Chapter 12 - Supply Chain Management in the Service Industry

Types of Services

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

Assurance

-Ability to convey trust and confidence to customers

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" / Dishwashers? -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

Implicit Services

-Attitude of the servers, atmosphere, waiting time, status, privacy, security, and convenience

Explicit Services

-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.)

Examples of Facilitating Goods

-Banks - Cash and coins - Office supplies - Computers - Records -Hospitals - Pharmaceuticals - Medical supplies - Medical equipment - Office furniture -Restaurants - Food - Kitchen equipment - Tables and 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 notice if they are not available as expected

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 -Regardless of the specific breakdown, it's the number of customers that the service provider can service at any one time -The planned capacity for the service environment

Bundle of Service Attributes

-Can deliver more than expected and enhance customer satisfaction - Explicit Services - Implicit Services -Supported by: - Facilities and Equipment - Facilitating Goods

Long-Range Service Capacity Decisions

-Capacity can be used as a preemptive strike where the market is too small for two competitors to co-exist -Ex: 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 Service Capacity Decisions

-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 - One line instead of many lines at a bank or at McDonald's so it's 1st come, 1st serve - Numbers at the deli in the grocery store. **This technique does not work well in a Hospital Emergency Room**

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

Edutainment (Infotainment)

-Combines learning with entertainment to appeal to customers looking for substance along with play -Ex: Epcot Center, Liberty Science Center, etc.

Eatertainment

-Combines restaurant and entertainment elements -Ex: Medieval Times, Rainforest Cafe, Dave & Busters, etc.)

Entertailing

-Combines retail with entertainment elements -Ex: Mall of America has a ferris wheel, rock climbing wall, fashion shows, play area, etc.)

Reliability

-Consistently performing the service correctly and dependably

Managing Service Quality

-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 - Ex: Was the car fixed properly? - Ex: Was the client properly defended? - Ex: Was the hired comedian funny? -Service quality depends on the firm's employees to satisfy customers varying expectations. Service quality may vary from person-to-person even within the same organization -The key is to exceed the customers expectations ... so you also need to help form their expectations - Ex: You promise 4 hour service, knowing that you can do it in 3.5 hours

Service Recovery Systems Require:

-Developing recovery procedures that are thought out to 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 -Ex: employee who rented a U-Haul to deliver a part to a customer on a weekend

State Utility Services

-Directly involve things owned by the customer (e.g., car repair, dry cleaning, haircut, and healthcare)

Managing Distribution Channels

-Eatertainment -Entertailing -Edutainment -Franchising -Internation Expansion -Internet Distribution Stratgies

Supply Chain Management in the Service Industry

-End product is tangible. Services are generally not tangible -Customer is involved in the service process. Customers are much more directly involved in the service industry -Quality is assessed differently in the service industry -There is a much higher ratio of labor to materials in the service industry -Facility locations are considered. Services are largely provided very near where customers are located and heavily impacted by location decisions

Franchising

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

The 5 Dimensions of Service Quality

-Good quality service should involve: 1. Reliability 2. Responsiveness 3. Assurance 4. Empathy 5. Tangibles

Improving Service Productivity is Challenging Due to:

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

Capacity Exceeds Demand (Too Much Capacity)

-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 - Ex: 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 - Ex: early bird specials, 20% off from 9am to noon, etc.

Demand Exceeds Capacity (Not Enough Capacity)

-If the demand exceeds capacity, and the provider does not currently have the capacity to serve all of the customers, there are 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 -Hiring, training, supervising, and equipping personnel is costly (~ 75% of operating costs) -This situation makes forecasting service demand critically important, particularly because services cannot be inventoried or carried out in advance

Global Services

-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

Internet Distribution Strategies

-Internet retailing is growing faster than traditional retailing -Primary advantages of the Internet include the ability to offer convenient sources of real-time information, integration, feedback, & comparison shopping -Pure Strategy - Many retailers today sell products exclusively over the Internet (e.g., Amazon) -Mixed Strategy - While others use it as a supplemental distribution channel (e.g., Walmart)

Waiting Time Management Techniques

-Keep customers occupied -Start the service quickly -Relieve customer anxiety -Keep customers informed - Ex: "The wait time from this point is..." or "The ride is stopped but will resume in 4 minutes" -Group customers together (they often talk to pass the time) -Design a fair waiting system

Recovering from Poor Service Quality

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

Layout Strategy

-Layouts designed to reduce distance traveled within the store -Departmental layouts to maximize closeness desirability - Ex: Doctors office waiting room - Ex: Service center at the car dealership, pet grooming, car wash, etc. (i.e., Watch them working on your prized possession)

Facilities and Equipment

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

Cost Leadership

-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.

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 - Ex: Drop off/pick up your clothes at dry cleaners on the way to work

Managing Waiting Time

-Managing waiting time involves managing both the actual waiting time and the perceived waiting time

Queuing System Assumptions

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

Multiple Channel, Multiple Phase

-Multiple servers acting in parallel -Ex: Customer, to one of multiple fast food order takers, to fast food cook

Single Channel, Multiple Phase

-Multiple servers acting in series -Ex: customer, to hostess, to wait staff, to chef

End Product Services

-Offer tangible components along with the service component (e.g., restaurants; food along with the dining service)

Pure Services

-Offer very few or no tangible products to customers (e.g., consulting, storage facilities, training/education, etc.)

International Expansion

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

Responsiveness

-Promptly and timely service

Empathy

-Providing caring attention to customers

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

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

First and Second Rules of Service

-Rule 1: - Satisfaction = Customer perception ≥ customer expectation -Rule 2: - It is hard to play catch-up - You may only get one chance to get it right

Focus

-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

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 -Some of the challenges are: - Customer arrivals fluctuate and service demands 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 available rather than the number of guest nights)

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 (e.g., insurance policies, legal services, tax preparation, etc.) -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

Structured Queues

-Set in a fixed position such as a supermarket checkout line, airport or bank -In some cases, queue management systems can be structure with numbers such as "take-a-ticket number" allowing a person to walk around and wait for their number to be called

Queuing System Design

-Single channel, single phase -Single channel, multiple phase -Multiple channel, single phase -Multiple channel, multiple phase

Multiple Channel, Single Phase

-Single server -Ex: customer, to one of multiple available service representatives

Single Channel, Single Phase

-Single server -Ex: customer, to service representative

Queue Types

-Structured Queues -Unstructured Queues -Mobile Queues

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)

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 -Some service offerings blend these delivery systems together -Ex: Restaurant - Front of the house staff tend to be customer centric - Back of the house staff generally do not have contact with customers -May be designed to keep these separate in order to use various and different management techniques to maximize performance in each area **Any service system should be audited often to assess performance**

Short-Range Service Capacity Decisions

-The lack of short-term capacity planning can generate customers for the competition -Ex: If restaurant staffing is inadequate to handle the volume of customers arriving at the restaurant, customer will likely go elsewhere

Tangibles

-The physical characteristics of the service including facilities, servers, equipment, associated goods, and other customers

Service Response Logistics

-The primary concern is the management and coordination of the organization's service activities -Four primary activities are managing: 1. Service Capacity 2. Waiting Times 3. Distribution Channels 4. Service Quality -Since services cannot be inventoried and customer demand must be met, Demand Management Tactics are also important

Managing Perceived Waiting Times

-There are mathematical formulas used to help predict wait times. These formulas are based on certain predetermined assumptions and probabilities -There are also techniques for reducing the time spent waiting, and/or the perceptions of the time waiting, for the service to be delivered - Disney and other theme parks use these techniques - The answer is to try and keep the customers' mind of off waiting

Differentiation

-Unique service 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-Friday when their car needs repair

Queuing Systems

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

To Minimize the Cost of Hiring and Laying Off Employees, the Following Strategies Deal With Periods of High Demand

-Using cross-trained employees so that they can help on the task that is busy at the moment. Flow the people to work -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)

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?

Balking

-When a customer refuses to join the queue

Reneging

-When customers decide to leave the queue

Unstructured Queues

-When people form queues somewhat informally in various directions and locations -These types of queues are often seen in retail stores, at an airport waiting for a taxi, people waiting for an ATM machine, etc.

Service Capacity Utilization

Actual customers served per period / Capacity 1. A hotel has 80 rooms booked out of a total of 100 rooms available. Utilization = 80% - Pretty straight forward in that there are a fixed number of rooms and they are either booked or not booked 2. On average, a doctor can see X patients per hour. But if the doctor takes longer with each patient than the average, the patients start to get backed-up and some patients wait longer - The doctor's office is not going to call in a temporary doctor for the rest of the day to catch up

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