1 Services and Service Bundling MGMT 511

2 Services and Service Bundling A service is fundamentally different than manufacturing Service bundling provides competitive advantages for a manufacturer

3 The unified services theory With services, the customer provides significant inputs into the production process. With manufacturing, groups of customers may contribute ideas to the design of the product, however, individual customers’ only part in the actual process is to select and consume the output.

4 Nearly all other managerial themes unique to services are founded in this distinction.

5 Defining by customer content With services, an effective means of understanding, analyzing, and comparing processes is on the basis of customer content. There are three general types of customer inputs into service processes: the customer’s self, the customer’s belongings, and/or the customer’s information.

6 Simultaneous production and consumption With services, production (making the service “product”) and consumption often occurs simultaneously, making the exact timing of production a critical issue.

7 Time-perishable capacity With services, capacity is usually time- perishable, meaning that capacity without corresponding demand is lost forever. This is true even though the service product is often not perishable.

8 Customers in inventory The idea of being unable to inventory services is a common misconception. The correct concept is that it is impractical to inventory service production. With services, keeping work-in-progress inventory will enrage the customer. We rarely keep finished goods inventory. Managers do not hide poor management practice under inventory as can happen in manufacturing.

9 Difficulty in maintaining quality With services, quality measurement tends to be subjective and difficult to scale. The standards by which quality is defined are often ambiguous. These unique specifications of quality, coupled with labor-intensiveness and inconsistent customer inputs, make it difficult to provide consistent quality.

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11 Services add value Using services to add value to manufactured products Products are often bundles of goods and services

12 Customer Value Proposition Price Features Quality Delivery Service bundle

13 Emerging Trends Shift in focus from material to immaterial Ô Time Ô Location Ô Mass customization Good service not enough Ô Need to delight the customer Customer loyalty

14 Why Services are Important to Mfg Competitive advantage Very profitable Increased revenues Ô Growth markets Ô Large part of product life cycle

15 Pre-purchase Responsiveness Problem solving Demonstrating knowledge and expertise Design Options, customization Inventory/warehousing Kitting

16 Purchase Warranties and guarantees Maintenance Optional services Delivery Installation Financing

17 Post-purchase Responsiveness Problem solving Maintenance Data collection Warranty – replacement, repair Follow-up sales

18 Example Synthes Internal fixation Manufacture products What services can be bundled?

19 Conclusion Service provides a competitive advantage Services are profitable Services are fundamentally different from manufacturing

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21 Little ‘s’ Service Elements Availability Delivery Flexibility Maintenance Information Recovery

22 Big “S” Elements Knowledge and expertise Improved product performance Customer training Expanded product capabilities

23 Window blinds, shades, etc Blind man, 3-day blinds, e.g. Ô wide variety Ô Custom Ô More expensive WalMart, K-mart, e.g. Ô Limited selection Ô Little customization Ô Lower cost

24 The Unit of Analysis With services, the unit of analysis is a process segment. A process segment is a sequence of steps of production. When processes are dissected into smaller segments, the presence or absence of service principles becomes more pronounced.