Service Operations Management

Shin‐Ming Guo NKFUST

Department of Logistics Management office: C415, phone: 6011000 ext. 3216 e‐mail: [email protected] 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

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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 

40% 

Report 

20%  

Final Exam 

30%  

Participation 

10%  

No Social Media, No Plagiarism, No Cheating

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Old Topics for Team Report Loan Processing at Capital One — Wharton School Great Italian Cuisine without the Wait — HBS Taco Bell Corp. — HBR British Columbia NICU Bed Allocation — University of W. Ontario Which Products Should You Stock? — HBR The Morrison Company: redesigning the manufacturing  process — HBR

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. 

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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  Obtain exclusive use of  Hotel room, seat on  rental defined portion of a  airplane, storage unit larger space Labor and  Hire other people to do  Car repair, surgery,  expertise a job management consulting Physical facility  Gain admission to a  Theme park, camp ground,  facility for a period of  physical fitness gym usage time Network usage Gain access to  Electric utility, cell phone,  participate  internet 9

Moving to Experience Economy Economy

Agrarian

Industrial

Service

Experience

Economic Offering

Food 

Packaged goods

Commodity Consumer  Business service services services

Function

Extract

Make

Deliver

Stage

Nature

Fungible

Tangible

Intangible

Memorable Effectual

Attribute

Natural

Standardized Customized Personal

Method of  Supply

Stored in  Inventoried bulk

Delivered  Revealed  on demand over time

Sustained  over time

Seller

Trader

Producer

Provider

Stager

Collaborator

Buyer

Market

Customer

Client

Guest

Collaborator

Features

Benefits

Sensations

Capability

Expectation Quantity

Co‐create Growth

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 Exchange: retailing Physiological: health care

Location: transportation Storage: warehousing Informational: telecommunications

6

How Can OM Help a Business?



Low Cost?



Fast Delivery?



Quality Service?



Better Selection?

The Boarding Procedure

Speed and Convenience for  Passengers! On time performance and  Cost for Airlines!

needs fine‐tuning…

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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.

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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? 

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.

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