LECTURE - 3
PROCESSES OF SERVICE SUPPLY CHAIN
Learning Objective
 To discuss various processes and flows in service supply chains
10.7 Service supply chain processes
Some of the processes in service supply chain are same as goods supply chain. The
context of these processes is different in services which are presented in Table10.10.
TABLE 10.10: SERVICE SUPPLY CHAIN PROCESSES
Process
Context in service supply chain
 Due to lack of buffer inventory it is difficult to
manage uncertain demand for services.
Demand Management
 Understand the capacity available and current
workload.
 Possibilities of additional workload by hiring
part time or by doing overtime.
Customer Relationship
Management
 Customer segmentation & monitoring
relationship by understanding customer needs
and changing behavior of customers.
 Identification of requirements with clear
specifications.
Supplier Relationship
Management
 Select suppliers & provide clear scope of work
and statement of work.
 Negotiate & sign contracts with appropriate
service level agreements to avoid in uncertainty
from supply side.
Service Delivery
Management
 Meeting customer’s expectations through
statement of work or SLA.
 Enabling service providers to meet promises by
monitoring SLA compliance and payment terms.
 Order processing function in which service
organizations get orders from customers.
 Check status of orders, communicate the status to
customers, actual filling the orders & make
Order Process
Management
orders available to the customers.
 Order processing span over intersection of other
functions of supply chain management to
perform sub processes like order preparation,
transmittal, entry, filling and status reporting.
10.8 Managing service supply chain flows
Service supply chain deals with flow of information, capacity and cash as mentioned
below:
10.8.1 Information Flow
It deals in sharing information among service supply chain entities on
 Service level agreements
 Scope of work
 Required skills of service provider
 Feedback
 Payment related terms
10.8.2 Capacity Flow
It deals in managing capacity in the form of material and human resources. Service
companies manage capacity flow by
 Investing in assets
 Recruiting quality staff
 Recruiting appropriate staff
10.8.3 Cash Flow
It deals in the flow of funds governed by payment terms based on the performance
towards agreed goals.
 Determining appropriate timing and payment is a challenging issue in services.
The service supply chain is the network of suppliers, service providers, consumers and
other supporting units that performs the functions of transaction of resources required to
produce services, transformation of these resources into supporting and core services, and
the delivery of these services to customers.
10.9 Service level agreements (SLAs)
Forms of contracts agreed between service provider and the customer or client.
Important for managing the relationship between service supply chain partners.
Mostly prevail in Business-to-Business services.
An SLA defines the nature of the goods or services and the level of quality to be
provided. It helps in development and formalization of service provider client
relationship. It is comprised of following components
10.9.1 Service specification
1.
Key dimensions of performance such as response time, reliability, availability,
accuracy.
2.
Setting the ways to measure performance of each dimension to reduce the likelihood
of disagreements at a later date about performance.
3.
Set mutually agreed target for each dimension. It should be based on the service
provider’s cost and capability and client requirement regarding ultimate users
(internal and external customers of clients).
4.
Define clearly the who is responsible for measuring each dimension.
10.9.1 Routinized relationship
It deals in the day to day operation of agreement
 Devise and implement a mechanism for reporting performance against
standards at agreed regular intervals.
 Setting out procedures to handle the situations of failures against standards.
These failures should be taken as opportunities for service provider and
client to work together to solve problems.
10.9.2 Developmental relationship
Appreciate the role of SLAs to develop a long term relationship by
 Arranging routine discussion of the measures and targets.
 Share ideas for improvement of standards and relationship.
 Reviewing the measures and standards regularly.
So, we can summarize some features of service supply chain as presented below:
 Human labour is a significant component of the value delivery process
 Involvement of human component leads to greater variations and uncertainties
in service output and lesser standardization in service processes.
 Service supply chain is bi-directional – i.e., the customer also acts as a supplier
(customer-supplier duality).
 Efficiencies are measured through management of capacities, information and
cash flow, flexibility of resources and service performance.

Service capacity serves as the substitute for inventory. Operational agility is
achieved through strategic use of capacity.
10.10 Service supply chain in Insurance sector
In Indian insurance sector a typical service supply chain of health insurance claims
settlement is comprised of various entities as shown in Figure 10.7. Various activities
involved in insurance claim settlement are claim intimation, call for basic documents, and
call for additional documents and settlement as per insurance policy. The entities
involved are customer, hospital or doctors, Third Party Administrator (TPA) and
insurance company. Various functional departments of any insurance company can also
be seen in Figure 10.7. Insurance companies outsource various activities to call centers
and take help of supporting activities from courier service provider, banks, doctors and
medical consultants.
The Insurance Regulatory Development Authority (IRDA) selects the TPAs on the basis
of strict professional norms. Generally, the insurance companies are benefited from TPAs
by reduction in their administrative costs the insured is benefited by better service. TPAs
act as an intermediary between the insurer and the insured and facilitate cash less service
at the time of hospitalization. TPA helps in managing claims processing, provider
network and utilization review. The services include claims processing, premium
collection, enrollment and cashless processing. Some of the insurance companies set up
an entire department within their own company to act as TPA whereas others hire a
commercial TPA company.
Information, money, documents / reports
Customer/ Insurer
Call centre/ Agents
Claim
intimation
Call for basic
documents
Consultant doctor/ Investigator/Specialist
Call for
additional docs
TPA (Third Party Administrator)
Regions
Operations
Administration
HR
Finance
Claim
Settlement
Underwriting
Insurance Company
IT
Service supply chain of health
insurance claims
Activities in
supply chain
Supporting companies in Insurance claims supply chain
Call centres, banks, Courier service provider
FIGURE 10.7 TYPICAL SUPPLY CHAIN OF HEALTH INSURANCE
CLAIMS
TPA tie ups with hospitals, strengthened the process of cashless claims. Cashless key
information on patient’s records available in the insurer database is accessed by TPA
through the health card number issued to customers.
The insurance companies mostly adopt following performance measures important for
the successful supply chain
 The ratio of settled claims versus reported claims.
 Total time taken from time of receiving all documents from customer to the time
cheque is sent out.
 Complaints Resolution with proper root cause analysis
 Cost Control – Average Claims Cost, Number of claims, Loss ratios
A general structure of insurance claims comprised of followng personnel:
 Manager – In each region to oversee and approve / reject / guide complex claims
 Claims executive – Approving authority
 Claims officer – Interfaces with TPA, asks customer for additional documents,
manages investigations, classifies files into categories for processing, repudiation
 Claims handler – mostly data entry – policy verification, using softwares, premium
check, getting basic documents.
Due to many entities involved there are some common challenges present in health
insurance claims supply chain which are:
 Doctors or specialists may see the patients from medical perspective and not from
insurance perspective which may hinder the claims settlement supply chain.
Pending investigation reports slow down the processing of claims.
 Lack of proper connectivity or power failures hinder the cashless service and hence
customer has to deposit money in certain cases even after opting for cashless
service. This lack of connectivity obstructs the supply chain.
 Supporting companies like courier services and banks need to work in sync with
insurance sector to provide timely service.
 Reliable and fast information systems are required to process volumes of claims in
a timely manner. In claims settlement supply chain information flows through too
many channels and sometimes, back and forth too often. Delay or pending case at
any entity delays the whole process of claims settlement.
10.11 Service supply chain of online mobile recharge service
The process of recharging cellular phone online involves multiple entities which form a
web of supply chain entities. These entities can be presented as nodes in a supply chain
web or graph. Various entities involved in recharge supply chain are client (C), the cell
phone operator/ service provider, the electronic recharge center or point which usually
any web portal that provides on line recharge option (RP), the entity involved in service
description node (SD), account information (AI), the Bank’s database (BD), the data
management (DM) and the service provider’s internal data (SP) as shown in Figure 10.8.
When an online recharge takes place all the above mentioned entities collaborate to
provide timely and reliable service. The user performs the recharge through the recharge
web portal by specifying the mobile number or account identification, service operator
name and the recharge amount. Then the information is used to check the type of service
that the user has availed and the corresponding service description. Then the account is
checked for current balance, packages, etc. in order to identify the purpose of recharge.
The recharge can be done either for crediting the balance or activating a service or some
other service. This is done using the account ID or the mobile number of the user. Once
the validity of the service and account information is verified then the payment gateway
opens up displaying the list of banks and various types of options available (like net
banking, debit cum ATM card option etc). Once the bank account details are entered it is
compared, validated and updated in the bank’s database (BD). The DM node which is
usually handled by a dedicated data management firm makes entries of the transaction
details noting the success or failure till that point. Finally all successful transactions are
updated in the internal node of the service provider making the process a success
resulting in uninterrupted services.
DM
SDN
AI
BD
BD
RP
AI
C
SP
AI
DM
BD
SDN
AI
SDN
RP
FIGURE 10.8: ENTITIES OF ONLINE MOBILE RECHARGE SERVICE
SUPPLY CHAIN