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Services and Service Bundling

• MGMT 511

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Services and Service Bundling

• A service is fundamentally different than manufacturing

• Service bundling provides competitive advantages for a manufacturer

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The unified services theory

• With services, the customer provides significant inputs into the production process.

• With manufacturing, groups of customers may contribute ideas to the design of the product, however, individual customers’ only part in the actual process is to select and consume the output.

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• Nearly all other managerial themes unique to services are founded in this distinction.

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Defining by customer content

• With services, an effective means of understanding, analyzing, and comparing processes is on the basis of customer content.

• There are three general types of customer inputs into service processes: the customer’s self, the customer’s belongings, and/or the customer’s information.

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Simultaneous production and consumption

• With services, production (making the service “product”) and consumption often occurs simultaneously, making the exact timing of production a critical issue.

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Time-perishable capacity

• With services, capacity is usually time-perishable, meaning that capacity without corresponding demand is lost forever. This is true even though the service product is often not perishable.

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Customers in inventory

• The idea of being unable to inventory services is a common misconception. The correct concept is that it is impractical to inventory service production. With services, keeping work-in-progress inventory will enrage the customer. We rarely keep finished goods inventory. Managers do not hide poor management practice under inventory as can happen in manufacturing.

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Difficulty in maintaining quality

• With services, quality measurement tends to be subjective and difficult to scale. The standards by which quality is defined are often ambiguous. These unique specifications of quality, coupled with labor-intensiveness and inconsistent customer inputs, make it difficult to provide consistent quality.

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Services add value

• Using services to add value to manufactured products

• Products are often bundles of goods and services

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Customer Value Proposition

• Price• Features• Quality• Delivery• Service bundle

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Emerging Trends

• Shift in focus from material to immaterial Time Location Mass customization

• Good service not enough Need to delight the customer

• Customer loyalty

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Why Services are Important to Mfg

• Competitive advantage• Very profitable• Increased revenues

Growth markets Large part of product life cycle

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Pre-purchase

• Responsiveness• Problem solving• Demonstrating knowledge and

expertise• Design• Options, customization• Inventory/warehousing• Kitting

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Purchase

• Warranties and guarantees• Maintenance• Optional services• Delivery• Installation• Financing

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Post-purchase

• Responsiveness• Problem solving• Maintenance• Data collection• Warranty – replacement, repair• Follow-up sales

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Example

• Synthes• Internal fixation• Manufacture products• What services can be bundled?

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Conclusion

• Service provides a competitive advantage

• Services are profitable

• Services are fundamentally different from manufacturing

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Little ‘s’ Service Elements

• Availability• Delivery• Flexibility• Maintenance• Information• Recovery

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Big “S” Elements

• Knowledge and expertise• Improved product performance• Customer training• Expanded product capabilities

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Window blinds, shades, etc

• Blind man, 3-day blinds, e.g. wide variety Custom More expensive

• WalMart, K-mart, e.g. Limited selection Little customization Lower cost

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The Unit of Analysis

• With services, the unit of analysis is a process segment. A process segment is a sequence of steps of production. When processes are dissected into smaller segments, the presence or absence of service principles becomes more pronounced.