service design – The OM Blog by Heizer, Render, & Munson

OM in the News: The Pizza That Defied a Pandemic

“Few industries have suffered more during the pandemic than restaurants,” writes The Wall Street Journal (Sept. 5-6, 2020). More than 15,000 restaurants have failed during the coronavirus pandemic. Sales at stores open at least a year plummeted 37% in the second quarter from a year earlier.

Domino’s, however, didn’t have those problems. Its U.S. sales in the same period leapt 16%.

In part it was lucky: it has little dine-in business. But it has also perfected order-in and delivery through intensive innovation. While many restaurants depend on multiple systems from outside suppliers for technology such as online ordering, Domino’s developed its own, single proprietary point of sale system for all of its more than 6,000 U.S. stores.

While the pizza is made by hand, everything before and after that stage has undergone relentless innovation. Since 2007, the range of channels through which to order digitally has steadily expanded: via desktop, then mobile, apps for the iPhone, iPod Touch and Android, Samsung TVs, Pebble, smartwatches, Twitter, Amazon Echo, Google Home, Slack, and Facebook Messenger. Order time has reached its minimum with “zero click ordering”: Open the app, do nothing and in 10 seconds your favorite pizza is ordered.

All were developed to make ordering and delivery faster and more convenient. And because digital ordering obviates the need for cash to change hands, it also aided in physical distancing when the pandemic began.

Digital ordering is key to growth for food-service establishments because it yields valuable data for better targeting customers and expedites pickup. Five-ten percent of the typical quick service chain’s orders are digital. Domino’s share was 65% last year and has since climbed to 75%. Domino’s also benefited from new concepts it was able to introduce as the pandemic rolled across the U.S. One was “Carside” pickup, with GPS order tracking so that customers who didn’t want to interact with a driver could confirm the driver was in front of the house.

Classroom discussion questions:

How can other restaurant chains design more efficient services? (Hint: see Chapter 5, p. 180 of your OM text)
What is Domino’s competitive advantage?

OM in the News:McDonald’s Improves Operations with a Smaller Menu

McDonald’s plans to keep dozens of items off U.S. menus for the foreseeable future, after sparer operations implemented during the coronavirus pandemic led to improved service times and better margins. Salads, bagels and yogurt parfaits are among around 100 items that they removed from menus after the pandemic hit the U.S. to simplify store procedures and supply. The changes mean operators will have to stock fewer goods in their restaurants.

Many restaurant chains stripped down their menus during the pandemic in light of supply and labor constraints, reports The Wall Street Journal (June 19, 2020). Some, including Red Robin Gourmet Burgers, have reported improved operations as a result of the more limited menus, including faster service times and less waste.

McDonald’s executives said such changes had a bigger impact than they anticipated. Drive-through times fell by an average of 25 seconds during the pandemic, and customers reported in surveys that their food was better and their orders were more accurate. “Our menu strategy really has been focused as a result of Covid and the success we’ve had with a limited menu,” said McDonald’s CEO.

McDonald’s menu had ballooned in recent years as the company tried to attract new customers. That caused drive-through times to increase to levels that troubled executives, prompting the chain to test forms of automation and remove some more-complicated items. McDonald’s began offering breakfast all day in 2015, one of its biggest operational changes in years. The change improved sales in the U.S. for a time. It now allows owners to choose what breakfast items to serve all day to simplify their operations.

Classroom discussion questions:

In Ch. 5 of your Heizer/Render/Munson text, we describe 5 ways to design more efficient service systems. Which approach(es) works best at McDonald’s?
What are the advantages and disadvantages of the more limited menus?

OM in the News: Scheduling Zappos’ Call Center Employees

Last September, Zappos’ CEO Tony Hsieh was wandering the halls of the online retailer’s Las Vegas headquarters and noticed that the customer service center’s walls were covered—floor to ceiling—with sheets of printer paper. He had stumbled across the scheduling method for the center’s 540 employees, who respond to the 10,000 customer inquiries the online retailer receives every day. Employees choose their shifts in order of seniority, by writing their names on sheets of paper listing the shifts they want. “It was like how I signed up for college courses before I could do it on a computer,” says a senior manager at Zappos.

“The old-school, paper-and-pencil process didn’t sit well with Hsieh,” writes Fortune (Jan. 28, 2015), “who is known for his devotion to customer service.” (The Amazon-owned company aims to answer 80% of customer inquiries within 20 seconds.) The wasteful manual sign-up process is now being replaced with Zappos’ Open Market, a newly created online scheduling platform that allows workers to set discretionary hours and compensates them based on an Uber-esque surge-pricing payment model: hourly shifts with greater caller demand pay higher wages. The goal of Open Market is to create a “free-market system,” and strike a balance between the rigidness of customer service center scheduling and what the company says is its dedication to giving employees time to pursue other opportunities at Zappos. Everyone receives at least 10% flexible time, so during a 40-hour week, employees would have 4 hours to play with. They could choose to not work during those hours or they could fulfill them whenever they liked by tacking them onto the start or end of a workday or by coming into the office on a scheduled day off.

Employees decide when to work with the help of Open Market’s real-time metrics algorithm that shows customer demand, as measured by the wait time of the longest-holding customer, and the accompanying compensation rates. The longer the hold time, the higher the customer demand, the more the employees working that shift would get paid. The idea is to tie compensation for the employees—who earn an average of $14.50 per hour—into the Open Market model and pay them a range of hourly rates based on demand.

Classroom discussion questions:

1. What are the advantages of the new scheduling system?

2. How does Open Market differ from employee scheduling systems you are familiar with?

OM in the News: Starbuck’s Controversial Scheduling Software

“Starbucks just announced revisions to the way the company schedules its 130,000 baristas, saying it wanted to improve ‘stability and consistency’ in work hours week to week,” reports The New York Times (Aug.15, 2014). The company intends to curb the much-loathed practice of “clopening,” or workers closing the store late at night and returning just a few hours later to reopen. All work hours must be posted at least one week in advance, a policy that has been only loosely followed in the past. Baristas with more than an hour’s commute will be given the option to transfer to more convenient locations, and scheduling software will be revised to allow more input from managers.

The revisions came in response to a Times article about a single mother struggling to keep up with erratic hours set by automated software. A growing push to curb scheduling practices, enabled by sophisticated software, has caused havoc in employees’ lives: giving only a few days’ notice of working hours; sending workers home early when sales are slow; and shifting hours significantly from week to week. Those practices have been common at Starbucks. And many other chains use even more severe methods, such as requiring workers to have “open availability,” or be able to work anytime they are needed, or to stay “on call,” meaning they only find out that morning if they are needed.

Starbucks prides itself on progressive labor practices, such as offering health benefits and stock. But baristas across the country say that their actual working conditions vary wildly, and that the company often fails to live up to its professed ideals, by refusing to offer any guaranteed hours to part-time workers and keeping many workers’ pay at minimum wage. Scheduling has been an issue for years. Said a former company executive: “Labor is the biggest controllable cost for front-line operators, who are under incredible pressure to hit financial targets.”

Classroom discussion questions:

1. What is the goal of the scheduling software many fast food restaurants use?

2. Why is scheduling a major operations issue at Starbucks?

OM in the News: The Critical Last Mile at eBay

There’s a hot new job in tech: delivery guy. As the holiday shopping season gets underway, same-day delivery has become a new battleground for e-commerce, reports The New York Times (Nov.24, 2013). For all the sophisticated algorithms and proprietary logistics software involved, many services come down to “valets,” who race to a store, scan the aisles for the requested items, buy them and rush them to the customer. The app for eBay Now, the company’s local shopping service, promises that valets will complete a shop-and-drop-off not just in the same day but “in about an hour,” a timetable crucial to the company’s intensifying efforts to one-up Amazon in the delivery game.

It wasn’t so long ago that overnight delivery seemed amazing enough. Then Amazon started building huge “fulfillment centers” near major U.S. cities to be as close to customers as possible. With 40 such centers encompassing more than 80 million square feet and employing 20,000 full-time workers, Amazon offers same-day delivery in 11 cities.

EBay, which last month announced plans to expand eBay Now to 25 cities, has a different model: use existing stores or “retail partners” as distribution centers and beat Amazon in the race against the clock. The personal, labor-intensive valet approach doesn’t translate easily into profit. “You just can’t get any hourly worker to do this — you need someone with a work ethic and a willingness to go out of the standard operating procedure to delight the customer,” said a Forrester Research analyst. “It is an H.R. issue, not a tech issue. Many of these companies are coming at it from a tech standpoint. One thing Amazon has done very successfully, is they’ve owned the entire value chain. They’ve owned the last mile, the moment when the package arrives. Once you can own the moment that matters, you build a loyal customer base.”

There is a 2 minute video attached to the article which illustrates the eBay Now system.

Classroom discussion questions:

1. What has happened to earlier quick delivery companies?

2. What are the OM issues involved in eBay Now?

OM in the News: It’s “Ready, Set, Clean” at Marriott

Consistency is the lifeblood of great branding, and to that end Marriott has taken something as seemingly simple as tidying up a hotel room in about 20 minutes and turned it into an exact science. In fact, company execs treat the 66-step manual as though it were a state secret, according to Forbes (July 15, 2013). Here is a play-by-play, which makes a great example when you are talking about labor standards in Chapter 10, Human Resources, Job Design, and Work Measurement:

“Always knock three times before entering a room. Place clean fitted sheets on the nightstand. Strip the bed, and use dirty fitted sheet as a package for the rest. Inspect bed for stains. Smooth out mattress pad. Place clean fitted sheet on right side of bed, and start with top corner, move to bottom right corner and cover in a clockwise progression. Do not “billow” sheets in order to prevent tired arms.

When cleaning a nightstand, first wipe lamp base and shade and then the stand’s surfaces and drawers, including inside. Use the yellow rag with all-purpose spray in the yellow bottle. Wipe the nightstand’s glass top with a blue rag, using the blue bottle. Wipe the phone and clock. The telephone’s handset and faceplate should be wiped clean and free of marks. The cord must be bound neatly. Check that the alarm clock works and that it is set to the correct time. Make sure the alarm is off.

Before leaving, check the drapes to ensure they are in good shape and in proper position. Make sure the carpets and their edges are vacuumed and free of spots and tears. Tops of pictures must be dust-free as should be the ice buckets and windowsills. Check that the thermostat works and is set properly and that the room has a neutral odor.”

Discussion questions:

1. Why does Marriott have step-by-step instructions for almost all its operations functions?

2. How do you think these labor standards were developed? (See Ch.10 for ideas).

Guest Post: Operations Management on Vacation

Our Guest Post today comes from Prof. Howard Weiss, at Temple University. Howard is the developer of the POM for Windows and Excel OM problem solving software that we provide free with our OM texts.

I went on vacation last week to Florida. I enjoyed seeing Barry in Orlando for dinner and loved taking my grandson to the theme parks. But as an Operations Management professor, I can’t help but to be alert to possible system improvements.

Layout: I stayed at a hotel that had a buffet breakfast that was arranged in a straight line. The first process was a milk dispenser followed by the cereal followed by the bowls. You do not need to be an operations expert to realize that this will cause problems. And it did!

Aggregate Planning: The hotel’s breakfast capacity was based on a normal day where demand was spread out from 6:30-9:30. However, on this rainy day, guests were in no rush to visit the amusement parks and there was a large demand for breakfast from 9:00-9:30. The hotel could have prepared more food in the previous production period of 8:30-9:00 and held it until 9:00 to lessen the backlog.

Reliability: At another hotel the extension cord that was used for the waffle irons became defective. The kitchen had no backup extension cord.

Process Design: At the Miami Airport the moving walkways have signs that say “Stand on right, walk on left.” This made the process much more efficient than other moving walkways or the DC Metro that do not have the signage. For an interesting read see http://www.welovedc.com/2010/07/20/dc-mythbusting-stand-to-the-right/

Operating Costs: We saw an escalator that was not functioning. This reminded me that many escalators in Europe run only when someone approaches them. This saves energy. If an escalator is not running in the US it is because it is broken.

Safety: When we exited the plane we saw that a passenger who had been sitting in the emergency row, now on a wheelchair by the plane’s exit, waiting to be wheeled away. You would think that the airline’s information system would flag a passenger who needs a wheelchair from sitting in the exit row.

OM in the News: The Self-Service Airport

Airlines are laying the groundwork for the next big step in the increasingly automated airport experience: a trip from the curb to the plane without interacting with a single airline employee, writes The Wall Street Journal (Aug.28, 2012).

For years, travelers have been checking in online or at airport kiosks and airlines have been converting paper boarding passes into electronic ones. Now carriers are turning to technology that enables travelers to check their own bags and scan those boarding passes, a topic we discuss in Chapter 5 on service design.

At the airport of the near future, “your first interaction could be with a flight attendant,” said Ben Minicucci, COO of Alaska Airlines. Alaska Air has been at the forefront of self-service in the U.S., recently introducing self-tagging of baggage in Seattle and San Diego with 8 more airports planned this year. Airlines say the technology will quicken the airport experience for travelers—shaving 1-2 minutes from the checked-baggage process alone—and freeing airline employees to focus on fliers with questions.

Airline-employee unions say the machines are a way for carriers to cut staff by outsourcing pre boarding tasks to fliers. But a recent survey found self-boarding appeals to 70% of passengers and almost as many travelers want to tag their own bags. Self-tagging and self-boarding have each been implemented in 115 instances around the world.

U.S. airlines and airports are catching up to their counterparts in Europe, where Lufthansa began testing self-boarding in the late 1990s. That airline officially implemented the technology last year in its three main hubs in Germany, where customers have readily adapted to it. “A lot of our passengers are frequent fliers who really prefer not to talk with staff all the time,” says Lufthansa. Last month in Las Vegas, JetBlue Airways became the first U.S. airline to officially implement self-boarding gates, where fliers scan their own tickets to board the plane.

Discussion questions:

1. In what ways can OM make airline check-in/boarding more efficient?

2. Will the concepts described become standard procedure in a decade? Why or why not?