Welcome to the Sampson Wiki!
<HTML><CENTER></HTML> From [[http://marriottschool.byu.edu/emp/employee.cfm?emp=ses3|Dr. Scott Sampson]]'s **//[[usb:toc|Understanding Services Businesses]]//** Book (click for [[usb:toc|table of contents]])\\ [[usb:unit7:sbp7b|SBP 7b: Potential Operating Objectives]]<=Prior ---[in [[usb:unit7|Unit 7: Cost Issues]]]--- <HTML></CENTER></HTML> ====== SBP 7c: Cost Savings by Service-Manufacturing ====== |**With services, companies can gain cost advantage by converting portions of the process to manufacturing by eliminating customer inputs or shifting the customer input point to later in the process.**| ===== Why it occurs ===== This principle occurs because, as discussed in the prior Service Business Principle (//Potential Operating Objectives//), customer inputs are a major factor limiting the potential efficiency of service organizations. ===== Details ===== {{ http://farm3.static.flickr.com/2002/2247642242_8c160ed7eb.jpg?335x450|Bicycles}} If we eliminate all customer inputs from a service process, by the Unified Services Theory that process ceases to be a service process. In most cases, customers will have a problem with that. An alternative is to eliminate customer inputs from //just a portion// of the process. In this manner, cost efficiencies can be gained in an area that will not adversely affect the ability to serve the customer. Another way to look at this Service Business Principle is from the perspective of "service blueprints," which are process flowcharts that distinguish between the "front office" and the "back office." The front office is that portion of the process that occurs within the customer's view, and the back office is that which takes place behind the scenes. One way to implement a degree of service-manufacturing is to push a portion of the process from the front office to the back office. However, if the process steps which are shifted to the back office still involve customer belongings or information inputs, efficiency gains can still be quite limited. (The limited efficiency is due to "divergence" requirements, which will be discussed later under //The Choice of Employees// Service Business Principle.) In the case of "custom-manufacturing" services (see SBP: //The Custom-Manufacturing Oxymoron//), a way to implement this Service Business Principle is to postpone customization until final assembly. One bicycle manufacturer, National Bicycle, does this and sells 11,231,862 possible combinations of bicycles by assembling them from component parts.((National Bicycle Industrial Company is a subsidiary of Matsushita. Information about their mass customization is found on page 91 of Marilyn M. Parkers excellent book: __Strategic Transformation and Information Technology__, 1996, Prentice-Hall: Upper Saddle River, New Jersey.)) Dell Computer uses this technique to "custom manufacture" personal computer systems. Dell keeps component parts in inventory, and a customer order triggers the final assembly and overall testing. In this manner, Dell is able to sell custom computer systems at manufactured system prices. Such an approach is a form of "//mass customization//," or the ability to provide custom production while maintaining near-manufacturing efficiencies. In some cases it is not appropriate to implement service-manufacturing: I clipped an article about a consulting firm that was giving the same consulting analysis report to various clients as though the report was custom-prepared for each client. The firm was being extremely efficient, but charging for consulting that one would expect to be custom work. ===== How it effects decisions ===== The service provider that aspires to further cost saving needs to decide if and where it is appropriate to eliminate or shift some of the customer inputs to later stages of the production process. ===== What to do about it ===== When considering the service process, focus on the various points in which customer inputs enter the production process. At each of those points, ascertain the impact of shifting or eliminating the inputs (on effectiveness and efficiency). The costs of reduced effectiveness are traded off against the cost savings of increased efficiency in order to make the process adjustment decision. ===== For example ===== Let's return to the custom home building example given in the prior Service Business Principle. The home builder desires to have cost savings, to compete in the entry-level home buyer market. One way to achieve that is to provide a structured set of home specifications to limit the variety of customer requests (without substantial cost increases). The other way to provide cost savings in "custom" home construction is by "Service-Manufacturing." This is to manufacture //most// of the home before putting it up for sale, and then sell it just in time for the customer to select paint colors, floor coverings, and light fixtures. In that manner, the customer perceives getting some customization, but at manufacturing efficiencies! This latter technique is similar to the delayed final-assembly approach taken by Taco Bell... This Taco Bell example was previously described in the cost leadership section of the //Positioning Amid Customers and Competitors// Service Business Principle. Taco Bell completes all of the food preparation except for final assembly prior to the time the customer presents her order inputs. In that manner, the food preparation can be accomplished in the most efficient manner possible. Restaurants who accept customer-order inputs early in the food preparation process will find that the preferences and peculiarities of individual customers will limit the ability to produce food at maximum efficiency. ===== My airline example ===== {{ http://upload.wikimedia.org/wikipedia/commons/d/d8/Southwest_737_At_Burbank.jpg?246x320|Southwest}} Where is the most inefficient part of an airlines operations, causing avoidable time costs? In baggage handling? Probably not, although passengers expect some degree of careful handling even of poorly constructed luggage. The preparation of planes for takeoff is not too inefficient. Arguably, the most inefficient part of an airline--where the greatest amount of stalled production seems to be found--is in the lines of customers waiting to check in. Passengers like lines to move rapidly, but when they are at the front of the line being served, they are much more concerned about having their specific needs met. (Of course, this varies culturally.) Southwest Airlines addressed this issue of check-in inefficiency by eliminating a customer input--the customer's request for a particular seat assignment. Instead of spending a lot of time confirming or changing seat assignments, or trying to determine if a flight has any available seats, Southwest gives every passenger who checks in at the gate a colored card with a number on it. Since there are the same number of cards as there are seats on the flight, the gate agent knows exactly how many passengers there are, and if seats are available for standby passengers. This elimination of customer-seat-request inputs has a significant affect on the operating efficiency at the gate. ===== How manufacturing differs ===== With manufacturing, there are already no customer inputs, thus no customer-input-caused limits to efficiency. ===== Analysis questions ===== - At what point do customer inputs enter the process? - Can customer inputs be shifted to later in the process? - What implications will this have for efficiencies? - What implications will this have for effectiveness at serving the customer? ===== Application exercise ===== Redraw the service process flowchart from the last Service Business Principle. Identify where the various customer inputs occur. Chose a customer input into the process that could be moved forward in the process or eliminated, with the least adverse effect on the customer. Redraw or modify the flowchart with that customer input modification. How does that affect the potential for operating efficiently? What are the expected cost savings? Why? What impacts might the change have on the customer? ===== Navigation ===== <HTML><CENTER></HTML> [[usb:unit7:sbp7b|SBP 7b: Potential Operating Objectives]]<=Prior ---[in [[usb:unit7|Unit 7: Cost Issues]]]--- \\ (c) 1998-2008 [[http://marriottschool.byu.edu/emp/employee.cfm?emp=ses3|Dr. Scott Sampson]] (get a copy of **//[[usb:toc|Understanding Services Businesses]]//** at [[http://www.amazon.com/gp/product/0471210501/qid=1151528743/sr=11-1/ref=sr_11_1/002-2164421-9276812?s=books&v=glance&n=283155|Amazon]] or [[http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?z=y&isbn=0471210501&TXT=Y&itm=1|Barnes & Noble]]) <HTML></CENTER></HTML>
[up to index]
