Dr. Scott E. Sampson
Dr. Scott Sampson
Thorsell Professor
of Service Operations
Brigham Young University
Provo, Utah, USA
Managing Across the
Regions
Managing Across the Regions 1
rev 2/16, 3/19/2013,10/6/2012
Dr. Scott E. Sampson
Managing across the regions
Managing Across the Regions 2
Provider Customer
generic beneficiary specific beneficiary
Independent
processing
Region 1
Surrogate
interaction
Region 2
Direct interaction
Region 3
Surrogate
interaction
Region 4
Independent
processing
Region 5
Customer Intensity
Characterized by
efficiency and
accomplishing
tasks according
to engineered
specifications.
Characterized
by quick and
accurate
response to
customer
requirements.
Characterized by
empathetic understanding
of and adaption to
customer needs.
Characterized
by robustness
and clear
dissemination
of customer
roles.
Characterized
by an effective
match between
customer
capabilities and
resource
features.
Dr. Scott E. Sampson
Customer Intensity“Supplier” “Customer”
Pizza Restaurant Pizza Consumer
Independent
processing
Surrogate
interaction
Direct
interaction
Direct
interaction
Surrogate
interaction
Independent
processing
develop
appetite
cook
pizza
eat
pizza
return
home
maintain
supplies
serve
pizza
wait to be
seatedseat customer
preheat
ovensreview menu
present
check
prepare
check
pay
check
eat
leftovers
wait for
pizza
create order
develop
recipes
“Customer
Intensity”
“service” process steps have
high Customer Intensity
inde-
pendent
process
steps
have low
Customer
Intensity
inde-
pendent
process
steps
have low
Customer
Intensity
Managing Across the Regions 3
Dr. Scott E. Sampson
What is Customer Intensity?
Low Customer Intensity
Customer variation has little impact
on variation in the process step.
e.g. baking bread
High Customer Intensity
Customer variation has big impact on
variation in the process step.
e.g. selling bakery items
“The degree to which variation coming from customers causes variation
in the firm’s processes.” (Sampson 2010)
The degree of influence individual customers have on the design
and execution of firm processes.
Managing Across the Regions 4
Dr. Scott E. Sampson
Why do we care about Customer Intensity?Design Factor Low Customer Intensity High Customer Intensity
Facility layoutOrganized to enhance process flow. Accommodate customer needs and
expectations.
Worker skillsFocus on efficiency and
consistency. Trained.
Focus on interaction skills and
responsiveness.
Job designTightly defined with precise steps
and cycle time.
Broadly defined.
Sales
opportunity
Mass marketing. Personal selling.
Quality controlBased on formal specifications. Based on variable standards from
customers.
Asset utilizationSchedule assets for maximum
utilization (ROI).
Balance asset utilization with
customer responsiveness.
Use of
technology
Cost/productivity issues dominate. Customer acceptance issues
dominate.
Economies of
scale
Key to cost effectiveness. Limited by variation in customer
requirements/resources.
Managing Across the Regions 5
Dr. Scott E. Sampson
Why do we care about Customer Intensity?Design Factor Low Customer Intensity High Customer Intensity
Facility layoutOrganized to enhance process flow. Accommodate customer needs and
expectations.
Worker skillsFocus on efficiency and
consistency. Trained.
Focus on interaction skills and
responsiveness.
Job designTightly defined with precise steps
and cycle time.
Broadly defined.
Sales
opportunity
Mass marketing. Personal selling.
Quality controlBased on formal specifications. Based on variable standards from
customers.
Asset utilizationSchedule assets for maximum
utilization (ROI).
Balance asset utilization with
customer responsiveness.
Use of
technology
Cost/productivity issues dominate. Customer acceptance issues
dominate.
Economies of
scale
Key to cost effectiveness. Limited by variation in customer
requirements/resources.
Managing Across the Regions 6
Dr. Scott E. Sampson
Buying furniture at Ethan Allen
•Facility layout: aesthetic.
•Worker skills: domain experts.
•Job design: broad.
•Sales opportunity: personal.
•Quality control: experiential.
•Asset utilization: low.
•Use of technology: limited.
•Economies of scale: low.
Supplier Customer
Ethan Allen furniture purchaser
Independent
processing
Surrogate
interaction
Direct
interaction
Direct
interaction
Surrogate
interaction
Independent
processing
trash old
furniture
browse
showroom
fabricate
furniture
ship to retail
stores
make
selection
purchase
item
transport
home
use item
in stock?
backorder
item
fill
backorder
get/give
advicedesign
furniture
offerings
yes
no
Ethan Allen
sales process has
high Customer
Intensity
Managing Across the Regions 7
Dr. Scott E. Sampson
Buying furniture at IKEASupplier Customer
IKEA furniture purchaser
Independent
processing
Surrogate
interaction
Direct
interaction
Direct
interaction
Surrogate
interaction
Independent
processing
trash old
furniture
browse
store
fabricate
furniture
kits
ship to
retail
stores
make
selection
transport
item to
register
purchase
item
transport
home
use item
assemble
item
design
furniture
offerings
Facility layout: functional.
Worker skills: trained.
Job design: tight.
Sales opportunity: mass marketing.
Quality control: engineered.
Asset utilization: high.
Use of technology: extensive.
Economies of scale: high.
IKEA sales
process has low
Customer Intensity
Managing Across the Regions 8
Dr. Scott E. Sampson
Capacity Management
Managing Across the Regions 9
Dr. Scott E. Sampson
The two great entities
Provider
• generic beneficiary
• has capability
• what can do
• has capacity
• how much can do
Customer
• specific beneficiary
• has needs
• provides “demand”
Managing Across the Regions 10
Dr. Scott E. Sampson
Capacity and demand
Provider Capacity
• determined by resources
• labor
• equipment
• facilities
• availability of components
• specified as units / time
• generally pretty stable
Customer Demand
• determined by needs
• variable needs
• variable timing
• generally not very stable
Managing Across the Regions 11
Utilization = Demand / Capacity
Dr. Scott E. Sampson
Calculating utilization
Capacity
• 3 minutes per sandwich
• 20 sandwiches per hour
• store open 7am-10pm
• 15 hours
• x20 sandwiches per hour
• 300 sandwiches per day
Demand
customers arrive per hour
• 7am-noon: 8 x 5 = 40
• noon-2pm: 20 x 2 = 40
• 2pm-5pm: 10 x 3 = 30
• 5pm-7pm: 15 x 2 = 30
• 7pm-10pm: 10 x 3 = 30
• Total for day = 170
Managing Across the Regions 12
Utilization = Demand / Capacity
170 / 300 = 57% utilization
Dr. Scott E. Sampson
Team activityEstimate annual capacity utilization for…
1. a ski resort
2. the classroom we meet in
3. a college sports arena
4. a bicycle factory
When does idleness occur?
How do they manage utilization?
Managing Across the Regions 13
Utilization = Demand / Capacity
Dr. Scott E. Sampson
Matching capacity to demand
• forecast demand
• capacity planning strategies
• peak demand strategy
• level production strategy
• chase strategy
• The mismatch between demand and capacity?
Managing Across the Regions 14
Dr. Scott E. Sampson
Dealing with the mismatch
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Managing Across the Regions 15
Dr. Scott E. Sampson
Bike rider
process domain
interaction Independent processing
Bike manufacturer
process domain
Independent processing interaction
Dealing with the mismatch?
Managing Across the Regions 16
produce
bikesell bike ride bike
Dr. Scott E. Sampson
Driver
process domain
interaction Independent processing
Toyota
process domain
Independent processing interaction
Dealing with the mismatch?
Managing Across the Regions 17
produce
carsell car drive car
Dr. Scott E. Sampson
Utilization of interactive capacity
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Demand
Managing Across the Regions 18
Dr. Scott E. Sampson
Matching interactive capacity to demand
• capacity planning strategies
• level production strategy – customers wait ()
• peak demand strategy – provider waits ($$$)
• chase strategy – part-time resources
• shared capacity strategy
• demand management strategies
• shifting demand to low utilization times
Managing Across the Regions 19
Dr. Scott E. Sampson
Inactivity Based Costing
Activity Based Costing
• Cost of each item of
production depends on
use of capacity.
• Capacity generally a fixed
cost.
• Assumes capacity fully
utilized.
Inactivity Based Costing
• Capacity generally a fixed
cost.
• IF capacity far from fully
utilized?
• Required contribution
required of each item
depends on utilization.
• E.g., MRI machine,
airplane, Seven Peaks
water park.
Managing Across the Regions 20
Dr. Scott E. Sampson
Dealing with the mismatch?
Independent Processing
• When to produce?
• How much to produce?
• Considering costs…
• cost to produce
• holding cost of inventory
• cost of running out
Interactive Process
• How much capacity?
• to meet customer demand
• not have excessive idle
capacity
• not have excessive idle
customers
Managing Across the Regions 21
Inventory Theory Queuing Theory
Dr. Scott E. Sampson
Reducing cost of waiting“Psychology of Queuing”
see SM-slides/Sampson Psychology of Queuing
Managing Across the Regions 22
Dr. Scott E. Sampson
Summary
• Interactive processes are governed by different
management principles than independent
processing…
• customer intensity
• inability to inventory
• customer waiting
• Customer inventory is costly…
• costs difficult to measure
• but costs can be reduced
Managing Across the Regions 23
Dr. Scott E. Sampson
Interactive Marketing:
Marketing through Operations
see SM-slides/Sampson Service Marketing
Managing Across the Regions 24
Dr. Scott E. Sampson
Service Provider’s Process Domain Customer’s Process Domain
Independent
processing
Surrogate
interaction
Direct
interaction
Direct
interaction
Surrogate
interaction
Independent
processing
Three types of marketing
marketing
to
customers
marketing
for
customers
marketing with customers
source: Steve Vargo
“With services, the most
influential marketing
employees are production
employees. The focus of
marketing departments is
to attract new customers,
but production employees
often have the primary
responsibility of retaining
current customers.”(SBP 9b: The Who's Who of Marketing)
Managing Across the Regions 25