GRA - the emergence of the demand-driven supply chain

The Emergence of the Demand-driven Service Chain

In Australia, the services sector makes up almost 70% of GDP, whichin 2015-16 was $1.66 trillion, and employs around 78% of theworkforce. The largest components of the sector are tourism,education, healthcare and financial services.

As such a significant portion of our economy, it is important tounderstand what a service, service chain and service chainmanagement is.


The Service sector defines the Australian economy…

Services now represent almost 70% of Australia's gross domestic product (GDP)

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

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What is a service?Before we delve into service chains, we must first consider, what isa service? The Economist magazine has wryly defined services as‘things you can not drop on your foot’. Less tongue-in-cheek, theAustralian Services Roundtable states that, ‘services deliver help,utility or care, an experience, information or other intellectualcontent’.

Examples of industries that provide services include hospitality,health care, professional services and utilities.

The Service Chain and Service Chain ManagementThe “service chain” describes the process by which a service isprovided by an organisation to deliver value to a customer, while“service chain management” refers to the end-to-end planning andmanagement activities involved in providing the service to thecustomer.


Properties of ServicesUnlike 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

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

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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.

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Why getting it right is important?

Service level

Service chain

efficiency (e.g. KMs

travelled, time sheets,

etc.)

Labour Force

Composition (Full time

vs. Casuals)

Cash to cash cycle

Availability &

responsiveness

Worksites, Labour

Force Distribution &

Utilisation

Sales revenue

Operating Cost

Cash

Accounts receivable /

payable

Labour Force &

Equipment

Fixed assets

Capital employed

Profit

Return on investment

Ensuring Availability

Capacity Planning & Scheduling

Workforce Optimisation

Balancing Trade-offs

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The Service Chain Excellence FrameworkGRA views service chain management as an integrated system thatmust be considered holistically and be supported by a dedicatedfunction within an organisation.

The Service Chain Excellence framework enables serviceorganisations to approach the service chain management task in anintegrated manner. There are 3 key sections:

Business Strategy

Customer Value Proposition Employee Value Proposition

Target Operating Model

Operational Structures

Operational Planning Processes

OperationalExecution Capabilities

Organisational Design

KPI’s & ReportingPolicies &

Procedures

Demand Planning

Target & Constraint Optimisation

Capacity Planning

People Process Systems Data

- 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

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Business StrategyThe Business Strategy defines where and how a service organisation isgoing to compete in the marketplace and how it is to align resources tocompete.

The Target Operating ModelTogether, the CVP and EVP make up the Target Operating Model – thereason for existence, this is a businesses ‘why’ and should dictate thetrade-off decisions the organisation is willing to make and not make.

A CVP describes the benefits that customers receive when they choose toengage with an organisation; this looks to answer the ‘what’ (range),‘how/where’ (channel) and ‘when’ (responsiveness) questions, whichsubsequently are impacted by answering ‘who is the customer?’(segmentation).

An EVP describes the mix of characteristics, benefits and ways of workingin an organisation; this determines how the CVP is operationalised.

The establishment of these three core elements forms the foundations ofservice chain management, and from there, an organisation can align itsstructure, 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:

Segmentation: What level of service will we provide to what services and which customers?

Responsiveness: Within what timeframe will the service be provided?

Channel: How and where will we provide the service?

Range: What services will we provide?

Our Customers (CVP)

Our Employees (EVP)

Target Operating

Model

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Service Chain OperationsThe set of structures, processes and capabilities of a service chain business are known as service chain operations. Together, these operationsdrive 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 organisationand drive the right behaviours.

Operational Planning Processes are the core high level processes undertaken to deliver a bottom-up, integrated, forward-looking plan, fromboth 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

Operational Planning Processes

OperationalExecution

Capabilities

Organisational Design

KPIs & Reporting Policies & Procedures

Demand Planning

Target & Constraint Optimisation

Capacity Planning

People Process Systems Data

Service Chain Operations

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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

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

Taking the next step

4 questions to assess the operational maturity of your service chain organisation

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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?


In a service chain with high maturity, an organisation will have pipeline visibility on service requests (demand) as well as recruitment (supply). Thisis what we call a Demand Driven Service Chain (DDSC). A DDSC has IT tools in place that enable the following:

This provides a forecast over an extendedtime horizon, based on historical customerdata (bottom up build) and marketintelligence (top down build). The forecast iscalculated at the most granular level (servicedemand by service type, service level,location and time) so that workforceplanning can be accurately matched toforecasted service demand.

Ensures the organisation has the rightworkforce composition (in terms ofemployee type, full-time vs part-time vscasual, level, location etc) and thatrecruitment of new employees targetsportions of the supply pool that do notcurrently align with forecasted demandrequirements.

This tool generates a schedule, based onpre-determined constraints (using the CVPand EVP), that matches employees (supply)with customers (demand) to achieveoperational outcomes (reducing overtime,idle time, mismatched services etc).

Demand Driven Forecasting1. Workforce Planning2.Optimised Rostering

& Scheduling3.

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GRA was founded in 1997 and is Australia’s premier specialist supply chain consulting firm. Our team has extensive commercial & government supplychain 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, butalso ensuring that your services are optimised to ensure that the highest possible service levels can be achieved at the lowest possible cost.

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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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GRA - the emergence of the demand-driven supply chain

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