Service Supply Relationships

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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 Supply Chain for Physical Goods

Suppliers
Disposal
Recycling/Remanufacturing

Product and Manufacturing Distribution Retailing After-sales

Consumer
Process Design Service

Material Transfer Information Transfer

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Customer-Supplier Duality in
Service Supply Relationships (Hubs)

Supplier

Service Service
Provider Customer
Design

Material transfer Information transfer

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Single-Level Bidirectional
Service Supply Relationship
Service Customer >Input Service
Category -Supplier Output> Provider

Minds Student >Mind Professor

Knowledge>
Bodies Patient >Tooth Dentist
Filling>
Belongings Investor >Money Bank
Interest>
Information Client >Documents Tax Preparer
1040>
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 Two-Level Bidirectional
Service Supply Relationship
Service Customer >Input Service >Input Provider’s
Category -Supplier Output> Provider Output> Supplier

Minds Patient >Disturbed Therapist >Prescription Pharmacy

Treated> Drugs>

Bodies Patient >Blood Physician >Sample Lab

Diagnosis> Test Result>

Belongings Driver >Car Garage >Engine Machine

Repaired> Rebuilt> Shop

Information Home >Property Mortgage >Location Title

Buyer Loan> Company Clear Title> Search

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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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 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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 Social media in services
 A wide reach that is decentralized, less
hierarchical, and has multiple points of
production and consumption.
 Easy access that generally is available to the
public at little or no cost.
 Ease of use that does not require specialized
skills and training, or requires only modest
reinterpretation of existing skills.
 Social media in services
 Immediacy that allows instantaneous
responses.
 Flexibility that allows information to be
altered almost instantaneously by
comments or editing.
 Social Media as a
Competitive Strategy
 Tune-up reminders
 Cookie-cutter presence in cyberspace
 Lead generation
 Customer education
 Start online, finish offline
 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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 Professional Service Firms
Operational Characteristics
 Profit-per-Partner
 Pr ofit  Fees  Staff 
Pr ofit  per  Partner     
 Fees  Staff  Partners 

  M arg in  Pr oductivity  Leverage 

 Productivity
Fees  Fees  Hours 
Pr oductivity    
Staff  Hours  Staff 

 Value Utilization 
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Profitability Tactics
Tactic 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 Productivity

Drop unprofitable services

Drop unprofitable customers

Increase Volume Productivity
Increase utilization

Lower Variable Costs Leverage

Improve engagement management
Increase leverage of professionals

Increase the use of paraprofessionals

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 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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 Outsourcing Process
Need Identification Information Search Vendor Selection
Problem Definition References Experience Cost
"Do-versus-Buy" Analysis Personal Contact Reputation Location
Involve Interested Parties Recommendations References Size
Specification Development Trade Directory

Performance Evaluation
Identify Evaluator Meet Deadlines
Quality of Work Flexibility
Communication Dependability

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 Taxonomy for Outsourcing
Business Services
Importance of Service
Low High
Facility Support: Equipment Support:
Property -Laundry -Repairs
-Janitorial -Maintenance
Focus -Waste disposal -Product testing
Employee Support: Employee Development:
of People -Food service -Training
-Plant security -Education
-Temporary personnel -Medical care
Service Facilitator: Professional:
Process -Bookkeeping -Advertising
-Travel booking -Public relations
-Packaged software -Legal

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 Outsourcing Considerations
Focus on Property
Facility Support Service
• Low cost
• Identify responsible party to evaluate performance
• Precise specifications can be written

Equipment Support Service

• Experience and reputation of vendor
• Availability of vendor for emergency response
• Designate person to make service call and to
check that service is satisfactory
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 Outsourcing Considerations
Focus on People

Employee Support Service

• Contact vendor clients for references

• Specifications prepared with end user input
• Evaluate performance on a periodic basis
Employee Development Service

• Experience with particular industry important

• Involve high levels of management in vendor
identification and selection
• Contact vendor clients for references
• Use employees to evaluate vendor performance
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 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
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