Handouts Hours 8-11

OperationsManagement 19Apr17
Process Strategy
The Four Vs of Operations Management
Volume of demand
How many the organization makes: one / a few / a large no.
Variety in outputs
The ability to adapt the transformation process to meet needs of the
heterogeneous customer base
Variation in demand
Adapting to changing demand
Visibility of transformation
Customers ability to see, track their experience or order through the
operations process
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Examples
Production Process Classification by position of Customer Order
Make to Stock (MTS)

Serve customers from finished goods inventory
Assemble to Order (ATO)

Combine a number of preassembled modules to meet a customers
specifications
Make to Order (MTO)

Make the customers product from raw materials, parts, and components
Engineer to Order (ETO)

Work with the customer to design and then make the product
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Customer Order Decoupling Point
Process Strategy
How to produce a product or provide a service that -

Meets or exceeds customer requirements
Meets cost and managerial goals
Process Strategy has long term effects on -

Efficiency and production flexibility
Costs and quality
Process selection is based on

4Vs
Position of Customer Order Decoupling Point (or Order to delivery strategy)
Range of Technology Choices: Manual, Mechanized or Automated
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Process, Volume, and Variety

Volume
Low Repetitive High
Volume Process Volume
High Variety Process Focus
one or few units Mass Customization
Projects, job shops (difficult to achieve,
per run, (machine, print,
(allows but huge rewards)
hospitals, restaurants) Dell Computer
customization) General Hospital
Variety (Flexibility)
Changes in Repetitive
Modules (autos, motorcycles,
modest runs, home appliances)
standardized Harley-Davidson
modules
Changes in
Attributes Product Focus
(such as grade, Poor Strategy (commercial baked goods,
quality, size, (Both fixed and steel, glass, beer)
thickness, etc.) variable costs Frito-Lay
long runs only are high)
Comparison between characteristics of the four processes

ProcessFocus RepetitiveFocus ProductFocus MassCustomization
Equipment General purpose Mix of general and special Special purpose Flexible equipment with
equipment purpose rapid changeover
Skill of labor With broad set of skills Moderately skilled Less broadly skilled Skilled with training for
customization
Product flow High with slow material Moderate from start to finish in Moderate Low with fast material
time movement days with assembly in minutes movement
Costs Low fixed costs and high Costs are dependent on flexibility High fixed costs and low High fixed costs and low
variable costs of facility variable costs variable costs
Raw material High relative to value of Low with JIT procurement Low relative to value of Low relative to value of
inventory product techniques product product
Work-in-process High Low with lean and JIT techniques Low compared to output Low and driven by lean
inventory production
Finished goods Made to order Assemble to order based on Made to stock Made to order
delivery frequent forecasts (postponement
technique used)
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Process Flow Structures
Job shop
(ex. A shop producing dies, jigs/fixtures etc, auto repair shop)
Batch shop
(ex. A factory production setting)
Assembly Line
(ex. Assembly of various models of cars)
Continuous Flow
(ex. Petroleum manufacturer)
The Product-Process Matrix: Hayes and Wheelright matrix
Flexibility (High)
Unit Cost (High)
Flexibility (Low)
Unit Cost (Low)
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Relationship of product design, process design and inventory policy
Standard product
Product focused process design
Make to stock finished goods
inventory
Customized product
Process focused
Make to order
Can be assemble to order also
Components kept in inventory
Assembled after receipt of
customer order
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Crossover Chart
Variable
costs
Variable Variable
$ costs $ costs $
Fixed costs Fixed costs
Fixed costs
Low volume, high variety Repetitive High volume, low variety
Process A Process B Process C
Example
Evaluate three different accounting software products
Calculate crossover points b/w software A and B and b/w software B and C
TOTAL FIXED COST DOLLARS REQUIRED PER ACCOUNTING REPORT
Software A $200,000 $60
Software B $300,000 $25
Software C $400,000 $10
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Crossover Chart Example
Software A is most economical

from 0 to 2,857 reports
Software B is most economical

from 2,857 to 6,666 reports
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Service Process Strategy
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Designing Service Processes
Service systems are generally classified along industry lines, e.g. financial
services, banking services, health services, transportation services etc.
Customer Contact
The presence of the customer in the system
Some interaction with customer is necessary, but this often affects
performance adversely
The better these interactions are accommodated in the process design, the
more efficient and effective the process
Extent of Contact
The percent of time the customer is involved relative to the total time required
to deliver the service
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The Customer Contact Approach to Designing Service Processes
High Degree Low Degree

of Customer of Customer
Contact Contact
Percentage of customer contact

High Low
(customer influence on the system)
Difficulty in managing system
In high contact service systems, the customer can affect the time of demand,
the exact nature of service, and the quality of the service
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Major Differences between High and Low Contact Service Systems
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Major Differences between High and Low Contact Service Systems
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Service Design and Delivery Approaches
Three schemes for producing and delivering services
1. The Production Line Approach

Orientation is toward the efficient production of resultsprecisely controlled
execution of the central function
2. The Customer Involvement Approach

Having the customer take a greater participatory role in the production of the
service
3. The Personal Attention Approach

The central focus is complete customer attention and satisfaction at all times
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The Production Line Approach
Also known as - Quasi-Manufacturing Approach
Pioneered by McDonalds
Physical goods are dominant over intangible service
Production of goods takes place along a production line
Operations can be highly automated
Almost no customer interaction
Overcomes many of the problems inherent in the concept of service itself
Example banks checking encoding operation
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The Customer Involvement Approach
Also known as - Customer-as-Participant Approach
Physical goods may be a significant part of the service
Services may be either standardized or custom
High degree of customer involvement in the process
Need to convince consumers that this is beneficial for them
Promote the benefits of cost, speed and convenience
Examples: ATM, self-service gas station, in-room coffee equipment,
McDonalds
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The Personal Attention Approach
Also known as - Customer-as-Product Approach
Concept of mass-customization applied to services
Service is provided through personal attention to the customer
Customized service on the customer
Often maintains a database of customers likes and dislikes
High degree of customer contact, customer becomes the central focus
There is a perception of high quality
Examples: medical clinic, hair salon
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Common Characteristics of Well-Designed Service Systems
1. Consistency with the operating focus of the firm
2. User-friendly customers can interact easily
3. Robust capable to deal with variations in demand & resources availability
4. Consistent performance
5. Effective linkage between the back office and the front office
6. Evidence of service quality - customers see the value in the service
7. Cost-effective minimum waste of time and resources
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Strategic Capacity Management
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Capacity Management
Capacity - The throughput, or the number of units a facility can hold,

receive, store, or produce in a period of time
Output that a system is capable of delivering over a specific period of time
Often determines capital requirements (large fixed costs)
Too much (idle capacity) vs. Too little (opportunity cost of losing customers)
Some measures
Number of units / week
Total work time available
Numbers of bed
Billable hours
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Capacity Decisions over Different Time Horizons
Long term decisions include (>3 years)

When, how much, and in what form to alter capacity
Medium term decisions include (318 months):

Also known as aggregate planning
How much inventory to hold
Level of manpower required
Whether to sub-contract or not?
To buy new equipment or not
Short term decisions include (<3 months):

Scheduling specific orders, allocating resources (manpower, equipment)
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Considerations for Capacity Decisions
Forecast demand with reasonable accuracy
Understand the technology and capacity increments
Find the optimum operating level (volume)
Build for change
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How can companies manage demand?
Demand exceeds capacity

Curtail demand by raising prices, scheduling longer lead time
Catering to only specific segment
Long term solution is to increase capacity
Capacity exceeds demand

Stimulate market through product launches, advertising etc
Product changes and upgrades
Adjusting to seasonal demands

Produce products with complementary demand patterns, if possible
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Complementary Demand Patterns
Combining the
two demand
patterns reduces
the variation
4,000
Sales in units
Snowmobile
3,000 motor sales
2,000
1,000 Jet ski

engine
sales
JFMAMJJASONDJFMAMJJASONDJ
Time (months)
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How can companies match capacity with demand?
Making staffing changes
Adjusting equipment
Purchasing additional machinery
Selling or leasing out existing equipment
Closing facilities
Improving processes to increase throughput
Redesigning products to facilitate more throughput
Adding process flexibility to meet changing product preferences
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Companies should also account for lifecycle stages
Should be careful in making Systematically build capacity Focus on efficient utilization Need of flexibility of
large, irreversible without overshooting by of existing capacity equipment and manpower
investments, need more large extent increases
flexibility
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Capacity Issues in Service Industry
Need of responsiveness- customers may not wait for long
Managing demand volatility- no option of inventory
Manage both peak hour and non-peak hour demand
Trade off between utilization and performance measures like waiting time
Location
Layout
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Demand and Capacity Management in the Service Sector
Demand management
Appointment, reservations, FCFS rule
Capacity management
Full time, temporary, part-time staff
Revenue management
Airlines, hotels etc.
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Facility Location
The Strategic Importance of Facility Location
Affects both fixed and variable costs
Affects various functions i.e. operations, marketing etc.

Motivating Factors
Major impact on overall risk and profit Growing demand
Shift in demand
Relatively infrequent but long term decisions To remain Competitive
Cost changes
Can make (or break) a companys business strategy New products
Facility Location Options
Expanding existing facilities
Maintaining current sites while adding another facilities elsewhere
Closing the existing facility and moving to another location
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Location Strategy
The objective of location strategy is to maximize the benefit of location to the
firm
Once in place, location-related costs are fixed in place and difficult to reduce
Determining optimal facility location is a good investment
Globalization adds to complexity

Market economics
Communication
Rapid, reliable transportation
Ease of capital flow
Differing labor costs
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Location Decisions
Country Decision Key Success Factors
1. Political risks, government rules, attitudes,

incentives
2. Corruption
3. Cultural and economic issues
4. Location of markets
5. Labor talent, attitudes, productivity, costs
6. Availability of supplies, communications, energy
7. Exchange rates and currency risks
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Location Decisions
Region Decision Key Success Factors

1. Corporate desires
2. Attractiveness of region
MN 3. Labor availability and costs
WI 4. Costs and availability of utilities
MI 5. Environmental regulations
IL IN
OH 6. Government incentives and fiscal policies
7. Proximity to raw materials and customers
8. Proximity to competitors (Clustering)
9. Transportation and infrastructure
Location Decisions
Site Decision Key Success Factors
1. Site size and cost

2. Air, rail, highway, and waterway transport systems
3. Zoning restrictions
4. Proximity of services/ supplies needed
5. Environmental impact issues
6. Customer base
7. Utilities
8. Competition
9. Safety
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International Location Factors
Government stability Number and proximity of suppliers

Government regulations Transportation & distribution system
Political & economic systems Labor cost & education
Economic stability & growth Available technology
Exchange rates Commercial travel
Culture Technical expertise
Climate Cross--border trade regulations
Export import regulations Group trade agreements
Duties & tariffs Labor productivity
Raw material availability Competition
Perspective towards Facility Location
Manufacturing Industry Total Cost Minimization
Service Industry Revenue Maximization
Warehouse & Distribution Transportation costs

Proximity to markets
Non-Competitive Services Accessibility

Response time
Competitive Services and Retail Proximity to customers

Location is everything
There are three important things in retailing- location, location, location
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Location Analysis
Types of Location Problem

Single Factor or Multiple Factors
Single Facility or Multiple Facilities
Absolute Location or Relative Location
Anywhere or from shortlisted sites
Solution Techniques
Factor Rating Method
Cross-over Charts, Break-even Analysis
Load-distance Method, Centroid Method
Transportation Method (special case of Linear Programming modeling)
Location Analysis Techniques
Factor Rating Method

Single Facility, Absolute Location, Shortlisted sites, Multiple Factors
Cross-over Charts
Single Facility, Absolute Location, Shortlisted sites, Single Factor (Cost)
Centroid Method
Single Facility, Relative Location, Anywhere (No Shortlisted sites), Single
Factor (Load-distance)
Transportation Method
Single Facility, Relative Location, Shortlisted sites, Single Factor (Cost)
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Factor-Rating Method
Single Facility, Absolute Location, Shortlisted sites, Multiple Factors
Highly popular: Wide variety of qualitative factors are considered during the
analysis
Subjective opinion, can be highly sensitive in dynamic environment
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Example: Factor-Rating Method (Service / Manufacturing)
Management is considering three potential locations for a new cookie factory
They have assigned scores shown below to the relevant factors on a 0 to 10

basis (10 is best)
Using the preference matrix, which location would be preferred?
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Cross-over Charts
Single Facility, Absolute Location, Shortlisted sites, Single Factor (Cost)
Compare location alternatives on the basis of quantitative factors
Steps
Determine fixed and variable costs for each location
Plot the cost for each location
Select location with lowest total cost for expected production volume
City Fixed Cost Variable Cost

Athens $30,000 $75
Brussels $60,000 $45
Lisbon $110,000 $25
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Example: Cross-over Charts
Crossover point Athens/Brussels

30,000 + 75(x) = 60,000 + 45(x)
30(x) = 30,000
(x) = 1,000
Crossover point Brussels/Lisbon
60,000 + 45(x) = 110,000 + 25(x)

20(x) = 50,000
(x) = 2,500
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Worldwide Distribution of Volkswagens and Parts
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Transportation Model
Single Facility, Relative Location, Shortlisted sites, Single Factor (Cost)
Involves finding the lowest-cost plan for distributing stocks of goods or

supplies from multiple origins to multiple destinations that demand the goods
Minimize costs of shipping n units to m destinations, or

Maximize profit of shipping n units to m destinations
A special class of linear programming problem
Min 5xA1 + 7xA2 + 9xA3 +

8xB1 + 6xB2 + 4xB3
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Applications
Minimize shipping costs

Determine low cost location
Find minimum cost production schedule
Military distribution system
Type: Balanced vs. Unbalanced
Assumptions
The items to be shipped are homogeneous regardless of the source or destination
Shipping cost per unit is the same regardless of the number of units shipped
Only one route or mode of transportation is used between each origin and each
destination
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An Example
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Formulation
Objective Function
Constraints
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Solution Methods
Stepping stone method
Modified Distribution (MODI) method
Excel based approach
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Load-Distance (ld) Method (Manufacturing / Distribution)

Identify and compare candidate locations
Weighted-distance method
Minimizes the sum of the loads multiplied by the distance the load travels
Proximity to customers / market
Proximity to suppliers / resources
Time may be used instead of distance
Calculating a load-distance (LD) score

Varies by industry
Use the actual distance to calculate LD score
Use Actual or Euclidean (straight line) or Rectilinear (city-block) distances
Find one acceptable facility location that minimizes the LD score
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Formula for the LD Score
Where,
LD = the load-distance value
= the load expressed as a weight, number of trips or units being shipped

from the proposed site and location I
= the distance between the proposed site and location i
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Formulae for calculating Distance
Euclidean (straight line) Distance dAB = (xA xB)2 + (yA yB)2
Rectilinear (city-block) Distance dAB = |xA xB| + |yA yB|
What is the distance between (20, 10) and (80, 60)?
Euclidean distance (20 80)2 + (10 60)2 = 78.1
Rectilinear distance |20 80| + |10 60| = 110
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Example : LD Method
Management is investigating which location would be best to position its new

plant relative to two suppliers (located in Cleveland and Toledo) and Three
market areas (represented by Cincinnati, Dayton, and Lima)
Management has
limited the search for
the new plant to
these five locations
The following
information has been
collected. Which is
best, assuming
rectilinear distance?
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Example Solution: LD Method
Cincinnati = 15(0) + 20(9) + 30(9) + 25(8) + 40(4) = 810

Dayton = 15(9) + 20(0) + 30(10) + 25(5) + 40(9) = 920
Cleveland = 15(9) + 20(10) + 30(0) + 25(5) + 40(5) = 660
Toledo = 15(8) + 20(5) + 30(5) + 25(0) + 40(8) = 690
Lima = 15(4) + 20(9) + 30(5) + 25(8) + 40(0) = 590
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Service Facility Location
New service facilities far Multiple sites close to

more common than new customers
factories and warehouses
Much less expensive
Clustering?
Service
Facilities
Location decision closely Decision more about

tied to the market selection maximizing profits than
decision minimizing costs
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Dominating Factors
1. Impact of location on sales and customer satisfaction

2. Purchasing power of customer-drawing area
3. Service and image compatibility with demographics (employment, income,
population, education etc.) of the customer-drawing area
4. Competition in the area
5. Safety, Parking, Rent, Accessibility, Traffic etc.
6. Uniqueness of the firms and competitors locations
7. Physical qualities of facilities and neighboring businesses
8. Operating policies of the firm
9. Quality of management
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Techniques
Regression models to determine importance of various factors
Factor-rating method
Traffic counts
Demographic analysis of drawing area
Purchasing power analysis of area
Center-of-gravity method
Geographic information systems (GIS)
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Geographic information systems (GIS)
Important tool to help in

location analysis
Enables more complex

demographic analysis
Available data bases include

Detailed census data
Detailed maps
Utilities
Geographic features
Locations of major services
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Practice Problem: LD Method
Burger Doodle wants to evaluate three different sites it has identified for its
new distribution center relative to its four suppliers. The coordinates of the
three sites under consideration are as follows
Which site would be best for Burgle Doodle? Assume Euclidean distance.
Load Trips from Suppliers

A 75, B 105, C 135, D 60
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Distance Calculations
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Load-Distance Calculations
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Layout Strategies
Innovations at McDonalds
Indoor seating (1950s)
Drive-through window (1970s)
Adding breakfast to the menu (1980s)
Adding play areas (late 1980s)
Redesign of the kitchens (1990s)
Self-service kiosk (2004)
Now three separate dining sections
Six out of the seven are layout decisions !

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McDonalds New Layout
Seventh major innovation
Redesigning all 30,000 outlets around the
world
Three separate dining areas

Linger zone with comfortable chairs and
Wi-Fi connections
Grab and go zone with tall counters
Flexible zone for kids and families
Facility layout is a source of competitive
advantage
35
What is Facility Layout?
Location or arrangement of everything within & around buildings
Layout Design Considerations

Higher utilization of space, equipment, and people
Improved flow of information, materials, or people
Improved employee morale and safer working conditions
Improved customer/client interaction
Flexibility
Strategic Importance of Layout Decisions Its Dynamic

The objective of layout strategy is to develop an effective and efficient
layout that will meet the firms competitive requirements
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Objectives of Facility Layout
A facility layout problem may have many objectives. In the context of

manufacturing plants, minimizing material handling costs is the most
common one. Other objectives include -
Utilize Facilitate
space organization structure
labor communication and interaction between
workers
Eliminate
manufacturing process
bottlenecks
visual control
waste or redundant movement
Provide
Minimize
convenience, safety and comfort of the
manufacturing cycle time or
employees
customer flow time
flexibility to adapt to changing conditions
investment
37
Characteristics of a Good Layout
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Types of Layout
1. Office layout - positions workers, their equipment, and spaces/offices to

provide for movement of information
2. Retail layout - allocates shelf space and responds to customer behavior
3. Warehouse layout - addresses trade-off between space and material
handling
4. Fixed-position layout - Used in projects for large products e.g., airplanes,
ships and rockets
5. Process layout - Used in a job shop for low volume, customized (high
variety) products
6. Group Technology / Cellular Layout focus on product families
7. Product layout - Used in a flow shop for high volume, standard (low variety)
products
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Types of Layouts (continued)
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Process Layout
41
Process Layout (continued)
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Process Layout (continued)
Like machines and equipment are grouped together
Arrange departments consisting of similar or identical processes in a way that

optimizes their relative placement
Flexible and capable of handling a wide variety of products or services
Scheduling can be difficult and setup, material handling, and labor costs can
be high
Manufacturing: Arrange work centers so as to minimize the material

handling cost
Services: Minimize customer and worker travel time through the process
Departments with large flows of material or people in close proximity
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Process Layout - Advantages
Better utilization of machines
Fewer machines required
High degree of flexibility relative to equipment or manpower allocation for

specific tasks
Comparatively low investment in machines is required
The diversity of the task offers a more interesting and satisfying occupation
for the operator
Specialized supervision is possible
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Process Layout - Limitations
Since longer flow lines usually result, material handling is more expensive
Production planning and control systems are more involved
Total production time is usually longer
Comparatively large amounts of in-process inventory results
Space and capital are tied up by work-in-process
Because of the diversity of the jobs in specialized departments, higher
grades of skill are required
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Computer Software
Graphical approach only works for small problems
Computer programs are available to solve bigger problems
Three dimensional visualization software allows managers to view possible

layouts and assess process, material handling, efficiency, and safety issues
CRAFT
ALDEP
CORELAP
Factory Flow
Proplanner
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CRAFT Example
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Group Technology / Cellular Layout
Group technology identifies products that have similar characteristics for
particular work cells
Volume must justify work cells
Work cells can be reconfigured as designs or volume changes

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Group Technology / Cellular Layout (continued)
Every cell contains a group of machines which are dedicated to the

production of a family of parts
One of the problems is to identify a family parts that require the same group
of machines
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Advantages of Work Cells
1. Reduced work-in-process inventory
2. Less floor space required
3. Reduced raw material and finished goods inventories
4. Reduced direct labor cost
5. Heightened sense of employee participation
6. Increased equipment and machinery utilization
7. Reduced investment in machinery and equipment
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Limitations
General supervision is required
Higher skill levels required of employees than for product layout
Compromise between product and process layout, with associated limitations
Depends on balanced material flow through the cell; otherwise, buffers and
work-in-process storage are required
Lower machine utilization than for process layout
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Improving Layouts Using Work Cells
Flexible Line Layouts
U-shaped line may

reduce employee
movement and space
requirements while
enhancing
communication,
reducing the number
of workers, and
facilitating inspection
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Product Layout
When product demand is sufficiently high and sustainable over a long period
of time, it is usually cost effective to rearrange resources from a process
layout to product layout
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Product Layout (continued)
Facility organized around products or families of similar high-volume, low-

variety products
Assumptions
Volume is adequate for high equipment utilization
Product demand is stable enough to justify high investment in specialized
equipment
Product is standardized or approaching a phase of its life cycle that justifies
investment in specialized equipment
Supplies of raw materials and components are adequate and of uniform
quality ensure they will work with specialized equipment
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Product Layout - Advantages
Since the layout corresponds to the sequence of operations, smooth and

logical flow lines result
Since the work from one process is fed directly into the next, small in-process
inventories result
Total production time per unit is short
Since the machines are located as to minimize distances between
consecutive operations, material handling is reduced
Little skill is usually required by operators at the production line; hence,
training is simple, short and inexpensive
Simple production planning and control systems are possible
Less space is occupied by work in transit and for temporary storage
Lower variable cost per unit
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Product Layout - Limitations
A breakdown of one machine may lead to complete stoppage of the line that
follows that machine
Since the layout is determined by the product, a change in product design
may require major alterations in the layout
The pace of production is determined by the slowest machine
Comparatively high investment is required, as identical machines (a few not
fully utilized) are sometimes distributed along the line
Lack of flexibility in product or production rates
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Product Layout Types
Fabrication Line builds components, such as automobile tires or metal parts

for a refrigerator, on a series of machines
Assembly Line puts the fabricated parts together at a series of workstations
Fabrication Line Assembly Line

Builds components Assembles fabricated parts
Uses series of machines Uses workstation
Repetitive process Repetitive process
Machine paced Paced by tasks
Balanced by physical redesign Balanced by moving tasks
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Example: McDonalds Assembly Line
Design issues?
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Facility Layout for Services
Goals of Service Facility Layouts
Minimize travel time for workers and customers
Maximize revenues from customers
Types of Service Layouts
Process layoutemergency rooms
Product layoutcafeteria line
Fixed-position layoutautomobile repair shop
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Facility Layout for Services (continued)
Servicescape
The aspects of the physical surroundings in a service operation that can affect a
customers perception of the service received
Ambient conditions
Noise, lighting, and temperature
Spatial layout and functionality

Minimizing employee travel time and maximizing revenue opportunities
from customers
Signs, symbols, and artifacts

Objects that create positive images of the firm
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OperationsManagement 19Apr17

The Four Vs of Operations Management

Production Process Classification by position of Customer Order

Make to Stock (MTS)

Assemble to Order (ATO)

Make to Order (MTO)

Engineer to Order (ETO)

Customer Order Decoupling Point

How to produce a product or provide a service that -

Process Strategy has long term effects on -

Process selection is based on

Process, Volume, and Variety

Comparison between characteristics of the four processes

Process Flow Structures

The Product-Process Matrix: Hayes and Wheelright matrix

Relationship of product design, process design and inventory policy

Crossover Chart Example

Software A is most economical

Software B is most economical

Service Process Strategy

Designing Service Processes

The Customer Contact Approach to Designing Service Processes

High Degree Low Degree

Percentage of customer contact

Major Differences between High and Low Contact Service Systems

Major Differences between High and Low Contact Service Systems

Service Design and Delivery Approaches

Three schemes for producing and delivering services

1. The Production Line Approach

2. The Customer Involvement Approach

3. The Personal Attention Approach

The Production Line Approach

Also known as - Quasi-Manufacturing Approach

Physical goods are dominant over intangible service

Production of goods takes place along a production line

Operations can be highly automated

Almost no customer interaction

Overcomes many of the problems inherent in the concept of service itself

Example banks checking encoding operation

The Customer Involvement Approach

Also known as - Customer-as-Participant Approach

Physical goods may be a significant part of the service

Services may be either standardized or custom

High degree of customer involvement in the process

Need to convince consumers that this is beneficial for them

Promote the benefits of cost, speed and convenience

Examples: ATM, self-service gas station, in-room coffee equipment,

The Personal Attention Approach

Also known as - Customer-as-Product Approach

Concept of mass-customization applied to services

Service is provided through personal attention to the customer

Customized service on the customer

Often maintains a database of customers likes and dislikes

High degree of customer contact, customer becomes the central focus

There is a perception of high quality

Examples: medical clinic, hair salon

Common Characteristics of Well-Designed Service Systems

1. Consistency with the operating focus of the firm

2. User-friendly customers can interact easily

3. Robust capable to deal with variations in demand & resources availability

6. Evidence of service quality - customers see the value in the service

7. Cost-effective minimum waste of time and resources

Strategic Capacity Management

Capacity - The throughput, or the number of units a facility can hold,