The Emergence of the Demand-Driven Service Chain
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1 The Emergence of the Demand-Driven Service Chain
2 The Service sector defines the Australian economy Services now represent almost 70% of Australia's gross domestic product (GDP) In Australia, the services sector makes up almost 70% of GDP, which in was $1.66 trillion, and employs around 78% of the workforce. The largest components of the sector are tourism, education, healthcare and financial services. As such a significant portion of our economy, it is important to understand what a service, service chain and service chain management is. This is almost double what Services represented 50 years ago as a percentage of GDP Services now employ four out of five Australians Services represent 18% of Australia s exports
3 What is a service? Before we delve into service chains, we must first consider, what is a service? The Economist magazine has wryly defined services as things you can not drop on your foot. Less tongue-in-cheek, the Australian Services Roundtable states that, services deliver help, utility or care, an experience, information or other intellectual content. Properties of Services Unlike goods produced in a supply chain, services are: Intangible they can t be manufactured, touched or picked up Perishable they can t be stored away or returned Heterogeneous human interaction means each service is unique Examples of industries that provide services include hospitality, health care, professional services and utilities. Simultaneously produced & consumed use of the service generally occurs at the time of delivery Non-transportable the customer and service delivery system must come together at a point in time The Service Chain andservice Chain Management The service chain describes the process by which a service is provided by an organisation to deliver value to a customer, while service chain management refers to the end-to-end planning and management activities involved in providing the service to the customer.
4 Service Chains, as supply chains did in the 90s and 00s, are transitioning from being recognised by executive teams as a cost centre to now being recognised as a source for competitive advantage for businesses. Service organisations today must plan, forecast and optimise their service chain to enable consistency in decision-making and to ensure availability of the provision of services. Service chains, in terms of maturity have historically tended to lag supply chain maturity. For example, the investment of forecasting and planning capability for supply chains was a game-changer and this capability is only now emerging in service chains. Such recognition by executives within services organisations is generating a new wave of investment in service chain capability.
5 Why getting it right is important? Ensuring Availability Service level Sales revenue Profit Capacity Planning & Scheduling Service chain efficiency (e.g. KMs travelled, time sheets, etc.) Operating Cost Return on investment Workforce Optimisation Labour Force Composition (Full time vs. Casuals) Cash to cash cycle Cash Accounts receivable / payable Capital employed Balancing Trade-offs Availability & responsiveness Worksites, Labour Force Distribution & Utilisation Labour Force & Equipment Fixed assets
6 The Service Chain Excellence Framework GRA views service chain management as an integrated system that must be considered holistically and be supported by a dedicated function within an organisation. Business Strategy The Service Chain Excellence framework enables service organisations to approach the service chain management task in an integrated manner. There are 3 key sections: Customer Value Proposition Employee Value Proposition - Business Strategy - At the core of service chain management, there needs to be a clear and concise business strategy - Target Operating Model the Customer Value Proposition (CVP) and Employee Value Proposition (EVP) make up the Target Operating Model the core service chain elements that leadership have influence over to realise the business strategy - Service Chain Operations includes the operational structures, capacity planning & scheduling processes and operational capabilities used to execute and deliver services Operational Structures Operational Planning Processes Operational Execution Capabilities Organisational Design Demand Planning Target Operating Model KPI s & Reporting Target & Constraint Optimisation Policies & Procedures Capacity Planning People Process Systems Data
7 Business Strategy The Business Strategy defines where and how a service organisation is going to compete in the marketplace and how it is to align resources to compete. The Target Operating Model Together, the CVP and EVP make up the Target Operating Model the reason for existence, this is a businesses why and should dictate the trade-off decisions the organisation is willing to make and not make. A CVP describes the benefits that customers receive when they choose to engage with an organisation; this looks to answer the what (range), how/where (channel) and when (responsiveness) questions, which subsequently are impacted by answering who is the customer? (segmentation). An EVP describes the mix of characteristics, benefits and ways of working in an organisation; this determines how the CVP is operationalised. The establishment of these three core elements forms the foundations of service chain management, and from there, an organisation can align its structure, capabilities and processes to bring value to the business. These questions are important as you cannot be everything for everybody; trade off decisions must be made. For example, our CVP should govern: Range: What services will we provide? Channel: How and where will we provide the service? Our Customers (CVP) Our Employees (EVP) Target Operating Model Responsiveness: Within what timeframe will the service be provided? Segmentation: What level of service will we provide to what services and which customers?
8 Service Chain Operations The set of structures, processes and capabilities of a service chain business are known as service chain operations. Together, these operations drive and orchestrate the core activities of a service chain business, delivering on the CVP and EVP set out in the Target Operating Model. Operational Structures include the organisational design (roles and responsibilities), KPIs, policies and procedures which align the organisation and drive the right behaviours. Operational Planning Processes are the core high level processes undertaken to deliver a bottom-up, integrated, forward-looking plan, from both a service demand and resource capacity perspective. Operational Execution Capabilities are the people, processes, systems, and data which enable and support the operational planning processes. Operational Structures Organisational Design KPIs & Reporting Policies & Procedures Service Chain Operations Operational Planning Processes Operational Execution Capabilities Demand Planning Target & Constraint Optimisation Capacity Planning People Process Systems Data
9 The diagrams below are a high-level representation of the various elements and tools involved in a service chain system. Service Chain Operating Model Low Maturity Service Chain Operating Model High Maturity Route Optimisation Common Symptoms of a Low Maturity Service Chain: Forecasting not done at required level of granularity CVP/EVP not defined or communicated through organisation Typically higher employee turnover and customer churn rates IT systems do not support optimisation requirements No forward visibility of expected demand Unable to roster effectively Daily execution very reactive Lagging recruitment: for current needs, not future needs Taking the next step 4 questions to assess the operational maturity of your service chain organisation Have we defined and communicated our CVP and EVP? How well have we aligned our CVP/EVP and Service Chain Operations to our Business Strategy? Do we have appropriate and integrated IT systems and tools in place to support our planning processes? Do we provide a forecast at a required level of granularity to support our upstream planning processes?
10 In a service chain with high maturity, an organisation will have pipeline visibility on service requests (demand) as well as recruitment (supply). This is what we call a Demand Driven Service Chain (DDSC). A DDSC has IT tools in place that enable the following: 1. Demand Driven Forecasting 2. Workforce Planning 3. Optimised Rostering & Scheduling This provides a forecast over an extended time horizon, based on historical customer data (bottom up build) and market intelligence (top down build). The forecast is calculated at the most granular level (service demand by service type, service level, location and time) so that workforce planning can be accurately matched to forecasted service demand. Ensures the organisation has the right workforce composition (in terms of employee type, full-time vs part-time vs casual, level, location etc) and that recruitment of new employees targets portions of the supply pool that do not currently align with forecasted demand requirements. This tool generates a schedule, based on pre-determined constraints (using the CVP and EVP), that matches employees (supply) with customers (demand) to achieve operational outcomes (reducing overtime, idle time, mismatched services etc).
11 GRA was founded in 1997 and is Australia s premier specialist supply chain consulting firm. Our team has extensive commercial & government supply chain and logistics experience across a broad range of industries and at all levels of the process, both strategic and operational. At GRA we understand the complex challenges service organisations are facing. We can help you with not only designing an optimal service chain, but also ensuring that your services are optimised to ensure that the highest possible service levels can be achieved at the lowest possible cost. Subscribe to GRA news at (w) (p) +61 (03) (e) webinfo@gra.net.au Authors & Contributors Mathew Tolley Anita Crowley Shanaka Jayasinghe James Allt-Graham Carter McNabb Manager, Melbourne Consultant, Sydney Senior Manager, Sydney Partner, Sydney Partner, Melbourne
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