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Product Firm vs Service Firm – Is There a Difference?

By Jim Tompkins
CEO Tompkins International & MonarchFx

Product or Service

Is MonarchFx is a product firm or a service firm?

Consulting firms and 3PLs are service firms, MonarchFx is not. Service firms begin with a client’s requirements and develop a customized solution. Service firms have a project orientation. The customized solution is a one-off application of process, people, and technology to address a certain set of requirements. As the clients set of requirements change, the solution can be further customized to meet the new requirements. To the contrary, within a product firm you begin with a problem where the goal is to solve the problem in a repeatable fashion. Once you solve the problem you develop a specification of the product you wish to create, then establish a roadmap for the development of this product. This roadmap will often include future features and specifications that you hope to build into the product over time. The product then will evolve with the different features being engaged by configuring the product to meet certain applications. Therefore, product firms and service firms are completely different, as illustrated by these key points:

  • Product firms are feature based vs. service firms that are customization based.
  • Product firms have proven tested commercially ready products vs. service firms that require extensive testing and debugging.
  • Implementation of product firm’s solutions have less risk vs. the implementation of service firm’s solutions due to the one-off nature of service firms.
  • Product firms respond to user requests by saying, “let us consider inserting that into our roadmap” vs. service firms respond by saying, “no problem, we can do that and here is a change order.”
  • Products firm’s solutions cost less as their development cost is spread out over many users vs. service firm’s solutions that are customized for one user.
  • Product firm’s solutions can be implemented quickly vs. service firm’s solutions which require much more time to be implemented.
  • Product firms have lower cost upgrades vs. service firms.

One cannot claim product firms are better than service firms or vice versa. Back in the old days (1975- 2010) product firms had greater obsolescence than service firms, but in today world with the disruption cycle being traversed so rapidly, obsolescence is as important to service firms as it is to product firms. Product firms and service firms are different and should be applied differently. For stable, long term situations where requirements are unique the service firm is often the best solution. For dynamic situations where requirements can be made to operate in accordance with industry best practices, working with product firms can reduce cost and risk, and increase the flexibility and scalability going forward. 

Therefore:

  • A homemade eCommerce fulfillment solution (service company) will require high investment and high operating costs, having greater risks, and will not allow for distributed logistics.
  • A 3PL (service company) solution for doing eCommerce fulfillment will result in a high investment and high operating cost, longer term contracts, and less flexibility and scalability.
  • A MonarchFx (product company) solution will have built in best practices on how to optimize fulfillment center operations (each configuration option applies to different operating alternatives) and will reduce investment, operating costs, and risks, while providing great flexibility and scalability.

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