Chapter 5:

Service Delivery System

Design
Operations
Management in the
Supply Chain:
Decisions and Cases,
6th edition

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 5 Outline

Defining Service
Service-Product Bundle
Service Delivery System Matrix
Customer Contact
Service Recovery and Guarantees
Globalization of Services
Employees and Service

5-2

The Service Economy

Largest 15 U.S. employers
1960
12 manufacturers
3 services

2010
3 manufacturers
12 services

Sources: Government Accountability Office; Bureau of Labor Statistics; S&P Capital IQ; iSuppli

5-3

Services in Europe
The Service Sector accounts for about
70% of the European economy.

Source: The Wall Street Journal, 4 March 2005, p. A13

5-4

Defining Service

Intangibility of the offering

Simultaneous production and consumption
No finished goods inventory
Front office vs. back office
Cannot be stored/resold

5-5

Service-Product Bundle
Tangible service - explicit service
what the provider does for customer

Psychological benefits - implicit service

how customer feels after service

Physical goods - facilitating goods

used during service or received by customer

Enjoyment

Delivery
vehicle

Pizza
delivery

Pizza
Speed/
convenience

5-6

Goods and Services Packages (Figure 5.1)

Services

Goods
100%

75%

50%

25%

0%

25%

50%

75%

100%

Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services

5-7

Service Delivery System Matrix (Figure 5.2)

Customer Wants and Needs in the Service Package

Highly customized with unique

process sequence.

Standard with options, using

moderately repeatable
sequence.

Customer has
great decision-making power.

Customer has
some decision-making power.

Standardized with highly

repeatable process
sequence.
Customer has
low decision-making power.

Service Delivery System Design

Many process
pathways.
Jumbled flows,
complex work
with many
exceptions.

Customer Routed
Estate planning

Moderate number of
process pathways.
Flexible flows with
some dominant
paths, moderate
work complexity.

Limited number of
process
pathways.

Co-routed

Stock brokerage

Provider Routed
ATM

Line flows, low

complexity work

5-8

Customer Contact
Definition: Extent of interaction between service
provider and customer
Lower contact = provide routed (standardized)
Higher contact = customer routed (customized)

Potential inefficiency = f (degree of customer contact)

5-9

Customer Contact (see Fig. 5.3)

Low customer contact

Higher production efficiency

Lower sales opportunity
Workers with technical skills
Focus on paper handling
Office automation

High customer contact

Lower production efficiency

Higher sales opportunity
Workers with diagnostic skills, more flexible and personable
Focus on client mix
Client/worker teams

5-10

Customer-Introduced Variability
Arrival
when customers will arrive to consume a service

Request
what customers ask for in the service-product bundle

Capability
ability of customers to participate

Effort
willingness of customers to participate

Subjective preference
preferences of customers in how service is carried out

5-11

Managers Tool: Service Recovery

Failing right before the customers eyes!
Actions to compensate the customer for a failed
service.
Swift and appropriate action.
Fly in customers soup New bowl of soup plus free
dessert!

5-12

Managers Tool: Service Guarantee

Benefits to the customer
Promise of service to be delivered
Payout to customer if promise not delivered
FedEx package delivery On time, or it is free!
Good for the organization
Focuses on customer (service promise)
Clearly defines payout
Improves customer loyalty

5-13

Technology-Enabled Services
Contrasting Views:
Production-line approach to service
Standardization
Automation

Employees are the center of service delivery

Use technology to support front-line employees
Value investments in both employees & technology
Place importance on recruiting front-line employees

5-14

Outsourcing & Offshoring Services

Outsourcing:
Having an organization outside your own firm perform
service activities such as workforce recruiting, payroll
management, accounting services, and call center functions.

Offshoring:
The export of these service activities to other countries.

5-15

Study of Offshoring (Duke and Booz & Co. 2008)

Transaction-intensive services becoming commoditized (call
centers, etc.)
Professional services more commonly offshored
High-end niche providers are globally dispersed
Firms moving fast to scoop up global talent
Collaboration and maintaining quality challenging with
globally dispersed providers

5-16

Service Profit Chain (Figure 5.4)

Internal service quality, leads to
Employee satisfaction, leads to
Employee retention & productivity, lead to
External service value (to customer), leads to
Customer satisfaction, leads to
Customer loyalty, leads to
Revenue growth & profitability (the goal)
which feeds investment back into internal service
quality
5-17

Chapter 5 Summary

Defining Service
Service-Product Bundle
Service Delivery System Matrix
Customer Contact
Service Recovery and Guarantees
Globalization of Services
Employees and Service

5-18