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Transcript of Chapter 17 Services 17 - 3 McGraw-Hill/Irwin Purchasing and Supply Management, 13/e © 2006 The...
Chapter 17
Services
17 - 3
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Goods Versus Services Spend
Goods Services
Manufacturing firms (N = 59) 61% 39%
Service firms (N = 23) 19% 81%
Governmental organizations (N = 34) 19% 81%
Total (N = 116) 38% 62%
Source: Harold E. Fearon and William A. Bales, Purchasing of Nontraditional Goods and Services,Tempe, AZ: Center for Advanced Purchasing Studies, 1995.
17 - 4
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Dollars Spent for Purchase of Services
Total and Top 10 Categories Percent of TotalPercent of Total
ServicesPercent of Dollars by
Purchasing
Total services 54.0% 100.0% 27%
Utilities 4.8 9.0 26
Insurance 4.4 8.2 6
Sales/promotion 3.9 7.2 48
Health benefits plans 3.3 6.1 5
Travel: air tickets 3.1 5.8 12
Construction 2.6 4.9 42
Consultants 2.6 4.8 55
Transport of goods 2.5 4.7 33
Banking 2.2 4.2 0
Copying 2.0 3.6 19Source: Harold E. Fearon and William A. Bales, Purchasing of Nontraditional Goods and Services, Tempe, AZ: Center for Advanced Purchasing Studies, 1995.
17 - 5
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Reasons for Lack of Purchasing Involvement in Service Acquisition
• Complexity of specifying service needs and analyzing potential service provides means that the user has greater expertise than purchasing
• The buying of services involves more of a personal relationship between the supplier and user.
• Many services in the past have been available only in a regulated environment, in which price and service-delivery was essentially the same for all suppliers
17 - 6
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
What Makes Services Different?
• Intangible- Cannot touch it
• Perishable- no inventories
• Heterogeneous: The “service package”- high levels of customization
• Customer participation in the production process• Simultaneous production and consumption• Difficult to measure quality
17 - 7
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
A Framework for Analyzing Services
• Value of the service- high, medium low- Pareto/ABC analysis
• Degree of repetitiveness- repetitive versus unique
• Degree of tangibility- Low versus high
• Direction of the service- Directed towards people or assets
Source: William B. Martin, Quality Service: The Restaurant Manager’s Bible, Ithaca, NY: Cornell University,School of hotel Administration, 1986.
17 - 8
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
A Framework for Analyzing Services
• Production of the service- People, equipment or people and equipment- Skill level of people
• Nature of demand- Continuous, periodic or discrete
• Nature of service delivery- Location, time
• Degree of standardization- Standard or customized
• Skills required for the service
17 - 9
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Acquisition Process for Services
1. Need recognition and specification- Key questions:
• Why is this service necessary?• What is important about this service?• What represents good value?• How is quality defined for the service?• How is the service produced?• How do we know we received what we expected?
- Developing the statement of work (SOW): Describes the needs and becomes the basis of the contract
17 - 10
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Acquisition Process for Services
2. Analysis of supply alternatives- sourcing, pricing, other terms and conditions, source options
and make or buy
3. Purchase agreement- Short versus long term; standard versus custom- Service level agreement (SLA): means, method, organization,
processes and material requirements- Pricing structure- Special provisions
17 - 11
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Acquisition Process for Services
4. Contract administration- Follow-up- Quality control- Payment- Records maintenance- Supplier management and evaluation
17 - 12
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Service Quality Evaluation
• Reliability: Ability to perform the promised service dependably and accurately
• Responsiveness: Willingness to help customers and provide prompt service
• Assurance: Knowledge and courtesy of employees and their ability to inspire trust and confidence
• Empathy: Caring, individualized attention the firm provides its customers
• Tangibles: Physical facilities, equipment and appearance of personnel
Source: A. Prasuranman, V.A. Zeithaml and L.L. Berry, “A Conceptual Model of Service Quality and Its Implicationsfor the Future”, Journal of Marketing, Fall 1985, p. 41-50.
17 - 13
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Process for Obtaining Results in Service Acquisition
1. Do the people now in the purchasing department have the skills needed for purchasing services?
2. Do they have the time? Can they make the time?
3. Obtain data on what services are bought by whom and dollar amount.
4. Take one area at a time.
5. Establish the team: user(s) possibly finance, quality and purchasing
17 - 14
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Process for Obtaining Results in Service Acquisition
6. Determine if the buying service satisfies the user and represents effective spending.
7. Purchasing should ensure the use of a logical process and arrive at the contract or agreement.
8. All parties must agree on the specification
9. Explain why any changes are required in supplier, specification, price, terms, etc., to users and senior management
10. Do not interfere with effective service acquisition activities handle by other departments
17 - 15
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Summary of Service Characteristics and Acquisition Process Implications
Service
Characteristic
Acquisition
Process
Need Recognition,
Description
Sourcing
Alternatives
Pricing, Analysis
Agreement,
Contract Provisions
Contract Admin., Follow-up, Q.C., Payment, Records
Value
High high attention
careful
price sensitive
make or buy
likely negotiatedhigh attention
Low lesser attentionlow acquisition cost
local sourcestandard if possible low attention
Repetitiveness
High develop standard test standard longer term standardize
Low seek expert assistance seek expert assistance custom or one shot custom
Tangibility
High specs important pretest, samplessimilar to product purchase
control for physical characteristics
Lowreferences
user involvementpersonalities important specific persons User involvement high
17 - 16
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Summary of Service Characteristics and Acquisition Process Implications
Service
Characteristic
Acquisition
Process
Need Recognition,
Description
Sourcing
Alternatives
Pricing, Analysis
Agreement,
Contract Provisions
Contract Admin., Follow-up, Q.C., Payment, Records
Direction of
equipment equipment familiarity equipment familiarityspecified equipment
performancecontrol process quality
people user involvement high user involvement high people skills importantcontrol quality at user
interface
Production by
equipmentspecify equipment
capability
specify equipment
capability
specify equipment
performance
conditional on
equipment use
peoplespecify people
capabilityworry about capacity specify availability user provides
Demand
continuous continuityreliability and
continuitycomplete coverage
control quality by
sampling
discreteavailability during
need
availability during
needspecify delivery
control quality by
delivery
17 - 17
McGraw-Hill/IrwinPurchasing and Supply Management, 13/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
Summary of Service Characteristics and Acquisition Process Implications
Service
Characteristic
Acquisition
Process
Need Recognition,
Description
Sourcing
Alternatives
Pricing, Analysis
Agreement,
Contract Provisions
Contract Admin., Follow-up, Q.C., Payment, Records
Delivery
at purchaseruser interface
important
user interface
importantaccess clauses in-house Q.C.
at seller good description locationpurchase access and
progress reports
concern over service
completeness
Customizationhigh user specification custom capability special contract
quality control very
specific and may
withhold a large %
of payment
low standard specs competitive bid standard contract standard Q.C.
Skillshigh user specification specify specific persons
availability of
individuals
professional standards, regulations, user involvement
low standard specs competitive bidding standard contract minimize use hassle