CHAPTER 12

SERVICE RESPONSE LOGISITCS

Principles of Supply Chain Management: A Balanced Approach

Prepared by Daniel A. Glaser-Segura, PhD

Learning Objectives
You should be able to:
Understand how supply chain management in services differs from supply chain management in manufacturing. Define service response logistics & describe all of its elements. Understand the importance of service layouts & perform a layout analysis using several techniques. Describe the strategies for managing capacity, wait times, distribution, & quality in services.
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Learning Objectives (Cont.)

Understand queuing system design issues & calculate queue characteristics. Use various techniques for managing customers perceived waiting times. Understand the different distribution channels available for services. Define service quality & describe how to measure it & improve it.

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Chapter Twelve Outline

Introduction An Overview of Service Operations Supply Chain Management in Services The Primary Concerns of Service Response Logistics

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Introduction
Many services are pure services, offering few or no tangible products to customers. Others may have end products with a larger tangible component (e.g., restaurants & repair facilities). Customers are often involved in the production of the service. Services may provide state utility - they do something to things owned by the customer (e.g., store supplies & repair machines).

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An Overview of Service Operations

Differences between goods & services:
Services cannot be inventoried. Services are often unique (e.g., Insurance policies & legal services. Services have high customer-service interaction. Services are decentralized due to inability to inventory & transport service products.

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An Overview of Service Operations (Cont.)

Service Productivity
Productivity = Outputs produced Inputs used

Outputs produced: (ex. sales amount) Inputs (single factor productivity): (ex. labor hours) Inputs (multiple-factor productivity): (ex. labor, material, energy, & capital).

Improving service productivity is challenging due to:

High labor content Individual customized services Difficulty of automating services Problem of assessing service quality.
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An Overview of Service Operations (Cont.)

Global Services Issues
Global services are increasing all over the world. Managing global services involves a number of issues:
Labor, 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.

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An Overview of Service Operations (Cont.)

Service Strategy Development
1. Cost Leadership Strategy- Requires large capital investment in state-of-the art equipment & significant efforts to control & reduce costs. 2. Differentiation Strategy- Unique service is created as companies listen to customers. 3. Focus Strategy- serve a narrow niche better than other firms

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An Overview of Service Operations (Cont.)

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).
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An Overview of Service Operations (Cont.)

The Service Delivery System (Cont.)
Service delivery systems (a continuum) with mass produced, low-customer contact systems at one end & highly customized, high-customer-contact systems at the other. The service system should be audited often to assess performance.

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An Overview of Service Operations (Cont.)

Service Location & Layout Strategies
Location Strategies Have a long-term $ impact on the company. Decision should consider relevant factors & reduce intuitive decisions. Departmental Layouts to Reduce Distance Traveled Departmental Layouts to Maximize Closeness Desirability- A closeness desirability rating between departments used to design a layout that maximizes a rating for the entire office.
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Layout Strategies

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Supply Chain Management in Services

Services performed require a larger labor 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!

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Supply Chain Management in Services (Cont.)

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The Primary Concerns of Service Response Logistics

Service Response Logistics (SRL)
The management and coordination of the organizations service activities. The four primary activities of SRL:
Service capacity Waiting times Distribution channels, and Service quality

Demand management tactics are also important, as services cannot be inventoried & customer demand must be met.
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The Primary Concerns of SRL (Cont.)

Managing Service CapacityService capacity: the # of customers per day the firms service system is designed to serve. When demand exceeds capacity, firms turn away customers or hire personnel Hiring, training, supervising, & equipping personnel is costly ( 75% of oper. costs) Therefore, service managers must forecast demand & provide capacity to meet the forecast demand.

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The Primary Concerns of SRL (Cont.)

Managing Service Capacity (Cont.)
Capacity utilization
Capacity Utilization = Actual customers served per period 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
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The Primary Concerns of SRL (Cont.)

Managing Service Capacity (Cont.)
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
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The Primary Concerns of SRL (Cont.)

Managing Service Capacity (Cont.)
Capacity Management when Available Service Capacity exceeds Demand Instead of disposing of excess capacity, the following strategies deal with low demand: Finding other uses for service capacity Using demand management techniques

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The Primary Concerns of SRL (Cont.)

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?
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The Primary Concerns of SRL (Cont.)

Managing Waiting Times (Cont.)
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. Px(T) = eT

( T) x x!

Where: = average customer arrivals in Time Period T e = 2.71828 (natural log base), & x! = x factorial.
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The Primary Concerns of SRL (Cont.)

Managing Waiting Times (Cont.)
Queuing System DesignThe input process Most queuing models assume customers stay in line, i.e., customers do not exhibit balking refusing to join the queue, or reneging leaving the line. 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.
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The Primary Concerns of SRL (Cont.)

Managing Waiting Times (Cont.)
Queuing System DesignService Characteristics Provided either by single server or by multiple servers who act in series or in parallel. Multiple servers, acting in parallel, referred to as a multiple-channel queuing system. Multiple servers acting in series is referred to as a multiple-phase queuing system. The single-channel, single-phase configuration is the most basic. Another characteristic of the service is the time required to complete each of the services provided.
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The Primary Concerns of SRL (Cont.)

Managing Waiting Times (Cont.)
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
T

Where e = 2.71828 (natural log base) and = the average service rate. (See example 12.5)

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The Primary Concerns of SRL (Cont.)

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The Primary Concerns of SRL (Cont.)

Managing Waiting Times (Cont.)
Queuing System ApplicationsThe Single-Channel, Single-Phase Queuing Model The most widely used & simplest of all queuing models average arrival rate = average service rate = average server utilization = / Ls = expected customers in system = /( - ) Lq = expected customers in queue = 2/[ ( - ) = Ls - / W s = expected waiting time in system = l( - ) = Ls/ W q = expected waiting time in queue = /[ ( - )] = Lq/ Pn = probability of n units in the queuing system = ( / )n(1 - / )
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Queuing System Applications

The Multiple Channel Single Phase Model
average arrival rate s = average service rate = average server utilization = /s P0 = probability of zero customers in the system =

S-1 N=0

Lq = expected number of customers in queue = P0

( / )s ( /s ) s!(1- /s )2

Ls = expected number of customers in system = Lq + / Wq = expected waiting time in queue = Lq/ Ws = expected waiting time in the system = Wq + 1/
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The Primary Concerns of SRL (Cont.)

Managing Waiting Times (Cont.)
Managing Perceived Waiting Times Often, demand exceeds expectations & capacity. First & 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
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The Primary Concerns of SRL (Cont.)

Managing Distribution Channels Distribution channels involve traditional methods & new channels that incorporate new Internet technologies
Eatertainment - Combination of restaurant & entertainment elements. Entertailing - Retail locations with entertainment elements. Edutainment (infotainment)- Combines learning with entertainment to appeal to customers looking for substance along with play.

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The Primary Concerns of SRL (Cont.)

Managing Distribution Channels (Cont.)
Franchising expand quickly in dispersed geographic markets protect existing markets build market share & when owners have limited financial resources.

International Expansion
Operate/partner with firms familiar with the regions markets, suppliers, infrastructure, government regulations, & customers. Must address language & cultural barriers
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The Primary Concerns of SRL (Cont.)

Managing Distribution Channels (Cont.)
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. Many retailers today sell products exclusively over the Internet (a pure strategy), while others use it as a supplemental distribution channel (a mixed strategy).
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The Primary Concerns of SRL (Cont.)

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. Service quality depends on the firms employees to satisfy customers varying expectations.

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The Primary Concerns of SRL (Cont.)

Managing Service Quality (Cont.)The Dimensions of Service Quality
Reliability: consistently performing the service correctly & dependably. Responsiveness: promptly & timely service. Assurance: using employees who convey trust & confidence to customers. Empathy: providing caring attention to customers. Tangibles: the physical characteristics of the service including (Ex. facilities, servers, equip., & other customers.

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The Primary Concerns of SRL (Cont.)

Managing Service Quality (Cont.)Recovering from Poor Service QualityKeep customers loyal & coming back & serves as good word-of-mouth advertising
Service Recovery System- Firms may: develop recovery procedures train employees in these procedures empower employees to remedy customer problems

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