SCM Chapter 12: Supply Chain Management in the Service Industry

Mixed Strategy

While others use it as a supplemental distribution channel (e.g., Walmart)

Franchising

(Ex. fast food restaurants, temp agencies, tax businesses) - Allows business to expand quickly (geographically) - Protects existing markets - Builds market share and facilitates business when owners have limited financial resources.

Service Capacity - Examples

*Airline Capacity* = number of seats and number of planes *Restaurant Capacity* = number of tables - How many servers will I need? - Maître d's / Hostesses? - Chefs / Kitchen staff? - "Bus-boys" / Dish-washers? *Hotel Capacity* = number of rooms How many people will I need to : - Check-in / Check-out the customers - Tend the bar - Clean the rooms - Handle the luggage - Provide room service

Level Demand Strategy

*Capacity remains constant regardless of demand.* When demand exceeds capacity, queue management tactics deal with excess customers - One line instead of many lines at a Bank or at a McDonald's so its 1st come 1st serve

Service Recovery Systems Requires:

- Developing *recovery procedures* thought out prior to bad events happening - *Training* employees in procedures prior to an event - *Empowering* employees to remedy customer problems and recognizing them when they do.

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.

3 Types of Services

1. Pure Services 2. End Products 3. State Utility

5 Dimensions of Service Quality

1. Reliability 2. Responsiveness 3. Assurance 4. Empathy 5. Tangibles

4 Primary Activities of Service Response Logistics:

1. Service Capacity 2. Waiting Time 3. Distribution Channels 4. Service Quality

Service providers are _____________________ to create the flow of demand, which has a direct impact on their ability to fully utilize capacity.

100% reliant on the customers

Demand Exceeds Capacity (and the provider does not currently have the capacity to serve all customers)

3 Basic Alternatives: 1. *Turn Customers Away* and not service them, i.e., lose business. 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

Capacity Utilization

Actual Customers served per period / capacity *Ex:* A hotel has 80 rooms booked out of a total of 100 rooms available. They are at 80% utilization. - This is straight forward in that you have a fixed number of rooms and they are either booked or not booked.

The __________________. Quality is assessed differently in the service industry

Assessment of Quality

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.

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

Edutainment (infotainment)

Combines learning with entertainment to appeal to customers looking for substance along with play (e.g., Liberty Science Center, Epcot Center)

Eatertainment

Combines restaurant and entertainment elements (e.g., Medieval Times, Rainforest Cafe)

Entertailing

Combines retail with entertainment elements (e.g., Mall of America has a ferrous wheel, rock climbing wall, fashion shows, play area, etc.)

1. Reliability

Consistently performing service correctly/dependably

3 Service Strategies

Cost leadership strategy Differentiation strategy Focus strategy

Service Quality

Customer satisfaction depends on customers' perceptions of the quality of service received - Was the car fixed properly? - Was the client properly defended? - Was the hired comedian funny?

Focus strategy

Serve a narrow niche better than other firms - *Ex.* Grocery shopping for you, Mechanic specializing in Volvo or Porsche repair, Custom stereo in your house or car

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

Explicit Service

_______________: 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.)

Facilitating goods

The _____________considerations. Services are largely provide and heavily impacted by location decisions.

Facility Location

______________: attitude of the servers, atmosphere, waiting time, status, privacy, security, and convenience

Implicit Service

Distribution Channels

Involve traditional methods and new channels that incorporate new internet technologies

The ________________________in the service process. Customers are much more directly involved in the service industry

Involvement of the customer

Waiting Time

Involves managing both the *actual* waiting time *and* the *perceived* waiting time.

Recovering from poor service quality

Keeping customers loyal and coming back serves as good word of mouth advertising

The ________________. There is a much higher ratio of labor to materials in the service industry

Labor Content

3 Service Capacity Decisions

Long-Range Short-Range Balance

Cost leadership strategy

Lowest cost service provider. Requires large capital investment in state-of-the-art equipment and significant efforts to control and reduce costs. - *Ex.* Auto diagnostics software, route planning to reduce windshield time, UPS optimization, etc.

Pure Strategy

Many retailers today sell products exclusively over the Internet (e.g. Amazon)

Regardless of specific breakdown, it's the ____________________ that the service provider can service at *any one time*

Number of customers

Managing Perceived Waiting Times

Often, demand exceeds expectations & capacity

Mobile Queues

Queues *formed virtually with technology*. Customers can use technology such as a smartphone to place their name in a real-time electronic queue such as at a restaurant. This type of queuing has provided a great deal of flexibility and allows for reduced stress level on the part of the customer.

Facilitating Goods

Services may require the use of *facilitating goods* which are tangible elements that are used or consumed by the customer or the service provider along with the service provided.

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).

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

Supporting Facility

The __________of the end product. Services are generally not tangible [i.e., you can't touch or hold them in your hands]

Tangibility

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. - Any service system should be audited often to assess performance

High Customer Contact Systems

The higher, the more customized. Examples: Personal Shopper Hair Stylist Financial Manger

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)

Low Customer Contact Systems

The lower, Mass Produced Examples: Ticket Kiosk Vending Machine Automated Teller Machine (ATM)

Example of Facilitating Goods *Banks* --> Cash & Coins, Office Supplies, Computers, Records *Hospitals* --> Pharmaceuticals, Medical Supplies, Office Furniture, Medical Equipment *Restaurants* --> Food, Kitchen Equipment, Tables & Chairs, Cutlery

These items need to be *purchased*, *transported*, *received*, and *warehoused* in order to provide the service activity. Generally these supply chain activities occur behind the scenes (i.e., out of view of the service customer) Customers have no idea how these facilitating goods actually get to the destination but they sure notice if they are not available as expected!

Differentiation strategy

Unique service is created based on customer input and feedback. - *Ex.* 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.

3. Assurance

ability to convey trust/confidence to customers

Service quality depends on a _____________________ satisfying varying expectations. This varies person-to-person even within an organization.

firm's employees

The ___________________________________ . . . so you also need to help their *expectations* - e.g., you promised 4 hours, knowing you can do it in 3.5 hours

key exceed customers expectations

5. Tangibles

physical characteristics of service including, facilities, servers, equipment, etc.

2. Responsiveness

promptly/timely service

4. Empathy

providing caring attention to customers

Service Capacity

the number of customers per day (or per shift, per hour, per month, or per year) the company's service system is designed to serve

Queuing System Input

- Customers are the *demand source* for services and their arrival triggers the start of the service experience. - Customers generally appear in *predictable arrival patterns (e.g., the dinner rush at a restaurant). - There are models used to predict customer arrivals such as a Poisson distribution

Chase Demand Strategy

*Capacity varies with demand.* So you can handle fluctuations but must take appropriate actions prior. Need to have options. - Open up additional line(s) - Call in additional off-shift workers to meet increased demand

First and Second Rules of Service

*Rule 1:* - Satisfaction = customer perception >= customer expectation *Rule 2:* - It is hard to make-up for poor perception - You get one chance to get it right

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 thtat they can help on the task that is busy at the moment - Use *Part Time* employees (e.g., during the holiday season) - Using *customers* - "Hidden Employees" (e.g., Self-Checkout) - 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

- 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).

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 Example: in a restaurant you might have workers clean the bathrooms, prep for the dinner rush, etc. - Do *training* or cross training - Use *demand management* techniques to shift demand from peak demand periods into non-peak periods by offering incentives like discounts and special sales Example: Early bird specials, 20% from 9am to noon, etc.

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 globally* and managing them involves a number of issues:

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

Internet Distribution Strategy

- Internet retailing growing faster than traditional retailing - *Primary advantages:* ability to offer real-time information, integration, feedback, and comparison shopping

Waiting Time Management Techniques

- Keep Customers *Occupied* - Start the Service *Quickly* - Relieve Customer *Anxiety* - Keep Customers *Informed* - Group Customers *Together* - Design a *Fair* Waiting System

Layout Strategy

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

Multiple channel, multiple phase

- Many lines with multiple servers acting in parallel - Multiple servers acting in parallel. Example: customer, to one of multiple fast food order takers, to fast food cook. - Ex: Car inspection, Fast Food Restaurant

Queue System Assumptions

- Most queuing models assume that customers enter the queue, and stay in the queue until served: - *Balking* is when a customer *refuses to join* the queue. - *Reneging* is when customers *decide to leave* the queue. - Queuing models assume *infinite length of a queue*

Single channel, multiple phase

- Multiple servers acting in a series. Example: customer, to hostess, to wait staff, to chef. - Ex.Starbucks (order, make, pickup), Restaurant

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* is the order in which customers are served (FIFO, Triage, Status). - 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*

Queuing Systems

- 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.

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 custoemr* (e.g., insurance policies, legal services, tax preparation, etc.) - Services have high *customer interactions* - Services are *decentralized*. Due to the inability to inventory or transport most services, they must be located near to the customer base.

Single channel, single phase

- Single server. Example: customer, to service representative. - Ex. Single counter retail store, Museum, Kiosk, ATM

Multiple channel, single phase

- Single server. Example: customer, to one of multiple available service representatives - Many single servers - Ex: Grocery store, Bank Teller

How does SCM in the service industry differ from SCM in manufacturing?

- Tangibility - Involvement of Customers - Assessment of Quality - Labor Content - Facility Location

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?

Some service offerings _________________ these delivery systems together.

Blended Delivery Example: Restaurant - Front of the house staff tend to be customer centric - Back of the house staff generally do not have contact with customers - 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.

Bundle of Service Attributes

Bundling services can deliver more than expected and enhance customer satisfaction Ex. Banking Industry

A queue management system is used to help _________________________________of people expecting to receive a service.

Control the flow and prioritization

End Products

Services which offer tangible components along with the service component (e.g., restaurants; food along with the dining service)

3 Types of Queuing Systems

Structured Unstructured Mobile

Structured Queues

These queues are clearly marked and set in *a fixed position* such as a super market checkout line or airport security. This also includes "take-a-ticket number" system which allows a person to walk around and wait for their number to be called.

Unstructured Queues

When *people form queues somewhat informally* in various directions and locations. These types of queues are often seen in outside large venues, trains, ATM machines, elevators, etc.