11.10: Operations Planning for Service Providers

Service organizations must carefully design their services to meet customer needs while ensuring efficiency. This involves selecting the right service model (e.g., self-service, direct service, or hybrid) and determining the layout of service processes to streamline operations and reduce wait times. For example, in a restaurant, the kitchen layout must optimize food preparation time while ensuring smooth customer service.

When starting or expanding operations, businesses in the service sector must make a number of decisions quite similar to those made by manufacturers:

• What services (and perhaps what goods) should they offer?
• Where will they locate their business, and what will their facilities look like?
• How will they forecast demand for their services?

Let’s see how service firms answer questions such as these.

Operations Processes

When planning operations, service organizations focus on tailoring their operations processes to deliver high-quality and consistent service experiences.

Service organizations succeed by providing services that satisfy customers’ needs. Companies that provide transportation, such as airlines, have to get customers to their destinations as quickly and safely as possible. Companies that deliver packages, such as FedEx, must pick up, sort, and deliver packages in a timely manner. Companies that provide both services and goods, such as Domino’s Pizza, have a dual challenge: they must produce a quality good and deliver it satisfactorily.

Service providers that produce goods can adopt either a make-to-order or a make-to-stock approach to producing them. Subway encourages patrons to customize their sandwiches by using a make-to-order approach, building sandwiches one at a time. Although many fast food restaurants have adopted the make-to-order model, a few continue to make-to-stock. For example, Dunkin’ Donuts does not customize doughnuts, and so they do not have to wait for customer orders before making them.

Like manufacturers, service providers must continuously look for ways to improve operational efficiency.

McDonald’s Removing Self-Serve Soda Stations

Several years ago, many fast-food restaurants moved the drink stations from behind the counter so that customers could take over the time-consuming task of filling cups with ice and beverages. This allowed the restaurants to cut back on the number of employees needed per day at every location.

In 2024, McDonald’s decided to eliminate self-serve drink stations from its U.S. locations by 2032. The decision isn’t merely about drinks—it reflects a fundamental shift in how customers interact with restaurants today. Digital sales now represent 40% of McDonald’s total revenue, highlighting a dramatic shift toward drive-thru and delivery services. With fewer customers dining in, maintaining large self-serve drink stations has become increasingly impractical. This transformation aligns with McDonald’s vision for future restaurant designs, which may feature smaller dining areas or none at all. New automated beverage systems will mechanically fill drink orders, ensuring consistency across all ordering channels. This standardization means that whether you’re ordering through the app, drive-thru, or in person, your drinking experience remains identical. Beyond adapting to changing consumer habits, this shift brings several operational advantages. The removal of self-serve stations helps maintain cleaner dining areas and reduces maintenance requirements. The transition period until 2032 allows franchisees ample time to adapt their operations and implement new systems gradually. This methodical approach ensures minimal disruption to daily operations while maintaining customer satisfaction.^[1]

This shift represents part of a broader industry trend. Other major chains like Chick-fil-A and Taco Bell are also experimenting with new service models that emphasize efficiency and automation. These changes reflect an industry-wide movement toward more streamlined operations that better serve modern consumer preferences.^[2]

Facilities

When starting or expanding a service business, owners and managers must invest a lot of time in selecting a location, determining its size and layout, and forecasting demand. A poor location or a badly designed facility can deter customers, and inaccurate estimates of demand for products can result in poor service, excessive costs, or both.

Site Selection

Site selection is also critical in the service industry, but not for the same reasons as in the manufacturing industry. Service businesses need to be accessible to customers. Some service businesses, such as cable-TV providers, package-delivery services, and e-retailers, go to their customers. Many others, however—hotels, restaurants, stores, hospitals, and airports—have to attract customers to their facilities. These businesses must locate where there’s a high volume of available customers. In picking a location, service companies perform a detailed analysis of demographics and traffic patterns; the number of people that pass by a specific location in the course of a day. In Canada, where we travel almost everywhere by car, it would make sense for service businesses to look for busy intersections, highway interchanges with easy off and on ramps, or such “primary destinations” as shopping malls, tourist attractions, downtown business areas, or movie theatres. In Europe, public transportation service firms might focus on subway, train, bus, and trolley stops.

Once planners find a site with an acceptable traffic count, they apply other criteria. It must, for example, be easy for vehicles to enter and exit the site, and it must also provide enough parking to handle projected dine-in business. Local zoning must permit standard signage, especially along major highways. Finally, expected business must be high enough to justify the cost of the land and building, and future projections of economic growth (expansion) should be positive.

Size and Layout

In the service sector, most businesses must design their facilities with the customer in mind: they must accommodate the needs of their customers while keeping costs as low as possible. It may be more convenient for a hospital to place its freight elevators in the center of the building, for example, but doing so may block the flow of patients, visitors, and medical personnel between floors and departments. The layout of a fast-food restaurant can help the employees involved in different parts of the process—preparing the food and serving customers—to work in a more integrated fashion. For example, the placement of prepared orders, ready for packaging, is near the front counter and drive-thru staff, to make it easier for these staff to pick up the order, put it in a bag or on a tray, and deliver it to the customer.

Service organizations often design operations to adapt quickly to changing demands. For example, a call center may scale its workforce during promotions or crisis situations.

As mentioned previously, there are four main types of facility layouts: process, product, fixed-position, and cellular. A company may also choose to combine any of these layouts into a hybrid layout.  To learn more about each type, refer to the end-of-chapter exercises and complete the Service Facility Layout exercise.

Capacity Planning

Estimating capacity needs for a service business isn’t the same thing as estimating those of a manufacturer. Service providers can’t store their products for later use: hairdressers can’t “inventory” haircuts, and amusement parks can’t “inventory” roller-coaster rides. Service firms have to build sufficient capacity to satisfy customers’ needs on an “as-demanded” basis. Like manufacturers, service providers must consider many variables when estimating demand and capacity:

• How many customers will we have?
• When will they want our services (which days of the week, which times of the day)?
• How long will it take to serve each customer?
• How will external factors, such as weather or holidays, affect the demand for our services?

Since services are often produced and consumed simultaneously, capacity planning is crucial. Service managers need to ensure that there is adequate staffing, equipment, and space to meet customer demand without overburdening employees or creating excess capacity. For instance, call centers may adjust staffing based on forecasted call volumes.

Forecasting demand is easier for companies that have a long history of planning facilities than for brand-new service businesses. Existing companies can predict sales for a new restaurant by combining their knowledge of customer-service patterns at existing restaurants with information collected about each new location, including the number of cars or people passing the proposed site and the effect of nearby competition.

Media Attributions

“Teaches, Sign, Fast food image” by akiragiulia, used under the Pixabay license.