Service mang

MANAGING SERVICE OPERATIONS

Itika SinghM o ti L a l N e h r u I n s ti t u t e O f R e s e a r c h & B u s i n e s s

A d m i n i s t r a ti o n

Managing Capacity & Demand

Managing Waiting Lines

Capacity Planning & Queuing Model

OUTLINE

CAPACITY• Total No. of Seats in an

Aircraft• No. of Tables in the

dining hall• No. of rooms in a hotel

DEMAND• Total No. of seats booked• No. of tables occupied• No. of rooms occupied

MANAGINGCAPACITY

DEMAND

EXCESS CAPACITY

SERVICECAPACITY

DEMAND FOR

SERVICEEXCESS DEMAND FOR

SERVICE

10

5

5 10

Idle servers & facilities

Unserved or Waiting customers

Strategies for Matching Supply and Demand for Services

DEMAND

STRATEGIES

PartitioningdemandDeveloping

complementaryservices

Establishingprice

incentivesDevelopingreservationsystems

Promoting off-peakdemand

Yieldmanagement

SUPPLYSTRATEGIES

Cross-training

employees

Increasingcustomer

participationSharingcapacity

Schedulingwork shifts

Creatingadjustablecapacity

Usingpart-time

employees

1- Segmenting Demand at a Health Clinic

Smoothing Demand by AppointmentScheduling

Day Walk-In Appointments

Monday 60-70 84Tuesday 55-65 89Wednesday 25-30 124Thursday 15-25 129Friday 30-40 114

Smoothing Demand through segmenting

60

70

80

90

100

110

120

130

140

1 2 3 4 5

Day of week

Perc

enta

ge o

f ave

rage

dai

ly

phys

icia

n vi

sits

• 13.4 % increase in no. of patients; • 5% increase in time physician spent with patients because of increased appointments;

• Average waiting time for patients remained the same;

•Increased morale of physician

Before smoothing

After smoothing

2- Offering Price Incentives

Demand can be segmented by offering price incentives: Price discriminationPrice discrimination: Sale of output units at different prices. Objective: Maximization of profit (different customers are willing to pay different prices) by smoothing demand.

Price Discrimination to smooth demand

Hotel X with 50 rooms @ Rs.5000 per day.

Peak Season- Rs. 5000* 50 = Rs. 2,50,000per day

(Average)Off Season- Rs. 5000 * 10= Rs. 50,000 per day.

- Rs. 3500* 35= Rs. 1,22,500 per day

3- Promoting Off Peak Demand

Seeking different sources of demand for creative use of “off-peak capacity”

Use of hotel resort as retreat location for business or professional groups.

Lower rates to encourage long distance dialing at night or on weekends, when switching equipments are underutilized.

Strategy, Useful in discouraging overtaxing the facility at other times…

4- Developing Complimentary Services

Natural way to expand market and helpful in achieving uniform aggregate demand.

Adding bar to the restaurant

Diverting waiting customers to lounge during busy periods

Videogames in lobbies & refreshments offered in movie theaters

5- RESERVATION SYSTEM & OVER BOOKING

• Taking reservations presells the potential service.

• And additional demand is deflected to other time slots at the same facility or to other facilities within the same organization.

• Benefit consumers by reducing waiting and guaranteeing service availability.

Reservation SystemProblem

• Customers may not take the reserved service (“no-shows”)

• Service expires: Not storable • No turnover, but high fixed

costs for company E.g., hotel room stays empty

without a guest, but employees are paid

• Company needs to know some time in advance if reservation is cancelled: Empty seats otherwise

Measures• Nonrefundable tickets

(airlines) • Cancellation deadlines, e.g., 6

pm (hotel) • Overbooking of capacity

Problems Of Overbooking

• Customers with reservation must be turned away

• Angry customers: Might switch to competitor

• Damaged image of company

• Costs of overbooking: Reimbursement of denied customers

Strategies for overbooking• Minimization of

opportunity costs of empty capacity

• Minimization of costs of passengers with reservation being turned away

• Training of employees dealing with passengers being turned away

Overbooking of capacity (e.g., hotel rooms, airplane seats): Selling more seats than total capacity and expecting no-

shows

STRATEGIES FOR MANAGING CAPACITY

Demand cannot be smoothened eff ectively for many services like for call center.

No inducement are likely to change this demand pattern substantially.

Need for adjusting service capacity to match demand.

1- Work shift Scheduling

By scheduling work shifts carefully during the day/week, the profile of service supply can be made to approximate demand.

An important staffing problem for many service organization facing cyclical demand, such as telephone companies, hospitals, banks, and police departments.

Forecast Demand

Convert to Service staffing Requirement

2- Increasing Customer Participation

• Customer acts as a co- producer

1

For Faster & less-expensive Meals

Capacity directly varies with the demand. Customer as co-producer provide labor, the moment required.

Requirement for lesser staff.

Saves cost of the service provider.

3- Creating Adjustable Capacity

A portion of capacity being made variable through design.

Expanding capacity at peak period by effective use of slack time. This helps in concentrating on essential tasks during rush period.

Ex- In a restaurant, staff cleaning premises or wrapping silverware in napkins during slower periods, would make task easy during rush period.

4- Sharing Capacity

A service delivery system often requires a large investment in equipment and facilities. During periods of underutilization, it may be possible to find other uses for this capacity.

Example: Airlines Sharing Baggage handling equipments, ground staff etc on small airports.

5- Using Part Time

Employees when peaks of activities are

persistent and predictable.

Yield Management

A new approach to revenue maximization.

A comprehensive system incorporating all strategies relating to demand for & supply of services.

Appropriateness for yield management

Service firms with following features:• Relatively fixed capacity. Ex: Airlines and

hotels.• Ability to segment market into different service

classes• Perishable inventory. Ex: revenue from an

unsold seat is lost forever• Product sold in advance through reservations• Fluctuating demand

MANAGING

WAITING LINES

Queuing System

Queue: Line of waiting customers who require service from one or more servers.

A queue is formed when current demand exceeds the existing capacity to serve.

Inevitability of Waiting

Law Of Service- David H. Maister

• 1- Customer perception must exceed customer expectation beacause a happy customer enables positive trickle-down effect.

• 2- First impression influence the rest of the service expectation. Make waiting period pleasant experience.

Psychology Of Waiting

• The Old Empty Feeling: Empty or unoccupied time feels awful.

Service organization require to make waiting times productive as well as pleasurable.

• A foot In The Door: Diversions fill time so that the waiting doesn’t seems long. Convey that the service has began & thus can tolerate longer waiting time.


• The Light At The End Of The Tunnel: Recognize anxieties (Did you get my order? Will I ever get served?) & develop strategies to alleviate them. Ex-telling customer how long will they need to wait..


• Excuse me, But I Was Next: Anxieties created when a customer sees a later arrival being served first. Resolved by Single queue or take a token number arrangement facility to ensure first come first serve policy..

Economics Of Waiting

Economic cost of waiting : two way

perspective

For firm, Awaited employee

( internal customer)

For Awaited external customer

Foregone alternative use

of that time

Boredom, anxiety & other psychological distresses

Unproductive Wages

So Make waiting productive or profitable

Essential Features of Queuing Systems

DepartureQueue

discipline

Arrival process

Queueconfiguration

Serviceprocess

Renege

Balk

Calling population

No futureneed for service

Classification of Calling population

1. Subpopulation ( Walk-in patients, patients with appointments and emergency patients) with different waiting expectations.

2. Homogeneous Groups

Arrival Process

Static Dynamic

AppointmentsPriceAccept/Reject BalkingReneging

Randomarrivals withconstant rate

Random arrivalrate varying

with time

Facility-controlled

Customer-exercised

control

Arrival process

Classification of Queue Configuration

Queue Configuration

Take a number

Single queue

Multiple Queue

Queue Discipline

Queuediscipline

Static(FCFS rule)

Dynamic

selectionbased on status

of queue

Selection basedon individual

customerattributes

Number of customers

waitingRound robin Priority Preemptive

Processing timeof customers

(SPT rule)

CAPACITY PLANNING

QUEUING MODELS

Capacity Planning

• Decision involves a trade off between the cost of providing a service( determined by no. of servers on duty) and the cost or inconvenience of customer waiting(measured in terms of waiting time)

Combined Costs

Cost of service

Cost of waiting

Capacity to serve

Cost

Queuing System Cost Tradeoff

Let: Cw = Cost of one customer waiting in queue for an hour

Lq = mean number of customersCs = Hourly cost per serverC = Number of servers

Total Cost/hour = Hourly Service Cost + Hourly Customer Waiting Cost

Total Cost/hour = Cs C + Cw Lq

Strategic Role of Capacity Decisions

• Using long range capacity as a preemptive strike where market is too small for two competitors (e.g. building a luxury hotel in a mid-sized city)

• Lack of short-term capacity planning can generate customers for competition (e.g. restaurant staffing)

• Capacity decisions balance costs of lost sales if capacity is inadequate against operating losses if demand does not reach expectations.

• Strategy of building ahead of demand is often taken to avoid losing customers.

Queuing Model

StandardInfinite Queue

Exponential Service Times

Single Server

Multiple Server

General Service Times

Single Server

Self Service

Finite Queue

Exponential Service Times

Single Server

Multiple server

Capacity Planning Criteria

• Excessive waiting lines by customer must result in some reneging and, thus, in some reduction of demand

• Excessive waiting if known or observed by potential customers, will cause them to reconsider their need for service and, thus reduces demand;

• Under the pressure of waiting lines, server may speed up;

• Sustained pressure to hurry may result in eliminating time- consuming features and performing the bare minimum and, thus, service capacity is increased.

Reference

• Capacity Planning: A Tactical Decision with Strategic Impact by Manager, Business Solutions, INSIGHT

• Service Management, James A. Fitzsimmons & Mona J. Fitzsimmons

• Google.com