OPERATING DECISIONS 125
stage of production and labour is available to carry out the required process.
Organizations that aim to have material arrive in production without holding
buffer stocks are said to operate a just-in-time (or JIT) manufacturing system.
Most manufacturing processes require an element ofset-upormake-readytime,
during which equipment settings are made to meet the specifications of the next
production run (a custom product or batch). These settings may be made by
manual labour or by computer through CNC (computer numerical control) tech-
nology. As Chapter 1 described, investments in computer and robotics technology
have changed the shape of manufacturing industry. These investments involve
substantial costs that need to be justified by an increased volume of production or
by efficiencies that reduce production costs (we discuss this in Chapter 12).
Managing operations – services.............................
Fitzgeraldet al.(1991) emphasized the importance of the growing service sector
and identified four key differences between products and services: intangibility,
heterogeneity, simultaneity and perishability. Services areintangiblerather than
physical and are often delivered in a ‘bundle’ such that customers may value
different aspects of the service. Services involving high labour content arehetero-
geneous, i.e. the consistency of the service may vary significantly. The production
and consumption of services aresimultaneousso that services cannot be inspected
before they are delivered. Services are alsoperishable, so that unlike physical goods,
there can be no stock of services that have been provided but remain unsold.
Fitzgeraldet al.also identified three different service types.Professional services
are ‘front office’, people based, involving discretion and the customization of
services to meet customer needs in which the process is more important than the
service itself. Examples given by Fitzgeraldet al.include professional firms such
as solicitors, auditors and management consultants.Mass servicesinvolve limited
contact time by staff and little customization, with services equipment based
and product oriented with an emphasis on the ‘back office’ and little autonomy.
Examples here are rail transport, airports and mass retailing. The third type of
service is theservice shop, a mixture of the other two extremes with emphasis on
front and back office, people and equipment and product and process. Examples
of service shops are banking and hotels.
Fitzgeraldet al.emphasized how cost traceability differed between each of
these service types. Their research found that many service companies did not
try to cost individual services accurately either for price-setting or profitability
analysis, except for the time-recording practices of professional service firms. In
mass services and service shops there were:
multiple, heterogeneous and joint, inseparable services, compounded by the
fact that individual customers may consume different mixes of services and
may take different routes through the service process. (p. 24)In these two categories of services, costs were controlled not by collecting the costs
of each service but through responsibility centres (which is covered in more detail
in Chapter 13).