Chapter 12: Service

Response Logistics
Presented by: Lim Shin May
EBEB201701509
Chapter Outline
• Introduction • The primary concerns of service
response logistics
• An overview of service operations  Managing Service Capacity
 Service Productivity
 Managing Waiting Times
 Global Service Issues
 Queuing System Design
 Service Strategy Development
 Queuing System Applications
 The Service Delivery System
 Managing perceived waiting
 Service Location & Layout times
Strategies
 Managing Distribution Channels
• Supply chain management in  Managing Service Quality
service
Introduction
• Many services are considered pure services, offering few or no
tangible products to customers.
• Other services may have end products with a larger tangible
component such as restaurants, repair facilities, transportation
providers.
• Customers are often involved in the production of the service.
• 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.
An Overview of Service
Operations
Some of the differences between goods and services are reviewed here:
• Services cannot be inventoried.
• Services are often unique.
• Services have high customer-server interactions.
• Services are decentralized.
Service Productivity

• Outputs produced (ex. sales amount)

• Inputs (single factor productivity) (ex. labour hours)
• Inputs (multiple-factor productivity) (ex. labour, material, energy, &
capital).
Service Productivity
Baumol’s disease - productivity growth in services is low
• Improving service productivity is challenging due to -
 High labour content
 Individual customized services
 Difficulty of automating services
 Problem of assessing service quality.
Global Services Issues
Global services are increasing all over the world and managing them
involves a number of issues -
• Labour, facilities, & infrastructure support
• Legal & political issues: Laws may restrict foreign competitors.
• Domestic competitors & the economic climate: Managers must be
aware of local competition and their environment.
• Identifying global customers.
Service Strategy Development
Manufacturing and service organizations use three generic
competitive strategies: cost leadership, differentiation and
focus.
• Cost Leadership Strategy - Require large capital
investment in state of the art equipment and significant
effort to control and reduce costs.
• Differentiation Strategy - Unique service is created as
companies listen to customers.
• Focus Strategy - Serve a narrow target market or niche
better than other firms attempting to serve broader
market. Companies specializing in these market niches
can provide customized services and expertise to suit the
needs of these customers.
The Service Delivery System
Bundle of attributes (the combination of) –
• Explicit services (ex. storage & use of your money)
• Supporting facility (ex. bank w/drive-up tellers)
• Facilitating goods (ex. deposit forms, monthly statements),
• Implicit services (ex. security provided, the atmosphere in the bank,
privacy, & convenience)
Service delivery systems (a continuum) with mass produced, low-customer
contact systems at one end & highly customized, high-customer-contact
systems at the other
Front of the house staff tend to be customer centric
Back of the house staff generally do not contact customers
The service system should be audited often to assess performance
Location Strategies & Layout
Strategies
Location Strategies
• Location strategies have a significant
impact on customer visits and,
consequently, long term profits of the
company.
• Location decisions are viewed as long
term decisions because of the typical
high costs of construction, remodelling
and relocation.
• Decisions should consider relevant
factors and reduce intuitive decisions.
Layout Strategies
• Support overall business strategies of
differentiation, low cost, or market
focus.
• Departmental layouts:
 Reduce distance travelled.
 Maximize closeness desirability: a
closeness desirability rating between
departments is used to design a layout
that maximizes a rating for the entire
office.
Supply Chain Management in
Service
• Services performed require a larger labour component than
manufactured products
• Services also require use of facilitating products (e.g., computers,
furniture, office supplies) that are not part of the services sold

Customers have no idea how things actually get to the destination. But
they sure notice when the shipment is late!
Supply Chain Management in
Service
The Primary Concerns of Service
Response Logistics
Service Response Logistics (SRL)
• The management and coordination of the organization's service
activities.
• There are four primary activities of SRL:
 Service Capacity
 Waiting Times
 Distribution Channels
 Service Quality

• Additionally, demand management tactics are also important, as

services cannot be inventoried and customer demand must be met.
The Primary Concerns of Service
Response Logistics
Managing Service Capacity
• Service capacity is the number of customers
per day the company's service system is
designed to serve
• Exceeding capacity means that you turn
customers away, make the customers wait, or
you have to hire more people to provide the
service.
• Hiring, training, supervising, and equipping
personnel is costly (≈ 75% of operating costs)
• Therefore, service managers must forecast
demand and provide capacity to meet the
forecast demand
Managing Service Capacity

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
Managing Service Capacity
Capacity Management when Demand exceeds Capacity
To minimize the cost of hiring and laying off employees, the following
strategies deal with periods of high demand
• Cross-Training & Sharing Employees
• Using part-Time Employees
• Using Customers- “Hidden employees”
• Using Technology
• Using Employee Scheduling Policies
• Using demand management techniques
Managing Service Capacity
Capacity Management when Available Service Capacity exceeds
Demand
Instead of disposing of excess capacity, find other uses for available
capacity
• Do other jobs when its not busy (e.g., in restaurant might have to
clean the bathrooms, prep for the dinner rush, etc.)
• Do training or cross training

Use demand management techniques

• Shift demand from peak demand periods into non-peak periods by
offing incentives like discounts and special sales (e.g., early bird
specials, 20% off from 9am to noon, etc.)
The Primary Concerns of Service
Response Logistics
Managing Waiting Times - Consists of the management of actual
waiting time & perceived waiting time
• 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 & 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?
Managing Waiting Times
Queuing System Design - The input process
• Customer arrivals are referred to as demand source
• Customers appear in arrival patterns
• Poisson distribution is often used to model customer arrival

Where λ = average customer arrivals in time period t

e = 2.71828 (natural log base)
x = number of arrivals
Managing Waiting Times
Queuing System Design - The input process
• Customer arrivals are referred to as demand source
• Customers appear in arrival patterns
• Poisson distribution is often used to model customer arrival
• Most queuing models assume customers stay in line:
 Customers do not exhibit Balking (refusing to join the queue)
 Customers do not exhibit Reneging (leaving the line)
Managing Waiting Times
Queuing System Design - Queue Characteristics
• Queuing models assume infinite length of a queue
• Queuing configuration can contain single or
multiple lines
• Queue discipline describes the order in which
customers are served
Managing Waiting Times
Queuing System Design - Service Characteristics
Provided either by single server or by multiple servers who act in
series or in parallel
• The single server, single channel, single phase configuration is the
most basic
• Multiple servers acting in series is referred to as a multiple phase
queuing system (e.g. Hostess, to waiter, or multiple hostess)
• Multiple servers acting in parallel is referred to as a multiple
channel queuing system
• Another characteristic of service is the time required to complete
each of the services provided
Managing Waiting Times
Queuing System Design – Service Characteristics
• Probability that service time t will be less than or equal to a specified
time T

P(t ≤ T) = 1 – e –μT

Where e = 2.71828 (natural log base)

μ = the average service rate
T = time
Managing Waiting Times
Managing Waiting Times
Queuing System Applications – The Single-Channel, Single-Phase Queuing Model
• The most widely used & simplest of all queuing models
λ – average arrival rate
μ= average service rate
ρ= average server utilization = λ/μ
Ls = expected customers in system = λ/(μ-λ)
Lq = expected customers in queue = λ2/[μ(μ -λ) = Ls - λ/μ
Ws = expected waiting time in system = l(μ-λ) = Ls/ λ
Wq = expected waiting time in queue = λ/[μ(μ - λ )] = Lq/λ
Pn = probability of n units in the queuing system
= (λ/μ)n(1 - λ/μ)
Queuing System Applications
The Multiple Channel Single Phase Model
λ – average arrival rate
sμ = average service rate
ρ = average server utilization = λ/sμ
P0 = probability of zero customers in the system =
Managing Perceived Waiting
Times
Often, demand exceeds expectations
& capacity.
First and Second Laws of Service:
• Rule 1: Satisfaction = perception –
expectation.
• Rule 2: It is hard to play catch-up
ball.
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
Managing Distribution Channel
Distribution channels involve traditional methods & new
channels that incorporate new Internet technologies
• Eatertainment - combines restaurant and entertainment
elements (e.g., Medieval Times, Rainforest Café, Epcot Centre,
etc.)
• Entertailing - combines retail with entertainment elements
(e.g., Mall of America has a ferrous wheel, rock climbing wall,
etc.)
• Edutainment - (infotainment) combines learning with
entertainment to appeal to customers looking for substance
along with play (e.g., Liberty Science Centre. etc.)
Managing Distribution Channel
Franchising
• e.g., 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.

International expansion
• Operate / partner with firms familiar with the region's markets,
suppliers, infrastructure, government regulations, and customers
• Must address language and cultural barriers
Managing Distribution Channel
Internet Distribution Strategies
• Internet retailing is growing faster than traditional
retailing
• Primary advantages of the Internet - 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)
Managing Service Quality
Service quality depends on the firms employees to satisfy customer
varying expectations.
Thus, 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.
Managing Service Quality
The Five Dimensions of Service Quality
• Reliability - consistently performing the service correctly &
dependably
• Responsiveness - promptly & timely service
• Assurance - ability to convey trust & confidence to customers
• Empathy - providing caring attention to customers
• Tangibles - the physical characteristics of the service including e.g.
facilities, servers, equip., & other customers
Recovering from Poor Service
Quality
Quick recovery from these services can keep customers loyal and
coming back and may even serve as good word of mouth advertising.
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. (e.g., employee who rented a U-Haul
to deliver a part to a customer on a weekend)
Any Question ?
Thank you.