Absence of inventory buffer
Goods can be held in inventory, which is a buffer that dampens the impact on production activity of fluctuations in sales volume. Services can be stored. The airplane seat,hotel room, hospital operating room, or the hours of lawyers, physicians, scientist, and other professionals that are used today are gone forever. Thus, although, a manufacturing companycan earn revenue in the future from products that are hand today, a service company cannotdo so. It must try to minimize its unused capacity.Moreover, the cost of many services organizations is essentially fixed in the shortsrun. In short, a hotel cannot reduce its costs substantially by closing off its rooms. Accountingfirms, law firms, and other professional organizations are reluctant to lay off professional personal in times of low sales volume because of the effect on morale and the costs of rehiring and training.A key variable in most service organization, therefore, is the extent to which currentcapacity is matched with demand. Service organization attempts this matching in two ways.First they try to stimulate demand in off –peak periods by marketing efforts and priceconcessions. Cruise lines and resort hotels offer low rates off seasons. Second, if feasible,service organization adjusts the size of workforce to anticipated demand, if feasible, by suchmeasures as scheduling training activities in slack periods and compensating for long hours in busy periods with time off later. The loss from unsold services is so important that occupancyrates and similar indications of success in selling available services are normally key variablein service organizations.
Difficulty in Controlling Quality
A manufacturing company can inspect its products before they are shipped toconsumer, and their quality can be measured visually or with instruments(tolerances ,purity,weight, color, and so on).A service company cannot judge product quality until the momentthe service is rendered, and then the judgment are often subjective. Restaurants managementcan examine the food in the kitchen, but customer satisfaction depends to a considerableextent on the way it is served. The quality of education is so difficult to measure that feweducational organizations have a formal quality control system.
Manufacturing companies add equipment and automate production lines, therebyreplacing labor and reducing costs. Most service companies are labor intensive and cannot dothis. Hospitals do add expensive equipment, but mostly to provide better treatment, and thisincrease costs. A law firm expands by adding partners and new support personnel.
Some services organization operate many units in various locations, each unitrelatively small. These organizations are fast-food restaurant chains, auto rental companies,gasoline services stations, and many others. Some of the units are owned; others operateunder a franchise. The similarity of the separate units provides a common basis for analyzing budgets and evaluating performance not available to the manufacturing company. Theinformation for each unit can be compared with system wide or regional averages, and high performance and low performers can be identified. However, because units differ in the mixof services they provide, in the resources that they use, and in other ways, care must be takenin making such companies.