Operations Research

Megacard Corporation

Case Report
 Case Summary

The vice-president of Megacard Corporation’s Business Travel Department, Bill O’Brien

was reviewing the performance of his department. It is estimated that the sales would
increase in the subsequent years, and would double by 1995. This implies that more
customers would be coming for business at the Business Travel Centers (BTCs) of the
Megacard Corporation.

Megacard controlled 20 BTCs and divided the operations into ‘front-end’ and ‘back-end’.
Reservations were handled by front-end, whereas billing, accounting and general office
management was done by the back-end. The front-end operation comprised of Travel
Counselors, Hotel Agents, Rate Agents, Ticketers, Messengers and Prepaid Agents.

The process was structured in a way that a customer would phone the BTC for
reservation. To handle the call, a TC was randomly assigned to the call. The TC had
access to the profile of the caller based on the traveller’s name. The company was able
to give special rates, as well as charge the credit card of the customer based on the
profile. In case all TCs were currently busy, the customer received a recorded voice
requesting to wait until a TC was allocated.

In terms of call volume, it followed a particular pattern in terms of time of day, the day of
the week as well as the month of the year. The cost structure was divided into 2 parts,
Employment Expenses and Operating Expenses. One pertinent point in the cost
structure was that 68% of the total employment expenses were attributable to TC salary.
Staffing, thus, was an important decision element for the organisation. If the department
was overstaffed, profits would reduce. If the department was understaffed, it meant that
the service quality would not be as expected.

The quality of the service was dependent on how quickly the customers were served in
the organization and also how long the customers were kept on hold. For corporations,
it meant reports organized by different types as well.

The BTC operations had specified a standard of an average of 60 seconds on-hold for
customers calling the department and a service time of 5 minutes per call. The
telephone equipment used also ensured that 90% of the calls would be answered within
the first few seconds of the call.

Problems Faced
Megacard Corporation has faced chronic overstaffing and periodic seasonal overstaffing
at times. Bill O’Brien felt that it is better to be overstaffed for operations rather than
under-serving the customers.
O’Brien is also considering to have a centralized BTC system which would eliminate
some of their overstaffing problems by having a single queue for the entire company
rather than different queues for different BTCs. Since the forecast of incoming calls is
difficult and not reliable, if the forecast was higher than the number of staff required then
the profits would decline. Since there would be only one queue for all BTCs, there would
be a long waiting line and hence customers might end up calling a different travel agent
which again would impact profit. Customer’s perception of quality contrasting with the
actual quality of service.

Assumptions

We are assuming that the model to be used is M/M/s, as it we can have multiple TCs
operating at the same time which can handle requests parallely. The setup would look
something like this:

For each of the BTCs, if we take the maximum number of calls expected during the day
in a half-hour period and assign TCs according to that in the BTC, the other time slots
would have lower utilisation rate, but the waiting times would also be lower for those
other time slots.
We also assume that the members other than TCs in the front-end operations would not
be a bottleneck in the process.
We assume that it is optimal for the business to ensure that even during peak loads, the
number of servers is adequate to serve all incoming requests.
It is better to be overstaffed by a small margin than to be understaffed, as service quality
deteriorates if the BTC is understaffed. Low quality of service can lead to dissatisfaction
in the customers and can have long-term impacts on the profitability of the firm. Hence
in our solution, we want the staffing level such that the number of servers is adequate
even at peak loads for BTCs.
Further assumptions are stated in the solution section for better context.

Solutions
Q1) How many travel counsellors would be needed if three
Midwest centres are combined? (Take the assumptions whenever
you feel necessary. Clarify the logic behind your assumptions)

A1) The approach taken here is to calculate the number of TCs required in each of the
BTCs, and then calculating the number of TCs required in the combined BTC. The costs
associated with both the cases are examined before concluding if the BTCs should be
combined into one.
For each of the 3 BTCs, the maximum call volume in a given half-hour slot is calculated.
For Indianapolis it is 63, for Kansas it is 40 and for Dallas it is 30.
We want to have the capacity to serve in the peak load, so we’ll use these numbers to
find the number of servers required in these BTCs.
To calculate this, we are using Teknomo’s rule of thumb which suggests that the
minimum number of servers required should be the greater than Nr/T, where

N -> Number of customer coming in the slot

R -> service rate
T -> Time required to finish the queue (time slot value)

Using this approach, we get the number of servers for the 3 BTCs as 11, 7 and 5.
Each TC has to be paid a salary of $ 30000, so the total salary costs come up as
$33000, $21000 and $15000. Since salary cost is 68% of the employment expense, the
employment expense comes up as $485294, $308824 and $220588.
Since the employment expense is 75.5% of the total cost, the total cost comes out to be
$642774, $409038 and $292170.
Combining the total cost per year of the 3 BTCs we get a total cost of $1343981.

We use a similar approach to calculate the number of TCs required for the combined
BTC. The value comes out to be 18.
The salary cost would then be $540000.
Since the salary cost is 68% of the employment expense, the total employment expense
is calculated as $794118.
The operating annual expense to maintain this combined BTC is given as $60000 in the
case itself, thus driving the total cost of the combined BTC to $854118.
However, this excludes the one-time setup cost of $100000.

For the first year

For the first year, the cost by combining the BTCs would be the sum one-time setup
cost and cost per year.
Total cost for combined BTC for the first year = $854118 + $100000 = $954118.
Total cost for decentralized BTCs = $1343981
Savings with centralized BTC = $389864

For subsequent years

Cost for centralized = $854118
Cost for decentralized = $1343981
Savings with centralized BTC = $489864

Q2) How much could be saved if calls in Indianapolis were handled in 4 minutes
or 3 minutes? Estimate the savings for the total department (Take the
assumptions whenever you feel necessary. Clarify the logic behind your
assumptions)

A2) Here we are assuming that if the calls in Indianapolis were handled in 4 or 3
minutes, the costs in Kansas and Dallas would not be affected. Under such an
assumption, the cost difference would come about in just Indianapolis BTC.
We use the same approach that we se in Q1, but in case of Indianapolis, we change the
service time to 5 minutes. With the change in the service time, the number of TCs
required would also change according to Teknomo’s rule.
Calls handled in 4 minutes for Indianapolis
The number of TCs required to serve at the peak time in Indianapolis would be 9,
incurring a salary cost of $27000, employment expense of $397059 and total cost per
year of $525905.
Thus the savings for the total department would be the $642774 - $525906 = $116868.

Calls handled in 3 minutes for Indianapolis

The number of TCs required to serve at the peak time in Indianapolis would be 7,
incurring a salary cost of $21000, employment expense of $308824 and total cost per
year of $409038.
Thus the savings for the total department would be the $642774 - $409038 = $2337376.

However, if the service time of Indianapolis BTC is lower, callers may start to prefer
Indianapolis BTC over time, and the load of the Indianapolis BTC would increase and
the load on other BTCs of the mid-west may reduce. This may require further
reorganization of the staff.

Q3) Propose recommendations for Bill O’ Brien

A3) We have the following recommendations for Bill O’Brien:

1. Since the average number of calls dips significantly in the last few hours, Bill can
reduce the number of shift hours on a rotational basis. The number of TCs proposed
can take care of business in the peak hours but during the end of the day, less number
of TCs would be required and hence this would increase employee satisfaction since
they would get some free time without the cost of their salary.

2. Instead of increasing the cost by overstaffing, the same amount can be used by Bill
for forecasting the demand by analysing past data of the travel bookings, the peak
season for tourists etc.

3. Refining the dial-in menu by diverting the calls to a specific agent who is specialised
in handling a specific kind of complaint or query. There are two-fold benefits of it. In
case of peak time where there is a long list of waiting calls, there will be some relaxation
in the waiting time and the dissatisfaction of the customers due to long waiting ringtones
can be converted to a perception of better service quality.

4. Since the quality that we serve and customer's perceived quality doesn't match, the
feedback system should be taken seriously and the suggestions from the customers
should be implemented if possible.