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1
What is a product?
What is production?
Dynamics of Business management!
Service?
Operation?
What is Management?
What is Service Operations Management?
2
What is Service?
Service is classified as an intangible product to
satisfy the customer
Often service is facilitated by a tangible product
Transportation service–Aircraft/Motor car
Telephone service – Handset
Resting, sitting down – Chair
Viewing – TV set
Every tangible product is a service for the end user
3
Every tangible product is accompanied by a
service to facilitate effectiveness of service
Packaging – consumer packaging gives
instruction for effective use of service
Instructions on consumer packaging
Cautions and warnings
Universal symbols of poison, radio activity,
inflammable material etc.
User manuals – cell phones
4
Distinctive Characteristics of Service Operations
1. Customer participation in service process
Without active participation of the customer
(recipient of service) service doesn’t get
created. Service cannot be produced and then
delivered
2. Simultaneity
Consumption and creation of service are
simultaneous. There is no inventory
3. Perishability
As service doesn’t remain in stock there is no
deterioration, hence no perishability
5
4. Intangibility
Service is an intangible product
5. Heterogeneity
Service changes from customer to customer
6. Non-ownership
There is no transfer of ownership of product when
a service is purchased. The customer gains
access or rental of resources – passenger and
aircraft
6
A product (core service) A service
1. Result of a process A process itself
2. Tangible Intangible
3. Perishable Non perishable
4. Uniformity Heterogeneity
5. Product is (Inventoriable) Simultaneous production &
to be delivered to the consumption (Non
customer inventoriable)
6. Long lead-time No distribution lead-time
7. Capital intensive Skill intensive
8. Product can be tested for Service quality is difficult to
quality determine
9. Market is extensive Market is local 7
What are service operations?
Activities which create service (add value)
Set of value adding activities performed in a
service organization
What is Service Operations Management?
Management of Service Operations is making a
service organization: -
• Efficient and effective – by putting the focus on
productivity
• Directing efforts of the organization towards
customer satisfaction
• Resource allocation to maximize profits
8
What is service sector?
A sector of economy which consists of service
organizations engaged in delivering a variety of
services
Services belong to a type of industry called
tertiary Industry
Types of industry
• primary, secondary, tertiary and quaternary.
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Importance of Service Sector
10
GDP per GDP composition by sector
GDP by PPP
Country capita by (2016 est.)
(2017)
PPP agriculture industry services
13
Modern Production/Operations Management- Elwood S. Buffa, Rakesh K. Sarin (John Wiley and Sons)
During and immediately after war expenditure on essentials like food, clothing, fuel etc
used to consume a major part of the income. As the time progressed, consumption of
services increased. By 1980 it became 60% of income from 33% in 1945 14
Different forms of service
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business services: Insurance, financing, IT
(Information technology is an important
business service that supports many other
business services such as procurement, shipping
and finance
Governmental service: police, military, PDS
community services (health care, child care,
literacy training, education, housing and
recreation)
17
Role of services in an Economy
Services facilitate economic activities
Infrastructural services support
manufacturing activities
consumer’s access to various goods and
services to improve quality of life
Government services provide a stable
environment for economic activities to flourish
Role of services is Central to economic activities
in a society
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Classification of Service Operations
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Managers tend to think their business is unique
Classification stimulates benchmarking
The classification helps service managers to
identify similar businesses to bench mark best
practices
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Customer Contact Model of Services
(Richard Chase-1978)
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Service Operations Management, Metters, King Metters, Pullman, Walton (CENGAGE)
22
Services are classified based on amount of
customer contact while creating service
Pure services (High contact-face to face contact
with customers)
• Medical services
•Transportation
• Eating places
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Mixed Services (Low contact)
• Bank branches (loans- customer and supplier is
not close)
• Insurance
Quasi-manufacturing (almost no contact)
• Bank head office
• Distribution centers
Manufacturing (no customer contact)
24
Service Process Matrix
(Schmenner,1986)
25
The differentiating factors
26
Service Operations Management, Metters, King Metters, Pullman, Walton (CENGAGE)
27
Customization
Challenges for Managers
(Capital intensive)
• Sourcing funds Hospitals
• Choice of technology Repair
Air line • Managing peaks and troughs of demand with services
Trucking limited expensive capacity
•Scheduling service delivery – maximum utilization
Hotels of capacity
Labour Intensity
Challenges for Managers •Cost control-no scale
(Standardized services) •Maintaining quality-large
•Making services warm variety
•Making surroundings warm •Customer intervention
•Strong SOPs to manage •Gaining employee loyalty-
Hierarchy (scripting? Discretion?) highly skilled
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Classification of service systems
Distinctive features
Modern Production/Operations Management- Elwood S. Buffa, Rakesh K. Sarin (John
Wiley and Sons) Ch 3
30
Stagnant personal
1. High customer contact – doctor, hair dresser,
teaching (techer-pupils)
2. Customization is generally high to meet customers’
needs
3. Quality of the service is related to service time (a
resource), hence reduction in service time
compromises quality – doctor’s service, classroom
Productivity improvement is possible only in
support services
1. Due to business dynamics stagnant personal
services are also being standardized as
specializations and placed strategically on offer
Medical practice, teaching institutions, restaurants 31
Substitutable – personal
1. Technological alternatives can substitute these
services
Servants – washing machine, ovens
Security guards – electronic gadgets
Banks – ATMs, internet banking
Teaching – on line courses, distance learning
Mail delivery system – electronic mail
2. Productivity improvement is possible by
technological innovations
3. Quality of substittuted service remains
debatable
32
Progressive
There are two components in this type of
service, one needs no labour and the other is
labour intensive
Computation work – hardware, software and skill
Broadcasting – transmission and program (skill)
R & D – equipment and human skills
Productivity improvement brings cost of one
component down while the other keeps going up
due to its stagnant nature
33
Explosive
No customer contact while producing service
Telephone communication
On line banking
Airlines reservations on line
34
Service strategy of a firm
35
Strategically Planning for Growth
In competitive environment, growth is important for
survival
Growth strategies should address growth stages
Growth strategies for service are different from those
for products (why?)
PLC for products and the Multi-Site Service Firm
Lifecycle
1. Entrepreneurial stage
•Difficult time, low income
•Local marketing, PR
•Role of entrepreneur to motivate underpaid
employees
36
Multi-Site Service Firm Lifecycle
37
2. Multisite rationalization
•Why Multisite expansion?
•A new paradigm (?) for all functions
•Company shifts to system focus from
entrepreneurial focus (?)
3. Growth
•Selling service concept to a wider consumer base
•Wider-scale marketing
•Finding investors and franchisees to fund the
growth
•Two important strategies during growth are
industry roll-ups and franchising
38
Industry roll-ups and franchising
A Rollup is acquiring or merging small single
unit service firms for expansion
•Easier than building up capacity by internal
expansion
•Easy access to market
•Reduction in competition
•Economies of scale
•Indian airlines and Air India?
•IDBI and United Western? Many in Banking
Sector
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Franchising
•Selling right to use the name for royalty and a
portion of sales
•The principal company helps the franchisee to set
up the business and trains him/her in operations
•Franchisor and Franchisee have stake in business
•Cable TV operators
•Mc Donald’s Chain
40
4. Maturity
•Maintaining position in the market
•Control over operations, motivating employees at
multiple locations who are less than inspired
(complacent?)
Examples
Banking service? Government services?
41
5. Decline/Regeneration
•The service concept becomes stale and business
starts declining
•Revising service concept and implementing
•Service network is used to and comfortable with
old service concept
•Requires great entrepreneurial skills
Examples
•Radio broadcast, service concept is revised and
being delivered as FM radio?
•Idlis and dosas as fast food items?
42