Chapter 05 – Service Delivery System Design
Chapter 5
Service Delivery System Design
Teaching Notes
A chapter on service delivery system design is included in the text because of the
increasing emphasis on the service economy. The service sector employs many more workers
than the manufacturing economy in the U.S. and most developed economies, as well as
providing significant employment in many developing economies. Productivity in the service
sector generally grows at a slower rate than in the manufacturing sector, so operations concepts
can be very important in these organizations. We stress that services processes can be managed
just as manufacturing processes can be managed. Additionally, the role of technology in the
design and delivery of services is key.
Several important service industries are under intense pressure to improve productivity
for a variety of reasons. For example, budgetary cutbacks are placing significant pressure on
government services. New and costly technologies, along with shifting demographics, are
causing health care services are adding significant costs in the industry every year. Deregulation
has created increased competition in service industries such as telecommunications, financial
services, and transportation. Globalization of service receives attention.
The chapter describes several interesting concepts. Designing the service-product bundle
is a useful idea and many interesting examples can be given in class (as well as defined by
students, as an exercise). The service delivery system matrix and the customer contact model
help students understand differences in types of services and how to match service process
design to customer needs. Finally, the service-profit chain can be used as a way to emphasize
ideas described earlier in the text by viewing operations as an integrated system involving both
employees and customers.
Answers to Questions
1. a. Check clearing in a bank: Low customer contact, Low uncertainty.
2. a. Vending machine business: Provider-routed with a limited number of process
pathways and standardized service. (Highly repeatable.)
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3. Process management differs because the vending machine is highly automated with
drivers routed to fill machines, housecleaning service requires a dispersed work force that
requires some training and supervision, while appliance repair is often done on site (in
customer’s home or at a business location) by a single individual who is relatively highly
trained to work independently. The housecleaning service will most often have a known
technicians, spare parts inventory, etc.)
Inventory management is very important for the vending machine business because
inventory availability is the basis of this business. Some vending machines dispense
perishable food items, so this will require careful planning. Inventory is also of concern
to the appliance repair service, but this inventory is centralized (usually travels with the
4. a. Hospital: Physical items and facilitating goods include buildings, beds, medical
equipment, drugs, and supplies. The explicit services include treatments such as
Chapter 05 – Service Delivery System Design
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handling the legal system in such a manner that your stake is protected to the
5. The customer contact model suggests that the proportion of time the customer is in
contact with the service delivery system influences its efficiency. This is because the
customer introduces uncertainty and inefficiency into the service delivery system. Thus,
the design of a service delivery system should focus on separating those parts that involve
6. a. Hospital: FRONT ROOM SERVICES include admitting patients, administering
lab and radiological tests, dispensing drugs, feeding patients, providing health
care information and education, and providing surgical and therapeutic
treatments. BACK ROOM SERVICES include test processing lab, creating and
Chapter 05 – Service Delivery System Design
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d. Appliance repair firm: FRONT ROOM SERVICES include the repair services in
the case of service at the customer’s site, and front desk staff, where appliances
are dropped off at the repair firm’s location. BACK ROOM SERVICES include
operation focus on its primary task, service or efficiency.
For a hospital, FRONT ROOM SERVICES might be improved by providing enough
workers in admitting to handle peak loads and training them in customer awareness and
public relations skills. BACK ROOM SERVICES might be improved by reducing the
number of special or rush tests or freezing purchase orders after they have been sent out.
7. Service guarantee for
a. College classes – A student can cancel a class within the first 2 weeks of classes
8. An example of the service-profit chain for the movie theaters may simply be explained by
satisfied customers frequently going to movie theaters. If the admission price to a movie
Chapter 05 – Service Delivery System Design
is $10 and a typical person goes to a movie theater once per month, this generates $120
annual revenue. This revenue is divided among many stakeholders, including the movie
theater, movie production company, movie producers, directors, writers, actors, etc.
9. The service-profit chain is important to operations management since it directs the focus
of management to matters that affect service profitability. It emphasizes the importance
10. Examples will vary depending on specific sources used. Two examples are: (1) money
11. To be effective for the organization, the service guarantee should be measurable,
believable, and with few conditions. Measurable means that the outcome of the service
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12. Pros of a service guarantee – improves quality of service, improves customer relations
and customer loyalty, and improves the brand name of the organization.
13. The service delivery system matrix allows a company to choose the right strategy for its
14. When a service firm outsources some of its services, another organization outside of the
15. The key factors that most firms are seeking when they offshore services are lower costs,