MGT 563 OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

Recap Lecture 09 Concept of Quality Importance of Quality Quality Gurus The elements of TQM European Foundation for Quality Management (EFQM) Model Deming 14 Points

3 Characteristics of Service Intangible No finished goods (cannot be “inventorized”) Simultaneous production and consumption Difficulty in defining and measuring quality and productivity Perishability

4 The Shift to Services

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

Differences Between Manufacturing and Service (Table 5.1) 6

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

Service-Product Bundles The Service-Product Bundles has three parts: tangible service (explicit service)—what the seller does for you. psychological benefits (implicit service)—how you feel about it. physical goods (facilitating goods & facilities)

Production of Services versus Goods Services are heterogeneous. Customers served as first come, first served. Labor is scheduled but may idle. Location often near customers. Result: service production tends to be _______ efficient than production of goods.

How would you measure Efficiency or Inefficiency in services?

Customer Contact Model Potential inefficiency in services is a function of the amount of customer contact Customer Contact Definition of “contact”—interaction between service provider and the customer. Why so? Variability Customer determines the time Customer determines the order of service Customer influences what happens during the service

Standardized with options; Using moderately repeatable sequence. Co-Routed Stock brokerage, medical practice Provider Routed ATM Standardized with highly repeatable process sequence. Highly customized with unique process sequence. Customer Routed Estate planning, personal trainer 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 Service Matrix

13 Service Operations II (Service Design)

Technology in Service Design Production-line approach to service Services should be standardized and delivered in an efficient manner Service facility designed to minimize mistakes As much automation as possible Service is provider routed with low customization

Technology in Service Design (2 nd view/approach) Employees as the Center of Service Delivery Technology should support, not replace workers Train front-line workers as much as managers Value investment in employees as much as in technology Link compensation to performance at all levels

16 Customer Contact Design High contact (front room) services Direct customer contact Customer has more control of process Low-contact (back room) services Out of sight of customer Provider has more control of process Goal: move as much activity as possible to the back room—why?

17 Service Blueprint of Luxury Hotel

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

19 Capacity Management Strategies Two key strategic issues How can we manage the capacity? How can we manage the demand?

20 Managing Capacity Part-time workers Shift scheduling Co-production -- get the customer involved Cross-trained workers Information technologies Focus factory -- reduce complexity

21 Managing Demand Forecasting Advertising Reservation systems Yield management Pricing Market segmentation

22 Customer Interface Strategies 1.Get the customer OUT of the process 2.Get the customer IN the process 3.Understand that your employees make the difference

23 Approaches to Service Design Production-line Customer as co-producer Customer contact Information empowerment

24 Service Operations III (Service Quality)

25 Service Quality Attributes Search -- attributes customers can evaluate before purchase. Experience -- attributes that customers can evaluate only during consumption. Credence -- attributes difficult to evaluate even after consumption.

26 Service Quality Strategies 1.Understand the service gaps model 2.Design and implement a formal service recovery system 3.Institute service guaranties where appropriate 4.Conduct appropriate customer satisfaction surveys 5.People make the difference

27 Service Quality Strategies Understanding the gaps

28 Service Quality Strategies Understanding the gaps Expected Service Perceived Service Systems, Standards Gap 3 Process Design Gap Gap 5 Perjury Gap Gap 1 Service Quality Gap Conceptual Model of the Customers’ Expectations Gap 2 Service Design Gap Customer Provider Intrinsic needs Experience - others Experience - us Communications Gap 4 Production Gap Service Delivered

29 Service Quality Strategies 1.Understand the service gaps model 2.Design and implement a formal service recovery system

30 Service Quality Strategies 1.Understand the service gaps model 2.Design and implement a formal service recovery system Listen Apologize and show empathy Ask the “recovery” question … “What can we do to satisfy you completely?” Fix the problem quickly - prioritize customers and escalate if needed Follow-up -- is the problem fixed … is the relationship fixed?

31 Service Quality Strategies 1.Understand the service gaps model 2.Design and implement a formal service recovery system 3.Institute service guaranties where appropriate

What is a Good Service Guarantee? Unconditional Meaningful The payout fully covers customer dissatisfaction Easy to understand and communicate For customers For employees Painless to invoke