Service Operations

Management
Sambit Brata Rath
Operations Management

Create Goods Operations Provide Services

Goods vs Service
Product- Service continuum
What are
services?
Percentage of each
country’s GDP that
comes from the
service sector
What is ‘service’?
• The main distinction between services and products (now disputed)
was that services are characterized by the following:
• Intangibility: they are not physical items.
• Heterogeneity: they are difficult to standardise.
• Inseparability: their production and consumption are simultaneous.
• Perishability: they cannot be stored.
IHIP
Education services
What is service operations management?
Why is service operations management important?
Service – the customer perspective
• Customer experience is the central theme of the service operations
management.
• By customer experience, we mean the customer’s direct and personal
interpretation of, and response to, their participation and interaction in the
service process and its outputs.
• An experience is perceived purely from the point of view of an individual
customer and is inherently personal, existing only in the customer’s mind.
• Social group/work group can influence individual experience
• Degree of intimacy with the service also affects the customer experience
• The extent to which the customer feels valued by the service organization
can have a profound impact on the service experience.
Service outcomes
• Products: Products are outputs such as the food and drink provided by a restaurant or the ability of a
delegate on a training course to construct a spreadsheet

• Benefits: customer perception or judgement on whether and to what degree they have ‘profited’ or
gained from the service provided, their experience of it and the ‘products’ provided.

• Emotions: Experiencing a service results in the customer feeling emotions, of which there are many
hundreds, including joy, surprise, love, fear, anger, shame and sadness.

• Judgements: conscious or unconscious assessment of the service provided, customer’s experience

and the perceived benefits gained.

• Intentions: intentions such as the intention to repurchase or not, the intention to recommend the
received service to others, or the intention to complain or not.
Organisational outcomes
• May or may not be visible to and appreciated by the customer,
• But are important because if they are not achieved to a satisfactory
level, the more direct customer outcomes will not be achieved either.
• A hospital may have clinical targets such as waiting times, number of
operations to be performed and recovery rates. They are also likely to
have operational targets, such as theatre utilization rates, and
financial targets, such as adherence to budgets. These overarching
organizational outcomes are concerned with meeting targets and
objectives.
• To be successful, an operation has to meet both its desired customer
outcomes and organizational outcomes.
Service design

One major difference is that unlike manufacturing, where production and

delivery are usually separated in time, services are usually created and
delivered simultaneously.

Product bundle: The combination of goods and services provided to a

customer.

Service package: The physical resources needed to perform the service,

the accompanying goods, and the explicit and implicit services included.
Differences between Service Design and
Product Design
Service design focuses more on intangible factors

No inventory

Simultaneous production & delivery, hence less scope for error rectification.

Highly visible to the customers

Low entry n exit barrier due to low cost

Location & convenience are major factors

Demand variability may lead to underutilization or loss of sales

• Solution:
• cost & efficiency perspective: lean more towards product design approach
• Customer perspective : waiting line analysis
• Flexibility approach
 Creates solutions, satisfaction and
value for the customer

Why Service Affects

Design So • Cost
Important? • Quality
• Image of the company

changing needs of the customer

 Five components describing a service
• Supporting facility
• Facilitating goods
Service • Information
• Explicit services
Package • Benefits that are readily observable by senses
• Implicit services
• Psychological benefits that the customer may
sense vaguely
 Supporting facility: Concrete building with aesthetic
design, equipment

Facilitating goods : Medicines, hospital supplies,

linen, towel, soap

Service Package Information : Medical records, registration system

in a Hospital
Explicit service : Improved health condition

Implicit services : Being in a reputed hospital, safe

Service design Contd.
• Two key issues in service design are
• The degree of variation in service requirements
• The degree of customer contact and customer involvement in the delivery system.
• They impact the degree to which service can be standardized or must be customized.

• Lower the Degree of customer contact and service requirement variability, the more standardized
the service can be.
• Conversely, high variability and high customer contact generally mean the service must be highly
customized
• The greater the degree of customer contact, the greater the opportunities for selling.
Service
System
Design
Matrix
Phases in service design
Co-production and co-creation
• The terms ‘co-production’ and ‘co-creation’ are used to indicate those
circumstances when customers collaborate with the service operation
to produce/create value.
• This idea of customer involvement is important because, in effect, the
distinction between the traditional roles of ‘producer’ and ‘consumer’
is blurred.
• Some authorities use ‘co-creation’ of services as the term to describe
all types of customer involvement, engagement, participation or
collaboration with the service provider in one or all of the stages of
the service process
What are service operations managers
responsible for?
• Understanding the trends in how service is developing in different industries.
• Setting a sound strategic direction in which their operation can develop.
• Clarifying their ‘service concept’ and harnessing it in the development of their services.
• Looking after the organization's customers (sometimes referred to as clients, users, patients,
students, etc.) or surrogates, such as their parcels or orders.
• Managing service quality by shaping their customers’ expectations over what service they will
receive and shaping their perceptions.
• The design of the service operation’s resources and how they impact their customers’ experience.
• Developing service staff and ensuring their welfare.
• Shaping the culture of the organization in such a way as to provide an ethical framework as well
as encouraging innovation and improvement.
What are service operations managers
responsible for?
• Developing the relationships with suppliers and customers in their supply
network and shaping its configuration.
• The detailed design of their service processes that provide service for the
customer.
• Managing the operation’s performance on an ongoing basis.
• Managing the match (if appropriate) between an organization's capacity to serve
its customers and the demand for its services.
• Innovating in the development of new services in partnership with other parts of
the organization.
• Continually striving to improve the value the operation gives to its customers and
the organization.
• Learning, both from their ongoing activities and from other organizations, in
order to improve their services.
Challenges for Service Operations Management
The operations and customer perspectives
Example
Managing multiple customer groups
• In service operations, it is often the same resources and processes
that are exposed to different customer needs.
Long Ridge Gliding Club
• Long Ridge Gliding Club is a not-for-profit organization run by its members. Its location makes it an ideal place to practice
ridge soaring and cross-country flying. The club steward provides a bar and basic catering services, and inexpensive
bunkrooms are available for club members wishing to stay overnight. It has a membership of around 150 pilots, some of
whom have their own gliders, but the club has its own fleet available to its members. The club also offers trial flights to
members of the public by selling ‘trial flight gift vouchers’, often bought as presents. These ‘casual flyers’ can book flights
in advance or just turn up and fly on a first-come, first-served basis. The club’s website encourages people to:
“Experience the friendly atmosphere and enjoy the thrill of soaring above Long Ridge’s dramatic scenery. You could
soon be in the air. Our knowledgeable staff will be happy to advise you, and our team of professional instructors will make
this a really memorable experience.”
• If the conditions are right, the casual flyers may get a relatively long flight – although, at busy times, the instructors may
feel under pressure to return to the ground to give another lesson. Even when the weather is poor, the instructors still do
their best to get people airborne, but they are restricted to a ’circuit’: a take-off, immediate circle and land. Essential tasks,
such as maintaining the gliders, towing them to the launch point and staffing the launching winches, are done on a
voluntary basis by club members. It takes a minimum of five experienced people (club members) to be able to launch one
glider. Among the club’s members are qualified instructors who provide instruction both for the club’s members and the
casual flyers. Club members are expected to help each other and any casual flyers to get airborne while they wait their
turn to fly. Even when a flight has been pre-booked, casual flyers may then be kept waiting for up to two hours before
their flight, depending on how many club members are present. The casual flyers are encouraged to help out with the
routine tasks but often seem reluctant to do so. This was one of the many problems caused by the club offering its
services to casual flyers.
Problems:
• Under pressure from members to end trial flights for casual flyers because they reduce the number of flights
members can have in a day.
• Some members complained that they sometimes spend most of their day working to get these people into
the air and miss out on flying themselves.
• Yet casual flyers brought in useful income. The issue was that the needs and expectations of the club
members were really quite different from those of the casual flyers.
What did they do?
• made sure that there was always someone to ‘meet and greet’ them and give a thorough flight briefing and
a minimum flight time.
• changed our website to manage the casuals’ expectations in line with the service delivered.
• made it clear that they may have to wait and may only get a short flight in bad weather.
• also ‘sold’ the idea that helping with winching and glider preparation was ‘part of the package’.
• With club members, stressed the financial importance of casuals and the need to give them a good
experience.
Managing tactically vs strategically
• A significant part of the excitement of managing service operations is the necessity to solve
problems in real-time.
• Unlike in manufacturing organizations, where it is possible to scrap defective products and
remake them, in service, there is no ‘undo’ or ‘rewind’ button.
• It is understandable, therefore, that many service operations managers concentrate their time
and effort on managing these tactical day-to-day operations.
• First, the pressure on the operation to deliver its day-to-day services may leave little time for
medium-term operations improvement activities or longer-term strategic thinking.
• Second, service operations managers, because of the nature of the job and often their
background, tend to feel more comfortable with the unambiguous and rational nature of many
short-term tactical decisions.
• The danger of the immediacy of dealing with high-customer-contact issues is that it can lead to an
exclusively short-term focus.
• Effective service operations managers are those who can pay attention to and create time in their
day for both strategic issues and day-to-day operations.
Types of service
Other service types:
• Non-profit services: services provided by non-governmental
organizations (NGOs) such as aid organizations Oxfam (see case
example), Red Crescent and Médecins sans Frontières (MSF).
• The recipients of the service could be individuals, businesses, governments or other not-for-profit
organisations.
• Usually, the beneficiaries of this type of service are self-selecting or chosen recipients.

• Internal services: formal and informal services that individuals and

organizational units inside organizations provide to each other.
• Shared services: when one (or a set of) activities are consolidated and
used by multiple parts of the same organization
Different services within a sector
Service strategy
The six elements of service strategy
• Overall business objectives
• These provide the targets or goals for service strategy. If a strategy is a set of plans or policies to meet objectives, there needs to be a
statement of those objectives.
• Market environment
• all the environmental factors that can impact on the organization's ability to achieve its overall business objectives. (PESTEL factors)
• Service positioning
• process of deciding how the service(s) created by an organization fits into the market, especially in relation to the organization's
potential customers and competitors. (Market segmentation, value proposition, positioning map)
• Service concept
• A service concept is a shared and articulated understanding of the essential nature of the service provided and received.
• It should provide a detailed explanation of what is to be done for the customer and how this is to be achieved.
• Performance objectives
• the performance objectives define the competitive or strategic priorities for the operations.
• Price, quality, availability, reliability, speed of service, flexibility, new service development, uniqueness.
• Service resources and processes
Service concept
• The service concept provides a linkage mechanism between strategic intent and its impact on the customer,
and between what a service operations design wants to do and how it can do it
Competing on ‘product’ or experience
Moving to ‘worldclass’ service – Chase and
Hayes’ four stage model
Chase and Hayes’ four stage model
• Stage 1: Available for service
• Nothing positive towards the firm’s competitiveness.
• ‘Avoiding the worst mistakes’ is the best that the firm can expect from its service operations.

• Stage 2: Journeyman
• They may not be as good as the best of their competitors, but they aspire to be.
• The aim of ‘journeyman’ service operations is to keep up with competitors. Industry best practices are adopted, performance is
benchmarked against competitors and improvement, if not radical innovation, takes center stage.

• Stage 3: Distinctive competence

• If stage 2 firms have an aspiration to be as good as competitors, stage 3 firms have made it.
• They have reached that point through management having a clear vision of how the operations’ resources and processes create
customer value and a clear focus on designing the whole operation to deliver that value.

• Stage 4: World-class service delivery

• They ‘seek to create needs, establish expectations, and continually expand those expectations’.
• Stage 3 companies have simply succeeded by being better than competitors, whereas stage 4 companies have ‘changed the rules of
the game’
How can service performance objectives be
converted into operations priorities
• It helps in guiding the strategic development of service resources and processes.
• First is the idea of perceived user value (PUV),
• The second is the importance–performance matrix.
PUV
Key components of perceived user Perceived user value (PUV) and price
value (PUV) for two supermarkets for four supermarkets
Importance–performance matrix

Judging importance of individual factors Judging performance of individual factors

The importance–performance matrix
Case : Amfring Transport
• Amfring Transport (AT) is a successful logistics company that is reviewing one of its fastest-growing services –
an overnight, temperature-controlled delivery service for chilled food. It is particularly keen to improve the
level of service that it gives to its customers. As a first stage in the improvement process, it has devised a list
of the various aspects of its operations performance:
• Price/cost – the price (including discounts, etc.) that it can realise from its customers and the real
internal cost of providing the service.
• Distribution quality – the ability to deliver goods in an undamaged state and its customers’ perceptions
of the appearance of its vehicles and drivers.
• Order/despatch quality – the courtesy and effectiveness of its customer-facing call-centre staff.
• Enquiry lead-time – the elapsed time between an enquiry from a new customer and providing a fully
specified proposal.
• Drop time – the earliest time each morning when delivery can be made.
• ‘Window’ quote – the guaranteed time window around the drop time within which delivery should be
made.
• Delivery reliability – the proportion of actual deliveries made within the quoted ‘window’.
• Delivery flexibility – the ability to change delivery destination.
• Documentation service – the reliability of documents such as temperature control charts supplied with
each delivery.
• Based on its discussions with customers, the laboratory manages to
assign a score to each of these factors on the 1 to 9 scale. A score of 1
for ‘importance’ means that the factor is extremely important to
customers and 9 means that it has no importance. For performance, a
score of 1 means that AT is considerably and consistently better than
any of its competitors; a score of 9 means that it is very much worse
than any competitor. AT plotted the importance and performance
rating it had given to each aspect of performance on an importance–
performance matrix.
The importance–performance matrix for AT’s
‘overnight temperature-controlled service’
Process Mapping (Emergency Room Admission)
Service Blue Printing

Blue Printing –Customer focused practical technique for service innovation and
improvement

To better understand flow of services to ensure competitiveness

Helps managers in service process design and improvement

Note:The term blue print is used to reinforce the idea that service delivery needs to be
carefully designed as a physical product and documented with a blue print of its own.
Service Blue Print

01 02 03 04
Line of interaction Line of Visibility Line of internal Note: Fresh set of
Indicates the Separates the front interactions Indicates eyes can detect
handoffs between and the back office handoffs between mistakes during
customer and server environments various servers in the handoffs
moment of truth back office
Service blueprint: A method used in service design
to describe and analyze a proposed service.
Predict the next number in the pattern:

a) 3.7, 3.7, 3.7, 3.7, 3.7, ?

b) 2.5, 4.5, 6.5, 8.5, 10.5, ?

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5, ?

Predict the next number in the pattern:

a) 3.7, 3.7, 3.7, 3.7, 3.7, 3.7

b) 2.5, 4.5, 6.5, 8.5, 10.5, 12.5

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5, 9.0

• https://www.youtube.com/watch?v=JCb-
NVaem9A&list=PLFuF02RshT4seMK5BvaIwdPp_5AV6LppW&index=6
Forecasting
What is forecasting?
• A statement about the future value of a variable of interest.
• Process of predicting a future event based on historical data
• Educated Guessing
• Underlying basis of all business decisions
• Production
• Inventory
• Personnel
• Facilities
▪ Finance needs forecasts to project cash flows and capital requirements.

▪ Human resources need forecasts to anticipate hiring needs.

▪ Production needs forecasts to plan production levels, workforce,

material requirements, inventories, etc.
• Demand is not the only variable of interest to forecasters.

• Manufacturers also forecast worker absenteeism, machine availability,

material costs, transportation and production lead times, etc.

• Besides demand, service providers are also interested in forecasts of

population, of other demographic variables, of weather, etc.
Features Common to All Forecasts
1. Causal system that existed in the past will persist into the future
2. Forecasts are not perfect
3. Forecasts for groups of items are more accurate than those for
individual items
4. Forecast accuracy decreases as the forecasting horizon increases
Elements of a Good Forecast
The forecast
• should be timely (it takes time to implement the required changes)
• should be accurate
• should be reliable (how is it different from accuracy?)
• should be expressed in meaningful units
• should be in writing
• technique should be simple to understand and use
• should be cost-effective
Steps in the Forecasting Process
1. Determine the purpose of the forecast (why, how, when…)
2. Establish a time horizon (validity of the forecasting)
3. Obtain, clean, and analyze appropriate data (remove outlier n
wrong data)
4. Select a forecasting technique
5. Make the forecast
6. Monitor the forecast errors
• Some additional action might be required, like a price increase,
overtime, outsourcing…
Types of Forecasts by Time Horizon
• Short-range forecast Quantitative
methods
• Usually < 3 months
• Job scheduling, worker assignments
Detailed
• Medium-range forecast use of
system
• 3 months to 2 years
• Sales/production planning

• Long-range forecast
• > 2 years Design Qualitative
• New product planning of system Methods
Forecasting During the Life Cycle
Introduction Growth Maturity Decline

Qualitative models Quantitative models

- Executive judgment
- Time series forecast
- Market research
- Regression analysis/
-Survey of sales force
Associative model
-Delphi method
Sales

Time
Qualitative Forecasting Methods

Qualitative
Forecasting

Marketing
Executive Sales Force
Research/ Delphi method
Judgement Composite
Consumer Surveys
Qualitative Forecasting Methods
Executive Judgment: Opinion of a group of high level experts or managers is
pooled

Sales Force Composite: Each regional salesperson provides his/her sales

estimates. Those forecasts are then reviewed to make sure they are realistic.
All regional forecasts are then pooled at the district and national levels to
obtain an overall forecast.

Market Research/Survey: Solicits input from customers pertaining to their

future purchasing plans. It involves the use of questionnaires, consumer panels
and tests of new products and services.
• .
Qualitative Forecasting Methods
Delphi Method: As opposed to regular panels where the individuals involved are in
direct communication, this method eliminates the effects of group potential
dominance of the most vocal members. The group involves individuals from inside
as well as outside the organization.

Typically, the procedure consists of the following steps:

Each expert in the group makes his/her own forecasts in form of statements
➢The coordinator collects all group statements and summarizes them
➢The coordinator provides this summary and gives another set of questions to
each group member including feedback as to the input of other experts.
➢The above steps are repeated until a consensus is reached.
Time Series Models
• Try to predict the future based on past data

• Assume that factors influencing the past will continue to influence the future
• Reason behind the change is not explored
Time Series Models: Components

Random Trend

Composite
Seasonal
Product demand over time

Demand for product or service

Year Year Year Year

1 2 3 4
Product Demand over Time
Trend component
Seasonal peaks

Demand for product or service

Actual demand
Random line
variation
Year Year Year Year
1 2 3 4
Now let’s look at some time series approaches to forecasting…
Borrowed from Heizer/Render - Principles of Operations Management, 5e, and Operations Management, 7e
Quantitative Forecasting Methods

Time series
model

Moving Exponential
Naive
Average smoothing

Simple Weighted Level Trend seasonality

Naive Approach
▪ Demand in next period is the same as demand in most recent period
▪ May sales = 48 →June forecast = 48

▪ Usually not good

• With seasonal variations, the forecast for this “season” is equal to the value of the series last
“season.”
• For example, the forecast for demand for turkeys this Thanksgiving season is equal to
demand for turkeys last Thanksgiving;
• For data with trend, the forecast is equal to the last value of the series plus or minus the
difference between the last two values of the series.
• For example, suppose the last two values were 50 and 53. The next forecast would be 56:
Simple Moving Average
• Assumes an average is a good estimator of future behavior
• Used if little or no trend
• Used for smoothing

A t + A t -1 + A t -2 + ... + A t -n +1
Ft +1 =
n
Ft+1 = Forecast for the upcoming period, t+1
n = Number of periods to be averaged
At = Actual occurrence in period t
Problem
• You’re manager in Amazon’s electronics department. You want to
forecast iPhone sales for months 4-6 using a 3-period moving
average.
• Month Sales (000) Forecasted value
1 4 NA
2 6 NA
3 5 NA
4 (4+6+5)/3=5
5
6
Problem
• WHAT IF iphone sales are actually 3 in month 4
•

Month Sales (000) Forecasted value

1 4 NA
2 6 NA
3 5 NA
4 3 (4+6+5)/3=5
5 (6+5+3)/3=4.667
6
Problem
• Actual demand in month 5=7
•
Month Sales (000) Forecasted value

1 4 NA

2 6 NA

3 5 NA

4 3 (4+6+5)/3=5

5 7 (6+5+3)/3=4.667

6 (5+3+7)/3=5
• The moving average can incorporate as many data points as desired.
• If responsiveness is important, a moving average with relatively few data points should be used. This will
permit quick adjustment
• Conversely, moving averages based on more data points will smooth more but be less responsive to “real”
changes.
Weighted Moving Average
• Gives more emphasis to recent data
Ft +1 = w1A t + w 2 A t -1 + w 3A t -2 + ... + w n A t -n +1

• Weights
Simple moving
• decrease for older data average models
weight all previous
• sum to 1.0 periods equally
Weighted Moving Average: 3/6, 2/6, 1/6
• Actual demand in month 5=7
•
Month Sales (000) Forecasted value

1 4 NA

2 6 NA

3 5 NA

4 3 (4*1+6*2+5*3)/6=5.167

5 7 (6*1+5*2+3*3)/6=4.167

6 (5*1+3*2+7*3)/6=5.333
Exponential Smoothing
• Assumes the most recent observations have the highest predictive
value
• gives more weight to recent time periods

Ft+1 = Ft + (At - Ft)

et

Ft+1 = Forecast value for time t+1 Need initial

At = Actual value at time t forecast Ft
 = Smoothing constant to start.
Find the forecasted value for 𝛼 = 0.1 & 𝛼 =
0.4
period (t) Actual demand α = 0.1 Forecast α = 0.4 Forecast
1 42
2 40
The forecasted demand for
3 43 the second period can be
4 40 the actual demand of the
first period or the average
5 41
demand of previous 2-3
6 39 periods.
7 46
8 44
9 45
10 38
11 40
12
Result:
period (t) Actual demand α = 0.1 Forecast α = 0.4 Forecast
1 42
2 40 42 42
3 43 41.8 41.2
4 40 41.92 41.92
5 41 41.728 41.152
6 39 41.6552 41.0912
7 46 41.38968 40.25472
8 44 41.85071 42.55283
9 45 42.06564 43.1317
10 38 42.35908 43.87902
11 40 41.92317 41.52741
12 41.73085 40.91645
• How to choose α
• depends on the emphasis you want to place on the most recent data

• Increasing α makes forecast more sensitive to recent data

To Use a Forecasting Method
• Collect historical data
• Select a model
• Moving average methods
• Select n (number of periods)
• For weighted moving average: select weights
• Exponential smoothing
• Select 

• Selections should produce a good forecast

…but what is a good forecast?

A Good Forecast
• Has a small error
• Error= actual- forecast
σ 𝐴𝑐𝑡𝑢𝑎𝑙𝑡 −𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑡
• 𝑀𝐴𝐷 =
𝑛
σ(𝐴𝑐𝑡𝑢𝑎𝑙𝑡 −𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑡 )2
• 𝑀𝑆𝐸 =
𝑛
𝐴𝑐𝑡𝑢𝑎𝑙𝑡 −𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑡
σ ∗100
𝐴𝑐𝑡𝑢𝑎𝑙𝑡
• 𝑀𝐴𝑃𝐸 =
𝑛
• 𝑅𝑀𝑆𝐸 𝑅𝑜𝑜𝑡 𝑀𝑒𝑎𝑛 𝑆𝑞𝑢𝑎𝑟𝑒𝑑 𝐸𝑟𝑟𝑜𝑟 = 𝑀𝑆𝐸
Techniques for Trend
• Trend equation (through regression analysis)
• Trend-Adjusted Exponential Smoothing
• A variation of simple exponential smoothing
• Valid for a linear trend.
• Also called double smoothing
• Trend-adjusted forecast (TAF):
• 𝑇𝐴𝐹𝑡+1 = 𝑆𝑡 + 𝑇𝑡
• 𝑆𝑡 = previous forecast + smoothed error = 𝑇𝐴𝐹𝑡 + 𝛼 𝐴𝑡 − 𝑇𝐴𝐹𝑡
• 𝑇𝑡 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑡𝑟𝑒𝑛𝑑 𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒 = 𝑇𝑡−1 + 𝛽(𝑇𝐴𝐹𝑡 −𝑇𝐴𝐹𝑡−1 −𝑇𝑡−1 )
• α = Smoothing constant for average
• β = Smoothing constant for trend
Techniques for Seasonality
• Regularly repeating movements in series values that can be tied to recurring events.
Seasonal Relatives
• Deseasonalizing data is accomplished by dividing each data point by
its corresponding seasonal relative.
• Incorporating seasonality in a forecast is useful when demand has
both trend (or average) and seasonal components. Incorporating
seasonality can be accomplished in this way:
• Obtain trend estimates for desired periods using a trend equation.
• Add seasonality to the trend estimates by multiplying (assuming a
multiplicative model is appropriate) these trend estimates by the
corresponding seasonal relative
• Computing Seasonal Relatives: see Excel
MONITORING FORECAST ERROR
• A very useful tool for detecting nonrandomness in errors is a control chart.
• 𝑈𝐶𝐿 = 0 + 𝑧 𝑀𝑆𝐸
• 𝐿𝐶𝐿 = 0 − 𝑧 𝑀𝑆𝐸
Examples of nonrandomness
Bias
• Persistent tendency for forecasts to be greater or less than the actual values of a
time series.
σ(𝐴𝑐𝑡𝑢𝑎𝑙𝑡 −𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑡 )
• 𝑇𝑟𝑎𝑐𝑘𝑖𝑛𝑔 𝑠𝑖𝑔𝑛𝑎𝑙𝑡 =
𝑆𝑀𝐴𝐷𝑡
• 𝑆𝑀𝐴𝐷𝑡 = 𝑆𝑀𝐴𝐷𝑡−1 + 𝛼 𝐴𝑐𝑡𝑢𝑎𝑙 − 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝑡 − 𝑆𝑀𝐴𝐷𝑡−1
• A value of zero would be ideal; limits of ± 4 or ± 5 are often used for a range of
acceptable values of the tracking signal
• Conventional wisdom is that the SA method should not be used when linear
trend is present in the data.
• However, it can be used to obtain fairly good values of seasonal relatives as long
as the ratio of the intercept to the slope is large, or when variations are large
relative to the slope. Also, the larger the ratio, the smaller the error.
A guide to selecting an appropriate
forecasting method
Forecast factors, by range
of forecast
Scheduling
Scheduling
Hierarchies
Scheduling
• Scheduling:
• Establishing the timing of the use of equipment, facilities and
human activities in an organization
• Effective scheduling can yield
• Cost savings
• Increases in productivity
• Other benefits
Scheduling Context
• Scheduling is constrained by multiple system design and
operations decisions
• System capacity
• Product and/or service design
• Equipment selection
• Worker selection and training
• Aggregate planning and master scheduling
SCHEDULING OPERATIONS
• Scheduling tasks are largely a function of the volume of
system output.
• High-volume system
• Intermediate-volume system
• Low-volume system
High Volume Systems
• Characterized by standardized equipment and activities that
provide identical or highly similar operations
• Products: autos, smartphones, radios and televisions, office
supplies, toys, and appliances.
• Process industry: petroleum refining, sugar refining, mining,
waste treatment, and the manufacturing of fertilizers
• Services: cafeteria lines, news broadcasts, and covid
vaccination.
Flow system
• Flow system
• High-volume system in which all jobs follow the same sequence
• Flow system scheduling
• Scheduling for flow systems
• The goal is to achieve a smooth rate of flow of goods or customers
through the system in order to get high utilization of labor and equipment

Workstation 1 Workstation 2 Output

Line balancing:
• A major aspect in the design of flow systems is line balancing, which
concerns allocating the required tasks to workstations so that they
satisfy
• Technical (sequencing) constraints and
• are balanced with respect to equal work times (approx.) among stations.
• Assembly line => line balancing
• Obstacles in combining certain activities into the same bundle :
• Differences in equipment requirements
• Because the activities are not compatible (e.g., risk of contamination of
paint from sanding).
• Technological sequence
Srubbing (2 mins) Rinsing (4 mins) Drying (2 mins)
Example
• Suppose that the work required to fabricate a certain product can be divided up
into five elemental tasks, with the task times and precedence relationships as
shown in the following diagram:

0.1 min 0.7 min 1.0 min 0.5 min 0.2 min

• Cycle time: maximum time allowed at each workstation to perform the assigned
task
• Minimum cycle time: 1.0 min
• Maximum cycle time= 0.1+0.7+1.0+0.5+0.2=2.5 min
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟 𝑑𝑎𝑦
• Output rate =
𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒
• Assume 8 hours per day is the operating time
• Output is 480 units per day (if the cycle time is 1 min)
• If the cycle time is 2.5 min, then output is 192 units per day

• From the desired output, you can calculate the target cycle time and
then go for line balancing.
• If the line balancing cannot achieve the target cycle time, then the
desired output needs to be modified.
• The number of workstation that you need is a function of the desired
output and cycle time
How Many Workstations Are Needed?
• The required number of workstations is a function of
• Desired output rate
• Our ability to combine tasks into a workstation
• Theoretical minimum number of stations
σ𝑡
• 𝑁𝑚𝑖𝑛 =
𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒
• Where,
• 𝑁𝑚𝑖𝑛 = 𝑡ℎ𝑒𝑜𝑟𝑒𝑡𝑖𝑐𝑎𝑙 𝑚𝑖𝑛𝑖𝑚𝑢𝑚 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑠
• σ 𝑡 = 𝑆𝑢𝑚 𝑜𝑓 𝑡𝑎𝑠𝑘 𝑡𝑖𝑚𝑒𝑠
• In the previous example,
• If cycle time is 1 minute per second
2.5
• Then 𝑁𝑚𝑖𝑛 = = 2.5
1
• We need 3 workstations
Precedence diagram
• Precedence diagram: A diagram that shows elemental tasks and their
precedence requirements.
• It tells about the sequential requirement.
• b can not be performed if a is not complete, for d, b & c needs to be
complete.
Heuristics for line balancing
• Assign tasks in order of most following tasks
• Count the number of tasks that follow
• Assign tasks in order of greatest positional weight
• Positional weight is the sum of each task’s time and the times of all following tasks
Assigning Tasks According to Greatest
Number of Following Tasks
• Arrange the tasks into three workstations with cycle time = 1.0
minute.
Assigning Tasks According to Greatest
Number of Following Tasks
Workstation Time Eligible tasks Assign task Revised time Station idle
remaining remaining time
1 1 min ac a .9 min
.9 bc c ( b does not .2
fit in the time)
.2 none - - .2 min
2 1.0 b b 0 0
3 1.0 d d .5
.5 e e .3 .3
Total idle time .5 min
Measures of effectiveness
𝑖𝑑𝑙𝑒 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟 𝑐𝑦𝑐𝑙𝑒
• Balance delay: percentage of idle time of a line= ∗ 100
𝑁𝑎𝑐𝑡𝑢𝑎𝑙 ∗𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒
• In the previous example it is 16.7%.

• Efficiency = 100 % − Percent idle time.

• In the previous example it is 83.3%.
 Problem:
Tas Immediate Task time
k predecessor (in minutes) 1. Draw a precedence diagram.
a - 0.2 2. Assuming an eight-hour workday, compute the
b a 0.2 cycle time needed to obtain an output of 400 units
c - 0.8 per day.
3. Determine the minimum number of workstations
d c 0.6
required.
e b 0.3 4. Assign tasks to workstations using this rule: Assign
f d,e 1.0 tasks according to the greatest number of following
g f 0.4 tasks. In case of a tie, use the tiebreaker of assigning
h g 0.3 the task with the longest processing time first.
Intermediate-Volume Systems
 Outputs fall between the standardized type of output of high-volume systems
and the make-to-order output of job shops
• Examples: canned foods, baked goods, paint, and cosmetics.
• Output rates are insufficient to warrant continuous production
 Rather, it is more economical to produce intermittently
 Work centres periodically shift from one product to another
• Three basic issues:
• Run size of jobs
• The timing of jobs
• The sequence in which jobs will be produced
2 DS p
QO =
H p −u
• Where, D = total demand, S= set up cost, H= inventory holding
cost, p= production/ delivery rate, u= usage rate
 Important considerations
 Setup cost
 Usage is not always as smooth as assumed in the economic lot size model
 Alternative scheduling approach
 Base production on a master schedule developed from customer orders and
forecasted demand
Low-Volume Systems
• Job shop scheduling
• Scheduling for low-volume systems with many variations in requirements
• Make-to-order products
• Processing requirements
• Material requirements
• Processing time
• Processing sequence and setups
• A complex scheduling environment
• It is impossible to establish firm schedules until actual job orders are received
Scheduling Low-Volume Systems
• Loading - assignment of jobs to process centers
• Sequencing - determining the order in which jobs will be processed
Low-Volume Systems: Loading
• Loading
• The assignment of jobs to processing centres
• Gantt chart
• Used as a visual aid for loading and scheduling purposes
• The purpose of the Gantt chart is to organize and visually display the
actual or intended use of resources in a time framework
• Managers may use the charts for trial-and-error schedule
development to get an idea of what different arrangements would
involve
Gantt Charts
• Load chart
• A Gantt chart that shows the loading and idle times for a group of
machines or list of departments
 Loading Approaches
• Infinite loading
• Jobs are assigned to workstations without regard to the capacity of the work center
• With infinite loading, a manager may need to make some responses to overloaded work centers.
• Shifting work to other periods or other centers, working overtime, or contracting out a portion of the work
• Finite loading
• Jobs are assigned to work centers, taking into account the work center capacity and job processing times.
• a manufacturer might have one specialized machine that it operates around the clock. Thus, it is operated at the
upper limit of its capacity, so finite loading would be called for.
Infinite loading

Capacity over over

1 2 3 4 5 6

Finite loading

Capacity
1 2 3 4 5 6
Scheduling Approaches
• Forward scheduling
• Scheduling ahead from some point in time
• Used when the question is:
• “How long will it take to complete this job?”
• Backward scheduling
• Scheduling backwards from some due date
• Used when the question is:
• “When is the latest this job can be started and still be completed
on time?”
Schedule chart
• A Gantt chart that shows the orders or jobs in progress and whether
they are on schedule
Input/output (I/O) control

A sample input/output report for a work center showing

input and output in hours of processing time
Job assignment
• Assignment model
• A linear programming model for optimal assignment of tasks and resources
• Hungarian method
• Method of assigning jobs by a one-for-one matching to identify the lowest
cost solution
Hungarian Method
1. Row reduction: subtract the smallest number in each row from every number in the row
a. Enter the result in a new table
2. Column reduction: subtract the smallest number in each column from every number in the
column
a. Enter the result in a new table
3. Test whether an optimum assignment can be made
a. Determine the minimum number of lines needed to cross out all zeros
b. If the number of lines equals the number of rows, an optimum assignment is possible. Go to
step 6.
c. Else, go to step 4
4. If the number of lines is less than the number of rows, modify the table:
a. Subtract the smallest number from every uncovered number in the table
b. Add the smallest uncovered number to the numbers at intersections of cross-out lines
c. Numbers crossed out but not at intersections of cross-out lines carry over unchanged to the
next table
5. Repeat steps 3 and 4 until an optimal table is obtained
6. Make the assignments
a. Begin with rows or columns with only one zero
b. Match items that have zeros, using only one match for each row and each column
c. Eliminate both the row and the column after the match
 Example: Hungarian
Method
job|m/c A B C D • Determine the optimum
assignment of jobs to workers for
1 8 6 2 4 the following data:
2 6 7 11 10 • The values in the cells are cost
3 3 5 7 6
4 5 10 12 9
 Worker Row
A B C D minimum Subtract the smallest number
1 8 6 2 4 2 in each row from every number
in the row
2 6 7 11 10 6
Job
3 3 5 7 6 3
4 5 10 12 9 5

Worker
A B C D
1 6 4 0 2
2 0 1 5 4
Job
3 0 2 4 3
4 0 5 7 4
 Worker
A B C D
Subtract the smallest number
1 6 4 0 2 in each column from every
2 0 1 5 4 number in the column
Job
3 0 2 4 3
4 0 5 7 4
Column min. 0 1 0 2
Worker
A B C D
1 6 3 0 0
2 0 0 5 2
Job
3 0 1 4 1
4 0 4 7 2
 Worker
A B C D
Determine the minimum number
1 6 3 0 0
of lines needed to cross out all
2 0 0 5 2 zeros. (Try to cross out as many
Job zeros as possible when drawing
3 0 1 4 1
lines.)
4 0 4 7 2

Since only three lines are needed to cross out all zeros and
the table has four rows, this is not the optimum. Note: The
smallest uncovered value is 1.
 Worker
A B C D
Subtract the smallest uncovered
1 6 3 0 0
value from every uncovered
2 0 0 5 2 number, and add it to the values at
Job the intersection of covering lines
3 0 1 4 1
4 0 4 7 2

Worker
A B C D
1 7 3 0 0
2 1 0 5 2
Job
3 0 0 3 0
4 0 3 6 1
 Worker
A B C D
Subtract the smallest uncovered
1 6 3 0 0
value from every uncovered
2 0 0 5 2 number, and add it to the values at
Job the intersection of covering lines
3 0 1 4 1
4 0 4 7 2

Worker
A B C D
1 7 3 0 0
2 1 0 5 2
Job
3 0 0 3 0
4 0 3 6 1
 Worker
A B C D
Determine the minimum number
1 7 3 0 0
of lines needed to cross out all
2 1 0 5 2 zeros. (Try to cross out as many
Job
3 0 0 3 0 zeros as possible when drawing
lines.)
4 0 3 6 1

Since four lines are needed to cross out all zeros and the
table has four rows, this an optimal assignment can be
made
 Worker
A B C D
1 7 3 0 0 Make assignments: Start with
rows and columns with only one
2 1 0 5 2
Job zero. Match jobs with workers
3 0 0 3 0 that have a zero.
4 0 3 6 1

Assignment Cost
2-B $7
4-A $5
1-C $2
3-D $6
Total $20
Scheduling
Sequencing
• Sequencing
• Determine the order in which jobs at a work center will be processed
• Priority rules
• Simple heuristics used to select the order in which jobs will be processed
• The rules generally assume that job setup cost and time are independent of
the processing sequence
• Job time
• Time needed for setup and processing of a job
Priority Rules
• FCFS - first come, first served
• SPT - shortest processing time
• EDD - earliest due date
• Lowest CR - critical ratio (remaining time until due date / processing
time); need to calculate after each job assignment
• Lowest S/O –slack per operation = 𝑛𝑜 𝑜𝑓 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠
𝐷𝑢𝑒 𝑑𝑎𝑡𝑒−𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑡𝑖𝑚𝑒
𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑖𝑛𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑡ℎ𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑜𝑛𝑒

• Rush – emergency/ preferred customer first

Priority Rules: Assumptions
• The set of jobs is known; no new orders arrive after processing begins
and no jobs are canceled
• Setup time is independent of processing sequence
• Setup time is deterministic
• Processing times are deterministic
• There will be no interruptions in processing such as machine
breakdowns or accidents
Problem
JOB PROCESSING TIME (DAYS) DUE DATE (DAY FROM PRESENT
TIME)
A 2 7
B 8 16
C 4 4
D 10 17
E 5 15
F 12 18
Scheduling Jobs Using the S/O Rule
JOB REMAINING DUE DATE REMAINING NUMBER
PROCESSING TIME OF OPERATIONS
A 4 14 3
B 16 32 6
C 8 8 5
D 20 34 2
E 10 30 4
F 18 30 2
Sequence: Performance Metrics
• Common performance metrics:
• Job flow time
• This is the amount of time it takes from when a job arrives until it is complete
• It includes not only processing time but also any time waiting to be processed
• Job lateness
• This is the amount of time the job completion time is expected to exceed the date the job was due or promised
to a customer
• Makespan
• The total time needed to complete a group of jobs from the beginning of the first job to the completion of the
last job.
• sum of the processing time of all jobs
• Average number of jobs
• Jobs that are in a shop are considered to be WIP inventory
• =total flow time/ makespan
Problem 1
• Job times (including processing time and set up time) are shown
below for five jobs waiting to be processed at the work centre.
• Determine the sequence using the priority rules.
JOB JOB TIME (hours) DUE DATE (hours)
A 12 15
B 6 24
C 14 20
D 3 8
E 7 6
Two Work Center Sequencing
• Johnson’s Rule
• Technique for minimizing makespan for a group of jobs to be processed on
two machines or at two work centers
• Minimizes total idle time
• Several conditions must be satisfied
Johnson’s Rule Conditions
• Job time must be known and constant for each job at the work center
• Job times must be independent of sequence
• Jobs must follow same two-step sequence
• All jobs must be completed at the first work center before moving to
second work center
Johnson’s Rule: Optimum Sequence
1. List the jobs and their times at each work center.
2. Select the job with the shortest time.
a. If the shortest time is at the first work center, schedule that job first.
b. If the shortest time is at the second work center, schedule the job last.
c. Break ties arbitrarily.
3. Eliminate the job from further consideration.
4. Repeat steps 2 and 3, working toward the center of the sequence, until all jobs have been
scheduled.
Problem
• A group of six jobs is to be processed through a two-machine flow shop. The first
operation involves cleaning and the second involves painting. Determine a
sequence that will minimize the total completion time for this group of jobs.
Processing times are as follows:
JOB WORK CENTER 1 WORK CENTER 2
A 5 5
B 4 3
C 8 9
D 2 7
E 6 8
F 12 15
Problem 2

JOB WORK CENTER 1 WORK CENTER 2

A 2.5 4.2
B 3.8 1.5
C 2.2 3
D 5.8 4
E 4.5 2
Service Operation Problems
• Service scheduling often presents challenges not found in
manufacturing
• These are primarily related to:
1. The inability to store or inventory services
2. The random nature of service requests
• Service scheduling may involve scheduling:
1. Customers
2. Workforce
3. Equipment
Scheduling Service Operations
• Scheduling customers: demand management
• Appointment systems
• Controls customer arrivals for service
• Reservation systems
• Enable service systems to formulate a fairly accurate estimate of demand
on the system for a given time period
• Scheduling the workforce: capacity management
• Cyclical scheduling
• Employees are assigned to work shifts or time slots and have days off on a
repeating basis
Cyclical scheduling
• Make the first worker’s assignment such that the two days with the lowest need
(i.e., lowest sum) are designated as days off. Circle them
• Subtract one from each day’s requirement, except for the circled days. Assign the
next employee, again using the two lowest consecutive days as days off. Circle
those days.
• Repeat the preceding step for each additional worker until all staffing
requirements have been met. However, don’t subtract from a value of zero.
• In case of tie select the pair for whom, the sum of adjacent numbers is low.
• To identify the days each worker is working, go across each worker’s row to find
the nonzero values that are not circled, signifying that the worker is assigned for
those days.
• Similarly, to find the workers who are assigned to work for any particular day, go
down that day’s column to find the nonzero values that are not circled.
Problem
• Find the worker requirement and their off days

Day Mon Tue Wed Thu Fri Sat Sun

Staff 2 4 3 4 6 5 5
needed