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From Dr. Scott Sampson's Understanding Services Businesses Book (click for table of contents)
SBP 10b: Customer Inventory Costs⇐Prior —[in Unit 10: Production and Inventory Control]—

SBP 10c: Detailed Production Tracking

With services, keeping track of production and inventory can mean tracking details about every customer. This often requires highly complex information systems.

Why it occurs

This principle occurs because production is nonstandard, and one unit of production (a customer) may be relevant to a future unit of production (that customer returning). For example, if a customer provides peculiar inputs, the service provider may need to know that each time they are presented.


Manufacturers tend to track production in aggregate. Instead of logging every widget produced, the company counts how many widgets were produced during a specific time period. If the widgets have serial numbers, the range of serial number values produced during a particular day might be recorded. How do manufacturers use the production information? The serial number might help identify products that were produced with a quality defect, in case a produce recall is warranted. Otherwise, production tracking data can be useful in identifying how much was produced and how productivity has changed over time.

The production of service companies tends to be nonstandard. It may be of interest to know how many customers were processed over a given period of time. However, in many instances, it is important to know what specific processing took place with each individual customer. This is considerably more difficult than simply counting the number of customers. It involves gathering data about when and what took place with a particular customer. Often, the system must be able to identify return customers so that their new service encounters can be appended to the records of their prior encounters. In some cases this is accomplished by assigning a customer number. In other cases, it can be quite difficult to know when a customer has returned.

How it effects decisions

Service providers need to decide at what level of detail they should track production, and whether it would be cost-justified to track specific encounters with each customer.

For example

Banks need to track every transaction that takes place on each customer's account. It is not enough to simply report “We had 432 customers visit the bank today.” What did they do? Did they deposit or withdraw money? Involving which accounts? A great deal of what banks do is to track the production data the describes every transaction and allows complete accounting of funds.


(The most notorious transaction trackers are credit card companies. I have heard that they exploit purchase information by unabashedly selling to anyone and everyone who is interested in paying for it.)

Universities track every time a student takes and/or completes a course. If the registrar's office only recorded the number of student each semester, the departments would have a hard time knowing if a student qualifies to graduate. Therefore, complex computer systems which keep track of all course completion (i.e. education production) data are in place at most universities.

Dental offices, as with all medical clinics, keep detailed records of every patient visit and every type of production (i.e. treatment). That information is used to assure that the dentist is aware of particular patient conditions on subsequent visits.

In each of these examples there is a clear need and often even a legal requirement for keeping detailed customer records. Some other services don't have such stringent requirements, but nonetheless reap benefits of detailed production tracking.

Some retailers, such as Radio Shack and Toys 'R Us, ask each customer to for their phone number at the time they make a purchase. In that manner, they are able to track customers who make repeat purchases. The data can be used to more precisely target advertising mailings.

Some Pizza Hut delivery locations have computers that are equipped with Caller ID. Whenever a customer places an order, the order is recorded in the computer. When another order is placed from that same telephone number, the computer displays the prior order. The Pizza Hut employee can then ask the caller if they would like the same thing they ordered last time, which can simplify the ordering process. The system also has the potential for assisting the process of locating customers–since detailed directions to obscure addresses only need to be gathered once.

Hotels typically track the occupancy for each day. The Ritz-Carlton implemented an information system that also tracked the individual customer preferences. That way, if a prior customer visits the Ritz-Carlton again, the computer system tells the employees about the specific preference so they can be ready. An example would be a customer who prefers extra blankets on the bed or an extra ice bucket.

My airline example

Airlines track not only the number of customers, but who each customer on a flight is (the flight manifest). Prior to the flight, they track individual reservations and amounts paid, data which is used to guide yield management systems (enabling them to adjust fares depending on projected demand and capacity utilization).

In addition, airlines track the travel of specific customers through frequent flier programs. Frequent flier programs inherently encourage loyalty, but have other benefits as well. For example, they can help the airline identify certain types of customers to target for special offers or promotions. Many frequent flier clubs have Premier or Medallion types of memberships exclusively for the most frequent fliers. The airlines reserve certain perks, such as special check-in lines and free access to airline lounges.

How manufacturing differs

With manufacturing, production is relatively standard, allowing the tracking of production via aggregate measures. Also, manufacturers often do not know who end customers are, especially given low returns on warranty or product registration.

Analysis questions

  1. Does the company have the need to track what was produced over time? Why/how might the data be used?
  2. Is each “product” unique? In what ways?
  3. Can the uniqueness allow us to personalize future production by tracking current production?

Application exercise

Make a list of items of information your service business should track about each customer. For example, you might track the customer's name, his or her customer number, the type of service the customer requested, any peculiar requests, and the service outcome (was it successfully completed?). After you have created your list of information items, address the following questions: Where and when in the production process is that customer information collected and recorded (in a database)? and where and when might the information be used by the service provider to enhance the ability to provide or market the service? For these two questions, you might redraw a process flowchart, with arrows indicating the flow of data to and from the customer-information database.

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