Comparing Operational Characteristics Across Businesses

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:

1) Volume
2) Variety
3) Variation
4) Visibility

Characteristics of Operations exhibit varying dimensions across businesses

Although operations are similar in that they transform resources into products and services, they differ in several ways, such as:

• 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

Reference: Slack et al. (2010)
Enlarged version:
1) The Volume Dimension
McDonald’s vs. The Local Diner

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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2) The Variety Dimension
Taxi vs. Public Transportation

• 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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3) The Demand Variation Dimension
Summer Resort vs. Business Hotel

• 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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4) The Visibility Dimension
Bank Branch vs. ATM Machine

• 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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Summary of the ‘Four Vs’ of Operations
Source: Slack et al. (2010)
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[Optional] The 4 Vs of Operation Management
1) Perception of Quality

The way in which customers perceive quality can vary significantly across businesses.

• Some types of products convey a more objective notion of quality than others. For example, the level of quality for art and perfume is much more subjective, depending on personal tastes, than a BIC pen or a piece of raw steel.

• 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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2) Perishability

Different levels of perishability imply different operations.

• Services cannot be stocked, so they are 100% perishable.
• 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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Implications of Extreme Perishability

In the case of services, the production and consumption are simultaneous and there is no opportunity for quality control.

• When products can be stocked, there is a time lag between its production and consumption. Thus, there is an opportunity to evaluate the quality of the goods produced before its consumption.
• 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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3) Duration and Intensity of Interaction

Business operations also differ due to the duration and intensity of the interaction with the customer.

Enlarged version:
• A chiropractor and a hairdresser have a much more intense contact with clients than a tire repairer or a musician at a concert, for example, although all of them perform their services for just a short period of time.
• 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.

Enlarged version:

[Optional] Operations Management: Operational Dimensions
Manufacturing vs. Service Operations

• 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.

Difference between Goods and Services
Enlarged version:
[Optional] Manufacturing vs. Services Characteristics
Check out this 6-minute presentation by Dr. Narendar Sumukadas to learn more:
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