LECTURE 2 SERVICE SUPPLY CHAIN

Transcription

1 LECTURE 2 SERVICE SUPPLY CHAIN Learning Objective 1. To present supply chain issues specific to service industry

2 10.4 Supply Chain Any service delivery system can be viewed as a chain or network of activities, which involves number of participants. Just like supply chain in manufacturing, in services also we can see that all the participants are related to each other. The objective of achieving efficiency and or responsiveness is equally important and relevant in the whole network of participants involved in delivery service called service supply chain. The structure of supply chain can vary from a simple serial supply chain to a broad network of supply chain entities. Example A chemist shop in any hospital get the delivery of drugs from a distributor, who in turn get the medicines or drugs from a pharmaceutical company. A chemist, distributor and pharmaceutical company are participants of service supply chain as shown in Figure Flow of funds and information Pharmaceutical company Distributor Chemist s Flow of drugs and information service supply chain of drugs FIGURE 10.2: PHARMACEUTICAL SERVICE SUPPLY CHAIN In retail sector, the supermarket has to manage many different suppliers ranging over food items, fashion jewellery, apparel, leather items etc. Handling and managing so many suppliers are like managing a web or a network of so many participants in service supply chains, where intermediaries play a very important role. Many insurance and financial companies choose to sell their service products through brokers or agents. A supply chain is the network or a chain linking focused organization with its suppliers, supplier s supplies and customers. Supply chain deals in the management of the flow of information, materials, services and money among supply chain entities as shown in Figure 10.3.

3 Tier 2 suppliers Tier 1 suppliers Manufactures Distributor Retailer Wholesaler Flow of resources (Inventory & funds) and information FIGURE 10.3: A TYPICAL SUPPLY CHAIN Inventory and information play a very important role in any supply chain. A service supply chain of a service product, which delivers bundle of goods and services, is also expected to manage and maintain inventory effectively. Inventory is more important in such services to increase service level and responsiveness. Examples:- We all understand how are the product availability on the shelves of supermarkets and availability of spare parts at auto repair auto servicing center crucial for a successful service delivery Specific issues in service supply chains It is very important to understand the reasons which make service supply chain different form that of goods supply chains. Some of them are discussed below supplier duality In services, the service activity is initiated by the customers. is an act or deed performed on the customer s mind, body, belongings or information provided by the customer. Hence, customer acts like a supplier to the service provider who provides something to get the service done. This dual role of customer, of being supplier also, in service exchange is called as customer-supplier duality. The customer-supplier duality is

4 also known as bidirectional relationships between service provider and customer as shown in Figure Delivered as supplier too in bidirectional relationship Provider Inputs provided by the customer (body, belongings and information) FIGURE 10.4:- BIDIRECTIONAL RELATIONSHIP BETWEEN SERVICE PROVIDER AND CUSTOMER The bidirectional relationship can be single-level bidirectional or two level bidirectional as shown in Figure Provider Inputs A) SINGLE LEVEL BIDIRECTIONAL RELATIONSHIP Supplier to the service provider s Inputs Provider Inputs B) TWO-LEVEL BIDIRECTIONAL RELATIONSHIP FIGURE 10.5: (A) SINGLE LEVEL AND (B) TWO-LEVEL BIDIRECTIONAL RELATIONSHIP

5 In single level bidirectional relationship, customer provides inputs to the service provider and service provider performs the service. The service provider converts the inputs into an output in the service production process and delivers to the customer. In two-level bidirectional relationship service provider employs another service provider (second level) or supplier who assists with the processing of customer inputs. This is also analogous to situation where some service providers (initial) outsource the repair work or any service to other service provider, that is second level service provider. That means the initial service provider acts as an interface between the second level service provider and customer. Various examples of Single-level and Two-level bidirectional relationships can be seen in Table 10.5 and Table 10.6 respectively. TABLE 10.5: SINGLE-LEVEL BIDIRECTIONAL RELATIONSHIP as as Type of Provider supplier supplying customer receiving inputs service Transport Airline Passenger Themselves (bodies) and luggage Transported passengers and luggage Education Educational institutions Students Minds Enlightened mind Healthcare to remove tumor Doctor or Surgeon Patient Body with tumor Body without tumor

6 TABLE 10.6: TWO-LEVEL BIDIRECTIONAL RELATIONSHIP Type of service Supplies of initial service provider Initial service provider supplying inputs to the initial service provider who sends to the another supplier as supplier as customer Healthcare Laboratory Doctor s clinic Patient Blood and test request Test results and diagnosis Insurance Insurance company Agent Insurance seeker Risk Assurance Education (Entrance Exams) Examination coordinators Examination centre Students Filled answer sheets Evaluated answer sheets Pure services provide packaged service providers of some of the pure services provide their respective services in the form of packaged service. Packaged service is a set of more than one service offered together by different service provider. It can be widely seen in hospitality and tourism industry or holiday industry, how travel agent through tour operator form link with hotels, airlines, transportation and restaurants to provide customers with a complete holiday experience as shown in Figure 10.6.

7 Airlines Hotels Transportation Providers Tour Operator Travel Agent Tour Operator Set of services FIGURE 10.6: TOURISM AND HOSPITALITY SUPPLY CHAIN Outsourcing In recent past most of the organizations have started outsourcing their internal functions to focus on core competencies. outsourcing is also referred to as Business Process Outsourcing (BPO), which has become specialist firms offering focused services. Most of the service companies like banking, financial services, and insurance (BFSI) and telecommunication service providers are outsourcing their in-house service products to outsource to IT and ITeS companies. IT and ITeS industry is poised to go beyond US$ 100 billion mark in 2012 with global BFSI clients accounting for over 40 per cent of Indian IT vendors' revenues. One advantage of BPO for any organization is to focus on core competency but other important aspect is for the companies having global presence to outsource to the domestic companies to capture the local demand of customers or clients. It helps in understanding the local customer requirements better by outsourcing services like technical requirements and customer service supporting. Outsourcing also helps in reducing employee base within an organization and hence reduces operating cost of the organization which leads to economies

8 of scale. At the same time companies can get access to extra capacity and resources which might be an expensive process to build in-house. Examples 1. Allianz Life Insurance Company Allianz Life Insurance Company of North America outsources a number of services to many companies. Some of these companies with their type of service are given in Table Table 10.7: s outsourced to various companies by Allianz group Name of outsourced company IBM AT&T Tata Consultancy s Accenture Type of service Infrastructure management, Data centers, Desktop and Help desk support Network-related services, Data communications as well as Voice over IP (VoIP), Security in the form of network firewall management, Local area networks, Internet Protocol telephony, Remote access, and Mobility management services Backs up IBM from offshore and performing any legacy system maintenance from India Complements the larger suppliers by developing and maintaining new applications. Apart from the above service providers Allianz has outsourced hosted services like data management system and website services to ACS and Hewlett-Packard. Allianz negotiates strict service level agreements (SLAs) with service providers and hosted services. 2. HMEL HMEL is a joint venture (JV) between Hindustan Petroleum Corporation Ltd. (HPCL) and Mittal Energy Investment Pte Ltd., Singapore. HMEL has sourced IBM analytics-based software solution to manage financial and operations related activities. The new solution

9 helps HMEL to analyze important business processes like planned versus actual investments, production, key performance indicators and provides an integrated view of data Managing suppliers in service supply chains Manufacturing and services sectors have always focused more on purchasing of goods which is easy to manage and control. It is more difficult to control the purchasing of services like real estate, travel or transportation, advertising, software solutions and legal services seem lacking and difficult to control. One such difficulty which companies face is the overbilling in a variety of service contracts, differences in defining service levels by vendors, relating purchasing with real worth of purchased service etc. In manufacturing most of the buying is contributed by raw materials. In services it is not raw materials but service organizations spend on materials, components, IT equipment & supplies, travel & insurance, stationary, which approximately is % of an organization s turnover. From the past many years, procurement is regarded as a high cost activity which involves unnecessary paperwork, material costs and errors. The other challenge in managing procurement function in services is to manage purchasing activities of large number of branches and offices of a service company located in different regions (countries) or locations. organizations like banks and insurance companies have to have branches in all the states and cities. sectors like banks, hospitality and ITeS companies are generally large employee base sectors. In India, IT and ITeS have employed approximately 10 million Indians. IBM has its presence in 200 cities and towns in India. To accommodate such huge employee base, companies spend more on real estate, housekeeping, office supplies, desktops and other utilities. The control of purchasing of goods is provided by the match of an invoice, purchase order and shipping document, which is very common in manufacturing sector. The purchase of goods can also be seen as clear per unit price charged by the supplier. But in services the purchasing control is governed by invoice that is summary of whole service provided and purchase document. Tracking of

10 unsatisfactory service is very difficult in services. There are many suppliers in the market which sign contract either for one of the above service or suppliers, which provide entire set of activities like Jones Lang Lasalle. Centralizing the purchasing through web or e-procurement channels helps reducing overhead cost and reduces duplication of work. In an effort to centralize the purchasing, service companies now a days are outsourcing purchasing activities to companies and prefer to have same supplier for all the offices and branches. To manage their suppliers, the companies follow strict Level Agreements and continuously review their performance. Company like Allianz group outsource its major chunk of services to IBM and AT&T. Allianz have a comprehensive balanced score card to review performance of IBM every month based on some important key performance indicators like system availability and response time to repair. Example Jones Lang Lasalle (JLL) is a financial and professional services provider specialized in real estate services. JLL provides integrated facility management services to service sectors like hotels, retail and ITeS. The major services they provide are Engineering services, soft services, workplace solutions and space/occupancy services. JLL helps service companies to optimize their resources across various offices and/or branches to reduce operating costs and to improve productivity. The details of services under these major services are given in table 10.8

11 TABLE 10.8: INTEGRATED FACILITY MANAGEMENT SERVICES PROVIDED BY JLL Engineering services Soft services Workplace solutions Space/occupancy services HVAC Electrical Lifts Plumbing Energy Utilities Janitorial Cleaning Landscaping Security Reception Mail Reprographics Catering Transport Concierge Archiving Minor projects Space planning Moves/adds/ changes Headcount tracking Simultaneous production and delivery s are created and consumed simultaneously in service. There is no option of return or exchange of service product unlike in manufactured goods. Example When a company hires a IT service provider for network configuration or for any other hardware service and the service provider fails to perform as per client s satisfaction, the client cannot return the service product for a refund. Infact client might have to spend more money to rework or to perform additional work. But the client will be so locked in with such service provider that they will not be able to hire or switch to another service provider Short service supply chain supply chains are generally very short for some of the services. For example service providers like dry cleaners and shoe repair hardly have many tiers of suppliers.

12 10.6 Challenges in managing service supply chains Human element in services In services human capital is the most contributory asset. Each human being is unique regardless of training given to them. Each employee works differently even if standardized procedures prevail in organization. Due to varying outcome of each employee, managing and controlling performance of service SC becomes a challenging task. The other factor impacting the performance of service supply chain is the influence of local environment which in broad sense will become more varying from global perspectives. Most of the service organizations have presence globally Difficulty in measuring performance of service supply chain The output or outcomes of services which are measured in terms of service level agreements are not as precise as the clear specifications exist in goods supply chain. In service delivery it is very difficult to produce the complete service package in advance of the actual demand realized, which further adds to the complexity in measuring the performance of service. Generally, supply chain set responsiveness as important performance measure. In service supply chain like repair and servicing centre, even if the servicing employee is prompt and ready to serve, the unavailability of parts can affect the responsiveness Varying output In services, the output outcome or economic activity generated varies greatly over time period, with region in which service is performed, with human skill and capability, with the level of understanding of customer as shown in Table 10.9.

13 TABLE 10.9: DIFFERENT TYPES OF SERVICE OUTPUT Education Places of worship Movies Output Intellectual Spiritual Experiential So, different outcomes demand for different supply chain models. The definition of supply chain management is applicable to some services like retail sector or repair and servicing centres. But for professional services, the service supply chain management can be defined as Managing information, processes, capacity, service performance and funds from the earliest supplier to the ultimate customer (Ellarm et al., 2004). In the above definition we see capacity coming into picture. In services there is transfer of service capacity in the form of service provider s assets and staff. In services, the capacity plays the same role of buffering as inventory plays in goods supply chain. This buffering effect of capacity may also result in responsiveness and flexibility in service supply chain.