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Service Supply Relationships
McGraw-Hill/IrwinService Management: Operations, Strategy, and Information Technology, 6e
Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Learning Objectives
Contrast the supply chain for physical goods with service supplier relationships.
Identify the sources of value in a service supply relationship.
Discuss the managerial implications of bidirectional relationships.
Identify the three factor that drive profitability for a professional service firm.
Classify business services based on the focus of the service and its importance to the outsourcing organization.
Discuss the managerial considerations to be addressed in outsourcing services.
13-2
Supply Chain for Physical Goods
Suppliers
Product and Process Design
Manufacturing Distribution Retailing Consumer
DisposalRecycling/Remanufacturing
After-salesService
Material Transfer Information Transfer
13-3
Customer-Supplier Duality in Service Supply Relationships (Hubs)
Material transfer Information transfer
Supplier
Service Design
Service Provider Customer
13-4
Single-Level Bidirectional Service Supply Relationship
ServiceCategory
Customer-Supplier
>InputOutput>
ServiceProvider
Minds Student >MindKnowledge>
Professor
Bodies Patient >ToothFilling>
Dentist
Belongings Investor >MoneyInterest>
Bank
Information Client >Documents1040>
Tax Preparer
13-5
Two-Level Bidirectional Service Supply Relationship
ServiceCategory
Customer
-Supplier
>InputOutput>
ServiceProvider
>InputOutput>
Provider’s
Supplier
Minds Patient >Disturbed
Treated>
Therapist
>Prescription
Drugs>
Pharmacy
Bodies Patient >BloodDiagnosis
>
Physician
>SampleTest
Result>
Lab
Belongings
Driver >CarRepaired>
Garage >EngineRebuilt>
MachineShop
Information
HomeBuyer
>PropertyLoan>
Mortgage
Company
>LocationClear Title>
TitleSearch
13-6
Service Supply Relationships
Customer-Supplier Duality Service Supply Relationships are
Hubs, not Chains Service Capacity is Analogous to
Inventory Customer Supplied Inputs Can
Vary In Quality
13-7
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
13-8
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
13-9
Impact of Service Supply Relationships (cont.)
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
13-10
Professional Service FirmsBody of Knowledge
Cognitive knowledge (know-what) Advanced skills (know-how) Systems understanding (know-
why) Self-motivated creativity (care-
why)
13-11
Professional Service FirmsOperational
Characteristics
Profit-per-Partner
Productivity
Partners
Staff
Staff
Fees
Fees
ofitPartnerperofit
PrPr
LeverageoductivityinM Prarg
Staff
Hours
Hours
Fees
Staff
FeesoductivityPr
nUtilizatioValue13-12
Profitability Tactics
Tactic Category
Lower Fixed (Overhead) Costs Margin
Improve cash cycle
Reduce office space and equipment
Reduce administrative and support staff
Raise Prices and Differentiate Productivity
Specialize, innovate, add more value
Target higher value work
Invest in training
Invest in higher value services
Address Underperforming Projects Productivity
Drop unprofitable services
Drop unprofitable customers
Increase Volume Productivity
Increase utilization
Lower Variable Costs Leverage
Improve engagement management
Increase leverage of professionals
Increase the use of paraprofessionals13-13
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
13-14
Outsourcing Process
Need Identification
Problem Definition"Do-versus-Buy" AnalysisInvolve Interested PartiesSpecification Development
Information Search
ReferencesPersonal ContactRecommendationsTrade Directory
Vendor Selection
ExperienceReputationReferences
CostLocationSize
Performance Evaluation
Identify EvaluatorQuality of WorkCommunication
Meet DeadlinesFlexibilityDependability
13-15
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 Process
Facilitator: -Bookkeeping -Travel booking -Packaged software
Professional: -Advertising -Public relations -Legal
13-16
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
13-17
Outsourcing Considerations
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
13-18
Outsourcing Considerations
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
13-19
Topics for Discussion
How can effective goods supply chain management support environmental sustainability?
Explain why the goods analogy of a supply chain is inappropriate for services?
Discuss the implication of service outsourcing on employees, stockholders, customers, and host country economy when a firm outsources a call center overseas.
13-20
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