Chapter 5, Service Process Design INTRODUCTION to Operations Management 5e, Schroeder Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

5-2 Chapter Outline Defining Service Service-Product Bundle Service Matrix Customer Contact Service Recovery and Guarantees Globalization of Services Employees and Service

5-3 The Shift to Services

5-4 Services in Europe “The Service Sector accounts for about 70 percent of the European economy.” Source: Wall Street Journal, 4 March 2005, p. A13

5-5 Defining Service Key Concepts Intangibility of the offering Simultaneous production and consumption No finished goods inventory Front office vs. back office Difficulty in defining and measuring quality and productivity Other differences between manufacturing and service ( See Table 5.1 )

5-6 Service-Product Bundles Tangible service (explicit service)—what the seller does for you. Psychological benefits (implicit service)— how you feel about it. Physical goods (facilitating goods)—what you can carry away.

5-7 Comparison of Goods and Services ( Figure 5.1 ) 100%75%50%25%0%100%75%50%25% Self-service groceries Automobile Installed carpeting Fast-food restaurant Gourmet restaurant Auto maintenance Haircut Consulting services Goods Services

5-8 SERVICE MATRIX (Figure 5.2) Standard with options, using Moderately repeatable Sequence. Co-routed Stock brokerage Provider Routed ATM Standardized with highly repeatable process sequence. Highly customized with unique process sequence. Customer Routed Estate planning Many process pathways, jumbled flows, complex work with many exceptions Moderate number of process pathways. Flexible flows with some dominant paths, moderate work complexity. Limited number of process pathways. Line flows, low complexity work. Operations Service System/Process Design Customer Wants and Needs in the Service Package

5-9 Customer Contact Definition of “contact”—interaction between service provider and the customer.

5-10 Customer Contact Matrix (see Fig. 5.3) Low customer contact –High production efficiency –Low sales opportunity –Workers with clerical skills –Focus on paper handling –Office automation High customer contact High customer contact –Low production efficiency –High sales opportunity –Workers with diagnostic skills –Focus on client mix –Client/worker teams

5-11 Customer Contact Inefficiency Potential inefficiency in services is a function of the amount of customer contact Why? Customer must be managed –Customer determines the time in service system –Customer determines the sequence of service –Customer influences what happens during the service and may require support services such as food and bathrooms

5-12 Customer Contact Variability Types of Variability induced by customers in service delivery: arrival – when they arrive to consume a service request – what they ask for in the bundle capability – ability of customers to participate effort – willingness of customers to participate subjective preference – preferences of customers in how service is carried out

5-13 Customer Contact Directness High contact (front office) services –Direct customer contact –Customer has control of process Low-contact (back office) services –Out of sight of customer –Provider has control of process Goal: move non-value-added activities to back office—why?

5-14 Related Concepts Service Recovery –What you do to compensate the customer for bad service. –Fly in your soup: new bowl of soup plus free dessert Service Guarantee –Analogous to a guarantee for a product –Requires specific criteria and responses –Pizza delivery: 30 minutes or it is free!

5-15 Technology in Services Contrasting Views: Production-line approach to service –Standardization –Automation Employees are the center of service delivery –Technology to support front-line employees –Value investments in employees –Place importance on recruiting front-line employees

5-16 Outsourcing & Offshoring of Services Outsourcing: having an organization outside your own firm perform service activities such as workforce recruiting, payroll management, accounting services, and call center functions. Offshoring: the export of these service activities to other countries.

5-17 Employees and Service Links in the service-profit chain (See Figure 5.4) Internal service quality, leads to… Employee satisfaction, leads to… Employee retention & productivity, lead to… External service value, leads to… Customer satisfaction, leads to… Customer loyalty, leads to… Revenue growth & profitability (the goal)

5-18 Summary Defining Service Service-Product Bundle Service Matrix Customer Contact Service Recovery and Guarantees Globalization of Services Employees and Service

5-19 End of Chapter Five