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Differences Between Manufacturing And Service Organizations

August 25, 2023
Bill Kimball

The reason for this is that a long line will build up when randomness of arrivals occurs faster than the average and service times are longer than the average. Managers can use the service concept to create organizational alignment and develop new services. It provides a means for describing the service business from an operations point of view. Period costs in accounting refers to the method of recording non-production expenses within the period in which the costs are incurred. Learn about the definition, discover how income and expenses relate to profit, and see real-world examples of period costs vs. product costs. Are you buying a new shirt or picking up a shirt from the dry cleaners?

Each week, therefore, every BK store manager schedules employees to cover not only the peak periods of breakfast, lunch, and dinner, but also the slower periods in between. If he or she staffs too many people, labor cost per sales dollar will be too high.

This approach is particularly appropriate for standardized goods ranging from processed foods to electronic appliances. Finally, the operations manager is directly involved in efforts to ensure that goods are produced according to specifications and that quality standards are maintained. Define operations management, and discuss the role of the operations manager in a manufacturing company.

What Is Inbound Logistics & Manufacturing?

This was accomplished by adhering to their system of delivering the goods and the service to the customers at the lowest possible cost. The operations system included careful selection of merchandise, low cost sourcing, ownership of transportation, cross-docking, efficient location of stores and friendly home-town service to the customer. One of the key insights of this management system was the distinction between dependent demand and independent demand. Orlicky wrote “Materials Requirement Planning” in 1975, the first hard cover book on the subject. MRP II was developed by Gene Thomas at IBM, and expanded the original MRP software to include additional production functions.

  • In capital intensive services the focus is more on technology and automation, while in people intensive services the focus is more on managing service employees that deliver the service.
  • But if you were a waitress, you’d interact with customers every day.
  • Location of facilities must be near the customers and scale economics can be lacking.
  • To measure this, use our real-time dashboard that automatically monitors six key project metrics and displays them in colorful, intuitive graphs.
  • Inventory management and control is needed in service operations with facilitating goods.
  • In other words, operations managers manage the process that transforms inputs into outputs.

In capital intensive services the focus is more on technology and automation, while in people intensive services the focus is more on managing service employees that deliver the service. First, let’s look at the seven lean manufacturing waste types developed by Taiichi Ohno, chief engineer at Toyota, for the Toyota production system .

It starts with a high level of internal quality leading to employee satisfaction and productivity to deliver superior external customer service leading to customer satisfaction, customer loyalty and finally high revenues and profits. Once the service package is specified, operations is ready to make decisions concerning the process, quality, capacity, inventory, supply chain and information systems. These are the six decision responsibilities of service operations. Other decision responsibilities such as market choice, product positioning, pricing, advertising and channels belong to the marketing function.

They’re both businesses dealing with the same product but in different ways. In this lesson, you’ll learn the difference between trade and service businesses. Manufacturing operations are classified into process manufacturing and discrete manufacturing.

Manufacturing And Service: Relationship, Similarities And Difference

Unfortunately, failing to balance capacity and projected demand can be seriously detrimental to your bottom line. If you set capacity too low , you won’t be able to meet demand, and you’ll lose sales and customers. If you set capacity too high , you’ll waste resources and inflate operating costs. This approach requires that a company interact with the customer to find out exactly what the customer wants and then manufacture the good, using efficient production methods to hold down costs.

service processes are different from manufacturing processes in that:

Since the product cannot be stored, the service facility must be managed to peak demand which requires more flexibility than manufacturing. Location of facilities must be near the customers and scale economics can be lacking. Queuing theory has been devised to assist in design of service facilities waiting lines. Revenue management is important for service operations, since empty seats on an airplane are lost revenue when the plane departs and cannot be stored for future use.

Service Design

Process manufacturing is an operational method that produces goods by following a specified sequence of steps or a predefined formula. Discrete manufacturing emphasizes producing individual finished goods that are distinct from one another. While pharmaceutical and food and beverage industries adopt the process manufacturing method, automobiles and smartphone manufacturers adopt a discrete manufacturing method.

To improve processes, another fundamental for lean, you need data. To measure this, use our real-time dashboard that automatically monitors six key project metrics and displays them in colorful, intuitive graphs. See at a glance how you’re performing in real time—and with single click reporting, share key data points to keep the team informed. Overseeing a service organization puts special demands on managers, especially services requiring a high degree of contact with customers. Scheduling is made easier by information provided by a point-of-sale device built into every BK cash register. The register keeps track of every sandwich, beverage, and side order sold by the hour, every hour of the day, every day of the week.

To be successful in a service industry, you need to be accessible to your customers. Some service businesses, such as cable-TV providers, package-delivery services, and e-retailers, go to their customers. Many others, however—hotels, restaurants, stores, hospitals, and airports—have to attract customers to their facilities. These businesses must locate where there’s a high volume of available customers. The decisions made in the planning stage have long-range implications and are crucial to a firm’s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price?

Production Systems

The role of operations managers in the manufacturing sector includes production planning, production control, and quality control. With these factors in mind, let’s look at the specific types of decisions that have to be made in the production planning process. We’ve divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management. Operations management textbooks usually cover demand forecasting, even though it is not strictly speaking an operations problem, because demand is related to some production systems variables. For example, a classic approach in dimensioning safety stocks requires calculating the standard deviation of forecast errors. Demand forecasting is also a critical part of push systems, since order releases have to be planned ahead of actual clients’ orders. Also, any serious discussion of capacity planning involves adjusting company outputs with market demands.

2 Manufacturing Versus Service Operations

Organizations that engage in hospitality, travel, media, sports, health care and entertainment are service-providing organizations. Service-providing operations send employees to their customers’ locations or meet the customers at the company’s premises to facilitate the service provision. Other ways to approach lean manufacturing are just-in-time manufacturing or the Toyota Way, as it was developed by the company for its famous Toyota production system . Here the focus is on improving workflow to remove unevenness as opposed to wastefulness. For example, quality management approaches used in manufacturing such as the Baldrige Award, and Six Sigma have been widely applied to services. Likewise, lean service principles and practices have also been applied in service operations.

They focus on improving the processes that underlie production of the service. Design of a service system must consider the degree of customer contact. The importance of customer contact was first noted by Chase and Tansik . They argued that high customer contact processes should be designed and managed differently from low-contact processes. High-contact processes have the customer in the system while providing the service. This can lead to difficulties in standardizing the service or inefficiencies when the customer makes demands or expects unique services. On the other hand, high-contact also provides the possibility of self-service where customers provide part of the service themselves (e.g. filing your own gas tank, or packing your own groceries).

Manufacturing plants are located on the basis of low costs rather than high revenues and profits for services. They begin with defining and measuring the customer’s needs (e.g. using SERVQUAL). Any service that does not meet a customer’s need is considered a defect. Then these approaches seek to reduce defects through statistical methods, cause-and-effect analysis, problem solving teams, and involvement of employees.

Planning The Production Process

As a result, manufacturing uses a Materials Requirements Planning System, while services do not. Services use Replenishment inventory control systems such as order-point and periodic-review systems.

The traditional pull approach to inventory control, a number of techniques have been developed based on the work of Ford W. Harris , which came to be known as the economic order quantity model. This model marks the beginning of inventory theory, which includes the Wagner-Within procedure, the newsvendor model, base stock model and the fixed time period model.

If there aren’t enough employees, customers have to wait in lines. Some get discouraged, and even leave, and many may never come back. The term “manufacturing operations” refers to a framework in which man, machine and material come together to produce a tangible product. It deals with all the supply chain activities such as gathering requirements from customers, procuring raw materials, allocating resources, scheduling the production, maintaining the inventory, and delivering end products to customers. Forecasting demand is a prerequisite for managing capacity and scheduling. Forecasting demand often uses big data to predict customer behavior. The data comes from scanners at retail locations or other service locations.