Customer-oriented Service in manufacturing :Perceived differences

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1 Customer-oriented Service in manufacturing kim, Won Joong Customer-oriented Service in manufacturing :Perceived differences Kim, Won Joong There are many studies on the application of manufacturing-based concepts in a service environment (Sasser et al, 1978; Voss et al, 1985; Lovelock et al, 1988; Bateson, 1989). There is, however, only little consideration of service elements in manufacturing sectors and there is not much study on defining service in manufacturing and how we can improve service quality in manufacturing sectors Service is always customer -oriented. In this discussion, there are three types of customers- internal customers (employees), cooperating customers (collaborators), and external customers (end-users). At the corporate level, service is often hardly regarded in strategic decision making processes due to lack of information and great risk to evaluate visible positive implications before the moment of truth. However, companies have started to see the importance of customer-oriented services throughout the processes and thus, this paper will investigate why customer -oriented service would be regarded as strategic weapon at the corporate level, consider the impacts of customer-oriented service and lastly, evaluate service characteristics that would be in manufacturing corporations throughout the processes. This study is about customer-oriented services in manufacturing. It is clear that both the manufacturing sector and the service sector exist to satisfy environmental demands. The customeroriented services in manufacturing exist to provide services for production, distribution, and consumption of effective, efficient, and high quality products. The use of information technology enables customer-oriented services to apply new product development, new service development, system/ process improvement, and product improvement activities (figure 1). Figure 1- The use of information technology toward customer-oriented service What makes service different from manufacturing Service has been recognized as a distinct category of economic production 328

2 한국산업경영시스템학회 2004 춘계학술대회 논문집, for many years. In 1776, Adam Smith published the distinguished between productive and unproductive labor based on whether the labor provided goods (productive labor) or services (unproductive labor) (Smith, 1997). Clark's three sector classification of economic activity also recognized services as a distinct category. The Standard Industrial classification (SIC) furnished by the U.S. Office of Management and Budget is commonly used to classify industries for research and reporting purposes. While the existence of a distinct service sector has been recognized by economists for many years, acceptance by management researchers was not complete. Business management literature of the 1970's and 1980's contained a debate on the existence of and need for a distinction between manufacturing and service industries. Authors who acknowledge the existence of service industries often characterize them as being labor intensive withhigh degrees of interaction between provider and the customer (Chase 1978; Collier, 1983; Langevin, 1977; Maister & Loverlock, 1982; Schmenner, 1986). They are also often considered to require comparatively low levels of capital investment and to provide more value-added than manufacturing activities. Ultimately, all organizations compete to some degree on the basis of service (Groonoos, 1990; Koepp, 1987; Levitt, 1972; Masten broek, 1991; Zeithaml et al., 1990). Mass production and modern technology have led to wide-scale production of commodities such that good technical products are no longer sufficient for business to remain competitive. Manufacturers must offer services as part of their total offering. Masternbroek (1991) argues that for so-called manufacturing firms, "the art of providing service is sometimes more important than manufacturing clever products,"and cautions manufacturing firms who do not consider service in their selling. Given similar products and roughly similar prices, service quality becomes important (Koepp, 1987). Similarly, many service industries involve the production or substantial use of goods. For example, a restaurant provides not only provide services (e.g. preparation, delivery and clean-up) but also a product (e.g. meal). Given the high component of service in so-called manufacturing industries and the goods components in some service industries, it is probably more accurate to speak of service activities and manufacturing activities rather than industries. Thus, the classification of production into goods and services, while common, is misleading. Pure products, either pure services or pure goods, rarely exist; most products consist of a bundle of goods and services (ISO, 1992; Judd, 1964; Rathmell, 1966; Schwartz, 1992; Shostack, 1977b; Thomass, 1978). Furthermore, it is the bundle rather than the "good"or service kernel which differentiates a firm's products from its competitors' products. Modeling a goods/services continuum rather than a dichotomy would be more accurate. One conceptualization of this continuum is presented in Shostack's (1977b) "Scale of market entities" from tangible dominant (good) to intangible dominant (service). Figure 2 represent goods/service continuum by Shostack. 329

3 Customer-oriented Service in manufacturing kim, Won Joong Despite the bundling of goods and services into single products, the literature reveals several characteristics of services activities which are generally considered to differentiate them from manufacturing activities: Co-production (C), Heterogeneity (H), Intangibility (I), and Perishability (P) or shortly CHIP (Thukral, 1995; Bateson, 1979; Berry, 1980; Collier, 1983; Falzon, 1988; Gaither, 1992; Haywood-Farmer & Lyth, 1988; Mersha et al., 1988; Sasser et al, 1978; Schwartz, 1992; Shostack, 1977; Zeithaml et al., 1990). Service versus manufacturing This section is predominantly focused on comparative and contrasting factors in service and manufacturing sectors. This is very important since service and manufacturing goods are very different (intangibility, simultaneous production, and consumption, and so on). Service may be more easily copied than manufactured goods and service may not be easily sustainable (Tufano, 1989; de Brentani, 1989; Terrill, 1992). In addition, service quality is less tangible and usually more difficult to quantify than with manufacturing products. The production and delivery of goods are usually separated production, delivery and consumption of services are often at the same time The customer rarely involved with production. The customer is often closely involved with production Goods can be serviced Services have already been consumed and cannot be serviced Goods are subject to liability but the producer has more opportunity to ameliorate the effect on the customer and thus the financial penalty Service which do not meet the requirements are difficult to replace the financial impact is usually total Goods can be purchased to store in inventory to satisfy the customer's needs Service cannot be stored but must still be available on customer demand Goods can be transported to the point of scale Some services are transportable (e.g. information through communication lines) but most require the transportation of the service provider The quality of goods is relatively easy for customers to evaluate The quality of services is more dependent on subjective perception and expectation Goods are often technically complex- the customer therefore feels more reliant on the producer Services appear less complex- the customer therefore feels qualified to hassle the producer Dick, G., Galumore, K., Brown, J. C., (2001) suggested that the perception of service and manufacturing sector managers of the link between quality dimensions and business performance are different. Madu, C. N., C. H. Kuei and R. A. Jacob (1996) and Gowen and Tallon (1999) found that manufacturing firms tend to perceive a positive correlation between quality improvement and business performance but service firms do not. This suggests that the correlation in quality emphasis will be greater in service firms than in manufacturing industries. 330

4 Due to availability and affordability of information technology, investment in computer-integrated manufacturing (CIM) systems reached 91 billion dollars in In the service sector in 1991, the banking industry alone spent $12 billion on computerization and information systems. Both service and manufacturing consist of interdependent and complementary subsystems linked through shared information. Thus, information technology is critical to their success. However, the motives for investing in advanced information technology are different. The top investment motive for the manufacturing sector is consolidation of operation and the integration of processes and systems. In the case of service organizations, the top motive is to meet the demand for high quality service from customers (Bernstein, 1991; Rifkin, 1991; Radding, 1991). In manufacturing, the customer does not interact directly with the production process. However, in services, the customer is directly involved with the production process. In general, manufacturing operations have an internally-focused process where process efficiency is of paramount importance. On the other hand, service operations have a customer or external focus where production and marketing are inseparable (Dilworth, 1992). Yavas and Yasins (1994) stated that the major difference in the operational orientations of manufacturing and service has a direct impact on the information flow and the scope of information systems used to support the operational system. For example, in a service organization such as Federal Express, the information flow throughout the organization is structured around the customer need to know the status of a particular item among their package out of the more than 1.5 million packages handled daily. On the other hands, a manufacturing organization such as General Motors employs information technology to integrate its different processes and systems. The information flow throughout this organization is structured to integrate manufacturing processes from the product design stage to product manufacturing and to storage. The differences between the information flows in manufacturing versus service organizations are illustrated in figure 3. To remain competitive, computerization becomes a necessity rather than a luxury for manufacturers. Figure 3 The Operational Nature and the Flow of Information in Manufacturing vs. Service organizations Service in Manufacturing There are a number of service concepts in manufacturing. Heskett et al (1990), in their study of "Breakthrough" service firms, argue that it is necessary to develop intense customer loyalty. The reasons given for this were: q There is a start-up cost associated with new customers 331

5 Customer-oriented Service in manufacturing kim, Won Joong q It cost less to serve repeat customers q Loyal customers are more vocal in telling others about the excellent service that they are receiving q Holding on to existing customers is less costly than attracting new ones. The longer a customer is retained, the greater the profit impact. Heskett et al (1986) quote a paper by Richard and Sasser (1989) which shows that the impact of a 5 per cent retention rate on various services ranged from 25 to 125 per cent. As a result, they argue that retaining customers should be a strategic focus of most service firms. Similarly, the Forum Corporation company's study in service in manufacturing shows similar result from responses. The responses were as follows: q Poor service- 40 per cent q Inferior service 7 per cent q Too expensive 7 per cent q Other reason 28 per cent q Don't know 18 per cent This implies that service has a major impact on customer retention in service in manufacturing as well as in pure services. The role of service in the manufacturing sector appears large in three areas (Voss, 1992): 1. The distribution chain: There is an established literature and tradition which examines service in physical distribution management. For example, Christopher and Yallop (1991) propose a number of dimensions of service completeness, documentation quality, delivery reliability, and technical support. 2. Field (after-service) service operations: A majority of manufacturing companies hasa well-established after-sales service operation. Voss (1985) describes four roles for field service: competitiveness, profit, sales support, and user-base support. He argues that its performance can be measured in terms of cost, as well as other hard measures such as mean time between failure, response time and repair times, and soft measures Table four service roles of a factory such as the attitudes and appearance of the service representative, the quality of the service documentation, perceived completeness of repair and perceived efficiency of the company and its representatives. 3. The factory: Service from the factory has traditionally been seen in terms of delivery performance. A much wider view has been taken by Chase (1988), who argues that a factory serves both internal and external customers and that leading-edge companies already operate factories "that reflect the new role of service in manufacturing". He has proposed four service roles for the factory. These are summarized in Table. He argues that each of these roles shows a distinctive approach to factory service and that they also show how services overlap. Table 2 four service roles of a factory Factory as a showroom Manufacturing uses its facilities to support sales through showing off its: q Products and processes; q People; q Quality commitment Factory as a dispatcher 332

6 The ability of manufacturing to support customer delivery needs, to support the distribution function, and to support other customer needs after the sale, such as status tracking and feedback and engineering-change order management Factory as a laboratory Manufacturing's ability to furnish critical data on processes and their costs, for example through providing fast accurate process feedback to R & D and providing fast product-build feedback to marketing Factory as a consultant Manufacturing's ability to assist internal and external groups in problem solving in areas such as: q Quality Improvement; q Cost reduction; Role of information technology in service and manufacturing Comparing IT in service and manufacturing is also a critical dimension to examine what benefits exist to, identify performance measures and to clarifying identifying differences between the two sectors. Powell and Dent-Micallef (1997) emphasized the necessity of empirical study of IT, to identify competitive advantages, to develop a resource-based theoretical framework, and to assess IT's impact. Their research on retail industries showed that "IT alone has not produced sustainable performance advantages inthe retail industry, some firms have also gained advantages in the retail industry, but that some firms have gained advantages by using IT to leverage intangible, complementary human and business resources such as flexible culture, strategic planning-it integration and supplier relationships." Ross et al. (1996) also developed long-term competitiveness through IT assets and argued that firms can use IT to enhance competitiveness by developing effective IT capabilities in relation to the development of new technologies and the ongoing implementation to affectbusiness objectives. In addition, Raymond et al. (1995) studied manufacturing industries' IT usage in organizational performance. The results showed thatthe performance was more critical to those whom have complicated and sophisticated structure and management. 333

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