Dr. Baichun Xiao Dr. Baichun Xiao, chairman of the Management Department at the C.W. Post Campus of Long Island University, serves as director of the Chinese-American Research Center for Service and Operations Management. Chinese-American Research Center for Service and Operations Management The service sector of the world economy has seen a rapid growth in the last four decades. In many developed countries, the services sector accounts for over 70% of gross domestic product and employment. While China has become more competitive in manufacturing in the world, its service industries are still at their early stage of development. Service operations management has been established as a field of study that embraces all service arenas. It studies the process of designing operating system elements, planning the allocation of scarce resources to the operating system, and controlling the execution of the operating activities to meet specific organizational objectives. It differs from those found in manufacturing, which has been the traditional focus of operations management. Because of its importance in the national economy, research of service management has drawn increasing attention from academics as well as practitioners. For example, revenue management, which mainly focuses on service products, has been projected by the Wall Street Journal as "the number one emerging business strategy – a practice poised to explode." A service organization must have a strategy for providing service that matches its target market with its strengths. Good service must be planned and managed, from its design to its delivery, from maintaining efficient operations to ensuring that the quality of the service is both high and consistent. Decisions in support of the service strategy in relation to location, layout, capacity, inventory, distribution, and quality assurance, must be in place. The management of technologies and human resources must be effectively addressed. These issues can be resolved by using approaches, techniques, and procedures that are uniquely service-oriented and require special consideration. All the statistics and developments in the public and private sectors indicate that there is substantial demand for university faculty and students with strategic vision and technical know-how for improving the competitiveness of service organizations in China. The Chinese-American Research Center for Service and Operations Management (CSOM) at Southwest Jiaotong University, established in 2005, is to seize this opportunity and challenge. Dr. Baichun Xiao, professor and chairman of the Management Department at Long Island University, serves as the director of the center. The research team at the center includes faculty members from Southwest Jiaotong University, Sichuan University, and Long Island University. Currently, the center has eight Ph.D. students and 22 master students. The objectives of the center are threefold. First, it promotes research in service operations management and lifts academic reputation of the school. Research at CSOM encompasses a broad spectrum of areas that reflect the wide range of interest and expertise of the faculty. At the present, emphasis is placed on logistics management in service industries and revenue management. Committed to become a first-class service management research center in the nation, CSOM attempts to publish in reputable journals and seek research grants from governmental and private sources. Second, of equally importance is the education and training of students through offering various courses and a concentration in service management. Students with this concentration will find opportunities to work in a variety of service organizations including banking and financial services, insurance, transportation, wholesale and retail services, import/export trade, and telecommunications. Third, the ultimate goal of the center is to apply theoretical knowledge to real-world problems. Hence, CSOM will continue to develop joint research projects with industries and make itself as a well-known consulting power-source in the country. Needless to say, a close tie with the industry will bring ample resource to the school and benefit our students with more placement opportunities. Currently CSOM is engaged in the following projects on logistics and revenue management. 1. Capacity Allocation for Container Shipping Liner Today’s container shipping business faces two challenges: severe competition and unbalanced container movements. As cost-leadership has become a strategic goal of companies, building supply-chains in China have resulted in rapid growth of container shipping business. On the other hand, when containers are shipped to some ports and emptied, they may not find goods at these ports to be sent to elsewhere. RCL (Regional Container Lines) is the biggest regional container shipping line in Southeast Asia, with its headquarters in Thailand. It has about 40 service lines in the region. Like all other shipping companies, RCL faces decisions as to how to allocate its shipping capacity for each origin-destination pair and how to reposition empty containers. For example, one of its service lines, called RSS, is a 21-day voyage that travels through Pushan (South Korea), Shanghai (China), Hong Kong, Singapore, Manila (Philippines), and Pushan. 90 percent of the containers on southbound (Pushan – Shanghai – Hong Kong – Singapore) are RCL’s own containers; while 70 percent of northbound (Singapore – Manila – Pushan) containers come from shippers as Singapore is the largest transshipment port. Container shipping rates are competitive, which are determined by the market rather than shipping distances. In the past, RCL’s decisions were based on manual calculations of 12 employees which were always skeptical to management. The problem can be solved through advanced optimization model. A preliminary result shows that the optimal policy can improve total net revenue of this shipping line by 22.9%, or 3.9 million US dollars of revenue gain per year. As the policy requires no additional operating costs, all gained revenue translates into profit. The economic impact of this policy is further multiplied by the number of voyage lines RCL is operating. The optimal policy involves only internal capacity allocation which is not affected by competition. It is intuitively appealing and easy to implement. The technique rendered in this study is able to process a large amount of data and reach the optimal solution with almost no time. It can also respond quickly to changes of market conditions and provide efficient real-time control. 2. Container Terminal Management With a rapid growth of container shipping business in China, Shenzhen, a neighbor city of Hong Kong, has become the fourth largest port in the world in terms of container shipping volume. One of its major terminals, Chiwan Container Terminal (CCT), received 4 million twenty-foot equivalent units (TEUs) in 2004. A direct indicator of container traffic in a terminal is the number of containers handled per hectare of storage yard space in a given period of time. Because the area of stacking yard at CCT is far smaller than what is needed, this indicator is about 4 times that of Long Beach of US. Stacking containers one or two high and separating the storage of import, export, and empty containers are common practices at container terminals in US and Europe. CCT needs to squeeze as much capacity as possible out of the limited stacking yard and often stack containers five to six high. This causes unproductive or non-revenue-earning reshuffling. Retrieving a bottom container from a stack of six consumes time and resources. Needless to say, it hinders the speed of loading/unloading operations. The most important performance measure to a shipping line in rating a terminal is the vessel turnaround time. From a customer’s perspective, this measure should be minimized because the opportunity cost of delaying at terminal is extremely high (over $50,000 per day). Shipping lines judge container terminals largely based on vessel turnaround time. The limited space of stacking yard and poor management has resulted high vessel turnaround time, which led to negative images to CCT’s customers. Operations efficiency and service quality at CCT presently fall behind, compared with its counter-terminals in Hong Kong. Although CCT has benefited from its price advantages, its business has been eroded by inferior service quality, especially prolonged delays. Operation efficiency can be improved by using mathematical tools and information technology. It is estimated that with the new approach, CCT can increase its annual profit by 20 percent. 3. Demand Forecasting for Airline Passenger Transport Demand forecasting plays a crucial role in airlines’ strategic planning and operations management. According to the experiment conducted at air transportation laboratory of MIT, 10 percent rise in accuracy of demand forecasting during peaks will lead to 10~40 percent increase in revenue. It is commonly agreed that demand forecasting is a key component of operation decisions in airlines and provides a foundation for revenue management systems. Due to the uncertain nature of market, such as seasonality, climate, economic environment, passenger preferences, and competitor’s strategies, demand varies over the time. What makes it worse in China is the market immaturity and chaotic competition, which lead to highly unpredictable demand for given price policies. Sichuan Airlines Co. Ltd is jointly owned by Sichuan Airlines Group, China Southern Airlines Co. Ltd, Shanghai Airlines Corp, Ltd, Shandong Airlines Co. Ltd, and Chengdu Gingko Restaurant Ltd. The company has a fleet of 25 modern aircrafts, including A320 series and Emb-145 manufactured by Airbus industries and EMBRAER respectively. It has also opened more than 130 domestic routes that link almost 40 cities and form an air transport network with a spread over 200,000 kilometers. Like other airlines in China, Sichuan Airlines lacks agreeable forecasting systems. The current forecasting techniques are fairly primitive. It is often done based on management intuition rather than systematic models that incorporate all important factors. It does not have a self correction feature using observable data. As forecasting errors are significant, forecasting is virtually useless at Sichuan Airlines. Faculty and students at CSOM have developed several models to improve the accuracy of forecasting. Preliminary results show that these models are able to control forecast errors within 10 percent on total daily demand of each origin-destination pair. More improvement is expected as the project unfolds. |
| Long Island University | C.W. Post Campus | College of Management |