SERVICE OPERATIONS

MANAGEMENT
FOR
IMT- GHAZIABAD

By: Jaideep Sengupta

Day 6: SESSION 1

The Service Supply

Relationships
Day 6: SESSION 1
LEARNING OBJECTIVES

• 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.
Day 6: SESSION 1
SUPPLY CHAIN:- Def

 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
Day 6: SESSION 1
FUNCTIONS OF SCM

 Sourcing: strategic planning, location of sources of

supply, assuring continuity of supply, reducing risk of
supply disruptions
 Purchasing decision making: make or buy, supplier
certification, value analysis, order releasing, supplier
capacity planning, and supplier development
 Contracting: source selection, soliciting bids, cost-
price analysis, negotiations, evaluating supplier
performance
 Inventory management: transportation, receiving, lot
size determination, purchased inventory control,
material handling, scrap disposal, material return.
Day 6: SESSION 1
CHANGE DRIVERS

• Impact of globalization
 World redefined – opening up of economies
 EU, NAFTA, SAFTA and other such bodies promoting free trade
 Emergence of China and India
 Need to streamline production operation and outsource for
maximum efficiency
• Fuel price increase – 11.6 cents per mile in 1976 to 24.6 cents
per mile in 1985 and de-regulation
 Logistical solutions
• Environmental issues – reduce waste and conserve energy
 Container management
 Reverse logistics
 Waste management - cradle to cradle design issues
Day 6: SESSION 1
CHANGE DRIVERS

• Cost-plus system, pull-system, make-to-order (mass

production to mass customization) – all require more
active supply-chain involvement
• Total quality management, just-in-time manufacturing,
ERP – all require integrated supply chains for best
results.
• Greater computing power allowing more sophisticated
inventory planning systems.
• Technology – electronic networking and automating
repetitive tasks to allow more time for value added work
• Business school interests
Day 6: SESSION 1
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
Day 6: SESSION 1
NETWORK MODEL

• 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.
• Fig. 15.1 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.
Day 6: SESSION 1
SCM FOR PHYSICAL GOODS

Suppliers

Recycling/Remanufacturing

Process and Customer

Product Manufacturing Distribution Retailing Customer
Service
Design

Material transfer Information transfer

Day 6: SESSION 1
MANAGING UNCERTAINITY

• Uncertainty in supply chain arises from three major sources:

• Supplier delivery performance
• Manufacturing unreliability
• Customer demand

• Inventory is traditionally used to match uncertainty

Day 6: SESSION 1
SUPPPLY CHAIN STRATEGIC PLANNING

• Strategic initiatives can lessen the impact of uncertainty and

thus improve customer service
• Improve manufacturing reliability through TQM

• Dependable transportation modes

• Modular design – allowing postponement of final customization – thus

increasing responsiveness without holding too much inventory ; ex.
110 volts versus 220 volts – need changes according to geographic
regions, so distribution centers add value by making this customization
as the last step

• Information technology allows tracking the movement of goods through

the supply chain from the factory to the retailer – greater transparency
in the logistics system reduces uncertainty
Day 6: SESSION 1
IMPACT OF SERVICE SUPPLY RELATIONSHIPS
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 Virtual (IT and other mechanism
to integrate) permit integration without
ownership)
Flow of Service Available waiting for Activated upon demand
demand
Flow of Information Pull: manual reporting of Push: high level of connectivity
(upstream) demand data results in and transparency with fast or
delayed management instantaneous access to most
response. recent demand data.
Flow of Information Little or no knowledge of Real-time tracking and
(downstream) resource deployment dispatching
Business Processes Predominantly in-house; In-house for key processes,
locally optimized for others out-sourced for flexibility;
efficiency integrated and synchronized to
match supply with demand
Demand Limited to use of Proactive involving customer in
Management appointments and scheduling to achieve bi-
reservations. directional optimization
Day 6: SESSION 1
IMPACT OF SERVICE SUPPLY RELATIONSHIPS

Element or Link Before After

Capacity Limited to use of part-time Creative use of cross-trained
Management employees employees, outsourcing, and
customer self-service.
Facilitating Goods High; in anticipation of Lower; owing to process
demand transparency
Service Delivery Inflexible; standardized and Flexible; personable with
impersonal customization possible.
Routing and Static; fixed daily Dynamic; based on system
scheduling schedules connectivity and process
visibility
New Service Design Marketing initiatives based Virtual value chain design
on firm's perception of with customer data base
customer needs information driving new
services
Pricing Fixed Variable; yield management
promotes off-peak demand
and avoid idle capacity
International Focus on domestic market Global reach with Internet
Operations
Day 6: SESSION 1
SINGLE LEVEL BIDIRECTIONAL SERVICE SUPPLY RELATIONSHIPS

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>
Day 6: SESSION 1
TWOLEVEL BIDIRECTIONAL SERVICE SUPPLY RELATIONSHIPS

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
Day 6: SESSION 1
MANAGERIAL IMPLICATIONSOF BI-DIRECTIONAL RELATIONSHIPS

• Service supply relationships are hubs, not chains

• Simultaneous consumption and production makes services more like
hubs than chains (in sequence)
• Table 15.3 – 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
Day 6: SESSION 1
CONTD..

 Customer supplied inputs can vary in quality

 Thus impacting delivery performance of service provider

 Effective communication is ,therefore, very important

Day 6: SESSION 1
SOURCES OF VALUE IN SERVICE SUPPLY RELATIONSHIPS

 Value in service supply relationship depends on

 bi-directional optimization

 Management of productive capacity

 Management of perishability
Day 6: SESSION 1
BI_DIRECTIONAL OPTIMIZAION

• 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
Day 6: SESSION 1
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)
Day 6: SESSION 1
MANAGEMENT OF PERISABILITY

• 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
Day 6: SESSION 1
RELATIONSHIP BETWEEN STAKEHOLDERS IN A SERVICE
PURCHASING ENVIRONMENT

 Purchasing services directly by the end user is not

recommended because often they are inadequately
prepared to apply a methodical, structure, and strategic
sourcing process to the purchase.

 Purchaser has the skills to put the entire package together

– in terms of timing (preventing rush orders), coordinating
the entire needs of the organization, exploring the inter-
relationship between different services and their suppliers,
and procuring them at the best price.

 Typically when qualified procurement personnel are

involved in the planning and procurement of services,
savings of approximately 25 % are enjoyed with equal or
improved quality and service.
Day 6: SESSION 1
CONTD…

 There is a greater intangible component in services

than in manufacturing. Therefore, early involvement of
service suppliers can often provide value, especially
when the service is complex and technical.
Day 6: SESSION 1
SOME KEY QUESTIONS- Recognize the need and description

1. Why is this service necessary?

2. What is important to know about this service?
3. How is this service produced?
4. Where is the service being delivered?
5. How is quality defined for this service?
6. How do we know we received what we expected?
Day 6: SESSION 1
TAXONOMY OF OUTSOURCING SERVICE BUSINNESS

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:
Process -Bookkeeping -Advertising
-Travel booking -Public relations
-Packaged software -Legal
Day 6: SESSION 1
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
Day 6: SESSION 1
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
Day 6: SESSION 1
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
Day 6:

INTERMISSION
Day 6: SESSION 2

Globalizing Services
 9-32

Day 6: SESSION 2
OBJECTIVES

 This paper outlines approaches to considering

two questions that managers face when
developing a global service strategy.
 What are the factors that we can use to classify
services in terms of their potential for 
dij  ( xi  x j )  ( yi  y j )
moving 2 2 1/ 2

Yi
globally?
 How do these factors translate into strategies for
the globalization of specific Metropolitan
services?
dij  xi  x j  yi  y j
0 X
Xi Xj
Day 6: SESSION 2
FACTORS AFFECTING GLOBALIZATION

The most useful dimensions for classifying

service operations are:
Customer contact
Customization
Complexity
Information intensity
Cultural adaptation
Labor intensity
Other factors
Day 6: SESSION 2
DESCRIPTION OF FACTORS

 Customer contact
 customer contact is not a factor where routine back
office operations are involved.
 the globalization of front office operations with its verbal
customer contact still depends heavily on cultural
adaptation of the service.
 Customization
 to learn what the customer needs and to adapt the
service accordingly.
 when taking a high customer contact service overseas,
language and culture can create barriers to effective
communication.
Day 6: SESSION 2
CONTD..

• Complexity
• one path makes existing work routine.
• the other path accepts mundane work but provides the
opportunity to develop skills that ultimately lead to more
interesting and complex work.
• Information intensity
• there is little doubt that new telecommunications modes
have helped the globalization of services.
• information-intensive services, such as financial
services, travel reservations, and technical publishing,
have led the way in globalization.
Day 6: SESSION 2
CONTD.

 Cultural adaptation
 local attitudes towards work is a key attribute involved in the
decision to relocate services.
 because services relocate back office operations to small towns and
cities, workers may accept low wage structures, if they are in line
with that of the surrounding community.
 Labor intensity
 many of the back office operations moving offshore are doing so to
acquire less expensive, but well-educated labor.
 these activities can be supported by major investments in
communications and computer systems that facilitate the transfer of
information into and out of the process.
Day 6: SESSION 2
Contd…

 Other factors
 technical capability, legal restrictions and distance, are
becoming less and less important.
 flexibility and public policy are important.
 9-38

Day 6: SESSION 2
GLOBAL SERVICE STRATEGIES

• Five basic globalization strategies are identified:

• multi-country expansion
• importing customers
• following your customers
• Service Off Shoring
• beating the clock
Day 6: SESSION 2
DESCRIPTION OF STRATEGIES

 Multi-country expansion
 this strategy is necessary when the service market
is defined by the need for customers to travel
physically to the service facility.
 Importing customers
 customers must be willing to travel a long distance
and stay for an extended time.
 Following your Customer: Providing same
services as in new geographies. Like Japanese
restaurants near Japanese cos in India.
Day 6: SESSION 2
DESCRIPTION OF STRATEGIES

 Beating the clock

 describes the competitive advantages gained owing to
the fact that one can bypass the constraints of the clock
and the constraints of domestic time zones, including
time-based domestic work rules and regulations.
 by combining the demand from multiple time zones, it
could improve the productivity of reservation clerks and
telemarketers.
Day 6: SESSION 2

THANK YOU