1. SERVICE RESPONSE LOGISTICS
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.

2. 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.

3. 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. 3
©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.

4. 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.

5. 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

6. 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

7. An Overview of Service Operations (Continued)
Service Productivity
Outputs produced (ex. sales amount)
Inputs (single factor productivity) (ex. labor hours)
Inputs (multiple-factor productivity) (ex. labor, material, energy, & capital).
Productivity =
Outputs produced
Inputs used

8. An Overview of Service Operations (Continued)
Service Productivity
Baumol’s 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.

9. 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.

10. An Overview of Service Operations (Continued)
Service Strategy Development
Cost Leadership Strategy
Requires large capital investment in state-of-the art equipment & significant efforts to control & reduce costs.
Differentiation Strategy
Unique service is created as companies listen to customers.
Focus Strategy
Serve a narrow niche better than other firms

11. 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)

12. 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

13. 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.

14. 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!

15. Supply Chain Management in Services (Continued)

16. The Primary Concerns of Service Response Logistics
Service Response Logistics (SRL)
The management and coordination of the organization’s 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

17. The Primary Concerns of Service Response Logistics (Continued)
Managing Service Capacity
Service capacity is the # of customers per day the firm’s 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

18. The Primary Concerns of Service Response Logistics (Continued)
Managing Service 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
Capacity Utilization =
Actual customers served per period
Capacity

19. Graph of Level vs. Chase Strategy
In a level production strategy demand will fluctuate while production will remain relatively constant at the average demand level. In a chase demand strategy, as demand increases and decreases, workers will be hired and fired as necessary to match production with demand.

20. 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

21. 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

22. 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?

23. The Primary Concerns of Service Response Logistics (Continued)
Managing Queue Times
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
Where λ = average customer arrivals in time period t
e = (natural log base)
x = number of arrivals
Px(T) =
e -λT (λt) x x!

24. 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

25. 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

26. 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 –μT
Where e = (natural log base)
μ = the average service rate
T = time

27. The Primary Concerns of Service Response Logistics (Continued)

28. 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
λ – average arrival rate
μ= average service rate
ρ= average server utilization = λ/μ
Ls = expected customers in system = λ/(μ-λ)
Lq = expected customers in queue = λ2/[μ(μ -λ) = Ls - λ/μ
Ws = expected waiting time in system = l(μ-λ) = Ls/ λ
Wq = expected waiting time in queue = λ/[μ(μ - λ )] = Lq/λ
Pn = probability of n units in the queuing system
= (λ/μ)n(1 - λ/μ)

29. Queuing System Applications
The Multiple Channel Single Phase Model
λ – average arrival rate
sμ = average service rate
ρ = average server utilization = λ/sμ
P0 = probability of zero customers in the system =
Lq = expected number of customers in queue = P0
(λ/μ)s (λ/sμ)
s!(1-λ/sμ)2
Ls = expected number of customers in system = Lq + λ/μ
Wq = expected waiting time in queue = Lq/λ
Ws = expected waiting time in the system = Wq + 1/μ

30. 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

31. 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

32. 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 region’s markets, suppliers, infrastructure, government regulations, & customers.
Must address language & cultural barriers

33. 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)

34. 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 firm’s employees to satisfy customers varying expectations

35. 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

36. 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