UNIT - 2 OPERATIONS CONCEPT SAMPLING

STRUCTURE

2.0 Learning Objectives

2.1 Introduction

2.2 Differences between product and service

2.3 Product and Service Design

2.4 Service Capacity Planning

2.5 SERVQUAL model of measuring service quality

2.6 Summary

2.7 Keywords

2.8 Learning Activity

2.9 Unit End Questions

2.10 References

2.0 LEARNING OBJECTIVES

After studying this unit, you will be able to:

 Describe differences between product and service

 Identify the factors affecting service operations
 State the classification of services
 Explain service capacity planning
 Comprehend SERVQUAL model of measuring service quality

2.1 INTRODUCTION

Introduction to Operations Management: Operations management is a critical function for any

organisation. It is responsible for planning, coordinating, and controlling the resources needed

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to produce goods and services. Operations management aims to ensure that an organisation’s
operations are efficient and effective. To achieve this, operations managers must plan, organise,
and oversee the resources and processes required to produce goods and services.

Introduction to Operations Management: What Do You Understand By Operations

Management?

Operations management is concerned with designing, operating and improving an

organisation’s production system. It includes managing resources such as raw materials,
equipment and human resources. Operations management aims to ensure that the
organisation’s production system runs smoothly and efficiently.

The operations management functions include planning, scheduling, controlling and

monitoring the organisation’s production process. Operations managers also oversee the day-
to-day operations of the production system and make decisions about how to improve its
efficiency.

Introduction to Operations Management: Significance of Operations Management In A

Business

Operations management is concerned with ensuring that the company’s operations are efficient
and effective and that they meet the customers’ needs. It is also responsible for ensuring that
the company’s products and services are delivered on time and within budget.

Operations management is vital in ensuring that a company’s operations are aligned with its
strategic objectives. It helps to ensure that the company uses its resources in the most efficient
way possible and responds quickly to changes in demand.

Introduction to Operations Management: Operations management is essential for businesses of

all sizes, but it is significant for businesses that are growing rapidly or are undergoing major
changes. In these situations, operations management can help ensure that the company’s
operations can keep up with the market’s demands.

Introduction to Operations Management: What Are The Objectives of Operations

Management?

Product Selection and Design

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Product selection and design is a key operations management function determining which
products or services the company will offer its customers. The objectives of product selection
and design are to:

Fig :2.21 The Objective Product Selection and Design

1. Identify customer needs and wants: The first step is to understand what customers
want and need from the products or services offered by the company. This can be done
through market research, surveys, focus groups, etc.
2. Develop products or services that meet customer needs: Once customers’ needs are
understood, the next step is to develop products or services that meet those needs. This
includes designing products or services that are safe, reliable, and efficient.
3. Select the right mix of products or services: Once the products or services are
developed, the company must decide which ones to offer to customers. This decision is
based on several factors, such as market demand, production capacity, cost, etc.
4. Continuously improve product or service offerings: Even after products or services
are launched, it is important to continuously improve them based on feedback from
customers and other stakeholders. This helps ensure that the company remains
competitive and offers high-quality products or services.

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Materials Handling

The primary objective of materials handling is to move materials from one location to another
efficiently and effectively. Other objectives of materials handling include:

 Minimising the amount of time spent handling materials

 Minimising the cost of moving materials
 Maximising safety
 Minimising damage to materials

Capacity Planning

The main objective of capacity planning is to ensure that the company has the necessary
resources to meet customer demand. This involves ensuring enough capacity to produce the
required products or services and that this capacity is available when needed.

To achieve this, capacity planning must consider several factors, such as customer demand,
product mix, production rates and lead times. It must also consider the availability of raw
materials, equipment and labour. Considering all of these factors, it is possible to develop a
plan to ensure the company has the necessary resources to meet customer demand.

Production Planning and Control

The main objective of production planning and control is to ensure that the production process
runs smoothly and efficiently. A number of factors need to be considered when planning and
controlling production, such as demand forecasting, capacity planning, inventory management,
scheduling, and quality control.

Production planning and control are vital in operations management, ensuring that all resources
are used optimally to meet customer demand. By carefully planning and controlling production,
businesses can minimise waste, reduce costs, and improve quality.

Inventory Control

Inventory control is the process of ensuring that inventory levels are maintained at an optimal
level. The objectives of inventory control are to ensure that the correct inventory level is
maintained, that stock is available when needed, and that unnecessary stock is not held.

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Inventory levels must be carefully monitored to avoid both stock-outs and excessive stock.
Stock-outs can lead to lost sales and customer dissatisfaction, while too much stock can tie up
capital and lead to storage costs.

The objective of inventory control is to ensure that the right inventory level is maintained so
that neither stock outs nor excessive stock occurs. This requires a delicate balance, as too little
inventory can lead to lost sales, while too much inventory can tie up working capital.

Quality Assurance And Control

The Quality Assurance and Control (QA/C) objective is to ensure that the products and services
provided by the organisation meet the required standards and specifications. This is done
through a combination of quality assurance activities, such as quality control, quality assurance
planning, and quality improvement.

The QA/C objective is important because it helps to ensure that the products and services
provided by the organisation fit their intended purpose and meet the customer’s needs. It also
helps to improve customer satisfaction and reduce complaints.

Several methods can be used to achieve the QA/C objective, such as statistical quality control,
Six Sigma, Lean manufacturing, and Total Quality Management (TQM). Each method has its
own advantages and disadvantages, so it is important to select the most appropriate method for
each situation.

The QA/C objective is integral to operations management and should be given due importance
in any organisation.

Introduction to Operations Management: What Are The Functions of Operations

Management?

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 Fig :2.2 The Functions of Operations Management

Operational Planning

Operational planning is setting goals and designing strategies to achieve those goals.
Operational planning functions are to establish objectives, develop policies, set priorities,
allocate resources, and create procedures.

Operational planning is necessary to ensure that an organisation’s activities are aligned with its
mission and goals. With operational planning, an organisation may achieve its objectives and
save resources on activities that do not contribute to its goal.

Operational planning is a dynamic process that should be reviewed and updated regularly to be
effective. Operational planning functions can be divided into four main categories: goal setting,
policy development, resource allocation, and procedure creation.

Goal setting is the first function of operational planning. Goals should be specific, measurable,
achievable, relevant, and time-bound. Objectives should be aligned with the organisation’s
mission statement.

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Policy development is the second function of operational planning. Policies guide decision-
making and help ensure an organisation’s activities align with its goals. Policies should be
reviewed regularly and updated as needed.

Resource allocation is the third function of operational planning. Resources must be allocated
to support the achievement of organisational objectives. When allocating resources,
consideration must be given to the organisation’s long-term needs and the short-term needs of
specific projects or initiatives.

Financial Planning

One of the most critical functions of operations management is financial planning. Financial
planning ensures the company has enough money to buy the raw materials it needs to produce
its products or services. It also ensures that the company can pay its employees and other
expenses.

Operations managers use financial planning to make sure that the company’s production
process is profitable. They create budgets and track spending. They also work with other
departments within the company, such as marketing, to ensure that its products or services are
priced correctly.

Data Interpretation

Data interpretation is the process of understanding and using numerical data. In an operational
context, data interpretation often takes the form of analysing data to identify trends and make
decisions about improving operations.

There are several different types of data that can be interpreted in an operational context, but
the most common are financial performance and customer data. Financial data can be used to
understand profitability, performance data can be used to understand efficiency, and customer
data can be used to understand satisfaction.

Data interpretation is critical in operations management because it allows managers to make

informed decisions about improving their operations. Without accurate and timely data
interpretation, it would be very difficult for managers to identify problems and opportunities
within their operations.

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Quality Control

Quality control is the process of ensuring that products and services meet customers’
expectations. It involves setting standards, measuring and testing products and services, and
taking corrective action if necessary.

There are two main approaches to quality control: preventive and corrective. Preventive quality
control focuses on preventing problems from occurring in the first place. Corrective quality
control focuses on identifying and correcting problems after they have occurred.

The main functions of quality control are ensuring that products and services meet customer
requirements, identifying and correcting defects, and preventing defects from occurring in the
first place. To do this, quality control teams use various tools and techniques, such as
inspection, testing, and statistical analysis.

Inspection is visually examining products or services to conform to standards. Testing is the

process of assessing whether products or services meet specified requirements. Statistical
analysis is a technique used to identify trends or patterns in data so that corrective action can
be taken if necessary.

Quality control teams also develop Quality Plans, which outline the procedures and methods
that will be used to ensure that products or services meet customer requirements. Quality Plans
typically include detailed instructions on conducting inspections, tests, and statistical analyses.
They also specify when and how often these activities should be carried out.

Forecasting

Forecasting is a critical function of operations management. It helps businesses plan for future
demand and ensures that the necessary resources are available. There are several different
forecasting methods, each with its own advantages and disadvantages.

The most common forecasting methods are trend analysis, regression analysis, and time-series
analysis. Trend analysis is used to identify long-term trends in data. Regression analysis is used
to identify relationships between variables. Time-series analysis is used to predict future values
based on past data.

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Each of these methods has its own strengths and weaknesses. Time-series analysis is the most
complex but can provide the most accurate predictions. Trend analysis is simple but can be
inaccurate if the data contains outliers. Regression analysis is more complex but can be more
accurate.

Operations managers must carefully choose the forecasting method that best suits their needs.
The choice of method will depend on the type of data available, the desired level of accuracy,
and the resources available to perform the forecast.

Supply Chain Management

Supply chain management (SCM) is managing the flow of goods and services from suppliers
to customers. It involves planning, coordination, and control of all activities in the supply chain
to ensure efficient and effective operations.

Introduction to Operations Management: What Are The Skills Required To Become An

Operations Manager?

An operations manager is responsible for the day-to-day management of a company’s

operations. They plan, coordinate and control the resources and activities needed to produce a
company’s products and services.

Operations managers need to have strong problem-solving, decision-making and leadership

skills. They must be able to communicate effectively with and motivate employees. They also
need to have a good understanding of business processes and be able to use various tools and
technologies to manage operations.

Conclusion

In conclusion, operations management is an organisation’s strategic function that helps ensure

that the organisation is running smoothly and efficiently. Operations management is
responsible for the planning, scheduling, and controlling of all production and manufacturing
processes. Additionally, operations managers ensure that all resources are used effectively and
efficiently to meet customer demand.

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2.2 DIFFERENCES BETWEEN PRODUCT AND SERVICE

The main difference between product and service is that products are tangible while
services are intangible.
We all need different products and services to satisfy our needs and wants. In marketing,
products and services are two closely related concepts. Products are things that have a physical
existence; when we buy a product, we acquire an asset. Services, on the other hand, refer to
transactions in which there is no transfer of physical goods from the seller to the buyer.

Fig 2.3 product and service

What is a Product ?

A product is an item for sale. Most importantly, it is a physical item that is tangible. We can
sell, buy, store, and transport products. When the sale is complete, we can move the product,
return it, or even replace it for another product. If you look around you, you’ll see many
products around you. Some examples of products include mobile phones, laptops, vehicles,
furniture, and food items.

In manufacturing, the manufactures procure products as raw materials and sell their products
as finished goods. They make each and every product at a cost and sell it at a price. Moreover,
the price of a product can vary depending on the quality, the marketing, and, the market.

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 Fig 2.4 Product

However, in marketing, we use the term product to refer to anything that we can sell regardless
of whether it is a physical item or not. By this logic, sometimes we call flights, insurance
policies, software services, etc. also as products.

What is a Service ?

We can define a service as a transaction that does not involve transfer of physical goods from
the seller to the buyer. It is basically a work that a person/persons do for another individual.
These are activities other people, companies, the government do for you. Education, health
care, banking, insurance, and transportation are some examples of services. Services are
intangible and non-physical, unlike goods, which have a physical existence. For example, when
you a book a holiday, the booking agent is providing you with a service; the booking itself is
abstract – you cannot touch it, store it or transport it.

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 Fig :2.5 Services

The government of a country also provides various public services for its citizens. For example,
it ensures citizens’ security via security services (army, police, paramedics, fire brigade, etc.)
Healthcare, urban planning, waste management, and public broadcasting are some other
government services.

Sometimes, it can be difficult to identify the difference between product and service as both
are interconnected. For instance, in healthcare, both products and services are essential for a
patient to get well. Here, products are drugs and medical and diagnostic devices, while services
are the expertise of doctors and nurses.

Difference Between Product and Service

Definition

Products are objects or systems made available for consumer use while services are transactions
where no physical goods are transferred from the seller to the buyer

Tangibility

While products are tangible, services are intangible.

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Production

Products are manufactured, stored, and transported while services cannot be manufactured,
stored, or transported.

Examples

Electronic devices, furniture, food items, and vehicles are some examples of products while
cleaning, car repair, medical check-ups, haircuts, etc. are some examples of services.

Return

Moreover, we can return or replace the products, but not so with services.

Inconsistency

Products sold can be identical, but each delivery of a particular service is never exactly the
same as the previous services or future services.

Conclusion

Products are objects or systems made available for consumer use while services are transactions
where no physical goods are transferred from the seller to the buyer. The main difference
between product and service is that products are tangible while services are intangible.

2.3 PRODUCT AND SERVICE DESIGN

The early-stage development and design process is easily one of the most important periods of
time for any business, whether you are product or service based. After all, the decisions that
you make at this stage will have a huge impact on everything from usability and accessibility,
to desirability and feasibility.

So, both service design and product design as processes feed into how happy your customer or
user will be. And, as such, how successful your business is in the long term!

It’s easy to fall into thinking that the two processes are exactly the same: How can product
design and service design really be that different? Well, the truth is, there certainly are some
similarities in the ways that they are often conducted, but there are also huge differences that
you need to be aware of so that you can create the best product or service possible.

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 Fig :2.6 product and service design

Let’s start with the basics…

What is a product?

You probably know this one!

A product is tangible. That’s to say, that a customer can buy the product and then hold or store
it somewhere (be this in the “real world” or on a computer or device). Most often, its value is
generated and derived from the product by the user. The user already knows what they want
from the product, hence they buy it.

From pots and pans, to t-shirts and video games, all of these are products.

What is a service?

On the other hand, a service is something that someone experiences and isn’t necessarily owned.
For example, health care services or streaming platforms such as Netflix, Spotify and Audible.
In each of these cases, the service is not tangible and only has value when it is performed for
the user.

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With this in mind, it’s true to say that whilst services are by definition people-centred, products
aren’t.

As you can imagine, the differences in these definitions means that there are also contrasts in
the processes of designing products and of designing services.

Fig 2.7 Services

What are the key principles of Product Design?

As Smashing Magazine point out, “Product design is the process of identifying a market
opportunity, clearly defining the problem, developing a proper solution for that problem and
validating the solution with real users.”

As such, design thinking is a brilliant foundation for the product design process, since it is so
focused on finding actionable and practical solutions to the problems of users.

We’ve spoken a lot about design thinking on our blog. In fact, we covered the topic just last
week and explained how it differs from Human-Centred Design.

Design Thinking is a problem-solving process: First you begin by understanding and scoping
a clear problem, then you focus on how you can solve it. One of the ways that this is best
illustrated is through the Design Council’s Double Diamond:

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 Fig :2.8 principles of Product Design

This is such a valuable process for product designers, as it focuses on product development
from one end to the other, not just the design itself. This helps designers to define exactly what
they’re trying to achieve in terms of their users’ needs, thereby creating something with a much
greater chance of success. More than simply the look and feel of a product is considered!

Again, for more practical steps on how to understand your users through design thinking, read
our last blog post.

Understanding the Design Thinking framework, this then feeds into the product development
process. Each project will look slightly different, but here’s how the general flow looks:

1. Defining the product vision

2. Product research

3. User analysis

4. Ideation

5. Design

6. Testing and validation

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 7. Post-launch activities

What are the key principles to service design?

Let’s hear from the masters themselves, shall we?

According to The Service Design Network, it is “The activity of planning and organising
people, infrastructure, communication and material components of a service in order to
improve its quality and the interaction between service provider and customers.

The purpose of service design methodologies is to design according to the needs of customers
or participants, so that the service is user-friendly, competitive and relevant to the customers.”

To put it simply then, the process has a focus on ensuring that a service is meeting the needs
of all users as effectively as possible at every single step.

In terms of implementing service design, according to Marc Stickdorn and Jakob Schneider,
the methodology has five basic principles:

1. User-centred, through understanding the user by doing qualitative research

2. Co-creative, by involving all relevant stakeholders in the design process

3. Sequencing, by partitioning a complex service into separate processes

4. Evidencing, by visualising service experiences and making them tangible

5. Holistic, by considering touch-points in a network of interactions and users

[Link]

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 Fig 2.9 [Link]

One of the key aspects of effective services design is — you guessed it! — research. Qualitative
research including observations and interviews are conducted, allowing the designer to foresee
a variety of situations in which the user may interact with the service. These insights are then
used to create personas, customer journey maps, value network maps and stakeholder maps.

Armed with all of this, co-creation sessions are put in place to generate service prototypes
which are then developed iteratively. At this point, the designer is able to create the best
possible experience for all of the actors on the service, including stakeholders!

Key takeaways

Whilst service design is focused on the organisation and planning of people and communication
in order to create optimal service quality, product design is primarily concerned with solving
real problems through functionality , not just what a product looks and feels like. This is thanks
to the intangibility of services, versus the physical nature of products.

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However, at the heart of both product and service design is the desire to create the best possible
user experience. They are each user-centred and keep customers at the heart of their decision
making.

Through focusing on the processes of product design and of service design, businesses are able
to effectively generate more sales, a larger amount of customer loyalty and customer growth
more widely.

2.3.1 characteristics of services

Some of the important characteristics of services are as follows:

1. Perishability
2. Fluctuating Demand
3. Intangibility
4. Inseparability
5. Heterogeneity
6. Pricing of Services
7. Service quality is not statistically measurable.
All these points are explained below:

1. Perishability:

Service is highly perishable and time element has great significance in service marketing.
Service if not used in time is lost forever. Service cannot stored.

2. Fluctuating Demand:

Service demand has high degree of fluctuations. The changes in demand can be seasonal or by
weeks, days or even hours. Most of the services have peak demand in peak hours, normal
demand and low demand on off-period time.

3. Intangibility:

Unlike product, service cannot be touched or sensed, tested or felt before they are availed. A
service is an abstract phenomenon.

4. Inseparability:

Personal service cannot be separated from the individual and some personalised services are
created and consumed simultaneously.

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For example hair cut is not possible without the presence of an individual. A doctor can only
treat when his patient is present.

5. Heterogeneity:

The features of service by a provider cannot be uniform or standardised. A Doctor can charge
much higher fee to a rich client and take much low from a poor patient.

6. Pricing of Services:

Pricing decision about services are influenced by perishability, fluctuation in demand and
inseparability. Quality of a service cannot be carefully standardised. Pricing of services is
dependent on demand and competition where variable pricing may be used.

7. Service quality is not statistically measurable:

It is defined in form of reliability, responsiveness, empathy and assurance all of which are in
control of employee’s direction interacting with customers. For service, customers satisfaction
and delight are very important. Employees directly interacting with customers are to be very
special and important. People include internal marketing, external marketing and interactive
marketing.

2.3.2 classification of services

Services Defined

You may have heard that the United States’ economy is primarily considered a service
economy. But do you know why this is? It outlines the percentage each industry contributed
to the gross domestic product (GDP) in 2020. (A quick refresher from your economics course:
the GDP is a measure of the total monetary value of all finished goods and services generated
within a country’s borders during a specified period of time.) Which industries are the largest
contributor to the GDP? Service industries. When you total the service industries, they make
up a whopping 67 percent of GDP versus only 10.8 percent for manufacturing.
In a nutshell, services are the nonphysical, intangible economic activities. On the other hand,
physical goods are the things we can touch or handle, commonly called tangibles. Do you
realize that, as you read this textbook, you’re participating in the services sector of the
economy? That’s because education is considered part of the service sector. The service sector
also includes things like banking, medical treatment, transportation, insurance, and many more

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 categories. Based on the fact that the majority of contributions to the GDP in the United States
are services, and more than half of the country’s workforce is employed in producing
“intangibles,” it’s critical to understand this important sector from a marketing perspective.
Consider the challenges to marketers when selling services as opposed to products. A consumer
can’t touch or see the service before they purchase, so it’s difficult to examine or evaluate
benefits. Think about it: you can’t take a service out for a test drive the way you might if you
were buying a new car. Yet it’s just as crucial for organizations that provide services to build
brand awareness and brand loyalty.

Classification of Services

Services are classified as people-based services or equipment-based services. And within those
classifications, there are sub-categories.

People-Based Services

People-based services are when people primarily deliver the service, rather than equipment or
machinery. It’s the individuals delivering the service, and the knowledge and skills that they
possess that add value and allow the service to be performed. People-based services can be
broken down further into these subcategories:
 services provided by unskilled labor: parking lot attendants, babysitters, and janitors
 services provided by skilled labor: plumbers, caterers, and hairstylists
 services provided by professionals: doctors, attorneys, college professors, and
accountants

Equipment-Based Services

Equipment-based service firms utilize equipment, machinery, and other forms of technology
to perform service tasks. Similar to people-based services, equipment-based services can be
further broken down into subcategories:
 automated services: car washes and parking meters
 equipment-based services operated by relatively unskilled operators: dry-cleaning
equipment
 equipment-based services operated by skilled operators: X-ray machines and ultrasound
equipment
There is another way to categorize services, according to well-known author and professor
Christopher Lovelock (1940–2008). He proposed four broad categories of services:
 people processing: services toward people’s bodies

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  possession processing: services toward possessions
 mental stimulus processing: services toward people’s mind
 information processing: services toward intangible assets
In the categories are defined on a two-dimensional matrix, wherein one of the dimensions is
the direct recipient of the service and the other is the nature of the service act.

Let’s look at each of these categories in more depth. The first two categories (people
processing and possession processing) involve tangible actions directed toward a person’s
physical body or property, whereas mental stimulus processing and information processing
involve intangible actions directed toward a person’s mind or information. We’ll expand on
this in the following sections.

People Processing

In people processing services, the customer is a direct recipient of the service, and the
production and consumption of the service are simultaneous. Consider examples of services
where you must be present in the service facility in order to interact with the service provider
and receive the service, such as barbershops or hair salons, physical therapists’ offices, or
restaurants.

Possession Processing

The difference between people processing and possession processing is that the service is
directed toward the customer’s physical possessions. In other words, production and
consumption are separate. Your only involvement is dropping off the item that requires service
or repair and explaining the problem. For example, once you have taken your car in for an oil
change, you do not need to be physically at the location for the oil change to occur. Similarly,
once you’ve dropped your clothes off at the dry cleaner’s, you don’t need to be physically
present when the cleaning process is performed. These services are tangible because the direct
recipient is one of your possessions rather than you as a person.

Mental Stimulus Processing

In its simplest explanation, mental stimulus processing is when the services interact with your
mind rather than your body. Time and mental effort are required from the customer to receive
this type of service. What you’re doing right now—reading this textbook—is a prime example
of mental stimulus processing. Other examples include psychotherapy or counseling services.
The key here is that services rendered in this category are intangible.

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Information Processing

Information processing is the most intangible form of service, although it can be transformed
into a tangible service output like reports, books, letters, DVDs, etc. Some examples of
information processing services are things like meeting with your financial advisor regarding
investment advice, legal services, and banking.

Characteristics of Services

Service industries contribute the major percentage of the US GDP. It’s important to understand
that this shift from the manufacturing sector to the service sector isn’t limited to the United
States. Increasingly, the world economy is being characterized as a service economy. Looking
at economic history, we can see a natural evolution in developing countries from the
agricultural industry to the service sector as the mainstay of the economy. That’s why it’s
critical for marketers to understand the characteristics of services.
As we pointed out above, some services come from physical products, such as getting a haircut
or having your income tax return prepared by a professional. But other services are completely
intangible. When you rent a hotel room, travel on an airplane, visit your doctor, attend a
professional sporting event, or get advice from a lawyer or an accountant, you’re buying a
service, so a marketer needs to consider the characteristics of services in order to get the right
marketing messages to the right target market.

Service Intangibility

By their very nature, services are intangible. This means they can’t be seen, tasted, felt,
smelled, or heard before they are purchased. Consider the last time you purchased automobile
insurance for your car. Other than the physical policy the company sends you (the only tangible
asset), what you’ve paid for is completely intangible—it’s the company’s promise to pay
claims against the policy.
Intangible services have a number of implications in marketing. The very fact that there’s
nothing to touch, hear, smell, and so on typically increases the level of uncertainty that a
consumer faces when choosing between services offered by your organization or those of
competitors. Intangible services can seldom be tried out, inspected, or even given a “test drive”
by a customer. Customers have to rely on the word of the marketers in order to assess what
they’re actually going to get in return for what they’ve paid. In effect, they are buying a
promise.

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Savvy marketers reduce this uncertainty by creating physical “evidence” that allows the
consumer to picture the service before it is purchased. For example, a hair salon may have
imaging software that predicts how you would look with different hairstyles or colors.
Companies like Zenni and Eyebuydirect have a virtual mirror that allows you to “try on
eyeglasses” and see how the selected frames look on your face before you purchase.

Service Inseparability

The order of production and consumption between a physical product and a service differs.
Think about a box of Girl Scout cookies, a physical good or product. The cookies were
produced, stored, sold, and finally consumed. That’s not the way it works with services. Like
goods, services are sold, but they are produced and consumed simultaneously. They can’t be
separated from the service providers, whether they are people or equipment. For example, try
to get money out of your bank on a weekend or evening without an ATM, or try to get a haircut
without the physical presence of your stylist. That’s the concept of service inseparability—
you can’t separate the delivery of the service from the presence of the customer. In other words,
the service provider is physically connected to the service and is evaluated on the basis of their
communication skills, language, demeanor, personal hygiene, and clothing.
The impact to the marketer in these services—in which the service provider and customer must
both be present—is how service providers (sometimes called frontline employees) conduct
themselves in the presence of the customer because it may determine the likelihood of repeat
business. There are also other marketing implications with this concept, such as customer
cooperation and participation, not to mention the influence from other customers who may be
present.

Service Variability

Have you ever gone to a restaurant and had stellar customer service? You were seated promptly
by a cheerful hostess; the busser filled up your water glass and refilled it several times during
the evening; the wait staff was attentive but not to the point of being annoying; and your dirty
dishes were cleared promptly. But perhaps the next time you visit the same restaurant, your
experience isn’t quite as amazing. The hostess isn’t as cheerful, and it takes her several minutes
to seat you. It takes a while for someone to refill your water glass. The wait staff isn’t nearly
as attentive as they were during your first visit. What went wrong?
Perhaps what you’ve experienced is what’s known as service variability—the quality of the
service depends on who provides it, when it is provided, and how it is provided.

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For example, Delta Air Lines prides itself on improving peoples’ lives and exceeding customer
expectations. However, because services are provided by humans who have human experiences
where they may not be feeling well or they are having a bad day, the service may be variable
between employees. One Delta employee may be cheerful and efficient, while another lags due
to their energy and state of mind.
This is a challenge to marketers because products generally have little variability: each unit is
built to certain specifications. For example, if you buy an Apple iPad Pro and your classmate
purchases the same model, it’s likely that the two iPads will be virtually identical. The case
color may be different, but otherwise they are the same. That’s not the case with a service,
where there will undoubtedly be variations in the quality of the service depending on who
offers the service, when it is offered, and at which location. Service-based companies need to
rely on standardizing processes to the extent possible, frequent audits, customer surveys, and
most importantly, customer feedback.

Service Perishability

Unlike most goods, services can’t be produced and stored for later use or sale. Services are, in
effect, performances by the service provider. That’s the concept of service perishability. Did
you miss tonight’s concert because of traffic? Too bad, because a ticket for tonight’s concert
can’t be used for tomorrow night’s performance. Hotel rooms that are not occupied, airline
seats that are not purchased, and unused gym memberships cannot be reclaimed. Because these
items can’t be stored for later use, they are considered a perishable service. This is particularly
important.

2.3.3 factors affecting service operations

Designing a service process system involves a careful consideration of factors related to

services. Various issues such as location, facility design, and layout for effective work flow
procedures and job definitions for service providers, customer involvement, equipment
selection, etc., should be decided while designing service process. Apart from these, the
following factors should be considered in the process design and implementation.

1. The service itself,

2. Customer participation in the process,
3. Location of service delivery,
4. Level of customer contact,
5. Degree of Standardization,

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 6. Complexity of the service.

1. The Service itself

The importance of the actual process in service delivery is being recognized of late. By
employing some principles, the service and delivery process can be designed, implemented and
monitored. The service itself is dependent upon its process. Even intangible services such as
legal representation, equipment-based services (services through vending machines, ATM)
etc., are dependent upon their process. While designing a service, it is necessary for the service
provider to carefully understand the process on which the service is dependent.

2. Customer Participation in the Process

The presence of the customer is a must when some services are being performed. The consumer
is a part of the production process and there is a close interaction between the service provider
and the consumer.

For example, services in a self service restaurant, hair dressing saloon, beauty parlours, etc.,
necessitate the participation of customers in the production process.

Sometimes, the customer instead of being a passive bystander acts as productive labour if
needed. Customer participation enhances the degree of customization.

For example, the education service rendered by a college would depend upon the quality of
student participation in the programmes offered by the college. Through customer
participation, the service provider identifies the impact the receiver of the benefit has on the
service.

3. Location of Service Delivery

The issues related to accessibility and availability of services are crucial. Priority must be given
in decisions about location of premises and services distribution. Provision of service may take
place at the service provider’s premises or at the customer’s home.

For example, air conditioning and plumbing services should be provided at the customer’s
home, while dry cleaning of clothes is carried out at service provider’s outlet.

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Public services such as telephone, banking, insurance etc., should be easily accessible to the
customers. Generally, the service provider should choose to provide a location convenient to
the customers.

4. Level of Customer Contact

The physical presence of the customer in the system is called customer contact. The level of
customer contact can be calculated from the amount of time a customer spends in the system
compared to the total system.

The level of contact with customers largely depends upon the type of service received. From
this point of view, a service may be high-contact service or low-contact service. Where
performance of a service is fully based on equipment (automatic weighing machines, ATM,
public telephone), the level of contact between the customer and service provider is nil.

In case of professional and medical services, the level of contact is very high. The service
system should be planned according to high contact and low contact operations in order to
achieve overall service quality.

5. Degree of Standardization

The services may be standardized services or customized services. In case of standardized

services, services are delivered in a very standard format. A standardized service is generally,
designed for high volumes with a focused service.

For example, pre recorded messages provided by telephone companies.

The tasks involved in standardized services require a workforce with relatively low levels of
technical skill. Service providers deviate from the standard to meet the needs of different
customers. This is called divergence. Customized services involve high divergence where
flexibility and judgement are called for on the part of the service provider. He interacts with
the customers in order to identify the needs of latter.

The interaction between the service provider and customer may be in terms of resources facility
such as expertise, skill, attention, attitudes, personnel, space, cleanliness etc. In other words,
interaction is more between the customer and the employees of the service provider. Provision

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of customized services requires high levels of technical skill. Generally, customized services
are unprogrammed and not well defined before they are provided.

For example, counseling of students, house decoration, tailoring etc.

6. Complexity of the service

Complexity refers to the amount of steps involved in delivering services to customers. So, the
degree of complexity can be measured on the basis of the number of activities which contribute
towards the service delivery. Some services are high in complexity as well as high in
divergence.

For example, a doctor’s service is highly complex and highly divergent. Every case history of
the patient is so different, yet they always diagnose correctly. But catering services are high in
complexity and low in divergence.

2.4 SERVICE CAPACITY PLANNING

The service industry works hard to satisfy customers. Whether your organization is an
engineering or consulting firm, maximizing customer experience requires intricate planning
and organizational tools. Capacity planning creates real value in ensuring businesses can meet
customer demand, and it is a critical path for a positive customer experience.

What is capacity planning?

Capacity is the ability to receive, contain, or deliver its products. Capacity planning is the
advanced development of a method or approach to ensure an organization can receive, contain,
or deliver its products. Businesses cannot afford to guess when it comes to the volume or types
of services, skills, or people they provide, projects they manage, or people/organizations they
serve. Planning mistakes are costly, which is why capacity planning must consider input
requirements, conversion processes, and output.

Successfully plan your capacity.

For service organizations, capacity has a measurable impact. Since the process also determines
the number of services or people you can provide, capacity planning is more than a tool just
for manufacturers. It can distinguish your service organization above the competition.

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To remain competitive, grow, and ensure an over-arching positive brand (customer)
experience, your business needs to know how much of a service or how many people you can
provide over a specific period based on current projects. Since services cannot be inventoried,
the key to a successful capacity strategy is to match long-term supply with predicted long-term
demand levels. Capacity planning can align prices or rates to avoid over- or under-charging
your customers.

Key considerations for successful capacity planning:

o Allocate resources for specific activities.

o Price service contracts for maximum margin right with customer value and market
acceptance.
o Acquire, train, and terminate staff effectively.
o Accurately forecast demand to produce or deliver services.

Meet your budget

When service organizations use a proven capacity planning process to meet demand with the
least waste or increase their utilization rates, they are on the path to improved customer
experience. Often, organizations assume or “guess” they can meet demand instead of having a
real plan in place based on projected sales or demand forecast. Capacity planning eliminates
the need to guess.
Capacity planning includes categories that help businesses based on the timelines they have
established:

o Short-term capacity: Usually, this is daily or weekly periods, but it can include quarterly
periods. Short-term capacity does not look at trends and cycles but considers customer
demand and seasonal variations.
o Medium-term capacity: This is a one-to-three-year period. Medium-term capacity
combines seasonal variation with historical trends to forecast demand.

Long-term capacity: This is the maximum period, which varies depending on the type of
service. Long-term capacity requires forecasting; the forecasts are converted into established
capacity requirements.

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How service organizations benefit from a capacity planning process

Capacity planning helps businesses with budgeting and scaling so they can identify optimal
levels of operations:

o Budgeting benefits: Capacity planning helps determine how services are offered, and
the appropriate time frames and staff required to meet current demand and cover all
operational costs. This is an important consideration when establishing yearly budgets
to effectively allocate money for expenses. The use of demand planning software and
demand forecasting software helps with developing financial projections.
o Scaling benefits: If your business is considering taking on more staff to help meet
anticipated demand based on their capacity plans, you might find that aside from
increasing employees by 10%, you need specific skills or a larger location for staff and
any new equipment requirements.

Factors affecting capacity planning

Capacity planning can accelerate your organization’s innovation while decreasing risk. To help
meet demand, assess the service demand factors that can affect capacity, including:

o Process: Skills, quantity, and quality capabilities

o Staffing: Job descriptions, total labor, training, compensation, and turnover rates
o External factors: Unions, governmental policies, and budget cycles

When considering demand, service organizations benefit from the use of predictive demand
planning software. These modern planning solutions match the needs of the business and offer
“what-if” scenarios to give insight into outcomes and disruptions that may occur. Demand
forecasts help service organizations with their financial plans and capacity to drive
procurement used to deliver their services. Capacity planning uses demand forecasts to set
prices and contract terms that assist with their services’ times, locations, and timeliness. When
these are aligned, the service organization can determine the future profitability of service
contracts.

Conclusion

Service organizations have several areas to consider as they grow and scale. Whether it is
adding staff or changing pricing, capacity planning can determine how much capital is required.
As capacity planning looks at data and operations to make future decisions, use predictive

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demand planning software to run accurate “what-if” scenarios. Capacity planning is an integral
aspect of a business. It helps structure growth to ensure the organization maintains a
competitive edge in a constantly changing marketplace to meet demand.

2.5 SERVQUAL MODEL OF MEASURING SERVICE QUALITY

Quality is the key to achieving customer satisfaction. Quality is a dynamic state associated with
products, services, people and environments that meets or exceeds expectations. Quality is also
rapidly embracing the nature or degree of impact an organization has of its stakeholders,
environment and society.

In the service industry, definitions of service quality tend to focus on meeting customers needs
and requirements and how well the service delivered meets their expectations. In order to
deliver and maintain service quality, an organization must first identify what it is that
constitutes quality to those whom it serves. The key to ensuring good service quality is meeting
or exceeding what customers expect from the service. It was clear to us that judgements of low
and high quality service depend on how customers expect from the service. It was clear to us
that judgments of high and low service quality depend on how customers perceive the actual
service performance in the context of what they expected. Service quality as perceived by
customers can be defined as the extent of discrepancy between customer’s expectations or
desires and their perceptions. Service delivery is concerned with where, when and how the
service product is delivered to the customer.

Moreover, service quality is a perceived judgment resulting from an evaluation process where
customers compare their expectations with the service they have received. While service
quality is an overall attitude towards a service firm, customer satisfaction is specific to an
individual service encounter. Therefore, it is very difficult to come to a consensus as to a
definition of service quality. We can however conclude that service quality is about providing
something intangible in a way that pleases the consumer and that preferably gives some value
to that consumer.

The SERVQUAL Instrument

The SERVQUAL instrument developed by Parasuraman (1991) has proved popular, being
used in many studies of service quality. This is because it has a generic application and is a

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 practical approach to any area. A number of researchers have applied the SERVQUAL model
to measure service quality in the hospitality industry with modified constructs to suit specific
hospitality situations.

Parasuraman (1985) developed the gap model and the subsequent SERQUAL instrument
designed to identify and measure the gaps between customers’ expectations and perceptions of
the service received. Service quality from the consumer’s perspective depends on the direction
and degree of difference between the expected service and the perceived service. Thus by
comparing customer’s expected service with customer’s perceived service, hotels, for example
can determine whether its service standard is appropriate. The gap between expectations and
perceptions of performance determines the level of service quality from a customer’s
perspective.

The servqual instrument consists of 22 statements for assessing consumer perceptions and
expectations regarding the quality of a service. Respondent are asked to rate their level of
agreement or disagreement with the given statements. Consumer’s perceptions are based on
the actual service they receive while consumer’s expectations are based on past experiences
and information received. The statements represent the determinants or dimensions of service
quality.

The five dimensions of service quality measured by the SERVQUAL Instrument

The SERVQUAL Instrument measures the five dimensions of Service Quality. These five
dimensions are: tangibility, reliability, responsiveness, assurance and empathy.

1. Tangibility – Since services are tangible, customers derive their perception of service quality
by comparing the tangible associated with these services provided. It is the appearance of the
physical facilities, equipment, personnel and communication materials.
2. Reliability – It is the ability to perform the promised service dependably and accurately.
Reliability means that the company delivers on its promises-promises about delivery, sevice
provision, problem resolutions and pricing. Customers want to do business with companies that
keep their promises, particularly their promises about the service outcomes and core service
attributes. All companies need to be aware of customer expectation of reliability. Firms that do
not provide the core service that customers think they are buying fail their customers in the
most direct way.

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3. Responsiveness – It is the willingness to help customers and provide prompt service. This
dimension emphasizes attentiveness and promptness in dealing with customer’s requests,
questions, complaints and problems. Responsiveness is communicated to customers by length
of time they have to wait for assistance, answers to questions or attention to problems.
Responsiveness also captures the notion of flexibility and ability to customize the service to
customer needs.
4. Assurance – It means to inspire trust and confidence. Assurance is defined as employees’
knowledge of courtesy and the ability of the firm and its employees to inspire trust and
confidence. This dimension is likely to be particularly important for the services that the
customers perceives as involving high rising and/or about which they feel uncertain about the
ability to evaluate. Trust and confidence may be embodied in the person who links the customer
to the company, for example, the marketing department. Thus, employees are aware of the
importance to create trust and confidence from the customers to gain competitive advantage
and for customers’ loyalty.
5. Empathy – It means to provide caring individualized attention the firm provide its customers.
In some countries, it is essential to provide individual attention to show to the customer that
the company does best to satisfy his needs. Empathy is an additional plus that the trust and
confidence of the customers and at the same time increase the loyalty. In this competitive
world, the customer’s requirements are rising day after day and it is the companies’ duties to
their maximum to meet the demands of customers, else customers who do not receive
individual attention will search elsewhere.

2.5 SUMMARY

 Operations management is a critical function for any organisation. It is responsible for

planning, coordinating, and controlling the resources needed to produce goods and
services.
 Operations management aims to ensure that an organisation’s operations are efficient
and effective. To achieve this, operations managers must plan, organise, and oversee
the resources and processes required to produce goods and services.
 Product selection and design is a key operations management function determining
which products or services the company will offer its customers.

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  The primary objective of materials handling is to move materials from one location to
another efficiently and effectively.
 The main objective of capacity planning is to ensure that the company has the necessary
resources to meet customer demand.
 Inventory control is the process of ensuring that inventory levels are maintained at an
optimal level. The objectives of inventory control are to ensure that the correct
inventory level is maintained, that stock is available when needed, and that unnecessary
stock is not held.
 Operational planning is setting goals and designing strategies to achieve those goals.

2.6 KEYWORDS

 Inventory control is the process of ensuring that inventory levels are maintained at an
optimal level.

 Product selection and design is a key operations management function determining

which products or services the company will offer its customers.
 Operational planning is setting goals and designing strategies to achieve those goals.

 Empathy means to provide caring individualized attention to the customers by the

firm.

 The SERVQUAL instrument developed by Parasuraman (1991) has proved popular,

being used in many studies of service quality.

 Capacity is the ability to receive, contain, or deliver its products. Capacity planning is
the advanced development of a method or approach to ensure an organization can
receive, contain, or deliver its products.

2.7 LEARNING ACTIVITY

1. What is meant by capacity planning? How can it be implemented?

___________________________________________________________________________
___________________________________________________________________________

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 2. Explain SERVQUAL.

___________________________________________________________________________
___________________________________________________________________________

2.8 UNIT END QUESTIONS

A. Descriptive Questions

Short Questions:

1. What is meant by capacity planning?

2. What is meant by inventory control?
3. State the objective of inventory control.
4. State the objective of Quality Assurance and Control.
5. What is operational planning?
6. What is a product?
7. What is a service?

Long Questions:

1. State the objectives of operations management.

2. Describe the functions of operations management.
3. Describe quality control.
4. State and explain the skills required to become an operations manager.
5. Differentiate between product and service.
6. Describe key principles of product design.
B. Multiple Choice Questions

1. ____________ is the ability to receive, contain, or deliver its products. Capacity planning is
the advanced development of a method or approach to ensure an organization can receive,
contain, or deliver its products.

a. Capacity
b. Planning
c. Controlling
d. Purchasing

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2. _____________ means to provide caring individualized attention to the customers by the
firm.

a. Sympathy
b. Empathy
c. Education
d. Tour services
3. SERVQUAL instrument was developed by _______________.
a. Cox and Kings
b. Jeena & Co.
c. Parasuram
d. Thomas Cook
4. _____________ is the process of ensuring that inventory levels are maintained at an optimal
level.

a. Inventory management
b. Stock outs
c. Inclusive tour
d. Inventory control

5. The primary objective of ______________ is to move materials from one location to another
efficiently and effectively.

a. materials handling
b. Incentive tour
c. Inclusive tour
d. Escorted tour

Answers: 1-a, 2-a, 3-c, 4-d, 5-a

2.8 REFERENCES

References books

 Bowersox, J. & Closs, D. (1996). “Logistical Managment”. Tata McGraw Hill

pulications.

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  Janat S. (2009). “Supply Chain Management: Texts and Cases”. Pearson. 7 th Floor,
Knowledge Boulevard, A-8(A), Sector – 62, Noida – 201309, U.P., India.
 Martin C. (2005). “Logistics and Supply Chain Management – Creating Value-Adding
Networks”. FT Prentice Hall. An imprint of Pearson Education.
 Monezka, H. & Patterson, G. (2017). “Sourcing and Supply Chain Management”.
Cengage Learning India Pvt. Limited.
 Monezka, R. Trent, R. & Handfield, R. (2002). “Purchasing and Supply Chain
Management”. Thomson Publishers.
 Shridhara Bhat. K. (2009). “Logistics and Supply Chain Management”. Himalaya
Publishing House, “Ramdoot” Dr. Bhalerao Marg, Girgaon, Mumbai – 400004.
Textbook references
 Nitin. K. (2018). “Logistics and Supply Chain Management”. Vipul Prakashan.
 Shridara Bhat. K. (2018). “Logistics and Supply Chain Management”. Himalaya
Publishing House.
Website

 https//[Link]

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