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OM 2 Chapter 1: Goods, Services, and Operations Management

Problems, Activities, and Discussions
(1)

Explain how operations management activities affect the customer experiences

described in the anecdote at the beginning of this chapter. What moments of
truth would a customer at Disney World encounter? Think about the total
experience including lodging, food service, shopping, and transportation, as well
as theme park attractions and operations.
The anecdote of a Disney experience focuses on the role of goods, services, and
processes in creating customer satisfaction. Students will have many great
examples of their Disney or theme park experiences. Moments of truth might
include (a) booking a Disney vacation and the associated service encounters with
a call center and/or travel agency (b) parking at the Disney site and taking the
shuttle, (c) asking Disney employees for directions, (d) waiting for a ride or
attraction, (e) where to throw away trash (trash cans located at key points and
about every 25 to 50 feet, (f) watching a Disney parade, and so on.
Whatever the student describes make sure you lead them into a discussion of key
lessons that focus on the role of OM such as (1) process design and customer
flows, (2) service encounter design and Disney employee training, (3) integrating
goods and services into a CBP, (4) the importance of service management skills,
(5) how services differ from goods, (6) biztainment, and (7) a continuous
improvement orientation. Get the students participating use their examples to
illustrate key OM concepts in Chapter 1. Help them see OM in their examples.

(2)

Describe a customer experience you have personally encountered where the good or
service or both were unsatisfactory (i.e., defective product, errors, mistakes, poor
service, service upsets, etc.). How might have the organization handled it better
and how could operations management have helped?
This question is designed to help students internalize the concept of customer
satisfaction and dissatisfaction, and potential operations management activities
and decisions that can influence their experiences. For undergraduates, these
experiences focus on what they know best such as restaurants, airlines,
bookstores, automobile sales or repair, retail stores, and university processes.
Graduate students may also include their work and business experiences, and
personal experiences such as home mortgages, vacations, and child care. Again
focus on the role of OM and its processes, training requirements, product and
service quality, and tie to Chapter 1 ideas.

(3)

What implications do these differences have for organizations that try to provide
both goods and services to customers in a balanced CBP? Do you see any
conflicts in a goods-producing versus service-providing way of thinking?

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Goods are tangible while services are intangible.

Customers participate in many service processes, activities, and transactions.
The demand for services is more difficult to predict than the demand for goods.
Services cannot be stored as physical inventory.
Service management skills are paramount to a successful service encounter.
Service facilities typically need to be in close proximity to the customer.
Patents do not protect services.

Services especially in the front office (at points of contact with the customer)
require different skills than producing physical goods, and therefore, it is difficult
for firms to do both well. Yes, for example, physical inventory can compensate
for poor demand forecast accuracy while service capacity is a surrogate for
inventory. Therefore, services must be better at forecasting and demand/capacity
planning than goods-producing firms or they will miss a sale. Another good
contrast is pure production (backroom) skills versus service management (front
room) skills, and how they differ and which is more difficult for employees to do
successfully.
(4)

Provide some examples similar to those in Exhibit 1.3 and explain the degree of
goods and services content for these examples.
Students should provide a variety of practical examples. One example is
watching a sporting event on television; this is close to a pure service with no
goods content but very high service and entertainment content. If you actually go
to the game then the ticket, team program, and stadium food represent peripheral
goods and more total goods content. Get the students participating use their
examples to illustrate key OM concepts. Help them see OM in their examples.

(5)

Explain why a bank teller, nurse, or flight attendant must have service management
skills. How do the required skills differ for someone working in a factory? What
are the implications for hiring criteria and training?
Service-providers need technical/operations skills plus human interaction and
marketing skills. A bank teller, for example, must be able to complete many types
of financial transactions and operate the computer and associated software. The
teller must also interact with the customer in a pleasant way and market other
financial services (cross-sell, up sell, etc.). A factory worker can focus on
technical/operations/production skills since they have no or little interaction with
customers. The training for service-providers is more interdisciplinary compared
to factory employees.

(6)

Draw the customer benefit package (CBP) for one of the items listed below and
explain how your CBP provides value to the customer. Make a list of the
processes that you think would be necessary create and deliver each good or
service in the CBP you selected and briefly describe issues that must be
considered in designing these processes.
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a trip to Disney World

a new personal computer
a credit card
a fast food restaurant
a wireless mobile telephone
a one-night stay in a low budget hotel room

The objective of this exercise is for the student to define a CBP and its features
(like in Exhibit 1.2 and then recognize and define the process that creates and
delivers each outcome/output to customers. How are these goods and services
created and delivered? For example, if a student defines a peripheral service as
"friendly service-providers with service management skills" then ask the student
-- What processes create this type of skills? Answer: Hiring, training, recognition,
and reward processes. Human resource managers need to understand and know
how to improve their processes using OM too! Get the students participating
use their examples to illustrate key OM concepts. Help them see OM in their
examples.
(7) Review Pals Sudden Service and find Pals Web site. Based on this information,
describe all the OM activities that occur in a typical day at Pals.
Pals has an interesting Web site that students would probably enjoy. The
instructor might note that Pals was a recipient of the Baldrige Award and might
briefly discuss what this means as a prelude to further discussion in Chapter 3.
The list would typically include forecasting demand, staff capacity and
scheduling, purchasing, production, assembly, packaging, front office service,
cleaning up, maintenance, quality control, communication and equipment
technology, managing inventories, store location and layout decisions,
performance measurement, CBP definition, operating strategy, etc.
(8) Search the Web for plant tours. Write a paper describing the operations in one of
the companies you found.
Many good examples of plant tours in a variety of industries are available. A
good one is Rickenbacker Guitars, since this might interest many college students.
You might also ask the students to highlight sustainability initiatives and
practices.
(9) One of our students, who had worked for Taco Bell, related a story of how his
particular store developed a 60-second, 10-pack club as an improvement
initiative and training tool. The goal was to make a ten pack of tacos in a minute
or less, each made and wrapped correctly, and the total within one ounce of the
correct weight. Employees received recognition and free meals for a day.
Employees strove to become a part of this club, and more importantly, service
times dropped dramatically. Similar techniques used to improve the taco-making
process were used to improve other products. Explain how this anecdote relates
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to process thinking. What would the employees have to do to become a part of
the club?
At a business like Taco Bell, consistency in food quality and service are vital to
customer satisfaction. By focusing on a goal such as this, employees were forced
to think in terms of the process in order to shave off time and meet the weight
requirement. This led to not only a better understanding of the job but also to
improved job and process designs. Employees would have to learn the job tasks
and their sequence and learn how to do them efficiently. Making it a competitive
activity with recognition and tangible rewards not only gave employees an
incentive to do well, but also made their work more enjoyable.
(10)

Do you think you will be working in manufacturing or services when you

graduate? What do you think will be the role of manufacturing in the U.S.
economy in the future?
This question is designed to get students to explore job opportunities and
industries as documented in Exhibit 1.6. Use the exhibit to enhance this
discussion. One topic that will come up is will there be jobs in the U.S. in
manufacturing? Will all US manufacturing jobs be moved to other countries?
Why? What new industries are developing? Are sustainability strategies going
to create new industries and jobs? Business Week has several issues in October,
2009 that addressed the role of manufacturing in the US economy including the
wisdom of outsourcing and off-shoring.
Another issue is that the average U.S. college graduate will change industries
and/or jobs about seven times during their careers. Thus, it is very important to be
flexible and develop a good set of skills including OM!! If the student is
promoted in future jobs they will be managing processes with many OM
challenges. Section 2 of Chapter 1 provides several examples of non-OM majors
needing OM skills in the workforce. OM is useful in all functional areas if you
have to design and manage a process.

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Case Teaching Notes: Zappos Case Study

The objective of this case is to introduce students to a goods-producing firm where the
motto is Deliver WOW through service and the student can begin to understand
(1) How goods and services are bundled together (i.e., the customer benefit package)
to create value.
(2) What primary, support and management processes might be needed to create and
deliver each good or service.
(3) What might be the focus of OM topics as shown in Exhibit 1.1 to the application
of Zappos business such as technology, physical goods and service quality,
inventory and warehousing, process design, and service encounter design.
You might also want to put Zappos web page up during the classroom discussion and
browse through it pointing out OM related issues and topics. The case is an introductory
case so the discussion should focus on what the student might know from reading
Chapter 1 only, and therefore, keep things simple. The case is based on the following
articles: Jeffrey M. O'Brien, Zappos knows how to kick it, Fortune, January 15, 2009,
(www.fortune.com) and Zappos, Fast Company, March 2009, 75-76.
Case Questions for Discussion
1. Draw and describe the customer benefit package that Zappos provides. Identify and
describe one primary value creation, one support, and one general management
process you might encounter at Zappos (see Exhibit 1.4).
Students may draw something like below but expect them to not be clear on what is a
good versus a service so if you grade this be open-minded. Go over the definitions of
goods and services in Section 3 of Chapter 1 as you discuss the case. Remember
information of any type is a service so a call center interacts with customers and
exchanges information, the Web site and pages itself are information-intensive and
therefore are best defined as a service, not a physical good, etc. Remind the student
that Zappos is an on-line retailer with a virtual store.
Also, you will have to help them with issues such as what processes create the OM
capability to provide free shipping in both directions. For example, primary
processes (see Exhibit 1.4) might be order entry, warehousing and order picking,
outbound shipping, and return shipping and receiving. Support processes might
include salary payments, dental insurance, job training, and day care services for
employees provided by other functional areas. General management processes might
be the VP of Human Resource management who oversees all HRM functions and
processes. Other integrative management processes include VP Customer Service
and Call Centers, VP of Shipping, VP of Marketing, Warehouse Manager, VP of
Information Systems, etc.

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Peripheral Goods
Peripheral Service
Packaging
Free shipping in
both directions
Primary Goods
Shoes, handbags,
sunglasses, etc.
Peripheral Service
Information
Services & Web
Design

Peripheral Service
Call Center

More on Zappos can be found on there web site such as http://about.zappos.com/zapposstory/in-the-beginning-let-there-be-shoes.

Note: One reason we do the CBP framework is to identify key primary and peripheral
goods and services (i.e., the bundle of goods and services customers buy) and then make
the point that each and every one of these goods or services requires a process to create
and deliver it to customers. And OM skills are needed to design and manage processes.
2. Explain the role of service encounters and service management skills at Zappos. How
does Zappos create superior customer experiences?
Service encounter and service management are defined in Section 3 of Chapter 1 so
go over these definitions in class and apply to Zappos. Since service is one of the key
premises of the company, service encounters with the web site (human customer-tosoftware) and with Zappo employees via the call center (human customer to-human
service-provider with superior service management skills) are the key to building and
maintaining customer relationships (also could fit in a brief discussion of
sustainability here). Use the service complaint and recovery example in the case to
illustrate service encounter, service management, and employee empowerment
capabilities.
3. Describe how each OM activity in Exhibit 1.1 impacts the management of both the
goods that Zappos sells and the services that it provides. (You might want to build a
table like Exhibit 1.1 to organize your answers.)

Students might build a table somewhat like Exhibit 1.1 but at this early point in the
course it will not be too detail. Below are some ideas for the table.

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OM Activity
Forecasting
Forecasting
Facility Location
Facility Location
Facility Layout
Facility Layout
Technology
Technology
Product Quality
Service Quality
Inventory/Capacity
Inventory/Capacity
Process Design
Process Design
Scheduling
Scheduling

Good or Service
Goods demand for a multitude of physical goods, many of which
are fashion items
Services call center volume by hour of the day (illustrates
customer participation and difficulty of predicting
service demand see Section 3)
Goods warehouses
Services accounting, finance, etc. central functions, call center
sites
Goods inbound and outbound flow and layout of warehouses
Services call center layouts and cubicles, corporate offices, etc.
Goods factory technology for a wide variety of physical goods to
keep costs low and quality high, etc.
Service web design, search technology, call center technology,
etc.
Goods -- Shoes outsourced but must be of high quality
Service -- Call center processes, service encounters, etc.
Goods Genghis system to manage warehouses, inventory, etc.
Service Services cant be stored as physical inventory; call center
staffing levels (see Section 3)
Goods outsourced manufacturing processes, physical goods
quality audits, warehousing physical goods, etc.
Services inbound and outbound free shipping, claims processing,
server capacity, etc.
Goods global outsourced shipments to Zappos central
warehouses; coordinate factory, shipping, and
advertising schedules, etc.
Services call center staff, server downtime and maintenance, etc.

You can also query the students on whether Zappos has initiatives on sustainability such
as reducing their carbon footprint, green supply chains, remanufacturing, global sourcing,
and so on. (see page 16 OM2).
Teaching Strategy
One suggestion is to begin class by asking Have any of you bought something on-line
from Zappos? If so, let them tell their story pointing out key OM issues/capabilities.
Then go over each question letting the student answer the question with your oversight.
You can end by saying something like -- one primary lesson from the case discussion is
OM provides the core capabilities for this on-line retailer that provides both goods and
services. For example, great customer service is only as good as supply chain and
process capabilities. You can also cite Zappos growth, sales, and profit information to
close things out. To-date, a successful on-line retailer. Zappos has been recently
acquired by Amazon.