Ultimately, What Classifies A Company As Either A Manufacturer Or A Service Provider?

11.6 Operations Management for Service Providers

Learning Objectives

1. List the characteristics that distinguish service operations from manufacturing operations.
2. Describe the decisions fabricated in planning the product delivery process in a service company.
3. Identify the activities undertaken to manage operations in a service organization.

As the U.Due south. economy has inverse from a goods producer to a service provider, the predominance of the manufacturing sector has declined substantially over the last sixty years. Today, only about 9 percent of U.S. workers are employed in manufacturing, in contrast to 30 per centum in 1950 (The Global Language Monitor, 2010; Strauss, 2010). Most of u.s. at present hold jobs in the service sector, which accounts for 77 percent of U.S. gdp (International Monetary Fund, 2010; Wikipedia, 2011). Wal-Mart is now America's largest employer, followed by IBM, United Packet Service (UPS), McDonald's, and Target. Non until we drop down to the 7th-largest employer—Hewlett Packard—exercise we find a company with even a manufacturing component (24/7 Wall Street, 2011).

Effigy 11.9

Wal-Mart employs more than a million people in the United states.

Though the primary function of both manufacturers and service providers is to satisfy customer needs, there are several important differences between the two types of operations. Let'southward focus on three of them:

• Intangibility. Manufacturers produce tangible products—things that can be touched or handled, such as automobiles and appliances. Service companies provide intangible products, such every bit banking, amusement, or education.
• Customization. Manufactured goods are by and large standardized; one twelve-ounce canteen of Pepsi is the same every bit any other twelve-ounce bottle of Pepsi. Services, by contrast, are oftentimes customized to satisfy the specific needs of a customer. When yous go to the barber or the barber, yous ask for a haircut that looks good on you because of the shape of your confront and the texture of your hair. When you go to the dentist, you enquire him or her to fill or pull the tooth that's bothering yous.
• Customer contact. Y'all could spend your entire working life assembling cars in Detroit and never meet a customer who bought a car that yous helped to make. But if y'all were a waitress, you'd interact with customers every day. In fact, their satisfaction with your product would be determined in part by the service that you provided. Unlike manufactured appurtenances, many services are bought and consumed at the same time.

Non surprisingly, operational efficiency is just as important in service industries as it is in manufacturing. To get a improve idea of the role of operations direction in the service sector, we'll look closely at Burger King (BK), home of the Whopper, and the world's 2d-largest eating place chain (Burger King, 2011). BK has grown essentially since selling the start Whopper (for $0.37) almost half a century ago. The instant success of the fire-grilled burger encouraged the Miami founders of the company to expand by selling franchises. Today, at that place are 12,200 BK company- and independently-owned franchised restaurants in seventy-three countries (vii chiliad of which are in the United States), and they employ about forty g people (SEC, 2010). More than eleven million customers visit BK each day (Burger Male monarch, 2011).

Operations Planning

When starting or expanding operations, businesses in the service sector must make a number of decisions quite similar to those made by manufacturers:

• What services (and possibly what goods) should they offer?
• How will they provide these services?
• Where will they locate their business, and what will their facilities look similar?
• How will they forecast need for their services?

Let'due south see how service firms similar BK respond questions such as these¹.

Operations Processes

Service organizations succeed by providing services that satisfy customers' needs. Companies that provide transportation, such as airlines, have to get customers to their destinations equally apace and safely equally possible. Companies that evangelize packages, such as FedEx, must pick upwardly, sort, and deliver packages in a timely manner. Colleges must provide quality educations. Companies that provide both services and goods, such as Domino'due south Pizza, have a dual challenge: they must produce a quality expert and evangelize it satisfactorily.

Service providers that produce goods can, similar manufacturers, prefer either a brand-to-order or a brand-to-stock approach to manufacturing them. BK, which encourages patrons to customize burgers and other carte du jour items, uses a brand-to-order approach. BK tin can customize products because information technology builds sandwiches one at a time rather than batch-process them. Meat patties, for example, go from the grill to a steamer for belongings until an order comes in. Then the patty is pulled from the steamer and requested condiments are added. Finally, the completed sandwich chutes to a counter worker, who gives it to the client. In contrast, many of BK'south competitors, including McDonald'due south, rely on a make-to-stock arroyo in which a number of sandwiches are made at the same time with the same condiments. If a client wants, say, a hamburger without onions, he or she has to wait for a new batch of patties to be grilled. The procedure could accept up to five minutes, whereas BK can procedure a special gild in 30 seconds.

Similar manufacturers, service providers must continuously expect for ways to improve operational efficiency. Throughout its sixty-year history, BK has introduced a number of innovations that have helped make the company (as well as the fast-food manufacture itself) more efficient. BK, for instance, was the first to offering drive-through service (which at present accounts for 70 percent of its sales (Krummert, 2011).).

Information technology was too a BK vice president, David Sell, who came up with the idea of moving the drink station from backside the counter so that customers could take over the time-consuming chore of filling cups with ice and beverages. BK was able to cut dorsum ane employee per twenty-four hour period at every i of its more than than eleven thousand restaurants. Material costs also went down considering customers usually fill cups with more ice, which is cheaper than a drink. Moreover, there were savings on supply costs because most customers don't bother with lids, and many don't use straws. On top of everything else, most customers liked the arrangement (for one affair, information technology allowed them to customize their own drinks by mixing beverages), and as a event, customer satisfaction went up, every bit well. Overall, the new process was a major success and rapidly became the industry standard.

Facilities

When starting or expanding a service business concern, owners and managers must invest a lot of time in selecting a location, determining its size and layout, and forecasting demand. A poor location or a badly designed facility tin cost customers, and inaccurate estimates of demand for products tin upshot in poor service, excessive costs, or both.

Site Selection

People in the real estate industry oft say that the iii almost important factors to consider when you're buying a home are location, location, location. The same principle applies when you're trying to locate a service business organisation. To be successful in a service industry, y'all need to be attainable to your customers. Some service businesses, such as cable-TV providers, package-delivery services, and east-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 in that location's a high volume of available customers. Allow'south encounter how BK decides where to place a restaurant.

"Through the light and to the right." This is a favorite catchphrase among BK planners who are looking for a promising spot for a new eating house (at to the lowest degree in the U.s.). In picking a location, BK planners perform a detailed assay of demographics and traffic patterns, yet the about important factor is commonly traffic count—the number of cars or people that laissez passer by a specific location in the course of a twenty-four hour period. In the The states, where we travel almost everywhere by machine, BK looks for busy intersections, interstate interchanges with easy off and on ramps, or such "primary destinations" as shopping malls, tourist attractions, downtown business concern areas, or film theaters. In Europe, where public transportation is much more mutual, planners focus on subway, train, coach, and trolley stops.

One time planners find a site with an acceptable traffic count, they apply other criteria. Information technology must, for example, be easy for vehicles to enter and exit the site, which must also provide enough parking to handle projected dine-in business concern. Local zoning must allow standard signage, especially forth interstate highways. Finally, expected business must be high plenty to justify the toll of the state and building.

Size and Layout

Considering manufacturers practice business out of plants rarely visited by customers, they base of operations the size and layout of their facilities solely on product needs. In the service sector, notwithstanding, most businesses must design their facilities with the customer in listen: they must adjust the needs of their customers while keeping costs as depression as possible. Performing this twofold chore isn't like shooting fish in a barrel. Permit's run into how BK has met the challenge.

For its kickoff three decades, almost all BK restaurants were pretty much the aforementioned. They all sabbatum on ane acre of country (located "through the calorie-free and to the right"), had about 4 thousand square anxiety of space, and held seating for seventy customers. All kitchens were roughly the same size. Equally long as land was cheap and sites were readily bachelor, this organisation worked well enough. By the early on 1990s, however, near of the prime sites had been taken, if not by BK itself, then by i of its fast-food competitors or other businesses needing a choice spot, including gas stations and convenience stores. With everyone behest on the same sites, the cost of a prime acre of land had increased from $100,000 to over $1 million in a few short years.

To go along growing, BK needed to change the fashion it found and developed its locations. Planners decided that they had to find ways to reduce the size of a typical BK eatery. For ane affair, they could reduce the number of seats, considering the business at a typical outlet had shifted over time from xc percent inside dining and 10 percent bulldoze-through to a 50-l split up. BK customers tended to be in a hurry, and more customers preferred the convenience of drive-through "dining."

David Sell (the aforementioned executive who had recommended letting customers fill their own potable cups) proposed to salve space by wrapping Whoppers in newspaper instead of serving them in the cardboard boxes that took upwards too much infinite in the back room of every restaurant. And then BK switched to a single paper wrapper with the label "Whopper" on ane side and "Cheese Whopper" on the other. To evidence which product was inside, employees just folded the wrapper in the right direction. Ultimately, BK replaced pallets piled high with boxes with a few boxes full of wrappers.

Ideas like these helped BK trim the size of a restaurant from four thousand square feet to equally little as 1 m. In turn, smaller facilities enabled the visitor to enter markets that were one time toll prohibitive. Now BK could locate profitably in airports, food courts, strip malls, centre-city areas, and fifty-fifty schools. The company even designed 10-foot-past-10-foot kiosks that could exist transported to special events, stadiums, and concerts.

Capacity Planning

Estimating capacity needs for a service business isn't the aforementioned thing equally estimating those of a manufacturer. A manufacturer can predict overall demand, produce the production, store it in inventory, and ship it to a customer when information technology's ordered. Service providers, however, tin't store their products for afterward use: hairdressers can't "inventory" haircuts, hospitals can't "inventory" operations, and amusement parks can't "inventory" roller-coaster rides. Service firms have to build sufficient capacity to satisfy customers' needs on an "as-demanded" ground. Like manufacturers, service providers must consider many variables when estimating need and capacity:

• How many customers volition I have?
• When will they want my services (which days of the week, which times of the day)?
• How long will information technology have to serve each customer?
• How will external factors, such as weather or holidays, affect the demand for my services?

Effigy xi.11

Retailers have to exist prepared to arrange much heavier traffic than normal during the holiday flavor.

Forecasting demand is easier for companies like BK, which has a long history of planning facilities, than for brand-new service businesses. BK can predict sales for a new restaurant by combining its knowledge of client-service patterns at existing restaurants with information collected about each new location, including the number of cars or people passing the proposed site and the effect of nearby competition.

Managing Operations

Overseeing a service organization puts special demands on managers, especially those running firms, such equally hotels, retail stores, and restaurants, that take a high degree of contact with customers. Service firms provide customers with personal attention and must satisfy their needs in a timely style. This task is complicated by the fact that demand can vary greatly over the course of any given mean solar day. Managers, therefore, must pay particular attending to employee work schedules and (in some cases) inventory management. Let'southward run across how BK deals with these bug.

Scheduling

In manufacturing, managers focus on scheduling the activities needed to transform raw materials into finished appurtenances. In service organizations, they focus on scheduling workers so that they're available to handle fluctuating customer demand. Each calendar week, therefore, every BK store director schedules employees to cover not only the acme periods of breakfast, dejeuner, and dinner, but also the slower periods in betwixt. If he or she staffs besides many people, labor cost per sales dollar will exist too high. If there aren't enough employees, customers take to wait in lines. Some get discouraged, and even leave, and many may never come back.

Scheduling is fabricated easier by information provided by a point-of-auction device built into every BK cash register. The register keeps rail of every sandwich, beverage, and side society sold by the hour, every 60 minutes of the day, every 24-hour interval of the week. Thus, to determine how many people will be needed for next Thursday's lunch hour, the director reviews last Thursday's data, using sales revenue and a specific BK formula to determine the advisable staffing level. Each managing director tin adjust this forecast to account for other factors, such every bit electric current marketing promotions or a local sporting event that will increase customer traffic.

Inventory Control

Businesses that provide both goods and services, such as retail stores and auto-repair shops, take the same inventory-control issues as manufacturers: keeping levels too loftier costs money, while running out of inventory costs sales. Technology, such as the indicate-of-sale registers used at BK, makes the job easier. BK'southward organisation tracks everything sold during a given time and lets each store manager know how much of everything should be kept in inventory. It also makes it possible to count the number of burgers and buns, bags and racks of chips, and boxes of beverage mixes at the offset or stop of each shift. Because there are fixed numbers of supplies—say, beefiness patties or bags of fries—in each box, employees simply count boxes and multiply. In simply a few minutes, the manager knows whether the inventory is right (and should be able to see if any theft has occurred on the shift).

Key Takeaways

• Though the chief office of both manufacturers and service providers is to satisfy customer needs, there are several important differences between the 2 types of operations.
• While manufacturers produce tangible, more often than not standardized products, service firms provide intangible products that are often customized to satisfy specific needs. Different manufactured goods, many services are bought and consumed at the same fourth dimension.
• Operational efficiency is just as important in service industries as it is in manufacturing.
• Operations managers in the service sector make many decisions that are like to those made by manufacturers: they determine which services to offer, how to provide these services, where to locate their businesses, what their facilities will look like, and what the demand will be for their services.
• Service providers that produce goods can, like manufacturers, adopt either a make-to-order approach (in which products are made to customer satisfaction) or make-to-stock arroyo (in which products are made for inventory) to manufacturing them.
• Estimating capacity needs for a service business organization is more difficult than for a manufacturer. Service providers tin't store their services for subsequently apply: services must be delivered on an as-needed basis.
• Overseeing a service system puts special demands on managers, especially services requiring a high degree of contact with customers.
• Given the importance of personalized service, scheduling workers is more circuitous in the service industry than in manufacturing. In manufacturing, operations managers focus on scheduling the activities needed to produce goods; in service organizations, they focus on scheduling workers to ensure that enough people are bachelor to handle fluctuating client demand.

Exercise

(AACSB) Assay

Starting a new business can exist an heady run a risk. Hither's your chance to beginning a "pretend" business. Select a service business that yous'd like to open, and answer these questions. Provide an explanation for each answer:

1. What services (and perhaps goods) will I provide?
2. How will I provide these services?
3. Where will I locate my concern?
4. What will the facilities look like (how large will the facilities exist and what volition the layout look like)?
5. How many customers will I serve each day?
6. When will my customers desire my services (which days of the week, which times of the mean solar day)?
7. How long will it have to serve each client?
8. Why will my business succeed? Why will my customers return?

¹Information on Burger Male monarch was obtained from an interview with David Sell, former vice president of Central, Eastern, and Northern Europe divisions and president of Burger Male monarch France and Frg.

References

24/7 Wall Street, "America'southward X Largest Employers," 24/7 Wall Street, April x, 2011, http://247wallst.com/2011/04/24/americas-10-largest-employers/#ixzz1ayiE71Sr (accessed November 2, 2011).

Burger King, "Printing Room," Burger Rex, http://www.bk.com/en/the states/visitor-info/press/alphabetize.html (accessed Nov two, 2011).

The Global Language Monitor, "Fugitive an American 'Lost Decade,'" The Global Language Monitor, November 3, 2010, http://www.languagemonitor.com/tag/pct-of-the-not-farm-payroll-in-manufacturing/ (accessed November 2, 2011).

International Monetary Fund, "International Monetary Fund, World Economic Outlook Database, April 2011: Nominal GDP List of Countries. Information For The Yr 2010," International Monetary Fund, http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx (accessed November 2, 2011).

Krummert, B., "Burger Rex: Headed For A Fast-Casual Flameout?," Restaurant Hospitality,
http://restaurant-hospitality.com/news/burger-king-headed-flameout-1019/ (accessed Nov 3, 2011).

SEC, 10K SEC Filings, Burger Male monarch Corporation, Baronial 2010, http://services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=87140&fid=7105569 (accessed November 3, 2011).

Strauss, Due west., "Is U.S. Manufacturing Disappearing?," Federal Reserve Banking concern of Chicago, Baronial nineteen, 2010, http://midwest.chicagofedblogs.org/archives/2010/08/bill_strauss_mf.html#footnote2 (accessed Nov 2, 2011).

Wikipedia, s.five. "Listing of Countries by Gdp Sector Limerick," http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition (accessed November 2, 2011).

Source: https://open.lib.umn.edu/exploringbusiness/chapter/11-6-operations-management-for-service-providers/

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