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The Key Differences Between Manufacturing and Service Operations

Tangible output: Service operations are typically found in banking, hospitality, advertising, consultancy and the public sector. The output of a service firm, such as consultancy or training, is intangible. Manufacturers produce tangible goods, which are physical products that can be held and seen and stored.

Inventory: Service firms, unlike manufacturers, do not hold inventory; they create a service when a client requires it, it cannot be stored. Manufacturers produce goods for stock, with inventory levels aligned to forecasts of demand. Inventory also represents a cost.

Customisation vs. Standardisation: Manufacturers have a standardised way of producing goods en-masse in a factory. One finished product is defined, fixed and the same as the next. They can also produce for stock in advance of any orders. Service firms do not produce a service unless a customer requires it, although they design and develop the scope and content of services in advance of any orders. Service operations have more opportunities to customise the services they provide tailored to customers’ needs. E.g. beauticians and hairdressers must customise the styling and treatments to match the customer’s hair, shape of face etc.

Labour: A service firm recruits people with specific knowledge and skills in the disciplines that it offers. Service delivery is labour intensive and cannot be easily automated, although knowledge management systems enable a degree of knowledge capture and sharing. Manufacturers can automate many production processes to reduce their labour requirements or relocate to countries where labour costs are low.

Location:  Service firms do not require a physical production site. The people creating and delivering the service can be located anywhere. For example, global consulting firms use communication networks to access the most appropriate service skills and knowledge from offices around the world. Manufacturers must have a physical location for their production and stock holding operations.

Production Environment: Manufacturing and service operations both plan the environment in which work takes place, but they focus on different elements. Manufacturing operations consider the manufacturing layout and its affect on the flow of work: fixed, process-focused or product-focused (assembly line). In a service operation managers schedule workers to handle customer demand. They must coach and train employees to provide optimal services to customers when they arrive. Service operations also plan the environment according to how it affects customers. They are concerned about the atmosphere for customers, layout of furnishings, arrangement of signs and colours and sounds designed to enhance the customer experience.

Extract from articles by Ian Linton and Matthew Schieltz, Demand Media

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