Process-Flow Analysis

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McGraw-Hill Education
 Learning Objectives
▪ Describe process thinking and system boundaries.
▪ Explain how the process view of business is cross-
functional.
▪ Construct a process flowchart for a given process.
▪ Analyze a process by asking a wide variety of questions
informed by the process flowchart.
▪ Explain the principles of process redesign.

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 Process Flow Analysis
▪ Processes are encountered in all parts of a business, not only in operations and
supply chain management.
▪ Accountants use many processes, including collecting transactions, posting to the
ledger, trial balance, adjusting entries, financial statements, and closing entries.
Marketing managers also use numerous processes, including strategic planning,
marketing research, advertising, selling, and customer relations.
▪ All of these processes can be improved by the ideas of process-flow analysis
▪ Process-flow analysis requires viewing and analyzing the transformation process
as a sequence of steps connecting inputs to outputs. It is used to discover better
methods or procedures for producing and delivering a product or a service
deemed to be of value to customers.
▪ Measuring process flows is essential to process-flow analysis and to improving
transformation processes. Several process measures, including processing time,
throughput time, flow rate, inventory, and capacity.

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 Process Flow Analysis
▪ Throughput time refers to the total amount of time that it takes to run a particular
process in its entirety from start to finish. For example, a manufacturer can measure
how long it takes to produce a product, from initial customer order to sourcing raw
materials to manufacturing to sale.
▪ Processing time is the time between when an order is placed by a customer and
when the order is fulfilled by the business. how long you can expect it will take us to
process an application under normal circumstances. A processing time starts the day
we receive an application and ends when we make a decision.
▪ Flow rate is the speed at which fluid in a pipe moves, or the speed at which it moves
from a reservoir into a wellbore. the heart of a resting adult pumps blood at a rate of
5.00 liters per minute (L/min). Note that a liter (L) is 1/1000 of a cubic meter or 1000
cubic centimeters (10−3 m3 10 − 3 m 3 or103 cm3 10 3 cm 3 ).
▪ Inventory refers to all the items, goods, merchandise, and materials held by a
business for selling in the market to earn a profit. Example: If a newspaper vendor
uses a vehicle to deliver newspapers to the customers, only the newspaper will be
considered inventory.
▪ Production capacity is the maximum output that can be achieved in the production
of manufactured goods. It is generally a part-based metric that identifies the most
goods that can be created given a set amount of resources (time, labor, materials).
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 1. Process Thinking

▪ All work is a process.

▪ All business functions use processes.
▪ System: Collection of interrelated elements where…
Whole system > Sum of parts
▪ Apply systems thinking to business.
▪ Define system boundaries
▪ Use cross-functional teams for systems analysis.
▪ Include all affected functions

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 Process Thinking
▪ Process thinking is the point of view that all work can be seen as a
process. It begins by describing the process of interest as a system.
▪ A system is defined by its boundaries, inputs, outputs, suppliers,
customers, and system flows.
▪ System definition is needed before detailed measurement and
process flowcharting can begin.
▪ A system is a collection of interrelated elements whose whole is
greater than the sum of its parts. .
▪ A business organization can also be viewed as a system. Its parts are
the functions of marketing, operations, finance, accounting, human
resources, and information systems. Each of these functions
accomplishes nothing by itself.
▪ A business cannot sell what it cannot produce, and it does no good
to produce a product or service that cannot be sold.
▪ The functions in an organization are highly interactive and have
value as a system that they do not have separately.
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 Process Thinking
▪ Within operations, the transformation or conversion system is made up of workers,
equipment, customers (for services), and the activities that carry out the
transformation.
▪ The transformation system can be analyzed by first specifying the system
boundaries. The boundaries delineate the resources and activities in the system
being analyzed from those that are outside of the analysis and decision area.
▪ Identification of the system boundaries is always difficult and somewhat arbitrary,
but it must be done to separate the system being analyzed from the larger system
or organization in which it operates.
▪ In this sense, the boundaries of a firm separate the firm from the larger supply
chain in which it resides.
▪ To illustrate these concepts, consider the case of a bank that is installing a new information system.
The new system will replace the current one, with larger capacity, new hardware, and new software.
▪ Training will be required to operate the new system, and so human resources can be considered part
of the system.
▪ Operations will be affected by the new software and must be included within the system boundaries.
▪ Each part of the organization that is affected by the new information system should be included
within the system boundaries, and functions that are not affected can be excluded as being outside
the system boundaries.
▪ In this way, the appropriate system boundaries can be identified for purposes of analysis.
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 Process Thinking
▪ A cross-functional team should be formed, consisting of the
functions that are affected by the conversion to the new
information system.
▪ This team will be responsible for overseeing the conversion from
each of their functional perspectives and should handle the
interactions between functions.
▪ If this is done by a cross-functional team rather than workers from a
single function, a systems view of the project will be taken.
▪ This sort of process thinking considers all the interacting functions
within the system boundaries when making the conversion.

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 2. Process View of
Business
▪ One of the most important contributions of process thinking is that a business
can be viewed as a system that consists of a collection of interconnected
processes.
▪ The process view of a business is horizontal in nature; the functional view is
vertical. This is shown graphically in Figure 6.1.

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 Process View of Business

CEO

Marketing Operations Finance

Customer
request

Order
fulfillment

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 Process View of Business
▪ As an illustration of interconnected processes in a business, consider a scenario.
• A sales team has a process for creating the customer order, while at the same time
interacting with operations to ensure adequate capacity is available to fill the order.
• Other marketing personnel use a process for pricing the customer order. Once
operations receives the order, the necessary processes are used to produce enough
output to fill the order.
• The shipping area has a process for securing the order for delivery, and
transportation is scheduled to deliver the order to the customer.
• Finance uses its own processes to bill and receive payment from the customer, while
relying on pricing information from marketing and order size and delivery
confirmation from operations.
▪ Viewing a business as a collection of processes emphasizes the cross-functional
nature of decision making. It illustrates that functions must make handoffs to
one another in executing a process.
▪ As a result, time and information can be lost between processes. In some cases,
the number of steps in a process is so large that the system cannot function in
an efficient and effective manner.

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 3. Process
Flowcharting

Creating a visual diagram to describe (represent) a

transformation process
Also called (or similar to):
◦ Process mapping
◦ Flow-process charting
◦ Service blueprinting
◦ Systems flowchart

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 Process Flowcharting
▪ Process flowcharting is a tool for beginning to understand and improve processes
within a larger system. This is a very commonly used tool in a wide variety of
industries.
▪ It can be useful for almost any type of process, to gain understanding of the
activities that must occur for the process to successfully produce a product or
service.
▪ Process flowcharting refers to the creation of a visual diagram to describe a
transformation process. Flowcharting is known by several names: process
mapping, flow-process charting, and in a service operations context as service
blueprinting.
▪ Value stream mapping is yet another approach to process flowcharting
popularized by firms that implement lean systems and lean thinking.
▪ Creating a visual diagram can be invaluable in documenting what happens within
a transformation process. This pictorial documentation, when it includes process
measurements, such as time or cost, can help to identify how the transformation
process can be improved by changing some or all of the following elements:
1. Raw materials, 2. Product or service design, 3.Job design, 4. Processing steps or
activities used, 5. Management control information, 6.Equipment or tools, 7. Suppliers
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 Process Flowcharting
▪ While there are many different specific forms of the flowchart in use, the most
common is the systems flowchart.
▪ An example of a systems flowchart for the “selecting a supplier” process is
shown in Figure 6.2.
▪ In this example, the systems flowchart is drawn from the perspective of the
buyer within an organization and shows the discrete steps, along with decision
points and flow sequences, in selecting a supplier.

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 Process Flowcharting
The principles are as follows:
1. Identify and select a relevant transformation process (or system)
to study. This can be the entire supply chain for a product or a
service, the entire firm, or a part of the firm, for example, the
shipping department. Ideally, the selected transformation process
is thought to affect performance.
2. Identify an individual or a team of individuals to be responsible
for developing the flowchart and for subsequent analyses. This
individual or team should have some familiarity with the
transformation process and should have process ownership, that
is, authority for initiating and/or implementing changes to the
process. When a selected transformation process cuts across
different functions, a cross-functional team should be involved.
When a selected transformation process cuts across the supply
chain, interfirm collaboration becomes critical.

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 Process Flowcharting
3. Specify the boundaries of the transformation process. The
boundaries denote where the selected transformation process
begins and ends, identify the customer(s) and the supplier(s) of
the transformation process, and determine how many processing
steps or activities are to be evaluated. In some cases, a function
or department within an organization is the customer or supplier;
in other cases, another firm is the customer or supplier.
4. Identify and sequence the operational steps or the activities
necessary to complete the output for the customer(s). It is
important in process flowcharting to depict what is actually
happening and not what one thinks is happening. Once the “as it
is” flowchart has been created and the transformation process
has been analyzed, creating a “to be” flowchart may help show
what the transformation process should look like when
improvement changes have been implemented.
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 Process Flowcharting
5. Identify the performance metrics for the operational steps or
the activities within the selected transformation process.
These metrics should be tied to the performance of the overall
transformation process. For example, if delivery performance
is of interest, it may be useful to track the processing times for
each operational step or activity. Alternatively, if quality
performance is of interest, it may be useful to track the defect
rate for each operational step or activity.
6. Draw the flowchart, defining and using symbols in a
consistent manner. Figure 6.4 shows the common symbols in
Microsoft Visio for creating a systems flowchart. These
symbols were used in Figures 6.2 and 6.3 and are also
consistent with ISO 9000 standards for flowcharting.

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 Process Flowcharting
1. Select a transformation process to study.
2. Form a team to develop flowchart & for analysis (to
improve the system).
3. Specify the boundaries of transformation process.
4. Identify and sequence the operational steps.
5. Identify the performance metrics for the steps.
- e.g., time to complete each step

6. Draw the flowchart, using consistent symbols.

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 4. Questions to Ask in Process-
Flow Analysis
▪ Creating a flowchart of a transformation process is an important
first step in process-flow analysis.
▪ Once created, the flowchart can be analyzed to yield insights into
how the transformation process can be improved, given a specific
improvement goal.
▪ The improvement goal, for example, can be to increase efficiency,
reduce throughput time, improve quality, or even boost worker
morale.
▪ A systematic approach should be followed to analyze the created
flowchart and the underlying transformation process. This
approach is epitomized by asking questions about the flowchart
and, by extension, the underlying transformation process.
✓ Table 6.1 shows typical questions about the performance of a system
regarding flow, time, quality, quantity, and cost.
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Table 6.1: Process-flow Questions about
Performance

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 5. Process Redesign
▪ Process redesign usually starts with identifying critical processes required to
meet the customers’ needs. Then the critical processes, many of which cut
across organization boundaries, are analyzed in detail using the methods
described in this chapter.
▪ Changes are often made to these processes as a result of the insight from
process-flow analysis. These changes might include eliminating some steps and
combining others, or could be as extreme as a complete reconfiguration of
process steps. As a result, business processes are redesigned and integrated to
better serve the customer.
▪ The term business process reengineering (BPR) has also been used to label
extensive process redesign activities.
▪ In their famous book Reengineering the Corporation, Michael Hammer and
James Champy argue that most business processes are antiquated and need to
be completely redesigned. Many existing processes have been designed within
the confines of individual functions, such as marketing, operations, and finance
and also do not make use of complete information systems. As a result, these
processes take far too long to provide customer service and are inefficient and
wasteful.
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 Process Redesign
▪ Process redesign is radical redesign when processes simply cannot
be improved in small steps and require a complete rethinking and
rearrangement of process activities to improve them in a major
way, as was the case for the insurance company described above.
▪ Often radical redesign is supported by new technology, in the form
of either production technology or information technology.
▪ To pursue a successful radical redesign requires four principles:
1. Organize around outcomes, not tasks. The insurance company
was originally organized according to tasks, using the classic
division of labor. When the company reorganized around the
outcome, which was customer service, dramatic improvements
were made. A customer service representative handled all
activities associated with the desired outcome. Although it is not
always possible to have one person do everything, jobs can be
broadened and handoffs between departments can be
minimized.
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 Process Redesign
2. Have the people who do the work process their own information.
When bedside or portable information system access is available,
nurses can update patient electronic medical records as they are
dispensing medications to the patient. By doing so, nurses avoid
delaying the record update and also do not “hand off” the
information for input by someone else, thus reducing the
likelihood of inadvertent errors. This principle can be applied in
many situations in which information is passed from one
department to another.
3. Put the decision point where the work is performed, and build
control into the process. It is better to push decision making to the
lowest possible level. This will eliminate layers of bureaucracy and
speed up the decision-making process. In the insurance example,
the customer service representative had greater latitude to make
decisions directly for the customer rather than referring decisions
to other departments. To accomplish this, however, information
and controls must be built into the process itself.
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 Process Redesign
4. Eliminate unnecessary steps in the process. Simplifying the
processes frequently means that unnecessary steps and
paperwork are eliminated. Every step is examined by using
the flowcharting techniques discussed earlier, and only those
that add value for the customer should be retained. Process
redesign can be used to streamline and implify work flows.
▪ Process redesign is just one of many methods that can be used
to improve operations. It uses a process view of the organization
as a way of improving process flows. As a result of process
redesign, processes will be simplified, process flows improved,
and non-value-added work eliminated.

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 Principles of Process Redesign
• Organize around outcomes, not tasks.
• Have the people who do the work process their own
information.
Avoid handoffs, whenever possible.

• Put the decision point where work is performed, and

build control into the process.
Make decisions at lowest possible level.

• Eliminate unnecessary steps in the process.

Simplify, eliminate non-value-added activities.

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 END

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Process Flowcharting

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Fig 6.4: Common Flowcharting Symbols

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Symbols for Flow-Process Chart

Operation: task or work activity

Inspection: checking product quantity or quality

Transportation: movement of material from point to point

Storage: inventory of materials awaiting next operation

Delay: delay in sequence of operations

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Common Flowcharting Symbols

Terminator: “START” and “END”

Process: operation, activity, or task

Decision: evaluation or “IF-THEN”

Flow: materials, information, customer

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 5.Process Analytics
▪ Once a process flowchart aimed at improving a transformation process has
been created, some basic measures of a transformation process can be
described. Process analytics uses these measures to yield insights into the
structure and performance of a transformation process.
▪ Once a process flowchart aimed at improving a transformation process has
been created, some basic measures of a transformation process can be
described. Process analytics uses these measures to yield insights into the
structure and performance of a transformation process.
▪ Little’s Law shows that the average number of items in a system (I) is the
product of the average arrival rate to the system (R) and the average time an
item stays in the system (T). This average time in the system is throughput time,
the time from when the processing begins until the product or service is
completely finished. It includes both active processing time and any waiting
time that occurs during processing.
▪ In mathematical terms Little’s Law is stated as follows:

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 Measuring Process Flows
Little’s Law I=TxR

I = average number of things in the system (or

“inventory”)
T: average throughput time (processing time + waiting
time)
R = average flow rate into the process

◦ Relates number of items in the system (I) to arrival rate (R) and throughput
time (T).
◦ Assumes system is in a ‘steady state.’

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 Process Analytics
▪ In the case of airport security,
▪ if the security screeners can process an average of five passengers per minute (R = 5)
and it takes an average of 20 minutes to get through the security line (T = 20), the
average number of passengers in line (I) will be 100 (R × T = 100).
▪ An assumption is that the process is in a steady state in which the average output rate
equals the average input rate to the process.

▪ Little’s Law is very powerful and is widely used in practice. It applies to

manufacturing and service transformation processes. Little’s Law can be used in
a variety of settings and situations.
▪ Little’s Law applies to any steady-state transformation process including
manufacturing, people waiting in lines, invoice processing, transactions in a legal
office, and even accounts receivable processing. Little’s Law is useful when any
two of the three variables in the formula are known, then the third can be
calculated. The examples above show how this is done to calculate I and T. We
can also calculate R if we know I and T (R = I/T).

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 Process Analytics
▪ Next, we extend process analytics to include capacity, supply, and demand.
Capacity is the maximum rate of output from a transformation process or
the maximum flow rate that can be sustained over a period of time.
▪ In the airport security example, the average flow rate was five passengers
per minute, but the capacity of the security checkpoint may have been
greater, say, eight passengers per minute. With random arrivals (such as
passengers arriving to enter the line) it is necessary to have capacity that
exceeds the average arrival rate.
▪ If the arrival rate is greater than the capacity, the line will build up to an
infinite length due to the randomness of the arrivals. This occurs because
there are periods when the arrivals are less than the average and the full
capacity cannot be used during those times. Queuing (or waiting line)
theory, which is covered in a technical chapter,1 explains these phenomena
in detail.

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 Process Analytics
▪ Most processes are composed of several activities that require certain resources.
In the airport screening example resources include the workers who check each
passenger’s identification and boarding pass, operators who run the scanning
equipment, and the equipment itself. In general, if there are n resources that
process each transaction, then
Capacity = Minimum (capacity of resource1,...., capacity of resourcen)
▪ Note that the capacity of the entire process cannot be greater than the capacity
of the most constraining (the smallest capacity) resource, which is called the
bottleneck.
▪ The amount of output a transformation process actually produces will depend on
its capacity as well as the supply and demand of the process. The flow rate is as
follows: Flow rate = Minimum (Supply, demand, Capacity)

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Measuring Process Flows
System Capacity = capacity of the most constraining resource

→ The single resource with the least capacity is

called the bottleneck

Flow rate = minimum (Supply, Demand, Capacity)

Throughput time = from when processing begins until product or

service is completed

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Little’s Law Example
◦ People are in a line to get through security checks at a music festival.
An average of 10 people per minute are processed. People spend 24
minutes in line, on average.
◦ What is the average number of people in line?
◦ I=TxR
◦ I = 24 x 10 → I = 240 people in line, on average

◦ Same problem, but an average of 4 people per minute are processed,

and the average number of people in line is 240.
◦ What is the average time spent in line?
◦ T=I/R
◦ T = 240 / 4 → T = 60 minutes in line, on average

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 6. Pizza U.S.A. example
▪ To cement our understanding of the concepts of process analytics, let us look at a Pizza
U.S.A. example.
▪ Suppose that one of the pizza stores produces fresh pizza with seven different topping
choices, including the most popular “everything dump” pizza. The store is staffed by two
employees: a pizza chef and an assistant. It has an oven that can bake up to four pizzas at a
time. The transformation process (sequence of steps) followed at the store is as follows:
See Table1
Details: Assume all toppings added to every pizza. Two employees working
at a time.Oven can bake up to 4 pizzas at a time.
Activity Minutes Who/What
Take the order 1 Assistant
Make the crust 3 Chef
Prepare and add 2 Chef
ingredients
Bake the pizza 24 Oven
Cut pizza and box the 1 Assistant
order
Take payment 1 Assistant
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 Pizza U.S.A
1. What is the capacity of this process?
Looking at the three resources, we have:
The assistant takes 3 minutes per order (1 + 1 + 1) and thus can process 20
orders per hour. The chef takes 5 minutes per order (3 + 2) and can process 12
orders per hour.
The oven takes an average of 6 minutes per order (24 ÷ 4, because the oven
holds 4 pizzas at a time), or 10 orders per hour. For simplicity, we assume that
each order is for one pizza and that pizzas can be added to the oven any time
during the cooking cycle. The minimum of the three resource capacities is 10
orders per hour, and so the system can produce 10 orders per hour.
2. What is the bottleneck in this process?
The bottleneck in this case is the oven. The assistant is busy only half the time,
and the chef has 1 minute of idle capacity out of every 6 minutes of average
baking time. Reallocating jobs between the chef and the assistant to balance
the workload may make the chef happy but will not increase the flow rate of
the process. If Pizza U.S.A. wants to make more pizzas, something must be
done to accelerate the flow of pizzas through the oven, or another oven must
be added. The lesson here is that the process cannot produce more than the
bottleneck can process.
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 Pizza U.S.A
3. What is the throughput time?
If we assume there is no waiting time in this system, we simply add the times
of all the steps to fill an order: 1+3+2+24+1+1= 32mn
It takes 32 minutes to complete all the steps and make one pizza. Note that
adding an oven will increase the capacity and move the bottleneck to the chef,
but it will not change the throughput time. Changes would have to be made in
the actual process of cooking, preparation, or other flow times to reduce
throughput time.
4. What is the flow rate?
Assuming that demand and supply exceed capacity, the flow rate is
determined by the bottleneck capacity of 10 orders per hour. However, this is
the maximum flow rate; the actual flow rate could be much less. If either
demand or supply is less than capacity, then the smaller of the two will
determine the flow rate. In the following question, we assume demand is only
60 percent of capacity, for a flow rate of six pizzas per hour.

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 Pizza U.S.A
5. What does it cost to make a pizza if the average demand is 60 percent of
capacity?
Assume the chef gets paid $15 per hour, the assistant gets paid $11 per hour,
and overhead cost is 50 percent of direct labor cost. At 60 percent of capacity,
the average flow rate is six pizzas per hour. The cost per hour of operations is
$15 + $11 = $26 for labor plus 50 percent added for overhead = $39 per hour, or
$39 ÷ 6 = $6.50 per pizza. Assume the cost of ingredients is $2.00 per pizza.
Therefore, the total cost is $6.50 + $2.00 = $8.50 per pizza.
6. How can the unit cost of pizzas be reduced?
• Three possibilities are:
✓ Increase demand through pricing, advertising, or other means.
✓ If demand increases to exceed capacity, increase the flow rate of the entire
transformation process by means of automation or process improvements.
✓ Reduce the unit cost of labor, materials, or overhead.
• As you can see, these three approaches are interconnected because increasing
demand will also require an increase in capacity at some point, and increasing
the flow rate does no good unless demand is increased to sell the additional
product.
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 Map the Process

Take Make Prep/add

START
order crust ingredients
1 min. 3 min. 2 min.

Take Cut/box Bake

END
payment pizza pizza
1 min. 1 min. 24 min.

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What is the Throughput Time?

Throughput time = time to complete one

product or service

Pizza throughput time?

1 + 3 + 2 + 24 + 1 + 1 = 32 min.

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ALL RIGHTS RESERVED.
6-43
 What is Process Capacity?
3 resources

Assistant: 1+1+1=3 min. per pizza, 20 pizzas per hr.

Chef: 3+2=5 min. per pizza, 12 pizzas per hr.

Oven: 24/4=6 min. per pizza, 10 pizzas per hr.

Therefore…
process capacity (flow rate) = 10 pizzas/hour
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ALL RIGHTS RESERVED.
6-44
 What is the Process Bottleneck?
At an average process time of 6 min. per pizza…
the OVEN is the slowest activity…..
and that determines process capacity….
and is, therefore, the bottleneck.

The process cannot produce more

than the slowest activity.
(flow rate = 10 pizzas/hr)

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ALL RIGHTS RESERVED.
6-45
 Principles of Process Redesign
• Organize around outcomes, not tasks.
• Have the people who do the work process their own
information.
Avoid handoffs, whenever possible.

• Put the decision point where work is performed, and

build control into the process.
Make decisions at lowest possible level.

• Eliminate unnecessary steps in the process.

Simplify, eliminate non-value-added activities.

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6-46
 Because learning changes everything.®

Chapter 7

SERVICE PROCESSES

© 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.
 Learning Objectives
1. Understand the characteristics of service
processes.

2. Analyze simple service systems.

3. Understand Service-Product Bundle

4. Understand Customer Contact

5. Understand Service recovery and

Guarantee.
© McGraw Hill, LLC 2
.
1. Defining Service
Intangible:
▪ Being intangible, services can’t be touched or seen before the purchase decision.
Instead, services tend to be a performance rather than an object, which makes
them much more difficult for consumers to evaluate. To help consumers assess and
compare services, marketers try to make them tangible or show the benefits of
using the service.
▪ Their processes create value for customers by performing transformations that do
not result in a physical entity (product).
▪ However, services can be difficult to define and cannot be easily quantified;
✓ for example, do hospital patients consume one service or multiple services as they
receive tests and treatments—perhaps numerous in quantity? Rather than specify a
formal definition of a service, it is important to consider the characteristics of such
processes and their implications for both managers and customers.
Simultaneous, Inseparability
▪ Inseparability means that the consumer cannot distinguish the service provider from the
service itself.
▪ Production and consumption is a critical characteristic of services because it means that the
customer may be in the production system while production takes place.
▪ The customer can introduce uncertainty into the process by placing demands on the service
provider at the time of production.
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.
1. Defining Service
Inconsistency
▪ Services depend on the people who provide them. As a result, their quality varies
with each person’s capabilities and day-to-day job performance.
▪ Inconsistency is more of a problem in services than it is with tangible goods.
Tangible products can be good or bad in terms of quality, but with modern
production lines, their quality will at least be consistent.
Inventory
▪ Many goods have inventory handling costs that relate to their storage, perishability,
and movement.
▪ With services, these costs are more subjective and are related to idle production
capacity , which is when the service provider is available but there is no demand for
the service.
▪ For a service, inventory cost involves paying the service provider along with any
needed equipment.
✓ If a physician is paid to see patients but no one schedules an appointment, the idle physician’s salary must be paid
regardless of whether the service was performed. In service businesses that pay employees a commission, such as a
part-time sales associate at The Home Depot, the sales associate’s work hours can be reduced to lower Home Depot’s
idle production capacity.
=➔ Today, many businesses find it useful to distinguish between their core product—either a
good or a service—and supplementary services. U.S. Bank has both a core service (a checking
account) and supplementary services, such as deposit assistance, parking, drive-throughs,
and ATMs. Supplementary services often allow service providers to differentiate their
offerings from those of competitors to add value for consumers.
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.

Defining Service
▪ It is important to distinguish between service processes that
are front office and those that are back office.
▪ Processes that require the presence of or interaction with the
customer are front office service processes.
• The importance of simultaneous production and
consumption therefore applies to front office services
because the customer is participating in the process.
✓ For example, dental assistants and dentists provide
front office services when interacting with customers.
✓ This interaction within the service process between
providers and customers is critical to service process
design but quite foreign to manufacturers.

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.

Defining Service
▪ Back office services,
o in contrast, can be performed separately from their consumption by the
customer and, therefore, do not have to accommodate interaction with
the customer.
o Most transaction processing in banks and testing patient samples in
medical offices are back office processes that are not produced and
consumed simultaneously but become valuable to the customer some
time after the work is performed.
▪ Because characteristics of services vary widely and the extent
of interaction between the provider and the customer can also
vary greatly, it is difficult to generalize about services.
▪ However, they are clearly different from products that are
outputs of manufacturing.
▪ Some of the important contrasts between products and
services are shown in Table 5.1.
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.

Table 5.1: Difference between

Product and Service

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.

2. Service-Product Bundle

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

Enjoyment Pizza Pizza

delivery
Delivery Speed/
vehicle convenience

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.
2. Service-Product Bundle
▪ Before the process to deliver a service is designed, the
service-product bundle must be defined. The service-product
bundle consists of three elements:
1. The service (explicit service).
2. The psychological benefits of the service (implicit service).
3. The physical goods (facilitating goods).
▪ Most services come bundled with explicit services, implicit
services, and facilitating goods.
✓ For example, when customers go to a fast-food restaurant, they receive both an explicit service,
which they hope is fast and accurate, and a facilitating good, the food. In this case, the implicit
service is how customers feel about the interaction and the pleasantness of the surroundings. Many
services have fixed facilitating goods, such as the building and equipment that are used but not
consumed during delivery.
✓ In the case of a subway ride, the explicit service is the transportation from one place to another and
includes customer perceptions and experiences, such as the sound, sight, smell, and feel of the
ride. The implicit service is the sense of well-being and security that the subway ideally provides.
Finally, the subway car is the facilitating good. It is important in the design of the service not to
overemphasize one piece of the service-product bundle and neglect the other elements.

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.
2. Service-Product Bundle
▪ Most services require a more Figure 5.1 provides more examples of a variety
complex design than a subway of service-product bundles.
▪ Notice that some bundles are mostly all
ride. service with few goods (e.g., consulting and
▪ Consider the explicit services, haircuts) while the automobile industry
implicit services, and provides mostly goods with only a little
service.
facilitating goods for a luxury ▪ Here, we include the automobile as an
hotel. example of a service-product bundle because
▪ The explicit services include both the purchase of a new auto includes several
basic services and amenities. These service elements that customers recognize
would be provided by the bellhop, and pay for. The auto bundle includes not
concierge, restaurant, maid, room only the physical product but also the ability
service, front desk, and Internet. to test-drive and finance the product at the
dealership in addition to the manufacturer
▪ The implicit service is a sense of
warranty that covers the auto.
safety, a caring staff, and the
▪ The combination of these service elements
atmosphere of a luxury hotel.
with the product makes up what we consider
▪ The facilitating goods are the hotel a service-product (or product-service!)
building, the food, the beds, the bundle.
room, and physical surroundings. ▪ One might also consider the maintenance
and repair service offered by the dealer after
the sale.
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.

Goods and Services Packages (Figure 5.1)

Goods Services

100% 75% 50% 25% 0% 25% 50% 75% 100%

Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services

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.
2. Service-Product Bundle
▪ The task for the operations function, before delivering any services to
customers, is to design the service delivery system.
▪ That system includes all the processes that will be used to deliver
services, including details such as the technology used in the process
design, the types of employees needed, and even the appearance of the
employees and facilities.
▪ While operations can control both the explicit service and the facilitating
goods, implicit services are obviously harder to control (and may vary
greatly from one customer to another).
▪ It is important that management use the means it has available (e.g.,
technology or employees) to design the implicit services into the service
delivery system.
▪ The delivery of a service is a simultaneous marketing and operations
act that requires both the right visual cues and well-functioning
processes. Therefore, cross-functional cooperation is essential to service
design and delivery.

© McGraw Hill, LLC 5-12

.
2. Service-Product Bundle
▪ Like products, services have supply chains, although they
may be less concerned with the flow of the physical product
and more concerned with the flow of work, customer, and
information.
▪ Services cannot be stored, but they do use inventory, and
so they rely on product-based supply chains to provide that
inventory.
✓ For example, a hospital patient requires service processes for explicit
services (surgery, perhaps) and additionally the work flow of
outsourced lab tests, information and financial flows from insurers,
and coordination of work and information as the patient is discharged
from the hospital to a rehabilitation center.
▪ Such a complex network of supply chain activities mirrors the
activities of product-based supply chains but usually includes
both tangible product flows and intangible work and
information flows.
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 The Nature of Service
▪ A service is an output of a process that is intangible,
meaning that it does not have physical dimensions that
can be weighed or measured.
▪ Unlike a product innovation, services cannot be patented,
so a company with a new concept must expand rapidly
before competitors copy its procedures.
▪ Services typically require some degree of interaction with
the customer. The interaction may be brief, but it must
exist for the service to be complete.
▪ Often, the interaction differs depending on the needs of
the customer.
▪ In addition, the service typically is time-dependent, with
the customer demanding the service quickly or at a
specific time.
© McGraw Hill, LLC 14
 Service Package
• Every service has a service package – the bundle of goods and services
that is provided in some environment.
• The bundle consists of five features:
1. Supporting facility – the physical resources that must be in place before a
service can be offered. Examples are a golf course, a ski lift, an airline, and
an auto repair facility.
2. Facilitating goods – the material purchased or consumed by the buyer or
the items provided to the customer. Examples are golf clubs, skis,
beverages, and auto parts.
3. Information – operations data or information that is provided by the
customer to enable efficient and customized services. Examples weather
reports, medical records, seat preferences, and parts availability.
4. Explicit services – the benefits that are readily observable and which make
up the essential features of the service. Examples are response time of an
ambulance, air conditioning in a hotel room, and a smooth- running car
after a tune-up.
5. Implicit services – psychological benefits or other extrinsic features of the
service (prestige, privacy, etc.). Examples are the status of a degree from
an Ivy League school, the privacy of a loan office, and worry-free auto
repair.
© McGraw Hill, LLC 15
 Operational Classification of Services
▪ Service organizations are generally classified according to who the
customer is (for example, individuals or other businesses) and the service
they provide (financial services, health services, transportation services,
and so on).
▪ These groupings, though useful in presenting aggregate economic data,
are not particularly appropriate for OSCM purposes because they tell us
little about the process.
▪ Manufacturing, by contrast, has fairly evocative terms to classify
production activities (such as assembly lines and continuous processes);
when applied to a manufacturing setting, they readily convey the essence
of the process.
▪ Although it is possible to describe services in these same terms, we need
one additional item of information to reflect the fact that the customer is
involved in the production system.
▪ That item, which we believe operationally distinguishes one service
system from another in its production function, is the extent of customer
contact in the creation of service.
© McGraw Hill, LLC 16
 Operational Classification of Services
▪ Customer contact refers to the physical presence of the customer in the
system,
▪ Creation of the service refers to the work process involved in providing
the service itself.
▪ Extent of contact here may be defined as the percentage of time the
customer must be in the system relative to the total time it takes to
perform the customer service.
▪ Generally speaking, the greater the percentage of contact time between
the service system and the customer, the greater the degree of
interaction between the two during the production process.
▪ A high degree of customer contact are more difficult to control and more
difficult to rationalize than those with a low degree of customer contact .
▪ In high-contact systems, the customer can affect the time of demand,
the exact nature of the service, and the quality, or perceived quality, of
service because the customer is involved in the process.
▪ There can be a tremendous diversity of customer influence and, hence,
system variability within high-contact service systems.
© McGraw Hill, LLC 17
 Service Organization Design
▪ Services cannot be stored in inventory. Unlike
▪ Waiting line models
manufacturing, where we can build up inventory
provide a powerful
during slack periods for peak demand and thus
mathematical tool for
maintain a relatively stable level of employment
analyzing many
and production planning, in services we must
common service
(with a few exceptions) meet demand as it
situations.
arises.
▪ Questions such as how
▪ In services, capacity becomes the dominant
many tellers we should
issue since we have to meet the demand as it
have in a bank or how
arises. So, an important design parameter in
many computer servers
services is “What capacity should we aim for?”
we need in an internet
▪ Too much capacity generates excessive costs. service operation can be
Insufficient capacity leads to lost customers. analyzed with these
▪ In these situations, seeking the assistance of models.
marketing to influence demand. This is one ▪ These models can be
reason why we have discount airfares, hotel easily implemented
specials on weekends, and so on. using spreadsheets.
▪ This is also a good illustration of why it is difficult
to separate the operations management
functions from marketing in services.
© McGraw Hill, LLC 18
 Poka-Yokes
▪ Basic blueprinting describes the features ▪ Poka-yoke examples include height
of the service design but does not bars at amusement parks; indented
provide any direct guidance on how to trays used by surgeons to ensure
make the process conform to that design. that no instruments are left in the
▪ An approach to this problem is the patient; chains to configure waiting
application of poka-yokes —procedures lines; take-a- number systems;
that block the inevitable mistake from turnstiles; beepers on ATMs to warn
becoming a service defect. people to take their cards out of the
machine; beepers at restaurants to
▪ Poka-yokes (roughly translated from the
make sure customers do not miss
Japanese as “avoid mistakes”) are
their table calls; mirrors on
common in factories and consist of such
telephones to ensure a “smiling
things as fixtures to ensure that parts can
voice”; reminder calls for
be attached only in the right way,
appointments; locks on airline
electronic switches that automatically
lavatory doors that activate lights
shut off equipment if a mistake is made,
inside; small gifts in comment card
the kitting of parts prior to assembly to
envelopes to encourage customers
make sure the right quantities are used,
to provide feedback about a service;
and checklists to ensure that the right
and pictures of what “a clean room”
sequence of steps is followed.
looks like for kindergarten children.

© McGraw Hill, LLC 19

 Poka-Yokes
▪ Many applications of poka-yokes to services.
▪ These Warning methods (e.g. steps that lead to mistakes trigger a
reminder).
▪ These can be classified into warning methods (e.g. steps that lead to
mistakes trigger a reminder), physical or visual contact methods, and
what we call the Three Ts:

1. Task to be done (Was the car fixed right?), .

2. Treatment accorded to the customer (Was the service manager
courteous?).
3. Tangible or environment features of the service facility (Was the
waiting area clean and comfortable?).

▪ Finally (unlike in manufacturing), service poka-yokes often must be

applied to fail-safing the actions of the customer as well as the
service worker. .
© McGraw Hill, LLC 20
 Fail-Safing – Example p. 212 - 214 (continued)
Exhibit 7.4
Exhibit 7.4 illustrates
how a typical
automobile service
operation might be
fail-safed using poka-
yokes .
As a final comment,
although these
procedures cannot
guarantee the level of
error protection found
in the factory, they
still can reduce such
errors in many
service situations.
Access the text alternative for slide images.

© McGraw Hill, LLC 21

.

4. Customer Contact

Extent of interaction between

service organization and customer.
Lower contact Higher contact
(buffered core) (reactive system)
… …

“provider-routed” “customer routed”

(standardized) (customized)
… …

Example Example
online shopping dentist appointment

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.

4. Customer Contact
▪ We now look at interactions between customers and service
organizations in detail to understand how the extent of customer
contact relates to service processes.
▪ With low-contact services, it is possible to separate a service into
two portions: a service creation or production portion and a service
consumption or delivery portion.
▪ By doing so, the customer can be removed from the service creation
portion. Separating the customer from the service production portion
allows for greater standardization of processes and therefore better
efficiency.
✓ Examples of low-contact services are processing of online orders
and ATM transactions.
▪ As indicated above, these services are usually designed using a
provider-routed approach.
▪ See Figure 5.3, in which low-contact services are referred to as
buffered core because these services are designed to be buffered or
removed from interactions with the customer.
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.

Fig 5.3 Customer Contact matrix

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.

4. Customer Contact
▪ At the other end of the contact spectrum, high-contact services involve
the customer during the production of the service.
✓ Examples are dentistry, haircutting, and consulting.
▪ In these services, the customer can introduce uncertainty into the process
with a resulting loss of efficiency.
✓ For example, a customer may impose unique requirements on the
service provider, resulting in a need for more processing time. In this
case, the service delivery system design typically will be customer-
routed unless customization has been limited by the provider.
▪ These interactions are referred to as reactive in Figure 5.3 because the
service delivery system must react to customer requests.
▪ In the middle ground of customer contact, permeable systems have
processes that are penetrated by customers in fairly restricted ways,
usually via telephone or limited face-to-face contact. Here, limited
interaction with customers allows some customer preferences to be met.
But such accommodation is restricted to maintain process efficiency.

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.
4. Customer Contact

▪ Operations managers must be concerned with the amount of customer

contact because higher levels of customer contact can introduce
variability into a process.
▪ Variability is a challenge for operations managers because it makes
capacity planning more difficult and can result in waiting lines.
▪ Table 5.2 defines five types of customer-introduced variability.
▪ Service firms that try to accommodate all types of customer-introduced
uncertainty may find that the cost of delivering the service begins to spiral
out of control. Instead, they must learn to manage the uncertainty, either
by using creative means to reduce it or by finding low-cost means of
accommodating it.
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.

4. Customer Contact
▪ A few examples provide insight into managing variability
o Arrival variability results in empty restaurant seats at certain times of
day and full seats and a waiting line at other times.
o Customer arrivals are somewhat random, but usually clustered
around standard meal times. A reservation system can help to manage
arrival variability by shifting some customers to somewhat earlier and
later than peak standard times. Thus, reservation systems can be
effective for managing customer arrival uncertainty.
o Capability variability, on the other hand, is observed in hospital
patients’ varying abilities to move about, feed themselves, and take
care of their basic needs such as getting a drink or using the bathroom.
o Hospitals usually hire low-wage staff to assist with these needs to keep
costs low while reserving more expensive labor (like nurses) for tasks
that require more extensive licensing.
▪ The relationship between customer contact and process efficiency can be
stated as follows: Potential inefficiency = f (degree of customer
contact)
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.

4. Customer Contact
▪ The measure of the degree of customer contact is the amount of time it
takes for the service to be produced, delivered, and consumed by the
customer. As this time increases, the delivery process is increasingly
inefficient.
▪ High contact may be costly in terms of lost efficiency, but it may offer
opportunities to increase sales to customers, resulting in increased
revenue for the service firm, as shown in Figure 5.3.
✓ For example, consultants often have a high degree of contact with
clients, and such interactions provide them with opportunities for
additional consulting work and therefore additional revenue.
▪ When possible, high-contact and low-contact portions of service
delivery systems should be separated to create front office (high
contact) and back office (low contact) processes.
▪ Front office operations require intensive customer interactions,
whereas the back office can operate more efficiently away from the
customer. The separation of high-contact and low-contact services is an
application of the principle of focused operations.
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.
4. Customer Contact
▪ While customer contact is an
▪ There are several characteristics of high- important ingredient of service
contact and low-contact services: delivery system design, it is not the
o Low-contact services are used when face- only consideration.
to-face interaction is not required, for ▪ Contact with customers becomes
example, shipping operations or check increasingly challenging to manage
processing in banks. with increases in the total duration of
o Low-contact services should use employees interactions and the richness of the
with technical skills, efficient processing information exchanged during
routines, and standardization processes. interactions.
High-contact services require employees who ▪ The nature of uncertainty introduced
are flexible, personable, and willing to work by the customer is also of critical
with the customer (the smile factor). importance.
▪ For example, contact can be high, but if the
o Low-contact operations can work at customer interface is standardized or the
average demand levels and smooth out the customer provides self-service, efficiency is
peaks and valleys in demand. Providers of still possible. In fast-food restaurants the
degree of customer contact is relatively
high-contact service must respond high, but the nature of the contact is highly
immediately as demand occurs in peak controlled in contrast to a fine-dining
situations. restaurant, where there is more uncertainty
in what the customer may request.
o High-contact services generally require ▪ Thus, high contact by itself is not
higher prices and more customization due to always inefficient; it becomes
the variability that customers introduce into inefficient when customers introduce
the service. uncertainty or do not provide self-
© McGraw Hill, LLC
service. 5-29
.

Customer Contact (see Figure 5.3)

Low customer contact High customer contact

• Higher production efficiency ◦ Lower production efficiency

◦ Higher sales opportunity

• Lower sales opportunity
◦ Workers with diagnostic skills
• Workers with technical skills
◦ Focus on client mix
• Focus on routing methods ◦ Client/worker teams
• Office automation

Balancing sales opportunity and production efficiency

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.

5. Service Recovery and Guarantee

▪ Service recovery is an important element of service management when
there is a service failure— in other words, when something goes wrong
during the delivery of a service.
▪ Service recovery consists of the actions necessary to compensate for the
failure and restore, if possible, the service requested by the customer.
✓ For example, when there is a power failure, service recovery includes
the time it takes for the electric company to restore power.
✓ In a restaurant, if the waiter spills soup on a customer’s lap, service
recovery includes helping to dry the clothes with napkins, an apology,
and perhaps an offer to dry-clean the clothes at the restaurant’s
expense.
▪ Often when the service recovery is swift, properly performed and
appropriate in the customer’s eyes, the customer accepts the service
failure and recovery and is satisfied with the overall service experience.
▪ Because service failure from time to time is nearly inevitable, service firms
must design recovery processes to ensure that such actions are taken
consistently.
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.

5. Service Recovery and Guarantee

▪ Many companies solidify their service recovery processes by offering
service guarantees as a way to define the service and ensure its
satisfactory delivery to the customer.
▪ A service guarantee is like a product guarantee, except customers
cannot return a service if they do not like it.
▪ For example, if you do not like your haircut because it’s too short, you
have to live with it until your hair grows out.
▪ A service guarantee has two components: (a) a promise of what service
will be delivered and (b) what the payout or service recovery will be if the
promise is not fulfilled.
▪ The value of the guarantee to the service firm offering it is that the
promise defines exactly what service needs to be delivered correctly.
▪ The firm must design its processes and train its workers to meet the
expected service every time it is delivered.

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.
5. Service Recovery and Guarantee
▪ FedEx Corporation, for example, has a money-back service guarantee
for its shipping services within the United States.
▪ Packages will be delivered by the published delivery time (or quoted time, as in
the case of FedEx SameDay) or the service price will be refunded to the
customer.
▪ This service guarantee defines exactly what the organization must achieve and
what happens when a service failure occurs.
▪ Another example is Atlantic Fasteners,
▪ a distributor of hardware in Massachusetts, whose service guarantee for on-
time delivery is: “We deliver defect-free in-stock fasteners on time as promised
or we give you a $100 credit.”
▪ Atlantic Fasteners has an incredible 99.96 percent reliability and accuracy
rating in meeting its service guarantee.
▪ Other companies may offer somewhat less-precise service guarantees.
▪ For example, hotels may give you a free night’s stay if you are not satisfied.
▪ A restaurant server may give you a free dessert or a free meal if you are not
satisfied with the food.
▪ These service guarantees are not as precise in guiding operational
activities as the FedEx or the Atlantic Fasteners service guarantees, but
they are, nonetheless, better than not having a service guarantee at all.
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.
5. Service Recovery and Guarantee
▪ The service guarantee is not an advertising gimmick or simply a way for
customers to get their money back if they are not satisfied. It is an
assurance that the service provider will perform as promised.
▪ And if a customer is not satisfied and requests the payout from the service
guarantee, the service provider can use the request as feedback to
understand both what customers expect from the service and how the
service delivery system must be changed to better match customer
expectations.
▪ A carefully crafted service guarantee benefits both customers and the
service provider. For the former, a service guarantee reduces the risk in
purchasing the service.
▪ Customers know exactly what service they are buying, when a service is
deemed to have failed, and how they will be compensated. For the latter, a
service guarantee clarifies explicitly what is to be achieved by the service.
▪ Such clarification of intent helps guide the design of the service delivery
system, specifies the extent of service recovery required upon service
failure, and presents a clear vision to motivate employees to deliver high
service quality. A service guarantee can, moreover, reward the service
provider
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.

5. 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!
Benefits to the organization
• Focuses on customer (service promise)
• Clearly defines payout
• Improves customer loyalty
© McGraw Hill, LLC Copyright © 2022 by The McGraw-Hill Companies, Inc. All rights reserved 5-35
 END

© McGraw Hill, LLC 36

 Service-System Design Matrix
▪ The service–system design matrix in Exhibit 7.1 identifies
six common alternatives. The top of the matrix shows the
degree of customer/server contact: the buffered core,
which is physically separated from the customer; the
permeable system, which is penetrable by the customer
via phone or face-to-face contact; and the reactive
system, which is both penetrable and reactive to the
customer’s requirements.
▪ The left side of the matrix shows what we believe to be a
logical marketing opportunity—namely, that the greater the
amount of contact, the greater the sales opportunity at the
time when the service is delivered; the right side shows
the impact on production efficiency as the customer exerts
more influence on the operation.
▪ The entries within the matrix list the ways in which service
can be delivered. At one extreme, service contact is by
mail; customers have little interaction with the system. At
the other extreme, customers “have it their way” through
face-to-face contact. The remaining four entries in the
exhibit contain varying degrees of interaction.
▪ Production efficiency decreases as the customer has
more contact (and therefore more influence) on the
system.
▪ To offset this, the face-to-face contact provides high sales
opportunity to sell additional products. Conversely, low
contact, such as mail, allows the system to work more
efficiently because the customer is unable to significantly
affect (or disrupt) the system. However, there is relatively
little opportunity for additional product sales. Exhibit 7.1
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© McGraw Hill, LLC 37

 Service-System Design Matrix
There can be some shifting in the positioning of each entry.
▪ For our first example, consider the “internet and onsite technology”
entry in the matrix. The internet clearly buffers the company from the
customer, but interesting opportunities are available to provide relevant
information and services to the customer.
▪ Because the website can be programmed to intelligently react to the
inputs of the customer, significant opportunities for new sales may be
possible. In addition, the system can be made to interface with real
employees when the customer needs assistance that goes beyond the
programming of the website.
▪ The internet is truly a revolutionary technology when applied to the
services that need to be provided by a company. Another example of
shifting in the positioning of an entry can be shown with the “face-to-
face tight specs” entry in Exhibit 7.1 .
▪ This entry refers to those situations where there is little variation in the
service process—neither customer nor server has much discretion in
creating the service. Fast-food restaurants and Disneyland come to
mind.
▪ Face-to-face loose specs refers to situations where the service process
is generally understood but there are options in how it will be performed
or in the physical goods that are part of it.
▪ A full-service restaurant and a car sales agency are examples. Face-to-
face total customization refers to service encounters whose
specifications must be developed through some interaction between
the customer and server.
▪ Legal and medical services are of this type, and the degree to which
the resources of the system are mustered for the service determines
whether the system is reactive, possibly to the point of even being
proactive, or merely permeable. Examples would be the mobilization of
an advertising firm’s resources in preparation for an office visit by a
major client, or an operating team scrambling to prepare for emergency
Exhibit 7.1
Access the text alternative for slide images.
surgery.

© McGraw Hill, LLC 38

 Customer Contact Characteristics
▪ Exhibit 7.2 extends the design matrix. It
shows the changes in workers, operations,
and types of technical innovations as the
degree of customer/service system
contact changes.
▪ For worker requirements, the relationships
between mail contact and clerical skills,
internet technology and helping skills, and
phone contact and verbal skills are self-
evident.
▪ Face-to-face tight specs require
procedural skills in particular, because the
worker must follow the routine in
conducting a generally standardized, high-
volume process.
▪ Face-to-face loose specs frequently call
for trade skills (bank teller, draftsperson) to
finalize the design for the service. Face-to-
face total customization tends to call for
diagnostic skills of the professional to
ascertain the needs or desires of the
Exhibit 7.2
client.
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© McGraw Hill, LLC 39

 Web Platform Businesses
▪ A web platform business is a company that creates value by Platform Service Business Model
enabling the exchange of information between two or more
independent groups, usually consumers and Page 211 providers of
a service or product as shown in Exhibit 7.3 .
▪ The platform sits on the internet and can be accessed on demand
and provides the resources needed for information exchange and
for carrying out transactions. Examples of platform businesses are
Facebook, Uber, and Alibaba.
▪ These businesses do not own the means for providing the services
or producing the goods, but they provide a means of connecting the
parties interested in conducting business.
▪ Amazon, for example, is a hybrid platform business in that it
supports straight sales of merchandise directly from its warehouses
(like a retailer), but one can also find goods listed by third-party
sellers. The sellers are individuals, small companies, and some
retailers. One can even find used and refurbished goods on the
site.
▪ Web platform business – a company that creates value by enabling
the exchange of information between two or more independent
groups, usually consumers and providers of a service or product,
eBay, YouTube., Airbnb.
▪ A platform business creates value by managing the transactions
between the consumers and the providers. This transaction
management is the “factory” of this type of business. These
transactions are repeated in the same way many times to exchange Exhibit 7.3
value. The platform gets paid a small fee for providing the service. Access the text alternative for slide images.

© McGraw Hill, LLC 40

 Service Blueprinting and Fail-Safing
▪ Just as is the case with manufacturing process design,
the standard tool for service process design is the
flowchart.
▪ In services, the flowchart is called a service blueprint to
emphasize the importance of process design.
▪ A unique feature of the service blueprint is the distinction
made between the high customer contact aspects of the
service (the parts of the process that the customer sees)
and those activities that the customer does not see.
▪ This distinction is made with a “line of visibility” on the
flowchart.
▪ Fail-safing involves using the service blueprint to identify
opportunities for failure and then establishing procedures
to prevent mistakes from becoming defects (poka-yokes).
© McGraw Hill, LLC 41
 Blueprint Example p. 212 - 214
▪ Exhibit 7.4 (shown here and continuing Automotive Service Operation
on the next page) is a blueprint of a
typical automobile service operation.
Each activity that makes up a typical
service encounter is mapped into the
flowchart.
▪ To better show the entity that controls
the activities, levels are shown in the
flowchart.
▪ The top level consists of activities that
are under the control of the customer.
▪ Next are those activities performed by
the service manager in handling the
customer.
▪ The third level is the repair activities
performed in the garage; the lowest
level is the internal accounting activity.

Exhibit 7.4
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© McGraw Hill, LLC 42

 ECONOMICS OF THE WAITING LINE P ROBLEM
▪ A central problem in many service settings is the management of waiting time.
▪ The manager must weigh the added cost of providing more rapid service (more
traffic lanes, additional landing strips, more checkout stands) against the inherent
cost of waiting.
▪ Frequently, the cost trade-off decision is straightforward. For example, if we find
that the total time our employees spend in the line waiting to use a copying
machine would otherwise be spent in productive activities, we could compare the
cost of installing one additional machine to the value of employee time saved.
▪ The decision could then be reduced to dollar terms and the choice easily made.
▪ On the other hand, suppose that our waiting line problem centers on demand for
beds in a hospital. We can compute the cost of additional beds by summing the
costs for building construction, additional equipment required, and increased
maintenance.
▪ But what is on the other side of the scale? Here, we are confronted with the
problem of trying to place a dollar figure on a patient’s need for a hospital bed that
is unavailable. While we can estimate lost hospital income, what about the human
cost arising from this lack of adequate hospital care?

© McGraw Hill, LLC 43

 Arrival and Service Profiles
Exhibit 7.5 shows arrivals at a service
facility (such as a bank) and service
requirements at that facility (such as
tellers and loan officers). One
important variable is the number of
arrivals over the hours that the
service system is open.

Waiting Line Factors.

▪ The number of arrivals over the
hours that the service system is
open.
▪ Customers demand varying
amounts of service, often
exceeding normal capacity.
▪ We can control arrivals.
• Short lines.
• Specific hours for specific
customers.
• Specials.
▪ We can affect service time by Exhibit 7.5
using faster or slower servers.
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© McGraw Hill, LLC 44

 Waiting Line Problem (Queues)
▪ Useful suggestions for managing queues based on research in the
banking industry are the following:
• Segment the customers. If a group of customers need something that can be done very
quickly, give them a special line so that they do not have to wait for the slower
customers. This is commonly done at grocery stores where checkout lines are
designated for “12 items or less.”
• Train your servers to be friendly. Greeting the customer by name or providing another
form of special attention can go a long way toward overcoming the negative feeling of a
long wait. Psychologists suggest that servers be told when to invoke specific friendly
actions such as smiling when greeting customers, taking orders, and giving change (for
example, in a convenience store). Tests using such specific behavioral actions have
shown significant increases in the perceived friendliness of the servers in the eyes of the
customer.
• Inform your customers of what to expect. This is especially important when the waiting
time will be longer than normal. Tell them why the waiting time is longer than usual and
what you are doing to alleviate the wait.
• Try to divert the customer’s attention when waiting. Providing music, a video, or some
other form of entertainment may help distract the customers from the fact that they are
waiting.
• Encourage customers to come during slack periods. Inform customers of times when
they usually would not have to wait; also tell them when the peak periods are—this may
help smooth the load.
© McGraw Hill, LLC 45
 Queuing System Components
Exhibit 7.6
The queuing system consists
essentially of three major
components:
1. the source population and
the way customers arrive
at the system,
2. the servicing system, and
3. the condition of the
customers exiting the
system (back to source
population or not?), as
seen in Exhibit 7.6 .

© McGraw Hill, LLC 46

 Queuing System Analysis
The source population – who are your customers?
• Population size – finite or infinite?
How do customers arrive at the system?
• Customer arrival rate – the expected number of
customers that arrive during each period.
• Poisson (Time between arrivals (inter arrival time) is exponential).
• Constant.
• Customer arrival characteristics.
• Arrival patterns (steady or seasonal).
• Size or arrival rates (individuals or groups).
• Degree of patience (will they wait?).
• Service time distribution.
• Exponential.

© McGraw Hill, LLC 47

 Queuing System Analysis As an example, consider a
group of six machines
Customer Arrivals maintained by one repairperson.
▪ Arrivals at a service system may be drawn from a In this case, the machines are
finite or an infinite population. the customers of the
▪ The distinction is important because the analyses are repairperson.
based on different premises and require different When one machine breaks
equations for their solution. down, the source population is
Finite Population. reduced to five, and the chance
▪ A finite population refers to the limited-size customer of one of the remaining five
pool that will use the service and, at times, form a breaking down and needing
line. repair is certainly less than
▪ The reason this finite classification is important is that when six machines were
when a customer leaves its position as a member of operating.
the population (due to a machine breaking down and If two machines are down with
requiring service, for example), the size of the user only four operating, the
group is reduced by one, which reduces the probability of another
probability of the next occurrence. breakdown is again changed.
▪ Conversely, when a customer is serviced and returns
to the user group, the population increases and the Conversely, when a machine is
probability of a user requiring service also increases. repaired and returned to service,
▪ This finite class of problems requires a separate set the machine population
of formulas from that of the infinite population case. increases, thus raising the
probability of the next
breakdown.
© McGraw Hill, LLC 48
 Queuing System Analysis
Customer Arrivals
Infinite Population.
▪ An infinite population is large enough in relation to the service system so
that the population size caused by subtractions or additions to the
population (a customer needing service or a serviced customer returning
to the population) does not significantly affect the system probabilities.
▪ If, in the preceding finite explanation, there were 100 customer machines
instead of 6, then if 1 or 2 machines broke down, the probabilities for the
next breakdowns would not be very different and the assumption could be
made without a great deal of error that the population (for all practical
purposes) was infinite.
▪ Nor would the formulas for “infinite” queuing problems cause much error
if applied to a physician with 1,000 patients or a department store with
10,000 customers.

© McGraw Hill, LLC 49

 Arrival Distributions – Exponential
Distribution 1

• Describes the probability that the next arrival will happen

within a specified period of time given by F(t).

f (t ) = e − t
Exhibit 7.7

 - the mean number of arrivals per time period

Access the text alternative for slide images.

© McGraw Hill, LLC 50
 Arrival Distributions – Exponential
Distribution 2

(1) t (2) Probability that the Next (3) Probability that the
(Minutes) Arrival Will Occur in t minutes Next Arrival Will Occur
or more (From Appendix D Or In t Minutes Or Less [1 −
Solving e to the negative column (2)]
power t)
0 1.00 0
0.5 0.61 0.39
1.0 0.37 0.63
1.5 0.22 0.78
2.0 0.14 0.86

© McGraw Hill, LLC 51

 Arrival Distributions – Poisson
Distribution 1

• Describes the number of arrivals (n) in some time period

(T).

( λT ) e − λt
n

PT ( n ) =
n!

© McGraw Hill, LLC 52

 Arrival Distributions – Poisson
Distribution 2

With a mean arrival rate of three per minute (  ) , what is the

probability of exactly one arrival in the next minute?

( 3 1) e−31
5
35 e −3
P1 ( 5 ) = = 0.101 = 10.1%
5! 120 Exhibit 7.8

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© McGraw Hill, LLC 53
 Customer Arrival Characteristics
Exhibit 7.9

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© McGraw Hill, LLC 54
 Queuing System Factors 1

• Line length.
• Number of lines.
• Queue discipline – priority
rule or set of rules that
determine the order of
service for customers who
are waiting in line.

See p. 221
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© McGraw Hill, LLC 55
 Queuing System Factors 2

• Length of queue – how much waiting room space is

available?
• Number of lines – how many servers are working?
• Queue discipline – how do new arrivals enter the line?
How do you decide which customer to serve next?
• Service time distribution – what is the service rate and how
much does it vary?

© McGraw Hill, LLC 56

 Service Time Distribution
Time the customer or unit spends with the server once the
service has started.
• Service rate – the number of customers a server can
handle per unit time (such as 12 per hour).
• Constant (each service takes the same time).
• Service is automated and not customized to individual
customers (automatic car wash).
• Variable (each service takes random time).
• Service is provided by humans.
• Can be customized to individual customers.
• Approximated using exponential distribution.

© McGraw Hill, LLC 57

 Service Line Structures
• Single channel, single
phase.
• Single channel,
multiphase.
• Multichannel, single
phase.
• Multichannel, multiphase
• Mixed.

Exhibit 7.10
Access the text alternative for slide images.
© McGraw Hill, LLC 58
 Exiting the Queuing System
Customers who have been served have two exit fates:
• Low probability of reservice.
• appendectomy patients rarely return for a repeat operation –
“appendectomy-only-once case”.
• High probability of reservice.
• a machine that has been routinely repaired and returned to duty but
may break down again – “recurring-common-cold case”.

See p. 223 Access the text alternative for slide images.

© McGraw Hill, LLC 59
 Waiting Line Models
Permissib
Service Source Arrival Queue Service le Queue Typical
Model Layout Phase Population Pattern Discipline Pattern Length Example
1. Simple Single Single Infinite Poisson FCFS Exponential Unlimited Drive-in
System channel teller at
bank; one-
lane toll
bridge
2. Constant Single Single Infinite Poisson FCFS Constant Unlimited Roller
Service channel coaster rides
Time in
System amusement
park
3. Multichan Multicha Single Infinite Poisson FCFS Exponential Unlimited Parts
nel nnel counter in
System auto agency

Exhibit 7.11

© McGraw Hill, LLC 60

 Waiting Line Model Notation
 – Arrival rate

µ – Service rate
1/ µ – Average service time

1/  – Average time between arrivals

 – Ratio of total arrival rate to service rate for a single server

Lq – Average number waiting in line

Ls – Average number in system

Wq – Average time waiting in line

Ws – Average total time in system

n – Number of units in the system

S – Number of identical service channels

Pn – Probability of exactly n units in system

Pw – Probability of waiting in line Exhibit 7.12

© McGraw Hill, LLC 61

 Waiting Line Model Equations

 2
n
Lq     
 Lq =   −  Wq = Pn = 1 −  
 
Model 1  ( )       PO = 1 − 

L =  Ls   
 s  −  Ws = =
 
 2 Lq
 Lq = 2   −  Wq =
 ( ) 
Model 2 
L = L +  L
Ws = s
 s q
 

  Ls
L
 s = L + Ws =
 
q
Model 3 
W = Lq  S 
Pw = Lq  − 1
 q    

Exhibit 7.12
© McGraw Hill, LLC 62
 Waiting Line Model – Example 7.1 1

Western National Bank is considering opening a

drive-through window. Management estimates that
customers will arrive at a rate of 15 per hour and
the teller staffing the window can serve customers
at a rate of 1 every three minutes, or 20 per hour.
Management would like to know
• Utilization rate of the teller.
• Average number in the waiting line.
• Average number in the drive-through system.
• Average time in line.
• Average time in the system, including service.

© McGraw Hill, LLC 63

 Waiting Line Model – Example 7.1 2

 15
• Average utilization. = = = 75%
 20
2 152
• Average number in the line. Lq = = = 2.25
 (  −  ) 20 ( 20 − 15 )
15
• Average number in the system. Ls = = =3
 −  20 − 15
Lq 2.25
• Average waiting time in line. Wq = = = 0.15 hour
 15
Ls 3
• Average waiting time in system. Ws = = = 0.2 hour
 15

© McGraw Hill, LLC 64

 Example 7.1 (continued) – Excel Solution

Access the text alternative for slide images.

© McGraw Hill, LLC 65
 Computer Simulation of Waiting Lines
Some waiting line problems are very complex or impossible
to solve.
• Servers with different capabilities, multiple customer types.

Equations assume that waiting lines are independent

• When one service is the input to the next, we can no
longer use the simple formulas.

Some problems have conditions that do not meet the

requirements of the equations.
• Finite populations, specific arrival/service distributions.

© McGraw Hill, LLC 66