Chapter 5 questions – 327
Chapter 5:
Service Delivery System Design
Operations Management in the
Supply Chain: Decisions and Cases,
6th edition
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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Chapter 5 Outline • Defining Service
• Service-Product Bundle
• Service Delivery System Matrix
• Customer Contact
• Service Recovery and Guarantees
• Globalization of Services
• Employees and Service
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The Service Economy
Sources: Government Accountability Office; Bureau of Labor Statistics; S&P Capital IQ; iSuppli
Largest 15 U.S. employers • 1960
• 12 manufacturers
• 3 services
• 2010
• 3 manufacturers
• 12 services
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Services in Europe
“The Service Sector accounts for about 70% of the European economy.”
Source: The Wall Street Journal, 4 March 2005, p. A13
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Defining Service
• Intangibility of the offering
• Simultaneous production and consumption
• No finished goods inventory
• Front office vs. back office
• Cannot be stored/resold
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Service-Product Bundle
• Tangible service - explicit service • what the provider does for customer
• Psychological benefits - implicit service • how customer feels after service
• Physical goods - facilitating goods • used during service or received by customer
Pizza
delivery
Pizza
Speed/
convenience
Delivery
vehicle
Enjoyment
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Goods and Services Packages (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
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Service Delivery System Matrix (Figure 5.2)
Standard with options, using
moderately repeatable
sequence.
Customer has
some decision-making power.
Co-routed
•Stock brokerage
Provider Routed
•ATM
Standardized with highly
repeatable process
sequence.
Customer has
low decision-making power.
Highly customized with unique
process sequence.
Customer has
great decision-making power.
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
S e rv
ic e D
e li
v e ry
S y
st e m
D e si
g n
Customer Wants and Needs in the Service Package
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Customer Contact
• Definition: Extent of interaction between service
provider and customer
• Lower contact = provide routed (standardized)
• Higher contact = customer routed (customized)
Potential inefficiency = f (degree of customer contact)
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Customer Contact (see Fig. 5.3) • Low customer contact
• Higher production efficiency
• Lower sales opportunity
• Workers with technical skills
• Focus on paper handling
• Office automation
• High customer contact • Lower production efficiency
• Higher sales opportunity
• Workers with diagnostic skills, more flexible and personable
• Focus on client mix
• Client/worker teams
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Customer-Introduced Variability • Arrival
• when customers will arrive to consume a service
• Request • what customers ask for in the service-product bundle
• Capability • ability of customers to participate
• Effort • willingness of customers to participate
• Subjective preference • preferences of customers in how service is carried out
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Manager’s Tool: Service Recovery • Failing right before the customer’s eyes!
• Actions to compensate the customer for a failed
service.
• Swift and appropriate action.
• Fly in customer’s soup New bowl of soup plus free
dessert!
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Manager’s Tool: Service Guarantee
• Benefits to the customer
• Promise of service to be delivered
• Payout to customer if promise not delivered
• FedEx package delivery On time, or it is free!
• Good for the organization
• Focuses on customer (service promise)
• Clearly defines payout
• Improves customer loyalty
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Technology-Enabled Services Contrasting Views:
• Production-line approach to service
• Standardization
• Automation
• Employees are the center of service delivery
• Use technology to support front-line employees
• Value investments in both employees & technology
• Place importance on recruiting front-line employees
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Outsourcing & Offshoring 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.
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Study of Offshoring (Duke and Booz & Co. 2008) • Transaction-intensive services becoming commoditized (call
centers, etc.)
• Professional services more commonly offshored
• High-end niche providers are globally dispersed
• Firms moving fast to scoop up global talent
• Collaboration and maintaining quality challenging with
globally dispersed providers
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Service Profit Chain (Figure 5.4)
• Internal service quality, leads to…
• Employee satisfaction, leads to…
• Employee retention & productivity, lead to…
• External service value (to customer), leads to…
• Customer satisfaction, leads to…
• Customer loyalty, leads to…
• Revenue growth & profitability (the goal) • which feeds investment back into internal service
quality
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Chapter 5 Summary
• Defining Service
• Service-Product Bundle
• Service Delivery System Matrix
• Customer Contact
• Service Recovery and Guarantees
• Globalization of Services
• Employees and Service