Aligning Marketing and Manufacturing Strategies With the Market

7/21/2019 Aligning Marketing and Manufacturing Strategies With the Market

http://slidepdf.com/reader/full/aligning-marketing-and-manufacturing-strategies-with-the-market 1/20

int. j. prod. res., 1999, vol. 37, no. 16, 3599±3618

Aligning marketing and manufacturing strategies with the market

W. L. BERRY{, T. HILL{* and J. E. KLOMPMAKER}

In strategic marketing decisions substantial emphasis is placed on market seg-mentation and product/service dierentiation. This follows from separate, inten-sive analyses of customers and competitors. Based on these analyses, the resultantsegmentation and dierentiation schema, and an intensive review of the ®rm’sown strengths, weaknesses, opportunities and threats, the ®rm makes one of itsmost important and critical decisions: which customers to serve and which prod-ucts to emphasize, referred to as positioning. On the other side of the same cor-porate coin, manufacturing makes decisions on process and infrastructureinvestments based upon the technologies required, and its perception of what itneeds to do well in order to ful®l its role. In the same way as with marketingdecisions, the ®rm now makes another of its most critical decisions by committingitself to major investments in manufacturing that are characterized by high valueand long time scales to change. On the one hand, these positioning decisions bymarketing invariably include little emphasis in determining the customer require-ments that must be supported by manufacturing, and fail to investigate the abilityof manufacturing to support these requirements. On the other hand, manufactur-ing decisions do not re¯ect key insights on the needs of current and future mar-kets. As a consequence, many businesses fail to achieve their strategic businessobjectives, due, in part, to the inability of marketing and manufacturing to jointlydevelop consistent strategies. We call this a lack of alignment. The methodologyoutlined in this paper concerns how to align marketing and manufacturing stra-tegies by using markets as the center piece of both developments. Doing thishighlights the recognition that markets need to form the common denominatorof both marketing and manufacturing strategy development. This methodology isillustrated by using an actual example drawn from plant-based research. Severalkey questions are addressed in this methodology. How does marketing viewcustomers and markets? What is manufacturing’s view of the same customersand markets? To what extent is manufacturing actually able to support the

demands that these customers and markets are placing on a ®rm’s capabilities?It is important to check with the use of data, the actual operating performanceagainst the required capabilities. In cases where substantial dierences existbetween customer and market requirements and manufacturing capabilities, stra-tegic options (both in marketing and manufacturing) to resolve these dierencesneed to be addressed in making strategic business decisions.

1. Introduction

Despite two decades or more of research on the process and content of manu-facturing strategy, core dimensions still remain at large:

International Journal of Production Research ISSN 0020±7543 print/ISSN 1366±588X online# 1999 Taylor & Francis Ltdhttp://www.tandf.co.uk/JNLS/prs.htm

http://www.taylorandfrancis.com/JNLS/prs.htm

Revision received September 1998.{ The Max M. Fisher College of Business, The Ohio State University, 2100 Neil Avenue,

Columbus, OH 43210, USA.{ The London Business School, The University of London, UK.} The Kenan-Flagler Business School, The University of North Carolina, Chapel Hill,

USA.* To whom correspondence should be addressed. e-mail: [email protected]



(a) there is no generally accepted method for its analysis and development;(b) there is no framework for organizing management thinking regarding its

formulation that is generally accepted by executives and researchers;(c) there are no commonly held concepts and language to communicate issues

and options among those concerned with its development and implementa-

tion.

Furthermore, the links between manufacturing strategy and other functional strate-gies are frequently unclear with the result that management’s ability to connect thestrategic options in one function with relevant options in other functions is oftenvery limited. The result is that the `bunker’ mentality within a business is not onlyreinforced but is also extended to the formulation and development of functionalstrategies. Finally, debate and discussion of the linkages between manufacturing

strategy and marketing strategy are critical if a business is to be competitive in itsmarkets. The fact that management is often unable to link strategic options betweenfunctions limits this debate and the eectiveness of strategic outcomes in any busi-ness.

This paper presents a framework and methodology for guiding the developmentof functional strategy in both marketing and manufacturing that has been tested innumerous businesses over the past ®fteen years. Furthermore, the approaches usedin marketing have been applied successfully by marketers for nearly forty years.

The purpose of this paper is to provide a comprehensive statement on how to link

the functional strategies developed within marketing and manufacturing and toillustrate these approaches by using a worked example of one company. Theapproaches outlined are the result of many business-based applications. The com-pany example is intended to illustrate the points embodied in the approaches usedwhile providing additional insights and emphasis throughout.

The paper builds on some of the key views held by the authors and which havebeen derived from their extensive research in businesses.

(a) The analysis of customers and markets provides the basis for linking thestrategy development eorts in both of these functions.(b) Frameworks and methodologies are an essential aid for executives when

formulating, articulating, debating, and implementing functional strategiessuch as marketing and manufacturing.

(c) Similarly, frameworks and methodologies are essential for guiding researchin the study and analysis of functional strategies.

As would be expected, these views are re¯ected throughout the paper and help to

form some of the themes and outcomes on which the work is based. An outline of thecontent and rationale of the paper is now provided. The ®rst section provides anoverview of the framework and methodology we use in analysing and developing thefunctional strategies of marketing and manufacturing. Then we give an example thatillustrates the steps in each of the frameworks and how the supporting methodologyworks. The ®nal section presents the conclusions which have been reached based onextensive ®eld research completed (but not reported in detail here) over the past®fteen years in applying this framework and methodology to companies in such

diverse businesses as furniture, packaging, chemicals, electronics, printing, steeland automotive components.

3600 W. L . Berry et al.



2. Framework and methodology overview

Many have argued that strategic choices in manufacturing need to be made incompetitive terms, thereby enabling manufacturing to do certain things better thancompetitors (Clark 1996, Fine and Hax 1985, Hayes and Pisano, 1996). Cost, qual-ity, dependability and ¯exibility have been proposed as key competitive priorities,

with the understanding that manufacturing must determine on which of these dimen-sions it seeks to be distinctive (Fine and Hax 1985, Hayes and Wheelwright 1984,Wheelwright and Kent Bowen 1996). Plant focus has been recognized as a means of supporting strategic development in which dierent products are sold in dierentmarkets that require dierent competitive priorities (Hayes and Pisaro 1996). As anexample, Benningson (1996) provides an illustration where market and competitive-based business analyses were used to cross reference market segments and manu-facturing processes in terms of order size and frequency to improve order scheduling

performance. Voss and Winch (1996) also illustrate the use of order winning criteriaand the concept of positioning choice as a way to link manufacturing strategy tomarket needs.

However, despite the substantial progress made in research on the process andcontent of manufacturing strategy, there is no framework and methodology fordeveloping manufacturing strategy that is generally accepted by both the marketingand manufacturing functions in a business. One result is that among those concernedwith strategic development and implementation there are neither commonly heldconcepts nor language to communicate issues and options. This paper addressesthis gap by presenting a methodology that is both consistent with the strategymethodology generally used by marketers and successfully links the strategic per-spectives of manufacturing into the corporate debate. This methodology has beensuccessfully applied in numerous ®rms to check the alignment between the strategieswhich marketing and manufacturing have developed.

The framework and methodology presented here is based on the view that themarket is the common denominator when developing functional strategies.Consequently, it is important to ensure that the views of key functions on how

markets work and what constitutes the competitive factors are recognized. Thendierences can be resolved so that a more informed view is reached and commonagreement on the competitive factors in markets is shared. Once the nature of themarket(s) is understood, the strategic tasks of marketing, manufacturing and otherfunctions are clear. The proposed framework and methodology to align marketingand manufacturing strategies consists of the ®ve steps below.

. Step 1: elicit marketing’s view of the market and identify its strategic initia-tives.

. Step 2: establish marketing’s view of the market in terms of customer require-ments and verify that the views on customer needs are correct both in terms of perspective and emphasis.

. Step 3: check manufacturing’s performance against those customer require-ments for which it is solely or partly responsible.

. Step 4: compare current and future manufacturing investments and develop-ments (i.e. manufacturing strategy), with the customer requirements for whichit is solely or partly responsible.

. Step 5: identify the investments and developments necessary to resolve thedierences between customer requirements and manufacturing’s performance.

3601Aligning marketing and manufacturing strategies



The basis for this approach derives from the work of Hill (1994) in developing amanufacturing strategy framework. This framework is included as table 1. It beginswith an analysis of business objectives and marketing strategy, moves to a descrip-tion of markets and customer requirements in terms of the relevant order winnersand quali®ers, and ends with an analysis of manufacturing strategy in terms of process and infrastructure investments. This framework has had extensive ®eld test-

ing in a wide range of industries, representing a signi®cant sample size. This includes48 companies ranging in size from annual sales of $40 million to $5 billion in thefollowing industries: packaging, furniture, steel, automotive, aerospace, textiles,tobacco, plastics, pharmaceuticals, electronics, telecommunications, apparel, andcommunications. The companies were located in the USA, Canada, Mexico,Thailand, UK, Spain, France, Germany, Portugal and South Africa.

The methodology presented here extends Hill’s work in two ways. First, it expli-citly links Hill’s framework to the marketing strategy framework that is generally

accepted by both executives and researchers (Corey 1992). Second, it provides themethodology needed to apply this overall framework to strategic business decisions.

2.1. Examining marketing’s view of the businessÐstep 1To examine marketing’s view of the business we used the framework presented in

®gure 1 to describe and review the marketing strategy of the company (as a con-venience to the reader, all portions of this paper that illustrate the application of ourmethodology to Anonke Apparel will be set in italic type). The ®rst step in themethodology concerns examining marketing’s view of the business and its strategicinitiatives. The marketing strategy framework shown in ®gure 1 indicates the processby which marketers study markets and formulate strategies to serve them (Corey1992).

Marketing/Manufacturing strategy illustration Ð Anonke Apparel: To illustrate themanufacturing strategy framework and methodology we have selected an apparel com-

pany located in Thailand named Anonke Apparel. This ®rm is an interesting example inthree ways:

(a) it competes in world markets that are intensely competitive;(b) it exports 100% of its product sales;


Order Manufacturing strategyCorporate winningobjectives criteria Process Infrastructure

Table 1. Alignment process overview: marketing’s view of business and initiatives.

Marketingstrategy



(c) the chief executive has a well-conceived manufacturing strategy which involvesan investment in advanced manufacturing technology in direct support of market requirements.

As with much of marketing, analysing and understanding customers is para-mount. We want to know who they are; what they buy from our product line;

when, where and how often their purchases occur; why they buy, that is, whatbene®ts they seek; and how they buy which means what is their buying process.Based on answers to these and similar questions, patterns of buying or groupings of customers start to emerge called market segments. An essential element in marketsegmentation is to assign customers to segments so that all customers within asegment exhibit similar buying behaviour, while customers across segments exhibitdissimilar buying behaviour (Buzzell 1987). This is because the goal of all marketingstrategies is to aect buying behaviour in such a way as to work to the bene®t of theselling ®rm while meeting the demands of customers. By working with customerswith similar buying behaviours, marketers can develop a strategy for that marketsegment which is speci®c and peculiar to that segment. By the same token, they candevelop speci®c, unique strategies for other segments. This bias has come to be calledtarget marketing.

While acknowledging that customer dierences are key, recognizing that other®rms are trying to do the same thing avoids myopic strategies which fail to recognizethe key role played by competitors. Even though it is true that all marketers try theirbest to serve their chosen customers, their competitors are attempting to do the very

same thing. It is also true that competitors in a market possess unique capabilities.Recognizing, acknowledging and specifying those dierences is the task of product


Figure 1. Developing a marketing strategy.



dierentiation. Here the marketer objectively acknowledges where a ®rm is strongand where various competitors might be stronger, or weaker.

Finally, the marketer explicitly recognizes that marketing is simply one compon-ent of a ®rm’s overall business strategy. Using time-honoured and dependable tools,portfolio analysis (Hedley 1977), industry analysis (Porter 1980) core competencyassessment (Prahalad and Hamel 1990) and other strategic analytic weapons, busi-

ness strategists build strategies, set objectives for the ®rm and provide corporatedirection. These analyses also determine where a ®rm is strong (possesses the necess-ary skills, capabilities and resources) in order to build or maintain a competitiveadvantage.

Based on these three, key analyses, referred to as the three C’s (customers,competitors and company), the marketer makes one of the most important decisionsthat a ®rm faces: which markets to serve with which products/services and usingwhich strategy. From this key decision all other marketing decisions simply ¯ow.Marketing programs in each of the major areas of marketing, ®rst called the four P’s(product, price, place and promotion) by McCarthy (1960), are then developed tobring these marketing strategies to the marketplace.

Marketing strategy Ð Anonke Apparel: Anonke Apparel’s market segmentationscheme is shown as table 2. Three major segments are identi®ed by the ®rm: segmentA1 consists of companies with world-wide reputations for their brands, large advertising budgets and high levels of product and process knowledge; segment A2 is made up of

®rms similar to those in segment A1 except that they are smaller, have lower advertis-

ing budgets and are mostly only known in their home markets; segment B consists of customers that are very nimble, act and react quickly, and are not averse to copying designs originally developed by some of their larger competitors.

Customer analysis/market segmentation Ð Anonke Apparel: Three major initiativescomprise Anonke’s current marketing strategy (see table 6 ). These include targeting large US companies in segment A1, targeting several European customers in segmentsA2 and B, and emphasizing hard-to-manufacture products, e.g. raincoats, across all segments. Each of these strategies is based upon separate rationales. The large US

companies are of interest because they provide large annual orders which help simplifybusiness and production planning. The European ®rms targeted demand higher quality,


Segment A1: widely recognized brandsheavily advertisedbrands known because of footwear linesdesigner speci®es fabric, color and fabric supplierbought monthly for delivery four months hence

Segment A2: much like A1 except bought more on product featuressmaller than A1 customerssmall ad budgets; promote only in home countriesown their own retail outlets

Segment B: have no designerssubmit samples and Anonke selects®ve month delivery typicalsome buy directly from ®nished goods inventory

Table 2. Anonke’s customers/segments.



but are far less price-sensitive. These characteristics clearly play to Anonke’s strengthsas illustrated earlier in the dierentiation analysis. Finally, by emphasizing hard-to-make products, Anonke is seeking markets which draw upon their manufacturing strengths and move them away from price-sensitive, low margin segments.

Competitor analysis Ð Anonke Apparel: Anonke competes with local Thai ®rms,large global ®rms, and new competitors entering the market, especially fromSoutheast Asia (see table 3). On a day-to-day basis, however, Anonke most often

faces its Thai counterparts. Making this task particularly dicult for Anonke is the fact that each Thai competitor seems to compete in a distinct manner, particularly interms of products manufactured and sold (see table 4). Generally, Anonke’s Thai competitors have longer runs, more standard products, and lower manufacturing costs. Under the process choice framework developed by Hill (1994), Anonke’s compe-titors use high-volume batch processes. Anonke, on the other hand, has developed a low-

volume batch process to meet the needs of small volume customers as we will demon-strate later (see ®gure 2).


Other Thai companiesGlobally: Hong Kong, Taiwan, Singapore, Korea, China, Japan, and Eastern EuropeNew competition coming from Indonesia and Malaysia

Table 3. Anonke’s competitor categories.

Dier from product to productOne major competitor in raincoats and long coats (J. E. Garment Company)Three in men’s, women’s and children’s jackets (Thai Masa, Far East Woven, and Autraya

Garment)Two in sportswear (Thai Hong Kong Garment and Best Week)Major strengths: longer runs

standard productslower costs

Table 4. Anonke’s Thai competitors.

Figure 2. Anonke compared to its competitors.



Product dierentiation Ð Anonke Apparel: Anonke’s product line by segment isshown in table 5. Comparing this with the data shown in table 4, it becomes apparentthat Anonke’s competitors dier signi®cantly within each segment. Thus, Anonke’scompetitive advantage may be stronger or weaker depending upon the market segmentunder review. Generally, however, Anonke oers a much broader line than nearly all itsThai competitors, and this broad product line has important implications for manu-

facturing strategy.

2.2. Establishing customer requirementsÐstep 2Although buying pattern type, geographic location, and retail outlet type

often represent critical segmentation dimensions in formulating marketing strategy,this view of the market provides little information concerning the customerrequirements placed on manufacturing. An alternative approach is to segmentmarkets in a way that provides manufacturing with insights into customer andmarket requirements, using the order winning and qualifying criteria proposed byHill (1994). (Order winners are those criteria that enable a company to win ordersagainst competitors. Quali®ers (Q) are those criteria that a company must meetfor a customer to even consider it as a possible supplier, with some displaying ahigh level of sensitivity to order loss. Quali®ers can also be order losing sensitive(QQ)). This approach provides manufacturing with a description of the market thatcan be related directly to manufacturing capabilities and manufacturing strategyoptions.

The process for developing order winners and quali®ers indicated in table 7

diers from ®rm to ®rm and fromsituation to situation but typically involves severalsteps. First, sales and marketing executives are interviewed to prepare a judgement


Product A1 A2 B

BlouseSki wearStadium jacket

Men’s shortsJackets/pantsJacketsRaincoatsCoatsChildren’s jacketsParkasPantsJogging suitsChildren’s shorts

Table 5. Anonke’s products by segment.

Target large US companies like Zeus and Leland (segment A1) because they place large ordersand order once/year.

Target several European customers because of higher prices and stricter quality requirements(segments A2 and B).

Emphasize dicult-to-manufacture products: more raincoats and fewer shirts.

Table 6. Anonke’s marketing initiatives.



sample, usually containing 30±50 customers and products that provide a represen-tative sample of relevant market segments. The appropriate size of the sampledepends upon the number of distinct market segments to be reviewed. Next, discus-sions are held with marketing and sales executives to identify the potential orderwinners and quali®ers for each of the customers in this sample. Once the set of order

winners and quali®ers has been reduced to a small number of key items, the last stepinvolves developing weights for each of the order winners, and identifying the orderlosing sensitivity of each quali®er.

The customer data in the sample has two important uses. First, this data providesa check on management’s judgement concerning the relative importance of orderwinners and quali®ers. For example, the data can be used to check the actual level of customer price sensitivity, the degree of delivery speed pressure actually experiencedfrom customers, or the actual demands concerning the level of quality conformancein a product speci®cation. When dierences occur between the data in the ordersample and the managerial judgements, these need to be resolved. Second, the datain the customer order sample can be reorganized to re¯ect major groupings of customers that have similar order winners and quali®ers, and similar order winnerweightings. Such groupings form the basis for market segments that are character-ized in manufacturing terms, indicating important dierences in the customerrequirements placed on manufacturing between segments.

Order winners and quali®ers Ð Anonke Apparel: Twenty-seven customers worldwide

were selected by the sales and marketing executives at Anonke as representative of themarket segments served by the company. Table 8 shows illustrative data from the judgement sample which includes the critical manufacturing and non-manufacturing order winners and quali®ers, and their respective weightings.

The data in the judgement sample were organized to identify groupings of customerswith similar order winners and quali®ers. Consequently, the customers were grouped into the ®ve dierent market segments shown in table 9. These segments place the

following four very dierent sets of requirements on manufacturing.

(a) Segment FC (Few Competitors) involves small customer orders, has declining sales, and is not highly price sensitive.


Order Manufacturing strategyCorporate Marketing winningobjectives strategy criteria Process Infrastructure

Sources: (1) Marketing interviews/discussion(2) Order sample from marketing/manufacturing(3) Information on manufacturing segments(4) Rethought manufacturing segmentation.

Table 7. Alignment process overview: customer requirements.



(b) Segment P (Price) is very price-sensitive and is increasing its demands forreliable delivery.

(c) Segment PC (Partnership Collection) places a major emphasis on deliveryreliability with moderate growth and mid-range customer order sizes.

(d ) Segments L V (L arge V olume) and PF (Product Features) have high growth potential, place a wide range of customer order sizes that require production ¯exibility, emphasize delivery speed and delivery reliability, and are pricesensitive.

For Anonke, four key order winners require further analysis to evaluate manufacturing performance and capabilities: price, delivery speed, delivery reliability, and manufacturing’s ability to provide small to medium customer order quantities. This lattercapability provides a strong, sustainable competitive advantage for Anonke in terms of meeting the needs of speciality shops and boutique customers.

2.3. Checking manufacturing performanceÐstep 3An understanding of a company’s markets in terms of order winner and quali®er

data provides the basis for analysing both a ®rm’s manufacturing strategy and itsperformance against these customer and market requirements. The ellipse shown in


(a)

Home

Buying oce Production Delivery Delivery Capacity Product

Customer pattern location Segment ¯exibility Quality speed reliability Price uplift features

Pierre Duree A2 France Q/Q Q/Q Q/10 0/10 Q/Q 20/20

Ibrahim A2 France FC Q Q Q Q 20

Iberian B Spain Q/Q 0/15 0/15 40/10 20/20

Daisy Wraps B USA 70/70

Couti B ItalyP

Q? 10/? 20/? 30/? 10/?

Leland A1 USA 10/10 10/20 15/15 25/25 15/15

Eurotech A1 USA 10/10 10/15 15/15 30/35 15/15

Larouche B Swiss 20/20 20/20 20/20 20/30 10/10

Fontainbleau B France 20/20 20/20 20/20 20/25 10/10

Phoenix-EEC A1 Germany 10/10 10/20 15/15 15/15 20/20

Phoenix-USA A1

LV

10/10 10/20 15/15 20/20 20/20

Zeus-USA A1 10/10 10/20 15/15 25/25 15/15

Zeus-EEC A1 USA 10/10 10/20 15/15 15/15 20/20

Jean Valjean B Germany 20/20 20/20 20/30 30/30

Monmouth A2 Netherlands 20/20 20/20 20/20 30/30

Bach B Germany 10/10 20/20 10/10 30/30

Naomi B France 10/10 Q/Q 20/20 10/20 30/30

Mulder B Netherlands 30/0 20/0 20/0

Toddlers A1 France 10/? 10/? 10/? 30/?

Niebuhr B Germany

PF

10/0 Q/Q 10/20 20/20 20/30 20/20

Peppi A2 Italy 10/10 20/15 10/10 30/20

Sumata A2 Japan 20/20 0/20 20/20 20/10 10/10Apres B Germany 20/? Q? 10/? 20/? Q/? 30/?

Gorgio A2 France Q/Q Q/Q Q/20 Q/10 Q/10 10/0 20/20

Candida A2 Italy 10/10 20/20 20/20

Etyia B Italy PC 10/10 20/20 20/20

Italia A2 Italy 10/10 20/20 20/20

Table 8(a). Anonke’s market segments by order winning criteria: manufacturing related.



table 10 indicates the need for debate regarding how well the current manufacturingstrategy supports the market requirements placed on the company, both now and in

the future. Where gaps in performance exist, this diagram also indicates the need todebate potential strategic options that would improve the competitiveness of thecompany by reducing the gap between market requirements and manufacturingcapabilities.

The ®rst step in assessing company performance against market requirements, i.e.against the key order winners and quali®ers, is to collect operating data for therepresentative customers and products in the judgement sample. The data shownin table 11 and ®gure 3 has been included to illustrate how company performance

can be assessed in terms of key order winners and quali®ers. In this case, price anddelivery speed and reliability are critical areas at Anonke Apparel.


(b)

Home

Buying oce Sales Country of Market Have Partnership Few

Customer pattern location Segment relation origin familiarity quota (collection) (competitors)

Pierre Duree A2 France

FC Q/Q 20/10 25/35 35/15

Ibrahim A2 France Q 10 35 35

Iberian B Spain 10/10 10/10 20/20

Daisy Wraps B USA 10/10 20/20

Couti B ItalyP

10/? 20/?

Leland A1 USA 10/10 10/0 5/5

Eurotech A1 USA 10/10 10/0

Larouche B Swiss 10/0

Fontainbleau B France 0/5 10/0

Phoenix-EEC A1 Germany 10/10 10/0 10/10

Phoenix-USA A1

LV10/10 10/0 5/5

Zeus-USA A1 10/10 10/0 5/5

Zeus-EEC A1 USA 10/10 10/0 10/10

Jean Valjean B Germany 10/0

Monmouth A2 Netherlands 10/10

Bach B Germany 20/10 10/0 0/20

Naomi B France 10/10 20/10

Mulder B Netherlands 20/0 10/0

Toddlers A1 France 10/? 10/?

Niebuhr B Germany

PF10/10 10/0

Peppi A2 Italy 0/20 10/0 20/25

Sumata A2 Japan 20/20 10/0Apres B Germany 20/?

Gorgio A2 France Q/Q Q/Q 20/10 50/30

Candida A2 Italy 20/20 30/30

Etyia B Italy PC 20/20 30/30

Italia A2 Italy 20/20 30/30

Order winning criteria (xx/yy) where xxˆ current year and yyˆ three years hence. If yyˆ0, thiscustomer will be phased out. If yyˆ ?, a major change is occurring within a customer’s management.Product features: superior workmanship or fabric material. Sales relationship: longstanding sales relation-ship. Country of origin: purchased because it was produced in a particular country. Market familiarity:superior knowledge of local market. Have quota: have available quota where competitors do not.Partnership (collection): long term customer relationship in producing a given collection; the customeris reluctant to change suppliers because design detail con®dentiality is desired.

Table 8(b). Anonke’s market segments by order winning criteria: non-manufacturing related.



Information such as that shown in table 11 and ®gure 3 should include customerand market pro®tability analyses, and cost estimates of supplying products in vari-ous volumes (including those outside the normal range). The contemporary work onActivity-Based Costing to determine cost drivers, and the Theory of Constraints toidentify process bottlenecks and their impact on product pro®tability provide anexcellent framework for contribution margin analysis (Campbell et al. 1997,Spoede 1996). Such an approach ensures that marketing strategies are developedwhich take into account the company’s capabilities and their customers’ contribu-

tions to pro®tability as distinct from their contributions to revenue. (Elishberg andSteinberg (1987) surveyed joint decision-making categories and concluded that there


Segments

Few Large Product Partnership/ Order winners competitors Price volume features collections

Few competitors 35/25Partnership/coll. 30/35 11/11 35/30Product features 20/20 15/15 16/16 27/27 20/20Market familiarity 15/10 15/15Sales relationship 14/13 20/20Have quota 20/20Price 47/37 21/24 16/16Delivery speed{ 13/19 8/15Delivery rel.{ 10/18 16/16 20/18 20/20Production ex. 13/13 16/12

% Sales/growth} 4/±5 3/±44 57/272 22/245 14/132Product diculty 1 1±3 3±5 1±3 1±3Buying pattern A2 B A1 A2, B A2, BOrder size 1084 31 588 11 592 3132 4366

{ 150 daysÐnow; 45 days after fabric delivery, 60±120 daysÐfuture. { 2 weeks in peak season. } All inpercentages.

Table 9. Anonke’s market requirements/order winners.

Order Manuf acturing strategyCorporate Marketing winningobjectives strategy criteria Process Infrastructure

Issues: price, delivery reliability, delivery speed, production ¯exibility.

Table 10. Anonke’s alignment process overview: manufacturing’s performance.



must be a concurrent analysis of manufacturing costs and marketing bene®ts inproduct mix decisions.)

As an illustration of this point, the contribution margin $ per labour hourdata shown in table 11 was an important aspect of this analysis because of theconstraint on the availability of skilled labour faced by Anonke Apparel. This con-straint led the company to invest in an industrial training facility to developemployee skills to produce enhanced product features. It is important to identifykey constraints on manufacturing performance, and to assess their impact on pro®t-

ability as illustrated by the data shown in table 11. Such constraints may involvespeci®c processes, machines, critical employee skills (as in the case of AnonkeApparel), or even functional department capacities such as engineering design or®nal product testing.

Manufacturing performance Ð Anonke Apparel: At Anonke there are four key orderwinners: delivery speed, delivery reliability, manufacturing’s ability to make low tomedium size orders, and price. This step is illustrated using the Anonke data shownin table 11 and ®gure 3.

Delivery speed is an important issue with Anonke’s customers. Currently, one majorcustomer in the large volume (L V ) segment is pressing for 150 day lead times. The


Few Large Product Partnership

competitors Price volume features collections

Price related:Dir. mat. (% price) 51 67 63 60 58Dir. Mat. ($/pc.) 13.73 2.54 8.24 14.95 13.27Cont. marg. ($/pc.) 10.62 0.72 3.14 7.27 7.53Cont. marg. (% price) 39 19 24 29 33Cont. margin ($/hr.) 2.54 1.38 1.48 1.77 2.28

Delivery related:

Avg. quote LT (days) 146 172 170 164 161Avg. actual LT (days) 173 176 197 190 166Avg. lateness (days) 27 4 27 26 5

Actual and quoted delivery speeds are not meeting customer requirements; actual delivery speed is notmeeting quoted speeds.

Table 11. Anonke’s manufacturing performance: price and delivery related.

. Flexibility important intwo segments: ``LargeVolume’’ and ``Product

Features’’. Doing ®ne in A2 (data

insucient to look at A1and B)

Figure 3. Anonke’s manufacturing performance: ¯exibility.



company expects that other customers in the large volume (L V ) and product features (PF ) segments will soon be pressing for delivery lead times between 60 and 120 days.

The delivery information for customers in the judgement sample indicates that

Anonke currently promised customers delivery lead times averaging 146 to 172 days(see table 11), depending on the market segment. It also indicates that the delivery lead times actually experienced by customers average 166 to 197 days, depending on themarket segment. During the peak selling season (April to September) customers experi-ence even longer delivery lead times averaging from 143 to 236 days, depending on themarket segment.

L ikewise, delivery reliability is an important issue with customers. Overall, actual deliveries currently average 4 to 27 days after the promised delivery date. Further,

deliveries average 26 to 27 days late in the two highest growth segments (LV and PF ). Customers expect delivery within a two week window during the peak selling season for April through September. During this period, however, deliveries average15 to 86 days after the promised delivery date.

Production’s ability to provide small to medium order quantities is important in boththe L V and PF segments (see table 8). To check the company’s performance againstthis aspect of production capability, relevant data on productivity, contribution margin,and customer order sizes were collected. The plot of productivity (units per hour)against customer order size shown in ®gure 3 includes all the data for customers in

segment A2. This plot shows that productivity is roughly constant for a very wide rangeof customer order sizes in the low to mid volume range. Similar plots were observed forcontribution margin/labour hour versus customer order size. These results indicate thatthe production process provides good support for this market requirement.

Price is a key criterion in two segments: P and L V . The data in table 11 indicatethat the percent contribution margin in these two segments is low. The principal reason

for this is that the direct material cost, which is primarily fabric cost, is high. Therefore,while previous investments by the company in automated pattern making and laser cloth

cutting have helped to reduce cost, manufacturing needs to support further corporateeorts in direct material cost reduction.



Table 12. Alignment process. Overview: manufacturing strategy versus current performance.



2.4. Comparing manufacturing strategy to actual performanceÐstep 4

As with all functional strategies, manufacturing strategy comprises the develop-ments and investments made in processes and infrastructure to support markets (seetable 12). As argued throughout, we believe that markets (current and future) are thecommon denominator of functional strategies. Once these are understood and agree-ment is reached on where to compete and grow, then manufacturing’s strategic roleis to develop the capabilities to support those order winners and quali®ers for whichit is solely or jointly responsible. In this way it needs to be market-driven. However,there are times when it also needs to be market-driving, i.e. determining what order

winner and quali®er changes can be made in line with its existing capabilities orcapabilities which it then develops.Because of the absence of a well-established framework and methodology for

manufacturing strategy, very little formal information typically exists in companiesto document a ®rm’s manufacturing strategy. As a consequence, we take the follow-ing approach in conducting interviews with manufacturing executives to understandtheir manufacturing strategy.

The ®rst requirement for information concerns the major investments made inmanufacturing and major programs instituted in manufacturing that have been

undertaken by the company during the last several years. These re ect its manu-facturing strategy. In particular, we are interested in the business bene®ts resultingfrom these investments rather than the details of the process technology and so on.This approach is illustrated using data from Anonke.

Manufacturing strategy versus current performance Ð Anonke Apparel: During the past ®ve years Anonke has made several major investments in manufacturing. Theseinvestments, shown in table 13, have several objectives.

Investments to reduce costThe investments in computer technology for pattern-making and a laser cloth cut-

ting machine provided important bene®ts by reducing fabric waste and decreasing directlabour costs. L ikewise, the special purpose sewing machines provided equipment that

performs operations such as embroidery and button hole making to improve productiv-ity and reduce direct labour cost.

Investments to meet low-volume orders

The investment in sewing lines reduced the level of diculty in the sewing operations

by transferring the more dicult operations to sub-assembly stations operated byhighly skilled employees. The business bene®ts here included lower learning and change-


Manufacturing strategyOrder winning

criteria Process choice Infrastructure

Production exibility Flexible sewing line. Training

Price Pattern-making, laser cutting,special purpose machines.Delivery speed Systems ?Delivery reliability Systems ?

Process choice is low volume batch.

Table 13. Anonke’s manufacturing strategy.



over times between customer orders. This investment representated a deliberate decisionto invest in a low-volume batch process choice to create competitive advantage asindicated in the diagram in ®gure 2.

Investments to support product features

The investment in an industrial training facility provided important bene®ts in thedevelopment of employee skills to produce enhanced product features.

Several conclusions can be drawn by comparing the manufacturing strategy with the performance data provided by the order sample. This involves comparing actual manufacturing capabilities to the market requirements.

(a) Manufacturing initiatives have provided important support for three of theorder winning criteria: price, manufacturing’s ability to cope successfullywith low to medium customer order speci®cations, and product features.

(b) Investment in sewing lines provides good support for low- to mid-volumemarkets, and positions the company as the most eective in processing low

volume batch products.(c) Although the investments in automated pattern making and laser cutting

support low cost production, a key area for improvement is to further reduce fabric cost, especially if the A1 market segment is to be emphasized.

(d ) While the investment in automated pattern making shortens this step in the process, manufacturing does not currently have the capability to support cur-rent and future market requirements for delivery speed and delivery reliability.

2.5. Developing strategic issues and recommendationsÐstep 5The ®nal step in our methodology is to identify the areas of misalignment

between marketing and manufacturing strategy, and to develop options to improvethe strategic ®t between these two functions. As a consequence, the debate mayinvolve a discussion of changes in both marketing and manufacturing strategy, i.e.a discussion involving markets, marketing initiatives, and manufacturing invest-ments. This is indicated by the large ellipse in table 14.

To illustrate this point the strategy issues/recommendation discussion for Anonke

Apparel included below highlights two important areas of misalignment at this company. These are:



Table 14. Alignment process overview: manufacturing’s view of business and initiatives.



(a) the inability of the company to meet the delivery speed and reliability require-

ments of the large volume and product features market segments;(b) the focus on the large volume segment which does not exploit the company’s

investment in low/mid volume production ¯exibility in the factory nor the skill level of the workforce.

These require discussion and debate within the company to resolve the dierences inmarketing and manufacturing strategy.

At Anonke, the key manufacturing options to improve strategic alignment (shownin table 15) involved reducing customer lead times and increasing delivery reliability.Further analysis of the data collected in the representative sample revealed that, cur-rently, over half the operations lead time is explained by delays in ordering fabric oncethe customer orders have been accepted, and starting manufacturing once fabric hasbeen received from suppliers.

Such delays could be avoided by making enhancements to the company’s manufacturing planning and control system to improve customer order tracking in purchasing fabric, in placing and receiving orders from suppliers, and in scheduling manufacturing operations such as pattern-making, cloth cutting, and sewing operations. Other

enhancements include introducing improved capacity planning methods to ensure thatsucient capacity exists to begin manufacturing operations once fabric has beenreceived. Furthermore, since the lead time to purchase fabric represents one-third of the customer lead time, still another option involves making changes in the purchasing area to improve the quality of forecast information concerning fabric requirements and colours, or investing in inventory to stock standard fabric types. A further option would be to change the company’s performance measurement system to evaluate deliveryspeed and delivery reliability performance on a regular basis.

Other strategic options to be considered involve reducing direct material cost tobetter support the A1 market segment. Alternatives here include an increased emphasison sourcing and supplier development by purchasing to improve supplier pricing.

As with manufacturing, marketing needs to review the strategic decisions concern-ing market positioning to bring the marketing and manufacturing strategies into betteralignment. Three major options in marketing strategy become apparent from this pro-cess overview and application.

The ®rst was to review Anonke’ s current emphasis on the A1 segment. This segmenthas represented a major sales growth area for the company, with over half the current

sales volume. There are several important reasons that justify this initiative. Such salesinvolve high volume, non-seasonal items that enable the company to level factory


Marketing:Growing emphasis on three segments: large volume, product features and partnership

collectionsdicult-to-manufacture products

Manufacturing:supporting delivery speed and reliabilitysupporting price sensitive segmentsperformance reward systems

Table 15. Anonke’s alignment process overview: develop strategy issues/recommendations.



output. Even so, when these sales are viewed in terms of their contribution margin, theyare much less attractive than the A2 market segment. Furthermore, the A1 segmentdoes not exploit the low/mid-volume production ¯exibility of the factory nor the skill level of the workforce. It also places pressure on the company’s infrastructure, requiring investment and development of the purchasing function in order to cope with high fabric

costs and tight delivery dates. In fact, the A1 segment ®ts the high volume/low costmanufacturing strategy of the company’s competitors much better than the niche/low tomedium volume production strategy adopted by Anonke Apparel.

A second major option was to increase the company’s emphasis on some of itsEuropean customers. These customers, while more demanding when it comes to productquality, are less price-sensitive. This means that they better ®t Anonke’s chosen manu-

facturing strategy than the large US ®rms in the A1 segment currently being courted bymarketing.

The ®nal option was to increase further the emphasis on dicult-to-manufacture garments. Again, these products ®t Anonke’s manufacturing strategy in much the sameway as with its European customers.

3. Conclusions on the application of the methodology

This framework and methodology provides a way of organizing managementthinking about manufacturing strategy and how it relates to a ®rm’s markets andmarketing strategy, and a way of articulating manufacturing strategy to other busi-ness functions. The Anonke example demonstrates how this methodology enabledan assessment of:

(a) the critical market requirements that need to be supported by manufacturing;(b) the actual performance against these requirements;(c) the relationship of particular manufacturing investments to the market

requirements;(d ) the current marketing strategy and how it ®ts with manufacturing in view of

the overall investment;(e) the strategic options for improvement in both manufacturing and marketing.

We have revised the framework and proposed methodology shown in ®gure 1 toprovide an explicit link between the strategy perspectives of marketing and manu-facturing. The revised framework and proposed methodology is shown in ®gure 4.This ®gure implies that the strategic options in marketing can be connected withstrategic options in manufacturing and vice versa. For example, the investments atAnonke in production’s ability to cope eectively with low to medium customerorder quantities relate directly to marketing’s initiative to target speciality shopsand boutiques in the European market, i.e. the product features segment noted intable 8 which exhibits important sales growth and pro®tability as shown in tables 9and 11. This implies that the marketing and manufacturing strategy debate can andshould in¯uence the market positioning decisions noted in ®gure 4. In this way amanufacturing strategy can be developed to support marketing strategy, and todevelop competitive advantage.

The framework and methodology is hard-data-driven. The discussion and debateof the marketing and manufacturing strategies are based on factual arguments anddata instead of opinions. The ability of manufacturing to support speci®c customer

requirements can be evaluated by measuring actual manufacturing capabilities andperformance. For example, production’s low volume capability, as de®ned in ®gure 3




of this paper, can be measured in terms of productivity and contribution margin, anddata can be used to support strategic arguments to target market segments with lowvolume production requirements, i.e. the product features segment noted in table 8.

Finally, the framework and methodology enables manufacturing performance tobe tested against customer requirements to assess the alignment between marketingand manufacturing strategy. The delivery speed and reliability issues in Anonkeprovide an interesting example of this. Clearly, the current and future market

requirements for short reliable customer lead times cannot currently be supportedby manufacturing. Therefore, discussion and debate are necessary in order todevelop strategic initiatives in manufacturing to retain competitive advantage. Inthis way the manufacturing strategy framework and methodology presented hereindicate areas of mis-alignment between marketing and manufacturing strategy, and,therefore, drives the business strategy debate!

References

Benningson, L. A., 1996, Changing manufacturing strategy. Production and OperationsManagement, 5 (1).

Buzzell, R., 1987, Note on market de®nition and segmentation. Harvard Business School,Reference No. 579±083.

Campbell, R., Brewer, P. and T. Mills, 1997, Designing an information system usingactivity-based costing and the theory of constraints, Journal of Cost Management,Jan./Feb.

Clark, K. B., 1996, Competing through manufacturing and the new manufacturing para-digm: is manufacturing strategy passe? Production and Operations Management,5 (1).

Corey, E. R., 1992, Marketing strategyÐAn Overview, Harvard Business School, ReferenceNo. 579±054.


Figure 4. Business strategy debate.



Elishberg, J. and Steinberg, R., 1987, Marketing-production decisions in an industrialchannel of distribution. Management Science, 33 (8).

Fine,C. H. and Hax,A.C., 1985, Manufacturing strategy: a methodology and an illustration.Interfaces, 15 (6).

Hayes, R. H. and Wheelwright, S. C., 1984, Restoring our Competitive Edge (New York:Wiley).

Hayes, R. H. and Pisano, G. P., 1984, Manufacturing strategy: at the intersection of twoparadigm shifts, Production and Operations Management, 5 (1).

Hedley, B., 1977, Strategy and the business portfolio. L ong Range Planning.Hill, T., 2000, Manufacturing Strategy: Text and Cases, 3rd edn (Homewood, Ill.: Irwin).McCarthy, E. J., 1960, Basic Marketing: a Managerial Approach (Homewood, Ill.: Irwin).Porter, M. E., 1980, Competitive Strategy (Free Press).Prahalad, C. K. and Hamel, G., 1990, The core competence of the corporation, Harvard

Business Review, May±June.Spoede, C., 1996, Accounting and the theory of constraints. APICS Conference Proceedings,

45±50.

Voss, C. A. and Winch, G. M., 1996, Including engineering in operations strategy.Production and Operations Management, 5 (1).

Wheelwright, S. C. and KentBowen, H.,1996, The challenge of manufacturing advantage.Production and Operations Management, 5 (1).

3618 Aligning marketing and manufacturing strategies

Aligning Marketing and Manufacturing Strategies With the Market

Documents

Transcript of Aligning Marketing and Manufacturing Strategies With the Market