Unit 9 Service logistics & The era of network

competition
Bhavitha
Session 13
Faculty Profile
• Mrs.Bhavitha B V is having around 2 years of academic
experience along with a 4 years of experience in the MNC. She
is a post graduate in finance and taxation. Her academic
interests include Logistics and supply chain management and
Financial markets. She is a passionate teacher and mentor who
is always open for any professional discussion and support.
Week
Week913 3-10 November–2023
31 December 7 Service
Revisionlogistics & The era of network competition
January 2024

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• Services are the non-physical, intangible parts of our
economy, as opposed to goods, which we can touch or handle.
• Services, such as banking, education, medical treatment, and
transportation make up the majority of the economies of the
rich nations. They also represent most of the emerging
nations’ economies.
Buying performance
• Measuring purchasing performance is important, as the purchasing
department plays an increasingly important role in the supply
chain during an economic downturn.
• A reduction in the cost of raw material and services can allow
companies to competitively market the price of their finished goods in
order to win business. An obvious performance measure of the success
of any purchasing department is the amount of money saved by the
company. However, there are a number of performance measurements
that businesses can use when they measure purchasing performance.
• Purchasing Efficiency
• Administrative costs are the basis for measuring purchasing efficiency. This
performance measurement does not relate to the number of purchased items
that the department has procured. The measurement relates to how well the
purchasing department is performing in the activities they are expected to
perform against the budget that is in place for the department.
• If the purchasing costs are within the budget, then the efficiency of the
purchasing department will exceed expectations. If the department is using
funds over and above the budget, then the purchasing function is not
efficient.
• Purchasing Effectiveness
• The price that the purchasing department paid for an item is not necessarily a good
measurement of purchasing performance.
• The price of an item may fluctuate due to market conditions, its availability, and other
demand pressures. Therefore, the purchasing department may not be able to control
the price. A popular method of assessing purchasing effectiveness is to review
the inventory turnover ratios. The ratio measures the number of times, on average
that the inventory is used, or turned, during the period.
• The ratio used to measure the liquidity of the inventory. However, this is not always a
great measure of purchasing effectiveness as seasonal requirements for having items in
stock can make this measurement inaccurate.
• Purchasing Functionality
• Purchasing performance can be measured against the functional requirements
of the purchasing function.
• The primary function of the department is to provide the correct item at the
required time at the lowest possible cost. The performance measurement can
take into account these elements, but it does not take into account
factors that may relate to supplier stability, material quality issues, and
supplier discounts.
• Performance Measurements
• The performance of the purchasing function can be measured using a variety of
measurements. A company can decide which of these measurements of
effectiveness are relevant to the performance of their purchasing department.
The measurements can include:
• Cost Saving
• If the purchasing department procures an item at a lower price than they did
previously, then it is a cost-saving. This can occur when a new supplier is
found, a less costly substitute item is used, a new contract has been signed with
the vendor, a cheaper transportation method has been found, or the purchasing
department has negotiated a lower price with the existing supplier.
• Increased Quality
• When an item has improved quality either by using a different
supplier or by negotiating with the existing supplier, the
improvement will be reflected in a reduction of waste or
production resources.
• Purchasing Improvements
• Efficiencies in the methods used in the purchasing department
will increase effectiveness. These can include the introduction of
EDI, e-procurement systems, vendor-managed inventory and pay
on receipt processes.
• Transportation Improvements
• When a purchasing department negotiates with a carrier or
number of carriers to reduce the cost of transporting
items from the vendor to the production facilities, the unit
cost of the item will be reduced. This cost-saving can be used
as a measurement of effectiveness.
• Purchasing Performance
• A number of studies have been carried out on purchasing performance and the
results have noted that there is no one method that will cover every purchasing
department. However, there are a number of key measures that are found to be
common in evaluating performance. Namely, cost-saving, vendor quality,
delivery metrics, price effectiveness, and inventory flow.
• Although these key measures are common, the weight placed on these
measures is by no means uniform and will vary between industries and
businesses. In addition, the importance of these measures to the overall
effectiveness of a purchasing department will change over time and, therefore,
need to be assessed and modified on a periodic basis.
What is meant by service-dominant logic?
• Service-dominant (S-D) logic, which focuses on services and/or intangibles
as the key interest in an exchange, can dramatically alter an
organization's operations, culture and overall strategic outlook to create
mutual benefits for buyer and seller groups.
• Service-Dominant logic is a perspective that introduces a new way for
synthesizing and articulating an alternative view of exchange and value
creation in markets. It is centered on the idea service—the application of
competences for the benefit of another—is the basis of all social and
economic exchange.
• Service-dominant (S-D) logic, which focuses on services and/or intangibles
as the key interest in an exchange, can dramatically alter an
organization's operations, culture and overall strategic outlook to create
mutual benefits for buyer and seller groups (Vargo and Lusch 2004).
• The sales environment is rapidly changing. The real estate
sales environment is also becoming more complex and
competitive, and is being driven by a rising number of home
options, increasingly demanding customers and a shift in what
customers’ value in the home-buying process. The emerging
sales environment demands that agents improve their skills,
develop an understanding of integrated solutions and focus on
relationship-building, particularly for high value goods and
services like real estate
• Service-dominant (S-D) logic, which focuses on services and/or intangibles as the
key interest in an exchange, can dramatically alter an organization’s operations,
culture and overall strategic outlook to create mutual benefits for buyer and seller
groups (Vargo and Lusch 2004). An organization with S-D logic orientation achieves
these advantages by placing the customer at the heart of all business activities. In
S-D logic exchange, service is exchanged between the buyer and seller via the
goods/services being purchased (Lusch and Vargo 2006). Customer value and
satisfaction is co-created between buyers and sellers throughout the sales
interaction. A S-D logic sales orientation can have great impact for a real estate
agent. Data from the recent study of a UK-based homebuilder reveal significant
findings that can support and help agents develop a customer-focused orientation,
which can ultimately lead to increased sales and customer satisfaction.
What is Servitisation?

• Servitisation can be defined as the transformation of a manufacturing firm from the mere offering of
products to the market to providing innovative and invaluable services alongside their products. By
so doing, the sale becomes an ongoing engagement and not a one-off event. Cranfield University
professors call it “the innovation of an organisation’s capabilities and processes to better create
mutual value through a shift from selling a product to selling product-service systems.”?
• As foreign as it may seem for some professionals, servitisation has been a need that, though not
embraced, its demand remains evident. Nonetheless, firms have hesitated to implement it. Shifting
from manufacturing products only to incorporating product-centric services alongside the products is
not a walk in the park. It boils down to completely changing the company’s entire structure and
processes.
• All the same, change is never comfortable, and that’s why it’s always best to focus on the positive
for motivation.
• Benefits
• There are several benefits of incorporating servitisation into your manufacturing firm. Below are three of
the strongest benefits
• Financial Stability– Servitisation establishes a more secure revenue stream because of the long term
connection between manufacturer and customer. This also translates to loyal customers, meaning more
profit.
• Strong Customer Retention Rate– Being more experienced about the equipment and the constant
tracking and monitoring that comes with servitisation; manufacturers are realising that they can keep
more customers.
• Selling a Solution And a Product– Today customers are not just looking to buy a product, instead, they
want both the product and the solution to their problem. Meaning you make more money for the product
you manufacture and the service you offer to your customer
• Implementation of servitisation in the Industry
• To effectively implement servitisation, there must be an effective two-way flow of
information and data in the supply chain. Meaning you may require software like FieldElite
for scalable condition monitoring of performance. With FieldElite, for example, servitisation
is made easier for you because it enables you to monitor the performance of your assets
remotely.
• Maintenance and monitoring of assets were traditionally very expensive and time-consuming
until the arrival of intelligent software that makes work easier and cost-effective for
manufacturers. FieldElite uses advanced learning algorithms to remotely automate the entire
process, allowing you to detect, in real-time, the performance and need for maintenance on
your asset.
• Required Organisational Changes
• A few important steps include;
• Companies that invest in continuous training and development always have a more competitive edge than their
counterparts. Meaning an important step towards servitisation is training the workforce. This is important,
considering that the company structure, focus, and process will have to change.
• Set up a team that is focused on the challenge, change, and creation. With this, you can easily adjust to industry
changes. The team should always work on knowing what should be adjusted and when it should be.?
• In the shift to servitisation, adopting a comprehensive service technology is an important step. Such service
technology software includes FieldElite. This technology will ensure that you’re able to monitor your product in
real-time, meaning you can maintain good performance for as long as possible.
• Because servitisation essentially focuses on the customer, take time to study customer behaviour. Knowing what
your customers need and want will help you remain relevant in the industry.
Servitization: Logistics at your Service

• Servitization is a business model in which a machine (i.e., forklift, truck, order picking robot) is not sold, but is accessed by an end-user through a
multi-year fixed-fee outcome-based service-contract. A servitization contract can be attached at the time of the delivery of a new or used machine,
as well as engaged anytime during the post-delivery of a machine.
• Servitization is where customers pay for a service - such as air conditioning - rather than buying the equipment themselves. This model can be a
major contributor to the systemic efficiency approach to decarbonisation. It also has potential to assist the post-COVID-19 economic recovery
• The service typically encompasses the following 15 elements:
• 1. The equivalent of an operating lease is supplied; machine ownership is never transferred to the service recipient. Many of these machines in the
future will be autonomous.
• 2. The intellectual property (IP) of a machine’s embedded software configuration is not controlled by the service recipient, but by the owner of the
machine.
• 3. Solutions are supplied to maintain (i.e., break/fix) and improve (i.e., upgrade) a machine’s capability (i.e., lift 5,000 pounds), employability
(i.e., 95% uptime in a 24-hour period) and deliverability (i.e., 8 hours of operation per day).
• 4. An outcome-based fixed-fee is typically aligned with the customer’s revenue streams; in fact, the fee becomes a variable cost. For example, a
public warehouse forklift user could be charged a fee of $3.75/ton for movements from storage to staging and loading of a vehicle; the fee would
be directly aligned with their handling charge of $4.50/ton for the same movements to its customers.
5. Solutions are delivered for a continuous period of time during the post-
production lifecycle of a machine; when over 1 year, revenue recognition
financial reporting is required.
6. The performance levels of solutions delivered are assured. For example,
technicians will arrive on-site for a break/fix event within two hours of being
notified within any 24/7 period.
7. Amendments are incorporated to the contract, such as up-selling or cross-
selling; will often occur as a result of changes in the business environment of
the customer during the multi-year contract duration.
8. Contract renewal is aggressively pursued; it is a major end-game of the business model.
9. A supplemental fee schedule is established, for solutions delivered that are not supported in the contract.
10. Guidance for the price and configuration for quotes of the pre-landed contract is overseen by one entity
(i.e., Obligor).
11. Higher profitability for seller; typically 25-150% higher than that of a product.
12. “Stickiness” of buyer-seller relationships; continuous contact for years.
13. Higher sales commissions for account managers; multi-years’ worth of booked sales.
14. Optimized budgeting for buyer; converts CapEx to OpEx and reduces number of transactions.
15. One “button to push” by buyer to address any performance issue with seller.
• What is Capacity Planning?
• Capacity planning is the process whereby the production
capacity needed to meet manufacturing demand is
determined. It is essential for scheduling production to meet
short- and medium-term demand and can also be used for
long-term planning at the organizational and strategic levels.
• Effective capacity planning is a must for any company,
including large scale enterprises and small and medium sized
businesses. It is linked to supply chain planning through the
demand function and seeks to align production capacity with
sales demand through the demand forecast. Because of this,
demand forecasting is a fundamental part of capacity
planning.
• Why Do Companies Need to Plan Capacity?
• Capacity planning is important because it directly impacts key budget centers. Operating costs are
affected when demand and capacity are out of sync. Depending on how demand plays out, poorly
planned capacity results in labor shortages and threatens the ability to meet service level
commitments unless the company runs overtime. Or it could mean excess labor on the shop floor.
Both result in an increased cost per unit.
• Capacity also impacts fixed costs. For example, uncertain capacity may lead companies to add
warehouse space or material handling equipment through leases or contracts. If demand does not
match the capacity, they are then stuck with these fixed costs for a length of time adding overall
cost to the product and placing.
• How it Works
• Today, capacity planning can be automated through software directly linked to supply
chain planning. This allows decision-makers to view capacity at different operational
levels. As demand is forecasted, capacity planning acts as the input for other
production functions including aggregate planning, demand management, scheduling
and shop floor control.
• Capacity Planning may be done at different operational levels, depending on focus. In
aggregate capacity planning, the company’s capacity requirements are calculated for
a long period. This may range from 2-12 months and be adjusted within the period to
keep labor requirements, utilization, resource allocation and unexpected changes in
demand in line with capacity.
• Benefits of Capacity Planning
• There are many benefits with capacity planning. In addition, companies that use automated
software for capacity planning will realize even greater benefits as it can be tied into supply
chain planning to leverage better accuracy and deeper analytical capabilities. Some of the
benefits of capacity planning include:
• Cost Monitoring – Capacity planning allows a company to better monitor costs. As the factors that
go into capacity calculations are measured, variance can be identified, adjusted or corrected.
• Flexibility – With capacity planning linked to demand forecasting, capacity can be analyzed for
seasonal trends and production requirements can be anticipated. Factors such as reduced or
increased labor for seasonality, added capacity for anticipated products rollouts or planning for a
product end of lifecycle can be leveraged to improve cost and efficiency.
• Growth Planning – With automated software, capacity can be planned with confidence. This helps
decision-makers and C-suite executives plan for expansion and new locations based on accurate
understanding of existing capacity based on demand forecasting.
• Improved Human Capital Management – With reliable demand forecasts, companies can ensure they
have not only the right number of staff but also the right skill sets for the required capacity. This can
be used to improve skill sets or cross-train staff.
• Increased Customer Service Levels– By aligning capacity with demand within the supply chain planning
structure, service levels improve leading to happier customers and better brand reputation.
• Improved Profitability – When capacity and demand are aligned, gaps are reduced or eliminated in the
manufacturing process. Proper equipment configuration, lower overtime costs, improved skill set
utilization and other factors lead to lower cost per unit of production and translate to higher margins.
• Continuous Improvement Opportunities – Because capacity
planning must measure multiple variables within
manufacturing it can uncover constraints that may not have
had visibility before. This provides context in areas that can be
better optimized in the future. Continuous improvement of the
process means more capacity with existing resources.
• Measuring Capacity
• Production rates must be measured to understand capacity. The measurement of
capacity then becomes a function of the following:
• Design Capacity – Design capacity is considered the ideal production situation. It is the
maximum output possible with production equipment and resources over a period of time.
• Effective Capacity – Effective capacity considers product mix, changes in product mix,
anticipated maintenance, raw material disruptions and labor issues such as absenteeism and
fatigue. Effective capacity is the maximum capacity possible given the influence of these
factors.
• Actual Output – Actual output is the rate of production achieved.
• Challenges in Capacity Planning
• Meeting the demands of today’s manufacturing is difficult. For large companies, that
difficulty may mean coordinating planning across large geographic regions. And for
small and medium sized businesses it may mean managing demand while trying to
scale. Regardless the operation, there are many challenges to capacity planning
including:
• Complexity of Organization – Capacity planning can be more challenging in companies
with complex organizational structures (such as those with multiple facilities or
divisions making different categories of goods). It can also be challenging for those
with very detailed Bills of Material (BOM) that require an excess of parts or processes
to complete finished items.
• Data Collection – For demand forecasts and capacity to be in sync, data must be accurate. Increasing
supply chain complexity due to external factors, coupled with production complexity internally means
that data must be accurate, current and unsiloed across the organization. If data collection and integrity
is not accurate, demand and capacity become more difficult to align.
• Operational Factors – As demand increases, equipment breakdowns may accelerate, and employee fatigue
may increase. Even though these factors should be measured and included in a capacity plan, as the
timeframe moves forward, adjustments may be made to account for unforeseen operational variables.
• Supply Chain Issues – Supply chain complexity has increased over the years due to many external factors
like regulation, tariffs and others. Rapid shifts in vendors, quality of incoming raw material, logistics
issues and other factors may impact the capacity in production as production adjusts to different mixes or
blends or as additional processing equipment may be required.
• What is the service supply chain?
• The service supply chain is the part of the supply chain
dedicated to providing service on products. It addresses the
supply of parts, materials, personnel and services needed to
provide timely and effective product service, such as repair
and maintenance.
Now that we’re all clear on what SCSM is not, let’s talk about what good supply chain service
management actually looks like:
• Single source of truth for full transparency
• Cloud-based software platform to properly queue and prioritize incident requests
• Clear ownership to ensure accountability
• Well-defined SLAs that eliminate firefighting
• Seamless collaboration with supply chain partners
• Meetings that leverage real-time dashboards, no prepwork required
• Active root cause analysis to permanently eliminate recurring issues
Week 14 7– 14 January 2024 Revision

Quadrant 1 1. Revise the eLMs and eLearning materials.

eContent

Quadrant 2 2. Live session to address specific queries of learners

eTutorial

Quadrant 3 3. Take a mock exam of the final examination

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Quadrant 4 4. Participate in collaborative learning on preparing for the summative assessment (final exam)
Discussions