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Service Operations Management BY PROF. R.SHARMA Of BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY Knowledge Park-II, Greater Noida (U.P) 2323001-11(extn.217)

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Presentation on theme: "Service Operations Management BY PROF. R.SHARMA Of BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY Knowledge Park-II, Greater Noida (U.P) 2323001-11(extn.217)"— Presentation transcript:

1 Service Operations Management BY PROF. R.SHARMA Of BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY Knowledge Park-II, Greater Noida (U.P) 2323001-11(extn.217) e-mail BIMECH,Greater Noida (U.P)


3 Objective of session 1 To make you understand What's the importance of services in Economy. Whats the importance of service sector in Economic Growth. How economy has changed its orientation towards services (information age) Why to study Service operations. How services are characterized. How to classify Services. BIMECH,Greater Noida (U.P)

4 Session I Why Services Operation BIMECH,Greater Noida (U.P)

5 The Term Service Is defined not by what it is, but by what it is not Historically, economic reports identify activities as service producing that are not goods producing, which includes manufacturing, and construction and are not extraction such as agriculutre,foresrtry, fishing and mining. So service producing encompasses a wide variety of industries, including retailing, wholesaling, transportation,banking, lodging, education, government, entertainment etc…. BIMECH,Greater Noida (U.P)

6 Definition of services: Services are deeds, processes, and performances. Valarie Zeithaml & Mary Jo Bitner A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer. James Fitzsimmons Definition of service firms: Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives. James Fitzsimmons BIMECH,Greater Noida (U.P)

7 No finished goods inventory Intangibility of the product Simultaneous production and consumption Difficulty in defining and measuring quality and productivity Other Differences between Manufacturing and Service ( See figure 1.1 ) Definition of Service Characteristics BIMECH,Greater Noida (U.P)

8 Production of Services vs. Goods Typical Differences Services are process focused. Customers served as first come, first served. Labor is scheduled, not the customer. Location often near customers. Product could be transported, in services producer is transported than servies. Result: service production tends to be less efficient than production of goods. BIMECH,Greater Noida (U.P)

9 The Service/Product Continuum Pure Service No product with intrinsic value involved. e.g. lawyer Service/Product bundle Combination of product with service (most common) Pure Product Very rare. Yard sale. Blacksmith. BIMECH,Greater Noida (U.P)

10 Comparison of Goods and Services ( Figure 1.1 ) 100%75%50%25%0%100%75%50%25% Self-service groceries Automobile Installed carpeting Fast-food restaurant Gourmet restaurant Auto maintenance Consulting Services Doctor, physician, lawyer Goods Services BIMECH,Greater Noida (U.P)

11 Service-Product Bundles The Service-Product Bundles has three parts: physical goods (facilitating goods)what you can carry away tangible service (explicit service)what the seller does for you. psychological service (implicit service)how you feel about it. BIMECH,Greater Noida (U.P)

12 Cycle of Service for an Airline (Figure 1.2) Leaves Airport Receive Baggage Arrives at airport Customer requests schedule information Makes reservation Checks baggage and checks in for flight Proceeds to gate and security check Receives boarding pass Boards aircraft Receives in-flight service Departs Plane BIMECH,Greater Noida (U.P)

13 Related Concepts Service guarantee Analogous to a guarantee for a product Requires specific criteria and responses Service Recovery What you do to compensate the customer for bad service. BIMECH,Greater Noida (U.P)

14 Importance of Studying operations in services 1. To start this part of study let us understand the definition of Operations i.e. transformation process That converts the group of inputs into outputs That is Act of combining people, raw material, technology into useable services & products If you just think of definition it is clear it is just people who does all makes product & perform services Operation function typically employs by far more personal than any other function BIMECH,Greater Noida (U.P)

15 2. A large firm may need marketing department of 50 and a treasury department i.e. A/C & Finance of 5 at the same time it may need an operational force of 5000 to deliver its services. E.g. Professors in university, agents in insurance, pilots in airlines, bank branch managers, brokers in BSE or NSE, police force, players in cricket. Consequently the mere reason to study operation is its sheer size. HUL Annual Turnover Rs. 15000 Crores It has over 20 Consumer Products and almost 35 Brands Kissan, Bru, Taj Mahal, Red Label,Knnor, Surf, Rin, Kotex, Huggies, Dove, Sunsilk, clinic plus, Vim, Lux etc.. Customer 700 million Retail outlets 1 million covered directly, product found over 6.3 million outlets. Factories 39 number BIMECH,Greater Noida (U.P)

16 Its employments hierarchy REMEMBER BIMECH,Greater Noida (U.P) HUL Model

17 3. It is the most revenue producing activity in any economy a. Employment effects b. Out put effects c. Money effects ( inflation) BIMECH,Greater Noida (U.P)

18 So to understand the importance of service We have to understand the importance of service in economics of a nation or has to understand present economic structure BIMECH,Greater Noida (U.P)

19 According to OECD-forecast for the year 2050, India will be the worlds third largest economy after china & USA. Indian economy set to grow at 10-11 percent. According to India Economic survey 2007-08 the size of Indian economy set to cross $1 trillion. Contribution of Services to GDP is 9.9% were that of agriculture & Industry is 4.1% & 10.5%. Since 2002-03 Services & Industry with annual growth of 7% had been propelling growth of the Indian economy. Service Sector accounts 54% of the GDP and has been growing at the rate of 9%. Since 1990. Growth of financial services comprising Banking, Insurance and business services in the year 2006-07 is 13.9% Service Export has grown at a Average growth rate of 28% since last decade. BIMECH,Greater Noida (U.P)

20 India has about 65% of Global offshore market and about 46% share of global business off shoring industry. NASSCOM study Software & Service export grew by 29% and crossed $40 billion mark and domestic market grew at 26% crossed $11.6 billion mark. In FY10. Up till now 10% of the global potential has been tabbed, the future is very promising. BIMECH,Greater Noida (U.P)

21 To understand economic structure you have to understand the changes this economic structure had under gone over the last century : Let's understand the economic stages described by Bell (1973). He had described the three stages of economic growth as Pre-Industrial Industrial Post industrial BIMECH,Greater Noida (U.P)

22 Pre-Industrial Stage Society Pre industrial Society GameAgainst nature Pre-dominant activityAgriculture, mining Use of human labourRaw muscle power Unit of social lifeExtended house hold (social ramification) Standard of Subsistence Living measure StructureRoutine, traditional, authoritative TechnologySheer brawn BIMECH,Greater Noida (U.P)

23 Industrial Stage Society Industrial Society GameAgainst fabricated nature Pre-dominant activityGoods Production Use of human labourMachine tending Unit of social lifeIndividual (like a cog in machine) Standard of Accumulation of Goods livingHe who dies with the most toys StructureBureaucratic TechnologyMachine BIMECH,Greater Noida (U.P)

24 Post-Industrial Stage Society Post industrial Society GameAmong Persons Pre-dominant activityServices Use of human labourArtistic, Creative & Intellectual Unit of social lifeCommunity Standard of Quality in terms of health, education Living measurerecreation etc.. StructureInterdependent, Global TechnologyInformation BIMECH,Greater Noida (U.P)

25 4. Cost Disease in services is another factor which has to be understood when in contrast to agriculture & manufacturing. As Goods & food, service are also not less consumed but low productivity in this foray makes it appear,as they are. BIMECH,Greater Noida (U.P)

26 Contd……. That is why even the consumption of the services remains same its low productivity has hasnt allowed it to lower its cost e.g. Rs. 3 for food Rs. 3 for goods Rs. 3 for services So it represents 33% of the expenditure Higher productivity in first two over last 4-5 decades Has shown following Re. 1 for Food Re. 1 for Goods Rs. 3 for services Now it represents 60% of the expenditure BIMECH,Greater Noida (U.P)

27 1950 19601970198019902000 beyond 10% 20% 40% 60% 80% 100% Services Agriculture Work Force (%) Manufacturing Economic survey of India Report 1971-2007-08 BIMECH,Greater Noida (U.P) Figure 1.3

28 So we have two models to understand the service classifications 1. Customer Contact model (Chase & Tansik) 2. Service Process Matrix (Roger schmenner) BIMECH,Greater Noida (U.P)

29 CUSTOMER CONTACT MODEL ( Figure 1.4) High Contact Low Contact Pure Mixed Quasi Manufacture Service Service Mgf. -ing BIMECH,Greater Noida (U.P)

30 CUSTOMER CONTACT MODEL In this model services are classified according to the amount of customer contact High contact services are pure Services firm Includes Hospital, Hotels, Restaurant, Aviations were majority of their services take place in presence of customers Low contact services are quasi manufacturing firm includes retailers,Wholesalers, Back office facilities where presence of customer needs to a very low extent Where elements of both are called as Mixed services firm Like banks, insurance, entertainment, media etc.. BIMECH,Greater Noida (U.P)

31 Customer Contact (1) Definition of contactinteraction between service provider and the customer. Each moment of truth is a contact. BIMECH,Greater Noida (U.P)

32 Moments of Truth Moment of Truth = customer contact with a service system. Service is defined as the cumulative effect of all the moments of truth. One failed moment of truth can cause failure of the entire service. Therefore, service systems must be designed as a whole, not in parts. BIMECH,Greater Noida (U.P)

33 Moments of Truth Examples from book: King fisher airlines has 50,000 moments of truth per day. Resort Kingfisher has 6,000,000 moments of truth per day. (At Ambala) BIMECH,Greater Noida (U.P)

34 For designing a good service operation process we should remember Perceived Service = f(all previous moments of truth) BIMECH,Greater Noida (U.P)

35 Customer Contact (2) Potential inefficiency in services is a function of the amount of customer contact Why? Customer determines the time Customer determines the order of service Customer influences what happens during the service BIMECH,Greater Noida (U.P)

36 Customers are considered as dominant force in designing service systems Thus considered as a guiding principle this simple yet powerful idea can be formulated as: Pote ntial Efficiency= f (1-Customer contact time/Service creation time) This equation indicates that potential efficiency of a service is limited by the amount of time the customer is involved in the system But Remember that is not necessarily desirable to maximize efficiency BIMECH,Greater Noida (U.P)

37 This idea state that the 1. Firms having similar business must share their best practices 2. High contact and low contact areas with in the industries should be managed differently e.g. A. Contact enhancing strategies Hiring people oriented workers Partitioning back office, non contact activities away from the customer views and should be employed in high contact areas Bill collection center of telecom cos., bill served by waiter and not at the collection center or accounting clerk, enquired at the reception of the cos. Office rather than direct contact with the department. B. Contact reduction strategies Such as appointment systems Drop boxes, ATMs, Online booking of resorts, buses, trains etc.. BIMECH,Greater Noida (U.P)

38 Customer Contact (3) High contact (front room) services Direct customer contact Customer has control of process Low-contact (back room) services Out of sight of customer Provider has control of process Goal: move as much activity as possible to the back roomwhy? BIMECH,Greater Noida (U.P)

39 Again for Designing a good service operation concept We must consider the Degree of Decoupling of Service i.e. to define proportion of Front & Back office BIMECH,Greater Noida (U.P)

40 Service Matrix 2 nd Model ( Figure 1.5) LowHigh Low High Service factory Airlines (traditional) Interstate Bus Services Hotels Resort, Degree of Interaction and Customization Mass services Wholesaling, Retailing Schools Retail aspects of commercial banking Hospitals Police Services Professional Services Lawyers Doctors Accountants Architects Service shop Specialty Hospitals Auto repair Shops Financial Services Companies Art Gallery Degree of Labor intensity BIMECH,Greater Noida (U.P)

41 Service Matrix 2 nd Model ( Figure 1.6) LowHigh Low High Service factory Airlines (traditional) Aviation Hotels, Resort, 1PL (Truckers) Degree of Interaction and Customization Mass services Wholesaling, Retailing Schools Retail aspects of commercial banking Hospitals Police Services Professional Services Lawyers Doctors Accountants Architects Service shop Specialty Hospitals Auto repair Shops Financial Services Companies Art Gallery Degree of Labor intensity BIMECH,Greater Noida (U.P)

42 This matrix is based on the type of service process firm follows e.g. a highly customized service process or highly labour intensive services process i.e. if customization is high we have service shop or professional service (having capital intensive service) providers, if labour intensity is high Mass services otherwise just a service factory. So if you see Each quadrant faces managerial challenges unique to the process within that quadrant. That is how we will going to develop homogeneity in service operation practices BIMECH,Greater Noida (U.P)

43 Low interaction & customization Marketing Making service warm Attention to physical surroundings Managing a fairly rigid hierarchy Standardized procedure Low labour Intensity Capital decision Technology Advancement managing demand to avoid peaks Scheduling service delivery High Labour Intensity hiring training employee welfare schedule workforce managing growth High interaction & customization fighting cost increase maintaining quality Reacting to consumer intervention in process Managing flat hierarchy with loose subordinate –superior relation gaining employee loyalty BIMECH,Greater Noida (U.P)

44 Assignment: 01. Presentation on Models for understanding the relationship between Operational Driver & Business Performance. 1. Balance Business Scorecard ( Kaplan & Norton 1996) 2. Service Profit Chain (Heskett et al. 1997) 3. The result Determinant Framework ( Fitzgerald et al. 1991) 4. The performance pyramid ( Lynch & Cross 1991) 5. Return on Quality ( Rust et al 1995) 6. The business Excellence Model ( EFQM 1999) 7. Data envelop analysis ( DEA) (A. Charnes, W.W. Cooper, E Rohdes) (Banker& Morey study) BIMECH,Greater Noida (U.P)

45 Abhi Class Chalega…………….. BIMECH,Greater Noida (U.P)

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