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.