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Are we buying a product or a service ? (Part-I)


How do we define product and service? How do we distinguish product and service other than being a line item in a PO or in a Procurement contract?

During one of our morning team discussions in SnP CoE, there was a discussion on supplier shortlisting based on total cost of ownership.  The specific instance had both components of Product and service that were to be considered. That was when we had raised the following questions.

How do we define product and service? How do we distinguish product and service other than being a line item in a PO or in a Procurement contract?

This debate sparked off an explanation of a product being a commodity with tangible benefits. Examples being oil, gas, cables, clothes, tooth paste etc.... Services would represent intangible elements that are being utilized. Examples would be banking, insurance...and so on.

The impact of defining whether the item purchased is a product or service would have implications in many countries with indirect taxes applicability. This would mean an impact to the cost based on how we describe it. The definition that resulted from traditional methods of defining something could no longer be considered as sacred.

We did a quick internet search for all known places to define what is a service? And what is a product?

The search results provided us the traditional definition of a product and a few instance highlighting a continuum of a service being a product, as well.

To elaborate, in the banking insurance industries, we observe a more prominent use of the word product for a bundle of services (example: co-branded credit card as a product, home loan as a product).
In the software industry, application software is also called as a product, for example - Microsoft Office.

In continuation to the quest of definitions, we recognized that countries have legislation on indirect taxes. For the applicability of the indirect taxes, they certainly should have defined what is covered as a taxable element through various tax forms.

When we searched for excise duty, a form of indirect tax in the business dictionary, it was defined as below:

  1. A percentage levied on manufacture, sale, or use of locally produced goods (such as alcoholic drinks or tobacco products).
  2. A percentage tax levied on a company's revenue, instead of (like income tax) on the company's income.
  3. A fixed tax levied on an activity or occupation, such as the license fee charged from attorneys, doctors, and other professionals. Also called excise tax.

Based on the above, our thoughts on the definition of products and services point towards - both products and services are indeed products.

To be continued...


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