Start to Operations Management:

Operations: Production of GOODS versus Providing SERVICES

Although goods and services often go hand in hand, there are some very basic differences between the 2, differences that impact the management of goods versus management of services.

? Production of goods results in a “tangible output” – anything we can see or touch

? Delivery of a service, on the other hand, generally implies an “act”.

Manufacturing and services are often different in terms of “what” is done but quite similar in terms of “how” it is done. Consider these points in comparison:

ü Degree of customer contact – many services involve a high degree of customer contact, although internet providers, utilities and mail service do not. Where there is contact , the interaction between server and customer becomes “a moment of truth” that judged every time the service occurs

ü Labour content of jobs – services often have a higher degree of labour content than manufacturing jobs, although automated services are an exception

ü Uniformity of inputs – service operations has a variability of inputs. Each represents a 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 job requirements

ü Measurement of productivity – measurement of productivity can be more difficult for service jobs due to the high variations of inputs. Example: one doctor might have high level routine cases, while the other might have more difficult cases. Unless a careful analysis is conducted, it may appear the doctor with difficult cases has much lower productivity than the one with routine cases.

ü Quality assurance – quality assurance is usually more challenging for services due variable input and because delivery and consumption occur at the same time. Unlike manufacturing, which occurs away from the customers and allows mistakes to be rectified / corrected. Services have less opportunity to avoid exposing customers to mistakes

ü Inventory – many services tend to involve less use of inventory than manufacturing. Costs of having inventory on hand are lower than they are for manufacturing. However, unlike manufacturing goods, services cannot be stored. Instead, it must be provided “on demand”

ü Wages – manufacturing jobs are often well paid and have less wage variation than service jobs,  which may vary from highly paid professional services to minimum-wage workers

ü Ability to patent – product designs often easier to patent than service designs and some services cannot be patented. Thus, making it easy for competitors to copy

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

a.      Forecasting and capacity planning (supply and demand)

b.     Process management

c.      Managing variations

d.     Monitoring and controlling of costs and productivity

e.     Supply chain management

f.       Location planning, inventory management, QA and scheduling

Note that many service activities are essential in goods-producing companies. These incl. training, HR management, customer service, maintenance/equipment repair, procurement and admin services.