Recently I worked with some colleagues to investigate how to get better service quality out of suppliers. The results show that the traditional buying and contract evaluation approaches developed for managing suppliers of goods need to be modified for services. Services now account for 70% of the world’s GDP and 80% of the United States’ GDP; logistics services such as 3PLs, time-defined delivery services, and warehousing comprise important components of that 80%.
There’s no such thing as either a “pure” service or goods purchase these days. Even the most basic commodity requires some sort of delivery and payment information to accompany it, and the most cerebral service such as legal advice still requires documents and scheduling. Every logistics service will vary in its degree of what Brigham Young University’s Scott Sampson calls “serviceness.” Here are some insights gleaned from a sample of companies that got better service quality out of contracts high in “serviceness”.
- Each service is its own supply chain: A service supply chain consists of the customer who provides inputs to the supplier who performs some service, and then delivers the outcome to the customer. So one service contract really requires managing interactions in a loop of three parallel channels, each with different purposes: Customer as inputter to Supplier with requirements; Supplier as inputter to Customer to meet requirements; and Customer as inputter of feedback to Supplier.
- Your inputs matter: Services are different from goods because they require more customer involvement during the production process. In other words, as the customer YOU are one of the inputs used by your supplier. This means that YOU determine (to some degree) the quality of what your supplier can do. If you want to improve the quality of your service, focus on your own interactions with the supplier. Are you an enabler or an obstacle for your supplier?
- Know your operant vs. operand: You might not remember these technical terms, but the concept behind them is easy. Operant resources are things that produce effects, and operand resources are things that an operation or act is performed upon. Operant resources usually consist of people, especially employee skills and knowledge. Operand resources usually consist of goods, physical resources, and other things that can be manipulated, transformed, and processed. Services are people-intensive, meaning that your service provider is an operant resource for your company. What you need to figure out is the effect your service supplier is providing. Is it working on an operand resource in your company such as moving a package from one location to another, or mixing and matching products? Or is it working on an operant resource in your company, such as safety training or overseeing an ERP system? Improving the latter means you should recognize that the output depends on how well your own company’s employees interact with the service supplier’s employees.
- Take your time: Invest the time up front before awarding a new service contract in order to fully understand not just what you want to get out of your supplier, but also what the service process will look like. This should include looking at the people in your organization who will be providing the inputs to the service supplier, as well as talking to the person in your organization in charge of evaluating the outcomes. Don’t forget to take a look at the key stakeholders in your organization who might be affected by the service process, either as your internal customer or as an input provider. Depending on the service and the numbers of interactions, you may have to consider allowing the service supplier some space in your organization on at least a part-time basis.
- Contracts matter: One of the biggest gripes against 3PLs is that they aren’t performing as well as expected. But this points the finger right back at the customer, not the 3PL. This insight applies to other logistics service contracts as well. At a time when many thought-leaders talk about how relationships matter more than contracts, people sometimes forget that contracts serve an important role in setting expectations for the relationship. Because relationships with service providers have a tendency to evolve and adapt, later in the relationship you may not obsess over the letter of the contract. But the process of thoroughly spelling out up front what each side must do and what the final important and relevant outcomes should be is invaluable because these discussions and interactions play a critical role in the long-term performance of the contract.
- Reliance on monitoring guarantees mediocrity: This doesn’t mean that monitoring service suppliers shouldn’t be done, but realize instead that monitoring is after-the-fact. Reliance on monitoring as the sole means of managing your logistics service usually provokes a chain of reactive responses when things go wrong, often consisting of adding steps to processes, which adds cost, requires more monitoring, and slows cycle times. Catching a problem by end-of-the-line monitoring means that the damage is done, and a cost has already been incurred to your organization. In a case of an ounce of prevention being worth a ton of cure, the companies that shifted resources to more continuous and effective interactions with service suppliers tend to have better service outcomes.
- Service contracts are inherently more complex: Traditional supply management portfolios classify suppliers by risk or complexity of purchase and criticality of the input. But services always incur more complexity because of their interactive nature, even when they don’t constitute a large or critical expenditure.
Most of these insights won’t be news for the few organizations that have mastered the art of effective relationships with their logistics service providers. But if your organization still selects and manages logistics service providers using the same process for purchasing a box of pencils, you should probably ask yourself: do you really know what counts for managing logistics services?
This article is part of the monthly series authored by the Institute for Supply Management’s Logistics & Transportation Group Board Members, who are current practitioners, consultants, trainers, and educators. In future columns, they will continue sharing their views on a number of Supply Chain and Professional Development topics.
Dr. Michael Gravier, PhD, CTL, is an Associate Professor of Marketing and Supply Chain Management at Bryant University in Providence, RI. He is also the 1st Vice Chair of ISM’s Logistics & Transportation Group and can be reached at mgravier@bryant.edu or (401) 232-6950. Membership in the L&T Group is open to all current ISM members who are responsible for or have an interest in Logistics & Transportation.
There’s no such thing as either a “pure” service or goods purchase these days. Even the most basic commodity requires some sort of delivery and payment information to accompany it, and the most cerebral service such as legal advice still requires documents and scheduling. Every logistics service will vary in its degree of what Brigham Young University’s Scott Sampson calls “serviceness.” Here are some insights gleaned from a sample of companies that got better service quality out of contracts high in “serviceness”.
- Each service is its own supply chain: A service supply chain consists of the customer who provides inputs to the supplier who performs some service, and then delivers the outcome to the customer. So one service contract really requires managing interactions in a loop of three parallel channels, each with different purposes: Customer as inputter to Supplier with requirements; Supplier as inputter to Customer to meet requirements; and Customer as inputter of feedback to Supplier.
- Your inputs matter: Services are different from goods because they require more customer involvement during the production process. In other words, as the customer YOU are one of the inputs used by your supplier. This means that YOU determine (to some degree) the quality of what your supplier can do. If you want to improve the quality of your service, focus on your own interactions with the supplier. Are you an enabler or an obstacle for your supplier?
- Know your operant vs. operand: You might not remember these technical terms, but the concept behind them is easy. Operant resources are things that produce effects, and operand resources are things that an operation or act is performed upon. Operant resources usually consist of people, especially employee skills and knowledge. Operand resources usually consist of goods, physical resources, and other things that can be manipulated, transformed, and processed. Services are people-intensive, meaning that your service provider is an operant resource for your company. What you need to figure out is the effect your service supplier is providing. Is it working on an operand resource in your company such as moving a package from one location to another, or mixing and matching products? Or is it working on an operant resource in your company, such as safety training or overseeing an ERP system? Improving the latter means you should recognize that the output depends on how well your own company’s employees interact with the service supplier’s employees.
- Take your time: Invest the time up front before awarding a new service contract in order to fully understand not just what you want to get out of your supplier, but also what the service process will look like. This should include looking at the people in your organization who will be providing the inputs to the service supplier, as well as talking to the person in your organization in charge of evaluating the outcomes. Don’t forget to take a look at the key stakeholders in your organization who might be affected by the service process, either as your internal customer or as an input provider. Depending on the service and the numbers of interactions, you may have to consider allowing the service supplier some space in your organization on at least a part-time basis.
- Contracts matter: One of the biggest gripes against 3PLs is that they aren’t performing as well as expected. But this points the finger right back at the customer, not the 3PL. This insight applies to other logistics service contracts as well. At a time when many thought-leaders talk about how relationships matter more than contracts, people sometimes forget that contracts serve an important role in setting expectations for the relationship. Because relationships with service providers have a tendency to evolve and adapt, later in the relationship you may not obsess over the letter of the contract. But the process of thoroughly spelling out up front what each side must do and what the final important and relevant outcomes should be is invaluable because these discussions and interactions play a critical role in the long-term performance of the contract.
- Reliance on monitoring guarantees mediocrity: This doesn’t mean that monitoring service suppliers shouldn’t be done, but realize instead that monitoring is after-the-fact. Reliance on monitoring as the sole means of managing your logistics service usually provokes a chain of reactive responses when things go wrong, often consisting of adding steps to processes, which adds cost, requires more monitoring, and slows cycle times. Catching a problem by end-of-the-line monitoring means that the damage is done, and a cost has already been incurred to your organization. In a case of an ounce of prevention being worth a ton of cure, the companies that shifted resources to more continuous and effective interactions with service suppliers tend to have better service outcomes.
- Service contracts are inherently more complex: Traditional supply management portfolios classify suppliers by risk or complexity of purchase and criticality of the input. But services always incur more complexity because of their interactive nature, even when they don’t constitute a large or critical expenditure.
Most of these insights won’t be news for the few organizations that have mastered the art of effective relationships with their logistics service providers. But if your organization still selects and manages logistics service providers using the same process for purchasing a box of pencils, you should probably ask yourself: do you really know what counts for managing logistics services?
This article is part of the monthly series authored by the Institute for Supply Management’s Logistics & Transportation Group Board Members, who are current practitioners, consultants, trainers, and educators. In future columns, they will continue sharing their views on a number of Supply Chain and Professional Development topics.
Dr. Michael Gravier, PhD, CTL, is an Associate Professor of Marketing and Supply Chain Management at Bryant University in Providence, RI. He is also the 1st Vice Chair of ISM’s Logistics & Transportation Group and can be reached at mgravier@bryant.edu or (401) 232-6950. Membership in the L&T Group is open to all current ISM members who are responsible for or have an interest in Logistics & Transportation.
