Case Problem

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N ORTHWOODS B ACKPACKERS

Bob and Carol Packer operate a successful outdoor-wear store in Vermont called Northwoods Backpackers. They stock mostly cold weather outdoor items such as hiking and backpacking clothes, gear, and accessories. They established an excellent reputation throughout New England for quality products and service. Eventually, Bob and Carol noticed that more and more of their sales were to customers who did not live in the immediate vicinity but were calling in orders on the telephone. As a result, the Packers decided to distribute a catalog and establish a phone-order service. The order department consisted of five operators working 8 hours per day from 10:00 A.M. to 6:00 P.M. , Monday through Friday. For a few years the mail-order service was only moderately successful; the Packers just about broke even on their investment. However, during the holiday season of the third year of the catalog-order service, they were overwhelmed with phone orders. Although they made a substantial profit, they were concerned about the large number of lost sales they estimated they had incurred. Based on information provided by the telephone company regarding call volume and complaints from customers, the Packers estimated that they lost sales of approximately $100,000. Also, they felt they had lost a substantial number of old and potentially new customers because of the poor service of the catalog order department.

Prior to the next holiday season, the Packers explored several alternatives for improving the catalog-order service. The current system includes the five original operators with computer terminals who work 8-hour days, 5 days per week. The Packers hired a consultant to study this system, and she reported that the time for an operator to take a customer order is exponentially distributed, with a mean of 3.6 minutes. Calls are expected to arrive at the telephone center during the 6-week holiday season, according to a Poisson distribution, with a mean rate of 175 calls per hour . When all operators are busy, callers are put on hold, listening to music until an operator can answer. Waiting calls are answered on a FIFO basis. Based on her experience with other catalog telephone-order operations and data from Northwoods Backpackers, the consultant has determined that if Northwoods Backpackers can reduce customer call-waiting time to approximately 0.5 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 service as their goal. However, in addition to simply avoiding lost sales, the Packers believe it is important to reduce waiting time in order to maintain their reputation for good customer service. Thus, they would like for about 70% of their callers to receive immediate service.

The Packers can maintain the same number of workstations and computer terminals they currently have and increase their service to 16 hours per day with two operator shifts running from 8:00 A.M. to midnight. The Packers believe when customers become aware of their extended hours, the calls will spread out uniformly, resulting in a new call average arrival rate of 87.5 calls per hour (still Poisson distributed). This schedule change would cost Northwoods Backpackers approximately $11,500 for the 6-week holiday season.

Another alternative for reducing customer waiting times is to offer weekend service. However, the Packers believe that if they offer weekend service, it must coincide with whatever service they offer during the week. In other words, if they have phone-order service 8 hours per day during the week, they must have the same service during the weekend; the same is true with 16-hours-per-day service. They feel that if weekend hours differ from week-day hours, it will confuse customers. If 8-hour service is offered 7 days per week, the new call arrival rate will be reduced to 125 calls per hour, at a cost of $3,600. If they offer 16-hour service, the mean call arrival rate will be reduced to 62.5 calls per hour, at a cost of $7,200.

Still another possibility is to add more operator stations . Each station includes a desk, an operator, a phone, and a computer terminal. An additional station that is in operation 5 days per week, 8 hours per day, will cost $2,900 for the holiday season. For a 16-hour day the cost per new station is $4,700. For 7-day service the cost of an additional station for 8-hours-per-day service is $3,800; for 16-hours-per-day service, the cost is $6,300.

The facility Northwoods Backpackers uses to house its operators can accommodate a maximum of 10 stations. Additional operators in excess of 10 would require the Packers to lease, remodel, and wire a new facility, which is a capital expenditure they do not want to undertake this holiday season. Alternatively, the Packers do not want to reduce their current number of operator stations.

Determine what order service configuration the Packers should use to achieve their goals and explain your recommendation.