In recent years, the practice of pushing product by building inventory in  anticipation of demand has fallen out of favor.
Many companies have shifted to a “pull” environment, in which they build product only in response to actual demand.
 These firms have moved the  “push-pull boundary” — the point at which a supply chain switches  from building to forecast to reacting to  demand — away from their end  customers. By decreasing the amount of work completed before actual  demand is known, firms avoid costly mismatches in supply and demand.
  For example, Dell Inc. has assumed and maintained a leadership position  in the personal  computer industry in no small part by setting its  push-pull boundary to offer  customers greater customization.  Given that repositioning the push-pull boundary has paid huge dividends for many product-based firms, it is only natural to wonder what kind of promise this approach holds for service firms.  On the surface, the answer seems to be very little.
A basic tenet of service management is that services cannot be inventoried; without inventory, the location of the push-pull boundary seems to have little relevance. Yet  this view relies on an extremely narrow definition of inventory as finished  product waiting for customers. In practice, inventory also serves as a way  to store work; because the work has been stored, customers don’t have to wait for it to be performed. In a service setting, then, the placement of  the pushpull boundary defines the portion of the work that has been  performed and stored before the customer arrives.We call this work  “service inventory.”
 Service inventory includes all process steps that are  completed prior to the customer’s arrival. As with physical inventories,  service inventories allow firms to buffer their resources from the variability  of demand and reap benefits from economies of scale while also providing customers with faster response times. Having service inventory  also facilitates using the customer as a resource and offers the potential for  automating the process.
By using the correct form of service inventory, companies can offer  better quality, faster response times and more competitive pricing. In this article, we will discuss how moving the push-pull boundary in service firms can be a strategic lever in designing and managing service offerings .

Services as Attributes and Processes Service inventory needs to be viewed in the context of how firms compete and create value for customers. Every service represents a bundle of attributes — quality, speed, customization and price — produced through a set of processes. Customers elect to buy from a service provider only if the attributes of its offering are more attractive than the available alternatives. How well a service firm delivers its bundle of attributes depends on its process choices.  Thus, process design is one of the most fundamental managerial decisions. We emphasize three drivers of performance: the placement of the push-pull boundary, the level and composition of resources and access policies. The pushpull boundary determines how much work is done and stored as service  inventory  In anticipation of demand. Resources —that is, the people and the equipment that the provider employs — are used to perform the actual work of delivering a service. And  access  policies are used to govern how customers are able to make use of service inventory  and resources (for example, when does an airline traveler complete  check-in at a kiosk instead of going  through an agent at the counter?).  Most studies of service processes have focused on resources as the key lever in service  design and performance. However, decisions about the push-pull boundary, resources  and access policies are interrelated. A firm’s ability to deliver targeted levels of quality,  speed, customization and cost for given resource levels depends on both how much work is done ahead of demand (and thus how much work must be done in reaction to  demand) and how the firm allows customers to tap into its resources. Where to locate  the push-pull boundary is thus a significant decision in service-process design.
The Role of Service Inventory There are many different types of service inventory, and the choices a service provider  makes depends on its industry and desired position in  the market. A rheumatologist,  for example, needs to produce letters  for insurers on the status of patients.  A system that automatically helps  generate these letters represents a type of service  inventory.  The tools that help customers set up and run online auctions on eBay Inc.  constitute another type of service inventory. Credit rating agencies,  which sell  consumer data and credit scores to financial institutions,  have built their entire  industry around service inventory.  Financial institutions,in turn, have their own form of service inventory  in the predetermined rules they apply to different customers on  the basis of their financial profiles and credit scores. In all these examples, the service providers have shifted the push-pull  boundary by  performing some part of a service before the service  request has arrived. The title  insurance industry illustrates some of the  potential gains of moving the  push-pull boundary closer to the customer. Title insurance assures a prospective  property buyer (or, more specifically,  A buyer’s lender) that a particular property title is unencumbered by liens  or any inheritance claims. The title insurance industry  has traditionally operated in a pull mode: Research about a property is initiated only when  a customer requests a new policy. However, the Radian Group of  Philadelphia  has begun to alter this practice by gathering and storing the  title information in  anticipation of customer demand. Radian collects  existing  tax records, probate filings,  deed registrations and other public  records  related to properties. Because it stores  the records in its own  database, Radian can offer  title insurance on refinancings quickly and cheaply. It charges just $250 for a refinancing, several hundred  dollars less than a  conventional firm. Radian’s database of tax histories  and deed recordings represents service inventory — indeed, it  performs the same basic functions as conventional product  inventory.  The inventory acts as a buffer, allows the company to take advantage  of  economies of scale and expedites customer service.  Traditional title insurance firms  do little to buffer themselves from  variability in the market. They must either carry excess  resources to  respond to demand spikes or impose long waits on customers, possibly  resulting in lost sales. A traditional firm pulls tax records on only a handful of pending  transactions at a time, but Radian can collect  all the tax records at once —  thus exploiting economies of scale for a  much lower cost per unit.When a customer  requests information,  the turnaround time is rapid. Radian’s service inventory is like product  inventory in another important respect: There are real risks that it may go to waste.  Many of the houses on which Radian collects information may not be sold or refinanced for years. Even when a property is sold,  the buyers may seek title insurance  from a competitor.  Additionally, service inventory, like product inventory,limits what the  firm can deliver quickly. If Radian does not have data from certain  counties, it loses it’s a dvantage over other title insurance firms working  in those markets. As the title insurance  example shows, service inventory is frequently made up of information such as databases or decisionsupport mechanisms. The availability of cheap computing and massive data  storage often argues in favor of maintaining service inventory. In theory, Radian’s  strategy of compiling information in advance of demand could be achieved without any computers, but this would require  an army of clerks duplicating county records and a file  cabinet for virtually every neighborhood. The costs of building and storing the inventory would outweigh its potential advantages. Although service inventory is often based on information, not all information qualifies  as service inventory. It must represent pre-performed steps in the delivery process that  reduce the amount of work required when an order arrives. A database of consumer credit  scores is service inventory for a mortgage lender, because evaluating credit history is a  large part of the lending process. A database of everyone who has applied for a mortgage in the past year, however, does nothing to reduce the work required to reply to a service  request; it is not service inventory. Similarly, code that allows house hunters to search  real estate listings is service inventory, but generic software such as a word processing program is not. The house-hunting code includes logic to narrow search choices and  display results prioritized by the client’s criteria; it therefore replaces a real estate agent’s  time and effort.Word processing software and a personal computer simply replace a  typewriter; the user must still compose the letter.Service inventory based on information is in some ways distinct from product inventory. Creating a database is expensive,but thanks to  the extreme economies of scale, the incremental cost of adding records to an established  database is small.While the cost of producing 2,000 cars is much higher than the cost of producing 1,000 cars, the cost of building a database with 1 mil- lion records is not  significantly higher than a database with 2 million  records. Nor does service inventory  get depleted the same way that product  inventory does. A car dealer needs to have two vehicles to make two sales, but a service provider can allow hundreds or even thousands  of users to tap  into the same database simultaneously. Considerations in managing  service  inventory are thus different from those in managing product  inventory. Much of supply  chain management has focused on how much inventory to  hold  (that is, how many copies of one item); for service inventory the  fundamental decisions  turn on what kind of work to store.  The service provider must determine for which of its  offerings, it should  build inventory and at what stage of completion the services should be. Our concept of service inventory is different from Theodore Levitt’s vision of  industrialization of service.2 Levitt argued that a standardized service  (such as Jiffy  Lube International Inc.’s oil changes for vehicles) would result in  significant  reductions in cost. But such cost savings come at the  expense of flexibility and variety  (for example, Jiffy Lube does not  service brakes).Moving the push-pull boundary  toward the market can allow service providers to make decisions about which areas of  improvement to emphasize: consistency, speed, customization or costs.  Service inventory is distinct from simple automation to reduce cost.  Because it is often made up of information and algorithms, service inventory  benefits from information technology. But successful implementation  usually depends  on human intervention. For example, while computer systems  make it possible for  Radian to collect its property tax records,  people are  needed to create customer value : Underwriters need to evaluate the information , address lender concerns and finalize  the policies.  Even when service inventory  allows for a fully automated process, people  will still be necessary to handle exceptions and adjust decision rules over time. The Strategic Impact of Pushing Services Companies seeking to improve their competitive capabilities by using service inventory  should pay attention to the four major service attributes: quality, speed, customization and price. Quality Consumers value various aspects of service quality, but in many cases  transactional conformance — being able to get a well-defined service reliably and  accurately — is the No. 1 concern. In this case, moving  the push-pull boundary toward the market and increasing service inventory tends to increase service quality.  An investor looking to rebalance his or her portfolio or sell stock,  for example,  places an extremely high value on transactional conformance. The investor wants  reliable, accurate information about how best to make the adjustments, and service  inventory provides an effective mechanism for  satisfying this objective. Boston-based Fidelity Investments has reacted to this need by developing service inventory in the form ofWeb-based tools that  allow investors to perform a variety of analyses. Transactional conformance is also critical for purchasing airline tickets, making hotel reservations and  seeking technical support. It is not surprising that firms have moved such transactions to centralized call centers and Web sites. A call center agent can work through a script to answer a customer’s question or can direct the customer to a Web-based “Frequently Asked Questions” page that presents the answer online. In either case, companies rely on  service inventory to optimize the quality of the transaction and the experience. Service inventory can also improve service recovery. Research has shown that customers encountering a service failure want the firm to assume responsibility for any shortcomings and guide them through a quick, hassle-free recovery process. Shifting the  push-pull boundary and preparing for failures allows firms to respond  smoothly and efficiently, assuming that they can anticipate the nature of  the service failure. In air travel, for example, missed connections are  inevitable.

Previous Page                                                                    Next Page