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Service Supply Relationships
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Learning Objectives
Contrast the supply chain for physical goods with thecustomer-supplier duality of services.
Discuss the challenge of managing service supplyrelationships.
Classify business services based on the focus of theservice and its importance to the outsourcingorganization.
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-Wrightalgorithm.
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Supply Chain for Physical Goods
Material transfer Information transfer
Suppliers
Process and
Product
Design
Manufacturing Distribution Retailing CustomerCustomer
Service
Recycling/Remanufacturing
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Customer-Supplier Duality in
Service Supply Relationships (Hubs)
Material transfer Information transfer
Supplier
Service
Design
Service
Provider Customer
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Single-Level Bidirectional
Service Supply RelationshipServiceCategory
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
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Two-Level Bidirectional Service
Supply RelationshipService
Category
Customer
-Supplier
>Input
Output>
Service
Provider
>Input
Output>
Providers
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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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 forserver (e.g. digital blood pressure device)
- Embellishment: enable self-service byteaching (e.g. change surgical dressing)
Management of Perishability
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Impact of Service Supply Relationships
Element or Link Before AfterChannel Structure Functional silos Process orientation
Service Recipient Passive Active as a co-producer
Channel Integration Vertical (own the channel to
integrate)
Virtual (IT and other
mechanism permit integration
without ownership)
Flow of Service Available waiting for demand Activated upon demand
Flow of Information(upstream)
Pull: manual reporting ofdemand data results in
delayed management
response.
Push: high level of connectivityand transparency with fast or
instantaneous access to most
recent demand data.
Flow of Information
(downstream)
Little or no knowledge of
resource deployment
Real-time tracking and
dispatching
Business Processes Predominantly in-house;
locally optimized forefficiency
In-house for key processes,
others out-sourced forflexibility; integrated and
synchronized to match supply
with demand
Demand Management Limited to use of
appointments and
reservations.
Proactive involving customer in
scheduling to achieve bi-
directional optimization
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Impact of Service Supply Relationships
Element or Link Before After
Capacity Management Limited to use of part-time
employees
Creative use of cross-trained
employees, outsourcing, and
customer self-service.
Facilitating Goods High; in anticipation of
demand
Lower; owing to process
transparency
Service Delivery Inflexible; standardized and
impersonal
Flexible; personable with
customization possible.Routing and scheduling Static; fixed daily schedules Dynamic; based on system
connectivity and process
visibility
New Service Design Marketing initiatives based on
firm's perception of customer
needs
Virtual value chain design with
customer data base information
driving new services
Pricing Fixed Variable; yield managementpromotes off-peak demand and
avoid idle capacity
International
Operations
Focus on domestic market Global reach with Internet
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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 futurenegotiation leverage- additional coordination expense and delays- atrophy of in-house capability to perform service
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Outsourcing Process
Need Identification
Problem Defini tion"Do-versus-Buy" AnalysisInvolve Interested Parties
Specification Developmen t
Information Search
ReferencesPersonal ContactRecommendations
Trade Directory
Vendor Selection
ExperienceReputationReferences
CostLocationSize
Performance Evaluation
Identify Evaluator
Qual ity of WorkCommunication
Meet Deadli nes
FlexibilityDependability
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Taxonomy for Outsourcing
Business ServicesImportance of Service
Low High
Property
Focus
Facility Support:
-Laundry
-Janitorial-Waste disposal
Equipment Support:
-Repairs
-Maintenance-Product testing
of People
Employee Support:
-Food service
-Plant security
-Temporary personnel
Employee Development:
-Training
-Education
-Medical care
Service Process
Facilitator:-Bookkeeping
-Travel booking
-Packaged software
Professional:-Advertising
-Public relations
-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 foremergency response Designate person to make service call and to
check that service is satisfactory
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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
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Topics for Discussion
What are some possible disadvantagesassociated with the product postponementstrategy?
Discuss the similarities and differences in the
product postponement strategy used byHewlett-Packard and Taco Bell?
Discuss the implication of service outsourcingon employees, stockholders, customers, and
host country economy when a firmoutsources a call center overseas.
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Interactive Exercise
The class divides into small groups andmembers come up with examples of
multilevel bidirectional servicerelationships (i.e, service supplierrelationships with three or more levels).
Be prepared to argue why such servicerelationships are so rare.
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PeapodSmart Shopping for Busy People
1. Where are opportunities forbidirectional optimization at Peapod?
2. How can Peapod manage serviceperishability?
3. How can Peapod manage productive
capacity?4. Suggest reasons why Peapod has not
yet become profitable.