Integrated system design and operational decisions for service sector outlets

Effective system design for service sector outlets requires the explicit consideration of the interconnectedness of its myriad elements. Facility design decisions as well as tactical, operational choices must recognize the marketing environment, including competitive and demographic factors, and their interactions. The particular design and operational features selected for a given retail service outlet will affect its sales, fixed and variable costs, service levels, efficiency, and profits. This paper considers a fast food chain contemplating acquiring, building, and operating a new outlet at a particular candidate site, with its own particular environment. We offer a normative approach for this type of decision, which arrives endogenously at the best choices for both design and operational features for the site. Our implementable approach integrates the non-parametric allocative data envelopment analysis methodology with parametric regression analysis to yield a mathematical programming optimization model. The approach identifies the chain's best practices in different environments, thereby enabling management to factor out poor performances due to flawed installation, lack of proper worker incentives, etc. Also, while the illustration is for a fast food outlet, the approach is equally appropriate for other service outlets, e.g. banks, hospitals, or pharmacies.