Service Design

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• This lecture is based on chapter 5 from Russell and Taylor

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The Service Economy
• Globally, services account for over 50% of the economics of Brazil, Russia, Japan,
Germany, India, and China.

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Characteristics of Services
• Services: acts, deeds, performances or relationships that produce
time, place, form or psychological utilities for customers.
• A cleaning service saves the customer time from doing the chores himself.
• Department stores and grocery stores provide many commodities for sale in
one convenient place.
• An online broker puts together information in a form more usable for the
investor.
• A night out at a restaurant or movie provides psychological refreshment in the
middle of a busy workweek.

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Characteristics of Services
• A good is a tangible object that can be created and sold or used later.

• A service is intangible and perishable. It is created and consumed

simultaneously.

• The distinction between goods and services is not always clear-cut.

• When we purchase a car, are we purchasing a good or the service of
transportation?

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Characteristics of Services
• In reality, almost all purchases of goods are accompanied by
facilitating services.

• Almost every service purchase is accompanied by facilitating goods.

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A Continuum from Goods to Services

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 Characteristics of Services
• Services can be distinguished from manufacturing by the
following eight characteristics:
1. Services are intangible.
2. Service output is variable.
3. Services have higher customer contact.
4. Services are perishable.
5. The service and the service delivery are inseparable.
6. Services tend to be decentralized and geographically dispersed.
7. Services are consumed more often than products.
8. Services can be easily immitated.

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The Service Design Process

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The Service Design Process
• Service Concept: Defines the target customer and the desired
customer experience.
• It also defines how our service is different from others and how it will
compete in the marketplace.

• Sometimes services are successful because their service concept fills

a previously unoccupied niche or differs from the generally accepted
mode of operation.

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The Service Design Process

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 The Service Design Process
• Service Package: the mixture of physical items, sensual benefits, and
psychological benefits.

• For a restaurant the physical items consist of the facility, food, drinks,
tableware, napkins, and other touchable commodities.

• The sensual benefits include the taste and aroma of the food and the
sights and sounds of the people.

• Psychological benefits are rest and relaxation, comfort, status, and a

sense of well-being.
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The Service Design Process

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The Service Design Process
• Performance specifications: Outline expectations and requirements
for general and specific customers.

• Performance specifications are converted into design specifications

and, finally, delivery specifications (in lieu of manufacturing
specifications).

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The Service Design Process

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 The Service Design Process
• Design specifications must describe the service in sufficient detail for the
desired service experience to be replicated for different individuals at
numerous locations.

• The specifications typically consist of activities to be performed, skill

requirements and guidelines for service providers, and cost and time
estimates.

• Facility size, location, and layout, as well as equipment needs, are also
included.

• Delivery specifications outline the steps required in the work process,

including the work schedule, deliverables, and the locations at which the
work is to be performed.

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The Service Design Process

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The Service-Process Matrix

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 The Service-Process Matrix
• A professional service, such as accountant, lawyer, or doctor, is highly
customized and very labor intensive.

• A service shop, such as schools and hospitals, is less customized and labor
intensive but still attentive to individual customers.

• A mass service, such as retailing and banking, offers the same basic services to
all customers and allows less interaction with the service provider.

• Services with the least degree of customization and labor intensity, such as
airlines and trucking, are most like manufactured products and are thus best
processed by a service factory.

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Differences in Design for High-Contact Services

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Tools for Service Design: Service Blueprinting
• Service blueprinting: The process of recording in graphical form the
activities and interactions in a service process.

• The term blueprinting is used to reinforce the idea that services need
to be as carefully designed as a physical product and documented
with a blueprint of its own.

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Service Blueprint for an
Installment Lending Operation

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Expanded Service Blueprint for a
Coffee Shop

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Front Office and Back Office Activities
• In manufacturing firms, the focus of activities is on the back office
(i.e., producing products efficiently).

• Whereas, in service firms, the focus is on the front office, interacting

with the customer.

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Front Office and Back Office Activities
• In the front office, the customer interface can be an individual, the
service provider, or a self-service kiosk or machine.

• The interactions in the front office influence the customer’s

perception of the service and thus are critical to a successful design.

• Typical front office goals are courtesy, transparency, responsiveness,

usability, and fun.

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Front Office and Back Office Activities
• The back office processes material or information to support the front
office needs.

• Typical goals of the back office are efficiency, productivity,

standardization, and scalability.

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 Servicescapes
• Servicescapes: design...
• (1) the space and function where the service takes places;
• (2) the ambient conditions, such as music, temperature, décor, and noise; and
• (3) signs, symbols, and artifacts.

• It is important that the servicescape be consistent with the service

concept, and that all the elements be consistent with each other.

• Servicescapes have proved to be extremely important to customer

perception of service quality and to their satisfaction with the service.
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Waiting Line Analysis for
Service Improvement
• Companies are able to reduce waiting time and provide faster service by
increasing their service capacity.
• Usually means adding more servers—that is, more tellers, more mechanics, or more
checkout clerks.

• However, increasing service capacity has a monetary cost, and therein lies
the basis of waiting line, analysis.
• Trade-off between the cost of improved service and the cost of making customers
wait.

• Waiting lines are analyzed with a set of mathematical formulas which

comprise a field of study called queuing theory.
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 Elements of Waiting Line Analysis
• Waiting lines form because people or things arrive at the server faster
than they can be served.

• Most businesses and organizations have sufficient serving capacity

available to handle its customers in the long run.

• Waiting lines result because customers do not arrive at a constant,

evenly paced rate, nor are they all served in an equal amount of time.
• Customers arrive at random times, and the time required to serve each individual
is not the same.

• A waiting line is continually increasing and decreasing in length (and is

sometimes empty) but in the long run approaches an average length and
waiting time.

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Elements of Waiting Line Analysis
• Decisions about waiting lines and the management of waiting lines
are based on the averages for customer arrivals and service times.

• They are used in queuing formulas or models to compute operating

characteristics.
• Operating Characteristics: Includes the average number of customers waiting
in line and the average time a customer must wait in line.

• Different sets of formulas are used, depending on the type of waiting

line system being investigated.

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Elements of a Waiting Line
• The basic elements of a waiting line are the calling population,
arrivals, servers, and the waiting line or queue.

• Queue: A single waiting line

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Elements of a Waiting Line System

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 The Calling Population
• Calling Population: The source of the customers to the waiting line system.

• It can be either infinite or finite.

• An infinite calling population assumes such a large number of potential

customers that it is always possible for one more customer to arrive to be
served.
• Examples: A department store that serves the whole town or geographic area.

• A finite calling population has a specific, countable number of potential

customers.
• Examples: A repair person in a shop who is responsible for a fixed number of
machines to work on, a trucking terminal that services a fleet of ten trucks, or a
nurse assigned to attend to only 12 patients.

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 The Arrival Rate
• Arrival Rate: The rate at which customers arrive at the service facility
during a specified period.
• Can be estimated from empirical data derived from studying the system or a
similar system, or it can be an average of these empirical data.

• Example: If 100 customers arrive at a store checkout counter during a

10-hour day, we could say the arrival rate averages 10 customers per
hour.
• However, it might be that no customers would arrive durring one hour and 20
customers would arrive during another hour.

• Arrivals are assumed to be independent of each other and to vary

randomly over time.

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The Arrival Rate
• The variability of arrivals at a service facility often conform to a probability
distribution.

• The number of arrivals per unit of time at a service facility can frequently
be described by a Poisson distribution.

• In queuing, the average arrival rate, or how many customers arrive during a
period of time, is signified by λ.

• We assume the arrival rate is less than the service rate:

𝜆< 𝜇

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The Arrival Rate
• We assume there is no balking (refusing to join a line), reneging
(leaving a line), or jockeying (changing lines) by customers in the
waiting line system.

• We also assume that the arrival rate is less than the service rate (or
else the line would grow infinitely long).

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Service Times
• In waiting line analysis arrivals are described in terms of a
rate, and service in terms of time.

• Service Time: The time required to serve a customers

most frequently described by the negative exponential
distribution.

• The average service rate, or how many customers can be

served in a period of time is expressed as μ.

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 Queue Discipline and Length
• Queue Discipline: The order in which waiting customers are served.

• The most common type of queue discipline is first come, first served: The first
person or item waiting in line is served first.

• Last in, first out: A machine operator might stack parts to be worked on beside
a machine so that the last part is on top of the stack and will be selected first.

• Random: Randomly select parts to work on or customers to serve.

• May be served according to appointment time (doctor’s office) or other

characteristic (alphabetical order).

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Queue Discipline and Length
• Queues can be of an infinite or finite size or length.

• Infinite queue: Can be of any size, with no upper limit, and is the
most common queue structure.
• Example: It is assumed that the waiting line at a movie theater could stretch
through the lobby and out the door if necessary.

• Finite queue: Limited in size.

• Example: The driveway at a bank teller window that can accommodate only a
limited number of cars, before it backs up to the street.

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Basic Waiting Line Structures
• Waiting line processes are generally categorized into four basic
structures, according to the nature of the service facilities:
• Single-channel, single-phase processes;
• Single-channel, multiple-phase processes;
• Multiple-channel, single-phase processes; and
• Multiple-channel, multiple-phase processes.

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Basic Waiting Line Structures
• Channels: Number of parallel servers available.

• Phases: Number of sequential servers each customer must go

through to complete service.

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 Basic Waiting Line Structures
• Single-channel, single-phase (Single-server waiting line): One clerk waiting on a
single line of customers.

• Multiple-channel, single-phase (Multiple-server waiting line): Several clerks waiting

on a single line of customers.

• Single-channel, multiple-phase: Has a sequence of servers, one following another

with only one channel.
• For example, when patients go to a clinic for treatment or check into a hospital, they first wait
in a reception room, then they may go to an office to fill out some paperwork.
• When they get to the treatment room, the patients receive an initial checkup or treatment
from a nurse, followed by treatment from a doctor.

• Multiple-channel, multiple-phase: Has a sequence of servers, one following another

with two or more channels
• Example: The case above where there are multiple doctors available.

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 Operating Characteristics
• The mathematics used in waiting line analysis do not provide an optimal,
or “best,” solution.

• They generate measures referred to as operating characteristics that

describe the performance of the waiting line system and that
management uses to evaluate the system and make decisions.

• It is assumed these operating characteristics will approach constant,

average values after the system has been in operation for a long time,
which is referred to as a steady state.
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Queuing System
Operating Characteristics

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Traditional Cost Relationships In Waiting Line
Analysis
• There is generally an inverse relationship between the cost of
providing service and the cost of making customers wait

• As the level of service, reflected by the number of servers, goes up,

the cost of service increases, whereas waiting cost decreases.

• In the traditional view of waiting line analysis, the level of service

should coincide with the minimum point on the total cost curve.

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The Cost Relationship in
Waiting Line Analysis

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 Traditional Cost Relationships In Waiting Line Analysis
• The cost of providing the service is usually reflected in the cost of the servers.

• As the number of servers is increased to reduce waiting time, service cost

goes up.
• Service cost is normally direct and easy to compute.

• The major determinant of waiting cost is the loss of business that might
result because customers get tired of waiting or frustrated and leave.
• This business loss can be temporary (a single event) or permanent (the customer never
comes back).

• Other types of waiting costs include the loss of production time and salary
for employees waiting to use machinery or load and unload vehicles.

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 Waiting Line Models:
The Basic Single-Server Model
• In the basic single-server model we assume the following:
• Poisson arrival rate
• Exponential service times
• First-come, first-served queue discipline
• Infinite queue length
• Infinite calling population

• λ = mean arrival rate,

• μ = mean service rate

• n = Number of customers in the waiting line system, including the customer being served
(if any).

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The Basic Single-Server Model
• The probability that no customers are in the queuing system (either in
the queue or being served) is:

• The probability of exactly n customers in the queuing system is:

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The Basic Single-Server Model
• The average number of customers in the queuing system (i.e., the
customers being serviced and in the waiting line) is

• The average number of customers in the waiting line is

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The Basic Single-Server Model
• The average time a customer spends in the queuing system (i.e.,
waiting and being served) is

• The average time a customer spends waiting in line to be served is

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The Basic Single-Server Model
• The probability that the server is busy and a customer has to wait,
known as the utilization factor, is

• The probability that the server is idle and a customer can be served is

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Example: A Single-Server Model
A bookstore at a university is a small facility that sells school supplies
and snacks. It has one checkout counter where one employee
operates the cash register. The cash register and operator represent
the server in this waiting line system; the customers who line up at
the counter to pay for their selections form the waiting line.

Customers arrive at a rate of 24 per hour according to a Poisson

distribution (λ = 24), and service times are exponentially distributed,
with a mean rate of 30 customers per hour (μ = 30). The bookstore
manager wants to determine the operating characteristics for this
waiting line system.

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 In Class Example
The new-accounts officer at a bank enrolls all new
customers in checking accounts. During the three week
period in August encompassing the beginning of the new
school year at State University, the bank opens a lot of new
accounts for students. The bank estimates that the arrival
rate during this period will be Poisson distributed with an
average of four customers per hour. The service time is
exponentially distributed with an average of 12 minutes per
customer to set up a new account. The bank wants to
determine the operating characteristics for this system to
determine if the current person is sufficient handle the
increased traffic. The bank will hire an extra employee if the
probability that the new-accounts officer will be busy is
greater than or equal to 0.75. Should the bank add an extra
employee?
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