ISM 270Service Engineering and

Management

ISM 270: Service Engineering and Management

Focus on Operations Decisions in the Service Industry

Open to students with an undergraduate engineering/science degree

Learn analytical tools and software for decision making

Featuring guest lectures from industry practitioners

Text: Fitzsimmons & Fitzsimmons ‘Service Management’ Operations, Strategy, Information Technology

Topics covered

The nature of service enterprises Strategy for new service development

Technology in services Quality in service encounters Forecasting demand Managing service capacity Supply chains in services Globalization and outsourcing

Skills / Tools LearnedProgramming Tools• Spreadsheet Programming• Optimization Solvers• Littlefield Management Simulation

Analytical Methods• Linear Programming• Data Envelopment Analysis• Statistics for Forecasting• Capacity Management and Queueing Theory• Project Management Under Uncertainty• Theory of Service Supply Chains

Sample Project

Utilizing statistics

for web service development

ISM 270: Details

6 – 9pm, Thursday evenings January 6 – March 9 (Winter) 2010 UCSC Silicon Valley Center and/or

Basking Engineering room 156 Instructor: Kevin Ross

kross@soe.ucsc.edu

Who is here?

My background Brief introductions, student survey

Logistics

Location Class website Readings Text book Office hours

5-6pm before class, or by appointment Fee for Simulation Game (~$20)

Class Plan

Allotted class time = 3 hours Average adult attention span = 20 minutes …

Lecture / visitor / lab / split

Computer issues

Who has a laptop? Web access Finding research papers Excel, solver, …

Please…

Bring: Paper, pen, laptop, … Opinions Questions Interesting articles, stories, anecdotes

Provide feedback!!! Make every effort to keep up with readings

etc.

ScheduleClass Date Text Chapters Topic Guest

SpeakerAssessment

1Jan 6 1, 2 The nature of service

enterprises

2Jan 13 3, 4 Strategy for new service

developmentPaul Maglio

3Jan 20 5 Technology in services Geoff Ryder Homework 1 due

4Jan 27 6,7, 8, 9 Quality in service

encountersHomework 2 due

5Feb 3 10 Project Management Anne

RobinsonProject Assigned

6Feb 10 11 Forecasting demand Vijay Mehrotra Homework 3 due

7Feb 17 12, 13, 14 Managing service

capacityProject Proposal Due

8Feb 24 15, 16 Supply chains in services Charles Ng Homework 4 due

9Mar 2 Littlefield

TechnologiesService Management Game Challenge

Homework 5 due

10Mar 9 17 Globalization and

outsourcingFinal Project Report due

Assessment

Assessment Value Due Date

Homework 50% Weekly

Simulation Projects

10% Feb 24

Final Project 40% March 9

Sample Previous homework: Applying the Excel solver tool for data

envelopment analysis (DEA)

Sample Previous Homework 2: use AJAX calls to build a mashup with the Google Maps API

Sample Previous Homework 3: learn to use SAS Enterprise Miner

Project

More details later…

Focus on new service development

Written and Verbal Presentation at final class March 9

Questions and Break

Remaining in Lecture 1

Services in the Economy

Data Envelopment Analysis Linear Programming Excel

Perspective

World-wide trends

Personalization trends

Text Chapter 1:Role of Services in an

EconomyService Management

Professor James FitzsimmonsUniversity of Texas at Austin

Quiz Question Name the top 10 USA companies by

revenue in 2010 How many would you describe as service

companies?

Top 10 Fortune 500

1 Wal-Mart Stores 408,214.0 14,335.02 Exxon Mobil 284,650.0 19,280.03 Chevron 163,527.0 10,483.04 General Electric 156,779.0 11,025.05 Bank of America 150,450.0 6,276.06 ConocoPhillips 139,515.0 4,858.07 AT&T 123,018.0 12,535.08 Ford Motor 118,308.0 2,717.09 J.P. Morgan Chase 115,632.0 11,728.010 Hewlett-Packard 114,552.0 7,660.0

Revenue ($m) Profit ($m)

Definitions

What are services?

Service enterprises?

Service DefinitionsIntangible goods?

Services are deeds, processes, and performances.Valarie Zeithaml & Mary Jo Bitner

A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer.

James Fitzsimmons

Folks doing things for folks for MoneyPaul Magio

Definition of Service Firms Service enterprises are organizations that

facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives.

James Fitzsimmons

Services Science, Management and Engineering

…the application of science, management, and engineering disciplines to tasks that one organization beneficially performs for and with another

• (Wikipedia)

Role of Services in an Economy

Percent Employment in ServicesTop Ten Postindustrial Nations

Country 1965 1975 1985 1995 2005

United States 59.5 66.4 70.0 74.1 78.6

United Kingdom 51.3 58.3 64.1 71.4 77.0

The Netherlands 52.5 60.9 68.3 73.4 76.5

Sweden 46.5 57.7 66.1 71.5 76.3

Canada 57.8 65.8 70.6 74.8 76.0

Australia 54.6 61.5 68.4 73.1 75.8

France 43.9 51.9 61.4 70.0 74.8

Japan 44.8 52.0 57.0 61.4 68.6

Germany 41.8 n/a 51.6 60.8 68.5

Italy 36.5 44.0 55.3 62.2 65.5

1-29

Stages of Economic Activity

Primary (Extractive): Agriculture, Mining, Fishing, Forestry

Secondary (Goods-Producing): Manufacturing, Processing

Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance

Quaternary (Trade and Commerce): Transportation, Communications, Retailing, Finance, Government

Quinary (Extending Human Potential): Health, Education, Research, Arts, Recreation

1-30

Trends in U.S. Employment by Sector

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 20000

10

20

30

40

50

60

70

80

90

Service

Manufacturing

Agriculture

Year

Prop

orta

tion

of to

tal e

mpl

oyem

ent

1-31

Stages of Economic Development

Pre- Use of Standard dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure Technology

Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools

power Authoritative

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual health, education, recreation

1-32

Percent Distribution of U.S. Employment by Industry

Construction 5%

Manufacturing 9%

Government 17%

Information 2%

Trade, transportation, and utilities 19%

Other services 4%

Financial activities 6%

Leisure and hospitality 10%

Educational and health 15%

Professional and business services 13%

1-33

Projected Percent Change in U.S. Employment by Industry

-20% -10% 0% 10% 20% 30%

Health care and social assistance

Professional and business services

Educational services

Financial services

Leisure and hospitality

Other services

Construction

Transportation and utilities

Information

State and local government

Retail and wholesale trade

Federal government

Agriculture and mining

Manufacturing

All Industry Average

1-34

Economic EvolutionEconomy Agrarian Industrial Service Experience

EconomicOffering

Food Packagedgoods

Commodityservice

Consumer services

Businessservices

Function Extract Make Deliver Stage Co-create

Nature Fungible Tangible Intangible Memorable Effectual

Attribute Natural Standardized Customized Personal Growth

Method of Supply

Stored in bulk

Inventoried Delivered on demand

Revealed over time

Sustained over time

Seller Trader Producer Provider Stager Collaborator

Buyer Market Customer Client Guest Collaborator

Expectation Quantity Features Benefits Sensations Capability

1-35

The Four Realms of an Experience

Customer Participation

Passive Active

Environmental

Absorption Entertainment (Movie)

Education (Language)

Relationship Immersion Esthetic (Tourist)

Escapist (ScubaDiving)

1-36

Experience Design Principles

Theme the Experience (Forum shops) Harmonize Impressions with Positive Cues

(O’Hare airport parking garage) Eliminate Negative Cues

(Cinemark talking trash containers) Mix in Memorabilia (Hard Rock T-shirts) Engage all Five Senses (Mist in Rainforest)

1-37

Typology of Services in the 21st Century

Core Experience Essential Feature Examples

Creative Present ideas Advertising, theater

Enabling Act as intermediary Transportation, communications

Experiential Presence of customer Massage, theme park

Extending Extend and maintain Warranty, health check

Entrusted Contractual agreement Service/repair, portfolio mgt.

Information Access to information Internet search engine

Innovation Facilitate new concepts R&D services, product testing

Problem solving Access to specialists Consultants, counseling

Quality of life Improve well-being Healthcare, recreation, tourism

Regulation Establish rules and regulations Environment, legal, patents

1-38

Source of Service Sector Growth Information Technology (e.g. Internet) Innovation

Push theory (e.g. Post-it) Pull theory (e.g. Cash Management) Services derived from products (e.g. Netflix)

Exploiting information (e.g. Auto part sales) Difficulty of testing service prototypes Changing Demographics

Aging of the population Two-income families Growth in number of single people Home as sanctuary

1-39

Distribution of GDP in the US Economy

Product Services

Physical

Information

6%

10%

31%

53%

37%

63%

84%16%

D

BA

C

1-40

Question:What has engineering got to do

with all of this?

Discussion Topics Describe the work that you do from a

service perspective Illustrate how the type of work you do

influences a person’s lifestyle.

Example Service Innovation: Disney World

Link

Lessons from Disney

Data Envelopment Analysis (DEA)

Method for evaluating efficiency of similar venues/products

Incorporates inputs and outputs – not just one dimensional

Uses LINEAR PROGRAMMING (LP)

Sample LP: Product Mix Problem How much beer and ale to produce from three

scarce resources: 480 pounds of corn 160 ounces of hops 1190 pounds of malt

A barrel of ale consumes 5 pounds of corn, 4 ounces of hops, 35 pounds of malt

A barrel of beer consumes 15 pounds of corn, 4 ounces of hops and 20 pounds of malt

Profits are $13 per barrel of ale, $23 for beer

Sample LP: Transportation Problem

A firm produces computers in Singapore and Hoboken.

Distribution Centers are in Oakland, Hong Kong and Istanbul

Supply, demand and costs summary:Oakland Hong

KongIstanbul Supply

Singapore 85 37 119 500Hohboken 53 189 94 300Demand 350 250 200

Other LP examples

Blending problem Diet problem Assignment problem

Key terms of LP

Variables Parameters Objective function Constraints

Standard Form(according to Hillier and Lieberman)

Njxbxaxaxa

bxaxaxabxaxaxa

xcxcxc

j

MNMNMM

NN

NN

NN

..1,0...

.........

subject to...max

2211

22222121

11212111

2211

0subject to

max

xbAx

xcConcise version:

A is an m by n matrix: n variables, m constraints

Geometry of LP Consider the plot of solutions to a LP

21

21

21

21

max0,

12321553

xxxx

xxxx

Data Envelopment Analysis (DEA) Method for evaluating efficiency of similar

venues/products Incorporates inputs and outputs – not just one

dimensional Uses LINEAR PROGRAMMING (LP)

KEY IDEA: Weight the inputs and outputs to make one unit as

efficient as possible, relative to all others If this is 100% efficient, then the unit is on the frontier

of efficiency; If less than 100%, there are other units that could

utilize the SAME inputs for MORE outputs

DEA Example from Text: Burger Palace

Small, artificial example for illustration! Page 68 of 5th edition, text

Burger chain has six units in several cities Each unit uses different combination of labor

hours and dollars to produce meals Which units use their resources most

efficiently?

Productivity of Burger Palace Service Units

Service Unit

Meals Sold Labor Hours

Dollars

1 100 2 200

2 100 4 150

3 100 4 100

4 100 6 100

5 100 8 80

6 100 10 50

DEA summary of terms Define variables

E_k = efficiency of unit k u_j= coefficient for output j (relative decrease in efficiency per

unit reduction of output value) v_i = coefficient for input i (relative increase in efficiency per unit

decrease of input value) O_jk = observed ouput j units generated by service unit k during

one time period I_ik = no. units input used by service unit k during one period

Note: k=1..K = service unit counter j=1..M = output counter i=1..N = input counter

DEA Objective and constraints

Niv

Mju

KkIvIvIvOuOuOu

tsIvIvIvOuOuOuE

i

j

NkNkk

MkMkk

NeNee

MeMeee

,...,2,1,0

,...,2,1,0

,...,1,1......

........max

2211

2211

2211

2211

Evaluating unit eTrick = Rescaling to get linear equations

KkIvIvIvOuOuOuts

IvIvIv

NkNkkMkMkk

NeNee

,...,1,0)...(.....

1...

22112211

2211

Next Week

Paul Maglio

Strategy in Services