Supply Chain

Management:

Chapter 12
SERVICE
RESPONSE
LOGISTICS

Prepared by Mark A. Jacobs, PhD

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.

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 all of its
elements
Understand the importance of service layouts &
perform a layout analysis using several techniques
Describe the strategies for managing capacity, wait
times, distribution, & quality in services

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES
(Continued)

You should be able to:

Understand queuing system design issues &
calculate queue characteristics.
Use various techniques for managing
customers perceived waiting times.
Understand the different distribution channels
available for services.
Define service quality & describe how to
measure it & improve it.
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER OUTLINE

Introduction
An Overview of Service Operations
Supply Chain Management in Services
The Primary Concerns of Service Response Logistics

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Introduction
Many services are pure services, offering few
or no tangible products to customers
Others may have end products with a larger
tangible component (e.g., restaurants & repair
facilities)
Customers are often involved in the production
of the service
Services may provide state utility - they do
something to things owned by the customer
(e.g., store supplies & repair machines
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

An Overview of Service
Operations
Differences between goods & services
Services cannot be inventoried
Services are often unique (e.g., Insurance
policies & legal services
Services have high customer-service
interaction
Services are decentralized due to inability to
inventory & transport service products

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

An Overview of Service
Operations
(Continued)

Service Productivity
Productivity =

Outputs produced
Inputs used

Outputs produced (ex. sales amount)

Inputs (single factor productivity) (ex. labor
hours)
Inputs (multiple-factor productivity) (ex. labor,
material, energy, & capital).

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

An Overview of Service
Operations
(Continued)

Service Productivity
Baumols disease productivity growth in
services is low
Improving service productivity is challenging
due to

High labor content

Individual customized services
Difficulty of automating services
Problem of assessing service quality.

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

An Overview of Service
Operations
(Continued)

Global Services Issues

Global services are increasing all over the
world and managing them involves a number
of issues
Labor, facilities, & infrastructure support
Legal & political issues: Laws may restrict foreign
competitors.
Domestic competitors & the economic climate:
Managers must be aware of local competition and
their environment.
Identifying global customers.
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

An Overview of Service
Operations
(Continued)

Service Strategy Development

Cost Leadership Strategy

Differentiation Strategy

Requires large capital investment in state-of-the

art equipment & significant efforts to control &
reduce costs.
Unique service is created as companies listen to
customers.

Focus Strategy

Serve a narrow niche better than other firms

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

An Overview of Service
Operations
(Continued)

The Service Delivery System

Bundle of attributes (the combination of)
Explicit services (ex. storage & use of your money)
Supporting facility (ex. bank w/drive-up tellers)
Facilitating goods (ex. deposit forms, monthly
statements),
Implicit services (ex. security provided, the
atmosphere in the bank, privacy, & convenience)

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

11

An Overview of Service
Operations
(Continued)

The Service Delivery System

Service delivery systems (a continuum) with mass
produced, low-customer contact systems at one
end & highly customized, high-customer-contact
systems at the other
Front of the house staff tend to be customer
centric
Back of the house staff generally do not contact
customers
The service system should be audited often to
assess performance
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

12

An Overview of Service
Operations
(Continued)

Service Location & Layout Strategies

Location Strategies

Have a long term $ impact on the company.

Decision should consider relevant factors & reduce
intuitive decisions.

Layout Strategies

Departmental Layouts to Reduce Distance Traveled

Departmental Layouts to Maximize Closeness
Desirability - A closeness desirability rating between
departments used to design a layout that maximizes
a rating for the entire office.

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

13

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!

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

14

Supply Chain
Management in
Services
(Continued)

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

15

The Primary Concerns

of Service Response
ServiceLogistics
Response Logistics (SRL)
The management and coordination of the organizations
service activities
The four primary activities of SRL
Service capacity
Waiting times
Distribution channels, and
Service quality
Demand management tactics are also important, as
services cannot be inventoried & customer demand
must be met
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

16

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Service Capacity

Service capacity is the # of customers per day the

firms service system is designed to serve
When demand exceeds capacity, firms turn away
customers or hire personnel
Hiring, training, supervising, & equipping personnel
is costly ( 75% of ops. costs)
Therefore, service managers must forecast demand
& provide capacity to meet the forecast demand

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Service Capacity

Capacity
Utilization =

Actual customers served per period

Capacity

Level demand strategy

Capacity remains constant regardless of demand.
When demand exceeds capacity, queue management
tactics deal with excess customers

Chase demand strategy

Capacity varies with demand
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

18

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Service Capacity

Capacity Management when Demand exceeds Capacity

To minimize the cost of hiring and laying off employees,
the following strategies deal with periods of high demand
Cross-Training & Sharing Employees
Using part-Time Employees
Using Customers- Hidden employees
Using Technology
Using Employee Scheduling Policies
Using demand management techniques
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

19

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Service Capacity

Capacity Management when Available Service Capacity

exceeds Demand
Instead of disposing of excess capacity, the following
strategies deal with low demand
Finding other uses for service capacity
Using demand management techniques

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

20

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Queue Times

Consists of the management of actual waiting time &

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 providers?
How are customer arrival & service times distributed?
How long will customers wait before they either leave or
lower their perceptions of service quality?
How can customers wait even longer without lowering
their perceptions of service quality?

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

21

The Primary Concerns of

Service Response
Logistics
Managing Queue Times
(Continued)

Queuing System Design The input process

Customer arrivals are referred to as demand source
Customers appear in arrival patterns
Poisson distribution is often used to model customer
arrival
e -T (t) x
Px(T) =
x!
= average customer arrivals in time period t
e = 2.71828 (natural log base)
x = number of arrivals

Where

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

22

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Queue Times

Queuing System Design The input process

Most queuing models assume customers stay in line,
i.e., customers do not exhibit balking (refusing to join
the queue), or reneging (leaving the line)
Queuing System Design Queue Characteristics
Queuing models assume infinite length of a queue
Queuing configuration can contain single or multiple
lines
Queue discipline describes the order in which
customers are served
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

23

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Queue Times

Queuing System Design Service Characteristics

Provided either by single server or by multiple servers
who act in series or in parallel
Multiple servers acting in parallel is referred to as a
multiple channel queuing system
Multiple servers acting in series is referred to as a
multiple phase queuing system
The single channel, single phase configuration is the
most basic
Another characteristic of the service is the time
required to complete each of the services provided
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

24

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Queue Times

Queuing System Design Service Characteristics

Probability that service time t will be less than or equal to
a specified time T
P(t T) = 1 e T
Where e

= 2.71828 (natural log base)

= the average service rate

T = time
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25

The Primary Concerns of

Service Response
Logistics
(Continued)

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

26

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Queue Times

Queuing System Applications The Single-Channel, Single-Phase

Queuing Model
The most widely used & simplest of all queuing models
average arrival rate
= average service rate
= average server utilization = /
Ls = expected customers in system = /(-)
Lq = expected customers in queue = 2/[( -) = Ls - /
Ws = expected waiting time in system = l(-) = Ls/
Wq = expected waiting time in queue = /[( - )] = Lq/
Pn = probability of n units in the queuing system
= (/)n(1 - /)

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

27

Queuing System Applications

The Multiple Channel Single Phase Model

average arrival rate
s = average service rate
= average server utilization = /s
P0 = probability of zero customers in the system
=

Lq = expected number of customers in

queue = P0

(/)s
(/s)
s!(1-/s)2

Ls = expected number of customers in system = Lq + /

Wq = expected waiting time in queue = Lq/
Ws = expected waiting time in the system = Wq + 1/
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

28

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Queue Times

Managing Perceived Waiting Times

Often, demand exceeds expectations & capacity

First & Second Laws of Service

Rule 1: Satisfaction = perception expectation
Rule 2: It is hard to play catch-up ball

Waiting time management techniques

Keep Customers Occupied

Start the Service Quickly
Relieve Customer Anxiety
Keep Customers Informed
Group Customers Together
Design a Fair Waiting System

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

29

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Distribution Channels

Distribution channels involve traditional methods & new

channels that incorporate new Internet technologies
Eatertainment combines restaurant & entertainment
elements
Entertailing entails retail locations with entertainment
elements
Edutainment (infotainment) combines learning with
entertainment to appeal to customers looking for
substance along with play

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

30

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Distribution Channels

Franchising

expand quickly in dispersed geographic markets

protect existing markets
build market share & when owners have limited
financial resources.

International Expansion
Operate/partner with firms familiar with the regions
markets, suppliers, infrastructure, government
regulations, & customers.
Must address language & cultural barriers
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

31

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Distribution Channels

Internet Distribution Strategies

Internet retailing is growing faster than traditional

retailing
Primary advantages of the Internet - ability to offer
convenient sources of real-time information,
integration, feedback, & comparison shopping
Many retailers today sell products exclusively over
the Internet (a pure strategy), while others use it as
a supplemental distribution channel (a mixed
strategy)
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

32

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Service Quality

Customer satisfaction with the service depends not

only on the ability of the firm to deliver what
customers want, but on the customers perceptions
of the quality of the service received
Service quality depends on the firms employees to
satisfy customers varying expectations

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

33

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Service Quality

The Five Dimensions of Service Quality

Reliability - consistently performing the service
correctly & dependably
Responsiveness - promptly & timely service
Assurance - ability to convey trust & confidence to
customers
Empathy - providing caring attention to customers
Tangibles - the physical characteristics of the service
including e.g. facilities, servers, equip., & other
customers
2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

34

The Primary Concerns of

Service Response
Logistics
(Continued)

Managing Service Quality

Recovering from Poor Service Quality

Keeping customers loyal & coming back serves as good
word of mouth advertising

Service Recovery Systems require

Developing recovery procedures
Training employees in these procedures
Empowering employees to remedy customer
problems

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

35