Manufacturing In A Service Economy

The notion that the United States is moving toward a "service economy" in which services carry more economic weight than manufactured goods is seen as an ominous shift by some. There is an idea that "service" and "manufacturing" are opposites. There is also an idea that production is better for our economy than services are, because production results in tangible goods. Both ideas are fallacies.

To say that production adds value where service does not is like saying that wheat is a crop but lumber is not, just because a tree stays in the ground longer. While it is true that many services must be performed repeatedly, it's also true that any good that is produced will eventually wear out or become obsolete. There is no such thing as an economic activity that adds some permanent store of value to the economy. In fact, many services—an education, for one—hold their value much longer than so-called "durable" goods.

So what is meant by service work, or a service job? In a service, the provider must do the job differently every single time, making accommodations and intelligent judgments along the way, in order to respond to the distinct differences in every customer and every request for work. A service job is a job that is inherently impossible to automate or to perform by rote.

What does it mean for manufacturing that services are coming to deliver increasing value compared to production? It may mean many things. I have been careful here to use the word "production" as the contrast with service. Production and service are different disciplines. But "manufacturing" is not different. Manufacturing can combine service and production both.

The cover story this month illustrates this principle in a small shop, where engineering services bring in production work. The cover story last month illustrated the principle in a larger plant, where customization services keep the plant producing. Other shops and plants provide services including managing supply chains and responding to the needs of particular niches. What these businesses generally have in common is that they would struggle to compete if production was all they had to offer. But when service provides the basis for customer relationships, production work flows naturally from there.

Some derisively refer to service jobs as "burger flipping." The charge is so inaccurate that it doesn't need to be refuted. However, it does suggest a useful analogy. When a manufacturer is good at providing a relevant service first, then that manufacturer's production capacity can provide a lucrative way to "supersize" the customer's order.