ISM 270

1. ISM 270 Service Engineering and Management Lecture 8: Service Supply Chains

2. Announcements Homework 5 due next week Should help for Littlefield! Littlefield Lab Next week Projects due following week

3. Project Presentation 20 minutes � 15 min presentation, 5 min questions Clear presentation of service idea Prototype demonstration/screenshot/outline Differentiate from competition Give market estimation How many potential customers? How will you make money? What are the risks? Argue why this will lead to successful service business

4. Some key concepts for capacity management Economic Order Quantity Queueing Dynamics

5. Supply Chain for Physical Goods

6. Customer-Supplier Duality in Service Supply Relationships (Hubs)

7. Single-Level Bidirectional Service Supply Relationship

8. Two-Level Bidirectional Service Supply Relationship

9. Sources of Value in Service Supply Relationships Bi-directional Optimization Managing Productive Capacity- Transfer: make knowledge available (e.g. web based FAQ database)- Replacement: substitute technology for server (e.g. digital blood pressure device)- Embellishment: enable self-service by teaching (e.g. change surgical dressing) Management of Perishability

10. Impact of Service Supply Relationships

11. Impact of Service Supply Relationships

12. Outsourcing Services Benefits- allows the firm to focus on its core competence- service is cheaper to outsource than perform in-house- provides access to latest technology- leverage benefits of supplier economy of scale Risks - loss of direct control of quality - jeopardizes employee loyalty  - exposure to data security and customer privacy - dependence on one supplier compromises future negotiation leverage - additional coordination expense and delays - atrophy of in-house capability to perform service

13. Outsourcing Process

14. Taxonomy for Outsourcing Business Services

15. Outsourcing Considerations

16. Outsourcing Considerations

17. Outsourcing Considerations

18. The bull-whip effect Variations in demand are amplified as one moves upstream in the supply chain (further from the customer) Small uncertainty at one end can lead to large uncertainty at the other end of a supply chain Good method to nullify is based on demand-driven forecasting where all information is shared through supply chain

19. Managing Facilitating Goods

20. Role of Inventory in Services Decoupling inventories Seasonal inventories Speculative inventories Cyclical inventories In-transit inventories Safety stocks

21. Considerations in Inventory Systems Type of customer demand Planning time horizon  Replenishment lead time Constraints and relevant costs

22. Relevant Inventory Costs Ordering costs Receiving and inspections costs Holding or carrying costs Shortage costs

23. Inventory Management Questions What should be the order quantity (Q)? When should an order be placed, called a reorder point (ROP)? How much safety stock (SS) should be maintained?

24. Inventory Models Economic Order Quantity (EOQ) Special Inventory Models  With Quantity Discounts Planned Shortages Demand Uncertainty - Safety Stocks Inventory Control Systems Continuous-Review (Q,r) Periodic-Review (order-up-to) Single Period Inventory Model

25. Economic Order Quantity Consider a process that uses raw material Fixed known demand rate D (per minute/day/year) Orders are in batches, costing: Fixed cost S for each batch Unit cost per item c in batch Unit storage/holding cost H to have extra supply Cost (penalty) p for missing order due to stock-out When do you place an order? How big should the batch be?

26. Inventory Levels For EOQ Model

27. Annual Costs For EOQ Model

28. EOQ Formula NotationD = demand in units per yearH = holding cost in dollars/unit/yearS = cost of placing an order in dollarsQ = order quantity in units Total Annual Cost for Purchase Lots EOQ 

29. Economic Order Quantity Variations: Lead-time from order to arrival of batch Uncertain/varying demand Option to back-order

30. Annual Costs for Quantity Discount Model

31. Inventory Levels For Planned Shortages Model

32. Formulas for Special Models Quantity Discount Total Cost Model Model with Planned Shortages

33. Values for Q* and K* as AFunction of Backorder Cost

34. Demand During Lead Time Example

35. Safety Stock (SS) Demand During Lead Time (LT) has Normal Distribution with  SS with r% service level Reorder Point

36. Continuous Review System (Q,r)

37. Periodic Review System(order-up-to)

38. Inventory Control Systems Continuous Review System Periodic Review System

39. ABC Classification of Inventory Items

40. Inventory Items Listed in Descending Order of Dollar Volume

41. Single Period Inventory ModelNewsvendor Problem Example D = newspapers demanded p(D) = probability of demand Q = newspapers stocked P = selling price of newspaper, $10 C = cost of newspaper, $4 S = salvage value of newspaper, $2 Cu = unit contribution: P-C = $6 Co = unit loss: C-S = $2

42. Single Period Inventory Model Expected Value Analysis

43. Single Period Inventory Model Incremental Analysis

44. Critical fractile for the newsvendor problem

45. Retail Discounting Model S = current selling price D = discount price P = profit margin on cost (% markup as decimal) Y = average number of years to sell entire stock of �dogs� at current price (total years to clear stock divided by 2) N = inventory turns (number of times stock turns in one year)

46. Growth and Global Expansion

47. Expansion Strategies

48. Franchising Benefits to the Franchisee Management Training Brand Name National Advertising Acquisition of Proven Business Economics of Scale Issues for the Franchisor Franchisee Autonomy Franchise Contract Conflict Resolution

49. Generic International Strategies

50. Multinational Development The Nature of the Borderless World (Triad) Customers - information has empowered  Competitors - nothing stays proprietary Company - fixed costs require large markets Currency - become currency neutral Country - deprive competitor of home market Planning Transnational Operations Cultural Transferability Worker Norms Host Government Policy

51. International Strategic Service Vision

52. Considerations in Selecting a Global Service Strategy

53. Goodwill Industries International Who are Goodwill�s customers and how have their demographics changed over time? How should the introduction of for-profit thrifts affect Goodwill�s decisions about the role of customer service? How can Goodwill differentiate itself from the competition?

54. Goodwill Industries International Sources of Revenue

55. Littlefield 360 days total (currently paused on 30) 1 real minute = 3 days (total time 110 mins remaining) Manage Contract terms Machines Queueing rule Order quantities for supplies

56. Littlefield Lab Maximum one page per team: Review your strategy for the service game What did you watch closely? Did it work? Suggest what you would do different next time Due in class next week