Product versus Service Supply Chains Comparison Paper
Both manufacturing and service organizations face challenges of maintaining inventory throughout the supply chain. Managing the supply chain for each type of organization poses similar yet distinct issues. To compete better in the global market place the ability to understand the importance of distinguishing the factors that influence a service organizations forecasting and resourcing decisions as opposed to a manufacturing origination as it applies to sales and the supply chain is important. This paper will evaluate how supplying a service rather than a product impacts forecasting and organization resourcing decisions. The implications for both manufacturing and service companies when forecasts are significantly different will also be discussed. In addition, as a result, of these differences, the adjustments an organization must make to inventory practices will be reviewed. Finally, in an attempt to satisfy customer service, an evaluation of how general inventory logistics considerations will be made to ensure that organizations remain successful in a global marketplace.
Impacts on Manufacturing and Service Forecasting and Resourcing Decisions
Supplying a service versus a product is difficult because a service is difficult to visualize and measure. In addition, many times service organizations must react and personalize a service supply to meet a customer demand. Therefore, service organizations have the disadvantage of not being able to produce, warehouse, maintain safety stock, and ship a physical good or product. Manufacturers use previous sales history, trends, cycles, and customer orders or bookings in an attempt to forecast accurately. However forecasting is rarely correct. Manufacturers either produce too much or too little resulting in overstocks or stock outs. Errors in forecasting in service organizations results in wasted resources. Providing a service often involves limited time and labor. Labor is either underutilized or there is insufficient labor to satisfy customer demand. Whereas additional products can be ordered for a set price when a forecast is incorrect, the value of human resources can fluctuate based on the local economic environment that can raise or lower the cost of the service provided like an information technology firm that agrees to oversee the hardware and software of a regional organization and does not have the sufficient labor pool to fulfill the demands of the customer.
Implications when Forecasts are Significantly Different from Demand
When forecasts are significantly different from demand, both manufacturing and service organizations suffer from several implications. Inventory and the supply of goods and services are directly impacted by inaccurate forecasts. When deciding what levels of inventories to maintain, organizations attempt to minimize the costs associated with too much and too little inventory. Too much inventory leads to high inventory carrying costs and the increased risk of obsolescence. Too little inventory leads to stock outs and the related stock out costs. The worst outcome of a stock out is to lose both a sale, and all future business, from the customer.
When service forecasts are incorrect often the first result is the cost of the service is incorrect. Either there is insufficient labor to meet the customer demand or the work is improperly done and the customer does not accept the work. Service organizations must substitute personnel to control costs while attempting to deliver the service agreed upon. Service organizations that have excess personnel available often must reduce the selling costs of their services to sell additional service or reduce the labor pool to remain competitive. Whether a manufacturing or service organization, the implications of an incorrect forecast are severe.