Service supply chain and its “bullwhip effect”

Qianyi Li dept. of Economics&Management

Bei Hang University Beijing, China

dearqianyi@163.com

Yuanyang Gao dept. of Economics&Management

Bei Hang University Beijing, China

Abstract—This article summarizes two kinds of service supply chain, product servitization supply chain and professional supply chain. Combined these two kinds, a general definition of service supply chain is given. Then, this article compares the differences and similarities between service supply chain and manufacturing supply chain, points out the unique characteristics of service product. At last, this article studies the bullwhip effect in service supply chain, and it analyzes the reasons to bullwhip effect. After all, this study has far-reaching research meaning both in theory and practice.

Keywords- service, supply chain, bullwhip effect.

I. INTRODUCTION As a new idea and mode of management, supply chain

management has been rapid developed both in theory and practice. However, in the past, most of researches about supply chain were limited in manufacturing industry. Recently, more and more manufacturing enterprises gradually extend the implication of product from pure tangible product to value-added service based in product, which is product servitization. Nowadays, global enterprises are taking an active part in enhancing product servitization management, for example, GE’s energy service, IBM’s information service, Electrolux’s integrated electric service, Shell’s petroleum product service and Xerox’s file manipulation service, etc. The revenue in associative service provided by enterprise even exceeds the one in product, and service expense is taking a larger part in enterprise cost. A research shows: in 2004, a half of cost in 2000 enterprises all around world is used for purchasing service. Today, consumption demand is diversifying and consumers pay more attention to service quality, so, the trend makes more and more enterprises attach importance to service supply chain management.

II. CONCEPT OF SERVICE SUPPLY CHAIN American researcher Lisa M Ellram[1] firstly defined

the concept of service supply chain, which is the theory of supply chain extended in service field, namely, it is a part of supply chain management. The meaning of service supply chain is basically as the same as supply chain

management: it is a process of information and capital flow management from original supplier to end customer. But in the concept of service supply chain, physical manufacturing department and physical product are replaced by service department and service product. The service product is not only product servitization in manufacturing enterprise, but also professional service supply chain. The later one is a supply chain in service industry but not manufacturing industry because no physical product is delivered in professional service supply chain. In one word, buying a service represents a transfer of the service supplier’s capacity to its customer in the form of a service. The range of professional service supply chain is quite big, such as consulting, engineering, accounting, and information technology and so on, just as researcher Anonymous saying: “any services of a recognized profession [2] . ”

Integrated the two concepts above, the supply chain definition is modified in this article as follows.

Through information flow, process flow and capital flow management in supply chain, different service suppliers try to establish partnership, integrate resource and service, and they join in process management in order to response customer’s demand. Here, service supply chain is not only limited to service sector followed physical product, but also not specialized professional service industry. In general speaking, according to end customer’s demand, service is pulling operation and management of the total supply chain, which tries to satisfy all kinds of customer’s demand by integrating service.

III. DIFFERENCE BETWEEN SERVIC E AND MANUFACTURING SUPPLY CHAIN

Academia thinks, service supply chain management should be different from manufacturing supply chain management, because service has special characteristics. Nie and Kellogg[3] conclude that, service’s unique characteristics including customer influence, inseparability of production and consumption, intangibility,

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heterogeneity, perishability, and labor intensity. Besides, we find that, service has another three characteristics. First, service could not be stored and transported. Second, its producing and consuming happen at the same time. Finally, it is hard to quantify service’s quality.

According to service’s unique characteristics, it is important to highlight the difference between service supply chain and manufacturing supply chain. In service supply chains, human labor forms a significant component of the value delivery process and while, physical handling of a product leads to standardized and centralized procedures and controls in manufacturing supply chains, in services this is not entirely possible as many of the decisions are taken locally and the variation and uncertainties in outputs are higher because of the human involvement. In addition, the focus of efficiencies in service supply chains is on management of capacity, flexibility of resources, information flow, service performance and cash flow management. These issues are quite different from manufacturing supply chain and hence extensive examination of service supply chains is required to further understand these issues. However, there are also many areas where there are similarities. For instance, demand management, customer relationship management and supplier relationship management are critical factors in manufacturing supply chains that remain equally important in service supply chain.

IV. SERVICE SUPPLY CHAIN MODEL There are some similarities both in service supply

chain model and manufacturing supply chain model, because both of them use customers’ demand to pull the total supply chain’s operation. Thus, the model in service supply chain is constructed for this purpose. In the model, supply chain is separated as front and back office. In front office, service suppliers confront customers directly, analyzing their demands, managing their relationship, and sending the demands to suppliers in back office. Then, after integrating each other’s resource and capacity for customer’s demand, service suppliers in back office will assemble their services together and transfer to front office (figure 1). There are information flow, capital flow and logistics flow accompanying the supply chain, including suppliers relationship management, service process management, service capacity management, customers demand management, customers relationship management, capital management, logistics management and labor management. The model shows, the front office manages customer’s relationship and demand, chooses back office suppliers and manages their relationship, resource and capacity. Based on original product and service, they seek to create service add-value, provide

customers with perfect integration of service. So, service nodes construct a service supply chain web.

Figure 1

V. SERVICE SUPPLY CHAIN’BULLWHIP EFFECT The research about bullwhip effect in manufacturing

supply chain drives to maturity in academia, Qingli Da[4] concludes the bullwhip effect notion in manufacturing supply chain: an important mechanism for coordination in a supply chain is the information flow among various stakeholders in the chain. An amplified distortion of demand information implies that upstream stakeholders will be misled, resulting in inefficiencies in the total supply chain.

The uncertainties exist in service supply chain, which may lead to bullwhip effect. Considering the differences between service and manufacturing supply chain, the bullwhip effect makes different influences on them.

Firstly, because service is intangible and could not be stored, there is no inventory to release pressure form demand uncertainties. Second, demand information is not main reason to bullwhip effect, as most of service suppliers communicate with customers directly. For example, Lee et al realized that, direct marketing is not easy to come into being bullwhip effect like distribution. However, in the back office, bullwhip effect still may exist. At last, price adjustment and shortage resource may also lead to bullwhip effect.

There are a few researches about bullwhip effect of service supply chain. Anderson and Morrice[5] research the mortgage service game. This game was developed to study decision-making in service-oriented supply chains, and they find the bullwhip effect clearly present in the system. An interesting feature of the bullwhip effect is the use of backlogs instead of finished good inventories as a measure. In terms of counter-measures, they concluded that sharing end-users demand information throughout the supply chain contributed to a reduction of bullwhip effects. Besides, Henk Akkermans and Bart Vos[6] make a further research on the bullwhip effect of service supply chain with an exploratory case study from the telecom industry. They find the relation of workload,

service quality and rework result in bullwhip effect. The heavier workload leads to service quality reduction, meanwhile the amount of rework increases. In return, it brings about heavier workload. Only improving the service quality can solve the problem.

In addition to the reasons above, this article goes on study another two reasons resulting in bullwhip effect.

First, the most importance resource is labor, thus effective labor control can make sure the high efficiency and high quality of supply chain. Each stakeholder arranges labor in view to next stakeholder downstream the supply chain. When the demand information amplifies upstream the supply chain, it would make the amount of labor increase, even the cost of hiring labor increases as well. As a result, it leads to unnecessary lost in supply chain. Therefore, sharing information is still an effective way to reduce the uncertainties and risk in service supply chain.

Second, the bullwhip effect is related to the service capacity on each node. Taking Beijing subway as an example, the process to take the subway includes buying ticket, security checking, checking ticket and waiting to get on. Compared to others, there are usually a large amount of people waiting to get on in the rush hour, for the subway train gets into station every 5 minutes, and the passenger volume is limited each time. In another words, its service capacity is lower than others. Thus, harmonizing the service capacity is a counter method to the problem. In the example, narrowing the size of entrance gate and decrease the amount of security and ticket checkers are effective way to ease the pressure in waiting area.

VI. CONCLUSION This article summarizes two kinds of service supply

chain, product servitization supply chain and professional supply chain. Combined these two kinds, a general definition of service supply chain is given. Then, this article compares the differences and similarities between service supply chain and manufacturing supply chain, points out the unique characteristics of service product. At last, this article studies the bullwhip effect in service supply chain, and it analyzes the reasons to bullwhip effect. After all, this study has far-reaching research meaning both in theory and practice.

REFERENCES

[1] Lisa M Ellram; Wendy L Tate; Corey Billington: Understanding and Managing the Services Supply Chain. Journal of Supply Chain Management; Fall 2004; 40, 4

[2] Anonymous. “What Are Professional Service?” retrieved July 12,2004,from members. Bellatlantic. Net/vze2x4ck/new_page_18.htm, (nd).

[3] Nie, W. and Kellogg, D. (1999), “How professors of operations management view service operations?”, Production and Operations Management, 8, 3, 339-355.

[4] Qingli Da, Qin Zhang, Houcai Shen. The Research of Bullwhip Effect in Supply Chain [J]. Journal of Management Science in China, 2003, (3)

[5] Anderson, E.G. and Morrice, D.J.(2000), “A simulation game for teaching service-oriented supply chain management: Does information sharing help managers with service capacity decisions?”, Production and Operations Management, 9, 1, 40-55.

[6] Henk Akkermans and Bart Vos, “Amplification in Service Supply Chains: An Exploratory Case Study from the Telecom Industry”, Production and Operations Management, December 2000