service supply relationship

Learning ObjectivesContrast 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-*

Supply Chain for Physical GoodsMaterial TransferInformation Transfer13-*

Customer-Supplier Duality in Service Supply Relationships (Hubs)13-*

Material transfer

Information transfer

Supplier

Service

Provider

Customer

Service

Design

Single-Level Bidirectional Service Supply Relationship13-*

ServiceCategoryCustomer-Supplier>InputOutput>ServiceProviderMindsStudent>MindKnowledge>ProfessorBodiesPatient>ToothFilling>DentistBelongingsInvestor>MoneyInterest>BankInformationClient>Documents1040>Tax Preparer

Two-Level Bidirectional Service Supply Relationship13-*

ServiceCategoryCustomer-Supplier>InputOutput>ServiceProvider>InputOutput>ProvidersSupplierMindsPatient>DisturbedTreated>Therapist>PrescriptionDrugs>PharmacyBodiesPatient>BloodDiagnosis>Physician>SampleTest Result>LabBelongingsDriver>CarRepaired>Garage>EngineRebuilt>MachineShopInformationHomeBuyer>PropertyLoan>MortgageCompany>LocationClear Title>TitleSearch

Service Supply RelationshipsCustomer-Supplier DualityService Supply Relationships are Hubs, not ChainsService Capacity is Analogous to InventoryCustomer Supplied Inputs Can Vary In Quality

13-*

Sources of Value in Service Supply RelationshipsBi-directional OptimizationManaging 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 Perishability13-*

Impact of Service Supply Relationships13-*

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 (cont.)13-*

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

Professional Service FirmsBody of KnowledgeCognitive knowledge (know-what)Advanced skills (know-how)Systems understanding (know-why)Self-motivated creativity (care-why)13-*

Professional Service FirmsOperational CharacteristicsProfit-per-Partner Productivity13-*

Profitability Tactics13-*

TacticCategoryLower Fixed (Overhead) CostsMargin Improve cash cycle Reduce office space and equipment Reduce administrative and support staffRaise Prices and DifferentiateProductivity Specialize, innovate, add more value Target higher value work Invest in training Invest in higher value servicesAddress Underperforming ProjectsProductivity Drop unprofitable services Drop unprofitable customersIncrease VolumeProductivity Increase utilizationLower Variable CostsLeverage Improve engagement management Increase leverage of professionals Increase the use of paraprofessionals

Outsourcing ServicesBenefits 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 service13-*

Outsourcing Process13-*

Taxonomy for Outsourcing Business Services13-*

Importance 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

Outsourcing Considerations13-*

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

Boomer ConsultingHow does The Boomer Technology Circle illustrate the concept of the bidirectional service supply relationship?How has Boomer Consulting made the client a coproducer in the service delivery process?How is the concept of leverage achieved by Boomer Consulting?Can the Boomer Technology Circle be applied to other industries? What are some of the risks in pursuing this strategy?13-*

Peapod: Smart Shopping for Busy PeopleWhere are opportunities for bidirectional optimization at Peapod?How can Peapod manage service perishability?How can Peapod manage productive capacity?Suggest reasons why Peapod has not yet become profitable.

13-*

Topics for DiscussionHow 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-*

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). Be prepared to argue why such service relationships are so rare.13-*