Managing Service Inventory to Improve Performance, MIT Sloan Management Review
Traditional analysis of managing services has emphasized that services cannot be held in inventory. Consequently, the focus has been operating services in a make-to-order fashion ignoring lessons learned from operating make-to-stock supply chains. We argue that this conventional view is built on a very limited notion of inventory as finished goods. In reality, inventory can be held in partially completed forms that serve to store work. This notion of inventory as a way to store work is valid for both goods and services and provides a novel way to think of designing service processes. In this article, we define service inventory as all process steps that are completed prior to the customer's arrival. Much like inventories of physical products, service inventories affect how quickly and at what cost a firm can fill demand. By leveraging service inventories, companies have the potential to offer greater quality, speed, and variety to its customers at reasonable prices. We discuss how service inventories allow firms to improve service operations, how service inventories interact with other drivers of process performance, and how lessons from conventional supply chain management apply to the management of service inventory.