B7801: Operations Management 27 March 1998 - Agenda

B7801: Operations Management
27 March 1998 - Agenda
•Mass Customization
•National Cranberry Cooperative
•Capacity Management
•Queue and customer management
Why is capacity management important?
1) Driver of Financial Performance
PROFIT ASSET
ROA = MARGIN x TURNOVER
•direct labor •facility utilization

•overhead costs •equipment utilization increasing
•productivity •inventory turnover
2) Driver of Operating Performance Capacity Utilization
delivery performance
• fill rate
• lead time decreasing
service levels
• wait times
• availability
Matching demand and capacity
# units/hr. poor service / lost revenue
excess assets
and costs
capacity
demand
time
How do firms match capacity to demand?

Key steps in capacity planning
What is demand for our
STEP 1: Forecast demand product/service like?
– forecast quantities
What are its main characteristics?
– forecast methods
How accurately can we predict it?
– understanding errors and uncertainties
STEP 2: Assess the options for meeting demand
What options do we have available
– capacity increases/decreases to meet demand?
– capacity allocation
What constraints do we face?
– inventory
– demand management
STEP 3: Construct and evaluate the plans What is the relationship between
– planning methodology capacity and service levels?
– evaluation/robustness What is our cost structure?

• scenario analysis
How do we go about developing a
• simulation plan?
What is the effect of forecast

uncertainty on plan performance?
A hierarchy of time scales
facility expansion
hiring/firing
Long Term technology investments
(1-10 yrs.) make/buy
capacity allocation
Medium Term hiring/firing
(3 mon. - 1 yr.) overtime
inventory build-up
detailed prod. scheduling

Short Term staff scheduling
(hourly, daily,wkly) detailed allocation
An example: National Cranberry Cooperative
• Forecasting demand
– peak season same as previous year
– no increase in total volume
– increase to 70% wet
• Assessing options to meet demand
– do nothing
– overtime
– capacity expansion (bins, dryers)
• Constructing and evaluating a plan
– methodology (trial and error, incremental analysis)
– process flow analysis to determine cost/performance
• overtime cost
• truck backup
– evaluation/robustness
• average cost/benefit estimates
• worst-case performance (peak day) (also remember McDonald’s,BK!!)
• simulation
• Time scales (med: add dryer, short: overtime on demand)
Forecasting
• What to forecast
– level of aggregation
• one location vs. region Aggregate where possible, but
• individual product vs. product family keep enough detail to make your
• daily, weekly or monthly planning decisions.
– trade-off: detail vs. forecast accuracy

• Forecast methodology
– subjective methods (Delphi method)
If data is available and product or
– time series (exponential smoothing) service is mature, use data
– causal methods (regression) intensive methods; otherwise,
resort to subjective methods.
• Forecast errors
– point estimate = “best guess”
– magnitude of error Try to quantify forecast errors as
well as point estimates. Factor
• MAD (mean absolute deviation) forecast uncertainty into your
• MSD (mean square deviation) plans.
– distribution of errors
Ex: Aggregate planning in an ice tea bottling plant
• demand forecast next 9 months:
27, 20, 36, 45, 78, 97, 118, 121, 82 (x10,000 units (12-oz.))
• 20 workers required
• capacity is 3,000 units/hour
• wages:
– $15/hr regular time
– $16/hr second shift (8 hr shifts)
– $20/hr overtime
• hiring/firing
– 16 hrs. of training @ $15/hr.
– 80 hrs. severance pay @ $16/hr.
• 500,000 unit warehouse. Extra storage is $1/month per 100 units.
• unit revenue = $0.40, unit cost (material) = $0.20
• $2M working capital line of credit (18% per year). Current balance is $1M.
Strategy 1: Chase demand
(production = demand)
x10,000 units/month Monthly Demand/Production
140
120
100
80
60
40
20
Jan Feb Mar April May June July Aug Sept
Demand Prod
Chase strategy financials
Units
Demand (x 10,000 units) 27.00 20.00 36.00 45.00 78.00 97.00 118.00 121.00 82.00
Sales (x 10,000 units) 27.00 20.00 36.00 45.00 78.00 97.00 118.00 121.00 82.00
Rev. (Cash In) (x $10,000 ) 10.80 8.00 14.40 18.00 31.20 38.80 47.20 48.40 32.80
Labor Hrs. Avail
Std (x 100 hrs) 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00
2nd Shirt (x 100 hrs) 0.00 0.00 0.00 0.00 32.00 32.00 32.00 32.00 32.00
OT (x 100 hrs) 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00
Production Plan
Prod. Output (x 10,000 units) 24.00 24.00 36.00 48.00 72.00 96.00 120.00 120.00 84.00
New Hires 0 0 0 20 0 0 0 0 0
No. Fired 0 0 0 0 0 0 0 0 20
Reg. Hours (x 100 hrs) 16.00 16.00 24.00 32.00 32.00 32.00 32.00 32.00 32.00
2nd Shift Hrs (x 100 hrs) 0.00 0.00 0.00 0.00 16.00 32.00 32.00 32.00 24.00
OT Hours (x 100 hrs) 0.00 0.00 0.00 0.00 0.00 0.00 16.00 16.00 0.00
Ext. WH (x 10,000 units) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Inventory
Start (x 10,000 units) 20.00 17.00 21.00 21.00 24.00 18.00 17.00 19.00 18.00
End (x 10,000 units) 17.00 21.00 21.00 24.00 18.00 17.00 19.00 18.00 20.00
Units in WH (x 10,000 units)
Co. (x 10,000 units) 17.00 21.00 21.00 24.00 18.00 17.00 19.00 18.00 20.00
Extern (x 10,000 units) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Cash Out
Operations
Materials (x $10,000 ) 4.80 4.80 7.20 9.60 14.40 19.20 24.00 24.00 16.80
Std Labor (x $10,000 ) 2.40 2.40 3.60 4.80 4.80 4.80 4.80 4.80 4.80
2nd Shift Labor (x $10,000 ) 0.00 0.00 0.00 0.00 2.56 5.12 5.12 5.12 3.84
OT Labor (x $10,000 ) 0.00 0.00 0.00 0.00 0.00 0.00 3.20 3.20 0.00
Hiring Cost (x $10,000 ) 0.00 0.00 0.00 0.48 0.00 0.00 0.00 0.00 0.00
Firing Cost (x $10,000 ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.56
Ext. WH (x $10,000 ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Plant Financing Costs
Fin. Cost (prev. mon.) (x $10,000 ) 1.50 1.47 1.48 1.45 1.42 1.30 1.18 1.04 0.89
Total Cash Out (x $10,000 ) 8.70 8.67 12.28 16.33 23.18 30.42 38.30 38.16 28.89
Cash Balance (x $10,000 ) -97.90 -98.57 -96.45 -94.77 -86.76 -78.38 -69.47 -59.23 -55.32
Total Plan Rev. (x $10,000 ) $249.60 100.00%

Total Oper. Cst (x $10,000 ) $193.20 77.40%
Total Fin. Cst. (x $10,000 ) $11.72 4.70%
Plant Earnings (x $10,000 ) $44.68 17.90%
Strategy 2: Level production
140
120
100
80
60
40
20
Demand Prod
Level strategy financials Jan Feb Mar April May June July Aug Sept
Units
Demand (x 10,000 units) 27.00 20.00 36.00 45.00 78.00 97.00 118.00 121.00 82.00
Sales (x 10,000 units) 27.00 20.00 36.00 45.00 78.00 97.00 118.00 121.00 82.00
Rev. (Cash In) (x $10,000 ) 10.80 8.00 14.40 18.00 31.20 38.80 47.20 48.40 32.80
Labor Hrs. Avail
Std (x 100 hrs) 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00
2nd Shirt (x 100 hrs) 0.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00
OT (x 100 hrs) 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00
Production Plan
New Hires 10 0 0 0 0 0 0 0 0
No. Fired 0 0 0 0 0 0 0 0 0
Reg. Hours (x 100 hrs) 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00
2nd Shift Hrs (x 100 hrs) 0.00 14.22 14.22 14.22 14.22 14.22 14.22 14.22 14.22
OT Hours (x 100 hrs) 14.22 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Ext. WH (x 10,000 units) 12.33 61.67 95.00 119.33 110.67 83.00 34.33 0.00 0.00
Inventory
Start (x 10,000 units) 20.00 62.33 111.67 145.00 169.33 160.67 133.00 84.33 32.66
End (x 10,000 units) 62.33 111.67 145.00 169.33 160.67 133.00 84.33 32.66 20.00
Co. (x 10,000 units) 50.00 50.00 50.00 50.00 50.00 50.00 50.00 32.66 20.00
Extern (x 10,000 units) 12.33 61.67 95.00 119.33 110.67 83.00 34.33 0.00 0.00
Cash Out
Operations
Materials (x $10,000 ) 13.87 13.87 13.87 13.87 13.87 13.87 13.87 13.87 13.87
Std Labor (x $10,000 ) 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80
2nd Shift Labor (x $10,000 ) 0.00 2.28 2.28 2.28 2.28 2.28 2.28 2.28 2.28
OT Labor (x $10,000 ) 2.84 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Hiring Cost (x $10,000 ) 0.24 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Firing Cost (x $10,000 ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Ext. WH (x $10,000 ) 0.12 0.62 0.95 1.19 1.11 0.83 0.34 0.00 0.00
Total Cash Out (x $10,000 ) 23.37 23.25 23.81 24.19 24.20 23.82 23.11 22.40 22.01
Cash Balance (x $10,000 ) -112.57 -127.82 -137.23 -143.43 -136.43 -121.44 -97.35 -71.35 -60.57
Total Plan Rev. (x $10,000 ) $249.60 100.00%

Total Oper. Cst (x $10,000 ) $194.45 77.91%
Total Fin. Cst. (x $10,000 ) $15.71 6.30%
Plant Earnings (x $10,000 ) $39.43 15.80%
Strategy 3: Mixed
140
120
100
80
60
40
20
Demand Prod
Mixed strategy financials
Units
Demand (x 10,000 units) 27.00 20.00 36.00 45.00 78.00 97.00 118.00 121.00 82.00
Sales (x 10,000 units) 27.00 20.00 36.00 45.00 78.00 97.00 118.00 121.00 82.00
Rev. (Cash In) (x $10,000 ) 10.80 8.00 14.40 18.00 31.20 38.80 47.20 48.40 32.80
Labor Hrs. Avail
Std (x 100 hrs) 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00
2nd Shirt (x 100 hrs) 0.00 0.00 0.00 0.00 32.00 32.00 32.00 32.00 32.00
OT (x 100 hrs) 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00
Production Plan
New Hires 0 0 0 20 0 0 0 0 0
No. Fired 0 0 0 0 0 0 0 0 20
Reg. Hours (x 100 hrs) 16.00 16.00 32.00 32.00 32.00 32.00 32.00 32.00 32.00
2nd Shift Hrs (x 100 hrs) 0.00 0.00 0.00 0.00 32.00 32.00 32.00 32.00 32.00
OT Hours (x 100 hrs) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Ext. WH (x 10,000 units) 0.00 0.00 0.00 0.00 4.00 3.00 0.00 0.00 0.00
Inventory
Start (x 10,000 units) 20.00 17.00 21.00 33.00 36.00 54.00 53.00 31.00 6.00
End (x 10,000 units) 17.00 21.00 33.00 36.00 54.00 53.00 31.00 6.00 20.00
Co. (x 10,000 units) 17.00 21.00 33.00 36.00 50.00 50.00 31.00 6.00 20.00
Extern (x 10,000 units) 0.00 0.00 0.00 0.00 4.00 3.00 0.00 0.00 0.00
Cash Out
Operations
Materials (x $10,000 ) 4.80 4.80 9.60 9.60 19.20 19.20 19.20 19.20 19.20
Std Labor (x $10,000 ) 2.40 2.40 4.80 4.80 4.80 4.80 4.80 4.80 4.80
2nd Shift Labor (x $10,000 ) 0.00 0.00 0.00 0.00 5.12 5.12 5.12 5.12 5.12
OT Labor (x $10,000 ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Hiring Cost (x $10,000 ) 0.00 0.00 0.00 0.48 0.00 0.00 0.00 0.00 0.00
Firing Cost (x $10,000 ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.56
Ext. WH (x $10,000 ) 0.00 0.00 0.00 0.00 0.04 0.03 0.00 0.00 0.00
Total Cash Out (x $10,000 ) 8.70 8.67 15.88 16.38 30.64 30.62 30.47 30.21 32.50
Cash Balance (x $10,000 ) -97.90 -98.57 -100.05 -98.43 -97.86 -89.68 -72.95 -54.76 -54.46
Total Plan Rev. (x $10,000 ) $249.60 100.00%

Total Oper. Cst (x $10,000 ) $191.91 76.89%
Total Fin. Cst. (x $10,000 ) $12.15 4.87%
Plant Earnings (x $10,000 ) $45.54 18.24%
Components of the Queuing Phenomenon
Servicing System
Servers
Customer Waiting Line

Arrivals Exit
Some Service Generalizations
1. Everyone is an expert on services.
2. Services are idiosyncratic.
3. Quality of work is not quality of service.
4. High-contact services are experienced, whereas goods are

consumed.
5. We cannot inventory services (capacity becomes dominant

issue)
Capacity Management in Services
• You cannot store service

output
• If you cannot store output, you

store the demand
Strategic Service Vision
• Who is our customer?

• How do we differentiate our service in
the market?
• What is our service package and the
focus?
• What are the actual processes, systems,
people, technology and leadership?
Service-System Design Matrix
Degree of customer/server contact
High none some much Low

Face-to-face
total
customization
Face-to-face
Sales loose specs Production
Opportunity Face-to-face Efficiency
tight specs
Phone
Contact
On-site
technology
Mail contact
Low High
Three Contrasting Service Designs
• The production line approach
• The self-service approach
• The personal attention approach

Some Performance Measures
• Average time spent waiting in queue

• Average time in system
• Average length of queue
• Average number of customers in system
• Probability that a customer waits before
service begins
• Server utilization
Strategies for effective capacity management
• Maximize process flexibility

– mix flexibility
– volume flexibility
• Standardize the product/service reduce variety
– risk pooling
– reduced forecast error
• Centralize operations
– risk pooling
• Reduce lead time
– minimize overshooting/undershooting demand
1. Everyone is an expert on services.
2. Services are idiosyncratic.
3. Quality of work is not quality of

service.
4. High-contact services are experienced, whereas
goods are consumed.
5. Effective management of services requires an
understanding of marketing and personnel, as
well as operations.
6. Services often take the form of cycles of
encounters involving face-to-face, phone,
electromechanical, and/or mail interactions
Characteristics of a Well-
Designed Service System
1. Each element of the service system is consistent
with the operating focus of the firm.
2. It is user-friendly.
3. It is robust.
4. It is structured so that consistent performance by its

people and systems is easily maintained
Characteristics of a Well-
Designed Service System
5. It provides effective links between the back office
and the front office so that nothing falls between
the cracks.
6. It manages the evidence of service quality in such

a way that customers see the value of the service
provided.
7. It is cost-effective
Components of the Queuing
Phenomenon
Servers
Customer Waiting Line

Arrivals Exit
Customers arrivals to a bank
• Average customers per minute = 10
• Average service time = 30 seconds
– HOW MANY TELLERS ARE NEEDED?

Case I: No variability
Case II: Variability in arrival process
Case III: Variability in arrival & service processes
How many tellers?: Variability in both arrival
and service processes
# Tellers Avg. Delay Utilization

6 17.6 0.833
7 4.9 0.714
8 1.7 0.625
9 0.6 0.556
Methods for reducing impact of
variability
• Demand
– better forecasting
– pricing
– appointment systems
• Process
– standardization
– training
– automation
– self-service
– variable staffing
– use of inventory
Tools for capacity planning in
service systems
• Queueing models
– fast
– little data needed
• Simulation
– can handle complexity
• Linear programming
– to allocate capacity over multiple facilities or multiple
locations
– scheduling and other constraints can be readily incorporated
Line Structures
Single
Multiphase
Phase
One-person
Single Channel Car wash
barber shop
Bank tellers’ Hospital

Multichannel windows admissions
Degree of Patience
No Way! No Way!
BALK RENEG
Key facts needed for a model
• Average number of customer arrivals
per unit of time
• Average service time per customer
• The number of servers

Assumptions in our models
• FCFS
• Events occur one at a time
• We are interested in long run avg performance
• Unlimited storage
• Utilization < 100%
• No predictable variation
• Unpredictable variation
– arrivals - Poisson processes
– service - exponential distributed processing times
Operating Focus
• Customer treatment
• Speed and convenience of service delivery
• Variety of services
• Quality of tangibles
• Unique skills
Service-System Design Matrix
Degree of customer/server contact
Buffered Permeable Reactive
High core (none) system (some) system (much) Low
Face-to-face
total
customization
Sales Face-to-face
loose specs
Production
Opportunity Face-to-face Efficiency
tight specs
Phone
Contact
On-site
technology
Mail contact
Low High
Three Contrasting Service
Designs
• The production line approach
• The self-service approach
• The personal attention approach

Example: Model 1
Drive-up window at a fast food restaurant.
Customers arrive at the rate of 25 per hour.
The employee can serve one customer every two minutes.
Assume Poisson arrival and exponential service rates.
A) What is the average utilization of the employee?

B) What is the average number of customers in line?
C) What is the average number of customers in the system?
D) What is the average waiting time in line?
E) What is the average waiting time in the system?
Example: CVS
Manager is considering two ways of using
cashiers: ( Assume customers arrive randomly
at a rate of 15 per hour)
• 1 fast clerk -- serves at an average of 2
minutes per customer
or
• 2 moderate clerks -- each serves at an
average of 4 minutes per customer
Some Performance Measures
• Average time spent waiting in queue
• Average time in system
• Average length of queue
• Average number of customers in system
• Probability that a customer waits before
service begins
• Server utilization
Example: Model 1
A) What is the average utilization of the employee?
 = 25 cust / hr
1 customer
= = 30 cust / hr
2 mins (1hr / 60 mins)
 25 cust / hr
= = = .8333
 30 cust / hr
Example: Model 1
B) What is the average number of customers in line?
2 (25) 2
Lq = = = 4.167
 (  -  ) 30(30 - 25)
C) What is the average number of customers in the system?
 25
Ls = = =5
 -  (30 - 25)
13
Example: Model 1
D) What is the average waiting time in line?
 25
Wq = = = .1667 hrs = 10 mins
 (  -  ) 30(30 - 25)
E) What is the average waiting time in the system?

1 1
Ws = = = .2 hrs = 12 mins
 -  30 - 25
14
mms.xls M/M/s Queueing Formula Spreadsheet
Inputs: Definitions of terms:

lambda 25 lambda = arrival rate
mu 30 mu = service rate
s = number of servers
Lq = average number in the queue
Ls = average number in the system
Wq = average wait in the queue
Ws = average wait in the system
P(0) = probability of zero customers in the system
P(delay) = probability that an arriving customer has to wait
Outputs:
s Lq Ls Wq Ws P(0) P(delay)Utilization
1 4.1667 5.0000 0.1667 0.2000 0.1667 0.8333 0.8333

Example: CVS
Manager is considering two ways of using
cashiers: ( Assume customers arrive randomly
at a rate of 15 per hour)
• 1 fast clerk -- serves at an average of 2
minutes per customer
or
• 2 moderate clerks -- each serves at an
average of 4 minutes per customer

P(delay) = probability that an arriving customer has to wait
Outputs:
0
1 0.5000 1.0000 0.0333 0.0667 0.5000 0.5000 0.5000
2 0.0333 0.5333 0.0022 0.0356 0.6000 0.1000 0.2500

P(0) = probability of zero customers in the syste
P(delay) = probability that an arriving customer h
Outputs:
0
1 infinity infinity infinity infinity 0.0000 1.0000 1.0000
2 0.3333 1.3333 0.0222 0.0889 0.3333 0.3333 0.5000
3 0.0455 1.0455 0.0030 0.0697 0.3636 0.0909 0.3333

lambda 7.5 lambda = arrival rate
P(delay) = probability that an arriving customer has to w
Outputs:
0
1 0.5000 1.0000 0.0667 0.1333 0.5000 0.5000 0.5000
2 0.0333 0.5333 0.0044 0.0711 0.6000 0.1000 0.2500
3 0.0030 0.5030 0.0004 0.0671 0.6061 0.0152 0.1667
M/M/s Queue with Priority
s servers, one line, priority (high or low)

Poisson arrivals, high priority arrival rate = low priority arrival rate = 2
Exponential service time, service rate at each server = 
Performance measures (high and low):

utilization,
probability of delay
average number of customers in system ===> On-line queueing spreadsheets
average throughput time
average queue length
average waiting time
M/M/s-Priority Queueing Spreadsheet
mms_priority.xls M/M/s Priority Queueing Formula Spreadsheet

lambda HIGH 0.16667 lambda HIGH= arrival rate of high priority class
lambda LOW 0.16667 lambda LOW= arrival rate of low priority class
mu 0.25 mu = service rate (assumed the same for both HIGH and LOW)
P(delay) = probability that an arriving customer has to wait (same for both HIGH/LOW)
High Priority Low Priority Both Classes

Outputs:
s Lq Ls Wq Ws Utilization Lq Ls Wq Ws Utilization P(0) P(delay) Total Util.
0
1 infinity infinity infinity infinity 0.6667 infinity infinity infinity infinity 0.6667 0.0000 1.0000 1.0000
2 0.2667 0.9333 1.6000 5.6000 0.3333 0.8000 1.4667 4.8000 8.8000 0.3333 0.2000 0.5333 0.6667
3 0.0517 0.7183 0.3099 4.3099 0.2222 0.0930 0.7596 0.5579 4.5579 0.2222 0.2542 0.1808 0.4444
4 0.0104 0.6770 0.0621 4.0621 0.1667 0.0155 0.6822 0.0932 4.0932 0.1667 0.2621 0.0518 0.3333
5 0.0019 0.6686 0.0116 4.0116 0.1333 0.0026 0.6693 0.0159 4.0159 0.1333 0.2634 0.0126 0.2667
6 0.0003 0.6670 0.0020 4.0020 0.1111 0.0004 0.6671 0.0025 4.0025 0.1111 0.2636 0.0026 0.2222
7 0.0001 0.6667 0.0003 4.0003 0.0952 0.0001 0.6667 0.0004 4.0004 0.0952 0.2636 0.0005 0.1905
8 0.0000 0.6667 0.0000 4.0000 0.0833 0.0000 0.6667 0.0001 4.0001 0.0833 0.2636 0.0001 0.1667
9 0.0000 0.6667 0.0000 4.0000 0.0741 0.0000 0.6667 0.0000 4.0000 0.0741 0.2636 0.0000 0.1481
10 0.0000 0.6667 0.0000 4.0000 0.0667 0.0000 0.6667 0.0000 4.0000 0.0667 0.2636 0.0000 0.1333
Suggestions for Managing
Queues
• Do not overlook the effects of perceptions
management.
• Determine the acceptable waiting time for your
customers.
• Install distractions that entertain and physically
involve the customer.
• Get customers out of line.
• Only make people conscious of time if they grossly
overestimate waiting times
Perceptions of waiting times
• Unoccupied delays feel longer than occupied
delays
• Pre-process delays feel longer than in-process
delays
• Anxious delays feel longer than relaxed delays
• Unacknowledged delays feel longer than
acknowledged delays
• Waiting alone vs. waiting with others
Suggestions for Managing
Queues
• Modify customer arrival behavior.
• Keep resources not serving customers out of
sight.
• Segment customers by personality types.
• Adopt a long-term perspective.
• Never underestimate the power of a friendly
server
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B7801: Operations Management

27 March 1998 - Agenda

•direct labor •facility utilization

2) Driver of Operating Performance Capacity Utilization

How do firms match capacity to demand?

– evaluation/robustness What is our cost structure?

What is the effect of forecast

detailed prod. scheduling

– trade-off: detail vs. forecast accuracy

Total Plan Rev. (x $10,000 ) $249.60 100.00%

Total Plan Rev. (x $10,000 ) $249.60 100.00%

Total Plan Rev. (x $10,000 ) $249.60 100.00%

Customer Waiting Line

1. Everyone is an expert on services.

2. Services are idiosyncratic.

3. Quality of work is not quality of service.

4. High-contact services are experienced, whereas goods are

5. We cannot inventory services (capacity becomes dominant

• You cannot store service

• If you cannot store output, you

• Who is our customer?

Degree of customer/server contact

High none some much Low

• The production line approach

• The self-service approach

• The personal attention approach

• Average time spent waiting in queue

• Maximize process flexibility

2. Services are idiosyncratic.

3. Quality of work is not quality of

4. It is structured so that consistent performance by its

6. It manages the evidence of service quality in such

Customer Waiting Line

– HOW MANY TELLERS ARE NEEDED?

# Tellers Avg. Delay Utilization

Bank tellers’ Hospital

• Average service time per customer

• The number of servers

• Speed and convenience of service delivery

• The self-service approach

• The personal attention approach

A) What is the average utilization of the employee?

C) What is the average number of customers in the system?

E) What is the average waiting time in the system?

Inputs: Definitions of terms:

1 4.1667 5.0000 0.1667 0.2000 0.1667 0.8333 0.8333

Inputs: Definitions of terms:

Inputs: Definitions of terms:

Inputs: Definitions of terms:

s servers, one line, priority (high or low)

Performance measures (high and low):

mms_priority.xls M/M/s Priority Queueing Formula Spreadsheet

Inputs: Definitions of terms:

High Priority Low Priority Both Classes

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