Supply Chain Management for Goods vs. Services

As we have discussed, supply chains are the network of activities that deliver a product or a service from the provider to the end consumer. While the fundamental principle of a supply chain remains the same – to provide value to the end consumer – the dynamics of a supply chain can significantly differ based on whether it is a product or a service being provided.

In the case of a product, the supply chain is often more tangible, consisting of elements such as suppliers, manufacturers, distributors, and retailers, each contributing to the creation and delivery of a physical product. On the other hand, the supply chain for services, often called a service chain or value chain, tends to be more intangible, involving steps like need identification, solution design, service creation, and delivery [6]. Given the fundamental differences between products and services – such as the inability to store services and the simultaneous production and consumption of services – the strategies and processes used in their respective supply chains can differ markedly. Understanding these differences is crucial for businesses to effectively manage their operations and deliver value to their customers.
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Consider the last time you got a haircut…

How did you choose the salon and hair stylist/barber?
Was it easy to book your appointment?
What kind of products were used in your hair??
What was the stylist/barber like during your appointment? Did you receive the hairstyle you asked for and the value you expected?
What was the follow-up experience like? Did you book your next appointment? Did they ask for your feedback?

While the process you as the customer experience during your hair appointment might differ slightly from the t-shirt you recently purchased at the mall, it still involves a series of steps to deliver the final service to the customer. The primary goal in the supply chain for a haircut is to ensure a high-quality service that leaves the customer satisfied and willing to return. Every step in the process, from the supplies used to the customer service provided, plays a role in achieving this goal.

A haircut might be a simple example. Let’s consider a hotel stay. A hotel’s supply chain, also referred to as a service or value chain, involves a sequence of activities that create and deliver the service to the end customer. Though intangible and more complex than a product-based supply chain, it’s just as crucial to the hotel’s success.

Consider the following components:

1. Supplier Relationships – Hotels require various goods and services to operate, including food and beverage supplies, linens, toiletries, furniture, and technology services (like reservation systems or WiFi service). Sourcing these products and services involves establishing and managing relationships with a variety of suppliers.
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2. Service Design and Creation – This involves designing and creating the service offerings that the hotel provides. This could include different types of rooms, food and beverage services, fitness centers, event facilities, and other amenities. Each of these services needs to be carefully designed and managed to ensure they meet customer expectations and can be delivered consistently.
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3. Staffing and Training – Staff are a critical part of a hotel’s supply chain. They are responsible for delivering the service directly to the customers. This includes everyone from the front desk staff who check guests in, to the housekeeping staff who clean rooms, to the chefs and servers in the hotel’s restaurant. Recruiting, training, and managing staff is a key component of the hotel’s service delivery.
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4. Sales and Marketing – This involves attracting customers to the hotel through various marketing and sales activities. This could include traditional advertising, online marketing, social media promotion, and direct sales to corporate clients or event planners.
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5. Reservation and Check-In – This is the first direct interaction most guests have with the hotel. It involves managing the hotel’s reservation system, handling guest inquiries and bookings, and checking guests in when they arrive at the hotel.
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6. Service Delivery – This is where the actual service is delivered to the customer. It involves everything that happens during a guest’s stay, from ensuring their room is clean and comfortable, to serving them in the hotel’s restaurant, to addressing any issues or requests they might have.
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7. Check-Out and Follow-Up – The final part of the hotel’s supply chain involves checking guests out, processing payments, and gathering feedback about their stay. This might also include follow-up marketing to encourage repeat bookings.

The ultimate goal of a hotel’s supply chain is to provide high-quality, consistent service that meets or exceeds guests’ expectations. It involves a complex set of activities and interactions, and each step needs to be carefully managed to ensure the best possible guest experience. One such example is Hilton’s supply chain management: ^[1]