Importance of Service Sector

Many productive systems, such as hospitals, beauty salons, consulting companies, banks and airlines do not produce a tangible product that can be stored for later consumption. Instead, the output of such systems is a service – for example, health care, good looks, advice, loans, and transportation – that is consumed in the process of its production. From our day-to-day experience, we know that the cost and quality of services provided even within the same industry can vary a great deal.  We have preferences and are willing to pay for different components of service, such as speed, quality, degree of variety, and so on. Better management of the system that provides the service, consistent with customer preferences and requirements, will lead to greater profitability for the firm. We must therefore understand the nature of the various types of service systems and the associated management tasks that are required to improve a service firm’s competitiveness.

In 1980, the service sector employed more than two thirds of the working population and accounted for more than 60 per cent of the gross national product. For the first time in history, investment per office worker now exceeds investment per factory worker. With the continuing trend towards a service economy, a greater proportion of future operations managers will be employed by this sector.

In addition to the continuing growth of the service sector, the role of services in the manufacturing sector has been increasing. With increasing automation and the use of computers in the design of a product and its manufacturing process, technical and professional staffs will have a greater role in the actual production of the product than will unskilled workers. Thus, in the factory of the future the productive process may be guided by design engineers, computer operators, and production planners.

Finally, service is part of the product. When we buy a consumer durable, such as an automobile, a washing machine, or a solar heating system, a guarantee to service the product accompanies the product itself. Often our decision to buy a product is influenced by the services provided with the product. In the future, with greater customization and product variety, the service component of the product will increase. It is anticipated that, by the turn of the century a customer will be able to walk into an automobile dealership, order a car based on his or her preferences for colour, style, optional equipment, and the like and arrange all necessary financing using a computer terminal. The order will be relayed to the factory, where a car meeting the customer’s specific requirements will be manufactured and readied for delivery in a short time. It is clear that corporate profitability demands that the design and implementation of the service component of a product be strategically evaluated. The integration of product and service is vital for a firm’s success, as it influences how a customer perceives the product. Operations managers must therefore direct attention to both the product and the services that accompanies the product.

The inputs to a service productive system are the consumers themselves. The productive process that transforms the inputs into outputs consists of labour, technology, information and the like. The output of such a system is the altered state of the consumer, for example, a cured patient, a transported traveller, or an informed client. The operations manager can control the design and mix of the productive process to meet customer requirements.

The key distinction between service and manufacturing systems is that services are intangible outputs that are consumed in the process of their production. The technology and process for supplying the service can differ significantly from one industry in the service sector to another.

Several distinctions between systems that produce products and systems that produce services were noticed.

In the production of tangible goods, such as automobiles, soap, or beer, customer contact is limited to the retail end, after actual manufacturing has been completed. In the design planning and control of the associated manufacturing process, the preferences of consumers are important, but the customer’s actual presence is not. This anonymity in the productive process allows the attainment of significant manufacturing efficiencies and productivity growth, as has witnessed in the past 100 years. For example, the number of watches produced per worker has increased a hundred fold since the advent of the watch industry. This has undoubtedly decreased the cost of watches, making them affordable to virtually anyone with moderate means. In the same time, span, however, productivity in education may not have even doubled, despite the significant advances in information transmission technology. Therefore, without public subsidy, quality education would be affordable only to those with extensive means. The key distinction is not that the watchmaker now works faster than the teacher but rather that the direct customer (pupil) contact required in education limits sustained growth in productivity without compromising the quality of the service delivered. Gradual, increases in the cost of education are not the result of administrative inefficiencies but are intrinsic to the nature of the services provided.

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