Meaning of Service Center
A service centre is a small unit or a department of an organization that provides services to other departments or units within the organization. The cost incurred by the service centre for providing services is charged to the department using such service.
Examples of Service Center
Case 1
ABC Ltd has departments such as Manufacturing unit, Information Technology unit, Repairs and Maintenance, Accounting and Finance unit. ABC Ltd. primarily is engaged in manufacturing printers and heavy industrial machinery.
When the customer has any issues the repairs and maintenance wing resolves the issue. Its manufacturing unit uses complex machines and in case of any technical fault or breakdown, it uses the services of repairs and maintenance department. And thus the repairs dept. in such a case can be called as a service centre.
Taking the same case the manufacturing unit as well as the accounting and finance unit uses the laptops and printers. When the personnel of these department faces any difficulties with their laptops and printers the I.T Team guides them to resolve the same hence, the I.T dept. is also qualified to be termed as a service centre.
These departments may charge the service cost. The managers of the manufacturing and accounting unit have the authority to decide if they are willing to utilize their services or avail the services from outside.
This was a hypothetical example.
Now let’s analyse a real-life corporate example;
Case 2
ITC Ltd is engaged in various businesses. Some of them are Hotel business, FMCG business, Printing and Paper, a Packaging business, Agri products, Information Technology etc.
Its Packaging Division supplies value-added packaging to ITC’s various FMCG businesses.
Its client list includes several well-known national and international companies like Nokia, Colgate Palmolive, Pernod Ricard, Diageo, British American Tobacco, Philip Morris International, Agio Cigars, UB Group, Tata Tetley, Tata Tea, Reckitt Benckiser, Radico Khaitan, Akbar Brothers, Surya Nepal, VST Industries, etc.
Thus, it can be said that the packaging division is a service centre for ITC’s FMCG unit. The packaging division will charge an amount from FMCG division such an amount can be the actual cost incurred or cost plus a certain % of the profit.
The managers or executives of the FMCG division may decide to outsource its product packaging function if the price charged by the packaging unit does not fit into its budget.