Bob and Carol Packer operate a successful outdoor wear store inVermont called Northwoods Backpackers. They stock mostlycold-weather outdoor items such as hiking and backpacking clothes,gear, and accessories. They established an excellent reputationthroughout New England for quality products and service.Eventually, Bob and Carol noticed that more and more of their saleswere from customers who did not live in the immediate vicinity butwere calling in orders on the telephone. As a result, the Packersdecided to distribute a catalog and establish a phone-orderservice. The order department consisted of five operators workingeight hours per day from 10:00 A.M. to 6:00 P.M., Monday throughFriday. For a few years the mail-order service was only moderatelysuccessful; the Packers just about broke even on their investment.However, during the holiday season of the third year of the catalogorder service, they were overwhelmed with phone orders. Althoughthey made a substantial profit, they were concerned about the largenumber of lost sales they estimated they incurred. Based oninformation provided by the telephone company regarding call volumeand complaints from customers, the Packers estimated they lostsales of approximately $100,000. Also they felt they had lost asubstantial number of old and potentially new customers because ofthe poor service of the catalog order department.
Prior to the next holiday season, the Packers explored severalalternatives for improving the catalog order service. The currentsystem includes the five original operators with computer terminalswho work eight-hour days, five days per week. The Packers havehired a consultant to study this system, and she reported that thetime for an operator to take a customer order is exponentiallydistributed with a mean of 3.6 minutes. Calls are expected toarrive at the telephone center during the six-week holiday seasonaccording to a Poisson distribution with a mean rate of 175 callsper hour. When all operators are busy, callers are put on hold,listening to music until an operator can answer. Waiting calls areanswered on a first-in, first-out basis. Based on her experiencewith other catalog telephone order operations and data fromNorthwoods Backpackers, the consultant has determined that ifNorthwoods Backpackers can reduce customer call waiting time toapproximately one-half minute or less, the company will save$135,000 in lost sales during the coming holiday season.
Therefore, the Packers have adopted this level of call serviceas their goal. However, in addition to simply avoiding lost sales,the Packers believe it is important to reduce waiting time tomaintain their reputation for good customer service. Thus, theywould like about 70 percent of their callers to receive immediateservice.
The Packers can maintain the same number ofworkstations/computer terminals they currently have and increasetheir service to sixteen hours per day with two operator shiftsrunning from 8:00 A.M. to midnight. The Packers believe whencustomers become aware of their extended hours the calls willspread out uniformly, resulting in a new call average arrival rateof 87.5 calls per hour (still Poisson distributed). This schedulechange would cost Northwoods Backpackers approximately $11,500 forthe six-week holiday season.
Another alternative for reducing customer waiting times is tooffer weekend service. However, the Packers believe that if they dooffer weekend service, it must coincide with whatever service theyoffer during the week. In other words, if they have phone orderservice eight hours per day during the week, they must have thesame service during the weekend; the same is true withsixteen-hours-per-day service. They feel that if weekend hoursdiffer from weekday hours it will confuse customers. If eight-hourservice is offered seven days per week, the new call arrival ratewill be reduced to 125 calls per hour at a cost of $3,600. IfNorthwoods offers sixteen-hour service, the mean call arrival ratewill be reduced to 62.5 calls hour, at a cost of $7,300.
Still another possibility is to add more operator stations. Eachstation includes a desk, an operator, a phone, and a computerterminal. An additional station that is in operation five days perweek, eight hours per day, will cost $2,900 for the holiday season.For a sixteen-hour day the cost per new station is $4,700. Forseven-day service the cost of an additional station for eight-hourper-day service is $3,800; for sixteen-hour-per-day service thecost is $6,300.
The facility Northwoods Backpackers uses to house its operatorscan accommodate a maximum of ten stations. Additional operators inexcess of ten would require the Packers to lease, remodel, and wirea new facility, which is a capital expenditure they do not want toundertake this holiday season. Alternatively, the Packers do notwant to reduce their current number of operator stations.
Determine what order service configuration the Packers shoulduse to achieve their goals, and explain your recommendation.
