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Are You a Service or Manufacturing Business?

mfg svc

According to the Shopify Business Encyclopedia, “Manufacturing refers to a large-scale production of goods that converts raw materials, parts, and components into finished merchandise using manual labor and/or machines. The finished goods can be sold directly to consumers, to other manufacturers for the production of more complex products, or to wholesalers who distribute the goods to retailers.”

Alternatively, according to My Accounting Course, “A service business is a company that provides certain professional support to its clients. In these businesses the product is not a tangible one, instead it is an activity that helps a third party at different areas.”

All definitions and nuances aside, I believe manufacturing is everywhere.

For instance, I often think of a restaurant as a manufacturing operation. Customers order “off-the-shelf” items and may ask for something special. The kitchen is the factory using raw materials and labor to convert the inputs into a tasty and aesthetically pleasing dish. It’s delivered to the customer who consumes it and pays for it. The good thing is they pay immediately, not in 30, 60, or 90-days.

A hair and nail salon is a manufacturing operation. Raw materials for colors, dies, hair spray and other materials are used to transform the individual that walks in the door. Tools such as dryers, sinks, combs, brushes are used in the transformation process. The product, is a “changed” customer who walks out the door feeling better, looking better, and, again, paying on the spot, not days later.

A retail grocery store is nothing more than a warehouse with open access. Product comes in, gets stored and moved around, customers are the pickers. A person may scan and pack the items, or it may be done by the individual. Payment, again, is process on the spot, not days later.

Whether you are a manufacturing business or a service business, you should be caring about inventory levels, inventory turns, Takt time (maybe also talk time and tact with customers and employees). Revenue, costs, profits, cost of capital, inventory carrying costs, labor, benefits are all important.

I believe a manufacturing company can learn a few things from service businesses and service business can learn a few things from manufacturing businesses.

In every business, something comes in, something gets done, and something goes out. I look at the “something gets done” step as a manufacturing operation. It does not so much matter if it is a CNC machine cutting metal, a mixer for food stuffs, a bottling line, a barber chair, or an accountant’s desk and computer. Service businesses can learn to operate more efficiently by looking at what manufacturing companies do. Manufacturing companies can look to operate with greater customer satisfaction by looking at what service businesses do to make sure the customer walks out happy and returns again.

In short, business is business. Service or manufacturing makes less difference than you may think. In fact, I manufactured this note in service to my customers.