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ISM 270

ISM 270. Service Engineering and Management Lecture 3: Technology in Services. Announcements. Homework 1 due next week Homework 2 due following week. Today’s Lecture. Role of Technology in Services New Service Development Facility location problems Inventory Management

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ISM 270

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  1. ISM 270 Service Engineering and Management Lecture 3: Technology in Services

  2. Announcements • Homework 1 due next week • Homework 2 due following week

  3. Today’s Lecture • Role of Technology in Services • New Service Development • Facility location problems • Inventory Management • Statistics and Probability Review

  4. Technology in Service

  5. Discussion Name an Internet site you believe will be successful in the long run - explain why.

  6. IT Significance Information Technology can change the way that an organization (business or public sector) competes. • As the foundation for organizational renewal. • As a necessary investment that should help • achieve and sustain strategic objectives. • As an increasingly important communication • network among employees and with customers, • suppliers, business partners and even • competitors.

  7. Strategic Roles of Information Systems Specific Examples: • Lower Costs • Differentiate • Innovate • Promote Growth • Develop Alliances • Improve Quality and Efficiency • Build an IT Platform • Support (enable) other Strategies

  8. Role of Technology in the Service Encounter Technology Technology Technology Customer Server Customer Server Customer Server A. Technology-Free Service Encounter B. Technology-Assisted Service Encounter C. Technology-Facilitated Service Encounter Technology Technology Customer Server Customer Server D. Technology-Mediated Service Encounter E. Technology-Generated Service Encounter

  9. Service Industry Human Contact Machine Assisted Service Electronic Service Banking Teller ATM Online banking Grocery Checkout clerk Self-checkout station Online order/ pickup Airlines Ticket agent Check-in kiosk Print boarding pass Restaurants Wait person Vending machine Online order/ delivery Movie theater Ticket sale Kiosk ticketing Pay-for-view Book store Information clerk Stock-availability terminal Online shopping Education Teacher Computer tutorial Distance learning Gambling Poker dealer Computer poker Online poker Technology has led to the Evolution of Self-service

  10. Self-service Technologies (SST) • Does customer adoption of self-service follow a predictable pattern? • How do we measure self-service quality (e.g., ease of use, enjoyment, and/or control)? • What is the optimal mix of SST and personal service for a service delivery system? • How do we achieve continuous improvement when using SST? • What are the limits of self-service given the loss of human interaction?

  11. Self-Service examples • Airline industry • Banking

  12. Technology has led to service automation • Fixed-sequence (F) - parking lot gate • Variable-sequence (V) - ATM • Playback (P) - answering machine • Numerical controlled (N) - animation • Intelligent (I) - autopilot • Expert system (E) - medical diagnosis • Totally automated system (T) - EFT

  13. Technology has led to a variety of services available via the web • A retail channel (Amazon.com) • Supplemental channel (Barnes & Nobel) • Technical support (Dell Computer) • Embellish existing service (HBS Press) • Order processing (Delta Airline) • Convey information (Kelly Blue Book) • Organization membership (POMS.org) • Games (Treeloot.com)

  14. Several technologies needed to converge to bring E-Business • Internet • Global telephone system • Communications standard TCP/IP (Transfer Control Protocol/Internet Protocol) • Addressing system of URLs • Personal computers and cable TV • Customer databases • Sound and graphics • User-friendly free browser

  15. E-Business has led to multiple business models(Weill & Vitale, Place to Space, HBS Press, 2001) • Content Provider: Reuters • Direct to Customer: Dell • Full-Service Provider: GE Supply Co. • Intermediary: eBay • Shared Infrastructure: SABRE • Value Net Integrator: 7-Eleven Japan • Virtual Community: Monster.com • Whole-of-Enterprise: Government

  16. Economics of E-Business • Sources of Revenue:- Transaction fees- Information and advice- Fees for services and commissions- Advertising and listing fees • Ownership- Customer relationship- Customer data- Customer transaction

  17. Electronic vs. Traditional Services

  18. Grocery Shopping Comparison

  19. Dimensions High Scalability Low E-commerce continuum Selling information (E-service) Selling value- added service Selling services with goods Selling goods (E-commerce) Information vs. Goods Content Information dominates Information with some service Goods with support services Goods dominate Degree of Customer Content Self-service Call center backup Call center support Call center order processing Standardization vs. Customization Mass distribution Some personalization Limited customization Fill individual orders Shipping and Handling Costs Digital asset Mailing Shipping Shipping, order fulfillment, and warehousing After-sales service None Answer questions Remote maintenance Returns possible Example Service Used car prices Online travel agent Computer support Online retailer Example Firm Kbb.com Biztravel.com Everdream.com Amazon.com Economics of Scalability

  20. E-Business Supply Chain (Network) Elements • Major entities including firm of interest and its customers, suppliers, and allies • Major flows of product, information, and money • Revenues and other benefits each participant receives • Critical aspects: participants, relationships, and flows Example: 7-Eleven Japan

  21. Japanese 7-Eleven • Read case in text • (p 109, 7th edition, p103, 6th edition, p122 5th edition)

  22. Evolution of B2C E-Commerce in Japan • Does the 7-Eleven Japan distribution system exhibit scalability economics? • How does the 7-Eleven example of B2C e-commerce in Japan illustrate the impact of culture on service system design? • Will the 7-Eleven “Konbini and Mobile” system be adopted in the United States?

  23. Video

  24. New Service Development

  25. Service innovation • How do I come up with a ‘new’ idea? • Do I start with a customer need? • A technology?

  26. Levels of Service Innovation Radical Innovations • Major Innovation: new service driven by information and computer based technology • Start-up Business: new service for existing market • New Services for the Market Presently Served: new services to customers of an organization Incremental Innovations • Service Line Extensions: augmentation of existing service line (e.g. new menu items) • Service Improvements: changes in features of currently offered service • Style Changes: modest visible changes in appearances

  27. Technology Driven Service Innovation • Power/energy - International flights with jet aircraft • Physical design - Enclosed sports stadiums • Materials - Astroturf • Methods - JIT and TQM • Information - E-commerce using the Internet

  28. Service Design Elements • Structural- Delivery system- Facility design- Location- Capacity planning • Managerial- Service encounter- Quality- Managing capacity and demand- Information

  29. New Service Development Cycle • Full-scale launch • Post-launch review Full Launch Development Enablers • Formulation • of new services • objective / strategy • Idea generation • and screening • Concept • development and • testing People Organizational Context Teams • Service design • and testing • Process and system • design and testing • Marketing program • design and testing • Personnel training • Service testing and • pilot run • Test marketing Product Technology Systems Tools Analysis Design • Business analysis • Project authorization

  30. Service Blueprint of Luxury Hotel

  31. Video

  32. Strategic Positioning Through Process Structure Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital. Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

  33. Structural Alternatives for a Restaurant LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS PREPARE ORDERS Salad (4 choices) Entree (15 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS COLLECT PAYMENT No Reservations Self-seating. Menu on Blackboard Eliminate Customer Fills Out Form Pre-prepared: No Choice Limit to Four Choices Sundae Bar: Self-service Coffee, Tea, Milk only Serve Salad & Entree Together: Bill and Beverage Together Cash only: Pay when Leaving Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors D’oeuvres At table. Taken Personally by Maltre d’ Individually Prepared at table Expand to 20 Choices: Add Flaming Dishes; Bone Fish at Table; Prepare Sauces at Table Expand to 12 Choices Add Exotic Coffees; Sherbet between Courses; Hand Grind Pepper Choice of Payment. Including House Accounts: Serve Mints

  34. Taxonomy of Service Processes Low divergence High divergence (standardized service) (customized service) Processing Processing Processing Processing Processing Processing of goods Information of people of goods Information of people Dry Check Auto repair Computer No Cleaning processing Tailoring a programming Customer Restocking Billing for a suit Designing a Contact a vending credit card building machine Ordering Supervision Indirect groceries of a landing customer from a home by an air contact computer controller No Operating Withdrawing Operating Sampling Documenting Driving a customer- a vending cash from an elevator food at a medical rental car service machine an ATM Riding an buffet dinner history Using a worker Assembling escalator Bagging of health club interaction premade groceries Searching for facility (self- furniture information service) in a library Direct Customer Food Giving a Providing Home Portrait Haircutting Contact service service in a lecture public carpet painting Performing worker restaurant Handling transport- cleaning Counseling a surgical interaction Hand car routine bank ation Landscaping operation washing transactions Providing service mass vaccination

  35. Generic Approaches to Service Design • Production-line • Limit Discretion of Personnel • Division of Labor • Substitute Technology for People • Standardize the Service • Customer as Coproducer• Self Service • Smoothing Service Demand • Customer Contact • Degree of Customer Contact • Separation of High and Low Contact Operations • Information Empowerment • Employee • Customer

  36. Customer Value Equation

  37. Amazon.com • Discussion: • What were / are the key drivers of success? • What role has technology played?

  38. Discussion • Name • An existing service that could be improved by new technology • A new service that could be introduced if new technology were developed • A technology that hasn’t yet converged to a service

  39. Transportation and Location Problems • Appear frequently in service design • Homework 2 has an example

  40. Clarke-Wright for homework 2 • Traveling Salesman-type problems very common in services • Delivery of goods • Mail routes • Sales tour • Standard problem: • Given the distance between each city pair, visit all N cities in some order, ending back at the base • Objective: Minimize total distance traveled

  41. Traveling salesman • Standard problem is very difficult to solve (NP – complete) • We will use the Clarke-Wright Algorithm (page 499 of text) • C-W algorithm intuition: • Start with the path that returns to base between every node • Add links between nodes instead of returning in order of distance gained • Stop when no gain can be made • Note: This is a good heuristic • Performs well in practice, but not guaranteed to find the best solution.

  42. Clark-Wright Algorithm Objective: Find the shortest-path sequence for visiting N locations You are given the distance between any two locations • Calculate the ‘savings’ from adding a link between two locations instead of returning to base in between • Order the savings links from to bottom • Create the schedule by • Starting with a schedule that goes from base to each location and back • Add feasible links from the savings list in order of savings • Stop when no savings can be made, or all links are on one cycle

  43. Managing Service Inventory Replenishment order Replenishment order Replenishment order Customer order Factory Wholesaler Distributor Retailer Customer Production Delay Shipping Delay Shipping Delay Item Withdrawn Wholesaler Inventory Distributor Inventory Retailer Inventory McGraw-Hill/Irwin

  44. Role of Inventory in Services • Decoupling inventories • Seasonal inventories • Speculative inventories • Cyclical inventories • In-transit inventories • Safety stocks 18-45

  45. Considerations in Inventory Systems • Type of customer demand • Planning time horizon • Replenishment lead time • Constraints and relevant costs 18-46

  46. Relevant Inventory Costs • Ordering costs • Receiving and inspections costs • Holding or carrying costs • Shortage costs 18-47

  47. Inventory Management Questions • What should be the order quantity (Q)? • When should an order be placed, called a reorder point (ROP)? • How much safety stock (SS) should be maintained? 18-48

  48. Inventory Models • Economic Order Quantity (EOQ) • Special Inventory Models With Quantity Discounts Planned Shortages • Demand Uncertainty - Safety Stocks • Inventory Control Systems Continuous-Review (Q,r) Periodic-Review (order-up-to) • Single Period Inventory Model 18-49

  49. Inventory Levels For EOQ Model Units on Hand Q 0 Q Time D 18-50

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