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The 3 Major Types of Business Operations

the 3 major types of business operations

One step that entrepreneurs must take before starting a company is to determine which type of business operation aligns with their overall objectives. Business operations refer to the different daily activities that a company takes part in to increase its value and profit margins.

Adhering to a specific operation will enable a company to strategize their business plans, execute goals, and ensure its long-term stability in the market.

3 Types of Business Operations

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Understanding the different types of business operations is integral for businesses, as it will enable entrepreneurs to acknowledge their purpose as a company. It will also help them properly align their core values and goals to their initiatives.

This can also translate to increased sales and revenue because companies will be able to take the appropriate steps and strategize processes that will maximize their potential.

For example, an emerging small business in the service industry would be able to recognize that they may need signage management software, rather than inventory control solutions because they do not have stock products or a warehouse to manage. In this way, the business is able to reduce unnecessary costs, but also optimize their productivity.

Utilizing the right business structure for a company and their specific products or services provide various benefits; such as ensuring that customer satisfaction is improved.

Since the form of operation will provide visibility into what type of customer base the company will attract, business owners can make informed and calculated decisions to ensure their consumers' needs are met.

The three types of business operations are-

1. Service Business

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A service business refers to companies that provide intangible goods - products that cannot be seen or touched - to their customers.

There are many different types of intangible products, such as insurance, training courses, and cleaning services. Receiving consulting or legal advice from a professional lawyer is also service business.

Some more examples of service businesses are-

  • Computer service specialists
  • Airlines
  • Banks
  • Maintenance or repair services
  • Theaters
  • Corporate event planners
  • Bookkeepers
  • Pet sitting services
Due to service businesses only dealing with intangible outputs, there is generally less of a need to emphasize inventory when conducting financial planning. Companies in this form of business operation have more flexibility with their expenses since they do not have to maintain a warehouse or stock.

2. Merchandising Business

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In complete contrast to a service business, a merchandising business organization sells tangible products to consumers.

People generally shop at merchandising businesses to purchase clothes, food, or electronics. Some of the most common establishments in this sector are-

  • Supermarkets and grocery stores
  • Clothing departments
  • Auto dealerships
  • Bookstores
  • Craft stores
  • Hardware stores
The main difference between merchandising businesses and service businesses is that the former has to stock inventory and consistently track their stock levels to effectively provide to their customers.

This also means merchandising businesses have more to consider when managing their expense accounts, gains and losses, and net revenue from their products sold.

However, these two operations do share some similarities. For example, they both need to hire employees to serve customers. They also need to acquire proper equipment to function as a business.

For example, a theater would need projectors and seats to operate, while a supermarket must have shelves and carts for customers to use. Both sectors also exchange goods and services for money.

3. Manufacturing Business

A manufacturing business uses raw materials, labor, and machinery to assemble or create finished goods. These companies will also generally use advanced technology and assembly lines to make their products.

There are different types of manufacturing businesses, such as those that create clothing, smartphones, cars, and soft drinks.

The most popular brands in this sector, include-

  • Volkswagen Group
  • Apple (electronics)
  • Nestle
  • Sony
  • Procter & Gamble (consumer goods)
  • PepsiCo
  • Unilever
  • Pfizer (pharmaceuticals)
Small businesses can also be considered manufacturers. For example, a company that creates jewelry from beads or makes dried fruits would also be engaged in manufacturing business operations.

Although this sector is similar to merchandising businesses, in that they both sell goods to consumers, there is a major difference.

A manufacturing business buys products and raw materials to make an entirely new item and markets it. Whereas, merchandising operations purchase goods and sells them right away, without having to assemble, recreate, or transform the product.

For example, a clothing manufacturer would purchase fabric, dye, and thread to create and sell a sweater. On the other hand, a merchandiser would sell those products individually to their customers.

Key Takeaways

  • Business operations refer to daily activities, processes, and staff that make up a company's value.
  • There are three different types of business operations- service, merchandising, and manufacturing.
  • For a business to function properly and productively, entrepreneurs must understand which business operation aligns with their company and the responsibilities it entails.