Northwoods Backpackers
Bob and Carol Packer operate a successful outdoor wearstore in Vermont 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 through Friday. For a few years the mail-order service wasonly moderately successful; the Packers just about broke even ontheir investment. However, during the holiday season of the thirdyear of the catalog order service, they were overwhelmed with phoneorders. Although they made a substantial profit, they wereconcerned about the large number of lost sales they estimated theyincurred. Based on information provided by the telephone companyregarding call volume and complaints from customers, the Packersestimated they lost sales of approximately $100,000. Also they feltthey had lost a substantial number of old and potentially newcustomers because of the poor service of the catalog orderdepartment.
Prior to the next holiday season, the Packers exploredseveral alternatives for improving the catalog order service. Thecurrent system includes the five original operators with computerterminals who work eight-hour days, five days per week. The Packershave hired a consultant to study this system, and she reported thatthe time 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 callservice as their goal. However, in addition to simply avoiding lostsales, the Packers believe it is important to reduce waiting timeto maintain 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 believewhen customers 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 waitingtimes is to offer weekend service. However, the Packers believethat if they do offer weekend service, it must coincide withwhatever service they offer during the week. In other words, ifthey have phone order service eight hours per day during the week,they must have the same service during the weekend; the same istrue with sixteen-hours-per-day service. They feel that if weekendhours differ from weekday hours it will confuse customers. Ifeight-hour service is offered seven days per week, the new callarrival rate will be reduced to 125 calls per hour at a cost of$3,600. If Northwoods offers sixteen-hour service, the mean callarrival rate will be reduced to 62.5 calls hour, at a cost of$7,300.
Still another possibility is to add more operatorstations. Each station includes a desk, an operator, a phone, and acomputer terminal. An additional station that is in operation fivedays per week, eight hours per day, will cost $2,900 for theholiday season. For a sixteen-hour day the cost per new station is$4,700. For seven-day service the cost of an additional station foreight-hour per-day service is $3,800; for sixteen-hour-per-dayservice the cost is $6,300.
The facility Northwoods Backpackers uses to house itsoperators can accommodate a maximum of ten stations. Additionaloperators in excess of ten would require the Packers to lease,remodel, and wire a new facility, which is a capital expenditurethey do not want to undertake this holiday season. Alternatively,the Packers do not want to reduce their current number of operatorstations.
Determine what order service configuration the Packersshould use to achieve their goals, and explain yourrecommendation.
Use Excel/ Excel Qm to solve this question
