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Service Supply Relationships

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Learning Objectives

Contrast the supply chain for physical goods with thecustomer-supplier duality of services.

Discuss the challenge of managing service supplyrelationships.

Classify business services based on the focus of theservice and its importance to the outsourcingorganization.

Discuss the managerial considerations to be

addressed in outsourcing services. Discuss the challenges of delivering services in the

field.

Prepare a delivery route using the Clarke-Wrightalgorithm.

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Supply Chain for Physical Goods

Material transfer Information transfer

Suppliers

Process and

Product

Design

Manufacturing Distribution Retailing CustomerCustomer

Service

Recycling/Remanufacturing

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Customer-Supplier Duality in

Service Supply Relationships (Hubs)

Material transfer Information transfer

Supplier

Service

Design

Service

Provider Customer

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Single-Level Bidirectional

Service Supply RelationshipServiceCategory

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

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Two-Level Bidirectional Service

Supply RelationshipService

Category

Customer

-Supplier

>Input

Output>

Service

Provider

>Input

Output>

Providers

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

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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 forserver (e.g. digital blood pressure device)

- Embellishment: enable self-service byteaching (e.g. change surgical dressing)

Management of Perishability

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Impact of Service Supply Relationships

Element or Link Before AfterChannel 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 ofdemand data results in

delayed management

response.

Push: high level of connectivityand 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 forefficiency

In-house for key processes,

others out-sourced forflexibility; 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

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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 managementpromotes off-peak demand and

avoid idle capacity

International

Operations

Focus on domestic market Global reach with Internet

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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 futurenegotiation leverage- additional coordination expense and delays- atrophy of in-house capability to perform service

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Outsourcing Process

Need Identification

Problem Defini tion"Do-versus-Buy" AnalysisInvolve Interested Parties

Specification Developmen t

Information Search

ReferencesPersonal ContactRecommendations

Trade Directory

Vendor Selection

ExperienceReputationReferences

CostLocationSize

Performance Evaluation

Identify Evaluator

Qual ity of WorkCommunication

Meet Deadli nes

FlexibilityDependability

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Taxonomy for Outsourcing

Business ServicesImportance of Service

Low High

Property

Focus

Facility Support:

-Laundry

-Janitorial-Waste disposal

Equipment Support:

-Repairs

-Maintenance-Product testing

of People

Employee 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

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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 foremergency response Designate person to make service call and to

check that service is satisfactory

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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

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Topics for Discussion

What are some possible disadvantagesassociated with the product postponementstrategy?

Discuss the similarities and differences in the

product postponement strategy used byHewlett-Packard and Taco Bell?

Discuss the implication of service outsourcingon employees, stockholders, customers, and

host country economy when a firmoutsources a call center overseas.

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Interactive Exercise

The class divides into small groups andmembers come up with examples of

multilevel bidirectional servicerelationships (i.e, service supplierrelationships with three or more levels).

Be prepared to argue why such servicerelationships are so rare.

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PeapodSmart Shopping for Busy People

1. Where are opportunities forbidirectional optimization at Peapod?

2. How can Peapod manage serviceperishability?

3. How can Peapod manage productive

capacity?4. Suggest reasons why Peapod has not

yet become profitable.