Service Supply Chain
Customer-Supplier Duality
• In services, the service activity is initiated by the
customers. Service 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.
Customer-Supplier Duality
Customer-Supplier Duality-1 Level
Customer-Supplier Duality-2 Level
Customer-Supplier Duality
• 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
Customer-Supplier Duality
Customer-Supplier Duality
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 Services
Benefits
• 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 Services
Risks
• 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 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
