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 the strategies for managing capacity, wait times,
distribution and quality in services.
– Define service quality and describe how to measure it and
improve it.

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 Chapter Twelve Outline
An Overview of Service The Primary Concerns of Service
Operations Response Logistics
– Service Productivity – Managing Service Capacity
– Global Service Issues – Managing Waiting Times
• Queuing System
– Service Strategy
Design
Development
• Queuing System
– The Service Delivery Applications
System • Managing perceived
– Service Location & Layout waiting times
Strategies – Managing Distribution
Supply Chain Management in Channels
Services – Managing Service Quality

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 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.

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 An Overview of Service Operations

Some of the differences between goods and services are reviewed

here:
– Services cannot be inventoried.
– Services are often unique. Insurance policies, legal services.
– Services have high customer-service interaction. Services today
are finding ways to automate or standardize services
– Services are decentralized. Because of their inability to inventory
and transport service products.

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 An Overview of Service Operations- Cont.

Service Productivity Outputs produced

Productivity =
Inputs used

• Outputs produced - customers served, services produced, sales $

• Inputs – single factor productivity (ex. labor hours)
• Inputs - multiple-factor productivity (ex. labor, material, energy,
and 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, and infrastructure support: locating support
facilities, suppliers, transportation, communications.
– Legal and political issues: Laws may restrict foreign competitors,
limit available resources, attach tariffs.
– Domestic competitors and the economic climate: Managers must
be aware of local competitors, their services, their pricing
structure, and current state of local economy.
– 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 automated,
state-of-the art equipment and
significant efforts in the areas of
controlling and reducing costs.
2. Differentiation Strategy- Service that
is considered unique. Differentiation 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 service (ex. storage and use of your money)
– Supporting facility (ex. bank building with drive-up tellers)
– Facilitating goods (ex. deposit forms, monthly statements), &
– Implicit services (ex. security provided, the atmosphere in the bank,
privacy, and convenience).
Service delivery systems (a continuum) with mass produced, low-customer
contact systems at one end and highly customized, high-customer-contact
systems at the other.
The service system should be audited often to assess the system.

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 An Overview of Service Operations-
Cont.
Service Location and Layout Strategies
• Location Strategies- Have a significant impact on the long-term
profits of the company. It is desirable to consider relevant factors
and to reduce decisions based solely on intuition.
• Layout Strategies
– Departmental Layouts to Reduce Distance Traveled- When
moving from one area to another.
– Departmental Layouts to Maximize Closeness Desirability-
A closeness desirability rating between various departments
must be determined with the objective of designing a layout
that maximizes a desirability rating for the entire office.

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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
Managing Service Capacity- the number of customers per day the
firm’s service system is designed to serve.
– When demand exceeds
capacity, firms turn away
customers or hire personnel
– Hiring, training, supervising,
and equipping service
personnel is costly (Often 75
% of operating costs)
– Therefore, service managers
must forecast demand &
provide capacity to meet the
forecast demand.

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 The Primary Concerns of Service
Response Logistics- Cont.
Capacity Mgmt when Demand exceeds Capacity
Level-demand strategy- Chase-demand strategy -
Capacity remains constant Capacity varies with demand
regardless of demand – Cross-Training Employees
– Part-Time Employees
Capacity Management When – Using Customers
Available Service Capacity – Using Technology
Exceeds Demand.
– Using Employee
– Finding Other Uses for
Scheduling Policies
Service Capacity
– Using Demand
– Using Demand Management
Management Techniques
Techniques.

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 The Primary Concerns of Service
Response Logistics- Cont.
Managing Waiting Times
– Good waiting line management consists of the management of
actual waiting time and 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 the service providers?
– How are customer arrival and service times distributed?
– How long will customers wait in line before they either leave or
lower their perceptions of service quality?
– How can customers be kept in line even longer without lowering
their perceptions of service quality?

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 The Primary Concerns of Service
Response Logistics- Cont.
Queuing System Design
– Customer arrivals (or demand source) is either infinite or finite.
– Customers also arrive in patterns.
– Poisson distribution is often used to model customer arrival.
e -λT (λT) x
Px(T) =
x!

λ = average customer arrivals in Time Period T

e = 2.71828 (natural log base), and
x! = x factorial.
– Most queuing models assume that customers stay in line.
Customers do not exhibit balking – refusing to join the queue, or
reneging – leaving the line prior to completing the service.

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The Primary Concerns of Service
Response Logistics- Cont.
Queue Characteristics. Queuing
models generally assume the
length of a queue can grow to an
infinite length. 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 Service
Response Logistics- Cont.
Service 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 Service
Response Logistics- Cont.

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 The Primary Concerns of Service
Response Logistics- Cont.
The Single-Channel, Single-Phase Queuing Model

λ – average arrival rate

μ= average service rate
ρ= average server utilization = λ/μ
Ls = expected customers in the system = λ/(μ-λ)
Lq = expected customers in the queue = λ2/[μ(μ -λ) = Ls - λ/μ
Ws = expected waiting time in the system = l(μ-λ) = Ls/ λ
Wq = expected waiting time in the queue = λ/[μ(μ - λ )] = Lq/λ
Pn = probability of n units in the queuing system = (λ/μ)n(1 - λ/μ)

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 The Primary Concerns of Service
Response Logistics- Cont.
The Single-Channel, Single-Phase Queuing Model-
Example: Mary Jane’s Sewing Shop serves 5 customers/hr. In the last 2 wks the average has
been 4 customers/hr. Based on the following information, how often will there more than 4
customers per hour in her shop:

λ = 4 customers/hr
μ = 5 customers/hr Mary Jane can
ρ= 4/5 = 80% utilization expect more than 4
Ls = 4/(5-4) = 4 customers customers about
Lq = 4 – 4/5 = 3.2 customers
Ws = 4/4 = 1 hr 33% of the time.
Wq = 3.2/4 = 0.8 hrs = 48 min.

P0 = (4/5)0 (1 – 4/5) = 0.200

P1 = (4/5)1 (1 – 4/5) = 0.160
P2 = (4/5)2 (1 – 4/5) = 0.128
P3 = (4/5)3 (1 – 4/5) = 0.102
P4 = (4/5)4 (1 – 4/5) = 0.0.82
For n >4 Pn>4 = 1 – (.2 + .16 + .128 + .102 + .082) = 0.328

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The Primary Concerns of Service
Response Logistics- Cont.
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 =
1
S-1 (λ/μ)n (λ/μ)s 1
, for sμ >λ
∑ n!
+
s!
[
1-(λ/sμ)
]
N=0
(λ/μ)n
Pn = Probability of n customers in system = P 0 , for n≤s (λ/μ)N
n! = P0
s!ss-n , for n>s
Lq = expected number of customers in queue = P 0 (λ/μ)s (λ/sμ)
s!(1-λ/sμ)2
Ls = expected number of customers in system = L q + λ/μ

Wq = expected waiting time in queue = Lq/λ

Ws = expected waiting time in the system = Wq + 1/μ

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 The Primary Concerns of Service
Response Logistics- Cont.
The Multiple Channel Single Phase Model
Example- Mary Jane’s Shop decided to hire a 2nd worker and buy a 2nd checkout
stand w/cash register. Mary Jane and the 2nd worker can serve 5 customers/hr and
average arrival rate is 4 customers/hr. What are the new operating configurations?
1
P0 = (4/5)0 (4/5)1 (4/5)2 1 = .428
+ + [ ]
0! 1! 2! 1-(4/10)

ρ = 4/10 = 40 % utilization

Lq = (0.428) (4/5)2 (4/10)

= 0.152 customers
2(1-.4) 2

Ls = 0.152 + 4/5 = 0.952 customers

Wq = 0.152/4 = 0.038 hrs 0r 2.28 minutes

Ws = 0.038 + 0.2 = 0.238 hrs or 14.28 minutes

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 The Primary Concerns of Service
Response Logistics- Cont.
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.
– 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 Service
Response Logistics- Cont.
Eatertainment -
is the combination of restaurant and
entertainment elements.
Entertailing -
refers to retail locations with
entertainment elements.
Edutainment -
attract more customers and increase
revenues. Combines learning with
entertainment to appeal to customers
looking for substance along with play.

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 The Primary Concerns of Service
Response Logistics- Cont.
Franchising- allows services to:
– expand quickly in dispersed geographic markets
– protect existing markets
– build market share and when owners have limited financial
resources.
International Expansion
– Operate/partner with firms who are familiar with the region’s
markets, suppliers, infrastructure, government regulations, and
customers.
– Must address language and cultural barriers

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 The Primary Concerns of Service
Response Logistics- 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, and
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 Service
Response Logistics- Cont.
Managing Service Quality- Service Delivery Process Quality involves an
interaction between a customer and a service employee. Service quality
depends on the firm’s employees to satisfy customers varying expectations.

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 The Primary Concerns of Service
Response Logistics- Cont.
Recovering from Poor Service
Quality- keep customers loyal and
coming back and 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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