The development of a service supply chain model for a manufacturing SME

Pages517-542
Published date09 November 2015
Date09 November 2015
DOIhttps://doi.org/10.1108/IJLM-01-2014-0001
AuthorJukka Hemilä,Jyri Vilko
Subject MatterManagement science & operations,Logistics
The development of a service
supply chain model for
a manufacturing SME
Jukka Hemilä
VTT Technical Research Centre of Finland, Espoo, Finland, and
Jyri Vilko
School of Business, Lappeenranta University of Technology,
Lappeenranta, Finland
Abstract
Purpose Services are increasingly growing in importance in the global economy. However, in the
contextof manufacturing industrysupply chains, servicesare still little discussed.Therefore, the purpose
of this paper is to increase the understanding of service business development for manufacturing
small- and medium-sizedenterprises by further developing previousconceptual frameworks for service
supply chain management, based on the current scientific literatureand empirical cases.
Design/methodology/approach The study is based mainly on qualitative interviews and expert
group sessions set up to analyze the acquired data and test the developed model. The developed model
is based on a multidisciplinary literature review, to provide a holistic perspective on the affecting
factors in new business development in the service supply chain context.
Findings The implications of the study are beneficial from both the scientific and practical
perspectives, which help to understand better the process and related factors in multi-actor service
business development. The study contributes to the current scientific discussion of new business
development in the supply chain context, proposing a new scientific framework based on the previous
literature. The practical findings of the study give insights from manufacturing firmsnew service
developments, and from the roles and resources required in the process.
Originality/value The paper provides new knowledge with regard to new service business
development in the supply chain context, by illustrating the most essential factors and the new process
framework based on those. The presented framework gives a holistic picture of the process, but also
enables better consideration of the most essential points by using a more precisely structured model.
Keywords Manufacturing industry, Small- to medium-sized enterprises, Service-dominant logic,
Service supply chain
Paper type Case study
Introduction
In dynamic competitive environments, cost, quality, and technology leadership are no
longer sufficient for enterprises to secure crucial advantages (Bullinger et al., 2003 ).
Firms in various industries are finding that they can no longer succeed just by offering
excellent products, traditional after-sales service, and logistics (Kowalkowski et al.,
2013). To differentiate themselves from their competitors, manufacturing firms have
begun to extend their range of service offerings and enhance their service orientation
(Kowalkowski et al., 2013). Differentiation requires a change of business model, where
innovation can aim at cost advantage, or competitive advantage in a changing business
environment (Osterwalder et al., 2005; Maglio and Spohrer, 2013). Some scholars have
argued how value-proposition design as a part of business model innovation can
aim for adaptive advantages (improve existing offerings, create new offerings, or
reconfigure the ecosystem) (Maglio and Spohrer, 2013). In this, service science can offer
The International Journal of
Logistics Management
Vol. 26 No. 3, 2015
pp. 517-542
©Emerald Group Publis hing Limited
0957-4093
DOI 10.1108/IJLM-01-2014-0001
Received 1 January 2014
Revised 19 July 2014
19 September 2014
Accepted 23 September 2014
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0957-4093.htm
517
Service supply
chain model
insights into effective value-proposition design, accelerating business model inn ovation
through systematic exploration of the space of value propositions (Maglio and Spohrer,
2013). Value proposition is a generic term suitable for all industries. Our focus is
on manufacturing industries, and especially small- and medium-sized enterprises
(SMEs) original equipment manufacturers (OEMs), who are aiming to extend their
value proposition with a wide range of service offerings.
There are many terms in use to describe the change from traditional manufacturing
to providing services. It has been referred to as the emergence of product service
systemswhen a firm offers a mix of both products and services, in comparison to the
traditional focus on products (e.g. Tukker and Tischner, 2006). The term servitization
describes the strategy of creating value by adding services to products or even
replacing a product with a service (e.g. Vandermerwe and Rada, 1988). Kowalkowski
et al. (2013) have used service infusion in manufacturing firmsto capture the
empirical phenomenon, the common denominator of which is the increased importance
of services in the offering and organization of manufacturing firms. Vargo and Lusch
(2004) have argued the transition to be a movement from a goods-dominant (G-D logic)
logic toward a service-dominant logic (S-D logic).
Rolls-Royce Aerospace is a well-known example of how an organization can
transform successfully from a high-tech product business into a service company.
Rolls-Royce Aerospace started providing power-by-the-houror total-care packages,
in which customers purchase the capabilities that an engine delivers rather than the
engine itself. In their total-care package, Rolls-Royce retains responsibility for
maintenance as well as risk (Neely, 2008). The current research in service sciences
mostly focusses on large multinational enterprises, like Rolls-Royce, and only a few
studies concern service infusion in SMEs (see, e.g. Kowalkowski et al., 2013; Kaski et al.,
2011), which indicates a clear gap in the current body of knowledge. Indeed, the current
research has neglected how a firms size may affect service business development, and
therefore most of the existing findings cannot be transferred to the context of SMEs
(Gebauer et al., 2010a).
Strategic positioning in the value chain can be considered the starting point for
service business development. In fact, it can be argued that the strategy is of
importance for the success of service business and service offerings development
(Edvardsson et al., 2013; Gebauer et al., 2012). Managers involved in the logistics or
supply chain process use strategies consistent with delivering high-quality products
with competitive prices and service levels (Mellat-Parast and Spillan, 2014). SMEs
experience difficulties moving downstream in the value chain, because of potential
competition with their actual customers, distributors, and installers (Gebauer et al.,
2012). Despite that, many examples can be found in the European manufacturing
industries of small- and medium-sized OEMs with a wide range of service offerings.
From a supply chain perspective, small- and medium-sized OEMs operate as large
ones, when using many companies as tier one and tier two suppliers of components,
sub-systems, and services. In order to provide services, SMEs have to reconsider the
sales channels, motivate distributors to offer services, and arrange paybacks from
customers to distributors and from distributors to the SME (Gebauer et al., 2010a).
The current available frameworks do not fully take into account the entire service
system and service supply chain perspective, where the focus should be on managing
product-service resource flows and collaboration of organizations. Our focus is on the
development ofthe service business concept by utilizing supply chain resources, referred
to as a service system (Maglio and Spohrer, 2013), rather than individual services.
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