Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

3.1.4b Design Options for Global Service Networks

Intended learning outcomes: Explain design options for global service networks of services in direct contact with the object. Describe some company cases.

Continuation from previous subsection (3.3.3)

The portfolio in Figure shows, in addition to the two classical designs (centralized or decentralized service), two possible mixed designs. The four possible designs lie in four sectors in a two-dimensional space, spanned by the dimensions that correspond to the two (conflicting) groups of features.

Fig.        Features of and design options for service networks for services in direct contact with the object.

The sector S1 describes the option of a centralized service at the manu­facturer’s or speci­fic service provider’s location, with the object being picked up, and later (that is, after the service provision), brought from or to the location by the service provider. It is advantageous where the mobility cost ratio and demand volatility are high. In such cases, customers are usually also prepared to tolerate generally longer transport routes and longer lead times until delivery or execution of the service. This option permits a wide selection of services and a high fill rate as well as relatively low facility and handling costs. Neverthe­less, these are countered by high transport costs, often associated with complex preparation and special modes of transport. In addition, there is a rather higher level of complexity for information systems, in relation to both the transmission of orders from the service point of sale and to order tracking during the service provision. The location of the object before and after the service need not necessarily be the same, and need not necessarily be that of the ordering party (e.g., dealer in second-hand machinery). However, in such cases, even greater complexity must be taken into account for the information systems described above. This is the classical design option for comprehensive refurbishment and modernization of capital goods (normally by the manufacturer, e.g., machinery, aircraft, and vehicles), for contract work, and for major operations at specialized hospitals in the health sector.

The opposite sector S4 describes the decentralized service in the service center. The object is brought and later (that is, after the service provision) picked up by the customer. This design option is suitable where the customer is prepared and able to bring the object to the service center and pick it up again. First, the customer may or must schedule the execution of the service — potentially involving several visits. This design option is transparent, requires much simpler information systems for ordering and order tracking of the service, and allows repeated transfer of the same service object. Examples here are simple repairs to items of everyday use, such as vehicles, shoes, devices, and simple services delivered to people, such as in the hairdresser’s, at the bank, at the doctor’s surgery, or at a kindergarten.

The intermediate sector S2 describes the service provided by the manu­facturer / specific service provider or from a local service center, with provision of the service at the location of the object: this is the easiest option for the customer. However, it requires rather low demand volatility and accessibility to the object at the agreed time. If this is not the case, the consequences will be high stand-by costs and transport costs that are even higher than their currently high levels owing to futile journeys. Often, the challenge of optimum routing and scheduling also presents itself. The service is provided from a local center. For rarely executed or difficult services it may be better if a specialist service provider or even the manufacturer is deployed. Examples here are the classical maintenance and repair or operator models on site, as well as insurance services, simple home care, medical services provided by general practitioners in the home, and home tutoring.

The intermediate sector S3 describes the centralized service at the manu­facturer’s location or servicing in a major service center. The customer brings to and later (that is, after the service provision) picks up the object from a collection point. This design option can be selected if the customer is prepared and able to bring and pick up the object and can thereby benefit from significantly lower transport costs. Examples here are major repairs to tools and equipment or the operation of traditional school (collective transportation of schoolchildren) or group trips. The requirement in terms of accompanying information systems for this is even higher than for option S1. If the collection point incurs significant costs, this solution becomes economically unviable. Thus, collection points should be combinable with existing service centers or product distribution centers (e.g., in-store). Such collection points permit repeated transfer of the same service object. Collection points in relation to schools or tourism can be combined with a stop on the public transport network, for example. Provision of the service in service centers instead of the producer reduces the transport times. In turn, either the selection of services and their availability is reduced, or stand-by costs rise. The costs for plant and handling rise further anyway, due to the costs of the service center. This solution is suitable if the objects accumulate in specific regions. Larger service centers and the specific service provider may also act as collection centers. An example of this would be accident and emergency departments in a hospital.

Similarly to the network structure for decentralized distribution and the design options for retail networks, decentralized service concepts (sectors S2, S3, S4) require a suitable “multi-echelon” structure and a network of service providers, service centers, and collection points. The degree of similarity to the shapes of retail networks shown in Figure is high.

Company cases: In the prior example, Hilti owns local service and repair centers as part of the different sales organizations. The customer tolerance time is very low, as is the degree of customer involvement in bringing and picking up. Due to the direct delivery concept, the sales representatives are close to the customer. In case of a defect, e.g., of a drilling machine, Hilti’s fleet management quickly delivers replacement, taking back the defective equipment at the same time. Thus S2 is the preferred design option.

For the equipment they previously sold, the aforementioned big retail chains like Walmart or Migros offer collection points right at their larger points of sale. Sometimes, there is also an on-site service shop (option S4). More commonly, they use the transportation network that delivers products via the different echelons of their distribution network structure for transporting the defective part to a larger service center or to the manufacturer (option S3).

Further Correlations That Should Be Considered for an Integrated Determination of the Design Options: Through skillful redesign of a complex service, parts of the service can possibly take on a more decentralized character. For example, extensive revision of a machine at the manufacturer’s site can be carried out more as a sequence of simplified service variants at the operator’s site, without missing the de­sired goal of the revision. Prior to the performing of these simpler services, the necessary repair parts can be delivered via the distribution network. Furthermore, the degree of decentralization of services is, in general, at least as high as the degree of decentralization of the distribution. Actually, it would not make sense to the customer, why she or he should accept a longer way for maintenance and repair than for delivery. So a point of sale can often be used as a collection point, sometimes even as a local service center.

For a service that is related to a previously manufactured product (e.g., the classi­cal mainte­nance and repair of installed appliances), then these four design options cannot be selected without giving consideration to the design of the production network. For production destined for the global market (sectors P1 and P3 in Figure, all four design options for the global service network come into question. For production destined for the local market (sectors P2 and P4 in Figure only the design options in the sectors S2 and S4 in Figure come into question from a global perspective. From a local perspective, it is naturally possible to view ser­vice by the (local) manu­facturer as “central.” In such a case, all four design options can come into question, albeit only for the local service network.

Course section 3.1: Subsections and their intended learning outcomes

  • 3.1.2b Design Options for Global Distribution Networks

    Intended learning outcomes: Explain design options for global distribution networks. Describe some company cases.

  • 3.1.3 Network Structure for Decentralized Distribution

    Intended learning outcomes: Disclose the distribution network structure and describe decision variables in its design. Present features such as available time for shopping, and simultaneously, capacity of an available means of transport of the customer, as well as the required geographical catchment area.

  • 3.1.3b Design Options for Retail Networks

    Intended learning outcomes: For decentralized distribution, explain the portfolio for designing retail networks retail networks.

  • 3.1.4 Centralized Service Versus Decentralized Service

    Intended learning outcomes: Differentiate between centralized service and decentralized service. Present features such as the mobility cost ratio of the service, the degree of customer involvement in bringing and picking up the service object, as well as the need for repeated transfer of the service object.