Lect 1_concept of Manufacturing Strategy

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CONCEPT OF MANUFACTURING STRATEGY

2INTRODUCTION:

Like armies, manufacturing organizations need a strategy to meet their objectives and to manage their resources, i.e. people, machines, methods, materials and money.

A manufacturing strategy is a critical component of a firm’s corporate and business strategies.

It comprises of a set of well coordinated objectives and action programs aimed at securing a long-term, sustainable advantage over the firm’s competitors.

It should be consistent with the firm’s corporate and business strategies, as well as with other managerial functions

3CURRENT POSITION:

In many industrial companies, strategic development are predominantly based on corporate decisions.

Manufacturing managers come late into these discussions, making it difficult to influence decisions and outcomes.

Results in formulation of strategies which manufacturing is unable to successfully support.

This happens because the basic link between manufacturing processes (infrastructure investments and developments in manufacturing) and the market is not made.

Overall, the business suffers.

4WHY THIS CURRENT POSITION?

This happens because the attention of manufacturing managers focuses primarily on the day to day part of their work

They are more concerned with operational details and are output oriented, while in strategic terms, their role is seen as being reactive.

They continue to concern themselves primarily with short term issues.

In most countries, manufacturing management still takes a sub-ordinate role in strategic terms to the marketing or finance functions.

A strategic approach to manufacturing management is essential if companies are to survive

5PURPOSE OF SUBJECT OF “MANUFATURING STRATEGY”?

To raise manufacturing mangers’ sights

To help them to analyze and discuss strategic issues and think in a strategic way

To enable manufacturing managers to provide appropriate corporate level inputs, and

To enable other executives to recognize and appreciate the strategic perspective which emanates from manufacturing and needs due consideration

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DESIGNING A MANUFACTURING STRATEGY

7INTRODUCTION:

For most industrial companies, the manufacturing operation is the largest, the most complex, and the most difficult-to-manage component of the firm.

Therefore, it is essential for the firm to have a comprehensive manufacturing strategy to aid in organizing and managing the firm’s manufacturing system.

The firms Manufacturing Strategy cannot be formed in a vacuum, as it effects and is effected by many organizations inside and outside the firm.

Because of the interrelationships among the firm’s manufacturing units/ divisions, and the firms competitors and markets, it is necessary to carry the process of Manufacturing Strategy design beyond the borders of the manufacturing in a single firm.

The above interrelationship is illustrated in the diagram in the next slide.

8INTERRELATIONSHIPS AMONG THE FIRM, ITS COMPETITORS AND MARKETS

First: In developing the Manufacturing

Strategy, manufacturing function

must work with the finance,

marketing, engineering and R&D,

personnel and purchasing functions.

Second: Manufacturing Strategy design

requires careful monitoring of the

markets external to the firm in

conjunction with the other functional

groups within the firm

9MANUFACTURING STRATEGY DESIGN

With the above necessary elements of the Manufacturing Strategy design in mind, we will now discuss the following:

1. Corporate Strategic Planning Process

2. Conceptual issues that are important

for Manufacturing Strategy design

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CORPORATE STRATEGIC PLAN

A strategy can either be formal, with the help of a structured planning process,

or

Stated implicitly by the actions of the various managers with in the firm.

We will discuss how a formal manufacturing strategy can

be developed

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CORPORATE STRATEGIC PLANNING PROCESS

1. The essence of the strategy is to “achieve a long-term sustainable advantage over the firm’s competitors in any business the firm wishes to participate”.

2. The process must define all major tasks to be addressed in setting up corporate strategy and the sequence in which they must be completed.

3. The planning process adopted by a firm depends on the degree of complexity of the firm’s business, its organizational structure and its internal culture.

4. Some fundamental tasks that can guide the strategic planning process of most firms are given in the table in the next slide.

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MAJOR TASKS TO BE ADDRESSED IN SETTING UP CORPORATE STRATEGYS. No:

Task Level Discussion

1 Defining Vision of the firm

Corporate Areas the firm will compete; firm’s mission(product, markets, geographical scope, how the firm will gain competitive advantage, expectations of growth & profitability.

2 Planning guidelines

Corporate Define primary issues to address in next 3-5 yrs.; responsibilities of key personnel in each area; performance objectives , i.e. measures for the performance of the firm.

3 Define the mission of the business

Business Product; markets; geographical scope; spell out business strategies, programs & necessary budgets required.

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MAJOR TASKS TO BE ADDRESSED IN SETTING UP CORPORATE STRATEGY

S. No:

Task Level Discussion

4 Firming of business & functional strategies

Corporate Consolidation of business & functional strategies, resource allocation, defining performance measurements for control, budgeting & approval of disbursement of funds.

5 Functional Strategy

Functional Define functional strategies, programs & budgets to consolidate firm’s requirements/ create unique strengths.

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MAJOR TASKS TO BE ADDRESSED IN SETTING UP CORPORATE STRATEGY

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ROLE OF CORPORATE, BUSINESS AND FUNCTIONAL MANAGERS IN THE DEVELOPMENT OF MANUFACTURIGNG STRATEGY. Manufacturing strategy is designed at all three hierarchical

levels of a firm, i.e. corporate, business and functional level.

The corporate level identifies the role that manufacturing should play in pursuit of competitive superiority. Objectives are normally expressed in four areas:

Cost: labour, materials, etc.

Quality: percentage defective or rejected, cost of quality, etc

Delivery: percentage on time shipments, average delay, etc.

Flexibility: product mix, volume flexibility, lead time for new products…

Business level managers ensure that the business moves in the desired competitive position.

The functional managers have to formulate corresponding functional programs.

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FACTORS AFFECTING THE ALLOCATION OF MANUFACTURING DECISION MAKING RESPONSIBILITIES Allocation of responsibilities for development of manufacturing

strategy is affected by:

1. Organizational structure of the firm:

Divisionalized companies with highly decentralized decision-making tend to give little or no manufacturing decision-making to corporate managers.

Highly centralized corporations allow corporate staff to get involved in decisions related to technology choice, manufacturing of new products, human resource policies, quality policies, vendor selection, etc.

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FACTORS AFFECTING THE ALLOCATION OF MANUFACTURING DECISION MAKING RESPONSIBILITIES

2. Organization’s degree of product or process focus:

Product focused organizations are flexible and fast reacting, with many “plant with staff” sub-organizations. Plant managers tend to have responsibility over a wide range of decisions.

Process focused organizations need large capital investments and are inflexible to changes in product mix or volumes. Business unit managers have more control over decisions.

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3. Industry and competitive structure of the business in which the firm is engaged in:

Markets requiring flexibility and innovation for product sale, centralization is the required mode of organization and more decision-making rests with corporate mangers.

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4. The firm’s competitive strengths:

Firms whose success is dependent on R&D and innovations, corporate managers have much influence over new product development and technology choice.

If the firm is dependent on low cost due to economies of scale, efficient plant design, etc., corporate managers will generally control decisions relating to facilities, capacity, product design, technology choice and purchasing, while the business unit and manufacturing managers will control the operating level decisions.

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THE STRATEGIC DECISION AREAS IN MANUFACTURING

A manufacturing strategy must be comprehensive in the sense that it should provide guidelines for addressing the many facets of manufacturing decision making.

Nine areas that provide a coverage of the broad set of issues that must be addressed by a manufacturing strategy are:

1. Facilities

2. Capacity

3. Vertical integration

4. Process/ technologies

5. Scope/ new products

6. Human resources

7. Quality8. Infrastructure9. Vendor relations

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The figure displays the nine decision areas and shows/ suggests which other functional departments in the firm have input into each set of decisions.

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THE NINE STRATEGIC MANUFACTURING DECISION CATEGORIES1. Facilities: Facilities decisions are long-term manufacturing decisions. For

a multi-facility organization, choosing how to specialize or focus each facility is key step in policy making.

Facilities may be focused by geography, product groups, process

types, volumes, etc. Facilities focused decisions usually depend on

the economies of production and distribution for that industry.

2. Capacity: Capacity decisions are interconnected with facility

decisions. Important capacity decisions include how to deal with

cyclical demand, whether to add capacity in anticipation of future

demand, and how to use capacity decisions to effect the capacity

decisions of its competitors.

3. Vertical Integration: Important issues related to vertical

integration include the cost of the business acquired/ entered,

degree of supplier reliability in the important factors of

production, and the relative transactions cost, etc.

THE NINE STRATEGIC MANUFACTURING DECISION CATEGORIES

4.Process/ Technologies: To choose the process types, i.e. project, job shop, assembly line, continuous flow, etc. Recent innovations in CAD, CAM, robotics and FMS have added more complexity to technology decision problems.

5.Scope/ New products: The degree of difficulty is influenced by the scope and range of products and processes with which the manufacturing organization must be proficient, as well as the rate of new product introductions into the manufacturing organization. In well-run manufacturing organizations, the manufacturing management must have significant input into product scope and new product decisions.

6.Human Resources: The most important and the most difficult to manage asset of a firm are the human assets. The principal challenge in human resource management is to design a set of policies that motivate and stimulate employees to work as a team to achieve the mission of the firm.

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7.Quality Management: Quality topics can be divided into categories of design quality and conformance quality. In areas of conformance quality manufacturing managers play a most critical role, i.e., quality measurement, economic justification of quality improvements and allocation of responsibility for quality.

Manufacturing managers should be involved in some degree with design quality, i.e. design for manufacture issues, etc.

8. Manufacturing Infrastructure: For effective implementation of manufacturing function, it is essential to have a solid organizational infrastructure.

Planning and control systems, operating policies and lines of authority and responsibility must be in place.

A corporate culture that reinforces the manufacturing strategy is also very important requirement.


9.Vendor relations: Two types:

a. The competitive approach: Competition between various suppliers to supply

b. The cooperative approach: Setting up a long term relationship with one supplier based on mutual trust and dependence (Japanese model)

Each approach is practiced by successful firms. However, recent trend is

towards trying the cooperative approach.

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The end of this lecture

Lect 1_concept of Manufacturing Strategy

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