Service often requires relatively greater labor content when compared to manufacturing.

Serge Petrick

Serge Petrick

Messenger Marketing | Marketing Automation | Email Marketing | E-commerce | Online Info businesses

Published Aug 4, 2016

Even when in most cases production of goods and delivery of services go hand in hand, there are some very basic differences between the two, differences that impact the operations management of the goods part versus operations management of the service part. At the same time there are also a lot of similarities between the two.

Production of goods results in a tangible output, anything that can be seen or touched. It may take place in a production area, but can occur elsewhere. For example, farming produces non-manufactured goods. Delivery of service, on the other hand, generally implies an act. A physician’s examination, TV and auto repair, lawn care, and the projection of a film in a theater are examples of services.

The majority of service jobs fall into these categories:

• Professional services (e.g., financial, health care, legal).
• Mass services (e.g., utilities, Internet, communications).
• Service shops (e.g., tailoring, appliance repair, car wash, auto repair/maintenance).
• Personal care (e.g., beauty salon, spa, barbershop).
• Government (e.g., Medicare, mail, social services, police, fire).
• Education (e.g., schools, universities).
• Food service (e.g., restaurants, fast foods, catering, bakeries).
• Services within organizations (e.g., payroll, accounting, maintenance, IT, HR, janitorial).
• Retailing and wholesaling.
• Shipping and delivery (e.g., truck, railroad, boat, air).
• Residential services (e.g., lawn care, painting, general repair, remodeling, interior design).
• Transportation (e.g., mass transit, taxi, airlines, ambulance).
• Travel and hospitality (e.g., travel bureaus, hotels, resorts).
• Miscellaneous services (e.g., copy service, temporary help).

 Production and service are often different in terms of What is done but quite similar in terms of How it is done.

Let’s consider the following points of comparison:

Customer contact level. Many services involve a high degree of customer contact, although services such as Internet providers, utilities, and mail service do not. When there is a high degree of contact, the interaction between service supplier and customer becomes a “moment of truth” that will be judged by the customer every time the service occurs.

Labor content of jobs. Services often have a higher degree of labor content than manufacturing jobs do, although automated services are an exception.

Inputs uniformity. Service operations are often subject to a higher degree of variability of inputs. Each client, patient, customer, repair job, and so on presents a somewhat unique situation that requires assessment and flexibility. Conversely, manufacturing operations often have a greater ability to control the variability of inputs, which leads to more-uniform job requirements.

Productivity measurement. Measurement of productivity can be more difficult for service jobs due largely to the high variations of inputs. Thus, one doctor might have a higher level of routine cases to deal with, while another might have more difficult cases. Unless a careful analysis is conducted, it may appear that the doctor with the difficult cases has a much lower productivity than the one with the routine cases.

Quality assurance. Quality assurance is usually more challenging for services due to the higher variation in input, and because delivery and consumption occur at the same time. Unlike manufacturing, which typically occurs away from the customer and allows mistakes that are identified to be corrected, services have less opportunity to avoid exposing the customer to mistakes.

Inventory. Many services tend to involve less use of inventory than manufacturing operations, so the costs of having inventory on hand are lower than they are for manufacturing. However, unlike manufactured goods, services cannot be stored. Instead, they must be provided “on demand.”

Wages. Manufacturing jobs are often well paid, and have less wage variation than service jobs, which can range from highly paid professional services to minimum-wage workers.

Patent ability. Product designs are often easier to patent than service designs, and some services cannot be patented, making them easier for competitors to copy.

The following table provides an overview of the differences between production of goods and service operations. Remember, though, that most systems involve a mix of goods and services.

 There are also many similarities between managing the production of products and managing services. Here are some of the primary factors for both:

1. Forecasting and capacity planning to match supply and demand.
2. Process management.
3. Managing variations.
4. Monitoring and controlling costs and productivity.
5. Supply chain management.
6. Location planning, inventory management, quality control, and scheduling.

It is worth to note that many service activities are essential in goods-producing companies. These include training, human resource management, customer service, equipment repair, procurement, and administrative services.