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Service Supply Relationships

Supply Chain for Physical Goods



Process and Customer

Product Manufacturing Distribution Retailing Customer

Material transfer Information transfer

Are Services ‘Intangible’?

 Services are ``intangible products.'' If

this were true, then service supply
chains would involve the sourcing and
delivery of intangibles.
 As such, a major challenge in supply
chain management would be dealing
with the intangible nature of the product
It’s Different

 Intangibles may be difficult to store

– JIT delivery is a requirement, not an option
– „Production smoothing‟ is a non-issue
 It can be difficult to account for
– Intangibles are not used up, but are
continually available for sale
– Inability to measure (account for) changing
levels of the intangible product
It’s Different

 It could be difficult to identify the

supplier of intangibles
– Services may be viewed as coming from a
lot of suppliers, including many who are not
compensated for supplying it

But is it really „intangible‟?

Other Definitions

 A service is a personal performance

(Levitt, 1972).
 A service is a product which is a
process (Henkoff, 1994; Shostack,
 Services are processes involving
customer contact (Chase, 1978).
 A service is a deed, act or performance
(Berry, 1980).
All services can fit into one or more of four
categories: (Lovelock 1996)
1. Services that act on people's minds (e.g.
education, entertainment, psychology);
2. Services that act on people's bodies (e.g.
transportation, lodging, funeral services);
3. Services that act on people's belongings (e.g.
landscaping, dry cleaning, repair);
4. Services that act on people's information (e.g.
insurance, investments, legal services).
Customer-Supplier Duality in
Service Supply Relationships (Hubs)

Service Service
Provider Customer

Material transfer Information transfer

Single-Level Bidirectional
Service Supply Relationship
Service Customer >Input Service
Category -Supplier Output> Provider

Minds Student >Mind Professor

Bodies Patient >Tooth Dentist
Belongings Investor >Money Bank
Information Client >Documents Tax Preparer
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
Single-level Bi-Directional Supply
Two-level Bi-Directional Supply
Uni-Directional Supply Chain

 Customer provides input to Service

 After processing, Service Provider
delivers to an entity other than
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).
Practical Implications

 Bidirectional supply chains are generally

– Service stages are simultaneous as far as
service-provider involvement is concerned
– Extremely compressed supply chain
 Service providers usually do not pay for
inputs coming from customer-suppliers
– Variable Costs are negligible
Practical Implications

 Bidirectional supply chains are

inherently JIT
– Service Provider can not regulate delivery
of input
– Once input is present, output is expected
immediately (JIT)
– Planning of inventory may be beneficial
 Bidirectional supply chains have implicit
expectations for value added
Sources of Value in Service
Supply Relationships
 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
Why its bothering

 Supply base issues

– Manufacturers are faced with three levels
of decisions pertaining to determining the
supply base
• make versus buy (vertical integration)
• many versus few suppliers (supplier selection)
• supplier selection
Why its bothering

 Supply Chain Integration

– Manufacturing supply chains become
integrated by co-ordinating the efforts
among the various stages of the supply
chain by way of
• Communication
• Partnering and
• Vendor development
 Service Design
– In manufacturing processes, supply chain
concepts motivate design which considers the
needs and capabilities of various players in
the process. It is not good enough to be
“locally optimal”, meaning that each element of
the supply chain does what is in its own best
interest without regard for players up or down
the supply chain
– Service Blueprinting
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 to Virtual (IT and other
integrate) mechanism permit integration
without ownership)
Flow of Service Available waiting for demand Activated upon 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
efficiency flexibility; integrated and
synchronized to match supply
with demand
Demand Management Limited to use of Proactive involving customer in
appointments and scheduling to achieve bi-
reservations. directional optimization
Impact of Service Supply Relationships
Element or Link Before After
Capacity Management Limited to use of part-time Creative use of cross-trained
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 scheduling Static; fixed daily schedules Dynamic; based on system
connectivity and process
New Service Design Marketing initiatives based on Virtual value chain design with
firm's perception of customer customer data base information
needs 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
Outsourcing Services
 Benefits
- allows the firm to focus on its core competence
- service is cheaper to outsource than perform in-
- 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 Information Search Vendor Selection

Problem Def inition Ref erences Experience Cost
"Do-v ersus-Buy " Analy sis Personal Contact Reputation Location
Inv olv e Interested Parties Recommendations Ref erences Size
Specif ication Dev elopment Trade Directory

Performance Ev aluation
Identif y Ev aluator Meet Deadlines
Quality of Work Flexibility
Communication Dependability
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 Development:
of People -Food service -Training
-Plant security -Education
-Temporary personnel -Medical care
Service Facilitator: Professional:
Process -Bookkeeping -Advertising
-Travel booking -Public relations
-Packaged software -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
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Example Software Industry
Services Supply Chain Model

• End-to-end processes link entities

• Based on out-sourced services
• Capacity and Service Delivery identified as key processes
………a service process viewpoint

Baltacioglu et al 2007

• Core & supporting services

• Unique transaction requiring presence
of customer
• Process relevance
…….a service supply chain viewpoint
THE IUE-SSC MODEL (extended)
Information Flow & Technology Management

Network Supporting Services Supply Base Service Delivery

Supplier A

Supplier D

Service The
Supplier B Consumer
Provider Service

Supplier E

Supplier C

Demand Management

Capacity & Resources Management

Supplier Relationship Management

Service Performance

Order Process

Customer Relationship Management

Product based supply chains Service based supply chains
Tangible, physical Intangible

Transported from production ‘Consumed’ at point of

to point of consumption production
Customer removed from Customer contributes to
production process production process
Inventory buffers variability of Resources buffer variability of
demand (& supply) demand
Capital intensive Resource intensive

Standard & mass produced Unique & customised

Linear; sequential Networked; non-sequential

Travel ChaCha – Ready when you are…

1. Where are opportunities for

bidirectional optimization?
2. How can they manage service
3. How can they manage productive