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Supply Chain Frameworks for the Service Industry: A Review of the Literature

Julie Drzymalski
Western New England University
1215 Wilbraham Road
Springfield MA USA 01119
jdrzymalski@wne.edu
+1(413)782-1727

ABSTRACT
A well-defined supply chain is critical to any business. As the service industry grows in importance, so
does the need for frameworks, performance measures and strategies for this industry. The level of
efficiency and responsiveness that the manufacturing segment has seen due to the growth and study of
supply chain management techniques over the last few decades must now be translated to the service
industry. This paper explores the relevant literature devoted to frameworks and performance measures
for this particular industry and draws comparisons to the existing models built for the goods industry and
concludes with the need for future exploration in this area.
KEYWORDS: Services, supply chain, literature review, framework, performance measures
1
BACKGROU+D
The transformation from an industrial based economy to a service based economy has been taking place
in the United States over the last 20 years. The service industry continues to grow and is quickly
becoming a main sector in the economy.Of the Dow Jones index stocks, 26.7% are in the service sector
(CNN Money, 2012), with two of those companies General Electric and IBM among the worlds most
competitive operations in the service sector. The ever-advancing, new information technologies are one of
the main reasons behind this economic transformation in the US from manufacturing to services. The
importance of these services cannot be overstated; because these service industries rely heavily on
information technology, they are also drivers of technical progress.
While trade, transportation and utilities lead the list as the largest service industry employers (CSI),
professional and business services, education and health and leisure and hospitality are also very crucial to
the services contribution to the Gross Domestic Product (GDP).These services are not just for the use of
United States residents alone either. In 2009, private services exports were in excess of $483 billion and
this figure rose to over $526 billion in 2010 (CSI), with a trade surplus of over $180 billion (Commision,
Recent Trends in U.S. Services Trade, 2011). This trend has grown in virtually every segment of the
services industry.
One alarming statistic though, is often over-looked. Although the professional and business services
segment contributed about 20%-22% to the GDP in both 2009 and 2010 (Commision, Recent Trends in
U.S. Services Trade, 2011), there has been an increasing trend of offshoring these services in particular to
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reduce labor costs. The largest area of this is seen in high-skilled jobs such as architecture, engineering,
law and more recently, medical diagnostic services (Commision, Recent Trends in U.S. Services Trade,
2011). There are conflicting opinions as to whether or not this trend allows for a focus on core
competencies (Wolfl, 2004) or simply the desire to reduce labor costs. Some feel that offshoring these
services will, in the long-run, boost productivity growth in the domestic economy by enhancing the
economy of the consumer while others feel that it simply devalues the wages of the often highly educated
service worker (Gorg, Geishecker, & Krieger-Boden, 2011).
The importance of service firms to the economy is crucial; however, improvement is needed to bring the
service industry to the level of efficiency and responsiveness that the manufacturing sector has grown
accustomed. Particularly since this sector relies heavily on its customer base, new paradigms,
frameworks, and performance measures specifically designed for the service industry are necessary to
ensure this growing trend. This paper explores the existing frameworks currently utilized for service
supply chains (SSCs), from both a process-based view and a performance-based view. Additionally, the
limitations posed by these frameworks is discussed, along with the lack of clear metrics for this important
industry.
2
SUPPLY CHAI+S I+ THE SERVICE I+DUSTRY
Just as the focus on building world-class supply chains (SCs) and collaborations in manufacturing began
in the latter part of the 20th century, the attention needs to turn now on the supply chains within the service
sector. Many questions need to be answered to determine whether or not existing models of frameworks,
performance measures, network design and implementation are applicable to the service sector. Building
a foundation for the supply chain in these service-type industries is crucial to the execution the activities
within this sector(Ping & Jia, 2010).
First, an understanding of the external environment is crucial to any organization in order to allow for
positive customer satisfaction. While goods-producing firms, tend to rely on generic SC models such as
Porters Value Chain model (Porter, 1985), or the SCOR model (Supply Chain Operations Reference
Model), the focus is typically centered around profit with some level of quality and service. However, the
service industry incorporates not-for-profit, as well as for-profit firms. And within those for-profit firms,
the level of human-interaction within those services and the reliance on person-to-person interaction on
overall success of the firm is quite disparate. Thus, the question is raised: Is a generic supply chain model
applicable for all service industries or is it service industry-specific?
The importance of developing foundational models of SCs for the service industry is an imminent task
and very little work as been accomplished to date. As evidence of this urgency, one can look at the
efficiency seen in the United States and abroad. In 2011, the service sector contributed to more than 75%
of the USAs GDP (The World Factbook, 2012). However, that percentage is due to approximately 70%
of the population being employed in that industry, while services in countries such as India contribute a
little over 50% to the GDP and employ just 25% of the population. While that ratio of GDP contribution
to employment percentage has decreased from a decade ago, it is disproportionately high in comparison to
other countries, as well as the manufacturing industry. Therefore, a strong base of modeling the SCs in
these industries must be explored to provide for future growth and a higher level of quality and efficiency.
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2.1
LACK OF FOCUS
In the early part of 2012, the Institute for Supply Management (ISM) reported that, while the service
sector has been growing for the previous two years, and is continuing to grow, hiring in this sector has
stagnated (Homan, 2012). One can assume that this is, at least partially, due to more focus in this area in
terms of the management and execution of service systems. The decrease in the GDP contribution to
employment percentage may be an indicator of this, however, literature remains sparse on definitions
regarding both frameworks and performance measures. One can assume that, through more increased
focus in this area of service supply chains, the productivity, capabilities and performance of them can only
increase as those of traditional supply chains of the previous few decades.
2.2
SERVICE I+DUSTRY DEFI+ED
Most visibly, the main defining characteristic between a manufacturing and service firm is that human
labor is the primary component of the latter, while a physical product is that of the former. The
characteristics that define each of these then, also differ. Many authors argue the definition of these
characteristics.
Fisk et al. (Fisk, Brown, & Bitner, 1996) argue that the four major defining characteristics of a service
industry from a goods industry are intangibility, inseparability of production and consumption,
heterogeneity and perishability. Others, such as Pride and Ferrel(Pride & Ferrel, 2003)argue that there are
six main defining characteristics: the previously-mentioned four and client-based relationships and
customer contact. While some may argue that goods industries also incorporate these last two, it is the
service industry which relies on these characteristics as an inherent part of their service. In addition to
intangibility, heterogeneity and perishability, Baltacioglu et al. (Baltacioglu, Ada, Kaplan, & Kaplan,
2007)also argue that simultaneity is another significant piece of a service system.
Service systems can also be delineated from manufacturing systems by their processes. For example,
Sengupta et al. argue that the decisions are very controlled in a goods industry with much standardization
and little variation, while in a service system, the level of variation is significant due to local decisionmaking made by humans (Sengupta, Heiser, & Cook, 2006).
Table 1: Disparity between a manufacturing and services supply chain
Area
Manufacturing systems supply chain Service industry supply chain
Production System

Push (sell from inventory)

Pull (initiated by customer demand)

Logistics System
Finished
Goods
Inventory
Suppliers
Customer relations

Uniform, mass approach

Tightly controlled

Customized to customer need

Kept at low level

Responsiveness not critical

Often at a low level

Must be responsive
Critical to overall success

Whatever the characteristics may be, most authors agree that a service is an execution of an activity,
rather than a tangible item.Table 1 illustrates some major differences of the characteristics of a
manufacturing goods supply chain and a service industry supply chain. Traditionally, goods industries are
push systems, with companies keeping high levels of raw and finished goods inventory. The suppliers in a
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service industry often ARE the goods and thus, must be responsive to the needs of the customers. Very
often, these industries are dealing face-to-face with their customers and thus the relations between them
are crucial. Thus, the metrics by which a service firm will measure itself must be distinct from a
manufacturing firm.
3
FRAMEWORKS
One of the major enabling factors of supply chain management is that the corporate vision is customercentered and able to drive change throughout the firm and between its external linkages. The goal of the
SC framework is to create process and functions that are integrated across the SC to create a competitive
advantage(Tan, 2001). There are many well-developed SC frameworks in the literature which relate
directly to manufacturing, stemming from the 1980s. Croom et al. (Croom, Romano, & Giannakis, 2000),
classify these literatures into two criteria: content and methodology. A more specific framework for a
built-to-order supply chain considers four aspect: organizational competitiveness, development and
implementation, operations and information technology (Gunasekaran & Ngai, 2005). Since the
differences in both processes and performance measures are distinct, existing SC frameworks for services
have been reviewed and categorized into process-centered and performance measure-centered. These
literatures are discussed below along with their background and applicability to service the industry.
3.1
PROCESS-CE+TERED FRAMEWORKS
The majority of literature on SC frameworks for the service sector stem from adaptation of an existing,
established framework into this service industry. These frameworks are summarized in Table 2 along with
their reference manufacturing paradigm. Ellram etal.(Ellram, Tate, & Billington, 2004) focus on three
existing frameworks developed for manufacturing: the Hewlett Packard employed model by Lee and
Billington(Lee & Billington, 1993), the SCOR model (Supply Chain Operations Reference Model), and
Global Supply Chain Forum Framework (GSCF), based on Porters model(Porter, 1985) and proposed by
Croxton(Croxton, Dastague-Garcia, Lambert, & Rogers, 2001). The authors discuss the strengths and
weaknesses of each of these as applying them to service systems. In particular, the Lee and Billington
model is strong for services that have uncertain demand and that can benefit from the flexibility capacity.
In addition, they suggest that the growth in the service sector is linked to the growth in service purchasing
and that there is little control over this system, thus yielding to a lack of SC Management frameworks.
They conclude that a process model is best applied to the service industry and thus develop a seven step
process model including: information flow, capacity and skills management, demand management,
supplier relationship management, customer relationship management, service delivery management and
cash flow.

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TABLE 2: PROCESS CE+TERED SERVICE SUPPLY CHAI+ FRAMEWORKS

Author
Manufacturing Framework(s) Utilized
Ellram et al. (Ellram, Tate, & Billington, 2004) Lee &Billington(Lee & Billington, 1993)
SCOR (Supply Chain Operations Reference
Model)
Porter (Porter, 1985)
Baltaccioglu(Baltacioglu, Ada, Kaplan, & SCOR (Supply Chain Operations Reference
Kaplan, 2007)
Model)
Ellram(Ellram, Tate, & Billington, 2004)
Kathawaia, Abdou(Kathawaia & Abdou, 2003) Fisher (Fisher, 1997)
Armistead, Clark (Armistead & Clark, Porter (Porter, 1985)
Resource Activity Mapping: The Value Chain
in Service Operations Strategy, 1993)
Baltacioglu et al. (Baltacioglu, Ada, Kaplan, & Kaplan, 2007) also developed a SC service model
framework. Using the SCOR model (Supply Chain Operations Reference Model) and Ellram et al.
(Ellram, Tate, & Billington, 2004), the authors develop the IEU-SSC Model in which there are three
units: supplier, service provider and consumer. The focal point lies with the provider as they are the
interface with the customer. This is a process-centered model in which seven essential activities exist in
this model: demand management, capacity and resource management, customer relations management,
supplier relations management, order process management, service performance management and
information and technology management. This framework is then applied to Hewlett Packard.
While not directly creating a framework, Cook et al, (Cook, 2001), discuss crucial characteristics which
much be considered when developing a supply chain for services. These are: relationships, technology,
forecasting, outsourcing and cost management. Relationships are necessary in the services to increase the
stability of the service. Level of technology is extremely important when the service is involved in
electronic commerce as it can be used to leverage competitive advantages. Forecasting and cost
management are crucial to any supply chain, as they will yield increased efficiencies and higher profits.
However, the procurement process of selecting outsourcers is crucial to the value of the end service
providers product.
Based on Porters value chain model, Armistead and Clark (Armistead & Clark, Resource Activity
Mapping: The Value Chain in Service Operations Strategy, 1993) developed a value chain model for a
service company based on the location of the related costs and the value they give rise to. The authors
claim that there are typically five to seven primary processes within a service industry and by linking
these processes to the resources utilized, the physical configuration of those resources and the flow of
these processes from an external view, critical areas of potential problems, poor performance and
bottlenecks can be seen more readily.

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3.2 PERFORMA+CE MEASURED FRAMEWORKS

A performance measurement system can be defined as the set of metrics used to quantify both the
efficiency and effectiveness of actions (Neely, et al., 2000). Most goods-producing firms define their
performance measures in the areas of quality, delivery speed, reliability, cost and flexibility (Leong,
Snyder, & Ward, 1990). While the definitions of them vary and are often blurry, the literature on
performance measures in manufacturing is extensive. However, one common theme is that a firm elects to
measure what is most critical to the success of the company. To illustrate the inconsistency in critical
areas, take for example, the often-cited balanced scorecard (Kaplan & Norton, 1992). Here, the authors
group critical areas of success into four equal areas: financial, customer relations, core competencies and
innovativeness. In a study of 1,000 companies, Zhang and Sharifi(Zhang & Sharifi, 2000) concluded that
those practices which directly related to people and organizational issues were more critical for the
success of manufacturing firms, when success is defined in terms of agility. Beamon(Beamon, 1999)
more widely defines the critical factors to measure for success as resources, outputs and flexibility.
3.2.1 DRIVI+G FACTORS FOR SUCCESS I+ SERVICE SYSTEMS
Some authors have chosen to define broadly the factors that will promote the most success in a service
organization. In order to explore SC practices in both manufacturing and services, a large study was
performed by Sengupta et al. (Sengupta, Heiser, & Cook, 2006) to determine correlations between certain
SC strategies and metrics. The authors focused on the performance measures of service SCs and the
differences between those and manufacturing as the basis to determine the critical factors for success.
Distinction is made between operational performance and financial performance. The former is attributed
directly to perceived customer satisfaction. The latter relates to cost and profit measures in relation with
its competitors. Results indicate that these differ between manufacturing and services. Certain key results
were found: information sharing and level of customization (compared to competitors) is much more
crucial to operational performance in the service sector and placing strategic importance on the
distribution network can greatly affect financial performance. However, higher cost of customization is
associated with lower profit which seems to be due to the fact that service industries are unable to obtain
the price premium unlike their partners in manufacturing.
As shown in Table 3, Armistead and Clark (Armistead & Clark, Resource Activity Mapping: The Value
Chain in Service Operations Strategy, 1993) state that competitive advantage can be achieved by
centering the entire service delivery system around three items: resources, the flow of the processes and
the configuration. Each one of these three key areas has five to seven associated key activities.

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TABLE 3: CRITICAL FACTORS FOR SERVICE SYSTEM SUPPLY CHAI+ SUCCESS

Author
Factors for effectiveness and efficiency
Armistead, Clark (Armistead & Clark, Resources, configuration, process flow
Resource Activity Mapping: The Value Chain
in Service Operations Strategy, 1993)
Kathawaia, Abdou(Kathawaia & Abdou, 2003) Process (controllable, well-defined), best
practices, removal of organizational barriers,
visibility
to
demand,
simple
flow,
responsiveness, vision sharing
Ellram et al. (Ellram, Tate, & Billington, 2004) Visibility, proper distribution of labor, aligned
and visible incentives, visibility of outsourced
activities
Sengupta et al. (Sengupta, Heiser, & Cook, Information sharing and level of customization
2006)
(compared to competitors) is much more
crucial to operational performance in the
service sector and placing strategic importance
on the distribution network can greatly affect
financial performance
Kathawaia and Abdou(Kathawaia & Abdou, 2003) also define critical areas in terms of the processes as
well as corporate strategies such as best practices, connection and visibility within the organization,
simplicity of the processes and a unified vision. Visibility is a common theme also with Ellram et al. and
those authors extend it to outside visibility with suppliers.
3.2.2 PERFORMA+CE MEASURE-CE+TERED FRAMEWORKS
Most authors, however, choose to define more specific performance metrics by which the framework for
the SC should be defined. Some of these are broad enough to extend across most types of service
industries, while others are not as shown in Table 4. For example, Kathawaia and Abdou(Kathawaia &
Abdou, 2003)develop a different framework for service systems, and in particular, financial auditing
firms. The authors develop a definition for SC strategy for services which is based on three
characteristics: quality of service, efficiency of process and responsiveness to the market. While the
authors treat both services and manufacturing to have a physical product, while admitting that the service
product is intangible, a comparison is made between each for the three characteristics listed above. These
characteristics are compared to Fishers model (Fisher, 1997) of the six points of comparison: purpose,
focus, inventory strategy, lead-time, supplier selection and product strategy. Out of this yields a
framework consisting mainly of characteristics which can be utilized as performance measures for a
service industry.

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TABLE 4: PERFORMA+CE MEASURE-CE+TERED FRAMEWORKS

Author(s)
Framework Utilized
Performance Measures
Baltacioglu et al. (Baltacioglu, Fisher
Purpose, focus, inventory
Ada, Kaplan, & Kaplan,
strategy, lead-time, supplier
2007)
selection, product strategy
Cho et al. (Cho, Young, Sung, Baltacioglu(Baltacioglu, Ada, Categorized
by
process:
& Swang, 2012)
Kaplan, & Kaplan, 2007)
demand
management,
capacity
and
resource
management,
supplier
relationship
management,
order process management,
service
performance
management and information
and technology management
Johnson and Mena (Johnson, Croxton et al. (Croxton, Information
flow
2008)
Dastague-Garcia, Lambert, & management,
customer
Rogers, 2001); Ellram et al. relationship
management,
(Ellram, Tate, & Billington, supplier
relationship
2004)
management,
demand
management,
cash
flow,
production
management,
order delivery management,
returns management and endof-life, product development
management
and
risk
management
Kathawaia, Abdou(Kathawaia Sengupta
and
Turnbull Quality of service, efficiency
& Abdou, 2003)
(Sengupta & J., 1996)
of process and responsiveness
to the market

Cho et al. (Cho, Young, Sung, & Swang, 2012)utilize the framework by Baltacioglu et al. (Baltacioglu,
Ada, Kaplan, & Kaplan, 2007) as a model for their performance measures. Thus the performance
measures are divided into the seven specific processes of Baltaciouglu(Baltacioglu, Ada, Kaplan, &
Kaplan, 2007)discussed in Section3.1. From there, they develop a hierarchy of sub-metrics which can be
used to evaluate each of the seven processes.
Johnson and Mena (Johnson, 2008) developed a model for a product which has both a manufacturing and
service component. The resulting framework is a combination of the models of both Croxton et al.
(Croxton, Dastague-Garcia, Lambert, & Rogers, 2001) and Ellram et al. (Ellram, Tate, & Billington,
2004). The resulting model resembles the GSCF model where the product flow across the supply chain is
replaced with information flow and the processes by which the information flows is replaced withten
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processes. Five of these are from those mentioned in Ellram et al. (Ellram, Tate, & Billington, 2004)
above: information flow management, customer relationship management, supplier relationship
management, demand management and cash flow (termed financial flow management). The remaining
five are: production management, order delivery management, returns management and end-of-life,
product development management and risk management. Production management is a result of
manufacturing management (Croxton, Dastague-Garcia, Lambert, & Rogers, 2001) and capacity
management (Ellram, Tate, & Billington, 2004). Order delivery management is combination of order
fulfillment, customer service management (Croxton, Dastague-Garcia, Lambert, & Rogers, 2001) and
capacity management (Ellram, Tate, & Billington, 2004). Returns management and end-of-life stems from
the recycling, re-commissioning or decommissioning of a product. Product development management
applies the product development process of Rogers et al. (Rogers, 2004) to service industries. Finally, risk
management was adopted from Christopher (Christopher, 2003), Juttner et al. (Juttner, 2003) and Tang
(Tang, 2006). This process includes both the identification of risk factors as well as the management of
the inherent risk though collaborative activities.
An application of this in a case test revealed that there were two main processes that were particularly
important: information flow management and risk management. In particular, information flow
management directly affects customer relationship management, while risk management is very much
fueled by the network design. This yields to the need for better collaboration and long-term partnerships,
impacting both customer relationship management and supplier relationship management.
4. CO+CLUSIO+
There is much literature on SC operations and management, and while they differ in their scope, the
majority of them agree that SC operations and processes include: sales, marketing, sourcing,
manufacturing and transportation. Thus, if the product is actually an event, then some of these
traditional SC operations, in particular, manufacturing and transportation, are not present in the traditional
sense of the definition. New paradigms must be made in order to accommodate the prevalence of the
services and its contribution to the GDP. Much work needs to be done in order to assure that these service
industries are operating at an efficient level.
The attention paid to SC management over the last three decades which has allowed firms to grow from
the starting point of functional independence to inter-organizational integration, as suggested by Stevens
(Stevens, 1989). The last stage, suggested by Hewitt (Hewitt, 1994)integrates intra-company and intercompany management. This last stage is the epitome of optimal supply chain management and literature
for manufacturing has reached that level. What is now needed is the translation of that optimization to the
service industry.

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December 2012

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