Lecture 4 – Service

Operations &
Capacity
Management
EFIM30014 – Operations Management

Dr Aniekan Essien
Lecturer in Business Analytics
G.04 11-13 Tyndall’s Park Road
[email protected]
Recap from Week 3
1. Process design is the sequence of
operations that would be performed on a
set of inputs to get a desired output.
2. The main objective is to ensure that the
performance of the process is appropriate for
whatever it is trying to achieve.
3. A layout is how space is best utilized. There
are service and manufacturing process
types.
4. A process map is a simple way of recording
details of a process to help improve it.
Weekly Outline

1. Service Operations Management

2. Capacity Management
Learning Outcomes

1. Discuss the Service Concept and how

managers can apply it.

2. Explain the concept of capacity management

and how demand and capacity are
measured.

3. Understand that variability is key in

responding to demand fluctuations and know
the tradeoffs.
DIRECTING THE DESIGNING THE DELIVERING THE DEVELOPING THE
OPERATION OPERATION OPERATION OPERATION

1: Introduction to 5: Inventory Management 10. Sustainable &

3: Process Design
Operations responsible
& Analysis
Management READING WEEK operations

6: Improving Operations
2: Operations
Strategy 7: Supply Chain
Management

8: Quality Management
4: Service
Operations
Management 9: Technologies in
Operations Management
Section 1
Service Operations
Service Operations are everywhere!
Information and Transport and storage
communications 8% 8%
Accommodation and
Education food services 4%
6%

Finance and
Public administration insurance
and defence 7% 12%

Human health
and social work
10%
Real estate
services 11%

Professional,
scientific and
technical 9% Administration
and support
Arts, services 6%
entertainment,
Wholesale and retail
recreation 5%
14%

© 2021. Pearson Education. Source:

Johnston, Clark and Shulver (2021, p.32)
What is a Service?

▪ “The combination of Outcomes and Experience delivered

to and received by a customer” – Johnston and Clark (2008)

▪ The production of an essentially intangible benefit, either in

its own right or as a significant element of a tangible product,
which through some form of exchange, satisfies an identified
need – Lovelock (2005)
What are Service Operations?

“The activities, decisions and responsibilities of operations

managers in service organisations”
– Johnston & Clark (2008)
Service Operations – Definition
▪ Applies to any operation which ▪ It is essential to understand
is not involved in making a that every interaction with the
tangible product. buyer of your service is critical
to your long-term success.
▪ Often the output of a service
operation is intangible and is ▪ Spending time understanding
an emotion. what your customer wants
now and what your customer
▪ Intangibility presents many is likely to want in the future is
challenges for the operation. very important.
How many different Processes?
▪ Passenger check-in assistance

▪ Baggage drop

▪ Security/seat check, boarding

passengers
▪ Fly passengers/freight around the
world

▪ Flight scheduling, in-flight passenger

care

▪ Transfer assistance, baggage reclaim,

etc.
Service Operations – Ops Perspective
▪ The service rendered from an operations Service provided by the operation

perspective is the process. THE OPERATIONS PERSPECTIVE

▪ Service Operations is complex!

Materials
▪ In this airline, so many service operations, Knowledge
as well as coordinating them all… Staff
Technology

▪ Each of these operations also are ITOs, Facilities PROCESS

e.g., IT, cleaning, reception, customer and …. INPUTS OUTCOMES

‘Products’
service, etc. CUSTOMERS
Benefits
EXPERIENCE
Emotions
▪ Thus, the service occurs, where the Judgements
operation and the customer meet as Intentions
represented by the overlap
Service Operations – Customer
Perspective
▪ The service received is their experience.

▪ The customer experience… the direct and PROCESS

personal interpretation of OUTCOMES ‘Products’
Benefits
▪ …their interaction and participation with EXPERIENCE
Emotions
the service process, Judgements
Intentions
▪ and its outputs… including their journey
through a series of touch points/steps.
THE CUSTOMER PERSPECTIVE
▪ No two people can have the same
experience. Service received by customers

Adapted from: Johnston & Clark, Service Operations

Management, 2nd Edition, Pearson
Service Operations
▪ A key challenge…inside-out vs.
outside-in.

▪ Service provided vs service

received.

▪ Operations focuses on the

resources, processes, scheduling,
etc.

▪ Customer focuses on the service

received, experience, etc.

Adapted from: Johnston & Clark, Service Operations

Management, 2nd Edition, Pearson
Service Operations
▪ McDonald’s slowest ‘drive-thru’
time in 15 years!

▪ "The operational pressures to

assemble those items are
slowing down the drive-thru,”

▪ Another factor: accuracy.

▪ "Customers will be patient if you

give them hot, accurate orders,"

https://bit.ly/3FqudkT
The Service Outcomes
▪ Products: one main outcome of a service operation is the functional output of the
service provided, ‘products’ such as the food and drink provided by a restaurant, or the
new heart for the heart operation patient

▪ Benefits: Why the customer has chosen to use the service provider. How the customer
perceives they have profited or gained from the service provided.

▪ Emotions: experiencing a service results in the customer feeling emotions: love, joy,
contentment, discontentment, surprise, anger.

▪ Judgments: the customers’ conscious or unconscious assessment of the service

provided, their experience and the perceived benefits gained (their perception) (the
customer is always right).
▪ Intentions: these judgments, good, bad or indifferent will result in intentions, such as the
intention to repurchase or not.
Customer Satisfaction
 Defining Service Quality
‘Perceived’ Quality

Gap Gap
Quality is the Customers’
totality of Customers’ perceptions of
perceived Customers’ Customers’ the product or
expectations for
features and the product or Customers’ expectations for perceptions of Customers’ service
perceptions of the product or the product or expectations for
characteristics of service service
the product or service the product or
a product or service service
service that bears
on its ability to
satisfy given
expectations.
Expectations > perceptions Expectations = perceptions Expectations < perceptions

Perceived quality is poor Perceived quality is acceptable Perceived quality is good

A Gap Model of Quality

Parasuraman, A., Zeithaml, V.A. and Berry, L.L., 1985. A

conceptual model of service quality and its implications for future
research. Journal of marketing, 49(4), pp.41-50.
 Summary for LO1
▪ Service operations are the activities,
decisions and responsibilities of
operations managers in service
organisations.

▪ The service operation has two key Describe Service

perspectives – the customer and the Operations and
operations perspective.
differentiate between
▪ A key challenge is that managers Service Operations and
view the operations perspective
(inside-out) while customers view the Production Operations.
outside-in perspective.
Section 2
Capacity Management
What is a Capacity Management?

“Understanding the nature of an operation’s demand and

supply and coping with mismatches between them.”
– Slack & Bandon-Jones (2019)
Capacity Management
▪ Capacity is the output that an Capacity Management
operation can deliver in a defined ▪ The activity of coping with change
unit of time. (variation) between demand and
supply
▪ The ability an operation or process
has to supply its customers ▪ Variation can be in demand, in
(Generally defined in terms of scale supply or both.
and time).
▪ Total capacity is the maximum value ▪ Variation can be predictable or
that can be created (output) over a unpredictable
period of time.
Measuring (forecasting) Demand
▪ Understanding patterns of demand for products ▪ Quantitative approaches to forecasting –
and services is critical for successful capacity data-driven.
management.
▪ Qualitative approaches to forecasting: ▪ Timeseries analysis: analysing past
patterns of demand to infer future values.
▪ Panel: of experts sitting to speculate Limited by assumption that previous patterns
about likely outcomes (e.g., politicians, will always infer future scenarios (e.g.,
retail, etc.) Covid-19, natural disasters, etc.)
▪ Delphi: analysis of survey from experts ▪ Moving Average: take the average of
(e.g., panel). Reduces subjectivity and previous periods and uses this to infer future
panel bias.
scenarios.
▪ Scenario planning: applied to long-term
planning and typically uses a panel. Large ▪ Exponential Smoothing: uses the average
number of scenarios are devised and from the past period + the forecast (error) to
discussed extensively by panel members. smooth the future inference (i.e., prediction).
Measuring Capacity
INPUT OUTPUT
Air Conditioning Factory Machine hours available Number of units per week

Hospital Beds available Number of patients treated

each week
University Number of rooms Number of students
graduating each year

Guinness factory Fermentation tanks Litres per week

Understanding Changes in Capacity

Adapted from Slack and Brandon-Jones, (2019)

Variation can be either way!
▪ Most operations focus
on handling changes in
demand, but it is also
important to consider the
capacity (i.e., ability to
supply).

▪ Capacity management
decisions should reflect
both predictable and
unpredictable variations
in capacity and
demand.

Adapted from Slack and Brandon-Jones, (2019)

Measuring Demand-Capacity
Mismatches 18

▪ Almost all operations have to cope with 16

varying demand or supply and there
are three ‘pure’ plans available for 14

Number of arrivals
treating such variation. 12

10
▪ Level capacity plan: Ignore demand
fluctuations and keep capacity levels 8
constant 6

▪ Chase capacity plan: Adjust capacity 4

to reflect the fluctuations in demand. 2

▪ Demand management: Attempt to 0

15.00 - 15.31 - 16.01 - 16.31 - 17.01 - 17.31 - 18.01 - 18.31 - 19.01 - 19.31 - 20.01 - 20.31 -

change demand 15.30 16.00 16.30 17.00 17.30 18.00 18.30 19.00 19.30 20.00 20.30 21.00

Level Capacity means Queues!

Adapted from Slack and Brandon-Jones, (2019)
Level Capacity Plan

Level capacity plan for a firm who can store

their products (e.g. car hire company)
(make to stock – inventory)

Level capacity plan for a firm who cannot store

their products (e.g., hotel, airline)
(finite loading)

Adapted from Slack and Brandon-Jones, (2019)

Level Capacity
▪ Ignore demand fluctuations & keep
capacity constant.
▪ Resources are maintained at a
constant level, and the organisation The higher the base level of
must then manage the
consequences. capacity, the less capacity
▪ Focus on high utilization (=queue) fluctuation is needed to
▪ Then can :
– Promote off peak demand
satisfy demand.
– Queue Management
– Booking Systems

Adapted from Slack and Brandon-Jones, (2019)

Chase Capacity
▪ Attempt to closely match
capacity to forecast demand.
▪ Adjust capacity to reflect the
fluctuations in demand.
▪ Provision of ready and rapid
access.
▪ Focus on flexibility, varied
The chase (demand) approach is
demand.
most useful when output cannot be
stored or when demand is both
volatile and unpredictable.
Adapted from Slack and Brandon-Jones, (2019)
Methods of Chasing Capacity
▪ Flexible staffing
– Staggered start times, shifts
– Staff ‘on call’
– Overtime working
– Transfer between departments
▪ Temporary Staff or Subcontractors
– Labour pool (employ agency or
‘bank’ staff)
– Part-time staff
– Outsourcing

Adapted from Slack and Brandon-Jones, (2019)

Demand Management

▪ Ways of managing demand

include:
– Constraining customer access
– Price differentials
– Promotions
– Service differentials
▪ All about getting your customers
to do what you want them to do
when you want them to do it!

Adapted from Slack and Brandon-Jones, (2019)

Demand Management Strategies

▪ Pricing strategies
▪ Restricting service
▪ Specialist service channels
▪ Advertising
▪ Develop alternative off-peak demand
▪ Reservations and appointments
▪ Negotiate delivery dates with customers

Adapted from Slack and Brandon-Jones, (2019)

Mixed Strategies – Restaurants

▪ Level Capacity ▪ Demand Management

– Keep manufacturing of basic food – Use promotional activity to
materials as close to ‘level’ as possible increase demand in quiet
– Maintain high utilization of process periods.
plant – Devise special offers to allow
for bulk-purchasing discounts
▪ Chase Capacity
– Draw up staff rosters to reflect forecast
demand
– Use part-time staff to manage peaks
– Call in staff for demand surges.
https://bit.ly/2Jxs4LP
Mixed Strategies – Airlines

▪ Level Capacity ▪ Demand Management

– Ensure planes are flying with max – Promote off-peak demand
payload as often as possible. – Try to maximise revenue from
each flight (Yield management)
▪ Chase Capacity
– Schedule staff reservations
department to meet demand to
ensure bookings can be made.
Capacity Management
 Summary for LO2
▪ Capacity management decisions should
reflect both predictable and unpredictable
variations in capacity and demand.
▪ Demand-capacity mismatches can be
managed by three pure plans – level Understand the difficulty in
capacity plan, chase capacity plan and
demand management. matching demand and supply, as
well as the nature of demand
▪ Methods of chasing capacity include across different time periods.
flexible staffing, temporary staff and use
of outsourced services (e.g. cloud Understand that variability is key
computing) in responding to demand
▪ Demand management strategies are fluctuations and know the
applied to manage demand including tradeoffs.
constraining customer access, promotion,
and price/service differentials.
Summary for Today
1. Understand the nature of demand across
different time periods
2. Know what factor drive changes in demand
3. Consider supply-side options (level and
chase)
4. Consider demand-side options (control,
store, don’t meet)
5. Appreciate that variability is key! Know the
trade-offs