Service Supply Relationships
Learning Objectives
Contrast the supply chain for physical goods with service
supplier relationships.
Identify the sources of value in a service supply
relationship.
Discuss the managerial implications of bidirectional
relationships.
Identify the three factor that drive profitability for a
professional service firm.
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.
13-2
Supply Chain for Physical Goods
Suppliers
Disposal
Recycling/Remanufacturing
Product and Manufacturing Distribution Retailing After-sales
Consumer
Process Design Service
Material Transfer Information Transfer
13-3
Customer-Supplier Duality in
Service Supply Relationships (Hubs)
Supplier
Service Service
Provider Customer
Design
Material transfer Information transfer
13-4
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>
13-5
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
13-6
Service Supply Relationships
Customer-Supplier Duality
Service Supply Relationships are Hubs,
not Chains
Service Capacity is Analogous to
Inventory
Customer Supplied Inputs Can Vary In
Quality
13-7
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
13-8
Social media in services
A wide reach that is decentralized, less
hierarchical, and has multiple points of
production and consumption.
Easy access that generally is available to the
public at little or no cost.
Ease of use that does not require specialized
skills and training, or requires only modest
reinterpretation of existing skills.
Social media in services
Immediacy that allows instantaneous
responses.
Flexibility that allows information to be
altered almost instantaneously by
comments or editing.
Social Media as a
Competitive Strategy
Tune-up reminders
Cookie-cutter presence in cyberspace
Lead generation
Customer education
Start online, finish offline
Professional Service Firms
Body of Knowledge
Cognitive knowledge (know-what)
Advanced skills (know-how)
Systems understanding (know-why)
Self-motivated creativity (care-why)
13-12
Professional Service Firms
Operational Characteristics
Profit-per-Partner
Pr ofit Fees Staff
Pr ofit per Partner
Fees Staff Partners
M arg in Pr oductivity Leverage
Productivity
Fees Fees Hours
Pr oductivity
Staff Hours Staff
Value Utilization
13-13
Profitability Tactics
Tactic Category
Lower Fixed (Overhead) Costs Margin
Improve cash cycle
Reduce office space and equipment
Reduce administrative and support staff
Raise Prices and Differentiate Productivity
Specialize, innovate, add more value
Target higher value work
Invest in training
Invest in higher value services
Address Underperforming Projects Productivity
Drop unprofitable services
Drop unprofitable customers
Increase Volume Productivity
Increase utilization
Lower Variable Costs Leverage
Improve engagement management
Increase leverage of professionals
Increase the use of paraprofessionals
13-14
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
• Atrophy of in-house capability to perform service
13-15
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
13-16
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
13-17
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
13-18
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
13-19
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
13-20
