Manufacturing Strategy Essay ⋆ Business Essay Examples ⋆ EssayEmpire

A manufacturing strategy can be defined as the pattern of organizational decisions that determine the ability of a manufacturing firm to deliver its product and service requirements to customers. Successful implementation of manufacturing strategies requires the coordination of physical assets, production capabilities, and relationships as manufacturing firms move from individual facilities to business networks. The importance of manufacturing strategy has increased in the last 30 years due to increasing global competition, and a firm’s manufacturing ability is now seen as key to competitive advantage.

While the field of manufacturing has had a long history, strategies specific to manufacturing firms have emerged fairly recently. From the mass production era in the 1900s until the 1960s, organizations viewed manufacturing solely in terms of equipment to convert raw materials into finished products and production arrangements such as plant layouts. Long-term organizational strategy was formulated by finance and marketing departments with manufacturing’s role limited to the production of the varieties, quantities, and quality specified by these functions. Decisions were primarily about plant, equipment, and personnel with little effort allocated to examining the potential of manufacturing beyond that of a support function.

Initial ideas regarding manufacturing strategy emerged in the late 1960s, as researchers and organizations realized that manufacturing firms were responsible for a large proportion of a firm’s physical and human assets. Arguments were made for manufacturing to become more central in formulating strategy, rather than the tactical position it occupied at the time. Few organizations paid attention to the arguments, and the 1980s brought increasing competition from Japanese firms, particularly in automobiles and consumer products. These relative newcomers provided a combination of lower prices and higher quality, something that was not thought possible at the time. Incumbent organizations at the time viewed cost and quality as linked, with higher quality only being achieved at a higher cost. As a result, Japanese firms began taking market share from U.S. and European manufacturers, with many organizations forced to close or sell their businesses.

Since these organizations viewed manufacturing as plant and equipment, the first response was to invest heavily in new production facilities with automated machinery. However, while some organizations experienced success, the costs of these investments took a heavy toll on others, most notably General Motors, whose $60-billion investment in automation generated little return. Organizations realized that there was a need for better management of manufacturing and a greater understanding of how manufacturing could contribute to organizational competitiveness.

Significant research effort was allocated to manufacturing strategy and researchers have created a range of frameworks of increasing sophistication to aid organizations. Initially, frameworks examined equipment, personnel, and management systems required for manufacturing at a single facility. More recent research has expanded the decision areas to include the coordination of manufacturing networks. Increasingly, firms shift the production of items that they cannot produce competitively to other locations, and manufacturing organizations can be viewed as a network of coordinated business relationships. As such, manufacturing strategy decision areas now incorporate decisions on whether an organization will make an item in-house or buy it from another firm. While they examine a range of organizational characteristics, these frameworks can be divided into five perspectives: top-down, bottom-up, market requirements, internal capabilities, and best practice.

Top-Down, Bottom-Up

The top-down perspective positions manufacturing as part of corporate strategy. Senior management examine the requirements of the marketplace and the capabilities of the organization and choose a path of action best suited to the firm. Each functional division such as marketing, finance, and manufacturing creates individual strategies that are designed to support the organization’s achievement of its overall objectives. In this perspective, manufacturing adopts a supportive role within overall organizational strategy. A bottom-up or emergent perspective takes the opposite view of manufacturing strategy. In this view, knowledge is created as part of ongoing manufacturing operations. Strategic ideas may emerge from the experience of lower-level staff that may alter the direction or competitive positioning of the firm. These ideas can be adopted at the lower level, with senior management’s role changing from originator of strategy to provision of resources to support these emergent ideas.

Market Requirements

The market requirements perspective attempts to explicitly link manufacturing with the demands of customers. Organizations assess the market to determine the areas of manufacturing performance desired by customers. This information is then used to improve the organization’s performance in these areas. There is a general agreement among researchers on these performance areas as detailed below.

Flexibility: Flexibility is defined as the ability to change manufacturing operations to provide new products, and to incorporate new processes or new delivery options. Improved flexibility can aid organizations in recovering quickly from disruptions and increase sales by providing new options to customers.
Dependability: Dependability is defined as the ability to provide required items in the time they were expected. Dependability ensures that manufacturing operations are stable and provides assurance to customers.
Delivery Lead Time: Delivery lead time is defined as the time customers are required to wait in order to receive their products or services. Improved speed of delivery can reduce costs to an organization by reducing internal inventory and provide items more quickly to customers.
Quality: Quality is defined as the ability to produce items that conform to specifications and meet customer requirements. Within the organization, a high quality level reduces costs and improves dependability of the organization. Outside the organization, a high quality level improves customer satisfaction and can help differentiate the firm’s products from those of competitors.
Cost: Manufacturing organizations also attempt to minimize the cost of producing products and services. Within the organization, costs are linked to the other abilities as higher quality and dependability can minimize waste, reducing costs. Outside the organization, lower costs can be used to win market share from competitors by providing lower prices to customers or to increase profitability by maintaining the same prices as competitors.

A commonly used framework to determine the relative importance of performance areas is the order winning and order qualifications framework. Order winning factors are the performance areas that contribute to winning business or customer orders and are determinants of market success. Order qualifiers are the areas that the organization needs to provide a minimum level of performance in order to maintain its market presence. If the organization does not provide that level of performance, it will not be considered by customers, but improvement beyond a minimum level will not win additional business.

Internal Capabilities

The internal capabilities perspective takes the opposite view to the market approach as it focuses on an organization’s manufacturing resources as critical to its success. This perspective is built on the resource based view of organizations in which firms are seen as a collection of resources coordinated to provide organizational capabilities. Resources can be tangible (for example, equipment) or intangible (for example, employee skills). The focus is therefore on identifying and understanding which resources are valuable in order to build strategies that maximize their potential.

Best Practice

Best practice approaches focus on the adoption of operational practices that enable superior performance. This paradigm has its root in the benchmarking approach, which is a method of improving organizational performance by comparing company practices with those of other organizations. Best practice approaches to manufacturing strategy were initially stimulated by a need to understand the superior performance of Japanese firms but have been extended to incorporate practices from manufacturers worldwide. Researchers identified the practices that support these performance levels, adapting them for adoption by other firms. The assumption was that in adopting these practices, other firms can achieve a similar level of performance. As manufacturing practices are continually evolving as technologies and customer requirements change, this identification adaptation-adoption process is continuous or a firm may risk losing its competitive edge. The highest level of best practice is known as world-class manufacturing, defined as the practices required delivering the highest level of performance in quality, design, efficiency, and delivery when compared to other firms internationally.

Individually, none of these paradigms will be sufficient for formulating and implementing a manufacturing strategy. In practice, these paradigms are linked by organizations when formulating and implementing a manufacturing strategy. Generally, a company will formulate a strategic vision, incorporating the views of top management and ideas from manufacturing practice. The internal resources and capabilities of the organization are then assessed against the needs of the marketplace. Based on this assessment, the organization will make choices about which areas it will develop in order to build or maintain its competitive advantage. The organization will then seek to identify or develop best practices to achieve superior manufacturing performance.

Bibliography:

Robert Hayes and Steven C. Wheelwright, Restoring our Competitive Edge (Wiley, 1984);
Terry Hill, Manufacturing Strategy (Palgrave Macmillan, 2000);
Richard Metters, Kathryn King-Metters, and Madeleine Pullman, Successful Service Operations Management (South-Western, 2006);
W. Platts and M. J. Gregory, “Manufacturing Audit in the Process of Strategy Formulation,” International Journal of Operations and Production Management (1990);
Nigel Slack, Stuart Chambers, and Robert Johnston, Operations Management (Prentice Hall/ Financial Times, 2007);
Skinner, “Manufacturing—The Missing Link in Corporate Strategy,” Harvard Business Review (May–June 1969);
A. Voss, “Alternative Paradigms for Manufacturing Strategy,” International Journal of Operations & Production Management (v.15/4, 1995).

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