Differences Between Manufacturing Enterprises And Service Enterprises
MSME stands for Micro, Small, and Medium Enterprises. It is the vibrant and dynamic sector responsible for the growth of the Indian Economy. Being an MSME, you can enjoy a multitude number of benefits from various government schemes. In addition, from various concessions and subsidies, MSME’s also enjoy better financing options.
Classification of MSME’s:-
According to the provision of the MSME Act 2006, MSME’s are broadly classified into two categories:-
- Manufacturing Enterprises:- The enterprises which are dedicated to the manufacture or production of goods or employing plant and machinery are called Manufacturing Enterprises or Organizations.
- Service Enterprises:– The enterprises whose main focus is in providing or rendering of services to other organizations or end-users.
According to the size, MSME’s are classified into three Enterprises:-
As per the latest update in the month of February 2018, the Government of India has given a new classification of MSME as per the annual turnover. Due to this amendment, according to the annual turnover MSME’s are classified as:-
- Micro Enterprises:- The businesses or organizations which have an annual turnover of less than Rs. 5 Crores come under the category of Micro Enterprises.
- Small Enterprises:- The businesses or organizations which has annual turnover are between Rs. 5 Crores to Rs. 75 Crores come under the category of Small Enterprises.
- Medium Enterprises:– The businesses or organizations which has annual turnover are between Rs. 75 Crores to Rs. 250 Crores comes under the category of Medium Enterprises.
On 13 May 2020, the new classification of MSME has been announced by the Government of India. Earlier the criteria were given to Investment in Manufacturing and Service enterprises but in the revised MSME classification, the composite criteria is Investment and Annual Turnover. Due to this amendment, MSME’s are classified as:-
- Micro Enterprises:- The businesses or organizations which have invested less than Rs. 1 Crore and an annual turnover of less than Rs. 5 Crores come under the category of Micro Enterprises.
- Small Enterprises:- The businesses or organizations which have invested less than Rs. 10 Crore and an annual turnover of less than Rs. 50 Crore comes under the category of Small
- Medium Enterprises:– The businesses or organizations which have invested less than Rs. 20 Crore and an annual turnover of less than Rs.100 Crore come under the category of Medium Enterprises.
Key Differences between Manufacturing and Service Enterprises:-
Each of the enterprises and organizations posing unique challenges for the operations function. The main difference between the two broad enterprises are as follows:-
1. Tangible Output:-
Manufacturing industries produce physical and tangible goods or products that can be held, seen, and can be stored in inventory before they are needed.
In contrast to service organizations, these produce intangible products that cannot be produced ahead of time. Services operations are mainly found in banking, hospitality, advertising, consultancy, and public sectors. The output of service operations and the firm is such as consultancy or training which is an intangible product.
2. Production on Demand:-
Manufacturers required inventory as they produce goods or products for the stock, with inventory levels aligned to forecasts of market demand. Some of the manufacturers maintain a minimum stock of goods relying on the accuracy of demand forecasts and their production capacity to meet demand on a just-in-time basis. Hence, inventory is an extra cost to the manufacturing organizations.
In service firms, they do not hold inventory as they create service when the client requires.
3. Customization vs Standardization:-
Manufacturers have a standardized way of producing goods. They can either produce a stock of goods in advance orders or Once the product is finished, defined, and the next and so on.
In contrast, service firms do not produce a service unless the customer requires it. The service operations are customization operations. They can design and develop the scope and content of the services in advance of any orders. Mostly service firms produce a
customized service tailored according to the customer needs. For example, 12 hours of consultancy, plus 14 hours of design and 10 hours of installation.
4. Labour Requirements and Automated Process:-
Manufacturers have an option to automate many production processes in order to reduce labor requirements. Although some manufacturing organizations are labor-intensive or relocate to the countries where labor costs are low.
Service firms recruit people with the knowledge and skills in the service disciplines that it offers. Service delivery is labor-intensive which cannot be easily automated.
5. Production Environment:-
Manufacturers and Service firms both plan the working environment in which respects both the organization’s works take place. But, the elements are different. Manufactures consider a manufacturing layout i.e. a physical location for production and stockholding operations.
Service firms do not require a physical production site. They are focused on creating customer needs and delivering the services. They are focused on the enhancement of the atmosphere for the customer to amplify the customer experience.
We hope the above article is informative and covered most of the points to know the classifications of MSME’s and their key differences.