SERVICE SUPPLY

RELATIONSHIPS
 Definition of Supply-Chain

All the activities involved in delivering a product from

raw material through to the customer including
 Sourcing raw materials and parts
 Manufacturing and assembly
 Warehousing and inventory tracking
 Order entry and order management
 Distribution across all channels
 Delivery to the customer
 Information systems necessary to monitor all activities

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 Supply Chain
Management
Unreliable deliveries either increase inventory
investments in safety stocks or result in unsatisfied
customers and lost sales
Success is achieved only by formation of effective
partnerships and cooperation among participants
throughout the entire supply chain
Bullwhip effect – when a small change in retail order is
magnified as we move back up the supply chain to the
distributor and finally to the customer – due to
overreaction caused by lack of integration and trust
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 Supply Chain for Physical Goods

Suppliers

Recycling/Remanufacturing

Process and Customer

Product Manufacturing Distribution Retailing Customer
Service
Design

Material transfer Information transfer

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 The physical goods supply chain can be viewed as a
network of value adding material processing stages each
defined with supply input, material transformation, and
demand output.
The figure shows these stages as suppliers,
manufacturing, distribution, retailing and recycling –
depicting the flow of material by an arrow, with inventory
stocks at each stage.
Information transfer is in the opposite direction – shown
by dashed lines. Lack of proper information flow creates
uncertainty and results in inventory holding .

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 Service Supply
Relationships
 Service can be considered as acting on people’s minds (e.g.
education, entertainment), bodies ( e.g. lodging, health care),
belongings ( e.g. auto repair, dry cleaning), and information
( e.g. insurance, legal) – thus all services act on something
provided by the customer.
 Therefore, customers are acting as suppliers in the service
exchange – called the customer-supplier duality . There is a
bidirectional relationship between the service delivery firm, its
supplier, and the customer .
 In another table shows examples of two-level service supply
chains. In each case, the service provider requires the
assistance of a third party supplier to complete the service.
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 Single-Level Bidirectional Service
Supply Relationship

Service Customer >Input Service

Category -Supplier Output> Provider

Minds Student >Mind Professor

Knowledge>

Bodies Patient >Tooth Dentist

Filling>

Belongings Investor >Money Bank

Interest>

Information Client >Documents Tax Preparer

1040>

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 Two-Level Bidirectional Service
Supply Relationship

Service Customer >Input Service >Input Provider’s

Category -Supplier Output> Provider Output> Supplier

Minds Patient >Disturbed Therapist >Prescription Pharmacy

Treated> Drugs>

Bodies Patient >Blood Physician >Sample Lab

Diagnosis> Test Result>

Belongings Driver >Car Garage >Engine Machine

Repaired> Rebuilt> Shop

Information Home >Property Mortgage >Location Title

Buyer Loan> Company Clear Title> Search

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 Managerial Implications of
Bidirectional Relationships
Service supply relationships are hubs, not chains
Simultaneous consumption and production makes services
more like hubs than chains (in sequence)
Table 2 – where supply chain can be extended to include a
supplier to the service provider, where service provider acts as
an agent for the customer when dealing with outside supplier

Service capacity is analogous to inventory

For goods supply chains, inventory is used to buffer the
variations in final customer demand
Services cannot be inventoried, excess capacity must be held
in reserve
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 Continued…
Customer supplied inputs can vary in quality

Thus impacting delivery performance of service provider

Effective communication is ,therefore, very important

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 Sources of Value in Service
Supply Relationships
Value in service supply relationship depends on

bi-directional optimization

Management of productive capacity

Management of perishability

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 Bidirectional Optimization
Bi-directional Optimization implies the possibility of
doing what is the best from the customer’s perspective
while doing the best for the service enterprise
It is simultaneous optimization of both supply and
demand for the service

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 Management of Productive
Capacity

Strategies to improve productive capacity of the service

worker are follows:
Transfer: make knowledge available to customers so that
value can be transferred with very low cost. Example, web
based FAQ database can be used instead of human
resources to answer questions
Replacement: substitute technology for server (e.g. digital
blood pressure device)
Embellishment: enable self-service by teaching (e.g. change
surgical dressing)
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 Management of Perishability

Reduce idle time of workers because that is lost capacity

If you can communicate with workers then you can

change their schedule to optimize capacity. If no
communication is available then you have to work with a
fixed schedule and cannot deal with uncertainties in the
best possible way.
Managing perishability also involves training and
extending skills and capabilities of workers to work at
more than one station – to match changing needs

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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 future negotiation
leverage
- additional coordination expense and delays
15- - atrophy of in-house capability to perform service
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 Outsourcing Process

Need Identification Information Search Vendor Selection

Problem Definition References Experience Cost
"Do-versus-Buy" Analysis Personal Contact Reputation Location
Involve Interested Parties Recommendations References Size
Specification Development Trade Directory

Performance Evaluation
Identify Evaluator Meet Deadlines
Quality of Work Flexibility
Communication Dependability

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 Taxonomy for Outsourcing
Business Services,

Importance of Service
Low High
Facility Support: Equipment Support:
Property -Laundry -Repairs
-Janitorial -Maintenance
Focus -Waste disposal -Product testing
Employee Support: Employee
of People -Food service Development:
-Plant security -Training
-Temporary personnel -Education
-Medical care
Service Facilitator: Professional:
-Bookkeeping -Advertising
Process -Travel booking -Public relations
-Packaged software -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 for emergency response
• Designate person to make service call and to
check that service is satisfactory

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 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
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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
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• Performance evaluation by top management
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