INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Service Delivery System

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Production and Operations Management MGT613

Lesson 04

Distinctive Competencies

The special attributes or abilities that give an organization a competitive edge.

7. Price

8. Quality

9. Time

10. Flexibility

11. Service

12. Location

A. Operations Strategy

·Operations strategy The approach, consistent with organization strategy that is used to guide the

operations function. We first study strategy design process with example for manufacturing and

Services.

Strategy Design Process

Strategy Process

Example

Customer Needs

More Product

Corporate Strategy

Increase

Organization Size

Operations Strategy

Increase Production Capacity

Decisions on Processes

Build New Factory

and Infrastructure

Strategy Design Process for Services

Strategy Map

Desired Results

ancial Perspective

Improve Shareholder Value

Customer Perspective

Customer Value Proposition

Internal Perspective

Build-Increase-Achieve

Learning and Growth Perspective

A Motivated and Prepared

Workforce

Production and Operations Management MGT613

Relationship between Operations and Organizational Strategy

·Organizational strategy is

an over all big picture for the whole organization.

Longer in time horizon

Less detailed and broader in scope.

·Operational Strategy is

Narrower in scope and in more detail

Prepared by middle management.

Should be in line with the Organization strategy

·Operational Strategy if

Designed and implemented successfully can make an organization more successful.

Organizations started focusing on operational strategies in early 1990s before that

organizations focused on financial and marketing strategies.

Operational strategies mostly function on two dimensions of quality management and

service/manufacturing strategy.

An operations Manager should avoid SUBOPTIMIZATION meaning his operational strategy for the

department and divisions goals should not harm the overall Organizational strategy. He should opt for

systems approach or a big picture approach or strictly base his operations strategy on Organizational

strategy.

Operations Strategy for Service Organizations

Service Organizations in Pakistan function with a very detailed and elaborative Operations Strategy. It

is important to identify the Strategy Design Process and able to recognize the concepts associated with

Strategy Formulation. Service Organizations are no exceptions and work diligently to identify, nurture

and protect their distinctive competencies. Service Organizations are busy carrying out detailed

environmental scanning and also periodically carryout SWOT Analysis.

As operations manager of a service based organization, one should be able to understand the

importance of both Order qualifiers and Order winners. Order qualifiers

are those significant characteristics that service customers perceive as minimum standards of

acceptability to be considered as a potential purchase while order winners

are the characteristics of an organization's services that cause it to be perceived as better than the

competitors services. A bank offering 10 percent return on customers' holdings would be an order

qualifier but if the same service has an additional characteristic of some added feature like availability

of interest free loans for purchase of car or building of homes, then the banks service becomes order

winner.

Steps in Developing a Manufacturing/Service Strategy

1. Segment the market according to the product/Service group ( A person interested in buying a sedan

car would rarely show interest in buying an SUV car, the market segmentation should be just and

judicious)

2. Identify product/Service requirements, demand patterns, and profit margins of each group ( Your

Market research department should be able to capture these with the help of MIS systems)

3. Determine order qualifiers and winners for each group ( Order Qualifiers would meet customer

requirements and Order Winners would satisfy customers)

4. Convert order winners into specific performance requirements ( Continuous improvement always

helps and it is what the Japanese has perfected through KAIZEN)

Production and Operations Management MGT613

Key External Factors

Economic conditions should include both Micro and Macro Economics.

Political conditions require the organization to carryout PEST analysis.

Legal environment relates to government regulations for investor protection.

Technology .Gap Analysis focusing market leaders in the respective field.

Competition so as to expect no free lunches or no monopolies.

Markets are always free markets till proven otherwise

Key Internal Factors

1. Human Resources include Trained, skilled and qualified employees.

2. Facilities and equipment are a good source for motivation, and obtaining competitive advantage

over your competitors.

3. Financial resources. A higher Free cash flow makes a company outperform its competitors.

4. Customers include repeat customers, as well as customer relationship Management.

5. Products and services relates to how does the organization values itself whether it provides

products or services that add value)

6. Technology .Legacy Systems or Technology that is competitive and has the potential to gain

competitive advantage.

7. Suppliers .Companies have taken care of the supplier issue by making use of effective Supply

Chain Management Strategies or use vertical or horizontal integration techniques.

Strategic Service Vision

Service Concept includes

Service Levels refer to the important elements of the service to be provided, usually stated in

terms of results produced for customers.

Perception corresponds to the elements perceived by the target market segment, by the market

in general, by employees, & by others. How do customers perceive the service concept.

Delivery focuses on the efforts in terms of the manner in which the service is designed,

delivered, marketed.

Strategic

Service

Vision

Operating Strategy

Focus Area includes important elements of the strategy: operations, financing, marketing,

organization, human resources, control. Also the central service area along with the location of

investments ( human resource or Technology).

Central Operations to control quality and costs, improve measures, incentives, rewards. The

expected results should be evaluated in terms of, quality of service, cost profile, productivity,

morale/loyalty of servers.

Service Delivery System

The important features of the service delivery system include role of people, technology, equipment,

layout, procedures

The capacity it has to provide at peak levels

The extent to which it should help to insure quality standards, differentiate the service from

competition, provide barriers to entry by competitors.

Relatively Low (as compared to manufacturing) Overall Entry Barriers

Economies of Scale Limited (not always but most of the time)

High Transportation Costs

Erratic Sales Fluctuations

Production and Operations Management MGT613

No Power Dealing with Buyers or Suppliers

Product Substitutions for Service

High Customer Loyalty

Exit Barriers

Competitive Service Strategies (Overall Cost Leadership)

Seeking Out Low-cost Customers

Standardizing a Custom Service

Reducing the Personal Element in Service Delivery (promote self-service)

Reducing Network Costs (hub and spoke)

Taking Service Operations Off-line

Competitive Service Strategies (Differentiation)

Making the Intangible Tangible (memorable)

Customizing the Standard Product

Reducing Perceived Risk

Giving Attention to Personnel Training

Controlling

Quality

Note: Differentiation in service means being unique in brand image, technology use, features, or

reputation for customer service.

Customer Criteria for Selecting an online Banking Service Provider in Pakistan

We can apply our concepts of service to an online banking service provider in Pakistan. We investigate

the service being provided by the bank by checking for availability, convenience, dependability,

personalization, price, quality, reputation, safety and speed. This should help us understand the strength

of service industry in a competitive environment especially in our country of Pakistan.

CHARACTERISTIC

REMARKS

Availability

24 hour ATM or online financial transaction

Convenience

Site location from any internet equipped

computer in and out of Pakistan

Dependability

On-time performance and correct information

Personalization

Know customer's name and ID

Price

The fee a customer pays for online service

Quality

Reflected in service.

Reputation

Word-of-mouth and audited and examined by

neutral bodies.

Safety

Customers online data is safe and inaccessible

to others and hackers

Speed

Avoid excessive waiting in website loading and

data available online.

Online banking service providers are often checked for:

Anti-competitiveness i.e. whether are not allowing other online banking service providers to

enter the market by constructing barriers to entry

Fairness indicates the concept of Yield management. Meaning whether the bank is actually

providing the same return as it had promised to the customer

Invasion of Privacy. Calling people through telephones or visiting offices thus making use of

Micro-marketing concepts, which often makes the patron and customer feel that his privacy has

been compromised.

Production and Operations Management MGT613

Data Security. Banks make it a point that the financial records of the customers are not accessed

by unauthorized personnel.

Reliability. Banks always strive that their service is reliable and considered safe and usable by

its customers. Most online banking service providers allow its customers to access their account

statement, free of cost.

Service Purchase Decision

In order to understand further we evaluate the service organizations in terms of Purchase Decision.

Service Qualifier: To be taken seriously a certain level must be attained on the competitive

dimension, as defined by other market players. Examples are cleanliness for a fast food

restaurant or safe aircraft for an airline.

Service Winner: The competitive dimension used to make the final choice among competitors.

Example is price of airline ticket or bus fare.

Service Loser: Failure to deliver at or above the expected level for a competitive dimension.

Examples are failure to repair auto (dependability), rude treatment (personalization) or late

delivery of package (speed).

Using Information to Categorize Customers ( For Call Centers in Pakistan)

Coding grades customers on how profitable their business is.

Routing is used by call centers to place customers in different queues based on customer code.

Targeting allows choice customers to have fees waived and get other hidden discounts.

Sharing data about your transaction history with other firms is a source of revenue.

Quality and Time Strategies

·Quality-based strategies

Focuses on maintaining or improving the quality of an organization's products or services

Quality at the source

·Time-based strategies

Focuses on reduction of time needed to accomplish tasks

Time Based Strategies: Organizations have registered reduction in time by employing the

following "6" time based strategies. There are 6 time based strategies namely:-

1. Planning Time The time required to react to a competitive threat, or to adopt new

technologies, or to approve changes to an existing facility

2. Products/Service Design Time The time needed to develop or market new or redesigned products or

services

3. Processing Time The time required to produce goods or services, includes repairing equipment,

quality training, inventory etc

4. Changeover Time is the time needed to change from producing one type of product or service to

another. New model, new insurance /health service.

5. Delivery Time is the time needed to fill orders.

6. Response Time for complaints is the required to improve the model or service features according to

customer inputs and improving employee working conditions.

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