Service Response Logistics


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Service Response Logistics

  1. 1. CHAPTER 12- SERVICE RESPONSE LOGISITCS Principles of Supply Chain Management: A Balanced Approach Prepared by Daniel A. Glaser-Segura, PhD
  2. 2. Learning Objectives <ul><li>You should be able to: </li></ul><ul><ul><li>Understand how supply chain management in services differs from supply chain management in manufacturing. </li></ul></ul><ul><ul><li>Define service response logistics. </li></ul></ul><ul><ul><li>Describe the strategies for managing capacity, wait times, distribution and quality in services. </li></ul></ul><ul><ul><li>Define service quality and describe how to measure it and improve it. </li></ul></ul>
  3. 3. Chapter Twelve Outline <ul><li>An Overview of Service Operations </li></ul><ul><ul><li>Service Productivity </li></ul></ul><ul><ul><li>Global Service Issues </li></ul></ul><ul><ul><li>Service Strategy Development </li></ul></ul><ul><ul><li>The Service Delivery System </li></ul></ul><ul><ul><li>Service Location & Layout Strategies </li></ul></ul><ul><li>Supply Chain Management in Services </li></ul><ul><li>The Primary Concerns of Service Response Logistics </li></ul><ul><ul><li>Managing Service Capacity </li></ul></ul><ul><ul><li>Managing Waiting Times </li></ul></ul><ul><ul><ul><li>Queuing System Design </li></ul></ul></ul><ul><ul><ul><li>Queuing System Applications </li></ul></ul></ul><ul><ul><ul><li>Managing perceived waiting times </li></ul></ul></ul><ul><ul><li>Managing Distribution Channels </li></ul></ul><ul><ul><li>Managing Service Quality </li></ul></ul>
  4. 4. Introduction <ul><ul><li>Many services are considered pure services , offering few or no tangible products to customers. </li></ul></ul><ul><ul><li>Other services may have end products with a larger tangible component such as restaurants, repair facilities, transportation providers. </li></ul></ul><ul><ul><li>Customers are often involved in the production of the service. </li></ul></ul><ul><ul><li>Services may provide state utility - they do something to things that are owned by the customer, such as transport and store supplies, repair machines, cut hair, and provide health care. </li></ul></ul>
  5. 5. An Overview of Service Operations <ul><li>Some of the differences between goods and services are reviewed here: </li></ul><ul><ul><li>Services cannot be inventoried . </li></ul></ul><ul><ul><li>Services are often unique. Insurance policies, legal services. </li></ul></ul><ul><ul><li>Services have high customer-service interaction . Services today are finding ways to automate or standardize services </li></ul></ul><ul><ul><li>Services are decentralized . Because of their inability to inventory and transport service products. </li></ul></ul>
  6. 6. An Overview of Service Operations- Cont. <ul><li>Outputs produced - customers served, services produced, sales $ </li></ul><ul><li>Inputs – single factor productivity (ex. labor hours) </li></ul><ul><li>Inputs - multiple-factor productivity (ex. labor, material, energy, and capital). </li></ul><ul><li>Improving service productivity is challenging due to: </li></ul><ul><ul><ul><li>High labor content </li></ul></ul></ul><ul><ul><ul><li>Individual customized services </li></ul></ul></ul><ul><ul><ul><li>Difficulty of automating services </li></ul></ul></ul><ul><ul><ul><li>Problem of assessing service quality. </li></ul></ul></ul>Service Productivity Inputs used Outputs produced Productivity =
  7. 7. An Overview of Service Operations- Cont. <ul><li>Global Services Issues- Global services are increasing all over the world. Managing global services involves a number of issues: </li></ul><ul><ul><li>Labor, facilities, and infrastructure support : locating support facilities, suppliers, transportation, communications. </li></ul></ul><ul><ul><li>Legal and political issues : Laws may restrict foreign competitors, limit available resources, attach tariffs. </li></ul></ul><ul><ul><li>Domestic competitors and the economic climate : Managers must be aware of local competitors, their services, their pricing structure, and current state of local economy. </li></ul></ul><ul><ul><li>Identifying global customers . </li></ul></ul>
  8. 8. An Overview of Service Operations- Cont. <ul><li>Service Strategy Development: </li></ul><ul><li>Cost Leadership Strategy- Requires large capital investment in automated, state-of-the art equipment and significant efforts in the areas of controlling and reducing costs . </li></ul><ul><li>Differentiation Strategy- Service that is considered unique. Differentiation is created as companies listen to customers. </li></ul><ul><li>Focus Strategy- serve a narrow niche better than other firms </li></ul>
  9. 9. An Overview of Service Operations- Cont. <ul><li>The Service Delivery System </li></ul><ul><li>Bundle of attributes (the combination of) : </li></ul><ul><ul><li>Explicit service (ex. storage and use of your money) </li></ul></ul><ul><ul><li>Supporting facility (ex. bank building with drive-up tellers) </li></ul></ul><ul><ul><li>Facilitating goods (ex. deposit forms, monthly statements), & </li></ul></ul><ul><ul><li>Implicit services (ex. security provided, the atmosphere in the bank, privacy, and convenience). </li></ul></ul><ul><li>Service delivery systems (a continuum) with mass produced, low-customer contact systems at one end and highly customized, high-customer-contact systems at the other. </li></ul><ul><li>The service system should be audited often to assess the system. </li></ul>
  10. 10. An Overview of Service Operations- Cont. <ul><li>Service Location and Layout Strategies </li></ul><ul><li>Location Strategies- Have a significant impact on the long-term profits of the company. It is desirable to consider relevant factors and to reduce decisions based solely on intuition. </li></ul><ul><li>Layout Strategies </li></ul><ul><ul><li>Departmental Layouts to Reduce Distance Traveled - When moving from one area to another. </li></ul></ul><ul><ul><li>Departmental Layouts to Maximize Closeness Desirability - A closeness desirability rating between various departments must be determined with the objective of designing a layout that maximizes a desirability rating for the entire office. </li></ul></ul>
  11. 11. Supply Chain Management in Services <ul><li>Services performed require a larger labor component than manufactured products </li></ul><ul><li>Services also require use of facilitating products (e.g., computers, furniture, office supplies) that are not part of the services sold </li></ul><ul><li>Customers have no idea how things actually get to the destination. But they sure notice when the shipment is late! </li></ul>
  12. 12. Supply Chain Management in Services- Cont.
  13. 13. The Primary Concerns of Service Response Logistics <ul><ul><li>When demand exceeds capacity, firms turn away customers or hire personnel </li></ul></ul><ul><ul><li>Hiring, training, supervising, and equipping service personnel is costly (Often 75 % of operating costs) </li></ul></ul><ul><ul><li>Therefore, service managers must forecast demand & provide capacity to meet the forecast demand. </li></ul></ul>Managing Service Capacity- the number of customers per day the firm’s service system is designed to serve.
  14. 14. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Level-demand strategy- Capacity remains constant regardless of demand </li></ul><ul><li>Capacity Management When Available Service Capacity Exceeds Demand . </li></ul><ul><ul><li>Finding Other Uses for Service Capacity </li></ul></ul><ul><ul><li>Using Demand Management Techniques. </li></ul></ul><ul><li>Chase-demand strategy - Capacity varies with demand </li></ul><ul><ul><li>Cross-Training Employees </li></ul></ul><ul><ul><li>Part-Time Employees </li></ul></ul><ul><ul><li>Using Customers </li></ul></ul><ul><ul><li>Using Technology </li></ul></ul><ul><ul><li>Using Employee Scheduling Policies </li></ul></ul><ul><ul><li>Using Demand Management Techniques </li></ul></ul>Capacity Mgmt when Demand exceeds Capacity
  15. 15. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Managing Waiting Times </li></ul><ul><ul><li>Good waiting line management consists of the management of actual waiting time and perceived waiting time . </li></ul></ul><ul><ul><li>What is the average arrival rate of the customers? </li></ul></ul><ul><ul><li>In what order will customers be serviced? </li></ul></ul><ul><ul><li>What is the average service rate of the service providers? </li></ul></ul><ul><ul><li>How are customer arrival and service times distributed? </li></ul></ul><ul><ul><li>How long will customers wait in line before they either leave or lower their perceptions of service quality? </li></ul></ul><ul><ul><li>How can customers be kept in line even longer without lowering their perceptions of service quality? </li></ul></ul>
  16. 16. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Queuing System Design </li></ul><ul><ul><li>Customer arrivals (or demand source) is either infinite or finite. </li></ul></ul><ul><ul><li>Customers also arrive in patterns. </li></ul></ul><ul><ul><li>Poisson distribution is often used to model customer arrival. </li></ul></ul><ul><li>λ = average customer arrivals in Time Period T </li></ul><ul><li>e = 2.71828 (natural log base), and </li></ul><ul><li>x! = x factorial. </li></ul><ul><ul><li>Most queuing models assume that customers stay in line. Customers do not exhibit balking – refusing to join the queue, or reneging – leaving the line prior to completing the service. </li></ul></ul>x! e -λ T (λ T ) x P x( T ) =
  17. 17. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Queue Characteristics . Queuing models generally assume the length of a queue can grow to an infinite length. Queuing configuration can contain single or multiple lines. </li></ul><ul><li>Queue discipline . Describes the order in which customers are served. </li></ul>
  18. 18. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Service Characteristics. </li></ul><ul><ul><li>Provided either by single server or by multiple servers who act in series or in parallel. </li></ul></ul><ul><ul><li>Multiple servers , acting in parallel , referred to as a multiple-channel queuing system . </li></ul></ul><ul><ul><li>Multiple servers acting in series is referred to as a multiple-phase queuing system . </li></ul></ul><ul><ul><li>The single-channel, single-phase configuration is the most basic. </li></ul></ul><ul><ul><li>Another characteristic of the service is the time required to complete each of the services provided. </li></ul></ul>
  19. 19. The Primary Concerns of Service Response Logistics- Cont.
  20. 20. The Primary Concerns of Service Response Logistics- Cont. <ul><li>The Single-Channel, Single-Phase Queuing Model </li></ul><ul><ul><ul><li>λ – average arrival rate </li></ul></ul></ul><ul><ul><ul><li>μ= average service rate </li></ul></ul></ul><ul><ul><ul><li>ρ= average server utilization = λ/μ </li></ul></ul></ul><ul><ul><ul><li>Ls = expected customers in the system = λ/(μ-λ) </li></ul></ul></ul><ul><ul><ul><li>L q = expected customers in the queue = λ2/[μ(μ -λ) = Ls - λ/μ </li></ul></ul></ul><ul><ul><ul><li>W s = expected waiting time in the system = l(μ-λ) = Ls/ λ </li></ul></ul></ul><ul><ul><ul><li>W q = expected waiting time in the queue = λ/[μ(μ - λ )] = Lq/λ </li></ul></ul></ul><ul><ul><ul><li>P n = probability of n units in the queuing system = (λ/μ)n(1 - λ/μ) </li></ul></ul></ul>
  21. 21. The Primary Concerns of Service Response Logistics- Cont. <ul><li>The Single-Channel, Single-Phase Queuing Model- </li></ul><ul><li>Example: Mary Jane’s Sewing Shop serves 5 customers/hr. In the last 2 wks the average has been 4 customers/hr. Based on the following information, how often will there more than 4 customers per hour in her shop: </li></ul><ul><li>λ = 4 customers/hr </li></ul><ul><li>μ = 5 customers/hr </li></ul><ul><ul><li>ρ= 4/5 = 80% utilization </li></ul></ul><ul><ul><li>Ls = 4/(5-4) = 4 customers </li></ul></ul><ul><ul><li>L q = 4 – 4/5 = 3.2 customers </li></ul></ul><ul><ul><li>W s = 4/4 = 1 hr </li></ul></ul><ul><ul><li>W q = 3.2/4 = 0.8 hrs = 48 min. </li></ul></ul><ul><ul><li>P 0 = (4/5) 0 (1 – 4/5) = 0.200 </li></ul></ul><ul><ul><li>P 1 = (4/5) 1 (1 – 4/5) = 0.160 </li></ul></ul><ul><ul><li>P 2 = (4/5) 2 (1 – 4/5) = 0.128 </li></ul></ul><ul><ul><li>P 3 = (4/5) 3 (1 – 4/5) = 0.102 </li></ul></ul><ul><ul><li>P 4 = (4/5) 4 (1 – 4/5) = 0.0.82 </li></ul></ul><ul><ul><li>For n >4 P n>4 = 1 – (.2 + .16 + .128 + .102 + .082) = 0.328 </li></ul></ul>Mary Jane can expect more than 4 customers about 33% of the time.
  22. 22. The Primary Concerns of Service Response Logistics- Cont. The Multiple Channel Single Phase Model λ – average arrival rate sμ= average service rate ρ= average server utilization = λ/sμ P 0 probability of zero customers in the system = S-1 N=0 , for sμ >λ L s = expected number of customers in system = L q + λ/μ W q = expected waiting time in queue = L q /λ W s = expected waiting time in the system = W q + 1/ μ ] [ 1-(λ/sμ) s! n! 1 (λ/μ) s + (λ/μ) n ∑ 1 n! , for n ≤ s (λ/μ) n P n = Probability of n customers in system = P 0 s!s s-n , for n > s (λ/μ) N = P 0 s!(1-λ/sμ) 2 (λ/μ) s (λ/sμ) L q = expected number of customers in queue = P 0
  23. 23. The Primary Concerns of Service Response Logistics- Cont. The Multiple Channel Single Phase Model Example- Mary Jane’s Shop decided to hire a 2nd worker and buy a 2 nd checkout stand w/cash register. Mary Jane and the 2 nd worker can serve 5 customers/hr and average arrival rate is 4 customers/hr. What are the new operating configurations? L s = 0.152 + 4/5 = 0.952 customers W q = 0.152/4 = 0.038 hrs 0r 2.28 minutes W s = 0.038 + 0.2 = 0.238 hrs or 14.28 minutes = .428 = 0.152 customers + P 0 = 0! (4/5) 0 ] [ 1-(4/10) 2! 1! 1 (4/5) 2 + (4/5) 1 1 ρ = 4/10 = 40 % utilization 2(1-.4) 2 (4/5) 2 (4/10) L q = (0.428)
  24. 24. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Managing Perceived Waiting Times </li></ul><ul><li>Often, demand exceeds expectations & capacity. </li></ul><ul><li>First and Second Laws of Service: </li></ul><ul><ul><li>Rule 1: Satisfaction = perception – expectation . </li></ul></ul><ul><ul><li>Rule 2: It is hard to play catch-up ball . </li></ul></ul><ul><ul><li>Keep Customers Occupied </li></ul></ul><ul><ul><li>Start the Service Quickly </li></ul></ul><ul><ul><li>Relieve Customer Anxiety </li></ul></ul><ul><ul><li>Keep Customers Informed </li></ul></ul><ul><ul><li>Group Customers Together </li></ul></ul><ul><ul><li>Design a Fair Waiting System </li></ul></ul>
  25. 25. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Eatertainment - </li></ul><ul><li>is the combination of restaurant and entertainment elements. </li></ul><ul><li>Entertailing - </li></ul><ul><li>refers to retail locations with entertainment elements. </li></ul><ul><li>Edutainment - </li></ul><ul><li>attract more customers and increase revenues. Combines learning with entertainment to appeal to customers looking for substance along with play. </li></ul>
  26. 26. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Franchising- allows services to: </li></ul><ul><ul><li>expand quickly in dispersed geographic markets </li></ul></ul><ul><ul><li>protect existing markets </li></ul></ul><ul><ul><li>build market share and when owners have limited financial resources. </li></ul></ul><ul><li>International Expansion </li></ul><ul><ul><li>Operate/partner with firms who are familiar with the region’s markets, suppliers, infrastructure, government regulations, and customers. </li></ul></ul><ul><ul><li>Must address language and cultural barriers </li></ul></ul>
  27. 27. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Internet Distribution Strategies </li></ul><ul><ul><li>Internet retailing is growing faster than traditional retailing. </li></ul></ul><ul><ul><li>Primary advantages of the Internet - ability to offer convenient sources of real-time information, integration, feedback, and comparison shopping. </li></ul></ul><ul><ul><li>Many retailers today sell products exclusively over the Internet (a pure strategy ), while others use it as a supplemental distribution channel (a mixed strategy ). </li></ul></ul>
  28. 28. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Managing Service Quality- Service Delivery Process Quality involves an interaction between a customer and a service employee. Service quality depends on the firm’s employees to satisfy customers varying expectations. </li></ul>
  29. 29. The Primary Concerns of Service Response Logistics- Cont. <ul><li>Recovering from Poor Service Quality- keep customers loyal and coming back and serves as good word-of-mouth advertising </li></ul><ul><li>Service Recovery System- Firms may: </li></ul><ul><ul><li>develop recovery procedures </li></ul></ul><ul><ul><li>train employees in these procedures </li></ul></ul><ul><ul><li>empower employees to remedy customer problems </li></ul></ul>