Services and Service Bundling

1. Services and Service Bundling • MGMT 511

2. Services and Service Bundling • A service is fundamentally different than manufacturing • Service bundling provides competitive advantages for a manufacturer

3. 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.

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

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

11. Services add value • Using services to add value to manufactured products • Products are often bundles of goods and services

12. Customer Value Proposition • Price • Features • Quality • Delivery • Service bundle

13. Emerging Trends • Shift in focus from material to immaterial • Time • Location • Mass customization • Good service not enough • Need to delight the customer • Customer loyalty

14. Why Services are Important to Mfg • Competitive advantage • Very profitable • Increased revenues • Growth markets • Large part of product life cycle

15. Pre-purchase • Responsiveness • Problem solving • Demonstrating knowledge and expertise • Design • Options, customization • Inventory/warehousing • Kitting

16. Purchase • Warranties and guarantees • Maintenance • Optional services • Delivery • Installation • Financing

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

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

19. Conclusion • Service provides a competitive advantage • Services are profitable • Services are fundamentally different from manufacturing

21. Little ‘s’ Service Elements • Availability • Delivery • Flexibility • Maintenance • Information • Recovery

22. Big “S” Elements • Knowledge and expertise • Improved product performance • Customer training • Expanded product capabilities

23. 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

24. 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.