Service supply chains have lower customer-created variation as compared to product supply chains

G. Huang et al. (Eds.): DET2009 Proceedings, AISC 66, pp. 1189–1204.

springerlink.com © Springer-Verlag Berlin Heidelberg 2010

Service Supply Chain: Nature, Evolution, and

Operational Implications

Yong Lin1, Yongjiang Shi2, and Li Zhou1

1 Business School,

University of Greenwich, London, SE10 9LS, U.K.

,

2 Department of Engineering, University of Cambridge, Cambridge, CB2 1RX, U.K.

Abstract. Along with the service sector plays a more critical role in the

development of world economy, conventional manufacturer puts more focus on

bundling service with physical products to gain competitive advantage. Based

on the traditional theory of supply chain management, this paper proposes

Service Supply Chain to cover the supply chains for both service industry and

manufacturing industry. Then a Product-Service Matrix is established to reveal

the nature of the service supply chain. A Servitization-Globalization Matrix is

developed to describe the evolution footprint from conventional manufacturing

factory to Global Service Network and Global Manufacturing Network. Finally,

this paper establishes a conceptual framework for service supply chain

management, and the management processes are proposed and compared with

other model.

Keywords: Supply Chain, Service Supply Chain, Global Service Network,

Product, Service, Servitization.

1 Introduction

Supply Chain Management (SCM) has become vitally important approach to gain

competitive advantages in a fiercely competitive global marketplace. Since the

researches (Towill, 1991; Lee and Billington, 1992; Davis, 1993) and managers

started to evolve into the studies and practices of SCM, there are extensive literature

on this field.

Most of the existing definitions of SCM focus on the product flow and information

flow from suppliers to the customers (Lambert, Cooper et al., 1998), consequently the

SCM has traditionally categorized as a branch of the Operations Management

(Lambert, Cooper et al., 1998; Chase, Jacobs et al., 2005; Chopra and Meindl, 2007;

Simchi-Levi, Kaminsky et al., 2008). SCM are mostly applied to manufacturing

industries, seldom on service industries. Recently, service industry has become an

increasingly important force in the world economy. And along with the explosive

development of the service economy, labour force evolved in a majority

transformation from manufacturing to service sector, which is followed with Clark’s

conjecture proposed 60 years ago (Clark, 1940).

1190 Y. Lin, Y. Shi, and L. Zhou

Furthermore, more and more the manufacturing companies achieve more revenue

from their service units (Quinn, 1992), for example, GM and IBM. Most of the added

value in a traditional manufacturing company comes from services constituent

(Machuca, González-Zamora et al., 2007).

In spite of the huge amount of academic work devoted to SCM, which mainly

focuses on manufacturing supply chains, literature on the service supply chain is quite

limited till now. This motives us to fill this gap. The purposes of this paper are to

address the nature of service supply chain, to develop a matrix to analyse the

evolution of service supply chain, and to develop a general process framework for

service supply chain management, and to identify the main issues to effectively

operate and manage service supply chain.

2 Literature Review

With the fast development of service around the world, SCM should be refined by

take service into consideration. There are three main themes in the current service

supply chain literature.

2.1 Start-Up of Service Supply Chain

Armistead and Clark (1993) explores the application of value chain concept in

establishing service delivery strategies, which maybe the pioneering attempt to

integrate services into supply chain context. Then Youngdahl and Loomba (2000)

extended the service factory concept to a new concept of service-driven global supply

chain, where their approach can be used as a starting point for discussion and further

research in this area. Sampson (2000) identifies the bidirectional supply chain

structure in the service organizations when considering customer-supplier duality,

while these bidirectional supply chains are similar to traditional manufacturing

oriented supply chains.

The most remarkable contributor to service supply chain management maybe

Ellram, Tate et al., (2004), who proposed a general framework based on conventional

SCM knowledge for manufacturing industries, and they identified 7 key service

processes/functions, including information flow, capacity and skills management,

demand management, supplier relationship management, customer relationship

engagement, service delivery management and cash flow. Based on this model,

Baltacioglu, Ada et al., (2007) extended it into 7 service processes, which is demand

management, capacity and resources management, customer relationship

management, supplier relationship management, order process management, service

performance management, and information and technology management.

2.2 Supply Chain in Service Industry

Most of the literature integrating SCM into service sector mainly concerned industries

like healthcare, telecom, hotel, bank, finance, etc.

Cook, DeBree et al., (2001) focused on the application of traditional SCM to the

healthcare industry, and they found that lack of systematic integration of supply chain

functions is a big obstacle to adopt SCM to service sector practitioners.

Service Supply Chain: Nature, Evolution, and Operational Implications 1191

Most recently, Baltacioglu, Ada et al., (2007) developed a new framework for

service supply chain for healthcare industry, which is based on the model of Ellram,

Tate et al., (2004), and they use Supply Chain Operations Reference model developed

by Supply Chain Council as a diagnostic tool to service supply chain management.

Zsidisin, Jun et al., (2000) identified the relationship between service quality and

information technology through case study with a language school agency who

providing service both to customers located upstream and downstream students in its

supply chain.

2.3 After-Sale Service Supply Chain

For the manufacturing industries, after-sale services attract more attentions. After-sale

services and spare parts may generate more than three times the turnover of the

original purchase (Wise and Baumgartner, 1999).

The early literature is mainly on strategic issues. Armistead and Clark (1993)

demonstrated the need to build strong linkage between manufacturing, design and

after-sale service strategies. Loomba (1996) sand Loomba (1998) offered an empirical

validation of the proposed linkages between production distribution and service

support strategies. Goffin and New (2001) observe the relationships between new

product development and customer support. After that, Nordin (2005) proved how

product, market, and firm contextual factors influence the distribution channel

structure of product services and to examine organizational actions resulting from

maladjusted channel structures. Instead, Amini, Retzlaff-Roberts et al., (2005)

proposed a quantitative model for choosing the number, location and customer

coverage of a warehouse network, with case study of a diagnostic equipment

manufacturer. Recently, Saccani, Johansson et al., (2007) addressed the configuration

of the after-sale service supply chain when selling durable goods, and identified

several drivers that may lead to consistent configuration choices.

Service parts SCM plays an important role for manufacturing companies (Poole,

2003), while inventory management is the main branch of after-sale service supply

chain. Cohen and Lee (1990), Cohen, Yu-sheng et al., (1997) presented a study which

considered the role of spare parts inventory and logistics management in after sales

service delivery. After that, Cohen, Cull et al., (2000) proposed a framework while a

decentralised structure matches a high service criticality (e.g. reducing response time),

and a centralised structure matches a situation with low service criticality. In order to

identify the number and location of spare parts warehouses, as well as inventory

levels, Amini, Retzlaff-Roberts et al., (2005) developed a decision support mode to

minimise inventory costs.

3 Definition and Nature of Service Supply Chain

3.1 Definition of Service Supply Chain

For service supply chain and management, there are some names are used to refer to

the related areas but either in a more specific context. For example, the name Services-

oriented Supply Chain Management (Anderson and Morrice, 2000) and Service

1192 Y. Lin, Y. Shi, and L. Zhou

Management (Kellogg and Nie, 1995; Voss, Tsikriktsis et al., 2005; Fitzsimmons and

Fitzsimmons, 2007) or Service Operations Management (Mabert, 1982; Roth and

Menor, 2003; Heineke and Davis, 2007; Machuca, González-Zamora et al., 2007;

Johnston and Clark, 2008) are respectively refers to service chaining and service

operations issues. This area is also known as Service Marketing (Palmer, 2005;

Zeithaml, Bitner et al., 2005; Lovelock and Wirtz, 2007) focusing on the strategies and

technologies of integrating customer requirements across the service enterprise.

This paper defines service supply chain and service supply chain management

(SSCM) as:

The service supply chain is a network of suppliers, service providers, customers

and other service partners that transfer resources into services or servitised products

delivered to and received by the customers.

Service supply chain management is the management of information, processes,

and resources along the service supply chain to delivery services or servitised

products to the customers effectively.

According to this definition, the key members in the service supply chain are the

suppliers, service provider, customers and other partners (see Figure 1). The service

provider is the core unit of the service supply chain performs like the focal company

(usually the manufacturer) in the traditional product supply chain like Figure 2. When

they delivery services to the customer, the physical products suppliers will provide

related goods to the service provider, while the service suppliers provide related

services as part of the services delivered to the customer.

The second tier suppliers are not taken into consideration, because their added

value normally is very low or not providing pure services to the first tier supplier who

involved in the service providers’ process of services to the customers. Consequently,

the number of tier in service supply chain is normally less than a conventional supply

chain, and the structure of the service supply chain is normally simple and short than

the traditional supply chain (Sampson, 2000).

3.2 Dual-Directional Nature of Service Supply Chain

Most important thing is that customer participation is one of the essential

characteristics of service (Bitner, Faranda et al., 1997; Chervonnaya, 2003; Sampson

and Froehle, 2006) and directly related to the service quality. Consequently, even the

structure is simple; processes within the service supply chain are complex.

Within a service supply chain, the customer not only provider themselves as an

input, but also provide tangible belongs and specified demand information to the

service provider. Customer input plays critical effects in product/service design

innovation (Ulwick, 2002) and value creation (Davis and Heineke, 2002; Davis and

Heineke, 2005), it is the key to continuous service success. Meanwhile, service

provider plays the same role to their own service suppliers as the end customer. As a

result, the service supply chain is a two level dual-directional supply chain, which is

the essential nature different from the traditional supply chain.

Service Supply Chain: Nature, Evolution, and Operational Implications 1193

This nature is also referred as two-level bidirectional service supply chain

(Sampson, 2000; Fitzsimmons and Fitzsimmons, 2007). For the complexity and

uncertainty of the customer inputs, managing customer input will become a difficult

issue more than managing demand in the traditional supply chain.

In order to emphasis the customer input nature of the customer and the service

provider, here we use two lines to describe the two pathways within the service

supply chain (see Figure 1), which is different from the bidirectional service supply

chain model of Sampson and Froehle (2006), they using one bidirectional arrow to

describe this phenomena. In the traditional supply chain, the mentioned dual-direction

always refers to the product flow and information flow, the later one is normally

showed as a dotted arrow. While in a service supply chain, in particular in a global

environment, the complexity of information flows increase dramatically as time,

distance, language, and other factors come into play (Youngdahl and Loomba, 2000).

Besides the information flow, the nature difference can be clearly identified by

comparing Figure 1 and Figure 2.

3.3 Types of Service Supply Chain

The services delivered to the customers refers not only a pure service product, but

also a servitised product, which is a strategy of provision and support of bundles of

products and services to the customers not just sale products (Levitt, 1983).

Vandermerwe and Rada (1988) used the term “servitization” to refer to this bundling

of products and services. This strategy is becoming increasingly relevant for

manufacturers to improve competitive advantage (Slack, Lewis et al., 2004).

From the viewpoint of product or service focused, there are four different types of

service supply chain (Figure 3).

Normally, the general supply chain is focus on the operational efficiency, while the

product supply chain is more focus on effectiveness and responsiveness of delivering

products to the customers. These two types supply chain is followed the classification

rules of (Fisher, 1997), which is similar to the efficient supply chain and effective

supply chain.

With the fast development of service sector, product supply chain can be

transferred to servitised supply chain if the companies change their supply chain

Physical

Products

Service Service Customer

Fig. 1. Service Supply Chain

Distributo Retailer CustomeSu

lier Manufactur

Fig. 2. Traditional Supply Chain (Source: Sampson and Froehle (2006))

1194 Y. Lin, Y. Shi, and L. Zhou

Fig. 3. Product - Service Matrix for classification of service supply chain

strategies. For example, IBM sold their PC department to Lenovo, and devoted into

service providing, which is a strategic transformation from product supply chain to a

servitised supply chain context.

The service industry supply chain refers the supply chains for service industry, not

the manufacturing industry.

4 Evolution from Factory to Global Service Network

As the traditional supply chain conception, there exist supply chains providing

products to the customer throughout economic history, meanwhile there exist service

supply chain since customer willing to buy services together with the products. This

paper defines global service network as a high level of manufacturing organizations.

Regarding the evolution from a traditional manufacturing factory to the global

service network, this paper takes two evolutional pathways into consideration, which

is summarized into a Servitization-Globalization Matrix (see Figure 4) to analyze the

possible evolution trends.

The first pathway is servitization (Vandermerwe and Rada, 1988) which

transferring strategy priority from product focused to service focused, and the second

one is globalization (Shi and Gregory, 1998) which pushing the company changed

operations from local to global market.

The traditional factory conception is focused on product manufacturing (Chase,

1991), and it can be expanded to service factory when the company put more

attentions on bundling services to products (Chase and Erikson, 1988; Chase and

Garvin, 1989; Chase, Kumar et al., 1992; Youngdahl, 1996), which is termed as

servitization (Baines, Lightfoot et al., 2009; Wilkinson, Dainty et al., 2009). In a service

factory, production focus should be transferred to actively design and deliver “a range

of services as well as goods” (such as information, problem solving, sales, and support

hi

h

low

General

Supply chain

Service industry

supply chain

Servitised

supply chain

Product

Su

l

chain

low

high

Product

Focused

Service

Focused

Service-

oriented

Manufacturing-

oriented

Service Supply Chain: Nature, Evolution, and Operational Implications 1195

Fig. 4. Servitization-Globalization Matrix of the Evolution from Factory to Global Service

Network

activities) to both internal and external customers (Chase and Erikson, 1988; Chase

and Garvin, 1989; Chase, 1991; Chase, Kumar et al., 1992; Voss, 1992). Furthermore,

service is emerged as the fifth competitive priority (Chase, 1991 Garvin, 1993;

Youngdahl, 1996; Spring and Dalrymple, 2000) followed by cost, quality, flexibility,

and speed (Skinner, 1969; Skinner, 1974; Hayes, Wheelwright et al., 1988).

On the other hand, along with the globalization tide, international manufacturing

becomes one of the most important manufacturing strategies to enhance company’s

competitive advantages (Young, Kwong, et al., 1992; Toni, Filippini, et al., 1992;

Bolisani and Scarso, 1996). At the early stage, factory will extend their operations

view from internal to external, which transfer the factory into an organizational form

of extended enterprise (O'Neill and Sackett, 1994; Bititci, Mendibil et al., 2005).

Eventually, the factory tries to establish their Global Manufacturing Network (GMN)

to develop their global competitive capabilities (Shi and Gregory, 1998; Shi, 2003)

which is mainly driven by global sourcing strategies. In general, GMN is regarded as

a network of manufacturing factories (Ferdows, 1989), thus location decisions (Vos,

1991; Meijboom and Vos, 1997) for various manufacturing system and factory

designs become the vital strategic issues in GMN. Most important and difficult task of

managing the GMN is to manage dispersed plants network to quick respond to the

increasingly competitive and volatile environments (Colotla, Shi, et al., 1991).

Both traditional factories and service factory are evolved into the globalization

trends. Furthermore, the globalized revolutionary path of service, especially the

information-intensive services (Apte and Mason, 1995), is likely to parallel offshoring

trends seen in outsourcing manufacturing overseas. Recently, the service offshore

from developed country to developing country has gained significant attentions

(Metters and Verma, 2008). Youngdahl and Loomba (2000) suggest extending service

factory into a global supply chain context, which forms Service-driven Global Supply

Chain. Consequently, service factory is necessary and possible to be extended to a

Global Service Network (GSN), which it is mainly driven by servitization and

Service

factory

Global Service

Network

(GSN)

Factor

Global

Manufacturing

Network

GMN

Product

Service

Local Global

Extend

Enterprise

Service

supply chain

Servitization

Globalization

1196 Y. Lin, Y. Shi, and L. Zhou

globalization strategies. This paper defines GSN as a network consisting of not only

manufacturing factories providing servitised products (Wilkinson, Dainty et al., 2009;

Baines, Lightfoot et al., 2009, Spring and Araujo, 2009) to the global customers, but

also service providers or service firms (McLaughlin and Fitzsimmons, 1996; Freeman

and Sandwell, 2008; Kathuria, Joshi et al., 2008; Sharma and Loh, 2009) providing

professional services to both manufacturing factories and the end customers in the

service supply chain.

When the GMN gets into a mature stage, it needs to develop new value-added

activities for its sustainable development. Following the evolutional pathway of

servitization, bundling service to its products, or moving to service providing field,

could be the options for sustainable development. Example of IBM and HP are good

examples to show this evolution footprint. From a traditional factory making

computers to the international PC manufacturing network (GMN), IBM now forms a

global service network (GSN) gradually. Their operations strategy shifts from

product focused to service-focused. The network configuration and supported

capabilities of GSN are different from that of the GMN.

The SGM shows the pathways for a factory switching to the GSN from the

perspectives of servitization and globalization. The specific evolutions are varied for

different companies.

5 Operational Implications of Service Supply Chain Management

In order to effectively and efficiently managing the service supply chain, this paper

established a conceptual framework (see Figure 5) followed the way of Lambert and

Cooper (2000). It consists of three interdependent elements:

• Network configuration,

• Management processes,

• Management components.

Service processes include all the operations to provide services or servitised

products to the customers. Based on the model of Cooper, Lambert et al. (1997) and

Croxton, García-Dastugue et al. (2001), this paper establishes a service supply chain

(global service network) management process model as Figure 6, which is combined

the service supply chain model proposed by (Ellram, Tate et al., 2004) and the

Management

Processes

Network

Configuration

Management

components

Fig. 5. Conceptual framework of SSCM

Service Supply Chain: Nature, Evolution, and Operational Implications 1197

er

ice su

l

chain business

rocess

Information Flow Mana

emen

Service Providers

Product/Service flow

Customer Relationship Management (CRM)

Events Management

Logistics Fina nce

Production

Purchasing Marketing

Supplier

Knowledge Management

Demand Management

Service Delivery Management

Cash Flow Management

Supplier Relationship Management

Service Development

Capacity and Resource Management

Fig. 6. Service supply chain process structure

servitisation supply chain model developed by (Johnson and Mena, 2008). The

internal functions of the service providers are similar with the manufacturers in a

product supply chain.

This paper proposed 10 key processes for SSCM (see Figure 6) are compared with

the model of Ellram, Tate et al. (2004), Baltacioglu, Ada et al. (2007), Johnson and

Mena (2008), and GSCF (Cooper, Lambert et al., 1997; Croxton, García-Dastugue et

al., 2001) in Table 1.

CRM, SRM and demand management are referred in almost all the models, here this

paper only proposed our definitions for it without further discussion. For cash flow and

information flow, traditional supply chain model only took them as two parts of the three

flows, but not up to a management level, here this paper use the similar definition as

Johnson and Mena (2008).

1) Network, technology and information flow management. Service changes a lot

from labor-intensive to information-intensive by the application of advanced

information technologies. However, in the model of Johnson and Mena (2008) and

GSCF, they only regard information flow as one of the three flows along the supply

chain, not up to a management level. From our viewpoint, the network configuration

of the service supply chain includes not only the resources network, but also the

information architecture. And the service quality and performance largely depends on

the technologies applied in the service supply (Zsidisin, Jun et al., 2000). This paper

extends the conception of information management in the traditional supply chain

with the networks and technologies management (Baltacioglu, Ada et al., 2007).

2) Capacity and resources management. In this model, the conception of resources

is broader than traditional supply chain. It covers not only the tangible resources, such

as facilities, labour and capital; but also the intangible resources, such as skills,

1198 Y. Lin, Y. Shi, and L. Zhou

Table 1. Service supply chain management processes

GSN-Service

Supply Chain

model

Definition /

Description

Servitiseation

supply chain

model

Johnson and

Mena, (2008)

Service supply

chain model

Baltacioglu,

Ada et al., 2007

Service

supply chain

model

Ellram, Tate

et al., (2004)

GSCF supply

chain model

Cooper,

Lambert et al.,

(1997);

Croxton,

García-

Dastugue et

al., (2001)

1.

Network,

technology and

information

management

To deploy and

manage the

networks and

technologies, to

provide and

manage the

real-time

information, to

achieve visibility

to support other

processes and

activities.

Information flow

management

Information and

technology

management

Information

flow

Information

flow

2.

Customer

relationship

management

(CRM)

To develop and

maintain

sustainable

relationships with

customers

CRM CRM CRM CRM

3.

Supplier

relationship

management

(SRM)

To develop and

maintainable with

suppliers and

other partners

who providing

outsourced

services to the

service providers.

SRM SRM SRM SRM

4.

Demand

management

To forecast and

classify the

demand, and to

match the

demand with the

networked

resources.

Demand

management

Demand

management

Demand

management

Demand

management

5.

Capacity and

resources

management

To manage the

capacity and

resources

(including

facilities, labours,

capitals, etc) to

balance the

demand and

supply.

Capacity and

resources

management

Capacity and

skills

management

6.

Knowledge

management

To manage the

skills and

knowledge, to

share knowledge

throughout the

service network.

Service Supply Chain: Nature, Evolution, and Operational Implications 1199

Table 1. (continued)

Order delivery

management

Order process

management

Service delivery

management

Order

fulfilment

7.

Service delivery

management

To fulfil a service

order using

required

resources. Production

management

Manufacturin

g flow

management

8.

Financial flow

management

To manage the

payment and

invoice activities,

to make sure the

smoothly

operated cash

flow.

Financial flow

management

Cash flow

management

9.

Service

development and

innovation

To design and

develop (new)

service to meet

the customers’

current

requirements or

future

requirements

Product

development

Product

development

and

commercializ

ation

Service

performance

management

Returns and

end-of-life

management

Returns

management

10.

Performances and

events

management

(service quality;

experience)

To evaluate and

monitor the

processes and

performances, to

quick response to

customer

complain,

emergency and

any risks.

Risk

management

experiences and knowledge. The intangible resources are critical important for the

effectively operation of the service supply chain, hence we divided it into two parts

and proposed capacity and resources management, and knowledge management.

3) Knowledge management. It puts focus on intangible resources of the service

supply chain, in particularly how to transfer the intangible knowledge into service

outputs, and how to share the intangible knowledge are critical issues. We covered

skill management (Ellram, Tate et al., 2004) in knowledge management.

4) Service delivery management. It is an order fulfilment process providing

services and servitised products to the customers. Hence we include production

management (Johnson and Mena, 2008) and manufacturing flow management

(proposed by GSCF) into our model.

5) Service design/development and innovation. Service development is important

competitive concern in many service industries (Menor, Tatikonda et al., 2002; Verma,

Fitzsimmons et al., 2002), especially if they want to gain a sustainable competitive

advantages. New service design or service improvement is concerned here. Most

important is the service development should consider the labour and the knowledge.

6) Performance and events management. This paper uses event management to

cover the risk management proposed by (Johnson and Mena, 2008) and extended it to

refer to quick response to customer complain, emergency and any risks. All these are

directly related to the service performance; hence we link the performance

1200 Y. Lin, Y. Shi, and L. Zhou

management with events management. And the main stream of service performance is

service quality (Stanley and Wisner, 2001) along the supply chain.

6 Conclusions

With the fast development of service economy and globalization, especially after the

conception of Service Science was proposed by IBM in 2004, service operations

management and service supply chain management attracts more and more attentions

from both academia and practitioners. How the traditional factory will survive and

evolve in the service economy emerges as a vital question facing by the

manufacturing industries.

Based on the literature on integrating service into SCM, this paper tries to develop

a framework to better understanding the nature and challenge of service supply chain

through literature review and case study. The conception this paper proposed on

service supply chain covers the supply chains providing services or sevitised products

to the customers. And this paper also identified the possible evolution pathways from

conventional manufacturing factory to global service network from the perspectives

of servitization and globalization. The conception of global service network (GSN)

first proposed by this paper is defined as a network includinging both manufacturing

factories and service providers. Furthermore, based on the previous literature and

traditional supply chain model, this paper establishes a service supply chain

management process model, which is helpful to the practitioners to effectively and

efficiently manage their service supply chain.

Involvement degree of globalization and servitization is difficult to evaluate,

further study should be furthered to develop correspondent evaluation criteria and

approaches. In-depth case studies and empirical testing of the SSCM processes

framework model will be performed in the future to strengthen its generality.

In particular, the conception of global service network will be further verified and

well-defined through comprehensive case studies. Best practices should be

summarized as benchmarking to instruct the sustainable development of the

traditional manufacturing factory in the service economy environment.

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