SU 3 – Chapter 1

Service Processes

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 Learning Outcomes

• Describe the characteristics of service processes.

• Show how service systems can be organised.
• Examine the strategies to manage service encounters.
• Analyse service designs in different business settings.

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 The Nature of Services

• The customer is the focal point of all decisions and

actions.

• The organization exists to serve the customer.

• Operations is responsible for service systems.

• Operations is also responsible for managing the work of

the service workforce. The service
strategy

The
customer

Support
Employees
systems
 Service Package

Supporting Facilitating Explicit Implicit

Information
facility goods services services

The physical
The material
resources Psychological
purchased by Benefits that
that must be Data benefits the
the buyer or are
in place provided by customer
the items observable by
before a the customer may sense
provided to the senses.
service can only vaguely
the customer.
be offered

e.g. e.g. worry-

e.g. golf e.g. response
e.g. demographic free service,
course, time, air
beverages data, seat status or
airline conditioning
preference privacy
 An Operational Classification of Services

• Customer contact: the physical presence of the

customer in the system
– Extent of contact: the percentage of time the
customer must be in the system relative to service
time
– Services with a high degree of customer contact
are more difficult to control than low degree of
customer contact

• Creation of the service: the work process involved in

providing the service itself
 Designing Service Organizations

• Cannot be inventory services.

– Must meet demand as it arises.

• Service capacity is a dominant issue.

– “What capacity should I aim for?”

• Marketing can adjust demand.

• Cannot separate the operations management function

from marketing in services.

• Waiting lines can also help with capacity.

 How Service Design Is Different from Product Design?

1. The process and the product must be developed simultaneously.

– The process is the product.

2. A service operation lacks the legal protection commonly available

to products.
3. The service package constitutes the major output of the
development process.
4. Many parts of the service package are defined by the training that
the individuals receive.
5. Many service organizations can change their service offerings
virtually overnight.
 Structuring the Service Encounters:
(Service – System Design Matrix)

• Service encounters can be configured in a number of

different ways.

Internet and Face-to-face

Fact-to-face Face-to-face
Mail contact on-site Phone contact total
tight specs loose specs
technology customization
(Low customer contact/ (High customer contact/
Low sale opportunity/ High sale opportunity/
High process efficiency) Low process efficiency)

• Production efficiency decreases with more customer

contact.

• Low contact allows the system to work more efficiently.

 Uses of Service-System design matrix

• Both for operational and strategic uses

– Assist the systematic integration of operations and marketing
strategy.
– Clarify the combination of service delivery a firm is providing.
– Allow the comparison with how other firms deliver specific
services.
– Indicate evolutionary or life cycle changes that might be in order
as the firm grows.

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 Five Types of Variability

1. Arrival variability
• e.g., Customers arriving at times when there are not enough service providers

2. Request variability
• e.g., Travelers requesting a room with a view

3. Capability variability
• e.g., Patients not being unable to explain symptoms to doctor

4. Effort variability
• e.g., Shoppers not returning shopping carts to the designated area in a
supermarket parking lot
5. Subjective preference variability
• e.g., Customers interpreting service action differently
 Managing Customer-Introduced Variability

• In general,

• Standard approach is to treat this as a trade-off

between cost and quality.
• Standard approach may overlook ways to
accommodate customer.
 Strategies for Managing Customer-Introduced Variability

Classic Low-Cost Uncompromised

Classic Reduction
Accommodation Accommodation Reduction
• This approach • This approach • This approach • This approach
uses extra uses low-cost requires uses knowledge
resources or labour, customer to of the customer
additional outsourcing, and engage in more to develop
employee skills self-service to self-service, uses procedures that
to compensate cut the cost of reservation enable good
for variations accommodation. systems, or service, while
among adjust their minimizing the
customers. expectations. variation impact
on the service
delivery system.
 Three Contrasting Service Designs

1. The production line approach (McDonald’s)

– Service delivery is treated much like
manufacturing.
2. The self-service approach (ATM machines)
– Customer takes a greater role in the production
of the service.
3. The personal attention approach (Ritz-Carlton
Hotel Company)
 Activity 3.1

• Can you explain why health care service cannot use

production line approach?
• What industries are more likely to use self-service
approach?
• Is Apple Store using personal attention approach to
service its customers?
• Which approach do you think SIM University is using to
deliver on-site service?

© 2015 SIM University. All rights reserved.

 Summary

• Describe the characteristics of service processes.

• Show how service systems can be organised.
• Examine the strategies to manage service
encounters.
• Analyse service designs in different business
settings.

© 2015 SIM University. All rights reserved.

 SU3 – Chapter 2
Quality Management

© 2015 SIM University. All rights reserved.

 Learning Outcomes

• Explain the concepts of quality specifications, cost of

quality and six sigma quality.
• Apply the capability index to measure process variation.
• Analyse process outputs using statistical process control
charts.

© 2015 SIM University. All rights reserved.

 Developing Quality Specifications

 Design quality: inherent value of the product in the

marketplace

 Conformance quality: degree to which the product or

service design specifications are met

 Quality at the source: The concept of quality at the

source indicates that a person who is charge of a
production or service process is responsible for the
conformance quality of the outputs of that process.
 Dimensions of Quality

Performance Features

Reliability/Durability Serviceability

Aesthetics Perceived Quality

 Costs of Quality (COQ)
Assumption to justify an analysis of the costs of quality:
(a) Failures are caused, (b) prevention is cheaper and (c) performance can be measured.

Appraisal costs – costs of

inspection and testing to Prevention costs – sum of all
ensure that the product or the costs to prevent defects
process is acceptable

Quality Costs

Internal failure costs – costs External failure costs – costs

for defects incurred within for defects that pass through
the system the system
 Six Sigma
• Six Sigma is a philosophy and set of methods companies use to eliminate
defects in their products and processes

• The name, “Six Sigma,” refers to the goal of no more than four defects per
million opportunities (DPMO)

• Unit – item produced or being serviced

• Defect – item or event that does not meet the customer’s requirements
• Opportunity – a chance for a defect to occur

Number of defects
DPMO = x1,000,000
Number of opportunities for error per unit x number of units

• By this metric, a process that is said to meet six sigma standard produces
maximum 3.4 DPMOs.
 Activity 3.2

Applications for loan in a bank is expected to be processed

within 10 working days. Out of 1000 applications, 150
doesn’t meet the requirement.

What is DPMO?

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 Six Sigma Methodology

Define, measure, analyze, improve, and control (DMAIC)

Developed by General Electric as a means of focusing

effort on quality using a methodological approach

Overall focus of the methodology is to understand and

achieve what the customer wants

Seeks to reduce the variation in the processes that lead

to these defects

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 DMAIC Cycle

Define - identify customers and their

priorities

Measure - determine how to measure

the process and how it is performing

Analyze - determine the most likely

causes of defects

Improve - identify means to remove the

causes of defects

Control - determine how to maintain the

improvements
 Six Sigma Analytical Tools

Flowchart - a diagram of the sequence of operations

Run chart - depict trends in data over time

Pareto chart - help to break down a problem into components

Checksheets - basic form to standardize data collection

Cause-and-effect diagram (Fishbone)- show relationships between causes and

problems

Opportunity flow diagram - used to separate value-added from non-value-added

Process control chart - used to assure that processes are in statistical control
Variation in Process - Statistical Quality Control (SQC)

• The quantitative aspects of quality management

• Processes usually exhibit some variation in their output

Assignable variation
• Variation that is caused by
factors that can be identified
and managed

Common variation
• Variation that is inherent in the
process itself
Measuring Variation
 Process Capability

Definition:
The ability of a process to consistently produce a good or
deliver a service with a low probability of generating a
defect.
• Specification limits – range of variation that is considered
acceptable by the designer or customer
• e.g. 10.00 ± 0.02 will give you upper limit of 10.02 and lower
limit of 9.98, (9.98, 10.02)
• Process limits – range of variation that a process is able to
maintain with a high degree of certainty
13-31

Process Capability

Process control limits exceed specification limits – process is not

capable of meeting requirements
13-32

Process Capability

Specification control limits exceed process limits (for improved process) –

process is capable of meeting requirements
 Process Capability Index (Cpk)

 Ratio of the range of values produced divided by the range of

values allowed

 Shows how well the parts being produced fit into the range
specified by the design specifications

 For a process to be of Six Sigma capability, some companies

insist that the design specification limits should be six (process)
standard deviations away from the process mean.
13-34

Activity 3.4 – Example 13.1 : Capability index

The quality assurance manager is assessing the capability

of a process that puts pressurized grease in an aerosol can.
The design specifications call for an average of 60 pounds
per square inch (psi) of pressure in each can with an upper
specification limit of 65 psi and a lower specification limit of
55 psi. A sample is taken from production and it is found that
the cans average 61 psi with a standard deviation of 2 psi.

 What is the capability of the process?

 What is the probability of producing a defect?

13-35

Solution to Activity 3.4 – Example 13.1

Or approximately 2.4% of the cans will be defective

 Statistical Process Control (SPC)

• Statistical process control (SPC) tests a random sample of output from

a process to determine whether the process is producing items within a
preselected range.

• Two types of quality characteristics to be monitored in SPC:

– Variable: Variables are quality characteristics that can be

quantitatively measured, such as height and weight of a product.
(X-bar chart, R charts)

– Attribute: Attributes are quality characteristics that are classified as

either conforming or not conforming to specification. E.g. goods or
bad services, or functioning or malfunctioning. (p-charts)

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SPC using Attribute Measurements: Creating p-Charts

(1) Calculate the sample proportions p for each

sample.

(2) Calculate the average of the sample

proportions.

(3) Calculate the standard deviation of the sample

proportion.

(4) Calculate the control limits.

(5) Plot the individual sample proportions, the

average of the proportions, and the control limits.
 Textbook Example 13.2: Using p-Charts

• Used when an item (or service) is either good or bad (a yes-no decision)

(1)

(5)
 Textbook Example 13.2: using p-Chart

(2) 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑢𝑛𝑖𝑡𝑠 𝑓𝑟𝑜𝑚 𝑎𝑙𝑙 𝑠𝑎𝑚𝑝𝑙𝑒𝑠

• 𝑝= = 91/(300*10) = 0.03033
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑎𝑚𝑝𝑙𝑒𝑠 × 𝑆𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒

𝑝 1−𝑝 0.03033 ∗ 1−0.03033

(3) • 𝑠𝑝 = = = 0.00990
𝑛 300

• 𝑈𝐶𝐿 = 𝑝 + 𝑧 𝑠𝑝 , 𝐿𝐶𝐿 = 𝑚𝑎𝑥 0, 𝑝 − 𝑧 𝑠𝑝 for 99.7 percent, z = 3

• UCL = 0.03033 + 3 * 0.00990 = 0.06003
(4) • LCL = max {0, 0.03033 – 3 * 0.00990} = 0.00063

• Thus (0.00063, 0.06003)

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 Activity 3.5

• The samples of 15 parts each were taken from an ongoing process

to establish a p-chart for control. The samples and the number of
defectives in each are shown in the following table.
Sample n # Defects Sample n # defects
1 15 0 6 15 3
2 15 2 7 15 1
3 15 0 8 15 0
4 15 3 9 15 0
5 15 1 10 15 0

Develop a p-chart for 95% confidence (1.96 standard deviation).

Based on the plotted data point, what comments can you make?

Refer to Excel Activity – SU3.5 for details on calculations

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 SPC with Attribute Measurements Vs Variable Measurements

• So far, we have covered process control with Attribute

measurements

• Based on attribute sampling, we might accept if it is over 10

pounds and reject it is under 10 pounds. (Yes or No decision)

• How about for Variables such as actual weight volume,

height, salary?

• For variable sampling, we measure a sample and may weight

9.8 pounds or 10.2 pounds. We will accept if it is within the
acceptable range.

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 SPC using 𝑿-Chart

𝑛 𝑚
𝑗=1 𝑋𝑖𝑗 𝑖=1 𝑋𝑖
• 𝑋𝑖 = , 𝑋=
𝑛 𝑚
• 𝑈𝐶𝐿𝑋 = 𝑋 + 𝑧 𝑆𝑋 , 𝐿𝐶𝐿𝑋 = 𝒎𝒂𝒙 𝑋 − 𝑧 𝑆𝑋 , 0
• 𝑋𝑖 is the mean of the ith sample,
• 𝑋 is the average mean of the samples
• 𝑆𝑋 = 𝑠/ 𝑛 = standard deviation of sample mean,
• s = standard deviation of the process distribution
• n = sample size
• M = number of samples
• z is the number of standard deviations for a specific
confidence level (99.7% CI, z = 3)

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 SPC with Variable Measurement using R-Chart

• 𝑅-chart monitors the average of the range within each

sample.
• R is the difference between the highest and lowest
measurement in the sample
• The largest and smallest diameters of the products sampled
in the first week are 1.28 inches and 1.23 inches, R1 is 0.05
inch.
• These sample ranges constitute the time series to be
examined using R-chart.
𝑚
𝑖=1 𝑅𝑖
• 𝑅=
𝑚
• 𝑈𝐶𝐿𝑅 = 𝐷4 𝑅 , 𝐿𝐶𝐿𝑅 = 𝐷3 𝑅
• 𝑅 = average of all R for all sample

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13-44

Variable Measurement using Process Control Charts –

X-bar and R-Charts

 Size of samples
 Preferable to keep small (usually 4 or 5 units)
 Number of samples
 Once chart set up, each sample compared to chart
 Use about 25 samples to set up chart
 Frequency of samples
 Trade-off between cost of sampling and benefit of adjusting
the system
 Control limits
 Generally use z = 3
13-45

X-bar and R-Charts

 Review Excel Worksheet Activity:
SU3.6 on SPC using Variable
Measurements, X-bar Charts and R-
Charts

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13-47

Process Control Charts – Interpretation

 Summary

 Explain concepts of quality specification, cost of

quality and six sigma quality

 Apply capability index to measure the variation of

process outputs

 Analyse process outputs with attribute and variable

measures using statistical process control charts

© 2015 SIM University. All rights reserved.