Comparing Operational Characteristics Across Businesses
In this lesson, you’re expected to learn about:
– the ‘Four Vs’ of Operations: Volume, Variety, Variation, Visibility
– the difference between manufacturing and service operations
The ‘Four Vs’ of Operations are:
• Their output volume
• The output variety
• The variation in the demand for the products or services
• The degree of visibility on which customers have of the production of products of services
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The volume dimension has several implications to a business operation, such as the degree of repetition of tasks, feasibility of acquiring dedicated machinery, and systemization of the work procedures on formalized manuals.
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• A taxi company offers a high variety service. Although the service is confined to transporting people and their luggage, the taxi driver must be prepared to deliver a broad range of different services (e.g. different locations and time periods).
• Public transportation, on the other hand, goes on a schedule and offers little flexibility.
• The service of public transportation is standardized, which results in lower unit costs, compared to taxi.
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• Considering a summer holiday resort, more customers want to stay during summer, so the hotel must hire and train temporary staff and other resources.
• The challenge arises from planning properly, in order to not have too little capacity during the summer and not too much during the winter.
• A summer resort is, thus, more likely to incur demand-variation-related inefficiencies, as compared to a hotel on which demand is more levelled.
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• Visibility is a more difficult concept to grasp. It refers to how much of the operation’s activities the customers experience and how much of it is exposed to them.
• Usually, ”brick and mortar” shops are a high-visibility operation, as customers experience most of its ”value-adding” activities.
• In contrast, internet-based stores are a much lower visibility operation.
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• The same applies for services, in which a car wash is a much more objective experience than a visit to the doctor or a concert, on which quality depends more on individual preferences.
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Different levels of perishability imply different operations.
• The duration for which a company can stock a product affects its inventory decisions and its entire operations.
• For example, long-life goods, such as frozen food, suffer less from overstocking than a newspaper, on which unsold items from one day cannot be sold on the following day.
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In the case of services, the production and consumption are simultaneous and there is no opportunity for quality control.
• In the case of services, because of the absence of a time lag between production and consumption, there is no opportunity for quality control of the product (although there is an opportunity for process control).
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• On the other hand, a psychotherapist might perform one specific treatment on one patient for several years, as opposed to a haircut, which ends the service right away.
• The less the intensity and duration of contact with the consumer, the more the client concentrates its evaluation of quality on the output of the process.
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• Services are less tangible than goods.
• Facing a less tangible quality, service companies need to know how to handle perception against expectations.
• In services, there is no safety net for quality problems, as production and consumption are simultaneous (thus, companies need to focus on hiring, training, and planning).
• Since there is no possibility to pile up inventory of services, companies need to be wary of capacity planning and flexibility.