Chapter 18 - Sourcing professional services. Chapter 18 focuses on sourcing professional services. The service sector has taken on an increasingly important role in the world economy. The service sector has become the engine of growth for the American economy, fundamental to the health and prosperity U.S. businesses, large, medium, or small.
Sourcing Professional Services Chapter 18 Purchasing and Supply Chain Management The Growth of the Service Sector • In the U.S. economy, Service Sector More than 85 percent of the total jobs – Twothirds of U.S. gross domestic product and nonfarm privatesector employment • – • (U.S. Department of Commerce, 2012) About 80 percent of U.S. economic growth Service organization include – Purchasing and Supply Chain Management financial services, health care Service and the Expanding Global Markets • • • Customers’ shrinking tolerance for less than full satisfaction in their services Factors – Expanding competition – Emerging technologies – Improved communications Service organizations’ responses Purchasing and Supply Chain Management ManufacturingLike and Service • • More service sector firms are adopting traditionally manufacturing practices in their organizations Manufacturing and Service are not so different – The service/manufacturing continuum Pure manufacturing Pure services Purchasing and Supply Chain Management Service Sector’s Outsourcing Trends • • The two fastest growing outsourced service industries – Information services – Professional services High rate of failure to realize performance expectations from outsourcing – 30–50% of outsourcing organizations – Purchasing and Supply Chain Management The hidden costs of outsourcing Example of a Poor IT Service Outsourcing Relationship • • Symptoms – Severely missed milestones – Operational disruptions at multiple agencies – Unsatisfactory network reliability Causes – Inadequately understanding the complexity of the engagement – Purchasing and Supply Chain Management Poor communication and coordination between Outsourcing Relationship Scope and Cost • • Large, taskdiverse outsource arrangements – Require higher level of control and coordinate to be effective – The cost may largely nullify the benefits of lower labor rates, provider economies of scale, and so forth Outsourcing firms should – Consider establishing more narrowly scoped Purchasing and Supply Chain Management Project Management • • For a project to be successful, it must – Meet the SOW specifications – Be on time – Be within budget Determinants of a successful project – Adequacy of site management – Relationship between the owner and the contractor Purchasing and Supply Chain Management Project Planning • The principal use of schedules Before Starting Project Provide Time estimates for each portion of the project and for the total project Establish the planned rate of progress Form the basis for management to issue instructions to subordinates Establish the planned sequence for the use of manpower, materials, machines, and money Purchasing and Supply Chain Management Project Planning (cont.) • The principal use of schedules During Project Enables the contractor and the administrator to prepare a checklist of key dates, activities, resources, and so on Provides a means for evaluating the effects of changes and delays Serves as a basis for evaluating progress Aids in the coordination of resources Purchasing and Supply Chain Management 10 Project Planning (cont.) • The principal use of schedules After Completion of Project Permits a review and analysis of the project as actually carried out Provides historical data for improving future planning and estimating Purchasing and Supply Chain Management 11 Project Planning Tools • The Critical Path Method (CPM) – • A graphical representation of the interrelationships of the various project activities CPM establishes – The quantity of work for each activity – The startup and sequence or order in which the work or the activity is to be done – The rate at which the work will be performed to Purchasing and Supply Chain Management 12 reach completion Steps in CPM Project Planning Specify each individual activity Sequence the activities CPM crashing • Draw a network diagram Update the CPM diagram Estimate the completion time for each activity Identify the critical path Crashing • Speeding up the project • by reducing the completion time of activities while paying the crash cost Purchasing and Supply Chain Management 13 Questions? Purchasing and Supply Chain Management 14 ... by reducing the completion time of activities while paying the crash cost Purchasing? ?and? ?Supply? ?Chain? ?Management? ? 13 Questions? Purchasing? ?and? ?Supply? ?Chain? ?Management? ? 14 ... Inadequately understanding the complexity of the engagement – Purchasing? ?and? ?Supply? ?Chain? ?Management? ? Poor communication? ?and? ?coordination between Outsourcing Relationship Scope and? ?Cost • • Large, taskdiverse outsource arrangements... manpower, materials, machines,? ?and? ?money Purchasing? ?and? ?Supply? ?Chain? ?Management? ? Project Planning (cont.) • The principal use of schedules During Project Enables the contractor? ?and? ?the administrator to