Service Operations

Value creation systems can be divided into two broad categories; goods-producing operations and service operations. Goods-producing operations are characterized by tangible outputs and are the result of physical transformations such as fabrication, assembly, blending, and chemical alteration. Service operations are characterized by intangible outputs and are relatively more labor intensive. Examples of service operations (and their transformation processes) include airlines (locational), hospitals (physiological), schools (informational), theme parks (entertainment), banks (financial), and department stores (exchange).

Service operations are distinct from goods-producing operations in several ways. First, services are created and consumed simultaneously. As a consequence, service operations lack the option of using inventory as a buffer between demand and capacity. For example, a toy manufacturer may spend the summer months building up inventory for the heavy demand of Christmas season. In contrast, a tax preparation service cannot “inventory” services but instead must temporarily ramp up capacity to satisfy heavy demands during tax season. This characteristic of services creates heightened challenges in the areas of demand forecasting, workforce planning, job scheduling, and customer wait-time management.

A second distinction is the degree of customer participation in the service creation process. Most goods are produced in a factory far away from the eventual consumer. Most services, in contrast, involve considerable customer participation and often directly involve the customer. Hence, a retail store must be laid out to make it easy for a customer to self-navigate, and great attention must be paid to cleanliness, lighting, and customer service training. Customer participation also implies considerable visibility into the design and operation of the service delivery process. Inefficiencies or inadequate staffing may be readily apparent and could negatively affect customer perception.

A third distinction is that most manufacturing operations strive to produce products that correspond to a particular definition of quality. Because services are often delivered on an individual basis, the definition of “quality service” can differ from person to person depending on each customer's needs. In health care, for example, some patients greatly value spending time with physicians and discussing a wide range of health or personal issues. Other patients may wish to spend the minimum time possible and perceive any other chat time as wasteful and not as adding value.

A fourth distinction stems from the intangible nature of a service itself. Service concepts, as opposed to product concepts, cannot easily be protected by patents and may be readily imitated. Also, the intangible nature prevents a customer from thoroughly evaluating a service before deciding to buy it. Hence, reputation plays a greater role in customer decisions.

The management of service operations requires the careful coordination of workforce, facility, equipment, information, and facilitating materials. For example, a health care clinic requires a proper mix of workforce skill sets, a physical facility, equipment for performing on-site tests, information in the form of patient records, and adequate inventories of supporting materials such as medications.