This chapter discusses the design of goods and services. It covers topics such as robust design, reliability calculations, quality function deployment, service delivery system design, and service encounter design. An example of how these concepts are integrated at LensCrafters is provided, showing how they design eyewear and services to meet customer needs through elements like location, servicescape, job roles, and visibility into the production process.

1. GOODS AND SERVICE DESIGN CHAPTER 6 DAVID A. COLLIER AND JAMES R. EVANS OM

2. LO1 Describe the steps involved in designing goods and services. LO2 Explain the concept of robust design and the Taguchi loss function. LO3 Explain how to calculate system reliability. LO4 Explain the concept and application of quality function deployment. LO5 Describe methods for designing goods. LO6 Explain the five elements of service delivery system design. LO7 Describe the four elements of service encounter design. LO8 Explain how goods and service design concepts are integrated at LensCrafters. l e a r n i n g o u t c o m e s Chapter 6 Learning Outcomes

3. Chapter 6 Goods and Service Design usiness Week reported that Lockheed Martin beat out Boeing for the largest defense contract in U.S. history — production of the Joint Strike Fighter jet—worth at least $400 billion. A Pentagon source noted “Compare the two designs for the Joint Strike Fighter, and you’ll see the obvious: Boeing’s looks like “a flying frog with its mouth wide open.” A senior Air Force general also observed “the Lockheed design wins hands down.” However, a Boeing spokesman retorted, “Boeing officials say looks aren’t part of the design. We design our planes to go to war, not to the senior prom.” What do you think? How important are design and style in your purchasing decisions? Provide examples for goods and services.

4. An Integrated Framework for Goods and Service Design (slide 1) Exhibit 6.1

5. An Integrated Framework for Goods and Service Design (slide 2) Exhibit 6.1

10. Nominal-Is-Best Taguchi Loss Function Exhibit 6.3

11. Traditional Goal Post View of Conforming to Specifications Exhibit 6.2

12. Solved Problem Suppose that the specification on a part is 0.500 ± 0.020 cm. A detailed analysis of product returns and repairs has discovered that many failures occur when the actual dimension is near the extreme of the tolerance range (that is, when the dimensions are approximately 0.48 or 0.52) and costs $50 for repair. Thus, in Equation 6.1, the deviation from the target, x – T , is 0.02 and L ( x ) = $50. Substituting these values, we have: 50 = k(0.02)2 or k = 50/0.0004 = 125,000 Therefore, the loss function for a single part is L ( x ) = 125000( x – T ) 2 . This means when the deviation is 0.10, the firm can still expect an average loss per unit of: L (0.10) = 125,000(0.10) 2 = $12.50 per part Chapter 6 Goods and Service Design

13. Solved problem (continued) Knowing the Taguchi loss function helps designers to determine appropriate tolerances economically. For example, suppose that a simple adjustment can be made at the factory for only $2 to get this dimension very close to the target. If we set L ( x ) = $2 and solve for x – T , we get: 2 = 125000( x – T ) 2 x – T = 0.004 Therefore, if the dimension is more than 0.004 away from the target, it is more economical to adjust it at the factory and the specifications should be set as 0.500 ± 0.004. Chapter 6 Goods and Service Design

14. Nominal-Is-Best Taguchi Loss Function Exhibit 6.3

15. Reliability is the probability that a manufactured good, piece of equipment, or system performs its intended function for a stated period of time under specified operating conditions. Chapter 6 Goods and Service Design

17. The total reliability of a serial system is the product of the individual probabilities of each process in a system. R s = ( p 1 )( p 2 )( p 3 ). . . ( p n ) [6.2] Reliability of a Serial System Exhibit 6.4

18. In parallel systems , functions are independent and the entire system will fail only if all components fail. R n = 1 – (1 – p 1 )(1 – p 2 ) (1 – p 3 ). . . (1 – p n ) [6.3] Reliability of a Parallel System Exhibit 6.5

19. The reliability of this series system is 0.883, or 83.3%. R = (.98)(.91)(.99) = .883 or 88.3% Subassembly Reliabilities Exhibit 6.6

20. The reliability of the parallel system for subassembly B is: R = 1 – (1 – .91)(1 – .91) = 1 – 0.0081 = 0.9919. Thus, the reliability of the equipment is: R = (.98)(.9919)(.99) = .962 or 96.2%. Modified Design Exhibit 6.7

23. The House of Quality Exhibit 6.8

24. The House of Quality for Building a Better Pizza Exhibit Extra

49. One Example View of LensCrafters’ Customer Benefit Package Exhibit 6.9

50. A Schematic View of a Typical LensCrafters Store Layout Exhibit 6.10