service supply chain

Service Supply Relationships

Supply Chain for Physical Goods

Material transfer Information transfer

Suppliers

Process and

Product

Design

Manufacturing Distribution Retailing Customer Customer

Service

Recycling/Remanufacturing

Are Services ‘Intangible’?

Services are ``intangible products.'' If

this were true, then service supply

chains would involve the sourcing and

delivery of intangibles.

As such, a major challenge in supply

chain management would be dealing

with the intangible nature of the product

It’s Different

Intangibles may be difficult to store

– JIT delivery is a requirement, not an option

– „Production smoothing‟ is a non-issue

It can be difficult to account for

intangibles

– Intangibles are not used up, but are

continually available for sale

– Inability to measure (account for) changing

levels of the intangible product

It’s Different

It could be difficult to identify the

supplier of intangibles

– Services may be viewed as coming from a

lot of suppliers, including many who are not

compensated for supplying it

But is it really „intangible‟?

Other Definitions

A service is a personal performance (Levitt, 1972).

A service is a product which is a process (Henkoff, 1994; Shostack, 1987).

Services are processes involving customer contact (Chase, 1978).

A service is a deed, act or performance (Berry, 1980).

All services can fit into one or more of four categories: (Lovelock 1996)

1. Services that act on people's minds (e.g. education, entertainment, psychology);

2. Services that act on people's bodies (e.g. transportation, lodging, funeral services);

3. Services that act on people's belongings (e.g. landscaping, dry cleaning, repair);

4. Services that act on people's information (e.g. insurance, investments, legal services).

Customer-Supplier Duality in

Service Supply Relationships (Hubs)

Material transfer Information transfer

Supplier

Service

Design

Service

Provider Customer

Single-Level Bidirectional

Service Supply Relationship

Service

Category

Customer

-Supplier

>Input

Output>

Service

Provider

Minds Student >Mind

Knowledge>

Professor

Bodies Patient >Tooth

Filling>

Dentist

Belongings Investor >Money

Interest>

Bank

Information Client >Documents

1040>

Tax Preparer

Two-Level Bidirectional Service

Supply Relationship

Service

Category

Customer

-Supplier

>Input

Output>

Service

Provider

>Input

Output>

Provider’s

Supplier

Minds Patient >Disturbed

Treated>

Therapist >Prescription

Drugs>

Pharmacy

Bodies Patient >Blood

Diagnosis>

Physician >Sample

Test Result>

Lab

Belongings Driver >Car

Repaired>

Garage >Engine

Rebuilt>

Machine

Shop

Information Home

Buyer

>Property

Loan>

Mortgage

Company

>Location

Clear Title>

Title

Search

Single-level Bi-Directional Supply

Chain

Two-level Bi-Directional Supply

Chain

Uni-Directional Supply Chain

Customer provides input to Service

Provider

After processing, Service Provider

delivers to an entity other than

Customer

Interactive Exercise

The class divides into small groups and

members come up with examples of

multilevel bidirectional service

relationships (i.e, service supplier

relationships with three or more levels).

Practical Implications

Bidirectional supply chains are generally

short

– Service stages are simultaneous as far as

service-provider involvement is concerned

– Extremely compressed supply chain

Service providers usually do not pay for

inputs coming from customer-suppliers

– Variable Costs are negligible

Practical Implications

Bidirectional supply chains are inherently JIT

– Service Provider can not regulate delivery of input

– Once input is present, output is expected immediately (JIT)

– Planning of inventory may be beneficial

Bidirectional supply chains have implicit expectations for value added

Sources of Value in Service

Supply Relationships

Bi-directional Optimization

Managing Productive Capacity

- Transfer: make knowledge available (e.g.

web based FAQ database)

- Replacement: substitute technology for

server (e.g. digital blood pressure device)

- Embellishment: enable self-service by

teaching (e.g. change surgical dressing)

Management of Perishability

Why its bothering

Supply base issues

– Manufacturers are faced with three levels

of decisions pertaining to determining the

supply base

• make versus buy (vertical integration)

• many versus few suppliers (supplier selection)

• supplier selection

Why its bothering

Supply Chain Integration

– Manufacturing supply chains become

integrated by co-ordinating the efforts

among the various stages of the supply

chain by way of

• Communication

• Partnering and

• Vendor development

Service Design

– In manufacturing processes, supply chain concepts motivate design which considers the needs and capabilities of various players in the process. It is not good enough to be “locally optimal”, meaning that each element of the supply chain does what is in its own best interest without regard for players up or down the supply chain

– Service Blueprinting

Impact of Service Supply Relationships

Element or Link Before After

Channel Structure Functional silos Process orientation

Service Recipient Passive Active as a co-producer

Channel Integration Vertical (own the channel to

integrate)

Virtual (IT and other

mechanism permit integration

without ownership)

Flow of Service Available waiting for demand Activated upon demand

Flow of Information

(upstream)

Pull: manual reporting of

demand data results in

delayed management

response.

Push: high level of connectivity

and transparency with fast or

instantaneous access to most

recent demand data.

Flow of Information

(downstream)

Little or no knowledge of

resource deployment

Real-time tracking and

dispatching

Business Processes Predominantly in-house;

locally optimized for

efficiency

In-house for key processes,

others out-sourced for

flexibility; integrated and

synchronized to match supply

with demand

Demand Management Limited to use of

appointments and

reservations.

Proactive involving customer in

scheduling to achieve bi-

directional optimization

Impact of Service Supply Relationships

Element or Link Before After

Capacity Management Limited to use of part-time

employees

Creative use of cross-trained

employees, outsourcing, and

customer self-service.

Facilitating Goods High; in anticipation of

demand

Lower; owing to process

transparency

Service Delivery Inflexible; standardized and

impersonal

Flexible; personable with

customization possible.

Routing and scheduling Static; fixed daily schedules Dynamic; based on system

connectivity and process

visibility

New Service Design Marketing initiatives based on

firm's perception of customer

needs

Virtual value chain design with

customer data base information

driving new services

Pricing Fixed Variable; yield management

promotes off-peak demand and

avoid idle capacity

International

Operations

Focus on domestic market Global reach with Internet

Outsourcing Services

Benefits- allows the firm to focus on its core competence- service is cheaper to outsource than perform in-house- provides access to latest technology- leverage benefits of supplier economy of scale

Risks- loss of direct control of quality- jeopardizes employee loyalty - exposure to data security and customer privacy- dependence on one supplier compromises future negotiation leverage- additional coordination expense and delays- atrophy of in-house capability to perform service

Outsourcing Process

Need Identification

Problem Def inition

"Do-v ersus-Buy " Analy sis

Inv olv e Interested Parties

Specif ication Dev elopment

Information Search

Ref erences

Personal Contact

Recommendations

Trade Directory

Vendor Selection

Experience

Reputation

Ref erences

Cost

Location

Size

Performance Evaluation

Identif y Ev aluator

Quality of Work

Communication

Meet Deadlines

Flexibility

Dependability

Taxonomy for Outsourcing

Business Services

Importance of Service Low High

Property

Focus

Facility Support:

-Laundry

-Janitorial

-Waste disposal

Equipment Support:

-Repairs

-Maintenance

-Product testing

of PeopleEmployee Support:

-Food service

-Plant security

-Temporary personnel

Employee Development:

-Training

-Education

-Medical care

Service

ProcessFacilitator:

-Bookkeeping

-Travel booking

-Packaged software

Professional:

-Advertising

-Public relations

-Legal

Outsourcing Considerations

Focus on Property

Facility Support Service

• Low cost• Identify responsible party to evaluate performance• Precise specifications can be written

Equipment Support Service

• Experience and reputation of vendor• Availability of vendor for emergency response• Designate person to make service call and to check that service is satisfactory


Focus on People Employee Support Service • Contact vendor clients for references • Specifications prepared with end user input • Evaluate performance on a periodic basis Employee Development Service • Experience with particular industry important • Involve high levels of management in vendor

identification and selection • Contact vendor clients for references • Use employees to evaluate vendor performance


Focus on Process

Facilitator Service

• Knowledge of alternate vendors important• Involve end user in vendor identification• References or third party evaluations useful• Have user write detailed specifications

Professional Service

• Involve high level management in vendor identification and selection• Reputation and experience very important• Performance evaluation by top management

Example Software Industry

Services Supply Chain Model

• End-to-end processes link entities

• Based on out-sourced services

• Capacity and Service Delivery identified as key processes

………a service process viewpoint

THE IUE-SSC MODEL

• Core & supporting services

• Unique transaction requiring presence

of customer

• Process relevance

…….a service supply chain viewpoint

Baltacioglu et al 2007

THE IUE-SSC MODEL (extended)

Service Delivery

Consumer Supplier B

Supplier A

Supplier C

Supplier D

Supplier E

Network Supporting Services Supply Base

Demand Management

Supplier Relationship Management

Capacity & Resources Management

Service Performance

Management

Order Process

Management

Customer Relationship Management

Information Flow & Technology Management

Service

Provider

The

Service

Product based supply chains Service based supply chains

Tangible, physical Intangible

Transported from production

to point of consumption

‘Consumed’ at point of

production

Customer removed from

production process

Customer contributes to

production process

Inventory buffers variability of

demand (& supply)

Resources buffer variability of

demand

Capital intensive Resource intensive

Standard & mass produced Unique & customised

Linear; sequential Networked; non-sequential

Travel ChaCha – Ready when you are…

1. Where are opportunities for bidirectional optimization?

2. How can they manage service perishability?

3. How can they manage productive capacity?