7. The Service Revolution
“There are no such things as service
industries. There are only industries
whose service components are greater
or less then those of other industries.
Everybody is in service”!
Theodore Levitt
13. Why Services Are Important
Increased Competition
Manufacturing Support
Makes Economic Sense
14. “When the quality and price of competing
products are similar or nearly identical,
service activities can ‘differentiate’
undifferentiated products in the mind of
the customer”
Glaskowsky et al.
15. Relative Importance of
Service Activities
Relative Importance
of Marketing Variables
Product
Price
Service
Sales Effort
TOTAL
All Industries
All Manufacturing
Chemicals
Plastics Mfg.
Food Mfg.
36
23
23
18
100
38
24
20
18
100
38
26
18
18
100
36
27
15
22
100
Electronics Mfg.
Paper Mfg.
All Other
Manufacturing
48
14
22
16
100
29
26
24
21
100
38
25
22
15
100
All Merchandising
Consumer Goods
Merchandising
Industrial Goods
Merchandising
30
22
27
21
100
31
23
23
23
100
28
17
39
16
100
National Council of Physical
Distribution Management
17. Suppliers
Tier 2
Suppliers
Tier 1
Manufacturing
Inbound Logistics
Operations
Outbound Logistics
C
UST
O
ME
RS
Distributors
Retailers
The Supply Chain
Information
18. Manufacturin
g
Service Industries
Communications, Transportation,
Utilities, Health Care, Banking, etc.
Service
Intermediary
Commercial
Services User
(Self-Service)
Consumer
(Self-Service)
R D
Product
Design
Distribution
Services
Wholesaling
Retailing
Repairing
Private Business Services
Supporting Manufacturing,
Accounting, Legal, Consulting,
Software, Maintenance
Government Support Services
Waste Disposal Services, Road Maintenance,
Education, Health Support, Standards,
Police and Fire Protection, etc.
Services Inside the
Company--Design,
Legal, Accounting
Advertising, etc.
20. Contributors to Market Share
Market
Share
Time
Market Share
Due to
Service Activities
Market Share
Due to
Captive Markets
Market Share
Due to
Product Features
21. Satisfaction and Loyalty
zone of affection
zone of indifference
zone of defection
1 2 3 4 5
100%
80%
60%
40%
20%
Very
dissatisfied
Dissatisfied Neutral Satisfied Very
satisfied
Loyalty (Retention)
Satisfaction
terrorist
apostle
22. TThhee NNeeww EExxppeerriieennccee EEccoonnoommyy
Economy Agrarian Industrial Service Experience
Function Extract Make Deliver Stage
Nature Fungible Tangible Intangible Memorable
Attribute Natural Standardized Customized Personal
Method of
Stored in
Inventoried Delivered
Revealed
supply
bulk
on demand
over time
Seller Trader Manufacturer Provider Stager
Buyer Market User Client Guest
23. The FFoouurr RReeaallmmss ooff aann EExxppeerriieennccee
Customer Participation
Passive Active
Environmental
Absorption Entertainment
(Movie)
Education
(Language)
Relationship Immersion Esthetic
(Tourist)
Escapist
(Skydiving)
The Question to ask yourselves IS
How much of a service company are you???
You/You/YOU/YOu/YOU/YOU/YOU/-----------
We all are involved in the service sector No one is immune from it’s effects
AND shouldn't be (thats why you are here)
As manufacturing becomes
more automated
streamlining operations
outsourcing more functions----service is growing
Recent studies show that ;
**The service component of a typical manufacturer is growing rapidly
30-70% of value Added
are attributable to service functions
70% of total costs----WHY do we still push for shop floor improvements
as world economies/businesses evolves
preindustrial
industrial
post industrial
a new combination of labor/capital/organization is taking place
fewer employees etc..
A few stats
1st glance data may be disturbing
/BUT manufacturing Peeked ~~1950
and has been declining ever since
WHY/
we are being more productive and efficient
a different mix,
BUT with this new mix there is an INCREASE reliance on
Services
as the #;s show!!!
Acct/Finance/transportation/healthcare/P.M. etc ( all of these activities that we do not concentrate on)
AS well as pure services
No country is immune from the growth in the service sector
Some more then others
Whats causing this
Italy/Japan are flat
UK way up
All services have shown dramatic increases
especially legal and business!!!!
Business services=
What services does your firm outsource!!!!
Sears has Integrated backward and forward into insurance and finance---
Service Master (1.4 billion in revenues) 3.5 billion Guilders---
By lowering Manufacturing costs
by managing complete equipment and plant maintenance,
It will also design—layout, operate your facility (while sharing in the revenues!!!)
Johnson Controls---Engineering/Plant design/operations ----
The US is not alone in our increasing reliance and
importance of services
WE do lead the charge
But we lead most other stats as well
US =72%Germany 57%
while
MFG GDP is falling
US = 23%>20% Britain and Canada
This change is not only Domestic BUT________>
GDP—Gross Domestic product
The value of all production within a country
A SINGLE CATEGORY FINANCE IS ALMOST AS LARGE AS ALL MANUFCTURING
Definition is Ambiguous at best
APICS E&R Newsletter June 1996/Vol 2/Jim Pope
not in APICS dictionary
3 uses:
1. One where no final goods inventory exists
(maybe raw/wip) but no finished goods inv.
PRODUCED AND CONSUMED AT THE SAME TIME
2. Cust. Service--relationship during delivery
time/price/quality
3. Field--relationship after delivery
warranty service/parts avail/follow-up
**any function that does not directly contribute to the production of the product.
Defined as what it’s not US Gov’t defines it as a residual
non-farming, non-manufacturing employment
so whats IBM what about General Motors
In: BCBS out: Financial(gmac) must begin to think as ourselves as not just a manufacturer but a SERVICE ORG. and accept there new VIEW
Massive Hidden Service sector
Pre & Post services--- Acct/legal/utilities/health care/waste disposal/maintenance
PROBLEM AREA
How measured:
--product/process design
--R&D
--Mkt. Research
--Acct/Data Analysis
*** captured as Mfg. Costs if preformed WITHIN mfg. Concerns
*** Captured as services if preformed EXTERNLY
The ability to differenate an undifferanted product/commodity etc.
Mfg. Cannot exist without the functions services provide
3. Customers want to be treated well and do repeat business with the firms that emphasize quality
4. The life blood of any company is repeat business
Service recovery etc.
customer loyalty
create apostles for your firm
Increased relationships between Mfg. And service functions
5. President of Hienkien has been quoted as saying: “we are just a Marketing company with a production facility as a service”
richard Wagnor President of GM--- we just manufacture vechiles so we can finance them
Your ability to SERVICE your customers will be the key between
Success and Failure
Whats counts most is the SERVICE built into the product
way it is designed/delivered
billed/bundled
explained and installed
repaired/renewed
SERVICE is not A competitive edge it is THE competitive edge
SERVICE ranks right alongside
price in perceived importance by
industrial customers
Profitability & Market share
If Services have this much input
Design In service systems from the beginning
Only when we begin to put service on the same level as Mfg will we begin to see the gains in productivity that have long alluded us!!
---Managing the numerous service functions within the supply chain
---At every stage
----At every level
Especially Information
Service IS a major Organizational function along the supply chain----^^
Components of SERVICE
Interactions Among Manufacturing and Service Activities
Purchaser of automated equipment requires more then delivery
-installation services
-application aids
-parts/ post purchase repair maintaence etc.
WITH this increasing interdependencies it is now time to give the level of attention to SERVICE functions that has always been reserved formanufacturing
Sectors of economy’s are becoming increasingly interdependent
A service focus will lead to pro=actively managing the service function as a profit center because it will generate future revenues as the product becomes a commodity.
Differentiation and Lower costs
Improved transportation /Materials handling
CAN/WILL cut costs as effectively as cutting
direct labor or material inputs
CAD and MFG software can increase quality and Reduce costs as easily
as can new equipment
Product Quality once the compeitive Advantage is now just the Ante’
Service is not A competitive edge
IT IS THE Competitive edge
Improved transportation ands materials handling can cut costs as effectively as cutting direct labor or materials.
In most mfg. industries service costs out way direct labor costs by a factor of 3-10 to 1,
YET we only look at labor and cautiously look at service functions
planning/Q.C./Distribution
accounting /Transportation/Advertising
inventory/Design
A Service focus will not only reduce current operating expenses and thereby exert considerable leverage on profits, IT will increase customer satisfaction which will increase long-term profitability
---drives customer loyality
WHy become service driven!!!
1. To differentiate your company from it’s competitors
2. To build Market Share & customer loyality
Over the long-run you can’t maintain market share with unique features alone----your competitors will catch you!!!
Only through service and loyal customers will you increase market share.
Also: you can’t build market share by cutting price
or cutting quality, studies show that in the long run that approach is doomed for failure
Service profit chain-----^^^
It is now obvious that a service focus will not only reduce current operating expenses & thereby exert a considerable amount of leverage on profits, but will increase customer satisfaction which will increase market share----which will in turn Increase long-term profitability
Lost market share mauy be regained through service---
Profit growth is stimulated by loyalty
A score of 5 is 6X more likly
Loyalty is a direct result of satisfactionto repurchase then a score of 4
Satisfaction is driven by valueneed to create Apostles!!!
To max Profits we need to go beyond being #1 or #2 in our Industry
which has been the holy grail for nearly 2 decades
* New measures show that Customer Loyality may be a more important determinat of profit
Studies show that a 5% increase in loyality can produce Profit increases fron 25 to 85%
Quality of Market (measures in terms of customer loyalty)
deserves as much attention as Quantity of shareDepth of relationship
So what drives loyality???
Service and customer service = satisfaction