1. Chapter 13 Service Supply Relationships
McGraw-Hill/Irwin
Service Management: Operations, Strategy, and Information Technology, 6e
Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. 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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3. Supply Chain for Physical Goods
Suppliers
Product and Process Design
Manufacturing
Distribution
Retailing
Consumer
Disposal
Recycling/Remanufacturing
After-sales
Service
Information Transfer
Material Transfer
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4. Customer-Supplier Duality in Service Supply Relationships (Hubs)
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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
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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
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7. 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
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8. 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
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9. Impact of Service Supply Relationships
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10. Impact of Service Supply Relationships (cont.)
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11. 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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12. Professional Service Firms Operational Characteristics
Profit-per-Partner
Productivity
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13. Profitability Tactics
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
Drop unprofitable services
Drop unprofitable customers
Increase Volume
Increase utilization
Lower Variable Costs
Leverage
Improve engagement management
Increase leverage of professionals
Increase the use of paraprofessionals
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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
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15. Outsourcing Process
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16. Taxonomy for Outsourcing Business Services
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17. Outsourcing Considerations
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18. Outsourcing Considerations
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19. Outsourcing Considerations
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20. 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.
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21. 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.
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22. Boomer Consulting
How does The Boomer Technology Circle illustrate the concept of the bidirectional service supply relationship?
How has Boomer Consulting made the client a coproducer in the service delivery process?
How is the concept of “leverage” achieved by Boomer Consulting?
Can the Boomer Technology Circle be applied to other industries? What are some of the risks in pursuing this strategy?
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23. 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.
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