Transcript Service Supply Relationships chapter 15 15

15
Service Supply Relationships
chapter 15
15-2
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.
Definition of Supply-Chain
Rajeev
Sawhney,
Western Illinois
University
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
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Rajeev
Sawhney,
Western Illinois
University
Functions of supply-management
department
 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.
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Forces Driving Changes
•
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

•
Rajeev
Sawhney,
Western Illinois
University
Logistical solutions
Environmental issues – reduce waste and conserve energy

Container management

Reverse logistics

Waste management - cradle to cradle design issues
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Continued…..
Rajeev
Sawhney,
Western Illinois
University
•
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
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15-7
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
15-8
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.
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Supply Chain for Physical Goods
fig. 15.1
Suppliers
Recycling/Remanufacturing
Process and
Product
Design
Manufacturing
Material transfer
Distribution
Retailing
Information transfer
Customer
Customer
Service
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Managing Uncertainty
 Uncertainty
in supply chain arises from three major sources:
 Supplier
delivery performance
 Manufacturing unreliability
 Customer demand
 Inventory
is traditionally used to match uncertainty
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Supply chain strategic planning
 Strategic
initiatives can lessen the impact of uncertainty and
thus improve customer service
 Improve
manufacturing reliability through TQM
 Dependable
transportation modes
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
 Modular
 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
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Impact of Service Supply Relationships
table 15.1 & 15.4
Element or Link
Channel Structure
Service Recipient
Channel Integration
Before
Functional silos
Passive
Vertical (own the channel
to integrate)
Flow of Service
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
(upstream)
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
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Impact of Service Supply Relationships
table 15.1 & 15.4
Element or Link
Capacity
Management
Before
Limited to use of part-time
employees
Facilitating Goods
High; in anticipation of
demand
Inflexible; standardized and
impersonal
Static; fixed daily
schedules
Service Delivery
Routing and
scheduling
New Service Design
Marketing initiatives based
on firm's perception of
customer needs
Pricing
Fixed
International
Operations
Focus on domestic market
After
Creative use of cross-trained
employees, outsourcing, and
customer self-service.
Lower; owing to process
transparency
Flexible; personable with
customization possible.
Dynamic; based on system
connectivity and process
visibility
Virtual value chain design
with customer data base
information driving new
services
Variable; yield management
promotes off-peak demand
and avoid idle capacity
Global reach with Internet
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Service Supply Relationships
 Service
can be considered as acting on people’s minds (e.g.
education, entertainment), bodies ( e.g. lodging, health care),
belongings ( e.g. auto repair, dry cleaning), and information ( e.g.
insurance, legal) – thus all services act on something provided by
the customer.
 Therefore,
customers are acting as suppliers in the service
exchange – called the customer-supplier duality (see fig. 15.2).
There is a bidirectional relationship between the service delivery
firm, its supplier, and the customer (see table 15.2).
 Table
15.3 shows examples of two-level service supply chains. In
each case, the service provider requires the assistance of a third
party supplier to complete the service.
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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
15-16
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
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Managerial Implications of Bidirectional
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
 For
capacity is analogous to inventory
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
15-18
continued
 Customer
 Thus
supplied inputs can vary in quality
impacting delivery performance of service provider
 Effective
communication is ,therefore, very important
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Sources of Value in Service Supply
Relationships
 Value
in service supply relationship depends on
 bi-directional
optimization
 Management
of productive capacity
 Management
of perishability
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Bidirectional Optimization
 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
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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)
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Management of Perishability
 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
Relationship between stakeholders – how is
service purchasing different?
 Simultaneous
production and consumption, thus requiring
user participation.
to store services – implying that the timing of service
delivery must coincide with the end users consumption
needs. Therefore, the end user must communicate the
needs to the purchasing manager very precisely – otherwise
the consequences of improper timing may be serious and
costly.
 Inability
 Inability
to store services creates quality assurance
difficulties. It may not be possible to inspect a service before
its delivery. Therefore, services have to be continuously
monitored by the end user.
Dr. Rajeev Sawhney
Relationship between stakeholders – how is
service purchasing different?
 The
need-recognition and description stages of acquisition
process offer the greatest opportunity to add value through
strong collaborative relationship with internal users.
Otherwise, the organization will fail to realize the full
contribution in managing its service spend. Therefore,
purchasing managers must become business partners with
major users of the services.
 Greater
effort upfront in identifying and documenting for
intangibles will facilitate supplier search and selection,
administration, and quality control.
Dr. Rajeev Sawhney
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.
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 interrelationship between different services and their suppliers,
and procuring them at the best price.
 Purchaser
 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.
Dr. Rajeev Sawhney
Relationship between stakeholders in a
service purchasing environment
 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.
Dr. Rajeev Sawhney
Key questions that help in need recognition
and description of service
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?
Dr. Rajeev Sawhney
15-28
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
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Outsourcing Process fig. 15.3
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
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Taxonomy for Outsourcing Business
Services, table 15.5
Importance of Service
Focus
of
Service
Process
Low
High
Facility Support:
Equipment Support:
Property -Laundry
-Repairs
-Janitorial
-Maintenance
-Waste disposal
-Product testing
Employee Support:
Employee
People -Food service
Development:
-Plant security
-Training
-Temporary personnel -Education
-Medical care
Facilitator:
Professional:
-Bookkeeping
-Advertising
-Travel booking
-Public relations
-Packaged software
-Legal
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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
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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
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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