MIT Sloan Management Review

Marketing, Operations Management and Research

 

Managing Service Inventory to Improve Performance

By Sunil Chopra and Martin A. Lariviere

October 15, 2005

In service businesses as in others, work can be performed and stored in anticipation of demand. By wisely choosing what kind of inventory to hold, companies can improve quality, response times, customization and pricing.

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In recent years, the practice of pushing product by building inventory in anticipation of demand has fallen out of favor. Many companies have shifted to a“pull” environment, in which they build product only in response to actual demand. These firms have moved the “push-pull boundary” — the point at which a supply chain switches from building to forecast to reacting to demand — away from their end customers. By decreasing the amount of work completed before actual demand is known, firms avoid costly mismatches in supply and demand. For example, Dell Inc. has assumed and maintained a leadership position in the personal computer industry in no small part by setting its push-pull boundary to offer customers greater customization.

Given that repositioning the push-pull boundary has paid huge dividends for many product-based firms, it is only natural to wonder what kind of promise this approach holds for service firms. On the surface, the answer seems to be very little. A basic tenet of service management is that services cannot be inventoried; without inventory, the location of the push-pull boundary seems to have little relevance. Yet this view relies on an extremely narrow definition of inventory as finished product waiting for customers. In practice, inventory also serves as a way to store work; because the work has been stored, customers don’t have to wait for it to... To read the complete article, login or sign-up using the form below.

 
 

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