Academic journal article Journal of Supply Chain Management

Understanding and Managing the Services Supply Chain

Academic journal article Journal of Supply Chain Management

Understanding and Managing the Services Supply Chain

Article excerpt

BACKGROUND

In recent years, services have become an increasingly important force in the U.S. economy. Services have taken on an escalating level of importance as manufacturing became "hollowed out" in the 1980s and 1990s due to outsourcing to Asia, Mexico, South America and Eastern Europe. Today, the United States is a service economy. As of 2001, services-sector business accounts for about 84 percent of the United States' gross domestic product and non-farm private-sector employment (U.S. Department of Commerce 2003). Yet, from academic and practical standpoints, the emphasis in purchasing and supply, supply chain and operations management is still strongly skewed toward the manufacturing sector.

Indeed, in popular textbooks in operations management, purchasing and supply management, and supply chain management, the topic of "services" is often a chapter, rather than being integrated throughout the book. The operations (Slack, Lewis and Bates 2004; Sampson 2001; Allen and Chandrashekar 2000), supply chain (Akkerman and Vos 2003; Nie and Kellogg 1999) and marketing literatures (Vargo and Lusch 2004a, 2004b) have all been criticized for their manufacturing-centric focus. The examples, models, research and anecdotes used in academia tend to center on the manufacturing sector. Supply chain management has numerous definitions, but they all tend to be focused toward a physical transfer of goods. The supply chain definition used here is:

Supply chain management is the management of information, processes, goods and funds from the earliest supplier to the ultimate customer, including disposal.

A common theme in services is that human labor is a significant element of the total value delivered. Human performance is unique regardless of training and background, which makes precise management and control of many services difficult. What's more, the same people will command different value as the local environment changes. The human element of services is one of the factors that makes services procurement difficult.

One reason that the services sector has received less attention than manufacturing is that the U.S. economy was built on the manufacturing and farming sectors, whereas the services sector has been emerging over the past three decades or so. Figure 1 shows the relative contribution to gross domestic product of manufacturing, farming and various services-sector businesses for the United States for 2001. In some cases, these categories are so broad that they are not very meaningful, as in the case of the category "other private services." The lack of attention given to the services sector extends to the purchasing of services. Services are often more difficult to visualize and to measure. Historically, "service level agreements" and "statements of work" have not been as precise and finely tuned as specifications for manufactured goods. There is a general belief that service performance is not as easy to measure as product functionality and tolerances. All of this has added to the mystique of services and the services sector, and slowed research progress and management of services.

The diversity of the services sector and the lack of uniformity in reporting services spending by categories make it difficult to understand the impact of services spending and develop a unifying services framework. The service-producing sector is essentially defined as everything except manufacturing and farming. This includes the following divisions: transportation, communication and utilities; wholesale trade; retail trade; finance, insurance and real estate; public administration; and finally, services. Table I lists the main groups of industries in the services division of the services sector. This illustrates the diversity of services-sector businesses. It is difficult to find the common thread among them.

Another factor contributing to the lack of formalized approaches for managing services supply chains is the fact that services are often not procured and managed centrally. …

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