1. Managing Customer Satisfaction
Week 4
Managing Supply Relationships

2. Unit objectives Identify the main types of supply relationships
Define supply chains, explore service applications & discuss main issues in supply chain management (SCM)
Identify the use and management of intermediaries
Identify the main types of supply partnerships and how they can be managed effectively
Evaluate the role of service level agreements

3. Introduction
Purpose: describe the Management of the relationships involved in delivering service to the end customer
SCM grew out of manufacturers’ need to synchronize all the elements in the SC:
Increase product availability
Respond quickly to changes in consumer demand
Maintain or reduce inventory levels

4. A simple supply chain

5. Types of supply relationships
Service supply chains or networks
Management through intermediaries
Management through supply partnerships

6. Service supply chains Service provider’s concerns: cost & quality
Service providers have several supply chains, e.g., supermarket:
Cleaning service
Legal services and auditing
Food items through wholesalers, distributors, producer (direct)
Supplier and customer levels are called “tiers”: first-tier (direct contact with service provider), second-tier, etc.

7. Multi tiered supply chain

8. Management through intermediaries
‘Middlemen’ or distributers, agents, dealers who manage part of the SC
E.g., car manufacturers have dealers
Disintermediation—reducing the number of intermediaries
The Internet and disintermediation
Outsourcing—increasing the number of intermediaries

9. Holiday supply chains and disintermediation

10. Managing service supply chains
A supply chain is a network that joins together internal and external suppliers with internal and external customers
Supply chain management (SCM) is concerned with managing the network and flow of information, materials, services, & customers through the network

11. Managing service supply chains
Information is essential to anticipate and meet demand
In practice, information is not always shared (supplier power, producer power)
Reasons why there is always inventory in the SC
Processes require work in progress (cannot produce one item at a time)
Inventory must be available to meet demand with 100% accuracy (processes are inflexible & unreliable)
SCM is targeted at reducing inventory
Figure 5.2, pg. 144

12. The value of SCM The value of SCM
Provides the benefits of vertical integration
Eliminates long-term overhead & inflexibility of managing all the activities of SCM within one organization

13. SCM approaches
The basis of SCM lies in the development of strong buyer-supplier partnerships
Helper (1991), ten year study of US auto industry:
weak suppliers
powerful buyers
Increasing use of JIT manufacturing process

14. Information exchange in supply partnerships
Categories (4)
Voice—partnership, collaboration, long-term, joint R&D
Exit—traditional (adversarial), competitive pricing, short term, buyer still searching for lowest price
Unlikely—unlikely that a long-term relationship is possible, buyer may not want to become dependent on one supplier
Stagnant—sense of commitment but relationship has not developed
Figure 5.4, pg. 148

15. Key elements of SCM
Management of the SC in its entirety using measures to assess performance
Buyer/supplier partnerships to share benefits
Reduction of the number of suppliers
Increased exchange of information
Possibility of redirecting activities to the most effective position in the SC

16. Benefits of SCM Reduction in the total cost of inventory
Reduced administration overheads involved in managing multiple relationships
Collaboration in scheduling & process improvement
Faster response to changes in market demand

17. Purchasing function
Procurement/purchasing responsible for managing the SC
Identify internal customer’s needs
Translate needs into specifications
Manage the delivery of goods & services
Assess customer satisfaction
Communication with suppliers
Sourcing through invoicing
‘Cinderella’ operation
PWC study: 10% reduction of costs = 50% increase in profit margin

18. E-procurement Disintermediation—desktop procurement Benefits:
Customer satisfaction (more work but greater control)
Process compliance (more reliable since easier for individuals to use—transparency)
Cost reduction (reduced ‘just in case’ purchasing)

19. Lean manufacturing
Toyota production system to eliminate waste (muda): anything that creates no value for the customer (Toyoda & Ohno)
Value must be defined by the customer
Remove non-value producing activities from the value stream
Create flow – pipeline vs. batched work
Pull vs. push – demand driven
McD replenishes burgers as customers buys them
Strive for perfection – developing a culture of continuous improvement

20. Applying lean thinking to service operations
Ohno’s 7 sources of muda
Over-production ahead of demand
Waiting for the next process step
Unnecessary transport of materials
Over-processing or parts due to poor process design or technology
Excessive inventories
Unnecessary movement of employees
Defective production

21. Barriers to SCM improvement
Lack of systems capability—inability to pass information about demand along the SC
Complacency (Toyota?)
Information used for conflicting purposes—sales forecasts
Mistrust
Power games—fear of being overwhelmed by a more powerful partner

22. Managing through intermediaries
Why use intermediaries?
Closeness to customer
Local knowledge
Focused expertise (Microsoft, 5.3, pg. 155)
Poor service margins
Insufficient capacity (subcontracting)

23. Forms of service: Military model
The Commandos—highly trained, self-directed, complex projects (software)
The Regulars—less comprehensively skilled
Part-timers—provided by the customers
Mercenaries—not part of the parent organization, may not share its culture
Enemies—not on the same side, parent company may have decided not to provide service

24. The military model

25. Motivating mercenaries
Financial incentives
Punishments
Providing expertise
Training—McDonald’s Hamburger University
IS & IT support

26. Alliances Types Focused or complex—level of involvement
Joint venture—forming a new company
Partnership—forming a strategic alliance

27. Service level agreements
SLAs are contracts between the service supplier and purchaser (B2B) considered to be an integral part of the developing relationship between the two
Activities:
Setting a service specification
Dealing with routine issues
Development of the relationship—on-going review and revision
SLAs are tailor made

28. Strategic alliance success factors