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OM4 Chapter 5: Goods and Service Design

Discussion Questions

1. How might modern technology, such as the Internet, be used to understand the
voice of the customer?

Consumers provide a lot of “free” information in the form of blogs, discussion

groups, web site product reviews, web page click and order analysis, and so on.
Companies can leverage this information by carefully monitoring comments
about their products as well as their competitors’ products. The cost of monitoring
Internet conversations (i.e., high scalability) is minimal compared to the costs of
other types of survey approaches, and customers are not biased by any questions
that may be asked. However, the conversations may be considerably less
structured and unfocused, and thus may contain less usable information. Also,
unlike a focus group or telephone interview, inaccurate perceptions or factual
errors cannot be corrected. See Byron J. Finch, “A New Way to Listen to the
Customer,” Quality Progress 30, no. 5 (May 1997), 73-76.

2. What lessons can be learned from the LaRosa’s Pizzeria boxed example?

Customer requirements, as expressed in the customer’s own terms, are called the
voice of the customer. They represent what customers expect a product or service
to have or to do. The LaRosa’s example demonstrates that organizations must
listen carefully to customers to fully understand their needs and expectations, and
have good processes for doing so. Also go over the Building a Better Pizza box
in the chapter.

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3. In building a House of Quality, what departments or functions should be involved

in each step of the process?

Voice of the customer: Marketing

Technical features: Design, Operations, and Marketing
Competitive evaluation: Marketing and Design
Customer requirement importance: Marketing and Design
Deployment priorities: Operations

4. Explain how the goal post view of conforming to specifications differs from
Taguchi’s loss function. Would you rather buy an automobile where suppliers
used the goal post or Taguchi models? Why?

Adopters of the Taguchi model try to design processes to hit the target value
where any deviation from perfection results in an economic loss. Adopters of the
goal post model try to design processes to be within a range of performance. A
result very close to the low or high end of the range is deemed acceptable. (Show
the power point slides or drawn the two models on the board.)

You most likely have many examples you can share with students but here is a
simple one. If a shaft on an automobile transmission is close to the high end of
the goal post range (specification) and the hole that it goes through is close to the
low end of its range then what happens? The shaft fits too tightly in the hole as it
rotates and creates friction and heat and wears out sooner. In the reverse case, the
slightly too small shaft rattles in slightly too big a hole. Consumer Reports for
automobiles has many examples of mostly all red or all black circles indicating
excellent to poor quality levels of automobiles. Once you have discussed this
question in class and used examples most students would prefer to buy a vehicle
from suppliers and manufacturers who use the Taguchi model.

5. Propose an explicit service guarantee for a fast-food restaurant. Clearly explain

why you included the features of your service guarantee (maximum of one page).
Do you think that a restaurant would adopt it? Why or why not?

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At one extreme, students may write something like “XYZ Restaurant will give
you a full credit on current or future dinners if we do not provide 100% customer
satisfaction.” To invoke the service guarantee, you simply have to tell us what the
problem was, how to correct it, and what payout you want for your
inconvenience.” This type of SG “trust” the customer to tell the truth and may
maximize economic and non-economic payouts.

At the other extreme, students may write something like “XYZ Restaurant will
listen to your complaint and make every effort to make you happy and
comfortable. Please download our service-upset forms, fill them out, and have
them notarized by fellow customers and our employees, and mail to our service
guarantee department. You will receive our reply within sixty days.” This type
of SG guarantees nothing and the process to invoke is long and complicated, and
the restaurant does not trust the customer. Here, total service upset economic
payouts most likely would be very low.

Most restaurants have implicit or explicit service guarantees somewhere in

between these two extremes subject to corporate policy and legal and government
regulations.

Problems and Activities

(Note: an asterisk denotes problems for which an Excel spreadsheet template on the
CourseMate Web site may be used.)

1. Build a House of Quality (showing only the Voice of the customer, Technical
features, Interrelationships, and Relationship matrix from Exhibit 5.2) for
designing and producing chocolate chip cookies. The voice of the customer
consists of:
a. Soft
b. Fresh
c. Bittersweet
d. Not burned
e. Large size
f. Moderate price
g. Lots of chocolate

The technical features identified are

a. baking temperature
b. baking time
c. type of chocolate
d. proportion of chocolate
e. size
f. shape
g. thickness

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h. batch size
i. amount of preservatives

Clearly explain your reasoning for your ratings of the interrelationships and
relationship matrix. Can you think of other technical features that should be
included to better address the voice of the customer?

Below is a HOQ template that students can use (you can copy it and embed it on a
PowerPoint slide for class discussion). There is no one correct solution, but the
answers should be logical. For example, softness would be affected by baking
temperature and baking time as strong relationships, with perhaps medium
relationships with size and thickness. Bittersweet would bear a strong
relationship with the type of chocolate, etc. One thing to emphasize is that every
combination need not have a relationship! Students often feel that they have to
put something in every cell. The idea of the HOQ is to identify the most
significant relationships.

Students should also include relationships between technical requirements in the

roof. For example, baking time and baking temperature probably have a strong
relationship with each other; increasing the baking temperature generally requires
a shorter baking time and vice-versa.

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2.* Suppose that the specification for a part (in inches) are 6.00 ± 0.02, and the
Taguchi loss function for some part is estimated to be L(x) = 6,800 (x − T)2.
Determine the loss if x = 6.05 inches.

The Taguchi Loss Function is:

L(x) = k(x - T)2 = 6,800(6.05 - 6.00)2 = 6,800 (.05) 2 = $17 per part

6.05 is also beyond the specification of 6.02 so we expect the Taguchi economic loss
to be high per part. For say 1,000 parts the L(x) = $17,000. If you know any 3 of the
4 Taguchi model variables, you can solve for the fourth.

The Excel template Taguchi can be used to compute the loss per part; use the second
portion of the template “Loss Calculation for a Specific x” as shown below

Loss Calculation for a Specific x

Target specification, T 6
Dimensional value, x 6.05
k $6,800.00
Loss $17.00

3.* A quality characteristic has a design specification (in cm.) of 0.200  0.02. If the
actual process value of the quality characteristic is at the boundary of the
tolerance on either side, the product will require a repair of $30. Find the value of
k and state the Taguchi loss function. What is the loss associated with x = 0.205?

The Taguchi Loss Function is:

L(x) = k(x - T)2
30 = k(0.02)2 or k = 75,000

The Excel template Taguchi can be used to compute this:

Calculation of k for the Loss Function

Deviation from target 0.02
Loss associated with deviation $30.00
k $75,000.00

The Taguchi loss function is

L(x) = 75,000(x – 0.2)2

The loss associated with x = 0.205 is L(x=0.205) = 75,000(0.205 – 0.2)2 = $1.87

Loss Calculation for a Specific x

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Target specification, T 0.2

Dimensional value, x 0.205
k $75,000.00
Loss $1.87

4.* For the situation in Problem 3, what are the economic design specifications if the
cost of inspection and adjustment is $7.50?

Using the logic in the Solved Problem in the chapter, the economic specification
limits should be approximately between 0.190 and 0.210. The Excel template
Taguchi can be used to confirm this; use the third portion of the template “Economic
Design Specifications” as shown below.

Economic Design Specifications

Target specification, T 0.2
k $75,000.00
Cost of inspection and adjustment $7.50
Break-Even Tolerance 0.010
Lower specification limit 0.190
Upper specification limit 0.210

This problem illustrates that specification limits can be determine economically

based on the Taguchi model. Of course, we do not know if these specification
limits are technically capable of doing the job.

5.* Suppose that the design specifications for hydraulic cylinder are 10.00  0.10
centimeters, and that the Taguchi loss function is estimated to be
L(x) = 1,400 (x − T)2.

(a) Determine the estimated loss for a production order if the quality
characteristic under study takes on a value of 10.04 and 100 parts are produced.

The Taguchi Loss Function is:

L(x) = k(x - T)2 = 1,400 (10.04 - 10.00)2 = 1,400(.04) 2 = $2.24 per part

Loss Calculation for a Specific x

Target specification, T 10
Dimensional value, x 10.04
k $1,400.00

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Loss $2.24

If 100 parts are produced at this value, the total loss is 100(2.24) = $224.

(b) Assume the production process is recalibrated weekly and a new sample of
cylinders after recalibration reveals an x-bar of 9.789. What action, if any, is need
in this situation? Explain.

If 100 parts are produced at an average x-bar of 9.789 centimeters the loss per unit
is $62.33, which can be verified using the Excel template as shown below.

L(x) = k(x - T)2 = 1,400 (9.789 - 10.00)2 = 1,400(.211) 2 = $62.33 per part

Loss Calculation for a Specific x

Target specification, T 10
Dimensional value, x 9.789
k $1,400.00
Loss $62.33

Thus the total Taguchi economic loss for 100 parts is $6,233. In (a) the
economic loss was low and actual process performance was very close to the
target design specification but in (b) the recalibration was probably done
incorrectly, and now the production process needs to be stopped and recalibrated
again. Many different things can cause a production process to drift off target or
change abruptly so management must constantly monitor processes and outputs.
Make sure students realize that the Taguchi model helps managers translate
design specs versus actual process performance into dollars. Taguchi dollar
estimates can be used to help justify process and product improvements.

6. The service center for a brokerage company provides three functions to callers:
account status, order confirmations, and stock quotes. The reliability was
measured for each of these services over 1 month with these results: 0.80, 0.70,
and 0.96, respectively. What is the overall reliability of the call center?

Because this is a series system, reliability = (0.80)(0.70)(0.96) = 0.5376

You might ask a “what if” questions during class such as: if order confirmation
reliability could be improved from .7 to .8, what is the overall system reliability now?
(0.6144).

7. Two cooling fans are installed in some laptop computers. Suppose the reliability
of each cooling fan is 0.98. What percent improvement in reliability does adding
the second fan provide?

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Because this is a parallel system, reliability = 1 - (1 - 0.98)(1 - 0.98) = 1 – (.02)(.02) =

1 - .0004 = 0.9996

Percent improvement is 1-0.9996/0.98 = 2%. So is it worth the extra cost and

space to add a second fan? Probably not.

8. Given the following diagram, determine the total system reliability if the
individual component reliabilities are: A = 0.94, B = 0.82, and C = 0.87. (Hint:
Use equations 5.2 and 5.3 and note that the reliabilities of the parallel components
are different.)

First find the reliability of the parallel subsystem BC: Reliability = 1 - (1 - 0.82)(1 -
0.87) = 1 – (.18)(.13) = 1 – 0.0234= .9766. This is the composite reliability of
collapsing B and C into one part.

Now find the series reliability of A and the BC composite subsystem: Reliability = (0.94)(0.9766)
= 0.918.

Make sure students understand these parallel reliability computations must be done
first; then use the series computation method. You might also mention to the students
that the space shuttle had five identical and parallel computers on board used most
importantly for reentry into the earth’s atmosphere.

9. A simple electronic assembly consists of two components in a series

configuration with reliabilities as shown in the figure below.

(We’ll call Design Option A)

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Engineers would like to increase the reliability by adding additional components

in one of the two proposed designs shown below:

(Design Options B and C)

a. Find the reliability of the original design.

Reliability = (0.9)(0.95) = 0.855

b. Explain how the configurations of the proposed designs differ.

Design option B places two components in series (.9 and .95) and duplicates this
two-component series in a parallel and redundant configuration. Design option C
places two redundant components in parallel (.9 first and later .95) and once they
are collapsed we have composite reliabilities in a series configuration.

Make sure students understand that for option B, series reliability computations
must be done first; then use the parallel computation method. For option C, the
parallel computations muse be done first, then the series reliability.

c. Which proposed design has the best reliability?

Option B
Series reliability = (0.9)(0.95) = 0.855
Parallel reliability= 1 - (1 - 0.855)(1 - 0.855) = 1 – (.145)(.145) = .978975

Option C
First parallel reliability = 1 - (1 - 0.9)(1 - 0.9) = 1 – (.1)(.1) = 1 – 0.01 = .99
Second parallel reliability = 1 - (1 - 0.95)(1 - 0.95) = 1 – (.05)(.05) = 1 – 0.0025 =
.9975

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Series reliability = (0.99)(0.9975) = 0.987525

Option C is the highest reliability (best design).

10. Research and write a short paper (maximum two typed pages) illustrating an
example of how a company applies concepts of Design for Environment (DfE).

A Google search for “design for environment” results in over 1.5 million hits so
the students have plenty to write about. According to Wikipedia there are three
main concepts that fall under the Design for Environment umbrella:

▪ Design for environmental processing and manufacturing: This ensures that

raw material extraction (mining, drilling, etc.), processing (processing
reusable materials, metal melting, etc.) and manufacturing are done using
materials and processes, which are not dangerous to the environment or the
employees working on said processes. This includes the minimization of
waste and hazardous by-products, air pollution, energy expenditure and other
factors.
▪ Design for environmental packaging: This ensures that the materials used in
packaging are environmentally friendly, which can be achieved through the
reuse of shipping products, elimination of unnecessary paper and packaging
products, efficient use of materials and space, use of recycled and/or
recyclable materials.
▪ Design for disposal or reuse: The end-of-life of a product is very important,
because some products emit dangerous chemicals into the air, ground and
water after they are disposed of in a landfill. Planning for the reuse or
refurbishing of a product will change the types of materials that would be
used, how they could later be disassembled and reused, and the environmental
impacts such materials have.

Life cycle assessment (LCA) is employed to forecast the impacts of different

(production) alternatives of the product in question, thus being able to choose the
most environmentally friendly. A life cycle analysis can serve as a tool when
determining the environmental impact of a product or process. Proper LCAs can
help a designer compare several different products according to several
categories, such as energy use, toxicity, acidification, CO2 emissions, ozone
depletion, resource depletion and many others. By comparing different products,
designers can make decisions about which environmental hazard to focus on in
order to make the product more environmentally friendly.

11. Choose a servicescape for a business with which you are familiar and list key
physical attributes of the servicescape and their impact on customer service and
value. Explain how the servicescape establishes the behavioral setting for your
example.

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The servicescape is all the physical evidence a customer might use to form an
impression. The servicescape also provides the behavioral setting where service
encounters take place. Some servicescapes, termed lean servicescape
environments, are very simple. Ticketron outlets and Federal Express drop-off
kiosks would qualify as lean servicescape environments, as both provide service
from one simple structure. More complicated structures and service systems are
termed elaborate servicescape environments. Examples include hospitals,
airports, and universities. Other examples include Southwest (lean servicescape)
versus United Airlines (elaborate servicescape), Motel 6 versus Four Seasons
hotels, and community college versus Ivy League schools. A Google search of
“servicescape” reveals 398,000 hits but many are not the concept defined here.
But there still is much good source information on-line on servicescapes for-your-
information.

12. Select a service at your school, such as financial aid, bookstore, curriculum
advising, and so on. Propose a redesign of this service and its service delivery
system. First, baseline the current service and system, and then suggest how to
redesign and improve it. Make use of chapter ideas as best you can.

Most students will certainly understand the flaws in the current systems they
encounter. Students often have better ideas for improvement than the people who
work in these systems daily. One objective of this question is to get students to
always “baseline current process performance” first so once improvements are
made, then percent improvement can be documented for management (and on the
students resume!). In class try to reinforce ideas in the chapter such as using Exhibit
6.1, house of quality, product and process simplification, service encounter design,
and so on.

13. Identify a job in an organization and describe how the four elements of service
encounter design are designed and managed for this job. (The job you select
could be in a professional organization such as a dentist or tax advisor, or in a
routine service organization such as a hotel check-in desk clerk or airline flight
attendant.)

The student should focus on the following four service encounter design
elements: (a) customer contact behavior and skills, (b) service-provider selection,
development, and empowerment, (c) recognition and reward, and (d) service
recovery and guarantees. These four elements help build employee service
management skills and behaviors for the job. Many of the ideas in the chapter can
be applied to the job selected such as how employees are trained to handle service
upsets, their degree of empowerment, and supporting servicescapes, and
technology.

14. When Walt Disney created the Disney empire in the 1950s, he forbid its star
characters such as Mickey Mouse and Pluto to talk. Mr. Disney thought it would
be too difficult to control the service encounters between customers and the

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Disney characters, and it would ruin the “magic” of Disney. Therefore, Disney
characters were trained to gesture and use only their body language to interact and
entertain guests. Today, Disney is experimenting with talking characters. What
are some advantages and disadvantages of talking Disney characters from a
service design perspective? Research the current status of this Disney design
decision and include a brief summary in your write-up (no more than two typed
pages).

Advantages of Disney Characters Talking to Customers

• Build customer relationships and loyalty
• Create an interactive set of service encounters
• Can use the kid’s name in service encounters
• Customize conversation to each customer (mass customization)

Disadvantages of Disney Characters Talking to Customers

• Customers may not like what Disney character says, their tone of voice, local
dialects, faint or weak voice, etc.
• Lose partial control of Disney “magical” service encounters
• Ruin the magic – imaginary “ideal” of a Disney character; imagination is
better than reality.
• Requires better hiring and training programs (cost)

To-date, the results of this experiment have been mixed with many stories pro and
con; some service upsets make the newspapers. Kids and their parents might not
like what the Disney character says, their tone of voice or accent. Others like the
extra interaction such as using the kid’s name. Was Mr. Disney right?

15. Identify a service-provider job and associated service encounters and design and
write a job description for it. (Consider desired customer contact skills and
behaviors, education and training requirements, empowerment capabilities, hiring
criteria, and so on.)

Student will (and should) select jobs they have experience with such as being a
waiter, bartender, hotel front desk or bell person, retail clerk, bank teller,
receptionist, consultant, call center representative, airline flight attendant, pizza
delivery person, and so on. This may be the first time they have ever written a job
description for a service job. After they describe their job ask them questions
such as what training and education level is required, what will be the degree of
job empowerment, how will you do recognition and reward for this job, what
degree of patience and empathy toward other people (customers) do you need,
and so on. Does this job require service management skills? Explain.

Teaching Note for Tom’s Auto Service Case

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Overview

Tom’s Auto Service (TAS) is a quick service vehicle oil and lubricant change service
much like Jiffy Lube and Tuffy Tire & Auto Service. The case allows the students to
evaluate store managers, standards of performance, employees, facilities and the
overall customer experience based on case information and analysis of survey results.
The chapter supports the analysis of the case by defining

Service delivery system design,

The principal dimensions are:

• facility location and layout,
• the servicescape,
• service process and job design,
• technology and information support systems, and
• organizational structure.

Integrating these elements is necessary to design a service that provides value to

customers and can create a competitive advantage. A poor choice on any one of these
components, such as technology or job design, can degrade service system efficiency
and effectiveness.

Service encounter design.

The principal dimensions are:

• customer contact behavior and skills;

• service-provider selection, development, and empowerment;
• recognition and reward; and
• service recovery and guarantees.

These elements are necessary to support excellent performance and create customer
value and satisfaction. The case is really about service delivery system design, and
especially service encounter design.

Regardless of how students analyze the survey data, the key issue is whether they
identify the key problem(s), which is the “lack of adequate service management
training and rewards, and customer interaction skills for auto mechanics.” You
can’t just take backroom mechanics and push them into the front room without
changing the hiring and training processes to build service management skills. Students
will not totally reach this conclusion on their own so the instructor must lead this
discussion. Once they mention there might be a problem with the employee skills and
comment on the customer written comments, it is time for you to take the lead. As an
extra assignment you can also ask students to flowchart the oil change process at RAS
or a similar business.

Case Questions and Brief Answers

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1. Define and draw the customer benefit package and state TASs mission, strategy,
and rank order of competitive priorities.

A typical student dual CBP might be as follows:

Peripheral Good Peripheral

Bill and Service
Warranty 90 Day Guarantee
Broc Warrantee
Peripheral Peripheral Goods
Services Sofas &
Coffee, Drinks Magazines
& Wi-Fi Primary Good Primary Service
Parts, tires, oil, Customer
wiper blades, etc. Services Excellence
Service
Peripheral Goods Encounters
Diplomas & Peripheral With
Certifications Service Customers
On Walls Explain technical
Aspects of
service

Strategy – Offer friendly customer service in a clean and professional

environment to repair and maintain customer vehicles at multiple service centers.

One ranking of competitive priorities might be

• Product Quality #1a

• Service Quality #1b
• Time #2
• Price #3
• Flexibility #4
• Innovation #5

What differentiates TAS from competitors?

2. Identify and briefly describe the “design” features of the (a) service delivery
system and (b) service encounters.

Use the case information to discuss each of the service delivery system and
service encounter design features. For example, TAS facilities score high (4.82)
and are part of the servicescape. So are employee uniforms and grooming.

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Notice that each store has a “window” where customers can see the “backroom”
and their vehicle much like LensCrafters.

3. Identify and briefly describe five processes TAS stores use and their relative
importance.

Remember – they have 32 stores – multi-site management and consistent

performance across all stores – not easy to do – must “standardize” all processes
and systems.

• Hiring process
• Promotion process and annual employee reviews
• Employee training processes
• Employee recognition and reward processes
• Customer appointment process and call center service management skills
• Customer check-in
• Vehicle technical diagnosis, repair, and maintenance
• Customer lounge processes (fresh coffee, clean, HD TV, working Wi-Fi,
comfortable sofas
• Parts ordering (purchasing) process
• Inventory management process
• Green process for disposal of oils and lubricants
• Primary processes (oil change, tire change, install wiper blades, billing,
information technology including customer vehicle history, etc.)
• Checkout process (billing, etc.)
• Advertising/marketing processes including discount coupons, specials, and
customer e-mails on vehicle maintenance.

4. Given your analysis of the survey data, what opportunities for improvement, if
any, do you recommend?

TN Exhibit 1 Tom's Auto

Service

Store Managers
Q1 4.36
Q2 3.87
Q3 4.4
Average 4.21

Standards of Work
Performance
Q4 4.66
Q5 4.43
Q6 4.13
Q7 4.54
Q8 4.2

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Average 4.39

Employees
Q9 3.8
Q10 4.01
Q11 3.88
Average 3.90

Facilities
Q12 4.84
Q13 4.79
Average 4.82

Overall Experience
Q14 4.59
Q15 3.94
Q16 4.45
Average 4.33

There is an interaction/communication problem between mechanics and

customers (see employee average score = 3.90; the lowest of all scores). More
training on service management skills is required, and possibly change the hiring
process to employ customer friendly mechanics. The ten written comments
reinforce the survey results.

The mechanics may not realize that their jobs now require more than production
(back office) skills--they now must have service management (front- and back
office) skills. It is not enough for the managers to be good at interacting with
customers, the mechanics must also be trained to do better. Training (video, on-
the-job, certification exams, etc.) for mechanics on customer interaction and
service management skills should be formalize and done as quickly as possible.
A class discussion of low versus high customer contact skills is a must
somewhere during the case discussion. A recognition and reward system for
mechanics based on customer comment cards might provide an incentive to
change behavior.

It is also evident that customers like the facility and servicescape (4.82; the highest
average score). The beverages, television, current magazines, comfortable sofas
and chairs, blue employee uniforms, signs, maintenance brochures, and employee
and facility cleanliness are all part of the servicescape. You might ask the students
to define the servicescape during class discussion?

They do seem to keep their 32 service centers clean and well maintained (i.e.,
standard of performance average score = 4.39). The store layout is very good. The
mechanics seem to fix the vehicle (i.e., technically competent). The customer
waiting room is a hit with customers – relaxing, clean, comfortable, refreshments,
and they can access the TV and Internet.

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5. Summarize you final recommendation to the CEO.

Main recommendation

Everyone – managers and mechanics – need service management skills and

training if they are to differentiate themselves from competitors.

(Or you can’t hire for backroom mechanic skills and then move part of their job
to front room interactions with customers without service management
training.)

6. Other questions you might discuss

1. What is the “service window” for this service delivery system? (short, 18 + 9
minutes or 27 minutes, this short service window places demands on the
operating systems such as staff and facility capacity, scheduling, etc.) The same
is true for airplane gate turnaround time at the airport.
2. What is the content of a service management-training program? (technical
skills, human interaction and behavior skills, and marketing and cross- and up-
selling skills)
3. Would you close the window bay so customers cannot see out into the
backroom?
4. What data would you collect to organize the types of service upsets employees
are confronted with on a daily basis? (Pareto analysis, top ten types of service
upsets and a pre-defined recovery plan, etc.)
5. How will you handle service upsets? Procedure?
6. Will you allow the customer to go out into the bay (work) area to inspect and
see their vehicle? Safety? Liability?
7. Can you use the GAP model in Chapter 15 to evaluate the survey data?

Teaching Plan

Students have experience with this service delivery system so let them begin class by
describing good and bad experiences. The instructor must often manage the
classroom discussion to highlight service management skills, service upsets, and
front- and backroom skill differences. Then you can work your way through the case
questions on the board or via student (team) presentations. This case takes 20 to 40
minutes if you do not discuss extra questions.

THE END!

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