Supply chain evaluation in the service industry:
a framework development compared to manufacturing
Keywords
Supply chain, Auditing,
Service industries, Manufacturing
Abstract
The services industry, especially
the professional sector in the
auditing, accounting, and financial
consulting, was and still is moving
toward globalization. This move
was characterized by the
cooperation between
headquartered US firms such as the
Big-five and other related firms all
over the world. The result was
increasing the efficiency and
effectiveness. In addition, it
satisfied the multinational
companies by providing the service
required by the branches of those
multinational clients. The efficiency
and effectiveness of globalization is
not a simple issue. Several factors
are involved to achieve this issue.
One important factor is balancing
the trade-off between decreasing
the costs and increasing the quality
of the services rendered. The paper
proposes one way to achieve this
balancing is by the appropriate
coordination between the
headquarters and their branches.
This paper is based on an
independent study written
at Eastern Illinois
University.
Managerial Auditing Journal
18/2 [2003] 140-149
# MCB UP Limited
[ISSN 0268-6902]
[DOI 10.1108/02686900310455137]
[ 140 ]
Yunus Kathawala
Eastern Illinois University, Charleston, Illinois, USA
Khaled Abdou
University of New Orleans, New Orleans, Louisiana, USA
The current problems of the supply
chain in the services industry
The objective of this paper is to relate the
theories and principles that could be used in
practice to the services industry. This will be
done by defining the problem through the use
of published examples of actual failures. This
will be followed by the evaluation of supply
chain management applied to the
manufacturing firms since it would be seen
as the proposed solution, and developing a
framework for supply chain management as
applied to the services industry.
Firms that operate in the services industry
have branches both nationally and
internationally to continue providing their
services to their clients and at the same time
take the opportunity to open other markets.
The services industry is characterized
differently than manufacturing as sales are
intangible, and depend more on people's
education, experience, and ethics. In this
paper we selected professional services
provided by accounting, auditing, and
financial consulting firms due to their
importance in the world economy, and their
high effect on investors and company's
operations.
The use of supply chain management,
generally in business, and especially in the
services industry is not mature yet. The
paper proposes the use of the supply chain
management concept as a solution for
failures that could occur in the future due to
the misconception between the firms and
their branch.
The following are a few of the financial
failures cited in the major worldwide media.
They are actual examples, and the reason for
citing them is to prove that the current
method is not efficient enough to protect the
innocent investors, regardless of their
country.
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One of the recent Securities and Exchange
Commission (SEC) reports about the auditing
profession cited more than 8,000 violations by
PricewaterhouseCoopers (PWC), the world's
largest accounting firm. The SEC report
estimated that 86 per cent of PWCs' 2,700 audit
partners had at least one ethical violation.
Among the more serious violations, PWCs'
accountants owned stock in companies
audited by the firm, took out loans from
clients audited by the firm, had spouses or
other relatives who worked for a client, and
managed family trusts that held investments
in a client (Berger and Blair, 2000).
The misconduct of the branches that are
not closely monitored by their headquarters
can be illustrated by many practical
examples. One example, occurred
internationally in Germany when Ernst &
Young examined the accounts of the
Christian Democratic Union (CDU), a major
political party in Germany. According to Der
Spiegel (Der means the) magazine, the
financial auditing firm praised by CDU head
Shaeuble for its independence, has worked
for the party for years. Ernst & Young was
reportedly responsible for the financial
auditing of the French mineral oil company
Elf-Aquitaine and the CDU-owned Leuna
refinery. Elf allegedly paid 85 million marks
in bribery money when it acquired the
refinery (German news, 2000).
Another example recently occurred within
the USA, which is the Enron scandal.
Andersen strongly denied it knew of
anything ``illegal'' at Enron. At its Chicago
headquarters; the firm's top management
distanced itself from the actions of its
Houston branch, which shredded thousands
of documents relating to its work for Enron
(The Observer, 2002).
Some other examples of the cited failures
for financial situations for auditing firms are
the following:
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Yunus Kathawala and
Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
. Waste Management Securities investor
litigation, Arthur Andersen paid $70
million;
. Ernst & Young paid $355 million in
Cendant investor litigation which was
described by Telberg (2000) as ``The
biggest and longest-running accounting
scandal in history may have started and
gone undetected for more than 14 years
because the accountants thought that it
was their job to cook the books''; and
. Ernst & Young paid $32 million in
Informix investor litigation.
All of this was to resolve securities fraud
actions where there were egregious
irregularities with financial statements of
these publicly traded companies and the
auditors were at the epicenter of the financial
fraud (Berger and Blair, 2000). This type of
failure was because of the lack of
independence of the auditors, and hence this
could occur because of the low control of the
branches by headquarters.
Forbes (2001) gave some examples of the
scandals in which the big-five auditing firms
were involved such as Just For Feet, Colonial
Realty, BCCI and DeLorean Motor:
. An accounting scandal for Deloitte &
Touche occurred at Just For Feet which
pushed the chain of shoe stores,
headquartered in Alabama, to file for
bankruptcy protection in late 1999. A
stake by public shareholders worth $708
million at its peak in May 1996 evaporated,
but not before insiders purportedly
dumped at least $50 million worth of
shares. Footstar, another retailer,
acquired the bulk of Just For Feet's assets.
A shareholder's class action filed a claim
that the shoe chain inflated its profits and
understated expenses for the three fiscal
years 1997 to 1999. The suit alleges that the
company's auditors, Deloitte & Touche,
helped pad the finances while pursuing a
consulting contract from the auditee. The
plaintiffs also allege that Deloitte advised
Just For Feet to record as assets the
display booths donated by manufacturers,
a maneuver that inflated the company's
income by $20 million.
. Oxford Health Plans, a health
maintenance organization, enjoyed a $6.8
billion market valuation at its peak. In
1997, $4.5 billion of that was erased when it
came out that the Oxford's mangled
software system was vastly overstating
revenues and understating expenses. One
claim concerning this failure is that the
external auditor, KPMG, would have been
more motivated to uncover the mischief if
it had not been preoccupied with selling
tax and actuarial services to Oxford.
BCCI, one of the most famous scandals in
.
the recent decade, cost investors,
depositors and creditors $10 billion. A
report filed in 1999 by the trustee in
charge of liquidating First American,
BCCI's American subsidiary, asserts that
the bank's auditors Price Waterhouse,
were aware of BCCI's illegal ownership of
First American and concealed it from
bank regulators around the world, the US
Senate and the Federal Reserve. It was
surprising how $13 billion could disappear
from under the noses of one of the world's
most prestigious accountancy firms
(Atkinson, 1999).
The case of BCCI could be reportedly due to
first, the auditors' failure to object to BCCI's
practice of dividing responsibility for
monitoring the Luxembourg and Grand
Cayman between two audit firms, hence
enabling BCCI to conceal fraud during its
early years. Second, the auditors accepted
loans and financial benefits from BCCI which
affected the independence auditing standard
(Arnold and Sikka, n.d.). Also, it was
reported that one of the reasons that the
scheme succeeded was the perpetrators
managed to evade the scrutiny of the central
banks in the six targeted countries (Abel and
Gerson, 2002).
Supply chain as applied to the
manufacturing industry
Supply chain management as applied to
manufacturing has been poorly defined and
there is a high degree of variability in
people's minds about what is meant. This
paper will cite some of the definitions found
about supply chain management through the
literature review. These varying definitions
often carry through to the extent that the key
people in the same organization are not
talking about the same things when they
discuss the concept of supply chain
management (Monczka and Morgan, 1997).
First, there are definitions characterized
by the simplest concepts of supply chain
management, one is ``the ability to get closer
to the customer'' (Weil, 1998). Another is that
the supply chain is the flow of information
and material to and from suppliers and
customers (Crom, 1996). Those simple forms
of definitions could be applied without
adjustments to any industry even the
services. That is due to their generalization
of the concept without much detail.
A more detailed definition of the concept
but still with a general view is the idea that a
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Yunus Kathawala and
Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
[ 142 ]
company's supply chain (internal and
external) is a resource to be exploited for
better market position and gaining
competitive advantage. Strategic use of this
resource requires that companies do the
following:
. gain a closer understanding of their
customers' and future customers' needs,
both nationally and internationally;
. understand their suppliers' core
competencies in meeting customer needs;
. determine where redundancies and
inefficiencies lie within the supply chain
in relation to current and future
competitive needs;
. develop relationships and alliances with
suppliers who have key competencies that
strengthen, supplement, and enhance
internal core competencies nationally and
internationally (Monczka and Morgan,
1997).
In the same general view, supply chains are
sometimes referred to as value chains, a term
that reflects the concept that value is
enriched as goods and services progress
through the chain. Supply or value chains
are typically comprised of separate
organizations, rather than just a single
organization (Stevenson, 2002).
On the other hand definitions that look at
supply chain management from the point of
view of a manufacturing sector concept
define it as ``taking control of all goods within
the supply chain, all materials, no matter
how to handle or manage'' (Sandelands, 1994).
More specifically, ``Supply chain
management is the process of effectively
managing the flow of materials and finished
goods from vendors to customers using the
manufacturing facilities and warehouses as
potential intermediate stops'' (Sengupta and
Turnbull, 1996).
An interpretation of supply chain
management for manufacturing describes
the integrated processes required for
managing goods from the initial source of
supply to point of consumption. It also
includes a broad range of activities that
material and service suppliers,
manufacturers, wholesalers, and retailers
have performed for years. Each supply chain
participant manages to enhance performance
of his/her own enterprise. Very little
attention is given to the benefits of managing
the total supply chain process on an
integrated basis (Closs, 1995).
In the manufacturing and distribution
industry, there are two strategies to manage
products in the supply chain network: the
physically efficient process, and market-
responsive process. To analyze both
strategies we need to define two types of
products:
1 Functional products include the staples
that people buy in a wide range of retail
outlets, such as grocery stores and gas
stations. Because such products satisfy
basic needs, which do not change much
over time, they have stable, predictable
demand and long life cycles (Fisher, 1997;
Chase et al., 2001). This requires the
physically efficient process.
2 Innovative products typically have a life
cycle of just a few months. Imitators
quickly erode the competitive advantage
that innovative products enjoy, and
companies are forced to introduce a
steady stream of newer innovations. The
short life cycles and the great variety
typical of these products further increase
unpredictability (Fisher, 1997; Chase et al.,
2001).
Redefinition and development
framework
To apply the above definitions and
interpretations of supply chain
management from manufacturing to
services, we need to conduct more in depth
research about the services industry, as
well as reviewing the definition of
management auditing. The services
industry has many branches, one of which
is the financial accounting and audit firms.
This would be our application for supply
chain management. Examples include, but
are not limited to, the big-five (Andersen,
Deloitte & Touche, Ernst & Young, KPMG,
and PricewaterhouseCoopers). Currently
the multinational accounting and auditing
firms are using supply chain management
between the headquarters and its branches.
The supply chain is comprised of one or
more of the following types: strategic
alliances, outsourcing, or branching.
Despite the different types of relations, each
is under the supply chain. The national/
overseas branches supply the headquarters
with audited financial statements of
national/multinational companies. Then,
these input data should be consolidated in
the headquarters to issue the final
consolidated financial statements. In this
way, the branches contribute in the supply
of the final service delivery to the client
(shareholders).
Background of relations and their
effectiveness
It is assumed when a relationship exists
between different firms, or even establishing
Yunus Kathawala and
Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
an affiliate, the combined outcome will be
greater than the outcome of both firms
individually. The main objectives from
establishing a relationship are either to
reduce the cost, increase the benefits, or
both, and hence both result in increasing the
efficiency and effectiveness.
Table I illustrates the objectives and their
relation to the benefits and outcomes.
Another view of the relationships is the
network perspective, which is assumption
that the individual firm depends on
resources controlled by other firms. The
firms have access to these resources through
interaction with other firms (Skjoett-Larsen,
1999).
Also, another view is the resource-based
perspective, which is looking at firms as
bundles of heterogeneous resources and
capabilities. A firm's resources and
capabilities include all financial, physical,
human and other organizational assets used by
any firm to develop and deliver a service or a
product to its customers (Skjoett-Larsen, 1999).
Table II compares the network perspective
and the resource-based view.
As an extension to the above perspective of
the resource-based view, Table III illustrates
the relationship along with different
scenarios between the resource-based view
and the potential of gaining a competitive
advantage (adapted from Skjoett-Larsen,
1999, cited from Barney, J. et al.: Does
Management Matter?, Lund University, 1994).
Factors for effectiveness and efficiency
Generally, supply chain depends on the
ability to execute the key business processes
that deliver to the customer or the client the
value and the quality promised (Bruce, 1996).
Since the product is intangible and the
quality solely depends on the people who do
the work, a controllable process is required
to organize the supply chain. The need for a
controllable process was magnified when
large financial scandals occurred due to the
uncontrollable process. Some other factors to
gain the optimum effectiveness of supply
chain management should be considered
besides the controllable process. The first
factor is that while many firms are exploring
the potential of integrated supply chain
management, actual implementation
requires more than theory and concepts.
Firms must employ managers who possess a
channel orientation and are willing to strive
for inter-organizational best practice.
Effective supply chain management requires
constant identification and evaluation of
these best practices (Closs, 1995).
The second factor is voiced by Mary Lou
Fox, senior vice president of consulting at
Manugistics, who suggests that success of
supply chain management depends on
several primary drivers, such as well-defined
processes with well-defined guidelines for
decision making, removal of organizational
and functional barriers, early visibility to
changes in demand all along the supply
chain, and a single set of plans that drives the

Table I
Objectives and their relation to the benefits and outcomes
Fundamental objectives Relationship form Critical enablers Benefits and outcomes
Cost reduction Cooperative Problem solving teams Problem elimination
partnerships Planning information Consistency
Consulting advice Dependability
Value-based benefits/ Strategic alliance Reciprocal goodwill trust New products and processes
technology advancement Proprietary information Competitive advantage
Technology forecasts
Engineering and technical
exchanges
Source: Stuart and McCutcheon (2000), adapted to the services industry

Table II
Comparison of the network perspective and resource-based view
Characteristics Network perspective Resource-based view
Behavioral assumptions Bounded rationality trust Bounded rationality trust
Problem orientation Dynamic relationships Internal competence development
Time dimension Dynamic Dynamic
Unit of analysis Relations Resources and capabilities
Nature of relations Access to heterogeneous resources Access to complementary resources
Source: Adapted from Skjoett-Larsen (1999)

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Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
[ 144 ]
supply chain operations and integrates
information across the supply chain
(Sengupta and Turnbull, 1996).
The third factor is that the objectives of
supply chain management are to maximize
the supply chain responsiveness and
flexibility to customers, minimize total
supply chain time and cost, and maximize
supply chain capacity, utilization, and return
on assets (Crom, 1996).
The three fundamental operating
principles at work in SCM are to set up the
simplest and most direct flow of material
possible to those who use it, establish the
smoothest possible drumbeat or rhythm of
production and usage, and create the ability
to react to problems through short lead-times
(Crom, 1996).
The fourth factor is that although many
different opinions about supply chain
management exist, most identify the direct
link between control of the supply
function and corporate competitiveness.
They also emphasize the importance of
integrating the processes needed to deliver
value to the customer (Monczka and
Morgan, 1997).
The fifth factor is that all those involved
must share the overall vision, and both
internal and external relationships must be
managed for advantage. A central theme of
total supply chain management is thus high
quality relationships, based on the two
pillars of communication and a basis for
evaluating trade-offs (Sandelands, 1994).
The sixth factor is that when transnational
supply chain management efforts succeed, it
is because of the following:
. The leaders of the companies involved
agree on the competitive advantage they
are looking for.
. A team of senior managers is chartered to
redesign a process within the supply
chain that has common characteristics
across the globe.
. A common measurable goal that
encourages coordinated action is set and
tied to managers' bonuses (Crom, 1996).
Table III
Relationship between the resource-based view and competitive advantage
Type of outcome of the relationship
Costly to
Valuable? Rare? imitate?
No No No
Yes No No
Yes Yes No
Yes Yes Yes
Notes: Barney et al. (1994, cited in Skjoett-Larsen, 1999)
The need for supply chain management
Supply chain management is needed for
various reasons: the need to improve
operations, increasing levels of outsourcing,
increasing costs, competitive pressures,
increasing globalization, increasing
importance of e-commerce, and the
complexity of supply chain (Stevenson, 2002).
With technology facilitating information
flow, a coordinated supply chain can be
designed to meet the strategic and
operational objectives of the business. It also
means establishing effective and workable
relationships both inside and outside the
organization (Sandelands, 1994).
Strategy of operating supply chain
management
The strategy to operate supply chain
management in the services industry is the
same as for manufacturing. First, we selected
the three business forces that support the
three levels of decisions used in the supply
chain management.
The three business forces are as follows, as
cited by Nixon (2001):
1 E-commerce. E-commerce is a primary
factor propelling the forces of increased
globalization and increased customer
expectations. The Internet and related
technologies are dramatically improving
the ways in which companies transact all
aspects of business with their suppliers.
2 Globalization. Corporations continue to
internationalize their production,
supplier, and customer bases to exploit
opportunities for revenue growth and cost
reduction.
3 Customer expectations. The Internet drives
everyone's expectation of a satisfactory
customer-service experience. Consumer
and corporate buyers demand more
choices, accurate and faster fulfillment,
and greater value from reliable suppliers.
Based on the above vision of support, the
three-level approach adopted in this case
emphasizes the fact that supply chain
management is a series of business decisions
characterized by distinct business models,
Efficiently Relationship
organized? strength Competitive implication
No Weakest Competitive disadvantage
No Competitive parity
No Temporary competitive advantage
Yes Strongest Sustained competitive advantage
Yunus Kathawala and
Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
which are largely influenced by location
topology, product granularity, and elapsed
cycle time (Sengupta and Turnbull, 1996):
1 Level-one decisions. These decisions are in
the area of business planning, and they
have a long-term effect on the supply
chain. Very often, detailed information is
not available or reliable. Senior
management is frequently the decision
maker and user of this information. Quick
response is not a requirement at this level
since these decisions are not made or
revisited every day. Examples of level-one
decisions are dynamic sourcing, capacity
planning, and prebuild planning.
2 Level-two decisions. These decisions are in
the area of tactical planning, and they
have a shorter life than level-one
decisions. Detailed information is
available, and the data probably are very
reliable. These decisions are constrained
by level-one decisions with some leeway to
account for sudden change in data. At this
level, quick response is nice to have, and
occasionally a requirement. An example
of a level-two decision is one that needs to
commit priority orders and obey
commitments made in level one.
3 Level-three decisions. These decisions are
in the area of operational planning and
scheduling. The effect of these decisions is
short term and affects the next few days,
and they are constrained by level-one and
level-two decisions. Quick response is an
absolute necessity. Examples are
prevalent in the area of line scheduling,
material and inventory allocation, and
transportation planning.
There are many issues that should be
considered when selecting the strategy of
operating supply chain management. First,
the requirements for collaborative design
over the Internet since the Internet will play
a very important role in communication.
Examples of such requirements are: high
speed, secure communications, and business
portals/digital exchanges (LaMonica, 1999,
cited in Youngdahl and Loomba, 2000). Also
the issue of sharing information should be
considered. Second, the supply chain
partners that exchange information on a
regular basis are able to work as a single
entity (no distinction between the branches
and their headquarters). They will be able to
serve the client better and respond to
changes in the marketplace (Stein and Sweat,
1998). Third, act fast in terms of global
competition, companies that cling to slow,
inflexible business process will fall on hard
times (Cloud, 2000).
The framework development
The experts agree that a formal supply chain
strategy will be critical to any industry
(Thomas, 1999) in which it exists in both
services and manufacturing (Balsmeier and
Voisin, 1996). Therefore, we customized the
definitions cited above to develop a
customized definition for the services
industry as follows:
The supply chain management for the
services industry is the ability of the
company/firm to get closer to the
customer by improving its supply chain
channels. The services supply chain will
include responsiveness, efficiency, and
controlling.
At this point it is very helpful to compare this
definition along with the definition of
management auditing. This comparison will
uncover the terms of responsiveness,
efficiency, and controlling. Management
auditing:
. . . is a paid service provided by independent,
objective, competent and skilled professional
auditors aimed to defend owners' interests
and to render support to the managers for the
achievement of economic goals and efficient
use of corporate potential. Through the
managerial auditing the auditors present to
the owners the auditors' independent
evaluation of company's standing on the
market, managerial efficiency, correctness,
truthfulness and honesty of information
included in the accounting report from the
viewpoint of appropriateness and existing
reserves, deviations, productivity of
managerial efforts compared to the overall
productivity, profit and available resources
as indicators for successful development
(Anonymous, 2002).
Table IV summarizes the comparison
between the three processes.
The above table shows how the services
company can manage its supply chain.
Notice that the common factor for both
manufacturing and services processes is the
availability of the physical products.
Currently there are no supply chain
processes that describe how to manage the
services industry except the one presented
here, which applies to the financial services
industry (auditing, accounting, and
consulting). A major difference of the service
made is that the product is intangible; you
cannot put it as inventory, because the
product sold is the number of hours of the
professionals and employees involved in the
assignments. In addition, it is a hybrid that
includes both functional services and
innovative services. The functional services
are the typical services the company
contracts to do in the future. This includes
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Yunus Kathawala and
Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
the annual and interim audit, monthly
accounting, and annual internal control
audit. The innovative services are the special
assignments mostly in the consulting area,
and the company cannot predict precisely
that these assignments will be done in the
future since this is custom-based. This
includes agreed-upon procedures, special
assignments, due diligence assignments and
valuations.
Table V and Figure 1 make use of the
manufacturing supply chain to develop an
estimate for the service industry:
functional, and innovative products versus
services industry from the point of view of
demand.
The services industry is unique
compared to the manufacturing sector. The
services industry is matching both the
responsive supply chain and the efficient
supply chain. The responsive process is
needed to customize the auditing or
consulting assignment, for example, to
specific clients. Also, the services should be
responsive to any variables in the market
such as the 11 September 2001 issue.
Efficiency is a critical issue when doing
any assignment, if the work is not
efficient, the client will bear a huge
amount of expenses, and hence the firm will
lose one of its attributes. Therefore both
types of supply chain are needed
simultaneously.
Recommendations
This paper has proposed a new application of
supply chain management implemented on
the services industry with an example of
accounting, auditing and financial
consulting firms. The above description of
the framework can be customized to the
firm's situation along with its affiliates and
branches. Also, the firm can change its
strategy from one affiliate to another
depending on the location and the unique
attributes of the affiliate.
In addition, more recommendations of
related fields such as the code of conduct
are needed to better increase the efficiency
and effectiveness of the framework
developed. In such case, these codes should
be followed by all affiliates of the CPA firm
that are members of the AICPA, even if the
affiliate has no CPAs. For example,
recommendations were cited in Giacomino
(1994) from Anderson (1986) that a special
AICPA committee studied and made
recommendations about the relevance
and effectiveness of standards of
professional conduct of CPAs. The special
Committee on Standards of Professional
Conduct for Certified Public Accountants,
called the Anderson Committee, made the
following recommendations adapted here
in 1988:

Table IV
Comparison of the three processes
Point of comparison Service quality
Primary purpose Supply the required services in a qualitative Supply predictable demand efficiently
manner, by following the programs/
procedures with consideration to efficiency
and responsiveness. In addition, following the
GAAS as in the case of auditing assignments
Manufacturing focus Following the rules, and assuring that by
controlling the partners of the channel
Inventory strategy Maintain high caliber professionals with low
turnover ratio. People are seen as the
inventory since the goods are the hours
worked by those people
Lead-time focus Producing the best quality with the lowest
possible costs. For example, using the
sampling approach in the audit assignments
Approach to choosing Select for quality, reputation, flexibility,
suppliers speed and cost, with appropriate
consideration to its human resources
Product-design Maximize performance and minimize cost.
strategy Service differentiation is expected during the cost
whole life cycle
Source: Fisher (1997); adapted to the new framework
Physically efficient process Market-responsive process
Respond quickly to unpredictable
at the lowest possible cost demand in order to minimize stock-
outs, forced markdowns, and
obsolete inventory
Maintain high average utilization Deploy excess buffer capacity
rate
Generate high turns and minimize Deploy significant buffer stocks of
inventory throughout the chain parts or finished goods
Shorten lead-time as long as it Invest aggressively in ways to
doesn't increase cost reduce lead-time
Select primarily for cost and quality Select primarily for speed, flexibility,
and quality
Maximize performance and minimize Use modular design in order to
postpone product differentiation for
as long as possible

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Yunus Kathawala and
Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
Table V
An estimate for the service industry: functional, and innovative products versus services industry
from the point of view of demand
Functional Innovative
(predictable demand) (unpredictable
Points of comparison demand) Hybrid ± service industrya
Product life cycle More than two years Three months to one Few hours as in small consulting
year assignments to maximum of 23
months
Contribution marginb 5 to 20 percent 20 to 60 per cent Very high
Product variety Low High High
Average margin of error in the 10 percent 40 to 100 percent Very high, could reach 100
forecast at the time production percent
is committed
Average end-of-season 0 percent 10 to 25 percent 0 percent
markdown as a percentage of
full price
Lead-time required for made-to- Six months to one One day to two Differ greatly between one
order products year weeks assignment and another. Few
hours to 23 months
Source: Fisher (1997); adapted to the new framework
Notes: a The new framework is developed based on the vision, experience and exposure of the authors. Practical
application is still needed to prove the above conclusions; b The contribution margin equals price minus variable
cost divided by price and is expressed as a percentage

Figure 1 By definition the whistleblowing is:

An estimate for the service industry: functional, and innovative products The unauthorized disclosure of information
versus services industry from the point of view of demand that an employee reasonably believes is
evidence of the contravention of any law, rule
or regulation, code of practice, or professional
statement, or that involves mismanagement,
corruption, abuse of authority, or danger to
public or worker health and safety (Vinten,
1994).

Other terms for whistleblowing could be

. provide guidance to practitioners in
making judgments about the scope and
nature of services, as well as adherence to
professionalism;
. establish a new program for monitoring
accounting practice and improving its
analytical consistency.
One of the examples of the change of the code
could be the emphasis of the internal control
within any firm. In such a case, the AICPA
along with the SEC should protect the
whistle-blowers from the affiliates even if
those affiliates are outside the USA.
found, such as corruption fighter,
concerned employee, company traitor,
licensed spy, conscientious objector, ethical
resister, etc. (Vinten, 2000). From a first
look, it may seem that this is far from being
a control device, and appears to be more
like corporate supervision. Closer
scrutiny will reveal that it is a control
mechanism, a means of negative feedback
(Vinten, 1995).
We recommend that if an employee in the
affiliates is not satisfied with an action
even after discussion with the head
people in his/her local firm, he/she should
contact the head office and resolve the
matter with them. If still not satisfied,
he/she should contact external sources
such as the AICPA and/or the local CPA
societies, or later if still pending and the
issue is material, should contact the
SEC. In all cases the whistle-blowers should
be protected from the local firms'
partners.
[ 147 ]
Yunus Kathawala and
Khaled Abdou
Supply chain evaluation in the
service industry: a framework
development compared to
manufacturing
Managerial Auditing Journal
18/2 [2003] 140-149
[ 148 ]
Limitations
The development framework emphasizes
one industry in the services sector, the
financial services industry, specifically
accounting, auditing, and financial
consulting firms. Hence, more research is
needed to prove its suitability for service
industries other than auditing. The new
application is general, and any decision to
use it should be customized to the unique
situation of the affiliate. The new
framework is still theoretical and does not
prove its feasibility in practice.
Conclusion
This paper presented the theory of applying
supply chain management on the services
industry as opposed to the manufacturing
sector. Part of the paper was based on the
literature review of supply chain
management in the manufacturing sector.
The second part, framework development,
was based on both the new application of
supply chain management as an extension
of the literature review and the vision and
experience of the authors. The paper
presented comparisons between the
manufacturing and the services industry to
illustrate the differences. The comparison
resulted in the redefinition of supply chain
management on services. Also, the
characteristics and principles of the
services industry were shown to be a
hybrid of the different types of
manufacturing sectors.
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