Quiz 13: Service Supply Relationships

Business

Supply Chain Management involves a wide range of activities from procuring raw materials to manufacturing a product to finally delivering to customers. It's a complex and vast undertaking which depends on seamless functioning of suppliers, manufacturers, distributors, retailers and finally to the end customers. Moreover, supply chain sustainability covers legal, social and environmental issues besides sustainable procurement and is related to corporate social responsibility which apprises an organization's impact on social and environmental well-being. Supply chain can impact the environment in the form of greenhouse gas emissions, harmful gas emissions, deforestation, water pollution, and release of toxic water. If the end product is delivered efficiently and waste minimized, it helps in not only reducing production cost but also harmful chemicals into the environment. Many large retails have started assessing environmental impact of their suppliers. Questionnaires and surveys are used to find out the amount of greenhouse gases emitted, water and energy usage, and the quantity of waste generated. This date gives an idea of the areas that needs to be improved upon and steps necessary to reduce harming the environment. Thus, environmental sustainability has become a key-word for organizations. Effective use of supply chain and communicating the best practices to suppliers on ways to minimize pollution can have a lasting impact on the goodwill, and in the process on the company's profitability.

Supply Chain Management involves a wide range of activities from procuring raw materials to manufacturing goods to the final delivery to customers. It's a complex and vast undertaking which depends on seamless functioning of suppliers, manufacturers, distributors, retailers and finally to the end customers. On the other hand service generates duality of customer-supplier relationship, resulting in service supply relationship, instead of supply chain that is prevalent in manufactured goods. The manufacturing process involves suppliers of raw material, altering the raw material to finished goods, finished goods going through a distribution channel, and finally to the customer. Manufacturing is a tangible process whereas services are intangible. Therefore, in services no raw material is supplied, neither is there a finished product. In services, transaction is carried out directly between the service provider and customer without intervention of ancillary suppliers. In supply chain of manufactured goods, theirs is always an inventory buffer which is utilized as per customer demand. However, in services customer demands are random occurrences and it is expected that requirements would be processed immediately. For example, customers in a restaurant would expect ordered items to be served in a few minutes. Since services can't be inventoried, to accommodate expectations excess capacity must be held in reserve. Thus, goods analogy is inappropriate for services as service is something that is directly provided by the service provider to the customer.

Some service providers outsource some of their activities to other service firms, located in some other country where labor costs are cheaper. For example, car finance companies outsource customer service operations to another service firm, thereby helping the car finance company to reduce operational costs. However, outsourcing has several implications for employees, customers, stockholders and host country economy when a firm outsources services. There are several reasons for outsourcing a service instead of performing a task in-house. Outsourcing a service helps a firm to focus on its core service. For example, a finance company's main task is to check credit worthiness of an individual and providing credit. Outsourcing this helps the firm to focus only on providing credit instead of using its resources on the customer service team. Outsourcing jeopardizes loyalty of employees towards the organization due to fear of losing jobs. Moreover, the organization can't control quality of services provided to the end customers. There is a risk of privacy and data security issues as customer information needs to be shared with a third party. Since outsourcing helps to reduce costs for the company, an organization's profitability increases, thereby making it more valuable. For stockholders higher profitability means more dividends for them. The customer service agent needs to be aware of the culture and values of the host country. Without knowledge of these, serving customers may be a herculean task, as it may have a negative impression on the end user. The basic intent of outsourcing services is to reduce costs, without compromising quality of services. Outsourcing to another country has its impact on the host country. Though the value of a company may increase which may result in increased taxes, it has a negative impact on jobs. Due to outsourcing a number of jobs are lost, which has an impact on employee morale. If employee morale is negative, there's a negative impact on the overall functioning of the company. Therefore, though there are several advantages of outsourcing non-core activities, there are several drawbacks as well. Though it improves shareholder value, it has its own impact on jobs and data privacy of customers. As such it's important that companies take due care before outsourcing services.