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Services and Service Bundling
• MGMT 511
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Services and Service Bundling
• A service is fundamentally different than manufacturing
• Service bundling provides competitive advantages for a manufacturer
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The unified services theory
• With services, the customer provides significant inputs into the production process.
• With manufacturing, groups of customers may contribute ideas to the design of the product, however, individual customers’ only part in the actual process is to select and consume the output.
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• Nearly all other managerial themes unique to services are founded in this distinction.
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Defining by customer content
• With services, an effective means of understanding, analyzing, and comparing processes is on the basis of customer content.
• There are three general types of customer inputs into service processes: the customer’s self, the customer’s belongings, and/or the customer’s information.
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Simultaneous production and consumption
• With services, production (making the service “product”) and consumption often occurs simultaneously, making the exact timing of production a critical issue.
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Time-perishable capacity
• With services, capacity is usually time-perishable, meaning that capacity without corresponding demand is lost forever. This is true even though the service product is often not perishable.
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Customers in inventory
• The idea of being unable to inventory services is a common misconception. The correct concept is that it is impractical to inventory service production. With services, keeping work-in-progress inventory will enrage the customer. We rarely keep finished goods inventory. Managers do not hide poor management practice under inventory as can happen in manufacturing.
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Difficulty in maintaining quality
• With services, quality measurement tends to be subjective and difficult to scale. The standards by which quality is defined are often ambiguous. These unique specifications of quality, coupled with labor-intensiveness and inconsistent customer inputs, make it difficult to provide consistent quality.
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Services add value
• Using services to add value to manufactured products
• Products are often bundles of goods and services
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Customer Value Proposition
• Price• Features• Quality• Delivery• Service bundle
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Emerging Trends
• Shift in focus from material to immaterial Time Location Mass customization
• Good service not enough Need to delight the customer
• Customer loyalty
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Why Services are Important to Mfg
• Competitive advantage• Very profitable• Increased revenues
Growth markets Large part of product life cycle
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Pre-purchase
• Responsiveness• Problem solving• Demonstrating knowledge and
expertise• Design• Options, customization• Inventory/warehousing• Kitting
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Purchase
• Warranties and guarantees• Maintenance• Optional services• Delivery• Installation• Financing
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Post-purchase
• Responsiveness• Problem solving• Maintenance• Data collection• Warranty – replacement, repair• Follow-up sales
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Example
• Synthes• Internal fixation• Manufacture products• What services can be bundled?
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Conclusion
• Service provides a competitive advantage
• Services are profitable
• Services are fundamentally different from manufacturing
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Little ‘s’ Service Elements
• Availability• Delivery• Flexibility• Maintenance• Information• Recovery
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Big “S” Elements
• Knowledge and expertise• Improved product performance• Customer training• Expanded product capabilities
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Window blinds, shades, etc
• Blind man, 3-day blinds, e.g. wide variety Custom More expensive
• WalMart, K-mart, e.g. Limited selection Little customization Lower cost
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The Unit of Analysis
• With services, the unit of analysis is a process segment. A process segment is a sequence of steps of production. When processes are dissected into smaller segments, the presence or absence of service principles becomes more pronounced.