Service Operations

Management – XL NCR
2023
 What is Service?
⚫ “A service is not something that is built in a
factory, put on a shelf, and then taken home by
a customer. A service is a dynamic, living
process. A service is performed. A service is
rendered. The raw materials of a service are
time and motion; not plastic or steel. A service
cannot be stored or shipped. In short, a service
is not a thing”
G. Lynn Shostack
 What is a Service?
⚫ Service is an activity or a series of
activities to produce mostly an intangible
experience, usually involving the customer
as a participant
 What is Service Operations
Management (SOM)
⚫ SOM involves managing (designing,
planning, directing, controlling ) the
processes of producing and providing
services and some goods to the
customers

⚫ Service organizations
⚫ Banks, hospitals, insurance, transportation,
education, software, consulting, training,
restaurants
 Why Focus on Service?
⚫ Largest segment of the economy in many
countries including India

⚫ Service sector in United States account for

almost 80% of
⚫ Employment
⚫ GDP
 Why Focus on Service?
⚫ The service sector in India contributes to

⚫ Approximately 54% of India’s GDP

⚫ 9% annual growth rate since mid 1990s

⚫ Fastest growing sector of the economy

NATURE OF SERVICES
 Goods and Services
⚫ In simple terms:
⚫ Tangible products are goods
⚫ Intangible products are services

⚫ Levitt (1972) argued that there are no pure

service industry

⚫ Services tend to be more intangible than

manufactured products – education, consulting
 Goods and Services

⚫ Manufactured products tend to be more tangible – salt,

soft drinks, cars

⚫ However, education has tangible elements such as books

⚫ Cars have intangible elements such as transportation

⚫ Majority of the products are mix of tangible and

intangible service

⚫ Other experts argued that a key determinant if a service

is offered is the degree of intangibility.
 Comparison of Goods and
Services
Goods Services

100% 75% 50% 25% 0% 25% 50% 75% 100%

Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services
 Four Distinctive Characteristics of
Services
1. Intangibility
2. Variability
3. Inseparability (simultaneous production
and consumption)
4. Perishability
5. Customer or object participation
 Service Package
⚫ Five components describing a service
1. Supporting facility
2. Facilitating goods
3. Information
4. Explicit services
Benefits that are readily observable by
senses
5. Implicit services
Psychological benefits that the customer may
sense vaguely
 Service Package in a Hospital
⚫ Supporting facility: Concrete building with
aesthetic design, equipment
⚫ Facilitating goods: Medicines, hospital supplies,
linen, towel, soap
⚫ Information: Medical records, registration
system
⚫ Explicit service: Improved health condition
⚫ Implicit services: Being in a reputed hospital,
safe
SERVICE PROCESS DESIGN
 Why Service Design So Important?

⚫ Creates solution, satisfaction and value for

the customer
⚫ Affects
⚫ Cost
⚫ Quality
⚫ Image of the company
⚫ Changing needs of the customer
Service-System Design Matrix
(Service Encounter)

Nordstrom,
Legal, Med
5* hotel

Fast Food

Insurance sale

Internet banking
Mail order houses
 Three Contrasting Approaches to
Delivering On-Site Service
⚫ Production-Line approach
⚫ Self-Service approach
⚫ Personal-Attention approach
 Production Line Approach
(Low Customer Contact)
⚫ Runs like a factory where all the
production management concepts and
automation technology are applied
⚫ Examples: McDonald, Aravind Eye Care
 Arvind Eye Hospital, Madurai
(Cataract Surgery)
⚫ Arvind surgeon takes
⚫1 million cataract surgeries per year
⚫ 10 minutes for a cataract surgery against the
industry average of 15-16 minutes
⚫ Infection rate 4 per 10,000 cases as opposed
to 6 per 10,000 in UK
⚫ Doctors perform 400 surgeries per doctor per
month as opposed to 25 surgeries per doctor
per month
 Self-Service approach
⚫ Customer takes a greater role in the
production of service
⚫ ATMs
⚫ Self service gas stations
⚫ E-tickets (air or train)
⚫ Paying bills online
⚫ Salad bars
⚫ Buffet Lunch
⚫ Airport kiosk check-in
 Personal Attention Approach
(High Customer Contact)
⚫ Service tasks and activity levels uncertain

⚫ Customer determines the timing of demand and the

nature of the service by direct participation in the
process

⚫ Quality of service is determined to a large extent by

the customer’s experience

⚫ Requires service employees with high interpersonal

skills

Examples: 5 star hotels, long duration surgeries

 Tools & Techniques for
Service Design
1. Concurrent Engineering
2. Blue Printing
3. Poka-Yoke
4. Process Mapping
5. Benchmarking
6. Toyota Production System (TPS)
7. Digitization of Services
 Concurrent Engineering
⚫ Holistic understanding of processes
⚫ Interdisciplinary team work
⚫ Front line involvement
⚫ Early correction of design errors
 Poka -Yoke
⚫ Fail Safe Methods to prevent human errors from
becoming defects in the end products

⚫ Poka-Yoke
⚫ Warning Poka-Yoke
⚫ Signals the existence of a problem

⚫ Control Poka-Yoke
⚫ Stops production until problem resolved

Source: Article: “Make your services fail safe,” Sloan Management Review, Spring 1994
 Fail-Safing
MANUFACTURING ⚫ SERVICES
⚫ Producer’s error ⚫ Producer’s error
⚫ Customer’s error
 Errors in Service
Service Error

Server Errors Customer Errors

(67%) (33%)
 Classifying Service Poka-Yokes

Server Errors Customer Errors

Task: Preparation:
Doing work incorrectly Failure to bring
Treatment: necessary materials
Failure to listen to Encounter:
customer Failure to follow system
Tangible: flow
Failure to wear clean Resolution:
uniform Failure to signal service
failure
Failure to execute post
encounter actions
 Process Mapping
⚫ Process flow chart
Emergency Room Admission
 Service Blue Printing
Service Organizations
⚫ Blue Printing – Customer focused practical
technique for service innovation and
improvement
⚫ To better understand flow of services to ensure
competitiveness
⚫ Helps managers in service process design and
improvement

Note: The term blue print is used to reinforce the idea

that service delivery needs to be carefully designed as
a physical product and documented with a blue print
of its own.
 Service Blue Print
⚫ Suggest questions such as:
⚫ What signage is necessary to facilitate
customer action?
⚫ Are their transactions that can be eliminated
or made self-service?
⚫ Which transactions are potential failure
points?
 Service Blue Print
⚫ Line of interaction – Indicates the handoffs
between customer and server – moment of truth
⚫ Line of Visibility – Separates the front and the
back office environments
⚫ Line of internal interactions – Indicates handoffs
between various servers in the back office

Note: Fresh set of eyes can detect mistakes during handoffs

Service Blueprint of Luxury Hotel

F
 Advantages of Blue Printing
⚫ Brings clarity to the service delivery process
⚫ Enables identification of critical incidents, which
contribute or damage the consumer experience
⚫ Provides insights on areas where employees
need to be trained
⚫ Enables further improvement in process
⚫ Helps to put coordination activities in
perspectives
 Benchmarking
⚫ It is the process of improving processes by
constantly identifying and adapting best
practices followed inside and outside the
company
 Benchmarking
⚫ Search best practices from leading
organizations in the same industry

⚫ Benefits
⚫ Helps in improving service delivery process
⚫ Facilitates in setting performance standards
⚫ Uncover emerging technologies
 Toyota Production System (TPS)
⚫ A system that produces same output with
less resources
⚫ Less manpower
⚫ Less material
⚫ Less machinery

⚫ It is a system of absolute elimination of

waste
 Toyota Production System
⚫ Multiple explanations for its success
⚫ Complete elimination of waste
⚫ Use of low cost production tools
⚫ Design rules
 Toyota Production System
⚫ Designing or improving new processes
⚫ Rule 1 – Activities
⚫ Rule 2 – Connection
⚫ Rule 3 - Pathways
 Seven Characteristics of a Well-
Designed Service System
1. Each element consistent with the operating
focus of the company
2. It is user friendly
3. It is robust
4. It is structured so that consistent performance
by people maintained
5. Provides effective link between front and back
office
6. Customer sees the value provided
7. It is cost effective
SERVICE QUALITY
 Why Quality Matters?
⚫ Prerequisite to remain in business
⚫ High customer loyalty
⚫ High market share
⚫ Lower costs
⚫ Less vulnerability to price competition
 Service Quality
⚫ Acceptable level of quality hard to articulate.
Reasons are as follows:
⚫ Intangible nature of service

⚫ Productionand consumption of service happens

simultaneously

⚫ Depends on the difference between customers’

expectation and perceptions
⚫ Service
quality often extends beyond immediate
encounter
⚫ Health Care
 SERVQUAL MODEL or GAP Model
⚫ Model that has been extensively used to measure service
quality (Parasuraman, Zeithaml, & Berry, 1985)

⚫ Banks
⚫ Insurance
⚫ Education
⚫ Information Technology

⚫ Model: The level of service quality experienced by the

customer is critically determined by the gap between a
customer’s expectation of service and the perception of
service that is delivered.

⚫ SERVQUAL questionnaire consists of 22 items

 5 Dimensions
⚫ Tangibles: Appearance of physical facilities, equipment,
personnel
⚫ Reliability: Ability to perform promised service
dependably and accurately
⚫ Responsiveness: Willingness to help customers and
provide prompt service
⚫ Assurance: Knowledge and courtesy of employees and
their ability to convey trust and confidence
⚫ Empathy: The firm provides individualized care and
attention to its customers
 Perceived Service Quality

Customers use these five dimensions to form their judgement of service quality. The
Gap between expected and perceived service is a measure of service quality.
 Service Quality Dimensions
in US (Level of Importance)
⚫ Zeithaml, Parasuraman and Berry asked
1,900 customers of 5 nationally known
companies to allocate 100 points across
the five service quality dimensions:
⚫ Reliability:
32%
⚫ Responsiveness: 22%
⚫ Assurance: 19%
⚫ Empathy: 16%
⚫ Tangibles: 11%
 Recent Research Findings on SERVQUAL in
Indian Service Sector – A 2008 study

Sector Most Important Least Important

Banking Reliability, Tangibles
Responsiveness
Insurance All treated equal

Hotel Reliability, Tangibles,

Responsiveness
Restaurant All treated equal

Healthcare Reliability, Tangibles

Responsiveness
Education Empathy, Tangibles,
Reliability
 Walk-Through Audit
⚫ Customer focused detailed survey to
uncover areas for improvement
⚫ Walk through audit for full-service restaurants
(for example)
⚫ Questions include
⚫ Person-to-person service
⚫ Waiting
⚫ Table and place settings
⚫ Ambience
⚫ Food preparation
⚫ Check presentation
 Walk-Through Audit
⚫ Useful diagnostic instrument for
management to evaluate the gaps
between customers and managers of the
service delivery system
 Walk-Through Audit
⚫ Preparation of a flow chart
⚫ Develop a questionnaire (5-point Likert
Scale) that encompass the major sections
of the service delivery process
⚫ Administer the survey to the customer
leaving the service facility immediately
after the experience
Service Process Analysis
 Key Terms
1. Bottleneck
2. Capacity
3. Utilization
4. Efficiency
5. Cycle time
6. Throughput time
7. Labour utilization
 Bottleneck Operation
• The production resource that limits the
capacity of the overall process

• Production equipment with the lowest

capacity and highest utilization
 Process Analysis Terminology
⚫ Throughput time (or Flow time):
⚫ Total time for a unit to move through the system
(Proc Time + Transport Time + Wait time)

1 2 3

4 minutes 4 minutes 4 minutes

FLOW TIME : 4 + 4 + 4 = 12 minutes

 Process Analysis Terminology
⚫ Rush order flow time
⚫ Time it takes to go through the system from
beginning to end without any time in queue.
 Process Analysis Terminology
⚫ Throughput Rate: Average rate at which the process
is delivering output measured in units/day (for example)

⚫ Cycle Time: Average time between completion of two

successive units

⚫ Capacity: The maximum output of a process per unit of

time under stable conditions
 Process Analysis Terminology

⚫ Utilization: Time activated / Time available

⚫ Efficiency: Actual output / Standard output

⚫ Direct labour utilization: Total Direct Labour

Content / (Process Cycle time)×(# workers)
 Process Analysis Terminology
⚫ Process Velocity (also known as
Throughput ratio):
⚫ Throughput time / Value added time

⚫ Minimizingthe time it takes to process

something through the system

⚫ The lower the ratio, the better

 Little’s Law
Average Inventory
⚫ Average Flow time = ----------------------------------------
Flow Rate (or Average demand)

The average amount of inventory in a system is equal to

the product of average demand and the average time a
unit is in the system
 Class Exercise
⚫ Service Problems
 Service Process Analysis - Case
⚫ Paediatric Orthopaedic Clinic at the
Children’s Hospital of Western Ontario
 Paediatric Orthopaedic Clinic at the
Children’s Hospital of Western Ontario
⚫ Questions
1. What is the activity utilisation at each step in the
process of providing care?
2. Which is the bottleneck activity?
3. What is the overall throughput time?
4. Calculate proportion of wait time in each
activity?
5. Calculate average number of patients in the
system?
6. What are the options for improvement?
Managing Waiting Lines
 Definition of Queue
⚫ Queue is a line of waiting customers or objects who
require service from one or more servers.

⚫ Queue can be a
⚫ Physical line
⚫ Virtual line
 Queuing
⚫ Queues are almost unavoidable in our lives
⚫ People spent approximately 5 years of their lives waiting in
lines according to a 1988 study by Priority Management, USA
⚫ Wait at
⚫ Traffic lights, toll booths, railway stations, bus terminus,
banks, airline check-in counters, movie theatre, medical
centers, grocery stores, airline security, educational
institutions etc.
 Waiting Realities
 Waiting results from variations in arrival rates
(random) and service rates (varying demands of
customers)

 Queues form because current demand exceeds the

existing capacity to serve
 In other words, unpredictable demand give rise to
conflicts over the use of available resources
 Unevenness in the flow of customers or service
requests can be predicted very crudely, if at all
 Queuing Theory

⚫ The science of waiting line is called queuing

theory

⚫ Queuing theory is a powerful tool to analyze service

systems

⚫ It helps in determining the level of service that a

company should provide (improve)
 Queuing in Service
⚫ For service oriented business, the ability to
match the available supply with the current
demand can be a major determinant of
success.
Mechanisms to Reduce Waiting Time

 Two main mechanisms used

 To increase the capacity of the service-
providing system by increasing staffing
levels

 To shift demand from peak to off-peak

periods
 Implications of Waiting Lines

⚫ Cost to provide waiting space

⚫ Loss of business
⚫ Customers leaving
⚫ Customers refusing to wait
⚫ Loss of goodwill
⚫ Reduction in customer satisfaction
⚫ Congestion may disrupt other business
operations
 Ten Principles of Waiting

1. Unoccupied time feels longer than occupied time

2. Pre-process waits feel longer than in-process
waits
3. Anxiety makes the wait seem longer
4. Uncertain waits are longer than known, finite
waits
5. Unexplained waits seem longer than explained
waits
 Ten Principles of Waiting
6. Unfair waits are longer than equitable waits
7. The more valuable the service, the longer the
customers wait
8. Solo waiting feels longer than group waiting
9. Uncomfortable waits feel longer than
comfortable waits
10. New or infrequent users feel they wait longer
than frequent users
 Basic Elements of Waiting Line

 The calling population (source of customers)

 Infinite
 Finite
 Queue discipline
 First come first served
 Last in first out
 Priority
 Random
 Queue Length
 Infinite (any size)
 Finite (limited in size)
 Basic Elements of Waiting Line
 Arrival rate (signified by λ, lambda)
 Average number of customers that arrive per unit
of time, or “arrival rate” of the system
 Assumed to be independent of each other and vary
randomly over time
 Described by Poisson distribution
 Balking, reneging, jockeying
 Service Rate (signified by µ, mu)
 Average
number of customers that can be served
by a single channel per unit of time (also called
“service rate”)
 For a system with M service channels, Mµ
 Service time described by exponential distribution
 Average utilization of the facility = λ / Mμ
 Queuing System - Schematic

Renege

Queue
Arrival Departure
Discipline
Process Queue Service
Calling
Configuration Process
Population

Balk No future
need
 Waiting line Models
 Patient customers
 Customers enter the waiting line and remain until
served

 Balking
 Upon arriving, decide the line is too long and decide not
to enter the line

 Reneging
 Waiting customers grow impatient and leave the line

 Jockeying
 Customers may switch to another line
Queuing System
Configurations
Phases refer to no. of sequential
Servers each customer must go through
to complete service

Channels refers to the number

Of parallel servers
 Queue Configurations Examples
Multiple Queue Single queue, multichannel

Railway reservations counters,

Supermarket cash registers

Take a Number
Enter
3 4 2 Foreign banks,
8 6 10 Airline security check-ins
Airline check-in counters
12 7
banks 11 9 VIRTUAL QUEUE
5
Banks
A Simple Queuing System
 Trade-off Between Cost of
Providing Service and Customer
Satisfaction
 Little’s Law

⚫ Under steady state conditions, the average number of

customers (Ls) in a queuing system is equal to the
average arrival rate (λ) at which the customers arrive
multiplied by the average time a customer spends in
the system (Ws)

Ls = λ×Ws
 Total Cost for a Waiting Line
 Total Cost (TC) = Service Cost + Waiting Cost
TC per hour = Cs × C + Cw × Ls
= Cs×C + Cw×λ×Ws
Where C = # servers
Cs = Hourly cost per server
Cw= Hourly cost of waiting customer
Ls = Expected # in the system
(queue + service)
Ws = Average waiting time in system
Objective: Minimize total costs
 Little’s Law

Lq = Avg. # units in the waiting line

Ls = Avg. # of units in the system
Wq = Avg. time a unit spends in waiting
line
Ws = avg. time a unit spends in the system

By Little’s Law, L = λ × W
Lq = λ × Wq
 Trade-Off
In waiting line decisions, the primary trade-off is the
cost of having too many employees (cost of service
or idle time) vs. cost of not having enough
employees (cost of waiting). If the company hires
too many employees, it will have to unnecessarily
pay them to be idle most of the time. On the other
hand, if the company hires too few workers, the
company will face lost sales due to customers
leaving the store or not coming in due to an
excessively long waiting line. It is much more
difficult to estimate the cost of waiting in
comparison to cost of service.
 Assumptions of Basic Single Server
Model and Multiple Server Model

⚫ Poisson arrival rate

⚫ Exponential service times
⚫ First-come, first-served
⚫ Infinite queue length
⚫ Infinite calling population
 Arrival Distribution
An arrival (arrivals per unit of time) follows a Poisson
distribution
λx e -λ
P(x) = ------------ for x = 0,1,2
X!

Where, X = number of arrivals in a specific period

λ = average or expected # of arrivals
for the specific period
e = 2.71828
 Service Time Distribution
Service time:
Exponential probability distribution

The probability of a service time will be less than or

equal to a time length “T” is given by
P (service time t <=T) = 1 – e -µT
Where µ = service rate
t = service time of the customer

T = target service time

e = 2.71828
 Kendall’s Notation
 A popular system classifies parallel-server queuing models using
following notations in which three features are identified

 Notation: A / B / C
Where, A = probability distr. of arrivals
B = probability distr. of service time
C = number of parallel servers

Descriptive symbols used for arrival and service distr. are M, D, G

M = Poisson distr. for arrivals and exponential distr. for service times
D = Constant service time. Service times can’t be assumed
exponentially distributed. Example: Robots, automated equipment
G = Arrival and service times have general prob.
distribution with mean and variance (e.g., normal, uniform o
other empirical distribution)
 Kendall’s Notation
 M/M/1 designates a single server queuing model
 First M: Distribution of inter-arrival times is exponential
(or Poisson arrival rate)
 Second M: Distribution of service times is also
exponential
 “1” : It is a single server
 If multiple servers (S), then M/M/S
 Customarily, λ denotes arrival rate and µ service rate
 Standard M/M/1 Model

 M/M/1 requires following set of assumptions

 Calling population: An infinite or very large population of
callers arriving
 Arrival process: Poisson distribution
 Queuing configuration: Single waiting line with no
restrictions on length and no balking or reneging
 Queuing discipline: FCFS
 Service process: One server with negative exponential
distribution of service times
 Multiple Server, M/M/S
⚫ M/M/S: A multiple server exists when two or
more servers are working independently to
provide service to customer arrivals.
Following are the assumptions:
⚫ Poisson arrival and exponential service times
⚫ Servers work at the same average rate
⚫ Customers form a single waiting line (FCFS)
 Other Models
 Basic single Server and multiple server
models
 Single Server models with
 Constant Service Time - when automated equipment or machinery
performs the service
 The constant service time model is a special case of a more general
variation of the single-server model in which service times cannot be
assumed to be exponentially distributed. As such service time are said to
be general, or undefined.

 Finite Calling Population - when the number of “customers” that can

arrive to a system is limited

 Finite queue length – occurs when there is a physical limitation to the

length of the waiting line
Single Server – Constant Service
Time

When automated equipment or machinery performs the service

 Finite Calling Population

Example: fleet of police cars, garbage trucks, student advisor with finite no of students
assigned
 Finite Queue Length

⚫ For some waiting line systems, the length of the queue

may be limited by the physical area in which queue
forms; space may permit only a limited number of
customers to enter the queue. Such a waiting line is
called as a finite queue
⚫ Another variation of single-channel queuing model
⚫ Example: Car wash, petrol pump, ATM
Finite Queue Length
Classification of Queuing Models
 Queuing Problems

⚫ Problem Solving
Renaissance Clinic (A)
 Case

⚫ Houston Port Authority