Using Service Supply Chain to Improve Business Profitability

Services have led to major structural changes across the global economies in the last decade or so. Besides the advantages that they provide, such as an increased contribution to GDP, an increase in employment opportunities and the stimulation of manufacturing potential, services provide constant and consistent revenues for businesses. 

 
CFOs and manufacturing businesses have discovered the potential of service businesses to deliver reasonable profit margins. (Cohen, 2005). Way back in 1976, Earl Sasser had, in his seminal article, proposed the concept of the “service-product” as a bundle of goods and services offered to customers. Sasser published the earliest books on “Service Operations Management” in 1978 egged on by the response to his seminal work.

Why have services become so important?

Growing academic interest in servitization is a clear indicator of the reliance of manufacturing services. In simple terms, servitization is the mechanism by which manufacturing companies use services rather than manufacturing to grow their business. IBM was once a hardware company but today it is known as a solutions provider as it has greatly expanded its service footprint. After-sales service has become an integral component of customer offerings today.

As products have become commoditized, margins on existing products shrink and so services provide the opportunity for differentiation. After-sales support provides a low-risk, long-term revenue stream – especially when customers own products for extended periods of time.

Service quality and business growth

Customer satisfaction in services is more skewed towards perception. This is what prompted research on the SERV-QUAL model that became a path-breaking seminal work in service marketing literature. In this model, service quality manifests itself in 5 dimensions – Reliability, Responsiveness, Empathy, Assurance & Tangibles. Managing customer perceptions influences service quality which in turn has a bearing on customer satisfaction and business profitability.
 
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Influence of outsourcing on services

As in manufacturing, outsourcing has also become a reality in services. However, services outsourcing presents its own set of challenges. In service triads, information asymmetry between the actors and opportunism risk are grave challenges. Additionally, whether the outsourced entity has delivered the services as per the governance standards put forward always remains an insurmountable challenge.

There is no doubt that outsourcing has increased the competitiveness of manufacturing. As companies focus on their core competence, they can afford to divert attention to strategic areas as they outsource the routine activities. Focusing on after-sales service support helps in adding greater value to customer needs. In the case of pure services, the situation is slightly different. As the customer is the co-creator of value in services, services outsourcing is beset with a myriad of challenges. Trust and relational governance are major drivers for services outsourcing. In some cases, the capability of the outsourced entity and not the cost are drivers for the decision to outsource services.

There are “power by the hour” contracts where customers pay only for equipment use and uptime. As service offerings are tailored to each individual market segment, customer value proposition is maximized. With the increasing impact of technology in services, customers can hope to derive greater value from service offerings more than ever before.

To sum it up

Creating a profitable service supply chain is all about greater management commitment and proper deployment of technology and processes. An innovative mindset is a must to deal with obstacles on the way. If the focus on operational efficiency is good, then innovations can help in driving service supply chain efficiencies.

Product-enhancing services increase revenue, drive long-term customer retention and increase customer loyalty.

 
Reference: http://www.inboundlogistics.com/cms/article/the-service-supply-chain-turning-potential-into-profit/
 
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