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Archive for the ‘Services’ Category

Has the advent of smartphones changed customer behavior in restaurants? According to a piece in PetaPixel, it has and not in a really good way (Restaurant Finds that Smartphone Photos Have Doubled Table Times Since 2004, Jul 14). Here’s the gist of the story, someone at a popular New York City supposedly sat down and looked at security footage from 2004 and 2014 and compared how long customers sat at tables. They measured out how long it took them to peruse the menu, eat their food etc. Here is a sample description of what they found in 2014.

  • Customers walk in.
  • Customers get seated and is given menus, out of 45 customers 18 requested to be seated elsewhere.
  • Before even opening the menu they take their phones out, some are taking photos while others are simply doing something else on their phone (sorry we have no clue what they are doing and do not monitor customer WiFi activity).
  • Finally the waiters are walking over to the table to see what the customers would like to order. The majority have not even opened the menu and ask the waiter to wait a bit.
  • Customer opens the menu, places their hands holding their phones on top of it and continue doing whatever on their phone.
  • Waiter returns to see if they are ready to order or have any questions. The customer asks for more time.
  • Finally they are ready to order.
  • Total average time from when the customer was seated until they placed their order 21 minutes. [Compared to 8 mins in 2004]

There are similar delays for taking pictures of food or each others over the rest of the meal. The punchline is that they found that the average time a party sat at a table climbed by 50 minutes — from 1:05 to 1:55.

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It’s been a while since we have posted about airline baggage fees, one of my favorite topics. As I have argued before (see here or here), baggage fees are interesting since they serve as a way to regulate passenger behavior and potentially lower airline costs. Fewer bags means less labor in loading them on and off planes or tracking down lost bags. It also potentially means less weight if passengers actually bring less stuff aboard. But how much is any of that worth? Are we talking about pennies or dollars or thousands of dollars?

The folks at FiveThirtyEight have tried to answer part of that question (Why Budget Airlines Could Soon Charge You to Use the Bathroom, Jun 30). More specifically, they look at the negative impact of adding extra weight to the average flight (or the gain to be had from shedding weight). Here is how they described their methodology.

Our analysis takes into account the distance of a flight, the weight carried onboard the aircraft, and the aircraft type itself. It then simulates every phase of the flight, from departure gate to arrival gate, in order to determine the fuel consumed at each moment along the flight path. To get an idea of how adding small amounts of weight can affect fuel burn on a typical flight, we analyzed a flight from Boston to Denver operated by a Boeing 737-700. Southwest Airlines operates this service three times per day.

According to our model, the total cost of fuel for operating this flight with 122 passengers (85 percent of the maximum seating-capacity) is about $7,900. Each marginal pound onboard the aircraft for this flight will result in a marginal fuel cost of a little less than 5 cents. So if every passenger remembered to go to the bathroom before boarding, shedding an average of 0.2 liters of urine, the airline would save $2.66 in fuel on this flight alone. Such tactics are not off limits. Ryanair famously contemplated charging customers to use the bathroom (in an effort to reduce the number of on-board bathrooms and pack on more seats). Company spokesman Stephen McNamara said in 2010, “By charging for the toilets we are hoping to change passenger behavior so that they use the bathroom before or after the flight.”

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Have you ever heard of VidCon? Turns out it is, in the words of Wikipedia, “a multi-genre online video convention, held annually in Southern California since 2010. Originally conceived by Hank and John Green of the “Vlogbrothers” YouTube channel, the convention is the largest of its kind in the world, gathering thousands of online video viewers, creators, and industry representatives worldwide.”

My wife and I had never heard of it either until our teenage daughter (who for the sake of this post we’ll call Magenta) put on the full-court press to attend. For better or worse, we caved and today Magenta is Anaheim for the start of the conference with her mom in tow. They have in hand tickets that were purchased months ago. However, they also need to get their IDs for the conference. That was the first order of business today and led to a text I received a little before 9:00AM central time (which, allow me to point out, is not quite 7:00AM in Anaheim):

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Just what does the longest line that Magenta’s Mom has ever seen look like? Take a gander (and see if you can spot Magenta).

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So why bring this up? Beyond being able to publicly thank Magenta’s Mom for falling on this particular parenting grenade, it serves as a nice lead in to a recent Business Insider article on “Why People Wait In Hours-Long Lines For Shake Shack, Cronuts, And iPhones” (Jun 25). (more…)

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We have posted in the past on how the burrito-chain Chipotle has increased the rate at which it moves customers through its restaurants, or as an article on Quartz terms it, its burrito velocity (Chipotle continues to refine the science of burrito velocity, Apr 21). The numbers are pretty remarkable.

Over the first three months of 2014, the US Mexican-food chain saw an average increase of seven transactions per hour at both peak lunch and dinner hours—12 to 1pm and 6 to 7pm, respectively. On Fridays, one of its busiest days of the week, Chipotle fielded 11 more customers per hour at lunchtime on average across its stores, a roughly 10% increase. …

Some of Chipotle’s fastest restaurants currently run more than 350 transactions per hour at lunchtime, which equates to a ludicrous near-six transactions per minute. The nationwide average is currently somewhere between 110 and 120, according to Moran. But they’re getting faster, and faster, and faster.

So how do they accomplish this increase in speed? (more…)

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Systems with randomness are inherently subject to delay. But how does that delay vary over the day? That is, if we think of a service setting with “peak” hours that in some sense resets every day, when are delays worst? Note that this would be relevant for, say, a restaurant that closes every evening or for a hospital emergency room that doesn’t officially close but typically does see a dramatic drop in volume in the overnight hours. Intuitively, one would expect that delays build over the day. Now Nate Silver at FiveThirtyEight has provided a graphical illustration of how delay builds for a stochastic system — specifically for US domestic flights (Fly Early, Arrive On-Time, Apr 19).

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Kiosk-Boarding-Pass-Delta-Air-Lines-updated-TSA-PRE-CHECK-wording-Delta-Points-blog

Pity the Transportation Security Administration! They have a tricky capacity planning problem with their Pre✓™ program. Here is how the TSA describes Pre✓™:

TSA Pre✓™ allows low-risk travelers to experience expedited, more efficient security screening at participating U.S. airport checkpoints for domestic and international travel.

The perks of the program of the program include being able to leave your shoes on, not having to take out your laptop, and leaving your baggie of toothpaste buried in your carry-on. All of that gets you faster screening and — in theory — a faster moving line. The program started off being by invitation but has broadened to include those enrolled in the Custom and Boarder Patrol Global Entry program. Now anyone can apply. The trade off for travelers is that you have to pony up for a background check. For the TSA, it allows them to expend fewer resources on people it knows something about so more time can be spent on those it has no information on.

So what’s the problem? The issue is how the system has to be implemented at airports. Pre✓™ flyers go in a separate line and then through separate equipment and personnel. But, as the Wall Street Journal tells it, that is costly for the TSA and they cannot readily justify dedicating the current resource levels unless they can get more flyers signed up (Trouble Selling Fliers on the Fast Airport Security Line, Apr 16).

TSA wants lots more people enrolled in Precheck to make better use of its designated security lanes, which currently number 590 at 118 U.S. airports. Since December, TSA has encouraged travelers to apply to the program directly. The agency is opening enrollment centers across the country, letting people who are U.S. citizens or permanent legal residents to make an appointment or drop in and have fingerprints taken digitally. The $85 background-check fee buys five years of enrollment.

“It’s one of the last great bargains the U.S. government is offering,” TSA Administrator John Pistole joked at an enrollment-center opening last week at Dallas-Fort Worth International Airport.

TSA said more than 1.2 million people as of December were able to use Precheck, mostly because they had enrolled in Global Entry. Since TSA began taking applications directly, some 170,000 additional people have signed up for Precheck. The program appears on track, but if more travelers don’t sign up TSA will have to scale back the number of Precheck lanes at airports, Mr. Pistole said. TSA hasn’t set an optimum number of enrollees for the program, he said.

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Which is worse, having your flight delayed two hours or having your flight cancelled and being rebooked on a flight two hours later? According to Delta Airlines, customers generally prefer a simple delay to a cancellation and rebooking. That has led to Delta working hard to minimize the number of cancelled flights. According to the Wall Street Journal’s Middle Seat column, last year Delta cancelled just 0.3% of its flights — well below the industry average of 1.7% — and at one point went 72 straight days without canceling a single flight (A World Where Flights Aren’t Canceled, Apr 2). As the graphic above and the video below demonstrate, this has taken a lot of operational refinements.

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Part of the beauty of Uber is that the payment process is all automated. Once your ride is complete, the firm bills the credit card they have on file, minimizing the time it takes to wrap up your trip; there is no fussing over payments and tips with the driver. But how should the driver be paying Uber? The driver after all is dependent on Uber to match them with riders. Currently, the drivers pay (effectively) by sharing their fares with the company. However, the Economist argues that such an arrangement is inefficient (Pricing the surge, Mar 29).

There is some evidence Uber’s surge pricing is improving taxi markets. The firm says drivers are sensitive to price, so that the temptation to earn more is getting more Uber drivers onto the roads at antisocial hours. In San Francisco the number of private cars for hire has shot up, Uber says. This suggests surge pricing has encouraged the number of taxis to vary with demand, with the market getting bigger during peak hours.

However, the inflexibility of Uber’s matchmaking fee, a fixed 20% of the fare, means that it may fail to optimise the matching of demand and supply. In quiet times, when fares are low, it may work well. Suppose it links lots of potential passengers willing to pay $20 for a journey with drivers happy to travel for $15. A 20% ($4) fee leaves both sides content. But now imagine a Friday night, with punters willing to pay $100 for a ride, and drivers happy to take $90: there should be scope for a deal, but Uber’s $20 fee means such journeys won’t happen.

Despite the revenues a matchmaking fee generates, it may not be Uber’s best strategy. A fixed membership charge is often firms’ best option in two-sided markets. By charging drivers a flat monthly fee Uber would generate revenue without creating a price wedge that gets in the way of matches. Since stumping up cash might put infrequent divers off, they could be offered a cheaper category of membership. Uber should keep its surge pricing in place. But to make the market as big as possible, and really revolutionise taxi travel, it might need to retune its fees.

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How heavily should a firm use its resources? Resources — be they people, equipment, or facilities — are expensive so there is an obvious case to be made for keeping utilization rates as high as possible. But there is also something to be said for not pushing utilization too high. Many systems need some slack to work well. It is slack that allows firms to absorb the unpredictable or to address problems that go beyond immediate firefighting. That is the point of a recent Strategy & Business article (Cut Your Company’s Fat but Keep Some Slack, Spring 2014). The authors main point is that “slack is routinely undervalued.”

Here is the example given to lead off the article.

In 2002, the operating rooms at St. John’s Regional Health Center, an acute-care hospital in Missouri, were at 100 percent capacity. When emergency cases—which made up about 20 percent of the full load—arose, the hospital was forced to bump long-scheduled surgeries. As a result, according to one study, doctors often waited several hours to perform two-hour procedures and sometimes operated at 2 a.m., and staff members regularly worked unplanned overtime. The hospital was constantly behind.

Administrators brought in an outside advisor, who came up with a rather surprising solution: Leave one room unused. To many, this seemed crazy. The facility was already being squeezed, and now comes a recommendation to take away even more capacity? Yet there was a profound logic to this recommendation, a logic that is instructive for the management of scarcity.

On the surface, St. John’s lacked operating rooms. But what it actually lacked was the ability to accommodate emergencies. Because planned procedures were taking up all the rooms, unplanned surgeries required a continual rearranging of the schedule—which had serious repercussions for costs and even quality of care. The key to finding a solution was the fact that the term unplanned surgery is a bit misleading. The hospital can’t predict each individual procedure, but it knows that there will always be emergencies. Once a room was set aside specifically for unscheduled cases, all the other operating rooms could be packed well and proceed unencumbered by surprises. The empty room thus added much-needed slack to the system. Soon after implementing this plan, the hospital was able to accommodate 5.1 percent more surgical cases overall, the number of surgeries performed after 3 p.m. fell by 45 percent, and revenue increased. And in the two years that followed, the hospital experienced a 7 and 11 percent annual increase in surgical volume.

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What exactly constitutes manufacturing? There are some settings that are very clear. If you work at an assembly plant building cars, you are in manufacturing. If you work at a university that educates students and produces research, then you ain’t. But there are other situations that are not as clean cut. Check out this example from the Wall Street Journal (U.S. Agencies Consider Redefining Manufacturing, Mar 14).

“If someone asks me at a party, I say we make binoculars,” said the president of Carson Optical Inc., a small company tucked in an industrial park in this New York City suburb, adding, “It’s a little bit more vague than saying we manufacture them.” …

A stroll through Carson Optical shows why companies like these can be hard to label. Mr. Cameron, a former banker, started the firm 23 years ago after a stint working in Asia, where he saw the potential to import optical goods from Japan.

But the firm today has evolved far beyond just importing the things that others create. In a conference room near the front, the walls are lined with products Carson’s three-person engineering team has designed, including a hand-held microscope used by medical-marijuana growers to study their plants and an anti-reflective lens device that can be clamped onto binoculars and gun sights.

Carson holds 94 U.S. and overseas patents. The company closely monitors how its goods are made, in some cases buying materials needed to make them and sending them to the factories in Asia.

And the evolution continues. Mr. Cameron is shopping for his first computer-guided production machine and is preparing to move to a bigger nearby building to accommodate his growing design and development operation. He plans to use the new machine to make better prototypes but doesn’t rule out someday making some of his own goods.

So is this manufacturing? On the one hand, they are not doing the nitty-gritty tasks of molding parts or fastening them together. On the other, they are doing most of the high value work like product design as well as sourcing material and setting quality standards. Carson Optical may fail a Potter Stewart I-know-it-when-I-see-it test, but it is holding onto the parts of modern manufacturing that create meaningful value.

Why does this matter? Because the federal government is reconsidering how to define manufacturing and more specifically wrestling with the likes of Carson Optical. (more…)

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