Service Supply Relationships

Service Supply Chain Characteristics

There is a customer-supplier duality due to the co-production nature of services.

The service provider typically acts as an agent for the customer when dealing with outside suppliers.

Service capacity is analogous to inventory.

Customer supplied inputs can vary in quality.

Sources of Value in Service Supply Relationships

Bi-directional optimization Managing Productive Capacity

◦ Transfer: make knowledge available (e.g. FAQ page)◦ Replacement: substitute technology for server (e.g. digital

blood pressure device, self-healing technologies)◦ Embellishment: enable self-service and value-capture by

teaching (e.g. simple maintenance, facilitating customers extracting full value from products or services)

Management of perishability

Outsourcing ServicesBenefits

Allows the firm to focus on its core competences Service is cheaper to outsource than perform in-house if the ability to create and capture customer value is low Provides access to latest technology Leverage benefits of supplier economies of scale

Outsourcing ServicesRisks

Loss of direct control of quality Jeopardizes employee loyalty Exposure to data security and customer privacy issues Dependence on one supplier compromises future negotiation leverage

Additional coordination expense and delays (i.e., hidden costs)

Atrophy of in-house capability to perform service

Managing Services Outsourcing Risks

Codify work

Monitor work

Develop metrics to measure process quality

Establish price lock-in contracts

Have multiple vendors

Services Outsourcing Process

Need IdentificationProblem Definition"Do-versus-Buy" AnalysisInvolve Interested PartiesSpecification Development

Information SearchReferencesPersonal ContactRecommendationsTrade Directory

Vendor SelectionExperienceReputationReferences

CostLocationSize

Performance EvaluationIdentify EvaluatorQuality of WorkCommunication

Meet DeadlinesFlexibilityDependability