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Chapter 12 service response logistics


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.

MBA Nguyen Phi Hoang@2015_SCM


Chapter 12 Outline
An Overview of Service
 Service Productivity
 Global Service Issues
 Service Strategy
 The Service Delivery
 Service Location &
Layout Strategies
Supply Chain Management
in Services

MBA Nguyen Phi Hoang@2015_SCM

The Primary Concerns of Service
Response Logistics
 Managing Service Capacity
 Managing Waiting Times
• Queuing System Design
• Queuing System
• Managing perceived
waiting times
 Managing Distribution
 Managing Service Quality


 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.
MBA Nguyen Phi Hoang@2015_SCM


An Overview of Service
Some of the differences between goods and
services are reviewed here:
 Services cannot be inventoried.
 Services are often unique. Insurance policies, legal
 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.
MBA Nguyen Phi Hoang@2015_SCM


An Overview of
Service OperationsCont.
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.

MBA Nguyen Phi Hoang@2015_SCM


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.

MBA Nguyen Phi Hoang@2015_SCM


An Overview of
Service OperationsService Strategy Development:
Cont.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

MBA Nguyen Phi Hoang@2015_SCM


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.

MBA Nguyen Phi Hoang@2015_SCM


An Overview of Service
Operations- Cont.
Service Location and Layout Strategies

Location Strategies- Have a significant impact on the longterm 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 TraveledWhen 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.

MBA Nguyen Phi Hoang@2015_SCM


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 !

MBA Nguyen Phi Hoang@2015_SCM


Supply Chain Management
in Services- Cont.

MBA Nguyen Phi Hoang@2015_SCM


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.

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response LogisticsCont.

Capacity Mgmt when Demand exceeds Capacity
Level-demand strategyCapacity remains constant
regardless of demand
Capacity Management When
Available Service Capacity
Exceeds Demand.
 Finding Other Uses for
Service Capacity
 Using Demand
Management Techniques.
MBA Nguyen Phi Hoang@2015_SCM

Chase-demand strategy Capacity varies with demand
 Cross-Training Employees
 Part-Time Employees
 Using Customers
 Using Technology
 Using Employee
Scheduling Policies
 Using Demand
Management Techniques


The Primary Concerns of
Service Response LogisticsCont.
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?

MBA Nguyen Phi Hoang@2015_SCM


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.
Px(T) =

e -λT (λT) 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.

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response LogisticsCont.

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.

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response LogisticsCont.

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 multiplechannel queuing system.
 Multiple servers acting in series is referred to as a multiplephase queuing system.
 The single-channel, single-phase configuration is the most
 Another characteristic of the service is the time required to
complete each of the services provided.

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response LogisticsCont.

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response LogisticsCont.
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)

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response LogisticsCont.

The Single-Channel, Single-Phase Queuing ModelExample: 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
ρ= 4/5 = 80% utilization
Ls = 4/(5-4) = 4 customers
Lq = 4 – 4/5 = 3.2 customers
Ws = 4/4 = 1 hr
Wq = 3.2/4 = 0.8 hrs = 48 min.

Mary Jane can
expect more than 4
customers about
33% of the time.

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

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response
LogisticsThe Multiple Channel Single Phase Model


λ – average arrival
sμ= average service rate
ρ= average server utilization = λ/sμ
P0 probability of zero customers in the system =











Pn = Probability of n customers in system = P 0
Lq = expected number of customers in queue =

, for sμ >λ


, for n≤s

(λ/μ)s (λ/sμ)

= P0


, for n>s


Ls = expected number of customers in system = L q + λ/μ
Wq = expected waiting time in queue = L q/λ
Ws = expected waiting time in the system = W q + 1/μ

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response
LogisticsThe 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?
P0 =









= .428

ρ = 4/10 = 40 % utilization
Lq = (0.428)

(4/5)2 (4/10)

= 0.152 customers

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

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response
LogisticsManaging Perceived Waiting
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

MBA Nguyen Phi Hoang@2015_SCM


The Primary Concerns of
Service Response
LogisticsEatertainment Cont.
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.

MBA Nguyen Phi Hoang@2015_SCM


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