1. ISM 270 Service Engineering and Management

2. ISM 270: Service Engineering and Management  Focus on Operations Decisions in the Service Industry  Open to students with an undergraduate engineering/science degree  Learn analytical tools and software for decision making  Featuring guest lectures from industry practitioners  Text: Fitzsimmons & Fitzsimmons ‘Service Management’ Operations, Strategy, Information Technology

3. Topics covered  The nature of service enterprises  Strategy for new service development Technology in services  Quality in service encounters  Forecasting demand  Managing service capacity  Supply chains in services  Globalization and outsourcing

4. Skills / Tools Learned Programming Tools Spreadsheet Programming Spreadsheet Programming Optimization Solvers Optimization Solvers Littlefield Management Simulation Littlefield Management Simulation Analytical Methods Linear Programming Linear Programming Data Envelopment Analysis Data Envelopment Analysis Statistics for Forecasting Statistics for Forecasting Capacity Management and Queueing Theory Capacity Management and Queueing Theory Project Management Under Uncertainty Project Management Under Uncertainty Theory of Service Supply Chains Theory of Service Supply Chains

5. Sample Project Utilizing statistics for web service development

6. ISM 270: Details  6 – 9pm, Thursday evenings  January 6 – March 9 (Winter) 2010  UCSC Silicon Valley Center and/or Basking Engineering room 156  Instructor: Kevin Ross kross@soe.ucsc.edu kross@soe.ucsc.edu

7. Who is here?  My background  Brief introductions, student survey

8. Logistics  Location  Class website  Readings  Text book  Office hours 5-6pm before class, or by appointment 5-6pm before class, or by appointment  Fee for Simulation Game (~$20)

9. Class Plan  Allotted class time = 3 hours  Average adult attention span = 20 minutes  …  Lecture / visitor / lab / split

10. Computer issues  Who has a laptop?  Web access  Finding research papers  Excel, solver, …

11. Please…  Bring: Paper, pen, laptop, … Paper, pen, laptop, … Opinions Opinions Questions Questions Interesting articles, stories, anecdotes Interesting articles, stories, anecdotes  Provide feedback!!!  Make every effort to keep up with readings etc.

12. Schedule ClassDateText ChaptersTopicGuest Speaker Assessment 1 Jan 61, 2 The nature of service enterprises 2 Jan 133, 4 Strategy for new service development Paul Maglio 3 Jan 205 Technology in servicesGeoff Ryder Homework 1 due 4 Jan 276,7, 8, 9 Quality in service encounters Homework 2 due 5 Feb 3 10 Project ManagementAnne Robinson Project Assigned 6 Feb 1011 Forecasting demandVijay Mehrotra Homework 3 due 7 Feb 1712, 13, 14 Managing service capacity Project Proposal Due 8 Feb 2415, 16 Supply chains in servicesCharles Ng Homework 4 due 9 Mar 2 Littlefield Technologies Service Management Game Challenge Homework 5 due 10 Mar 917 Globalization and outsourcing Final Project Report due

13. Assessment AssessmentValue Due Date Homework50%Weekly Simulation Projects 10% Feb 24 Final Project 40% March 9

14. Sample Previous homework: Applying the Excel solver tool for data envelopment analysis (DEA)

15. Sample Previous Homework 2: use AJAX calls to build a mashup with the Google Maps API

16. Sample Previous Homework 3: learn to use SAS Enterprise Miner

17. Project  More details later…  Focus on new service development  Written and Verbal Presentation at final class March 9

18. Questions and Break

19. Remaining in Lecture 1  Services in the Economy  Data Envelopment Analysis Linear Programming Linear Programming Excel Excel

20. Perspective  World-wide trends  Personalization trends

21. Text Chapter 1: Role of Services in an Economy Text Chapter 1: Role of Services in an Economy Service Management Professor James Fitzsimmons University of Texas at Austin

22. Quiz Question  Name the top 10 USA companies by revenue in 2010  How many would you describe as service companies?

23. Top 10 Fortune 500 1 Wal-Mart Stores 408,214.0 14,335.0 2 Exxon Mobil 284,650.0 19,280.0 3 Chevron 163,527.0 10,483.0 4 General Electric 156,779.0 11,025.0 5 Bank of America 150,450.0 6,276.0 6 ConocoPhillips 139,515.0 4,858.0 7 AT&T 123,018.0 12,535.0 8 Ford Motor 118,308.0 2,717.0 9 J.P. Morgan Chase 115,632.0 11,728.0 10 Hewlett-Packard 114,552.0 7,660.0 Revenue ($m) Profit ($m)

24. Definitions  What are services?  Service enterprises?

25. Service Definitions Intangible goods? Services are deeds, processes, and performances. Valarie Zeithaml & Mary Jo Bitner A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer. A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer. James Fitzsimmons Folks doing things for folks for Money Paul Magio

26. Definition of Service Firms Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives. Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives. James Fitzsimmons James Fitzsimmons

27. Services Science, Management and Engineering …the application of science, management, and engineering disciplines to tasks that one organization beneficially performs for and with another (Wikipedia)(Wikipedia)

28. Role of Services in an Economy

29. Percent Employment in Services Top Ten Postindustrial Nations Country19651975198519952005 United States59.566.470.074.178.6 United Kingdom51.358.364.171.477.0 The Netherlands52.560.968.373.476.5 Sweden46.557.766.171.576.3 Canada57.865.870.674.876.0 Australia54.661.568.473.175.8 France43.951.961.470.074.8 Japan44.852.057.061.468.6 Germany41.8n/a51.660.868.5 Italy36.544.055.362.265.5 1-29

30. Stages of Economic Activity Primary (Extractive): Agriculture, Mining, Fishing, Forestry Secondary (Goods-Producing): Manufacturing, Processing Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance Quaternary (Trade and Commerce): Transportation, Communications, Retailing, Finance, Government Quinary (Extending Human Potential): Health, Education, Research, Arts, Recreation 1-30

31. Trends in U.S. Employment by Sector 1-31

32. Stages of Economic Development Pre- Use of Standard Pre- Use of Standard dominant Human Unit of of Living dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure Technology Society Game Activity Labor Social Life Measure Structure Technology Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools power Authoritative Industrial Nature Mining muscle household sistence Traditional tools power Authoritative Industrial Against Goods Machine Individual Quantity Bureaucratic Machines Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical fabricated production tending of goods Hierarchical nature nature Post- Among Services Artistic Community Quality of Inter- Information Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent industrial Persons Creative life in terms dependent Intellectual health, Intellectual health, education, education, recreation recreation 1-32

33. Percent Distribution of U.S. Employment by Industry 1-33

34. Projected Percent Change in U.S. Employment by Industry -20%-10%0%10%20%30% Health care and social assistance Professional and business services Educational services Financial services Leisure and hospitality Other services Construction Transportation and utilities Information State and local government Retail and wholesale trade Federal government Agriculture and mining Manufacturing All Industry Average 1-34

35. Economic Evolution EconomyAgrarianIndustrialServiceExperience Economic Offering FoodPackaged goods Commodity service Consumer services Business services FunctionExtractMakeDeliverStageCo-create NatureFungibleTangibleIntangibleMemorableEffectual AttributeNaturalStandardizedCustomizedPersonalGrowth Method of Supply Stored in bulk InventoriedDelivered on demand Revealed over time Sustained over time SellerTraderProducerProviderStagerCollaborator BuyerMarketCustomerClientGuestCollaborator ExpectationQuantityFeaturesBenefitsSensationsCapability 1-35

36. The Four Realms of an Experience 1-36

37. Experience Design Principles  Theme the Experience (Forum shops)  Harmonize Impressions with Positive Cues (O’Hare airport parking garage)  Eliminate Negative Cues (Cinemark talking trash containers)  Mix in Memorabilia (Hard Rock T-shirts)  Engage all Five Senses (Mist in Rainforest) 1-37

38. Typology of Services in the 21 st Century Core ExperienceEssential FeatureExamples CreativePresent ideasAdvertising, theater EnablingAct as intermediaryTransportation, communications ExperientialPresence of customerMassage, theme park ExtendingExtend and maintainWarranty, health check EntrustedContractual agreementService/repair, portfolio mgt. InformationAccess to informationInternet search engine InnovationFacilitate new conceptsR&D services, product testing Problem solvingAccess to specialistsConsultants, counseling Quality of lifeImprove well-beingHealthcare, recreation, tourism RegulationEstablish rules and regulationsEnvironment, legal, patents 1-38

39. Source of Service Sector Growth  Information Technology (e.g. Internet)  Innovation Push theory (e.g. Post-it) Pull theory (e.g. Cash Management) Services derived from products (e.g. Netflix) Services derived from products (e.g. Netflix) Exploiting information (e.g. Auto part sales) Exploiting information (e.g. Auto part sales) Difficulty of testing service prototypes Difficulty of testing service prototypes  Changing Demographics Aging of the population Two-income families Growth in number of single people Home as sanctuary 1-39

40. Distribution of GDP in the US Economy ProductServices Physical Information 6% 10% 31% 53% 37% 63% 84% 16% D BA C 1-40

41. Question: What has engineering got to do with all of this?

42. Discussion Topics  Describe the work that you do from a service perspective  Illustrate how the type of work you do influences a person’s lifestyle.

43. Example Service Innovation: Disney World  Link Link

44. Lessons from Disney

45. Data Envelopment Analysis (DEA)  Method for evaluating efficiency of similar venues/products  Incorporates inputs and outputs – not just one dimensional  Uses LINEAR PROGRAMMING (LP)

46. Sample LP: Product Mix Problem  How much beer and ale to produce from three scarce resources: 480 pounds of corn 480 pounds of corn 160 ounces of hops 160 ounces of hops 1190 pounds of malt 1190 pounds of malt  A barrel of ale consumes 5 pounds of corn, 4 ounces of hops, 35 pounds of malt  A barrel of beer consumes 15 pounds of corn, 4 ounces of hops and 20 pounds of malt  Profits are $13 per barrel of ale, $23 for beer

47. Sample LP: Transportation Problem  A firm produces computers in Singapore and Hoboken.  Distribution Centers are in Oakland, Hong Kong and Istanbul  Supply, demand and costs summary: Oakland Hong Kong IstanbulSupply Singapore8537119500 Hohboken5318994300 Demand350250200

48. Other LP examples  Blending problem  Diet problem  Assignment problem

49. Key terms of LP  Variables  Parameters  Objective function  Constraints

50. Standard Form (according to Hillier and Lieberman) Concise version: A is an m by n matrix: n variables, m constraints

51. Geometry of LP  Consider the plot of solutions to a LP

52. Data Envelopment Analysis (DEA)  Method for evaluating efficiency of similar venues/products Incorporates inputs and outputs – not just one dimensional Incorporates inputs and outputs – not just one dimensional Uses LINEAR PROGRAMMING (LP) Uses LINEAR PROGRAMMING (LP)  KEY IDEA: Weight the inputs and outputs to make one unit as efficient as possible, relative to all others Weight the inputs and outputs to make one unit as efficient as possible, relative to all others If this is 100% efficient, then the unit is on the frontier of efficiency; If this is 100% efficient, then the unit is on the frontier of efficiency; If less than 100%, there are other units that could utilize the SAME inputs for MORE outputs If less than 100%, there are other units that could utilize the SAME inputs for MORE outputs

53. DEA Example from Text: Burger Palace  Small, artificial example for illustration!  Page 68 of 5 th edition, text  Burger chain has six units in several cities Each unit uses different combination of labor hours and dollars to produce meals Each unit uses different combination of labor hours and dollars to produce meals Which units use their resources most efficiently? Which units use their resources most efficiently?

54. Productivity of Burger Palace Service Units Service Unit Meals Sold Labor Hours Dollars 11002200 21004150 31004100 41006100 5100880 61001050

55. DEA summary of terms  Define variables E_k = efficiency of unit k E_k = efficiency of unit k u_j= coefficient for output j (relative decrease in efficiency per unit reduction of output value) u_j= coefficient for output j (relative decrease in efficiency per unit reduction of output value) v_i = coefficient for input i (relative increase in efficiency per unit decrease of input value) v_i = coefficient for input i (relative increase in efficiency per unit decrease of input value) O_jk = observed ouput j units generated by service unit k during one time period O_jk = observed ouput j units generated by service unit k during one time period I_ik = no. units input used by service unit k during one period I_ik = no. units input used by service unit k during one period  Note: k=1..K = service unit counter k=1..K = service unit counter j=1..M = output counter j=1..M = output counter i=1..N = input counter i=1..N = input counter

56. DEA Objective and constraints Evaluating unit e Trick = Rescaling to get linear equations

57. Next Week  Paul Maglio  Strategy in Services