1. Service Supply Relationships

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.

3. Supply Chain for Physical Goods

4. Customer-Supplier Duality in Service Supply Relationships (Hubs)

5. Single-Level Bidirectional Service Supply Relationship
Category
Customer
-Supplier
>Input
Output>
Provider
Minds
Student
>Mind
Knowledge>
Professor
Bodies
Patient
>Tooth
Filling>
Dentist
Belongings
Investor
>Money
Interest>
Bank
Information
Client
>Documents
1040>
Tax Preparer

6. Two-Level Bidirectional Service Supply Relationship
Category
Customer
-Supplier
>Input
Output>
Provider
Provider’s
Supplier
Minds
Patient
>Disturbed
Treated>
Therapist
>Prescription
Drugs>
Pharmacy
Bodies
>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

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

8. Impact of Service Supply Relationships

9. Impact of Service Supply Relationships

10. 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

11. Outsourcing Process

12. Taxonomy for Outsourcing Business Services

13. Outsourcing Considerations

14. Outsourcing Considerations

15. Outsourcing Considerations

16. Topics for Discussion
What are some possible disadvantages associated with the product postponement strategy?
Discuss the similarities and differences in the product postponement strategy used by Hewlett-Packard and Taco Bell?
Discuss the implication of service outsourcing on employees, stockholders, customers, and host country economy when a firm outsources a call center overseas.

17. 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.

18. Peapod – Smart Shopping for Busy People
Where are opportunities for bidirectional optimization at Peapod?
How can Peapod manage service perishability?
How can Peapod manage productive capacity?
Suggest reasons why Peapod has not yet become profitable.