6. Having value that is obvious to customers.
7. Having effective linkages between back-of-the-house operations (i.e., no contact with
the customer) and front-of-the-house operations (i.e., direct contact with customers).
Front operations should focus on customer service, while back operations should
focus on speed and efficiency.
8. Having a single, unifying theme, such as convenience or speed.
9. Having design features and checks that will ensure service that is reliable and of high
quality.

Challenges of Service Design

Variability is a major concern in most aspects of business operations, and it is particularly so

in the design of service systems. Requirements tend to be variable, both in terms of
differences in what customers want or need, and in terms of the timing of customer requests.
Because services generally cannot be stored, there is the additional challenge of balancing
supply and demand. This is less of a problem for systems in which the timing of services can
be scheduled (e.g., doctor’s appointment), but not so in others (e.g., emergency room visit).

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Another challenge is that services can be difficult to describe precisely and are dynamic in
nature, especially when there is a direct encounter with the customer (e.g., personal
services), due to the large number of variables.

Guidelines for Successful Service Design

1. Define the service package in detail. A service blueprint may be helpful for this.
2. Focus on the operation from the customer’s perspective. Consider how customer
expectations and perceptions are managed during and after the service.
3. Consider the image that the service package will present both to customers and to
prospective customers.
4. Recognize that designers’ familiarity with the system may give them a quite different
perspective than that of the customer, and take steps to overcome this.
5. Make sure that managers are involved and will support the design once it is
implemented.
6. Define quality for both tangibles and intangibles. Intangible standards are more
difficult to define, but they must be addressed.
7. Make sure that recruitment, training, and reward policies are consistent with service
expectations.
8. Establish procedures to handle both predictable and unpredictable events.
9. Establish systems to monitor, maintain, and improve service.

Source:

Stevenson, W. J. 2018. Operations Management. 13th ed. New York, NY: McGraw-Hill
Education.

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