Service Businesses and Services

A service business is fundamentally different than a manufacturing business

Services provide competitive advantages for a manufacturer

The unified services theory

With services, the customer provides significant inputs into the production process.

With manufacturing, groups of customers may contribute ideas to the design of the product, however, individual customers’ only part in the actual process is to select and consume the output.

Nearly all other managerial themes unique to services are founded in this distinction.

Defining by customer content

With services, an effective means of understanding, analyzing, and comparing processes is on the basis of customer content.

There are three general types of customer inputs into service processes: the customer’s self, the customer’s belongings, and/or the customer’s information.

The Unit of Analysis

With services, the unit of analysis is a process segment. A process segment is a sequence of steps of production. When processes are dissected into smaller segments, the presence or absence of service principles becomes more pronounced.

Simultaneous production and consumption

With services, production (making the service “product”) and consumption often occurs simultaneously, making the exact timing of production a critical issue.

Time-perishable capacity

With services, capacity is usually time-perishable, meaning that capacity without corresponding demand is lost forever. This is true even though the service product is often not perishable.

Customers in inventory

The idea of being unable to inventory services is a common misconception. The correct concept is that it is impractical to inventory service production. With services, keeping work-in-progress inventory will enrage the customer. We rarely keep finished goods inventory. Managers do not hide poor management practice under inventory as can happen in manufacturing.

Difficulty in maintaining quality

With services, quality measurement tends to be subjective and difficult to scale. The standards by which quality is defined are often ambiguous. These unique specifications of quality, coupled with labor-intensiveness and inconsistent customer inputs, make it difficult to provide consistent quality.

Services add value

Using services to add value to manufactured products

Products are often bundles of goods and services

Customer Value Proposition

PriceFeaturesQualityDeliveryService bundle

Emerging Trends

Shift in focus from material to immaterial Time Location Mass customization

Good service not enough Need to delight the customer

Customer loyalty

Why Services are Important to Mfg

Competitive advantageVery profitableIncreased revenues

Growth markets Large part of product life cycle

Window blinds, shades, etc

Blind man, 3-day blinds, e.g. wide variety Custom More expensive

WalMart, K-mart, e.g. Limited selection Little customization Lower cost

Pre-purchase

ResponsivenessProblem solvingDemonstrating knowledge and

expertiseDesignOptions, customizationInventory/warehousingKitting

Purchase

Warranties and guaranteesMaintenanceOptional servicesDeliveryInstallationFinancing

Post-purchase

ResponsivenessProblem solvingMaintenanceData collectionWarranty – replacement, repairFollow-up sales

Little ‘s’ Service Elements

AvailabilityDeliveryFlexibilityMaintenanceInformationRecovery

Big “S” Elements

Knowledge and expertiseImproved product performanceCustomer trainingExpanded product capabilities

Conclusion

Service provides a competitive advantage

Services are profitable

Services are fundamentally different from manufacturing