Ch 12 Supply Chain Management in the Service Industry
High Customer Contact Systems
Personal Shopper Hair Stylist Financial Manager
Service capacity
can be expressed as the number of customers per day, per shift, per hour, per month, or per year, that the company's service system is designed to serve.
Three basic alternatives when demand exceeds capacity
1)Turn customers away and not service them 2)Make them wait until service is available for them 3)Increase service capacity, i.e., the number of service personnel and the associated infrastructure to provide the service.
Service Capacity Decisions: Balance
Capacity decisions must be balanced against the costs of lost sales if capacity is inadequate . . . or against operating losses if demand does not reach expectations.
Demand Exceeds Capacity (Not Enough Capacity):To minimize the cost of hiring and laying off employees, the following strategies deal with periods of high demand.
-Cross-training and sharing employees so that they can help on the task that is busy at the moment. -Using part-time employees (e.g., during the holiday season) -Using customers - "hidden employees" (e.g., self check out) -Using technology (e.g., Scanning documents in insurance industry for use in multiple departments as necessary) -Using employee scheduling policies (e.g., nurses have to work alternating holidays)
Service Capacity Planning Challenges are:
-Customer arrivals fluctuate and service demands also vary. -Customers are participants in the service and the level of congestion impacts on perceived quality. -Idle capacity is a reality for services -Inability to control demand results in capacity measured in terms of inputs (e.g. number of hotel rooms rather than guest nights).
There are a variety of queue types:
-Structured queues: set in a FIXED position -Unstructured queues: people form queues somewhat informally. -Mobile queues: formed virtually with technology
Facilitating goods or products
computers, furniture, office supplies, medical supplies, repair parts, equipment
Queuing Systems
A queue management system is used to help control the flow and prioritization of people expecting to receive a service. Queues can be utilized for almost any situation where large numbers of persons are gathering, or waiting in line to purchase tickets, enter a facility, etc. Queues are common in airports, amusement parks and retail stores.
Capacity Utilization
Actual customer served per period/capacity
Service Capacity - Examples:
Airline Capacity = number of seats and number of planes Restaurant Capacity = number of tables. Hotel Capacity = number of rooms.
Franchising
Allows business to expand quickly in dispersed geographic markets.Protects existing markets. Builds market share and facilitates business when owners have limited financial resources.
Service Capacity Decisions: Long-Range
Capacity can be used as a preemptive strike where the market is too small for two competitors to co-exist (e.g., the first to build a luxury hotel in a mid-sized city may capture all the business). A strategy of building ahead of demand is often taken to avoid losing customers.
Managing Service Capacity: Level Demand Strategy
Capacity remains constant regardless of demand. When demand exceeds capacity, queue management tactics deal with excess customers.
Managing Service Capacity : Chase Demand Strategy
Capacity varies with demand. So you can handle fluctuations but must take appropriate actions prior. Need to have options.
Service Strategies
Cost Leadership Differentiation Focus
International Expansion
Operate / partner with firms familiar with the region's markets, suppliers, infrastructure, government regulations, and customers. Must address language and cultural barriers.
Managing Distribution Channels involve traditional methods and new channels that incorporate new Internet technologies.
Entertainment combines restaurant and entertainment elements. Enter-tailing combines retail with entertainment elements. Edutainment (infotainment) combines learning with entertainment to appeal to customers looking for substance along with play.
Bundle of Service Attributes (Example: Banking Industry)
Includes: Supporting facility: Location, decoration, layout. Facilitating goods: tangible elements( deposit forms, statements) Explicit services: availability ans access to the services(vault,safe deposit,boxes,loans) Implicit services: attitude,atmosphere,waiting time(security,privacy,convenience)
Queue models assume
Infinite length of a queue.
Waiting Time Management Techniques
Keep customers occupied Start the service quickly Relieve customer anxiety Keep customers informed Group customers together (they often talk to pass the time) Design a fair waiting system
Managing Waiting Time
Managing waiting time involves managing both the actual waiting time and the perceived waiting time.
Managing Distribution Channels :Pure Strategy
Many retailers today sell products exclusively over the Internet (e.g., Amazon)
The Five Dimensions of Service Quality:
Reliability - consistently performing the service correctly and dependably Responsiveness - promptly and timely service Assurance - ability to convey trust and confidence to customers Empathy - providing caring attention to customers Tangibles - the physical characteristics of the service including, facilities, servers, equipment, associated goods, and other customers
Cost Leadership
Requires large capital investment in state-of-the art equipment and significant efforts to control and reduce costs. Examples: Auto diagnostics software, route planning to reduce windshield time, UPS optimization
Focus
Serve a narrow niche better than other firms. Examples: Grocery shopping for you, Mechanic specializing in Volvo or Porsche repair, Custom stereo in your house or car.
The four primary activities of Service Response Logistics:
Service capacity Waiting times Distribution channels Service quality
Service Capacity Planning Challenges
Service providers are 100% reliant on the customer to create the flow of demand, which has a direct impact on their ability to fully utilize capacity.
Pure Services:
Services offering very few or no tangible products to customers (e.g., consulting, storage facilities, training / education, etc.)
State Utility:
Services which directly involve things owned by the customer (e.g., car repair, dry cleaning, haircut, and healthcare).
End Products:
Services which offer tangible components along with the service component (e.g., restaurants; food along with the dining service)
Service Delivery System
The delivery of services can be expressed as a continuum with mass produced, low-customer contact systems at one end, and highly customized, high-customer-contact systems at the other end.
Service Capacity Decisions: Short-Range
The lack of short-term capacity planning can generate customers for the competition (e.g., if restaurant staffing is inadequate to handle the volume of customers arriving at the restaurant, customer will likely go elsewhere)
Service Response Logistics
The primary concern of service response logistics is the management and coordination of the organization's service activities.
Low Customer Contact Systems
Ticket Kiosk Vending Machine Automated Teller Machine (ATM)
Differences Between Goods and Services: Services cannot be inventoried
Typically, services are produced and consumed simultaneously. Services are often unique to the customer. Services have high customer interaction. Services are decentralized. Due to the inability to inventory or transport most services, they must be located near to the customer base.
Differentiation
Unique service created based on customer input and feedback. Examples: Sunday car servicing at Hyundai, Ford, etc. Being different from another local dealer. This may be helpful in selling a car to someone who can't take off work on a Monday-thru-Friday when their car needs repair.
Key questions to ask to determine waiting time strategy:
What is the average arrival rate of the customers? In what order will customers be serviced? What is the average service rate of providers? How are customer arrival and service times distributed? How long will customers wait before they either leave or lower their perceptions of service quality? How can customers wait even longer without lowering their perceptions of service quality?
Managing Distribution Channels : Mixed Strategy
While others use it as a supplemental distribution channel (e.g., Walmart)
Demand management tactics
are also important, as services cannot be inventoried and customer demand must be met.
Queue assumptions:
customer enter the queue until: BALKING; when customer refuses to joint he queue. RENEGING; when customer decides to leave the queue.
Some service offerings blend these delivery systems together
example: Restaurant Front of the house staff tend to be customer centric Back of the house staff generally do not have contact with customers
Use demand management techniques to
shift demand from peak demand periods into non-peak periods by offing incentives like discounts and special sales
Service delivery systems may be designed to keep
these separate in order to use various and different management techniques to maximize performance in each area.