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International Journal of Operations & Production Management

Dealing with Inherent Variability: The Difference Between Manufacturing and


Service?
Barbara Morris Robert Johnston

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To cite this document:
Barbara Morris Robert Johnston, (1987),"Dealing with Inherent Variability: The Difference Between
Manufacturing and Service?", International Journal of Operations & Production Management, Vol. 7 Iss
4 pp. 13 - 22
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13

Dealing w i t h Inherent Variability: The


Difference Between Manufacturing
and Service?
by Barbara Morris and Robert Johnston

Downloaded by Queensland University of Technology At 04:39 11 April 2015 (PT)

Ashorne Hill Management College and The University of Warwick, UK

Books, journals and teaching curricula are currently using the phrase 'The Service Industries'
and separating them from 'The Production Industries', implying that there is a significant
difference in the management of the transformation process in the two types of industry[l].
This paper attempts to answer the question of whether there really is a difference
between service and manufacturing industries, and if so, what that difference is.
The case against there being a significant difference is strong. Most
production/operations management texts recognise that the concepts, tools and
techniques are as applicable to service as to manufacturing. Hill[2] for example states
"Throughout this book, therefore, the terms production management and service
operations management will be treated as being synonymous". Lockyer[l] specifically
argues that there is no difference, taking several indicators that authors have used to
distinguish service from manufacturing, such as the intangibility of products,
perishability, customer involvement in the process, and the back room/front office
split, and ably demonstrates that they are all applicable to manufacturing industries.
The case for there being a difference is weak, and seem to rest upon simply held
beliefs that there is a difference. Common sense suggests that this is so. Most people
would agree that Massey Ferguson is primarily a manufacturing organisation and the
leisure complex at Alton Towers is a service organisation. Because they are identified
as different types of organisation, common sense says that they are substantively
different and ipso facto will be managed differently.
Lockyer avoids this issue, and concludes that the only real concern is whether an
organisation is "for-profit" or "not-for-profit". Whilst we would agree that profitmaking and non-profit-making organisations may deserve different treatment, this
argument does not in itself deal with the issue of what, if any, is the difference between
service and manufacturing operations, and whether any difference between the two
is such that they are managed in different ways and therefore need different treatment
in the classroom.
We believe that at least part of the difficulty stems from the word "service". It has
many connotations[3]; in some texts it is used to embrace all non-manufacturing
operations, whilst in others it is used to refer to some kind of "pure" service, which
by implication is some kind of personal treatment. A number of the arguments about
whether or not services are different appear to be confused by differing under-

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14 IJOPM 7,4

standings of what is meant by service. The key to this issue, however, does not, it seems
to us, lie in a debate about semantics, nor in trying to tighten up current definitions
of service, nor in testing these inadequate definitions against dubious criteria. Rather
it seems to lie, as Lockyer suggests in his opening sentence[1], in looking at the
transformation process itself.
Wild[4] has distinguished manufacturing, supply, transport and service operations,
but work by Morris[5] shows that whilst these categories usefully distinguish many
operations, several "grey areas" remain, where there can be overlap. We believe that
a distinction in terms of what is being transformed, rather than the type of
transformation, is rather more useful.
We propose that there are three distinct types of operation (Figure 1), characterised
by the inputs which are processed instead of the outputs they produce: customer
processing operations (CPO); information processing operations (IPO); and material
processing operations (MPO).

The CPO[6] acts upon the customer who enters the system, receives some kind of
treatment in the process or participates in the process, and who is the major output
from the system. The MPO acts upon input materials and transforms them into goods.
The IPO deals with information and converts it into a form which is usable either
by the system itself, or some other system. Typical outputs might be orders for a CPO
or MPO, drawings, or analyses to be used for control purposes.
Each operation, whether it processes customers, information or materials, has
facilitating goods, equipment and manpower and each has to deal with issues like
capacity planning, operations planning and control, management of inventories or
queues, maintenance of equipment, control of quality, etc.
Manufacturing organisations are predominantly MPOs, usually with several IPOs
which deal with customer orders, product and process specifications, material
requisitions, etc., and may include CPOs, particularly in a make to order system. Service
organisations involve customers, and may either process them in a CPO, or process
information about them or their order(s) in an IPO, and occasionally may process

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Inherent Variability

15

material in an MPO. Despite this predominance of one type of operation rather than
another, most organisations will have examples of all three types.
The arguments about whether there are significant differences between
manufacturing and service seem to be based on discussions of whether there is anything
significantly different per se about the two types of industry. We would argue that
in essence there is no distinction between the two because the nature of the business
does not discriminate. The issue for operations management is not whether there is
anything different about the type of industry or business, but whether there is anything
singificantly different about processing materials, information or customers, and in
this paper we explore what we regard as the two extremes of material and customer
processing.
Clearly, there is much that is common across all operating systems this is the
fundamental premise underlying operations management and at the macro level
they all have similar tasks and problems. However, we argue that at the micro level
of an operation the nature of the problems varies, and different tools and techniques
are applicable. There is nothing new in this. It is well demonstrated in the traditional
distinction between job, batch and flow production. All are manufacturing systems
and have some common problems but they are distinguished by the variety and volume
of products made, and this in turn means that some tools and techniques are applicable
in only one of the types.
However, the impact of the distinction is felt largely at the planning stage. Once
a product is actually being processed by any of these types of system, then there is
a fairly high degree of commonality of management task. There is normally high
certainty about what is needed (the specification) and reasonable knowledge about
what will be the outcome from each stage in the process. The fundamental task,
therefore, is to ensure that the final outcome matches the specification. This aim is
achieved by controlling variability. Efforts are made to reduce material and process
variability as much as possible and then to control them within defined limits so as
to produce an output which meets the specification. This task of reducing and
controlling variability within the process remains the same regardless of the type of
operating system.
We consider that this is not the case in many customer processing operations. Here
the variability of both the transformed and the transforming resources are relatively
higher because human beings are the transformed input, and their performance and
output cannot be fully specified. This variability and uncertainty means that there
may be a need to increase, or at least maintain, variability in process capability in
order to cope with the variable input. In CPOs where this is the case, some of the
traditional manufacturing concepts are inapplicable the most obvious example being
the idea of quality improvement through continued reduction in variability.
A Comparison of Material and Customer Processing Operations
If we contrast MPOs and CPOs we can identify two production dimensions the
product or service itself as a desired output, and the processes used to produce it.
Within each of these dimensions are two aspects, those which are tangible and those
which are intangible.

16

IJOPM 7,4

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Tangible aspects are those which can be specified objectively: they may be aspects
of the product or service or of the process as shown in Figure 2.

Intangible elements are those aspects which cannot be specified, except in very general
terms, and which are normally concerned with the customer's reaction to some element
of the product or process. For example in an MPO an intangible product element
would be the value the customer attaches to owning the final product, or his/her view
of whether or not the quality is acceptable. In a CPO intangible product elements
would be, for example, the customer's satisfaction with a haircut or the enjoyment
of a meal. These are shown in Figure 3.
As far as the tangible elements are concerned, there is no real difference between
an MPO and a CPO. In an MPO the customer either specifies what is required of
the material output from the system, or buys a product whose specification is
determined by the system which is believed to meet his/her requirements. Similarly
in a CPO any new customer arrives at the point of entry to the system with a set
of tangible requirements for the outcome of the system. These can be tested against
the tangible elements being offered by the system, or can be specified and, as with
the MPO, the customer can accept or reject what is offered. For example, a customer
requiring a haircut or a meal can check the delivery time and decide whether it is
acceptable just as can the purchaser of manufactured goods.
However, each customer will also have a set of intangible requirements which may
exist at a range of levels of consciousness. These form part of his/her perception of
an acceptable product or service a "pleasant experience", and "efficient service",
a product which is "good value", etc. The problem with these is twofold:

Inherent Variability

17

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(1) The customer can rarely articulate them, and often has no opportunity to do
so. The provider therefore bases the product or service on his/her view of what
the customer's reaction will be.
(2) The perception of an acceptable product or service with respect to the intangible
elements varies from one customer to another.
The end result is that whilst tangible elements can be specified, and hence there is
a shared expectation about what will be provided, with intangible elements this is not
possible in advance of the receipt of the product or service. With repeat business there
is the opportunity for customer and provider to learn what each expects of the other,
but for the first-time purchaser of a product or service there is no way of sharing
completely the expectations of what is required and what will be provided. Advertising
and preliminary neogitations may reduce some of the uncertainty, but they can never
completely overcome it.
This issue of intangible requirements applies equally to both MPOs and CPOs
with respect to the product or service output which is provided, but there are
similar problems with the processing technology which do not apply equally.
With material processing, the variability of both the material and the process
capability is normally known and is controllable within acceptable limits. Hence
it is possible to predict within limits the outcomes of differing combinations
of materials and processes. Failures will occur more or less frequently because
either or both the material and the process do not conform to the pattern of variability
expected, but these are tangible variances and the failure itself is normally tangible.
Occasionally failure will occur because the operator does not behave in the expected
manner, but again this will have a tangible effect on the product. The customer may,
on receipt of the item, be dissatisfied with some intangible element, but this failure
occurs outside the system. The only failures occurring within the operation are related
to tangible elements. The material itself has no emotive response to what is done to
it, and hence no failure can be attributed to the material's "feelings" about whether
it is acceptable or not to wait for processing, or its objections to the mood of the
operator.
This is clearly not the case with customer processing. Here there is similar variation
in the tangible aspects of customer and process variability, but there is the additional
problem of the emotive response of both the customer and the process provider,
and the interaction between them. Failures can occur with the tangible elements
for the same reasons as failures in material processing operations, but in addition
there is considerable scope for failures relating to a mismatch between intangible
elements of the processing itself and what the customer expects or requires. For
example, a nervous or anxious patient is unlikely to be satisfied with a treatment which
deals with the medical problem but which does not also provide sympathy and
reassurance.
These failures with respect to intangible elements of the process arise because of:
(1) differing perceptions of what is needed, based on varying expectations; or
(2) adverse emotive reaction to the mode of processing.

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18

IJOPM 7,4

The net result of all this is that whilst material and customer processing are very similar
with respect to tangible dimensions, differences exist with respect to intangible
dimensions.
In both types of operation there are intangible aspects of the output from the
operation to which the customer responds. The difference between the two types is
that in an MPO the customer receives the output after processing, and hence the
reaction is not felt directly during the process itself, whilst in a CPO the customer
receives the output while it is being produced, and not at the end of the process. Hence
the reaction is felt immediately and may have an impact on later stages in the
production process. Customer reaction to the output from an MPO can certainly have
an impact, but there is usually some lag in the system, and the MPO is usually buffered
from direct customer reaction by other systems such as sales. Hence an MPO does
not normally have to respond in real time during the operation itself, and reacts through
design and planning changes.
With respect to processing, the two types of operation are totally different. In MPOs
there is no intangible element because the material being processed is inanimate. In
CPOs there is an immediate reaction to intangible elements of processing and the
operation has to respond to this. The nature of these elements, and the response
required of the operation, is summarised in Figures 4 and 5.

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Inherent Variability 19

Thesefiguresdemonstrate that whilst there are very similar characteristics with respect
to tangible elements, there are dissimilarities with respect to intangible elements, which
are essentially related to uncertainty, freedom of choice, and the timing of the reaction
needed. In MPOs there is rather more freedom of choice, less uncertainty, and time
lags and buffers in the wider system which obviate the need to respond during the
processing of a given piece of material.
Implications of Differences
Given this, two extreme choices are available to CPOs to become more like MPOs
by removing the uncertainty and the need for immediate responses to demands made
during processing, or to cultivate a flexible response which implies a heavy dependence
on diagnostic skills within the operation itself and the deliberate cultivation of highly
variable processing capability.
Current POM concepts, such as inventory management, capacity planning and
scheduling, and tools and techniques such as line balancing and queueing theory, deal
essentially with the tangible elements. It is not surprising, therefore, that there is

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20 IJOPM

7,4

considerable scope for applying these manufacturing-based ideas to service operations


since, as we have seen, service operations have similar tangible elements. However,
the difference between manufacture and service lies in the existence and management
of intangibles. Product intangibles for a manufactured good do have an impact on
the customer, but this is usually felt outside and away from the manufacturing process
and is not considered to be within the remit of manufacturing management. A customer
reaction to the intangible elements of a facilitating good in a service operation will
be similar, if it is not it is the customer him/herself that is being processed. However,
if it is the customer who is being processed, then reaction to the intangible elements
of a facilitating good occurs within the process and may have an impact on the process.
Similarly, where the customer him/herself is processed, there is an immediate reaction
to the intangible elements of the process itself. A manufacturing operation, and a
service operation which does not process the customer directly, do not experience the
effect of intangible elements within the process itself because inanimate objects do
not show feelings and emotions.
The substantive difference between manufacturing and service, therefore, lies not
in the classification, but in the nature of the thing that is processed. Riddle[7], for
example, states "The distinguishing characteristic of service output is that it is primarily
a process or activity hence its essential intangibility. Manufactured goods, by
contrast, are primarily objects and therefore always tangible." In our view, the concept
of significant difference lying in the existence of intangibles which have to be recognised
and managed is correct, but this does not distinguish manufacturing and service; the
significant distinction which should be drawn is between those systems which process
raw materials and those which process customers. A further distinct kind of system
is that which processes information, although that is not the subject of our discussion
here.
Strategies for Managing Intangibles
The significant difference between customer processing operations and material
processing operations lies in the extent to which they have to manage intangible
elements within the production process. Given the existence of intangible elements
of product or process whose impact may be felt within the operation, those systems
which have to manage them appear to have three basic strategies which might be
adopted:

Strategy 1 is to provide diagnostic skills within the operation in order to


determine, as well as possible, the individual customer's expectations of the
process and any product. The aim then is to attempt to customise the operation
to meet the perceived expectations.
Strategy 2 is to provide a standardised process and product. In this strategy,
the system itself determines the tangibles and intangibles to be provided, and
attempts to limit the range of customer expectations through appropriate
selection and training. Whatever their initial, actual expectations, customers
learn to expect and accept what is provided, or go elsewhere.

Inherent Variability

21

Strategy 3 is to attempt to provide tangible representations of the service, in


the form of facilitating goods, to represent the intangible aspects. An example
would be the presentation of an auditor's report designed to represent an
efficient or affective audit. Here the customer takes the report and its contents
as an indication of how well the audit itself has been carried out.

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These three basic strategies require quite different customer management. The
significant differences are set out in Table I.
Table I. Comparison of Strategies for Dealing with Variability
Customisation
of Process

Standardisation
of Process

Surrogate Tangibles

Diagnosis of customer
needs within the process

System-specified provision,
based on perceived market
demand

High flexibility in process

Routine process

Fast response to individual


customer requirements

Training of customer to accept


what is offered

No need for pre-selection


of customers

Need for pre-selection


of customers to ensure
expectations match standard
provision

No need for pre-selection


of customers

Major difficulty is ascertaining


need

Major difficulty is humanising


the process

Major difficulty is linking


unknown need to product

Relatively low process


efficiency

High scope for process


efficiency

High scope for process


efficiency

Routine process

These represent "pure" strategies, and few systems will employ any one of these to
the total exclusion of others, but many examples exist of systems in which one of them
predominates.
The approach advocated by Levitt[8] and epitomised by the so-called fast food
operations is clearly representative of operations where Strategy 2 predominates. In
personal services, such as career counselling, Strategy 1 normally predominates.
Strategy 3 is often the hallmark of professional services such as auditing or
management consultancy.
Generally, we would argue that the three strategies represent points on a continuum
of variable response to the management of intangibles, and that it is the position on
this continuum which determines similarity or difference between varying types of
operating system.
Strategy 3 represents a mode of operation which treats customer processing as if
it were raw material processing. A service operation which adopts this strategy is, in
our view, very similar to a manufacturing operation which makes products to order.

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88

IJOPM 7,4

Strategy 2 also represents a mode of operation which is very like manufacturing


in many respects, but has one or two differences. Here an element of choice from
a standard range is offered and the service products are made to order. Provided that
the selection and training of customers works well, the only real difference between
this kind of operation and manufacturing is the addition of customer-handling skills.
However, when customers arrive whose expectations are different from the norm, the
operation can be severely disrupted because not only is it not set up to handle nonstandard customers, but also its staff may not be trained to deal diplomatically with
such customers.
Strategy 1 represents a mode of operation which is very different from raw material
processing, and hence from manufacturing, concentrating as it does on the deliberate
cultivation of variability of response.
Summary
As our discussion shows, we believe that distinctions between manufacturing and
service are spurious. Distinctive differences exist between customer processing
operations and material processing operations, but it is possible to manage a customer
processing operation in a way which creates strong similarities to material processing
operations. However, if such an approach is not adopted, the management of customer
processing operations is very different from that of material processing operations.
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1. Lockyer, K., "Service a Polemic and a Proposal", International Journal of Operations & Production
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3. Voss, C , Armistead, C , Johnston, R. and Morris, B., Operations Management in Service Industries
and the Public Sector, Wiley, Chichester, 1985.
4. Wild, R., Concepts for Operations Management, Wiley, Chichester, 1977.
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Management College, 1986.
6. Johnston, R., "A Framework for Developing a Quality Strategy in a Customer Processing Operation",
International Journal of Quality & Reliability Management, Vol. 4. (In press)
7. Riddle, D.I., Service-led Growth, Praeger, New York, 1986.
8. Levitt, T., "Production-Line Approach to Services", Harvard Business Review, Vol. 50 No. 3, Sept.Oct. 1972, pp. 41-52.

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