Page 585 - Introduction to Business

CHAPTER 16 Managing Business Operations 559

Goods and Services

LEARNING OBJECTIVE 2
Compare manufacturing operations and service operations.
Most business organizations produce and sell products that involve a combination
of goods and services. In some combinations, the value of the goods dominates the
value of the services, for example, buying a computer with a warranty. In some
other combinations, the value of the services dominates the value of the goods, for
example, buying a tailor-made suit. Exhibit 16.2 presents more examples of several
goods and services combinations.
Hence, you should keep in mind that sometimes organizations that are called
service organizations may also provide goods, and organizations that are called
manufacturing organizations may also provide services.
Regardless of the specific combination of goods and services that a company
produces, it is important to keep in mind that from an operations management
perspective, there are several characteristics that differentiate goods from services.
Although some of the differentiating characteristics are obvious, others are not.
Customer Contact. In the case of goods, there is no contact required between
the customer and the good being produced. In the case of services, there is typically
some contact required between the customer and the service being provided. For
example, compare buying a gallon of milk at a supermarket with getting a haircut
at a barbershop. In fact, the degree and type of contact between the customer and
the service can be classified as follows:
Constant physical contact, as in getting a haircut
Constant communication, as in getting help from 911
Sporadic physical contact, as in medical services
Sporadic communication, as in legal services

Customer Participation. In the case of goods, the customer does not partici-
pate in the production of goods. In the case of services, frequently the customer
participates in the delivery of the services. For example, compare buying a com-
puter at a local store with buying groceries at a supermarket. The degree of cus-
tomer participation in services can be low, as in taking a cruise, or high, as in
attending college.

Inventory. Manufacturers may produce goods in anticipation of demand,
hence creating inventory to be sold in the future. For example, a toy manufacturer

EXHIBIT 16.2

Examples of Goods and Services Combinations

Percentage Percentage
Business Goods Services
Supermarket 95 5
Car manufacturer 90 10
Fast-food restaurant 50 50
Hotel 10 90
Consulting 5 95

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