OM Chapter 4

What are the three elements specified in the process flow diagram?

-Tasks -Flows -Storages

Process Flow Diagram

(also known as a process flow chart) are tasks (or operations), flows, and storages (or queues). -is something of an art. For a given process there may be more than one "correct" process flow chart. The degree of detail incorporated in the diagram, sometimes referred to as granularity, depends on why it is being drawn. For an overall picture of a complex process, a fairly simple diagram might be drawn (with large granularity), whereas if the diagram is being constructed to analyze and improve a particular series of process steps, each step might be divided into very minute detail (with small granularity).

Describe customer complaints:

-An obvious indicator of the level of customer satisfaction is the number of complaints a service receives. -However, complaints are not only an indicator, they also provide an opportunity to learn about what customers want from a service. -However, many customers choose not to complain when they are dissatisfied with a service. -It's too much hassle for many customers, who, instead, simply walk away, choosing a competing service the next time. -It is therefore important for service organizations to develop processes for collecting customer complaints and to aggregate and analyze the information, looking for patterns that might provide insights into how to better serve their customers.

What are the different measures of effectiveness?

-Customer satisfaction >>>>Customer retention/loss >>>>New costumers >>>>Service levels >>>>Sales volume and market share >>>>Net promoter score (NPS) >>>>Complaints -Technical quality -Customer cancellation and no show rate -Employee satisfaction -flexibility/bandwidth

task time

How long it takes a work center to produce a unit of output

effectiveness

can be defined as how well the organization meets customer expectations or requirements -effectiveness should always take first priority; otherwise situations could occur where the firm is extremely efficient but not necessarily effective. -Customers generally don't care how efficient service organizations are or what the organization's costs are; they want service that meets, or even exceeds, their expectations for the price they are willing to pay.

Describe financial measures

Financial measures such as return on assets (ROA), return on investment (ROI), contribution and profit are all measures that can be applied to service organizations. There are no magic numbers for any of these measures; each should be compared to both the business plan for the service and industry standards.

Why has Measuring service performance has always been a challenge for managers?

-primarily because of the customer's participation in the process and the subjectivity of the customer's perception of performance. -One view denies that there is a productivity problem and suggests that current measurement techniques don't reflect all of the improvements that have occurred. -Another suggests that service productivity will improve only when there is increased competition, particularly from foreign countries. -A third perspective attributes low service productivity to poor management, particularly of the management of information technology.

What is a major challenge with performance measures?

-t they measure past performance rather than looking forward to the long term benefit of the organization. -As a result, the role of performance measurement is changing from being primarily transaction-oriented that is focused on monitoring and reporting primarily internal performance measures to being longer-term and more strategically-oriented with an external focus on the customer. -(a) identifying what measures are important to the customer and -(b) translating those measures into meaningful operational measures for the organization so it can better meet those customer requirements and expectations.

Describe inputs and outputs with services:

-the inputs are typically customers with specific requirements; the outputs are customers who have had those requirements satisfied -External factors acting on the service delivery process consist of those factors that are outside management's control. -Resources consist of the different assets that the service organization brings together to assist in the conversion process. These resources include labor, facilities, equipment and information technology

work centers

Within an operating unit, service tasks are performed by people or pieces of equipment,

efficiency

can be defined as how well the organization uses its resources in meeting those expectations.

capacity

can be defined as the ability of the process to do work per unit of time, and can be expressed in either units of output per unit of time (such as customers per hour) or simply in units of time (such as available hours per day), depending on which provides the more useful information for the manager. -capacity for standardized outputs is expressed in units per time period and capacity for more variable outputs are expressed in available hours per time period.

What are measures of effectiveness?

external performance measures such as customer satisfaction and market performance as well as some internal measures such as employee turnover and employee satisfaction.

productivity

how much work is done per period of time by a resource. -Measure of efficiency -relates the demand for a service to the capacity of a service. When the resource is a worker, how much a worker can do is likely to be affected by how much work has to be done. -What measure of productivity should be used depends on the service being evaluated. For example, in retail services, sales per square foot of selling space is an important measure because retail space is very expensive. In an electrical utility company, kilowatt hours generated per gallon of oil used might be the important productivity measure.

process analysis

involves understanding what the process does, how and why it does it and how it might be improved. -Much like the diagnostic work of a physician, which includes technical analysis, observation, and judgment, process analysis assesses the work or conversion activity performed by some working unit. -The primary focus of process analysis is the operating unit

cycle time

or the interval between completion of successive units (or customers) in a process. -The cycle time of the process determines the maximum output the process can produce because it is the capacity limiting step in the process.

True or false? serving more customers, but serving fewer customers is also likely to result in less revenue and lower profits. Therefore, decreasing demand is not usually a goal for service processes

true

Describe customer retention/loss

-Customers who are pleased with a service will generally become repeat customers. -It is less costly for a service organization to keep current customers than to attract new ones, and repeat customers represent a continued revenue stream. -Of course, there are some services that do not really want prior customers returning; emergency department services at a hospital do not want to see customers returning; funeral homes don't ever expect to have the same customer return - but both of these services rely on "household" customers and positive word of mouth advertising. -Because new customers are also important, measuring the inverse of customer retention, customer loss or defection (that is, how many customers do not return), may be more informative.

Describe dependable delivery/waiting time

-Dependable delivery is important to customers, not only for actual delivery services such as UPS or FedEx, but also for travel services such as airlines, buses and trains, as well as for any service that schedules appointments or reservations (hair salons, physician's offices, accounting services and restaurants, to name a few) or that compete on speed of service (such as quick service restaurants, walk-in copy services, convenience stores, rapid oil change services). -The ability to meet delivery deadlines is determined to a great extent by how the process is designed, but it is also determined by how well the process is understood and managed, and therefore how work is scheduled and expedited. -If a manager does not have a solid understanding of processing and wait times for a given service, it can be very difficult to accurately set service expectations that can consistently be met. -Waiting time is the "flip side" of dependable delivery. Customers generally do not like to wait, but, because capacity in service systems must be matched with demand, and because demand is often highly variable and unpredictable, the time customers wait is often a function of how much extra capacity exists in the system (which is an efficiency issue). But because waits often significantly affect customers' perception of a service overall, waiting time is as much a measure of effectiveness as it is of efficiency.

Describe customer cancellaation and no show rates

-In many service organizations, the rate of customers who cancel or do not show up for their scheduled appointments is an important measure of effectiveness. -There are always legitimate reasons for both cancellations and no-shows, but when either of these percentages is very high it may indicate that there is a problem, either with the process itself or with customer satisfaction with the process. -For example, the no-show rate in pediatric offices in an inner city may be much higher than in a wealthy suburb because inner city families may have less structured lives, more language difficulties, and/or less understanding of the need to keep routine appointments. -Any of these reasons for no-shows may be an indication that the process needs to incorporate more patient education or an appointment reminder system. -No-show rates may also mean that customers do not value the service. Whenever no-show rates increase, managers should investigate to determine whether the process needs to be modified in some way or whether customer dissatisfaction might be a cause.

Describe new customers

-No matter how loyal current customers are, all organizations need to continuously attract new customers in order to be viable in the long run: customers relocate, they experience changes in their economic status, personal tastes and interests, and eventually they die. -The percentage of new customers that the organization attracts, then, is an important measure for most services. Some customers may be encouraged by current customers to try a service. -The number of word of mouth referrals, then, can be a measure of the satisfaction of current customers

Describe sales volume and market share

-Sales volume is certainly a measure of the effectiveness of a service. Increasing sales volume means that more customers are purchasing the service and/or customers are purchasing more, on average; conversely, decreasing sales volume means that fewer customers are purchasing the service or customers are purchasing less, on average. -For example, brick-and-mortar retail operations typically measure the average change in revenue year-to-year for each location. Market share is the percentage of total sales for a service attributed to a particular service organization and is a more macro-level measure of customer satisfaction. -Growth in sales in a stable market coincides with growth in market share and both mean that customers prefer the growing service over other competing services. -Sales in an expanding market, however, can grow even when market share is declining, so it is important to consider both together in order to understand how customers evaluate a service compared to the competition.

Describe employee satisfaction

-Satisfied employees ultimately result in satisfied customers. Employee turnover, the percentage of employees who leave the firm per time period, and absenteeism, the percentage of employees who call in sick or fail to report to work, are key indicators of the service organization's health -Employee turnover is not always a bad thing. In fact, some service organizations employ a workforce strategy that expects turnover. -For example, McDonald's employs many young people working parttime during high school and college, and Starbucks employs many college students as baristas. -The same is true for many large law firms and consulting practices, where there is significant turnover, by design, at the entry level positions. -These organizations do not expect workers to stay for years (although some do move up through the ranks to become managers or partners). -Turnover, then, should be evaluated in light of the workforce strategy, and not in a vacuum. -Employee satisfaction can be measured directly, too, through interviews, focus groups and surveys. Employees will not be totally open or frank with the information they provide, however, if they believe that there is a risk that their managers will retaliate against them if they do not report high satisfaction on all dimensions. -In some organizations, honest information about employee satisfaction may need to be solicited anonymously. In healthy organizations, there is regular dialogue between supervisors and subordinates at all levels, and job satisfaction can be a matter of open discussion and continuous improvement.

Describe service levels:

-Service levels measure how quickly customers are served, phone calls are answered or emails are responded to. -An example of a defined service level might be that "80% of all calls are answered within 30 seconds." With the growing trend towards outsourcing call center operations, the required service level is usually specified in the service level agreement (SLA)

Describe flexibility and bandwidth

-Service organizations vary in their ability to be flexible to changes in customer demand and changes in service content. -The ability of a service to accommodate wide variation in demand for its services is called bandwidth. -In addition, some services have a greater ability to handle variations in service content. -For example, a branch bank has more service mix bandwidth than an ATM, because ATMs offers a limited "menu" of services (deposits, withdrawals, payments and account transfers) whereas a branch bank offers all of the services available at an ATM as well as new account services, investment services, etc. -Bandwidth also relates to the ability of the process to react to volume surges. -McDonalds, for example, can handle two busloads of tourists that arrive unexpectedly, but a haute cuisine restaurant would never be able to manage such a surge. McDonalds can be said to have a wider volume bandwidth or higher volume flexibility than the fine dining restaurant. -A third component of flexibility/bandwidth is the ability of a process to adopt new products and services. -Processes that can easily adapt to new products and services are said to be more flexible or have wider bandwidth.

Describe technical quality

-Technical quality relates to the core element of a service, as opposed to functional quality, which relates to the customers' perception of the quality of the service. -Technical quality may not be something that customers can accurately assess because they do not have the technical knowledge required to do so. -Customers may not have the ability to evaluate whether their cars have been appropriately repaired, their cavities properly filled, their stock portfolios managed well or their illnesses correctly diagnosed. -Because customers are not able to evaluate technical quality, measures of technical quality, which vary from service to service, must be monitored and evaluated internally by the professionals who provide the service.

Describe impact of technology

-Technology has made collecting information about and analyzing service processes easier than ever before. Toll booths, for example, measure the number of vehicles that go through each gate as well as how much toll money is collected. Electronic cash registers note the time of each transaction so that demand at different hours of the day and on different days of the week can be tracked. Call center systems collect detailed data on the number of calls, waiting times, the number of busy signals and hang-ups that occur and websites track hits, transactions, and even which pages are visited and in what order -Technology has also enabled the creation of entirely new processes. Just a few years ago, online banking, securities trading, shopping and even information retrieval was just a dream. Expert systems technology helps physicians make difficult diagnoses and helps loan officers quickly determine the creditworthiness of loan applications. These new processes have different inputs and transformation steps than the processes they replaced, and possibly different measures of performance. For example, online banking transactions require a user-friendly interface, access to the main customer databases, and server capacity. In-person banking services require space inside the bank, a teller, access to databases, and perhaps a variety of paper forms. Other resources may also be important for in-person banking customers: a place to park their cars, a pleasant décor and a comfortable and fair waiting line environment. Because labor costs in banks are usually significant, the cost of online bank transactions are usually much lower than the cost of in-person bank transactions - in other words, they may be more efficient from a labor perspective. Customer satisfaction may be high (or low!) with either process, depending on the customer's needs. Less computer savvy customers, for example, may be very uncomfortable with even a well-designed online banking process and are therefore more comfortable with the in-person process. Similarly, computer-savvy customers may be more comfortable and find it more convenient with the privacy and 24/7 online banking services that they can readily access from almost anywhere. Whatever the process, it is important to determine what measures are important and to monitor performance regularly.

Describe net promoter score (NPS)

-The Net Promoter Score (NPS) is a future-oriented measure. -Companies using the NPS ask their customers one question: "How likely are you to recommend our company to a friend or a relative?" The responses are scaled from 0 to 10, with 0 = not likely at all and 10 = extremely likely. -Based on their scores, customers are categorized as either Promoters, Passives or Detractors. -Promoters (9s and 10s) are loyal enthusiasts who will keep buying the company's products and services and refer others. -Passives (7s and 8s) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings. -Detractors (0s - 6s) represent unhappy customers who can damage a firm's brand name through negative word-of-mouth. -The NPS is calculated as the percentage of Promoters minus the percentage of Detractors as shown in Equation 4.2. Proponents of the Net Promoter Score believe it can help motivate workers in a service organization to focus on improving the customer experience

What is the optimal or "right capacity" utilization for a work center?

-The answer is "It depends." -When capacity utilization is close to 100 percent, a work unit's productive resources are fully employed. -Efficiency is high, but other measures of the work unit's performance, such as speed of delivery and quality, may be low. -A fast food restaurant operating at 115 percent capacity utilization might be very efficient, but it would not remain profitable for long because customers would have to wait in long lines for service and it would not be very fast. Customers' expectations for cost, quality, and speed and reliability of delivery determine the appropriate capacity utilization for a work unit. There is no universal optimal capacity utilization for all processes. For each service, the proper balance or trade-off between the efficient use of resources and meeting other performance goals must be assessed.

Describe customer satisfaction:

-The most obvious indicator of effectiveness is customer satisfaction. -Customer satisfaction can be measured directly through interviews and questionnaires, but can also be measured indirectly in a variety of ways, such as customer retention and loss, number of new customers, service levels, sales volume and market share and customer complaints.

What are the two measures of efficiency?

-There are two basic ways to capture efficiency: efficiency in process, or how much of the available time a resource is used, -efficiency in outcome, or the amount of work that is done by each resource.

What can be done to lower a work center's capacity utilization if it is too high?

-To decrease capacity utilization, either capacity needs to be increased, or demand must be decreased. -One way to increase capacity is to add productive resources: hiring another hygienist at the dentist's office, for example. -Another way to increase capacity is to use existing productive resources more effectively (for example, decrease the cycle time of the process). -Thoughtful managers and workers continuously look for opportunities to improve service process efficiency

What are some measures of bith efficiency and effectiveness?

-Yield -Dependable delivery/waiting time -Financial measures

throughput/elapsed time

The time required for a unit of output, in our example a dental patient, to pass through an operating unit - including waiting time between operations

Capacity utilization

is a measure of how much of the available capacity is being used; it relates the demand for the work center and the capacity (or supply) at the work center. -Capacity utilization is expressed as a percentage and is calculated by dividing the capacity required by the capacity available -Capacity utilization can be increased by decreasing capacity or increasing demand. Decreasing capacity is usually achieved by reducing the availability of productive resources, rather than by purposely using productive resources less efficiently -there are three ways that capacity utilization can be changed: (a) change the capacity required (demand), (b) change the time (capacity) available, and/or (c) change the cycle time.

benchmarking

is a tool for comparing a company's performance in key areas with that of other firms in its industry or with those firms that are identified as world-class competitors in performing specific functions and/or processes. -Benchmarking often cuts across industries, providing management with opportunities to develop new and innovative ways to improve performance. -As an illustration, Xerox, in its desire to deliver products quickly, benchmarked with L.L. Bean in Freeport, Maine, a mail-order company well-known for fast and accurate service. -Firms that aspire to be world-class organizations must obtain best in class status in processes that are critical for success in their respective industries and market segments. This can be accomplished only through measuring and comparing their performance with that of others and then taking the necessary actions for improvement. These world-class companies now use benchmarking as a standard management tool. -Benchmarking is essentially performance measurement, and is done both internally within an organization and externally with competitors and world-class firms.

cost

is an important measure of the efficiency of any operation. -Costs that should be considered include the cost of materials used to provide the service; the cost of labor, which includes both the costs of delivering the service as well as the costs associated with supervising workers; and overhead costs, which include the costs of running the organization as a whole, such as the costs of space, equipment, utilities and centralized processes (for example, payroll, accounts payable and receivable, the human resource management department). -Labor and material costs are determined in large part by the overall design of the process and by how much waste and rework occur.

service delivery process

is any conversion activity in which inputs in the form of customers (or their possessions) are transformed into outputs -All service delivery processes convert inputs into outputs, through either a transformation or transportation process, as shown in the process flow diagram

yield

is defined as the number of good outputs ÷ the total number of inputs. -Yield, as a measure, is very applicable in manufacturing because it is easy to see that for any production process, if materials and components are available to make a given number of units of a product, the number of good units that are actually produced can be expressed as a percent of the total number of units produced, including good and bad units. -For example, if you are making widgets and you have enough materials to make 1,000 widgets but 50 of them do not pass the quality inspection, your yield is 950/1,000 or 95%. -Yield is also an appropriate measure for many services. -yield is not a good measure for all service processes. It is difficult, for example, to see how yield might apply to a dry cleaning service, a computer repair service, a physician's office or a beauty salon. -For example, in a telemarketing process, yield would be the percentage of calls that result in a sale:

Describe the tradeoffs between efficiency and effectiveness

the balance between efficiency and effectiveness often involves some tension and, to a degree, some trade-offs. Good managers know that the right balance is when resources are used as efficiently as they can be used, given the effectiveness goals that need to be met. In other words, as stated earlier, effectiveness takes first priority in terms of satisfying customer requirements.