Answered! What are the key differences between manufacturing and service organisations in regards to decisions in “capacity…

What are the key differences between manufacturing and service organisations in regards to decisions in “capacity management” area? Please discuss and give examples. (100 words)

Expert Answer

While ‘capacity management’ is the strategic decision of keeping a balance between the demand and supply for both manufacturing and service organizations, there exist some crucial differences. First, it is harder to define the units of capacity for a service organization compared to a manufacturing firm. For example, while a manufacturing firm may define it straightforward in terms of the rate of production, service firms such as universities, surgical wards, supermarkets etc. will always find difficulties in defining capacity. Some may use the area, some the number of bed, and some other may use the bed-hrs. and so on. It is very difficult to standardize.

Second, in case of manufacturing, if the firm has a capacity less than the demand at a particular period, it is only a cost risk to the firm because it can be managed with a merely high cost of holding extra inventory. For service, however, this does not hold good because in that case, the capacity less than the demand means loss of customers. So the implication of having less capacity in service organization can be much serious.

Third, there is a lot of customer interaction happening during service which is not the case for manufacturing. Due to this interaction, the management never knows, with a satisfactory level of certainty, the time taken to serve a particular customer. As a result, the cycle time is not deterministic and it is thus very difficult to manage the capacity of a service facility with stochastic nature of cycle time for the service delivery process.

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