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Chapter 13

Service Supply Relationships

Copyright 2008 by The McGraw-Hill Companies, Inc. All


McGraw-Hill/Irwin
Rights Reserved.
Service Management: Operations,
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.

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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)

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 Custome >Input Service >Input Provider
Category r Output> Provider Output> s
-Supplier Supplier
Minds Patient >Disturbe Therapis >Prescriptio Pharmac
d t n y
Treated> Drugs>
Bodies Patient >Blood Physicia >Sample Lab
Diagnosis n Test Result>
>
Belonging Driver >Car Garage >Engine Machine
s Repaired> Rebuilt> Shop
Informatio Home >Property Mortgag >Location Title
n Buyer Loan> e Clear Title> Search
Compan 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
Impact of Service Supply
Relationships

13-9
Impact of Service Supply
Relationships (cont.)

13-10
Professional Service Firms
Body of Knowledge

Cognitive knowledge (know-what)


Advanced skills (know-how)
Systems understanding (know-
why)
Self-motivated creativity (care-
why)
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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
13-12
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
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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 future
negotiation leverage
Additional coordination expense and delays
Atrophy of in-house capability to perform service
13-14
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

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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

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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
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Topics for Discussion
How can effective goods supply chain
management support environmental
sustainability?
Explain why the goods analogy of a supply
chain is inappropriate for services?
Discuss the implication of service
outsourcing on employees, stockholders,
customers, and host country economy when
a firm outsources a call center overseas.

13-20
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).
Be prepared to argue why such
service relationships are so rare.
13-21
Boomer Consulting

1. How does The Boomer Technology Circle


illustrate the concept of the bidirectional
service supply relationship?
2. How has Boomer Consulting made the
client a coproducer in the service delivery
process?
3. How is the concept of leverage achieved
by Boomer Consulting?
4. Can the Boomer Technology Circle be
applied to other industries? What are
some of the risks in pursuing this strategy?

13-22
Peapod Smart Shopping for
Busy People

1. Where are opportunities for


bidirectional optimization at
Peapod?
2. How can Peapod manage service
perishability?
3. How can Peapod manage productive
capacity?
4. Suggest reasons why Peapod has
not yet become profitable.
13-23

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