SBP 2a: Simultaneous Production and Consumption

This principle occurs because major portions of the service production process cannot begin until essential customer inputs are received. And, all services involve customer inputs, as per the Unified Services Theory.

Note that this SBP has tied “consumption” to “demand” and “delivery,” although those words can be used independently in other contexts. For example, imagine ordering a manufactured food item, such as an exotic cheese, from a mail order company. You may call up the company and place your order, which is “demand.” The company retrieves the item you ordered from their inventory stock and ships it to you, which is “delivery.” You receive the cheese and consume it–realizing the value or benefit of the cheese–which is “consumption.” In this case you do not “consume” the cheese until after it has been “delivered,” which does not occur until after you have “demanded” it. And in fact, the cheese was likely “produced” some unknown time prior to demand, delivery, and consumption. That time gap is generally unknown to the customer–Customers generally do not know, nor often care, when the manufactured product was produced (as long as it is in good shape when it is delivered and consumed). In summary, with manufactured products the following typically occurs:

1. Item is manufactured. (produced)
2. Item is stored until time of customer demand.
3. Customer places order. (demand)
4. Company fulfills order and gets item to customer. (delivery)
5. Customer receives value from item. (consumption) This value may continue to be realized for an extended period of time, until the product is completely “consumed.” (An item which wears out and no longer provides value is “completely consumed.”)

With service businesses, major portions of “production” cannot begin until after demand has been presented. Again, this is because the service cannot be produced until we have key production inputs that come from the customer. A doctor cannot produce a diagnosis or a treatment until after he or she has the customer's symptom and self inputs. An attorney cannot prepare a case until he or she has the client's legal issues and client information. Other examples will be listed below. The general situation with services is the following:

1. Perhaps part of the service-product is prepared. The rest cannot be produced until the company has customer inputs.
2. Customer places order (demand) and provides necessary inputs.
3. Right away, the company produces the service, often giving it to the customer (delivery) as it is being produced, with the customer immediately receiving value from the service (consumption).
4. Nevertheless, as with goods products, the customer is likely to continue to receive value from the service produced well after the time it is produced and delivered.

On this last point, services vary as to how long the value is realized after the service is delivered. Some services continue to provide value for a great deal of time, such as education, which provides value long after the student is out of school. Other services only provide value for a short time, such as restaurant food, which generally only provides value up through the time of the next meal. This important issue of the life of value will be revisited in the SBP: Perishable Output Illusion.

We must carefully consider the exact timing of production. This implies that we need to carefully plan our production capacity, since capacity utilization will be determined by demand. Demand is uncertain to one degree or another, meaning that good forecasting is essential. In some situations, the uncertainty in demand can be mitigated to some degree by scheduling customers, such as through appointments.

Analysis and planning techniques can be employed to increase our ability to manage the need for simultaneous production and consumption. Fundamental techniques include forecasting, capacity planning, scheduling, and yield management. These will be discussed in the next Service Business Principle.

“Production” for an architectural service firm is turning building ideas into blueprints and other information that can be used to actually construct a building. Ultimately, the architect cannot design a building for a specific customer without inputs from that customer, such as tastes, spacial requirements, budget limits, etc. Those essential inputs are provided as the architectural services are demanded. As the architect produces the building design, the customer is often given suggestions and ideas which are expected to be of value in making further design decisions. The further design decisions are additional inputs into the architectural design process. Thus, the customer often begins “consuming” the architect's service even before the final drawings are complete, and “demanding” additional service based on design decisions. Therefore, we have demand, production, and consumption occurring relatively simultaneously.

The primary “production” process for an airline is transporting passengers and luggage from one location to another. Pre-production processes (see SBP: Identifying the Production Process) include preparing planes for travel. When does a customer “demand,” or require, air transportation? In fact, customers indicate their demand prior to the time of production–by making flight reservations–with the actual demand taking place on the day of the requested flight. Likewise, delivery of the transportation service does not take place until it is actually produced–the day of the specific flight. The customer consumes the transportation while being transported, as well as after they arrive at the destination.

This is why scheduling is so important with airlines, since the airline can only produce when the customer is presenting demand. (Flying an empty plane is not producing–but is like running a drill machine when there is no item to be drilled.)

With manufacturing, production and consumption are usually separated by time. Therefore, the exact timing of production is less of a critical issue.

1. When does production occur?
2. When do customers indicate their demand for the product?
3. When do customers take delivery of the product?
4. What is the temporal (or time) relationship between these three?
5. What are the factors that limit the temporal gap between these three?

Characterize the nature of demand. In what ways is it seasonal? In what ways is it cyclical? In what ways is it predictable? In what ways can demand be controlled? In what ways is it unpredictable and uncontrollable? Given these ideas, develop a method of forecasting demand by identifying factors and data on which the forecast would be based and the general method for coming up with forecasted values. Give some justification for the use of that forecasting method. Indicate limitations of that forecasting approach. Assuming that your forecasting approach is adequate, how would the resulting forecasts be used to plan production?