Services have supply chains.
Services based supply chains address two aspects; one is to ensure the delivery of Services and the other the delivery of Services Product Support. Each contains the disciplines of Procurement, Planning and Logistics; however, their approach is different and also differs from product based supply chains, due to the business objectives.
An example of Services Logistics was experienced on a recent family outing to see the Cirque du Soleil human circus show. This is presented in the performance tent, owned by the circus, that travels the world. At the intermission, I counted about sixty empty forty foot containers awaiting re-loading for another city. This is an example of Event Logistics.
Other major events to visit our shores each year include the Formula One Grand Prix, Tennis Grand Slam and the International Air Show. In a similar vein are motor shows, music spectaculars and major art exhibitions. They all require Logistics expertise to ensure that vehicles, artists or exhibits from anywhere around the world arrive safely and securely and are in place and in time for the event. The process continues as goods and people are moved to the next location or back to their places of origin. It is this last element that differs Event Logistics from Project Logistics, which typically address construction, capital equipment installation and major IT purchases.
The overriding business objective for Event and Project Logistics is that time and financial budget are more important than item costs. Events and projects are approved based on:
- total expenditures of the planned procurement contracts, based on the proposed scope of work
- cash flow projections and
- delivery schedule, identifying when contracts must be delivered to meet the event or project achievement dates
This focus determines the approach and behaviour of Procurement. The emphasis is to select suppliers that have the highest likelihood of meeting the deliverables (scope of work) within the budget. Selection based on the lowest price only results in a re-allocation of the ‘savings’ to another part of the project. The focus should therefore not be lowest price, but ‘delivered on time and within budget’. This focus can mean that Procurement may spend higher than the notional budget for a ‘package of goods and services’, to guarantee meeting the event achievement dates or to gain overall improvements in a project delivery schedule.
For events and projects, the purchase of items may often occur only once, which may also require the engagement of contractors and suppliers on a global or regional basis, with implementation across country borders. Risks therefore increase, because an organisation’s learning curve cannot be established, as would occur in procurement that supports ongoing operations. In these circumstances, there are four approaches required to manage Procurement risks:
- Understand the major supply markets for the event or project
- Understand the dynamics within the selected industry sector; especially the prevalence of dependency and the use of power
- Understand each targeted supplier’s business
- Organisation and financing
- Experience and capability to meet the scope of work
- Capacity to deliver against the contract
- Threats from competitors, substitutes and disruptor businesses
- Apply the most appropriate form of contract between the parties and identify:
- That the contract actually reflects the Scope of Work
- Achievable contracting of lower-level suppliers by level 1 suppliers, to ensure that timelines are met
- How delays will be addressed and if/what financial penalties apply
- Inclusion of access and use of Intellectual Property (IP), which could be applicable in Events
Note that ‘Obtain 3 quotes and select the cheapest’ is not an applicable approach. Project Procurement (also used in Event Supply Chains) is a specialised discipline that has not received the attention required, given the very high investments and critical timelines incurred. Procurement is often regarded as a minor subordinate; its business-critical contribution has been valued only as an important secondary role within the overall project management organisation and processes.
Service Logistics and time
Logistics is likewise driven by the achievement dates and times and is a critical function within the event or project enterprise. For example, one of my students was the Logistics Manager for a major music promoter and therefore had free tickets for every touring show. Unfortunately she did not see a single performance, due to the tight timelines required. Another student was the Logistics Manager for scientific expeditions to the Antarctic – no rest in that job either.
Services Logistics also exists within the health, banking and finance, insurance and other similar services industry sectors. Here, the role of Logistics is to ensure that the service is delivered to meet customer requirements and expectations. Unlike Event and Project Logistics, the ‘service package’ is repeatable and can therefore be measured for improvement and cost reductions. Procurement should be engaged in project buys, such as facilities and IT. Repeat buys will include materials such as forms, letters, promotional items, vouchers and other physical items to be incorporated into and delivered within the service ‘package’. This lends itself to a total cost reduction approach.
In addition to Services Delivery, there is Services Product Support. Here, Logistics comprises activities to support products and assets over their life, following the purchase. Support logistics is integral in military environments, continuous production operations and major service (i.e. entertainment) facilities – a topic for a future blog.