Chapter 15 Service Supply Relationships

2 Deming’s 14-Points Point 4 End the practice of awarding business on price tag alone.

3 Learning Objectives 1. Contrast the supply chain for physical goods with the customer-supplier duality of services. 2. Discuss the challenge of managing service supply relationships. 3. Classify business services based on the focus of the service and its importance to the outsourcing organization. 4. Discuss the managerial considerations to be addressed in outsourcing services.

4 Supply Chain for Physical Goods Material transfer Information transfer Suppliers Customer Recycling/Remanufacturing Process and Product Design MfgDistribution Customer Service Retailing

5 Customer-Supplier Duality in Service Supply Relationships (Hubs) Supplier Customer Material transfer Service Design Service Provider Information transfer

6 Single-Level Bidirectional Service Supply Relationship ServiceCategoryCustomer-Supplier >Input Output>ServiceProvider MindsStudent >Mind Knowledge>Professor BodiesPatient >Tooth Filling>Dentist BelongingsInvestor >Money Interest>Bank InformationClient >Documents 1040> Tax Preparer

7 Two-Level Bidirectional Service Supply Relationship ServiceCategoryCustomer-Supplier >Input Output>ServiceProvider Output>Provider’sSupplier MindsPatient >Disturbed Treated>Therapist >Prescription Drugs>Pharmacy BodiesPatient >Blood Diagnosis>Physician >Sample Test Result> Lab BelongingsDriver >Car Repaired>Garage >Engine Rebuilt>MachineShop InformationHomeBuyer >Property Loan>MortgageCompany >Location Clear Title> TitleSearch

8 Sources of Value in Service Supply Relationships Managing Productive Capacity 1. Transfer make knowledge available web based FAQ 2. Replacement substitute technology for server digital blood pressure device 3. Embellishment enable self-service by teaching change surgical dressing Managing Productive Capacity 1. Transfer make knowledge available web based FAQ 2. Replacement substitute technology for server digital blood pressure device 3. Embellishment enable self-service by teaching change surgical dressing Management of Perishability Management of Perishability 1. Time allotment based on “best use” real-time schedules 2. Idle time for training computer-based (mobile data terminals)

9 Outsourcing Services Benefits llows the firm to focus on its core competence 1. Allows the firm to focus on its core competence 2. Service is cheaper to outsource than perform in-house 3. Provides access to latest technology 4. Leverage benefits of supplier economy of scale

10 Outsourcing Services Risks 1. Loss of direct control of quality 2. Jeopardizes employee loyalty 3. Exposure to data security and customer privacy 4. Dependence on one supplier compromises future negotiation leverage 5. Additional coordination expense and delays 6. Atrophy of in-house capability to perform service

11 Outsourcing Process Need Identification Problem Definition "Do-versus-Buy" Analysis Involve Interested Parties Specification Development Information Search References Personal Contact Recommendations Trade Directory Vendor Selection Experience Reputation References Cost Location Size Performance Evaluation Identify Evaluator Quality of Work Communication Meet Deadlines Flexibility Dependability

12 Taxonomy for Outsourcing Business Services

13 Outsourcing Considerations

14 Outsourcing Considerations

15 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