Operations management for services

Operations management for services has the functional responsibility for producing the
services of an organization and providing them directly to its customers. It specifically deals with
decisions required by operations managers for simultaneous production and consumption of an
intangible product. These decisions concern the process, people, information and the system
that produces and delivers the service. It differs from operations management in general, since
the processes of service organizations differ from those of manufacturing organizations. In
a post-industrial economy, service firms provide most of the GDP and employment. As a result,
management of service operations within these service firms is essential for the economy. The
services sector treats services as intangible products, service as a customer experience and
service as a package of facilitating goods and services. Significant aspects of service as a
product are a basis for guiding decisions made by service operations managers. The extent and
variety of services industries in which operations managers make decisions provides the context
for decision making.

Comparison of manufacturing and services

Simultaneous production and consumption. High contact services (e.g. haircuts) must be
produced in the presence of the customer, since they are consumed as produced. As a result
services cannot be produced in one location and transported to another, like goods. Service
operations are therefore highly dispersed geographically close to the customers.
Furthermore, simultaneous production and consumption allows the possibility of self-service
involving the customer at the point of consumption (e.g. gas stations). Only low-contact
services produced in the "backroom" (e.g., check clearing) can be provided away from the
customer.

Perishable. Since services are perishable, they cannot be stored for later use. In
manufacturing companies, inventory can be used to buffer supply and demand. Since
buffering is not possible in services, highly variable demand must be met by operations or
demand modified to meet supply.

Ownership. In manufacturing, ownership is transferred to the customer. Ownership is not

transferred for service. As a result, services cannot be owned or resold.

Tangibility. A service is intangible making it difficult for a customer to evaluate the service
in advance. In the case of a good, customers can see it and evaluate it. Assurance of quality
service is often done by licensing, government regulation, and branding to assure customers
they will receive a quality service.
These four comparisons indicate how management of service operations are quite different from
manufacturing regarding such issues as capacity requirements (highly variable), quality
assurance (hard to quantify), location of facilities (dispersed), and interaction with the customer
during delivery of the service (product and process design).

The six types of decisions made by operations managers in service organizations are:
process, quality management, capacity and scheduling, inventory, service supply chain,
and information technology.
Operations decisions

Process decisions
Process decisions include the physical processes and the people that deliver the services to the
customer. A service process consists of all the routines, tasks and steps that are used to deliver
service to customers along with the jobs and training for service employees. There are many
ways to organize a process to provide customer service in an effective and efficient manner to
deliver the service-product bundle. Several ideas have been advanced on how to design a
service process.
Customer contact
Design of a service system must consider the degree of customer contact. The importance of
customer contact was first noted by Chase and Tansik (1983). They argued that high customer
contact processes should be designed and managed differently from low-contact processes.
High-contact processes have the customer in the system while providing the service. This can
lead to difficulties in standardizing the service or inefficiencies when the customer makes
demands or expects unique services. On the other hand, high-contact also provides the
possibility of self-service where customers provide part of the service themselves (e.g. filing your
own gas tank, or packing your own groceries). Low-contact services are performed away from
the customer in what is often called "the back room." In this case, the service process can be
more standardized and efficient (e.g. check clearing in a bank, filling orders in a warehouse)
since the customer is not in the system to request preferences, customization or changes. Low-
contact services can be managed more like manufacturing, high-contact services cannot.
Production-line approach
n 1972 Levitt introduced the "production-line approach to service".He argued that service
processes could be made more efficient by standardizing them and automating them like
manufacturing. He gave the example of McDonalds that has standardized both the services at
the front counter and the backroom for producing the food. They have limited the menu,
simplified the jobs, trained the managers (at "Hamburger U"), automated production and
instituted standards for courtesy, cleanliness, speed and quality. As a result, McDonalds has
become a model for other service processes which have been designed for high efficiency, not
only in fast food, but in many other services. At the same time, it leaves open the option for more
customized and flexible services for customers who are willing to pay more for "better" or more
personalized service. While these services are less efficient, they cater more to unique
customer's needs.
Service process matrices
Many different service process matrices have been proposed for explaining the relationship
between service products that are selected and corresponding processes.
The Service Delivery System Matrix by Collier and Meyer (1998) illustrates the various types of
routings used for service process depending on the amount of customization and customer
involvement in the process. With high levels of customization and customer involvement, there
are many pathways and jumbled flows for service. As a result the service delivery of Customer-
Routed services is less efficient than Co-routed or Provider-Routed processes that have less
customization and less customer involvement. Process that should be used for each combination
of customization and customer involvement are shown on the diagonal of this matrix.
Self-service
Self-service is in wide use. For example, in the 1960's gas station attendants came out and
pumped your gas, cleaned your windshield and even checked your oil. Fast food is famous for
self-service, since customers have been trained to order their own food, pay immediately, find a
table, and clean up the trash. ATM's have replaced many traditional tellers and online banking
provides even more self-service.
When self-service is accepted by the customer, it can reduce costs and even provide better
service in the customer's eyes -- faster service with less hassle. Self-service falls in the provider-
routed or co-routed part of the Service delivery matrix. Services that were previously customer-
routed have been moved down the diagonal to be more efficient and accepted by customers.
Service Blueprint
The service blueprint is a way to describe the flow of a customer through a service operation
from the start to the finish, along with the actions provided by the service providers both in
interaction with the customer and in the "back room" out of sight of the customer. For example, if
a customer wishes to purchase a suit, the service blueprint starts with entry to the store, next the
customer is greeted by a sales representative, the customer then provides information on his/her
needs, the sales representative searches for appropriate suits, one or more suits are selected
and tried-on for a fitting, a suit is selected and then alterations are done (which take place away
from the customer), the customer pays for the suit and returns later to pick it up. A blueprint
flowchart shows every step in the process and can be used to illustrate the process and improve
it
Lean thinking
If lean thinking is applied, the time taken for each step in a service blueprint flowchart can be
recorded, or a separate value-stream map can be constructed. Then the process can be
analyzed for time reductions to reduce waiting and non-value added steps Changes are made to
reduce time and waste in the process. Waste is anything that does not add value to the process
including waiting time in line, possibility of more self-service, customer hassle, and defects in
service. But, lean thinking also requires attention to the customer and the people providing the
service. It is important to apply important principles such as completely solve the customer's
problem, don't waste time and provide exactly what the customer requires.
Leite and Vieira (2015) state that service managers must realize that the customer will be happy
if the service provided meets or exceeds expectations. Also the interaction between the customer
and the people providing the service is essential to achieve satisfied customers. Employee
involvement is often emphasized as part of lean thinking to achieve high levels of commitment by
service employees
Queuing

Queuing is an analytic method for determining waiting time when customers must wait in line to
get service. The length of the queue and waiting time can be calculated based on the arrival rate,
service rate, number of servers and type of lines. There are many formulas for various types
of queuing theory problems.[19] The formulas generally predict that the average service time must
be significantly less than the average time between arrivals when there is randomness in arrivals
and/or service time. The reason for this is that a long line will build up when randomness of
arrivals occurs faster than the average and service times are longer than the average. If the
distributions of arrival times and service times are known, formulas are available for calculating
the exact waiting times and line lengths for many different queuing configurations of servers,
types of lines, server distributions and arrival distributions.

Service-profit chain
Heskett, Sasser and Schlensinger (1997) proposed the service-profit chain as a way to design
service processes. The service-profit chain links various aspects and tasks required to deliver
superior service and profits. It starts with a high level of internal quality leading to employee
satisfaction and productivity to deliver superior external customer service leading to customer
satisfaction, customer loyalty and finally high revenues and profits.

Every link in this chain is important and the linkage between the service providers and the
customer is essential in service operations. The service manager should not break any of the
links in order to receive the results of high profitability and growth.

Quality management
SERVQUAL measurement
Using the customer experience approach, a questionnaire called SERVQUAL has been
developed to measure the customers perception of the service. The dimensions of SERVQUAL
are designed to measure the customer experience in both explicit and implicit measures. The
dimensions are:

1. Tangible: Cleanliness, appearance of facilities and employees

2. Reliability: Accurate, dependable and consistent services without errors

3. Responsiveness: Promptly assist customers in a timely manner

4. Assurance: Conveying knowledge, trust and confidence

 5. Empathy: Caring, approach-ability and relating to customers
A debate about SERVQUAL has ensued about whether customer service should be measured in
absolute terms or relative to expectations. Some argue that if high levels on all SERVQUAL
dimensions are provided then the service is high quality. Others argue that ultimately the service
result is judged by the customer relative to the customer's expectations and not by the service
provider. If customer expectations are low, even low levels on SERVQUAL dimensions provides
high quality.
Quality management approaches
Quality management practices for services have much in common with manufacturing, despite
the fact that the product is intangible. The following approaches are widely used for quality
improvement in both manufacturing and services:

The Baldrige Awards: A comprehensive framework for quality improvement in

organization

The W. Edwards Deming Management Method: Fourteen Points for Management

Joseph Juran's Approach: Planning, Improvement and Control

Six Sigma: DMAIC (Design, Measurement, Analysis, Improvement and Control)

These approaches have several things in common. They begin with defining and measuring the
customer's needs (e.g. using SERVQUAL). Any service that does not meet a customer's need is
considered a defect. Then these approaches seek to reduce defects through statistical methods,
cause-and-effect analysis, problem solving teams, and involvement of employees. They focus on
improving the processes that underlie production of the service.
In addition to intangibility, there are two approaches about quality that are unique to service
operations management.
Service recovery
For manufactured products, quality problems are handled through warranties, returns and repair
after the product is delivered. In high contact services there is no time to fix quality problems
later; they must be handled by service recovery as the service is delivered. For example, if soup
is spilled on the customer in a restaurant, the waiter might apologize, offer to pay to have the suit
cleaned and provide a free meal. If a hotel room is not ready when promised, the staff could
apologize, offer to store the customer's luggage or provide an upgraded room. Service recovery
is intended to fix the problem on the spot and go even further to offer the customer some form of
consolation and compensation. The objective is to make the customer satisfied with the situation,
even though there was a service failure.
Service guarantee
A service guarantee is similar to a manufacturing guarantee, except the service product cannot
be returned. A service guarantee provides a specific monetary reward for failure of service
delivery. Some examples are:

Your package will be delivered by the time promised or you will not pay.

We will fix your automobile or give you $100 if you must bring it back for repair.

Customers that are not satisfied with their haircut, get the next haircut free.
Service guarantees serve to assure the customer of quality and they provide a way for the
employees to know the cost of service failure.
Capacity and scheduling
Forecasting
Forecasting demand is a prerequisite for managing capacity and scheduling. Forecasting
demand often uses big data to predict customer behavior. The data comes from scanners at
retail locations or other service locations. In some cases traditional time series methods are also
used to predict trends and seasonality. Future demand is forecasted based on past demand
patterns. Many of the same time-series and statistical methods for forecasting are used for
manufacturing or service operations.
Capacity planning
Capacity planning is quite different between manufacturing and services given that service
cannot be stored or shipped to another location. As a result, location of services is very
dispersed to be near the customer. Customers are only willing to travel short distances to receive
most services. Exceptions are health care when the illness requires a specialist, airline
transportation when the service is to move the customer, and other services where local
expertise is not available. Aside from these exceptions, location analysis depends on the
"drawing power" based on the distance a customer is willing to travel to a service site relative to
competitive offerings and locations. The drawing power of a site for a particular customer is high
if the site is close by and provides the required service. High drawing power is related to high
sales and profits. This is much different than manufacturing locations which depend on the cost
of building a factory plus the cost of transporting the goods to the customers. Manufacturing
plants are located on the basis of low costs rather than high revenues and profits for services.
A second difference from manufacturing is planning for capacity utilization once a facility is built.
Since the product cannot be stored in inventory and sold later, service capacity is perishable and
must meet peak demand at any point in time. There are two ways to deal with this problem. First,
management can attempt to reduce peak demand and level it over time by the following actions.

Higher prices during peak-demand times

A reservation system to limit peak demand

Advertising and promotion to shift peak demand

Management can also use various methods to manage the supply of services including:

Part-time labor

Hiring and Layoff of Employees

Using Overtime

Subcontracting
While some of these same mechanisms are used in manufacturing, they are much more crucial
in service operations.
Revenue management
Revenue management is unique to services, since capacity is perishable. This applies to the
airline industry. When the plane leaves the runway, empty seats generate no revenue, but the
cost of the flight is almost the same. As a result, mathematical models have been formulated to
allocate capacity at various prices and times as the flight is booked in advance. Initially, a certain
number of seats are reserved for first class, coach, premium coach and various other categories.
Based on the elasticity of demand, seats prices are lowered at the last minute in order to fill
empty seats and maximize the revenue of the flight. [36] Similar models have also been developed
for revenue management in hotels, where the capacity is also perishable.
Scheduling
Scheduling has some differences between manufacturing and service. In manufacturing, jobs are
scheduled through a factory to sequence them in the best order to meet due dates and reduce
costs. In services, it is customers who are being scheduled. As a result, waiting time becomes
much more critical. While manufacturing orders don't mind waiting in line or waiting in inventory,
real customer's do mind. Some of the scheduling applications for services are: scheduling of
patients to operating rooms in hospitals and scheduling students to classes. Many scheduling
problems have been solved by using operations research methods to optimize the schedule

Inventory
Inventory management and control is needed in service operations with facilitating goods. Almost
every service uses some amount of facilitating goods. The presence of facilitating goods is
critical in retail and wholesale operations but these operations don't manufacture anything, rather
they distribute goods and provide service while doing it. One difference from manufacturing
inventories is that services use only finished goods, while manufacturing has finished goods,
work-in-process and raw-materials inventories. As a result, manufacturing uses a Materials
Requirements Planning System, while services do not. Services use Replenishment inventory
control systems such as order-point and periodic-review systems.

Service supply chains

Supply chains for service operations are critical to supply facilitating goods. A typical hospital
supply chain is an example. A hospital will use many goods from suppliers to construct and
furnish the building. During day-to-day operation of the hospital, inventories of supplies will be
held for the operating rooms and throughout the building. The pharmacy will hold drugs and the
kitchen will need supplies of food. The supply chain of facilitating goods in hospitals is extensive.

Purchasing controls a large part of costs in retail and wholesale operations, approximately 75%
of all costs are for purchased goods. Outside of retail and wholesale operations, facilitating
goods are a much smaller part of total costs reaching a low of 10% for most professional
services.[1](pp291-334) Both manufacturing and service organizations purchase goods and must deal
with outsourcing and offshoring, as well as, domestic products.

Service inputs are critical for manufacturing including capital from banks, energy, information
systems and human resources. Services are part of the manufacturing supply chain, just like the
physical inputs of products from other manufacturing companies.

Both manufacturing and service operations can purchase services from outside the organization.
Internal business services such as accounting, legal, human resources, call centers, and
information systems may be outsourced in part or entirely. Some of these services can also be
purchased from offshore. Logistics services may be outsourced to Third Party Logistics (3PL)
providers. These services include transportation, warehousing, order fulfillment, returns and
tariffs.

Information technology
The Internet and information technology has dramatically changed the delivery of services. Some
of the major changes are as follows:

1. Providing information and knowledge directly to consumers. Before the Internet,

consumers used a variety of sources for acquiring knowledge including libraries, phone
 calls, universities and personal contacts. Now information can be provided immediately
as a service by searching the Internet.

2. Providing service at a distance. Services such as call centers, banking, entertainment

and legal services can be provided over long distances, even internationally.

3. Reservations can be made on the Internet to reserve capacity more easily than by calling
ahead for the reservation.

4. Facilitating goods can be ordered directly by the Internet and delivered without traveling
to a retail store. The services provided includes browsing for merchandise, order entry,
order checking, payment, order confirmation, notification of delivery and return services.

5. Internal information systems now provide an array of management information to help

managers make better decisions.

Management science and operations research (MSOR)

Analysis using MSOR methods has been extensive in services. Areas where they have been
heavily applied are in inventory, capacity, scheduling, queuing and forecasting. With the advent
of the Internet, information systems, big data and analytics, there are many opportunities to
make improvements in decision making for services. The analytic techniques
include statistics, management science and operations research.