This document discusses service supply chain relationships and outsourcing services. It notes that in services there is a co-production relationship between the customer and provider. The provider acts as an agent for the customer when dealing with outside suppliers, and service capacity is like inventory. Outsourcing services allows a firm to focus on core competencies and leverage supplier scale, but it risks loss of quality control, employee loyalty, and dependence on one supplier. The document provides tips for managing outsourcing risks such as codifying work, monitoring processes, and using multiple vendors.

1. Service Supply Relationships

2. 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.

3. 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

4. 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

5. 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

6. Managing Services
Outsourcing Risks
Codify work
Monitor work
Develop metrics to measure process quality
Establish price lock-in contracts
Have multiple vendors

7. Services Outsourcing Process
Need Identification
Problem Definition
"Do-versus-Buy" Analysis
Involve Interested Parties
Specification Development
Information Search
References
Personal Contact
Recommendations
Trade Directory
Vendor Selection
Experience
Reputation
References
Cost
Location
Size
Performance Evaluation
Identify Evaluator
Quality of Work
Communication
Meet Deadlines
Flexibility
Dependability