Operations Management 11.4

Examples of Service Applications

1. Hospitals - Plan for beds, medications, surgical supplies, and staff based on patient forecasts

2. Airlines - Complex planning across aircraft, flight crews, ground staff, routes, and fare class allocations

3. Restaurants - Focus on smoothing service rate, adjusting staff by time/day, and managing demand within fixed kitchen/dining capacity

4. Other Services (e.g., finance, hospitality, recreation)

Service Application

Manage peak demand and optimize labor use during slow periods.

Key Differences from Manufacturing

Demand variability, Capacity measurement, Labor flexibility, and No inventory buffer

Demand Variability

Service demand is harder to predict and often volatile. Prompt service expectations increase pressure on capacity planning.

Capacity Measurement Challenges

Service tasks vary widely (e.g., painting rooms, bank transactions). Difficult to define consistent capacity units.

Labor Flexibility

Labor is a major component of service delivery. Service workers often handle diverse tasks. Part-time and self-service models (e.g., Uber Eats) enhance adaptability.

No Inventory Buffer

Services can’t be stockpiled (e.g., oil changes, tax advice). Unused capacity is wasted. Matching capacity to demand is critical.

Goal of yield management

Maximize revenue by adjusting prices based on demand and capacity.

How to maximize revenue when there is Low Demand

Offer discounts to attract customers.

How to maximize revenue when there is High Demand

Raise prices to capitalize on limited availability (also known as surge pricing)