Operations Management For Dummies, 2nd Edition
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Aggregate planning is rooted in the manufacturing sector, but many of its concepts apply to service industries, too. Operations planning typically happens in service-based companies. Following are the factors that make planning for service unique and describe how to develop a plan for serve operations.

The difference in services

All sorts of businesses sell services, and some service products — such as those provided by restaurants and retail stores — contain many of the same operational elements as manufacturing-based organizations. For starters, these particular service industries require a business to maintain inventory.

In fact, much of the activity in the banking industry (think processing deposits and withdraws) can be automated in a way that’s quite similar to what you may see on a production line. However, other kinds of service-based businesses, including healthcare, are significantly different from a manufacturing operation because patients cannot be inventoried and their care cannot be automated.

Most service industries share a handful of characteristics that don’t apply to most manufacturing operations:

  • High level of customization: No two customers are alike in most service environments, and each requires at least some level of customization, if not complete customization.

  • No inventory: Customers cannot be inventoried for services, and the service process cannot be initiated until a customer expresses demand for the service. For example, a bank cannot approve a mortgage loan until an applicant finds a house he wants to purchase and submits the loan application. Similarly, a doctor cannot perform most medical procedures until a customer is present.

  • Variable arrival rates: In service industries, the arrival of customers is often difficult to control. Even with the use of appointments and reservations, customer arrival rates are difficult to predict and control. If a manufacturing company produces using a make-to-order system, its arrival rate variability will be more like that of a service operation.

  • Variable service times: In services, the cycle time (time to complete the task) can vary significantly, much more than in a typical manufacturing operation. Service time variability makes capacity planning more difficult in service industries.

Because inventory isn’t present in most service-based operations, capacity becomes the prime leverage point when managing “product” availability, and the variability in arrival rates and service times makes capacity management difficult, resulting in potentially significant waiting time for customers, which often impacts customer satisfaction.

Establish the service plan

Service planning is usually completed in a hierarchical manner. At the corporate level, company leaders decide what types of services to provide and set goals and metrics. These parameters are communicated to the facility level where detailed plans are made. As in manufacturing, these plans are then carried out on the service floor, or front line.

In services the primary focus is on capacity, and service capacity is usually of the human variety, so the goal of planning is to determine how many people are needed for certain periods of time and when individual employees should work.

In aggregate planning terms, customer demand is specified for each time period and employees are assigned to meet this demand. For example, when staffing a restaurant, additional kitchen and wait staff are scheduled during lunch and dinner hours to meet the increased demand.

Though an MRP system isn’t too useful in services, many services utilize a scheduling optimization software program that can help managers best utilize resources and provide better customer service.

Consider a popular retail chain. At the corporate level, the strategic plans for the company are established. Corporate leaders determine what customer market to target and what products to sell. Each facility takes these strategic plans and determines how to implement them at its local branch.

In the clothing industry, for example, a store in southern Texas has limited need for winter parkas, so the store’s managers may decide to carry a larger stock of lightweight jackets instead.

Though general management employment levels are established at the strategic level, it is typically up to the facility management to determine how many employees are needed on the store floor to service customers. These employees are usually assigned to departments based on projected demand. For example, the days before Mother’s Day, more employees may be assigned to the women’s apparel and jewelry departments to service the anticipated increase in demand.

About This Article

This article is from the book:

About the book authors:

Mary Ann Anderson is a consultant in supply chain management and operations strategy. Edward Anderson is an associate professor of operations management at the University of Texas McCombs School of Business. Geoffrey Parker is a professor of management science at the A. B. Freeman School of Business at Tulane University.

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