Service Operations Management Shin Ming Guo NKFUST Department of Logistics Management office: C415, phone: 6011000 ext. 3216 e mail: smguo@nkfust.edu.tw web: www2.nkfust.edu.tw/~smguo/teaching/service.htm Textbook Fitzsimmons and Fitzsimmons, Service Management, 8th edition, McGraw Hill. Reference Cachon and Terwiesch, Matching Supply with Demand, 3rd edition, McGraw Hill. Reading Case Studies and articles Software Excel 1
Tentative Course Outline 1 Introduction 2,3 Service Strategy and Service Packages 4 Service Encounter 5 Process Flows 6 Service Quality 11 Managing Capacity and Demand 12,13 Managing Waiting Lines 15 Managing Service Inventory 10 Globalization of Services Grading Homework 30% Report 30% Final Exam 30% Participation 10% No Social Media, No Plagiarism, No Cheating 2
Previous Topics for Team Report Loan Processing at Capital One Process Improvement Ritz Carlton Hiring and Training Taco Bell Corp. Chain Store Operation Alaska Airline Service Quality Which Products Should You Stock? Inventory Management London Olympic Game Revenue Management What is Service? Tangible or intangible? Customer involvement? Standardization or customization? Human or machine processing? Inventory and leftover? A service is a time perishable, intangible experience performed for a customer acting in the role of co producer. 3
Nature of Service Customer Participation: attention to facility design, opportunities for co production, concern for customer and employee behavior Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality Perishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demand Intangibility: creative advertising, no patent protection, importance of reputation Heterogeneity: customer involvement in delivery process results in variability 7 Compare Manufacturing & Service Characteristic Manufacturing Service Product Tangible Tangible & Intangible Customer involvement Low High Uniformity of input High Low Labor content Low High Uniformity of output High Low Performance Measurement Easy Difficult Quality Control High Low Inventory Much Little or Perishable 4
Services: Nontransferrable Ownership Type of Service Customer value Examples Goods rental Obtain temporary right Vehicles, tools, furniture, to exclusive use equipment Place and space rental Labor and expertise Physical facility usage Network usage Obtain exclusive use of defined portion of a larger space Hire other people to do a job Hotel room, seat on airplane, storage unit Car repair, surgery, management consulting Gain admission to a Theme park, camp ground, facility for a period of physical fitness gym time Gain access to participate Electric utility, cell phone, internet 9 Moving to Experience Economy Economy Agrarian Industrial Service Experience Economic Offering Food Packaged goods Commodity service Consumer services Business services Function Extract Make Deliver Stage Co create Nature Fungible Tangible Intangible Memorable Effectual Attribute Natural Standardized Customized Personal Growth Method of Supply Stored in bulk Inventoried Delivered on demand Revealed over time Sustained over time Seller Trader Producer Provider Stager Collaborator Buyer Market Customer Client Guest Collaborator Expectation Quantity Features Benefits Sensations Capability 5
Competitive Environment of Services Relatively Low Overall Entry Barriers Economies of Scale Limited Erratic Sales Fluctuations No Power Dealing with Buyers or Suppliers Product Substitutions for Service High Customer Loyalty Hobby or job satisfaction High Exit Barriers 11 What is Operation Management? Transformation = Production = Service Physical: restaurants Location: transportation Exchange: retailing Storage: warehousing Physiological: health care Informational: telecommunications 6
How Can OM Improve a Service? Low Cost with Same Quality? Fast Delivery with Same? Quality Service with Same? Better Selection with Same? More Revenue with Same? Four Dimensions of Tradeoffs Cost Efficiency Measured by: cost per unit utilization Quality Product quality (how good?) Process quality (as good as promised?) Variety Customer heterogeneity Measured by: number of options flexibility / set ups Time Responsiveness to demand Measured by: customer lead time flow time 7
The Boarding Procedure Speed and Convenience for Passengers! On time performance and Cost for Airlines! needs fine tuning Call Center of Railroad Station Goal: 80% of incoming calls wait less than 20 seconds Starting point: 30% of incoming calls wait less than 20 secs. Problem: Must decide staffing levels of call centers and understand impact on efficiency Solution: Provides tools to support strategic trade offs 8
Revenue Management The Park Hyatt Hotel has 118 rooms. Regular fare is $225 targeting business travelers. Empty rooms do not create any profit. Hyatt offers $159 discount fare for a mid week stay targeting leisure travelers. Choice 1: Accept low fare reservations without any limit. Choice 2: Do not accept low fare reservation. Hope that high fare customers will eventually show up. 9
It s the Details that Matter Choice 3: Accept low fare reservations but reserve rooms for high fare customers Protection Level: the number of rooms reserved for higher fare customers. Protect too much Empty rooms Protect too little Turn away good customers How to deal with no shows and last minute cancellations? Epilogue: Operation is Heart of Business Service Managers need to perform and make decisions in all functions. Operations account for 60 to 80% of the direct expenses that burden a firm s profit. Operations directly affect customers and are essential to the competitiveness of the firm. 10