Question 8: Capacity Management

1. Describe a place in your focal organization's service process where if capacity and demand were better matched, the service could operate with minimal waiting.

Typically when a popular movie is released on DVD, the wait times are quite long to receive the DVD. Additionally, Netflix sometimes has limited quantities of DVDs, which, if in high demand, can result in a long wait time, as seen here:

Netflix has done a number of things throughout the years to manage this issue of demand vs. capacity. They used a practice called "throttling" to essentially rate their subscribers and give preference to those who rent fewer DVDs per month. That is, a customer who rents an average of 5 DVDs per month would have priority over another customer who rents 15 DVDs per month if they both had a certain movie at the top of their queue. Netflix has said that throttling has been stopped after backlash from their customers.

2. Are there ways that demand and capacity could be kept more "in line" with one another?

Netflix currently lets its customers add movies to their queue prior to the actual release date, like this:

This can help them predict expected demand of a DVD before they actually have it, and allow them to adjust the number of DVDs for a particular title they make available.

Recently, Netflix has entered into an agreement with Warner Brothers that places a 30-day delay on DVD availability through Netflix for all new releases from the production studio. This was done primarily to protect the revenue generated by DVD sales during the first month for Warner Brothers, but I believe that Netflix can also benefit from this delay in DVD availability. During this time, Netflix will be able to make decisions about the quantity of a title to purchase based on the sales of that title to customers. This practice, if installed, would help Netflix better match capacity to demand.

Question 7: Information

1. In thinking about your focal firm, what information should your business track about each customer?

Netflix is easily able to monitor customer inputs and movie preferences for each customer through the "Queue" feature on their website. For those unfamiliar, a customer is able to log into their account and create a ranked list of DVDs they want to watch. When a DVD is returned, Netflix ships the highest ranked DVD on the customer's list, assuming it's available.

Netflix also encourages customers to review and rank the movies they've seen. This information allows them to make recommendations to their users about potential movies they would enjoy based on previous reviews.

2. Where and when in the production process is the info collected and recorded (and how)?

Information is collected via the Netflix website prior to the shipment of a DVD, and Netflix subscribers are able to constantly adjust and add movies into their queue.

3. Where and when might the information be used by a different /product/service provider to enhance the ability to provide or market the service?

Since the information collected about DVD preferences is customer generated, any other firm with a similar service to offer could offer a feature to allow their potential customers to rank a given number of things. Additionally, competitors could develop a more robust system to better predict videos a customer would be interested in watching.

Netflix is actually proactively addressing this with the Netflix Prize in 2009, and the 2008 Progress Prize. Both of these "competitions" were designed by Netflix to allow open development of an algorithm that would improve accuracy and suggestions related to customer rankings.

Question 6: Poka yoke

Think through what aspects of your focal firm's service might suffer to do inconsistency/quality issues associated with customer inputs.

1. What are likely sources of problems?

The main source of customer-caused problems at Netflix comes from the treatment of the DVDs that are mailed to their homes. However, I feel that a larger problem is the treatment of the envelopes by the US Post Office. Since most mail is sorted through a machine, there is a high chance of receiving a DVD that was scratched or even cracked during the delivery process. So for this question, I'm going to respond to the question with the USPS as the customer.

2. Design a poka yoke to help reduce the frequency or magnitude of problems.

Poka yoke method—foolproofing device. Checking systems, checklists, some form of reminder to try and improve the input quality.

While Netflix currently uses "sleeves" to protect the DVDs they send out, sometimes they do not provide enough protection. Personally, I've received DVDs from Netflix that were cracked, and while Netflix does a good job of remedying the situation (they send a replacement DVD to arrive the next day when you report the problem), it is still an inconvenience.

If Netflix felt this problem was highly detrimental to their business, whether it be in perceived service, or the costs associated with scrapping damaged content, they could design a solution that involved hard casings that housed the DVDs inside the existing Netflix envelopes to provide a greater amount of protection during the delivery process.

3. What aspect of your focal firm's service could be made more productive or produce higher quality outcomes if the customer was required to do something different? If firm decided to implement this change, what is the likelihood that the customer would accept it and do their part?

Implementing this change would obviously be costly to Netflix, but it would also immediately provide a higher level of service, in the form of a reduction in damaged DVDs. I'm not sure what kind of postage rates Netflix has negotiated with the USPS, but the addition of a hard casing to each envelope may increase the rate that Netflix is charged by the Post Office for delivery and return of the content. I'm sure the Post Office would reject the change if it did indeed increase their costs without being compensated for it. This would be another potential increase in costs for Netflix.