Telemarketing Site Selection

ALMA ConsultingAnn Nguyen

Lin MaMark HughesAnna Krelle

Overview

BackgroundObjectiveAssumptionsMethodsAnalysisRecommendations

Background

McMartin Catalog Distributors sells its products by way of phone orders from customers calling a toll-free number

ABC Ltd

(3rd party call centre)

Product distribution

forwards

to McMartin

customer

places order

Background

Having established a successful business, McMartin is now looking to open its own inbound telemarketing centre(s)

Direct orders

ABC Ltd

(3rd party call centre)

Product distribution

Background

Preliminary analysis has identified 10 possible sites

Sites differ in respect to theirFixed Operating CostsWage CostsCall Costs (vary by originating region)

Objective

Determine the number of call centres to open and their locations

McMartin has no preference for any location over any other and is simply looking for the most economical outcome

Assumptions

Call times – Mean 6 minutes (independent of origin)

Processing times – Mean 1 minute/call (independent of origin and processing centre)

Employee Utilisation – Mean 87% (independent of processing centre)

(*) Call Centre Capacities

Methods

Use ILP (Integer-Linear Programming)2 types of choices -which call centres to open (binary decisions) -how many calls to direct from a calling region to a

particular call centre (inequality constraints)

SoftwareXpress-IVE (MP)MS Excel

Formulation

Decision Variables

For i = 1,2,...,10 and j = 1,2,...,17,

Let x(i) = 1 if call centre i is openedLet x(i) = 0 if call centre i is not opened

Let y(ji) be the number of calls from region jprocessed at call centre i

Formulation

Costs - Fixed Costs

Let f(i) be the annual fixed cost at site i.

Then the total fixed cost is

€

x(i) f (i)i

∑

Formulation

Costs - Call Costs

Let c(ji) be the hourly call rate for calls from region j processed at call centre i.

Then the total call cost is given by

The factor represents the average call time (in hours)

€

j

∑i

∑ c jiy ji

Formulation

Costs - Wage costs

Let w(i) be the hourly wage rate at call centre i

Then the total wage cost is given by

The factor incorporates fringe benefit loadingscall connection times & post-processing timesemployee utilisation

€

w(i)y( ji)j

∑i

∑

Formulation

Constraints

(1) Sites are either open or not

(2) Expected demand must be met

(3) (*) Capacity cannot be exceeded€

x(i) ∈ 0,1{ }

€

y( ji) ≥ D j( )i

∑

€

y( ji) ≤ Cj

∑ (i)x(i)

Formulation

Objective Function

subject to

€

min x(i) f (i) +i

∑ α + βw(i)( )y( ji)j

∑i

∑ ⎧ ⎨ ⎩

⎫ ⎬ ⎭

€

x(i) ∈ 0,1{ }

€

y( ji) ≥ D j( )i

∑

€

y( ji) ≤ Cj

∑ (i)x(i)

Analysis

(1) Assume slack capacity constraints at the sites

Optimal solution is to open a single call centreAny of the 10 prospective call centres is a cheaper option than

opening more than 1 call centre

Rankings#1 (8) Shawinigan, PQ $5.443M#2 (9) Drummondville, PQ $5.474M (+0.58%)#3 (10) Sydney, NS $5.507M (+1.18%)... ...#10 (2) Brandon, MB $5.775M (+6.11%)

AnalysisTotal Costs by Site

0

1

2

3

4

5

6

7

1 2 3 4 5 6 7 8 9 10

($m)

Fixed Cost Wage Cost Call Cost

Analysis

(2) Tighten capacity constraint to force opening of additional call centresShawinigan All $5.443M 100%Brandon $5.775M 100% Shawinigan $5.842M 96.1%Brandon 204Shawinigan $5.854M 92.6%Brandon 204, 306Shawinigan $5.857M 91.7%Brandon 204, 306, 817Shawinigan $5.862M 88.1%St. Jerome 514

Analysis

(2) Tighten capacity constraint to force opening of additional call centres (continued)

...ShawiniganSt. Jerome 514 + Others

...Drummondville 11 Regions $5.897M 62.8%Cornwall 6 Regions

...Drummondville $5.912M 50.0%Cornwall

Sensitivities

Fixed costs small in proportion to total cost but large compared to reduction in variable costs that can be achieved from opening additional sites.

Key unknown is site capacities - completely determines optimal site location(s).

Trade off is between lowering variable costs by opening more sites and increasing fixed costs.

Shawinigan stable solution for single-site problem - demand would have to decrease by 22% or increase by 133% to change the solution.

Issues

Reliability of supplied dataMarginal choices between sitesSolution depends critically on the accuracy of

the dataCalling demandsCost estimates

Cost structureWhat does the fixed cost cover?What happens to calls not answered?Wage structure (F/T, P/T, casual)

Recommendations

Tentative conclusion is to open single call centre at Shawinigan if capacity sufficient

Otherwise open centres at Drummondville & Cornwall to balance demand

Follow-up

Further information requiredSite capacitiesUnanswered calls (busy tone vs hold costs)Cost saving vs outsourcing

Cost differences between sites may be minor compared to savings/extra costs from outsourcing

Expansion goal - new regions/old regions?Qualitative factors

Staff quality, location of other premises