Goods and Services are different sectors. Their product design, facility location, layout, quality assessment and management are quite different.

Most of the Goods company may also have smaller portion of service (Engineering goods have after sales service) while service company may also have certain amounts of good (such as restaurant).

It is not clear, what context the question is raised.

Mohammad Akhtar Think about this: Take an engineering enterprise, for example. It processes a metal part, and it becomes its final product. But this same final product can be both a 'good' or a 'service'. If the enterprise purchases the initial object state(the raw material) and owns the item throughout, it is a 'good' and is sold as one. But if a client has provided the initial object state (raw material or the metal part in a pre-processed state), the enterprise performs the processing operations, and the final product is the same as before (absolutely the same object with the same parameters), but in this case, it is a 'service'.

Goods: Sold objects whose substance belongs to the industrial enterprise sold to clients who are only concerned with the final state of the object.

Services: Sold process or manipulation activities over an object whose substance does not belong to the industrial enterprise but rather to the clients who are responsible for the object's initial state and are concerned with the final state.

Please read some good book on operations and service management, you doubt will be cleared. Manufacturing activities performed to produce a good is part of manufacturing cost.

Product Cost = Raw materials Cost+ manufacturing cost+ labour cost+ overhead cost

Supplier3 -->Supplier 2-->Supplier 1 on supply side. That is supplier's supplier and so on.

Supplier on supply Side--- Manufacturer---Customer on distribution side (Supply chain)

If manufacturing is more and service portion is less, it is called manufacturing firm. On the other hand, if service is more and manufacturing less, then it is known as service organisation.

You can read the following book: Platform: Digital Transformation of Economic Science | ITFES

We can dwell on hospitals, restaurants, and hairdressers, but by definition, they are industrial enterprises. Industrial Enterprises means any industry, company, firm or any other body established under the prevailing law with the purpose of running an industry. Industrial enterprise" means knowledge, skill or labor applied to conduct of a trade or business, selling of goods, providing services, providing dwelling accommodations, mining, education or discovery, research, development or refinement of new or known substances, processes or products.

A manufacturing enterprise, in today's understanding, produces only goods, usually some types of machines or parts used in machines. But the servicing of those parts or the machines themselves is of great importance, so recently, the term Enterprise for Machines started to be used.

That's definitely crucial to know whether a product is a good or a service. It provides clarity for strategic decision-making. We can determine it by the nature of output of the enterprise. If its end product turns out to be tangible, it's a good and vice versa. Hence, it is important for several reasons, from production planning until the goods and services are marketed or sold.

Can you explain a bit more what would make a difference in “production planning, cost calculations, major optimizations, etc“ between the two?

An example I am thinking of is an agricultural one. Pigs nowadaya are not really owned by the farmer who raises them. They are owned by the animal feed companies who more or less “lodge” them with the farmer at a very young age, and delivers them the necessary feed (which is also owned by the feed companies). When the fattened pigs are sold for slaughtered, the farmer only receives a fee for his/her work. Therefore he delivers only a service and not a tangible product.

From a systems theoretical view, you would not talk about “product” or “service” but about OUTPUT. That theoretical approach is of a higher level of abstraction, and makes the wording product/service superfluous. Systems theory could contribute to understanding/study, perhaps.

You want to separate the product from the service so you can charge correctly and plan correctly. Services are based on a client offering, how you’re helping the client and therefore should be charged based on what the client is willing to pay plus the cost of implementing that solution. The product itself is a manufactured object, so the process required to make it has a collective cost. This base level cost is what is used to determine profit margin based on your price. Obviously you want to select a price that covers the manufacturing cost but if the product also works like a service you should add more to the price, based on the lifetime of the product minus servicing requirements (unless warranty is involved) plus additional uses. Because someone can buy your product for one purpose but use it for another. I’d also advise you to collect data from these clients and long time clients so you can learn all the ways your product and service are helpful. This can also help with price determination because usually people will compare your product with their top of mind service provider or the most popular product for similar solutions.

Knowing whether a product is a good or a service is important for a company from a management perspective for several reasons:

First, it helps in determining the appropriate pricing strategy for the product. Goods and services often have different cost structures, and understanding the nature of the product can help in setting the right price that reflects the value and cost associated with it.

Second, it is important for marketing and sales strategies. The way in which goods and services are marketed and sold can differ significantly, and understanding the nature of the product can help in developing effective marketing and sales tactics.

Third, It can impact the company's supply chain management, inventory management, and overall operational processes.

Fourth, it is important for financial reporting and analysis. Goods and services are treated differently in financial statements, and having a clear understanding of the nature of the product is important for accurate financial reporting and performance analysis.

The pure product is tangible, the pure service is intangible. a mixed condition happens when you add a service to the product. For example, if you have a table (pure product) and you add to it a sensor, you can sell not only the table but also the associated service.... Following this logic, the business models are quite different and also the related KPI: product has KPI based on tangible measurable quality, service has kpi based on performance and customer satisfaction...

this lead to a certain different management perspective (seeking different targets)...

Trifon Stefanov

Understanding whether a product is categorized as a good or a service holds significant importance from a management perspective. Here's why:

Production Planning: Knowing the nature of the product helps in planning production processes efficiently. Goods often involve manufacturing processes, while services may require a different set of activities. Clear differentiation ensures the right resources and processes are allocated.

Cost Calculations: Goods and services have distinct cost structures. Goods involve material, labor, and overhead costs, while services often rely more on labor and expertise. Accurate cost calculations are crucial for setting prices, budgeting, and determining profitability.

Optimizations: Identifying the nature of the product enables targeted optimizations. For goods, streamlining manufacturing processes and supply chains is crucial. For services, optimizing human resources and expertise is key. Tailoring optimizations based on the product type enhances overall efficiency.

Market Strategy: Differentiating between goods and services is vital for developing an effective market strategy. Marketing approaches, distribution channels, and customer engagement strategies vary based on whether the company is selling a tangible product or an intangible service.

Customer Expectations: Understanding the product type helps manage customer expectations. Goods often come with tangible features, while services are more experiential. Meeting customer expectations contributes to customer satisfaction and loyalty.

Regulatory Compliance: Goods and services may be subject to different regulations. Ensuring compliance with industry-specific regulations is crucial for avoiding legal issues and maintaining a good reputation.

Resource Allocation: From workforce management to technology investments, knowing the product type aids in resource allocation. It helps determine the skills needed, equipment required, and technology investments for effective production or service delivery.

Risk Management: Differentiating between goods and services allows for a more nuanced approach to risk management. Each type may pose unique risks, and being aware of these distinctions helps in developing targeted risk mitigation strategies.

In essence, the ability to clearly differentiate between goods and services is fundamental for strategic decision-making, resource optimization, and overall success in the dynamic landscape of industrial enterprises. It provides a foundation for effective management practices, ensuring that the right strategies are employed for the specific nature of the company's offerings.

Lilian Hupkens Thank you for your pragmatic viewpoint.

Based on research, and as you also pointed out with the farm situation, no matter if it is a service or a good, there is no difference in terms of “production planning, cost calculations, major optimizations, etc“. I have the same observation and research results.

The following is a bit long, but I explain my viewpoint on the similarities of the two. It is something I also want to make into a Wikipedia article at some point, as the current article gives no information on how to distinguish goods from services and even says it is impossible, which is just not true.

Let's continue discussing after you have a look at the following:

Goods and services are the two subclassifications of Products. Goods and Services are clearly distinguishable from each other from an industrial management point of view. Goods refer to objects that are sold and whose substance (tier 1 invested value InV1) is owned by the industrial enterprise. Examples include machines, machine parts, tools, etc. Services, on the other hand, represent process manipulation activities over an object that does not belong to the industrial enterprise. Examples include painting, renting, repairing, machining, etc. Goods and services are the two dimensions of a product.

According to the management theory of Business Model Ontology, the creation of goods and services aims to increase the potential of the environment for human existence.

Overview

From a management perspective, an industrial enterprise is responsible for implementing specific processes to produce and sell its goods or services.

A process is the space-time existence of an object, from an initial object state to a final object state, being influenced by various factors in its surrounding process environment that manipulate its parameters through space and time.

Both goods and services are objects that are being processed by the industrial enterprise. The difference is in the ownership of the object, which can either be of the industrial enterprise or its partner-client.

In the case of goods production, the industrial enterprise purchases all the necessary raw materials (initial object states), performs manipulation activities over them and thus acquires final sold goods. The objects are the property of the industrial enterprise, and the client only cares about the parameters of the sold goods.

In the case of services production, the industrial enterprise performs manipulation activities over an object that is not its property. The objects belong to the clients, and the industrial enterprise must satisfy the client's requirements regarding the final parameters of the manipulated object.

Goods: objects whose substance belongs to the industrial enterprise sold to clients who are only concerned with the final state of the object.

Services: process or manipulation activity over an object whose substance does not belong to the industrial enterprise but rather to the clients who are responsible for the object's initial state and are concerned with the final state.

Practical application in various industries

Goods and services can be clearly and completely distinguished from one another by the theory about the principle setup and way of functioning of the industrial enterprise - Business Model Ontology, which conforms to the MECE principle (Mutually Exclusive, Collectively Exhaustive).

In the manufacturing industry, Goods can be metal parts, electrical, hydraulic, or pneumatic tools, equipment, and machines, etc., where the industrial enterprise is responsible for purchasing the initial object state (raw materials), performing the necessary operations and after adding value to them (tier 2 to 5 invested value) sells them to the client. Services can be processing, painting, packaging, labelling, storage, laboratory measuring, quality control, etc., where the object is provided by the Client to the industrial enterprise for it to perform the necessary operations and after adding value to the object to return it back to the client.

In the restaurant industry, Goods can be food, drinks, etc. The restaurant purchases the initial ingredients (tier 1 invested value), after which performs necessary operations to create the good by adding value through Labour cost, Operation Place cost, Special resources cost and Organizational cost (tier 2 to 5 invested value) and sells them to the client. On the other hand, Services are related to the entrance, table charge, server, etc. In this case, the client enters the restaurant's administrative boundaries and uses its technological environment for which they pay. The tier 2 to 5 invested value is accumulated onto the client, observer as an object. The entrance fee, table charge, or server tip is a separate expense on the final bill which differentiates the goods from the services as the restaurant has expended resources (related to labor, operation place, special resources and organization) and invested them in the client.

National and International Classifications

Various national and international classification systems of products have been developed for economic statistical purposes. All of them classify products and distinguish them as 'goods' or 'services'.

The United States Census Bureau has developed the North American Product Classification System (NAPCS) that classifies products by utilizing 6 hierarchical levels and has, at its highest level, 24 sections. According to the US Census Bureau, "NAPCS provides a comprehensive classification framework for services and goods."

The Statistics Agency of the European Union (eurostats) has developed the Statistical Classification of Products by Activity (CPA) that classifies products by utilizing 6 hierarchical levels and has, at its highest level, 21 sections. According to Eurostats, "The Statistical classification of products by activity, abbreviated as CPA, is the classification of products (goods as well as services) at the level of the European Union (EU)."

Going by the technical definition, a product is s product and a service is a service. However, it is possible to see them on a continuum. For example you could consider a pure service such as head massage on one end and a pure product such as a bath soap on other end. In between you could have products accompanied by service or a service accompanied by a product. For a company it is important to know what actually delivers more value to the customer. Customers may be willing to pay $2 for a burger in a shack but $20 for the same burger in a star hotel. Here the perceived value comes from the ambience and service than the product. So as an upmarket hotel I might consider my core business to be service even though my menu card carries a lot of products. My service quality can be my USP that pulls customers here. On the other hand, if I sell a feature rich water purifier and that is what pulls my customers to me, I would consider my business to be a product business though I might I have serveice element attached to it.

There are similarities between a good and a service from the customer's perspective. However, there is a clear difference from the transfer of ownership of the asset that is being sold. If I use a car from point A to Point B and the car does not belong to me, this is a service. I use the same car from point A to Point B and the Car is fully transferred to me as a user with a consideration towards ownership of the the car. that means I bought the CAR not the travel from Point A to B. Remember, that the utility for both is the same.

With the advent of technology, there is a clear need to digest the mode of transaction that will lead to the purchase of a good or service. Use on online platforms such as YouTube, Apps, and even network channels has evolved the definition of a good or service. more research needs to be established to establish the required characteristics of a good or service.

It seems to me that this question can also be answered from the perspective of general and contractual management in particular. See following link.

https://roccomorelli.blogspot.com/2023/11/why-is-it-important-from-management.html

The answer can be demonstrated through project management principles. Quality is measured by the goods or services abilities to meet the requirements established by the end user. The buyer's ability to define the requirements will lay the foundation for accuracy in pricing, planning, and production analysis.

Depends of what you want and the control. If the part is essential for the continuity of your production process, it must be manufactured by you. Otherwise, you can purchase from third parties, but requiring quality guarantees.