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Telemarketing Site Selection ALMA Consulting Ann Nguyen Lin Ma Mark Hughes Anna Krelle

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Overview Background Objective Assumptions Methods Analysis Recommendations

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Background McMartin Catalog Distributors sells its products by way of phone orders from customers calling a toll- free number ABC Ltd (3rd party call centre) Product distribution forwards to McMartin customer places order

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Background Having established a successful business, McMartin is now looking to open its own inbound telemarketing centre(s) Direct orders ABC Ltd (3rd party call centre) Product distribution

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Background Preliminary analysis has identified 10 possible sites Sites differ in respect to their Fixed Operating Costs Wage Costs Call Costs (vary by originating region)

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Objective Determine the number of call centres to open and their locations McMartin has no preference for any location over any other and is simply looking for the most economical outcome

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Assumptions Call times – Mean 6 minutes (independent of origin) Processing times – Mean 1 minute/call (independent of origin and processing centre) Employee Utilisation – Mean 87% (independent of processing centre) (*) Call Centre Capacities

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Methods Use ILP (Integer-Linear Programming) 2 types of choices -which call centres to open (binary decisions) -how many calls to direct from a calling region to a particular call centre (inequality constraints) Software Xpress-IVE (MP) MS Excel

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Formulation Decision Variables For i = 1,2,...,10 and j = 1,2,...,17, Let x(i) = 1 if call centre i is opened Let x(i) = 0 if call centre i is not opened Let y(ji) be the number of calls from region j processed at call centre i

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Formulation Costs - Fixed Costs Let f(i) be the annual fixed cost at site i. Then the total fixed cost is

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Formulation Costs - Call Costs Let c(ji) be the hourly call rate for calls from region j processed at call centre i. Then the total call cost is given by The factor represents the average call time (in hours)

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Formulation Costs - Wage costs Let w(i) be the hourly wage rate at call centre i Then the total wage cost is given by The factor incorporates fringe benefit loadings call connection times & post-processing times employee utilisation

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Formulation Constraints (1)Sites are either open or not (2)Expected demand must be met (3)(*) Capacity cannot be exceeded

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Formulation Objective Function subject to

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Analysis (1) Assume slack capacity constraints at the sites Optimal solution is to open a single call centre Any of the 10 prospective call centres is a cheaper option than opening more than 1 call centre Rankings #1(8)Shawinigan, PQ$5.443M #2(9) Drummondville, PQ$5.474M (+0.58%) #3(10)Sydney, NS$5.507M (+1.18%)... #10(2)Brandon, MB$5.775M (+6.11%)

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Analysis

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(2) Tighten capacity constraint to force opening of additional call centres ShawiniganAll$5.443M100% Brandon$5.775M 100% Shawinigan$5.842M96.1% Brandon204 Shawinigan$5.854M92.6% Brandon204, 306 Shawinigan$5.857M91.7% Brandon204, 306, 817 Shawinigan$5.862M88.1% St. Jerome514

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Analysis (2) Tighten capacity constraint to force opening of additional call centres (continued)... Shawinigan St. Jerome514 + Others... Drummondville11 Regions$5.897M62.8% Cornwall6 Regions... Drummondville$5.912M50.0% Cornwall

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Sensitivities Fixed costs small in proportion to total cost but large compared to reduction in variable costs that can be achieved from opening additional sites. Key unknown is site capacities - completely determines optimal site location(s). Trade off is between lowering variable costs by opening more sites and increasing fixed costs. Shawinigan stable solution for single-site problem - demand would have to decrease by 22% or increase by 133% to change the solution.

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Issues Reliability of supplied data Marginal choices between sites Solution depends critically on the accuracy of the data Calling demands Cost estimates Cost structure What does the fixed cost cover? What happens to calls not answered? Wage structure (F/T, P/T, casual)

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Recommendations Tentative conclusion is to open single call centre at Shawinigan if capacity sufficient Otherwise open centres at Drummondville & Cornwall to balance demand

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Follow-up Further information required Site capacities Unanswered calls (busy tone vs hold costs) Cost saving vs outsourcing Cost differences between sites may be minor compared to savings/extra costs from outsourcing Expansion goal - new regions/old regions? Qualitative factors Staff quality, location of other premises

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