Service Supply Relationships
Learning Objectives
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Contrast the supply chain for physical goods with the
customer-supplier duality of services.
Discuss the challenge of managing service supply
relationships.
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.
Discuss the challenges of delivering services in the
field.
Prepare a delivery route using the Clarke-Wright
algorithm.
Supply Chain for Physical Goods
Suppliers
Recycling/Remanufacturing
Process and
Product
Design
Manufacturing
Material transfer
Distribution
Retailing
Information transfer
Customer
Customer
Service
Customer-Supplier Duality in
Service Supply Relationships (Hubs)
Supplier
Service
Design
Material transfer
Service
Provider
Information transfer
Customer
Single-Level Bidirectional
Service Supply Relationship
Service
Category
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
Two-Level Bidirectional Service
Supply Relationship
Service
Category
Customer
-Supplier
>Input
Output>
Service
Provider
>Input
Output>
Provider’s
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
Sources of Value in Service
Supply Relationships
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Bi-directional Optimization
Managing 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 Perishability
Impact of Service Supply Relationships
Element or Link
Channel Structure
Service Recipient
Channel Integration
Before
Functional silos
Passive
Vertical (own the channel to
integrate)
Flow of Service
Flow of Information
(upstream)
Available waiting for demand
Pull: manual reporting of
demand data results in
delayed management
response.
Little or no knowledge of
resource deployment
Predominantly in-house;
locally optimized for
efficiency
Flow of Information
(downstream)
Business Processes
Demand Management
Limited to use of
appointments and
reservations.
After
Process orientation
Active as a co-producer
Virtual (IT and other
mechanism permit integration
without ownership)
Activated upon demand
Push: high level of connectivity
and transparency with fast or
instantaneous access to most
recent demand data.
Real-time tracking and
dispatching
In-house for key processes,
others out-sourced for
flexibility; integrated and
synchronized to match supply
with demand
Proactive involving customer in
scheduling to achieve bidirectional optimization
Impact of Service Supply Relationships
Element or Link
Capacity Management
Facilitating Goods
Service Delivery
Routing and scheduling
New Service Design
Pricing
International
Operations
Before
Limited to use of part-time
employees
After
Creative use of cross-trained
employees, outsourcing, and
customer self-service.
High; in anticipation of
Lower; owing to process
demand
transparency
Inflexible; standardized and
Flexible; personable with
impersonal
customization possible.
Static; fixed daily schedules
Dynamic; based on system
connectivity and process
visibility
Marketing initiatives based on Virtual value chain design with
firm's perception of customer customer data base information
needs
driving new services
Fixed
Variable; yield management
promotes off-peak demand and
avoid idle capacity
Focus on domestic market
Global reach with Internet
Outsourcing Services
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Benefits
- allows the firm to focus on its core competence
- service is cheaper to outsource than perform inhouse
- 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 service
Outsourcing Process
Need Identification
Problem Definition
"Do-versus-Buy" Analysis
Involve Interested Parties
Specification Development
Information Search
Vendor Selection
References
Personal Contact
Recommendations
Trade Directory
Experience
Reputation
References
Performance Evaluation
Identify Evaluator
Quality of Work
Communication
Meet Deadlines
Flexibility
Dependability
Cost
Location
Size
Taxonomy for Outsourcing
Business Services
Importance of Service
Property
Focus
of
People
Service
Process
Low
Facility Support:
-Laundry
-Janitorial
-Waste disposal
Employee Support:
-Food service
-Plant security
-Temporary personnel
Facilitator:
-Bookkeeping
-Travel booking
-Packaged software
High
Equipment Support:
-Repairs
-Maintenance
-Product testing
Employee Development:
-Training
-Education
-Medical care
Professional:
-Advertising
-Public relations
-Legal
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
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
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
Topics for Discussion
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What are some possible disadvantages
associated with the product postponement
strategy?
Discuss the similarities and differences in the
product postponement strategy used by
Hewlett-Packard and Taco Bell?
Discuss the implication of service outsourcing
on employees, stockholders, customers, and
host country economy when a firm
outsources a call center overseas.
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.
Peapod – Smart Shopping for Busy People
1.
2.
3.
4.
Where 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.