Intro to Supply Chain Management Chapter 12: SCM in the Service Industry

Challenges of being 100% reliant on customer to create the flow of demand:

-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

If the demand exceeds capacity, and the provider does not currently have the capacity to serve all of the customers, there are three basic alternatives:

1. Turn customers away and not service them 2. Make them wait until service is available for them 3. Increase service capacity

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.

To minimize the cost of hiring and laying off employees, the following strategies deal with periods of high demand

-Cross-training and sharing employees -Using part-time employees -Using customers -Using technology -Using employee scheduling policies

Unstructured queues

When people form queues somewhat informally in various directions and locations -retail stores, waiting for taxi, people waiting for ATM machine

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.

Balking is when

a customer refuses to join the queue.

examples of State Utility

(e.g., car repair, dry cleaning, haircut, and healthcare).

examples of pure services

(e.g., consulting, storage facilities, training / education, etc.)

examples of end products

(e.g., restaurants; food along with the dining service)

Service recovery systems require:

-Developing recovery procedures that are thought out prior to the bad event happening -Training employees in these procedures prior to the event -Empowering employees to remedy customer problems and recognizing them when they do.

If capacity exceeds demand, instead of disposing of excess capacity (e.g., laying off personnel), find other uses for the available capacity:

-Do other jobs when it's not busy. -Do training or cross training -Use demand management techniques to shift demand from peak demand periods into non-peak periods by offing incentives like discounts and special sales

Improving service productivity is challenging due to:

-High labor content -Individual customized services -Difficulty of automating services -Problem of assessing service quality

Global services are increasing all over the world and managing them involves a number of issues:

-Identifying global customers. -Labor, facilities, and infrastructure support vary by country -Legal and political issues: Laws may restrict foreign competitors. -Domestic competitors and the economic climate: Managers must be aware of local competition and their environment.

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

Service Layout Strategy

-Layouts designed to reduce distance traveled within the store -Departmental layouts to maximize closeness desirability

Service Location Strategy

-Make it easy for customers to find the facility / store. -Once they arrive, make it easy to find what they want, or to find what you want them to find.

International Expansion

-Operate / partner with firms familiar with the region's markets, suppliers, infrastructure, government regulations, and customers -Must address language and cultural barriers

Queue System Characteristics:

-Queue discipline describes the order in which customers are served. -Queuing can be comprised of single or multiple lines. -Queue lines can be serviced by either a single server or multiple servers. Multiple servers can also act in series or in parallel.

Differences Between Goods and Services

-Services cannot be inventoried (in most cases). Typically, services are produced and consumed simultaneously -Services are often unique to the customer -Services have high customer interaction -Services are decentralized, must be located near to the customer base.

Implicit Services

-attitude of the servers -atmosphere -waiting time -status -privacy and security -convenience (e.g., security, atmosphere, privacy, convenience, etc.).

Explicit Services:

-availability and access to the service -consistency of service performance -comprehensiveness of the service -training of service personnel (e.g., vault, safe deposit boxes, loans, etc.).

The four primary activities of Service Response Logistics:

1. Service capacity 2. Waiting times 3. Distribution channels 4. Service quality

Supporting Facility

-location -decoration -layout -architectural -appropriateness -equipment. (e.g., drive-up tellers, ATM's, etc.)

Structured queues

-set in a fixed position such as a super market checkout line, airport or bank

Differences between service and manufacturing industries:

-tangibility of the end product -Customers are much more directly involved in the service industry -assessment of quality -much higher ratio of labor to materials in the service industry -Services are largely provided and heavily impacted by location decisions.

The Five Dimensions of Service Quality

1. Reliability 2. Responsiveness 3. Assurance 4. Empathy 5. Tangibles (physical characteristics of the service including, facilities, servers, equipment, associated goods, and other customers)

Multiple Channel Queue Designs

1. single phase, single server. Example customer, to one of multiple available service representatives. 2. multiple phase, multiple servers acting in parallel. Example: customer, to one of multiple fast food order takers, to fast food cook.

Single Channel Queue Designs

1. single phase, single server. Example: customer, to service representative. 2. multiple phase, multiple servers acting in series. Example: customer, to hostess, to wait staff, to chef.

Mobile queues

: Queues formed virtually with technology

Capacity Utilization =

Actual Customers served per period / Capacity

Hiring, training, supervising, and equipping personnel is costly

Approximately 75% of operating costs

Examples of Cost Leadership

Auto diagnostics software, route planning to reduce windshield time, UPS optimization, etc.

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 -A strategy of building ahead of demand is often taken to avoid losing customers.

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.

Level Demand Strategy

Capacity remains constant regardless of demand. When demand exceeds capacity, queue management tactics deal with excess customers

Chase Demand Strategy

Capacity varies with demand. So you can handle fluctuations but must take appropriate actions prior. Need to have options.

Examples of Focus:

Grocery shopping for you, Mechanic specializing in Volvo or Porsche repair, Custom stereo in your house or car

Second Rule of Service

It is hard to play catch-up. You may only get one chance to get it right.

Service Strategies: Focus

Serve a narrow niche better than other firms.

Queue System Assumptions:

Most queuing models assume that customers enter the queue, and stay in the queue until served:

There are models used to predict customer arrivals such as a

Poisson distribution

First Rule of Service

Satisfaction = customer perception ≥ customer expectation

Pure Services

Services offering very few or no tangible products to customers

State Utility

Services which directly involve things owned by the customer

End Products

Services which offer tangible components along with the service component

A queue management system is used to

help control the flow and prioritization of people expecting to receive a service.

Examples of Differentiation

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.

Service Capacity Decisions - Short-Range

The lack of short-term capacity planning can generate customers for the competition

Service Strategies: Differentiation

Unique service created based on customer input and feedback.

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?

Queues are common in

airports, amusement parks and retail stores.

Customer satisfaction with the service depends not only on the ability of the firm to deliver what customers want

but on the customers' perceptions of the quality of the service received

The High cost of hiring and equipping personal makes forecasting service demand:

critically important particularly because services cannot be inventoried or carried out in advance.

Reneging is when

customers decide to leave the queue.

Bundling services can

deliver more than expected and enhance customer satisfaction"

The Key to managing service quality is to

exceed the customers expectations so you also need to help form their expectations

Queuing models assume

infinite length of a queue

Service Strategies: Cost Leadership Requires

large capital investment in state-of-the art equipment and significant efforts to control and reduce costs.

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.

The primary concern of service response logistics is the

management and coordination of the organization's service activities

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.

Hotel Capacity =

number of rooms

Airline Capacity

number of seats and number of planes

Restaurant Capacity

number of tables

Mixed Strategy

others use internet as a supplemental distribution channel

Customers generally appear in

predictable arrival patterns

Pure Strategy

sell products exclusively over the Internet (e.g., Amazon)

Demand management tactics are also important, as

services cannot be inventoried and customer demand must be met

Facilitating Goods

tangible elements that are used or consumed by the customer or the service provider along with the service provided. (e.g., deposit forms, statements, etc.)

Primary advantages of the Internet include

the ability to offer convenient sources of: -real-time information -integration -feedback -comparison shopping

Managing waiting time involves managing both

the actual waiting time and the perceived waiting time.

Service quality depends on

the firm's employees to satisfy customers varying expectations

Service Capacity is more simply known as

the number of customers that the service provider can service at any one time. OR The planned capacity for the service environment.

Distribution channels involve

traditional methods and new channels that incorporate new Internet technologies

Internet retailing is growing faster than

traditional retailing

Customers are the demand source for services and their arrival

triggers the start of the service experience.

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.

Keeping customers loyal and coming back serves as good

word of mouth advertising