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Manufacturing strategyAntti Salonen

KPP3192015-09-15

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KPP319 – Industrial Excellence

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● Manufacturing strategy guides long term development of manufacturing

● Production development realizes the manufacturing strategy

● Simulation as a tool applied in production system development

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Manufacturing Strategy

Production

Development

Simulation

KPP319 – Industrial ExcellenceCourse Approach

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What is a strategy?

A classic definition:

”Top management’s plans to attain outcomes consistent with the organization’s missions and goals!”

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A plan:

• A direction or guideline• A plan for future actions• A path from here to there (the intended scenario)

A strategic planning horizon is typically 3-5 years

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A pattern:

The pattern of actions over time (historic actions)

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Historic actionsAction plan

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Historic actionsAction plan

Is this how it really works?

?

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A position:•How the company positions on a market

A perspective:•Company branding (action patterns)

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Market

CompanyCorporate Corporate

vision

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A trick:

A ploy or scheme towards the competitors

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Why strategies?

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Strategy sets direction

Pro: the organization gets cohesive

Con: the organization gets blinders

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Strategy focuses effort

Pro: the organization coordinates activities

Con: may lead to “groupthink”

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Strategy defines the organization

Pro: the co-workers find identity

Con: the organization gets stereotype

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Strategy provides consistency

Pro: the organization gets less ambiguous

Con: decreases the creativity

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…so, what is strategy?

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“A strategy is the pattern or plan that integrates an organization’s

major goals, policies and action sequences into a cohesive whole. A

well-formulated strategy helps to marshal and allocate an

organization’s resources into a unique and viable posture based on its

relative internal competencies and shortcomings, anticipated changes

in the environment and contingent moves by intelligent opponents.” (Mintzberg et al. 1999, p.5).

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Formulating strategies

• Effective formal strategies contain three essential elements:• goals to be achieved,• policies for guiding or limiting actions, and• the major action sequences that accomplish the defined goals within

the limit sets.

• Effective strategies develop around a few key concepts and thrusts, which give them cohesion, balance and focus.

• Strategy deals not only with the unpredictable but also withthe unknowable.

• All complex organizations should have a number ofhierarchically related and mutually supporting strategies. These strategies must be more or less complete in themselves.

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Formulating strategies

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Formulating strategies

Company Vision and Mission

• Describes the very idea of the enterprice• Are formulated in the business plan

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Formulating strategies

Branch competitionNegotiation strength of the suppliers

Negotiation strength of the customers

Threats from substitutes

Threats from new enterprices

Based on Porter, 2004

The company’s market position: “Porter’s five forces”

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Formulating strategies

How to compete

• Cost

• Quality

• Flexibility

• Deliverability

• Innovativeness

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Formulating strategies

S.W.O.T.

CompanyStrengths

External Opportunities

External Threats

CompanyWeaknesses

Positive Negative

Internal in Company

External factors

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Road map

Here weare

Here wewhish to

be

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OKWhat about manufacturing strategy?

Strategy hierarchy

Corporate strategy

Business strategy

Functional strategy

Business strategy

Functional strategy

Functional strategy

Functional strategy

Functional strategy

Functional strategy

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Manufacturing strategy

• Definition: “the effective use of manufacturing strengths as a competitive weapon for the achievement of business and corporate goals”from Mills et.al. (1995); Swamidass and Newell (1987)

• The essence of manufacturing strategy is to formulate explicitly how manufacturing decisions will be made so that manufacturing will help the company achieve a long-term advantage over its competitors. Miltenburg (2005)

• Process and content. How strategy is made and what constitutes a strategy

Formulating the manufacturing strategy

1. Determine the corporateobjectives.

2. Determine marketing strategies tomeet these objectives.

5. Provide the manufacturinginfrastructure to support production.

4. Establish the appropriate process to manufacture these products(process choice).

3. Assess how different productsqualify in their respective markets and win orders against competitors.

Rudberg (2002)

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Framework for Manufacturing strategy

Corporate objectives

Marketing strategy

Order-Qualifyers-Winners

Manufacturing strategy

Process choice Infrastructure

Growth

Survival

Profit

Return on investment

Other financialmeasures

Product markets and segments

Range

Mix

Volumes

Standardization versus customization

Level of innovation

Leader versus follower alternatives

Price

Conformance quality

Delivery

Speed

Reliability

Demand increases

Color range

Product range

Design

Brand name

Technical support

After-sales Support

Choice of alternative

processes

Trade-offs embodied in

the process choice

Role of inventory in the processconfiguration

Make or buy

Capacity

Size

Timing

Location

Function support

Manufacturing planning

and control systems

Quality assurance and

control

Manufacturing systems

engineering

Clerical procedures

Compensation

agreements

Work structuring

Organizational structure

From Hill (2000)

Example of corporate objectives

Company xx will experience growth of at least 10 % per year.

Company xx will become market leader in Central Europe

Profitability: Operating margin of more than 8 % over the course of a business cycle.

Our mission is to create effective Supply Chains, that satisfy our Customers’ needs.

By motivated and competent personnel we will exceed the expectations regarding continuous improving of material flows, product quality, choice of vendors and realization of production plans.

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Order qualifyers

● Qualifiers gain entry to and maintain a company’s position within a market but do not win orders.

● Qualifiers have order-losing not order-winning characteristics.

● Need to identify qualifiers which

● are order-losing sensitive

● have potential to become order-winners.

Order winners

● Not all order-winners are manufacturing-related

● Typically as products mature, order-winners become increasingly a manufacturing task

● Order-winners and qualifiers are time and market specific

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Process choice

Process choice is about choosing the right way to manufacture products.

1. First the company must decide how much to buy from outside

2. Identify the appropriate engineering-technology alternatives to complete the tasks embodied in each product so that the product can be assembled with conformance quality.

3. Decide the manufacturing processes. Do the company have all the needed machines, capacity, inventory etc.

Content model

Mills, et.al. (1995)

The Manufacturing strategy content

Competitivepriorities

Decision criteria

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Content model

Competitive priorities “ the capabilities the manufacturing unit must have in order for the firm to compete given the overall business and marketing strategy” (Miller and Roth, 1994)

Decision areas“the pattern of manufacturing choices that a company make” (Miller and Roth, 1994)

“consisting of many individual decisions that affect the ability of the firm to meet long term objectives” (Leong et al., 1990)

Competitive priorities

●Cost

●Quality

●Delivery

●Flexibility

●Innovativeness

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Competitive priorities

Competitive priorities (with definition) Sample of measurement criteriaCost Unit product/labour/material costCost of material, labour, overhead, and other resources to produce a Total manufacturing overhead costProduct. Inventory turnover - raw material, WIP, finished goods

Capacity/machine utilizationQuality Internal failure cost - waste and reworkQuality is the extent to which materials and operations conform External failure costto specifications and customer Consistent qualityexpectations. Quality of incoming material from suppliers

DependabilityConformance to specification

Delivery Quoted delivery timeDelivery time is the time between order taking and delivery to the Percentage of on-/off--time deliveriescustomer. Delivery reliability

Inventory accuracyManufacturing lead-time

Competitive priorities

Flexibility Number of part processed by a group of machines

Flexibility is the ability to decrease and increase manufacturing of Number of products in the product line

existing needs. Companies should be Average production lot size

able to respond to changes at the Average volume fluctuation

market and changes of order Length of frozen schedule

quantities. Number of setups

Time of setups

Innovativeness Number of engineering change orders per year?

The ability to quickly introduce new Number of new products introduced each year?

products, processes or make design Lead time to prepare customer drawings

changes to existing products. Customization

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Decision areas

From Mills, et.al. (1995)

Decision areas

● Human resource

● Organization structure and control

● Sourcing

● Production planning and control

● Process technology

● Facilities

From Miltenburg (2005), Manufacturing Strategy

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Decision areas

Decision criteria Sample of CharacteristicsHuman resources Skill level

Mix of skilled and unskilled employeesAmount of trainingResponsibility and participation in decision making

Organisation structure and controls Organisation structure

Centralised or decentralised manufacturing systemThe importance of line and staffHow managers are selected

Sourcing Numbers of suppliers and their capabilitiesRelationship with suppliers

Procedure of deciding whether a product will be produced internally or externally

Decision areas

Production planning and control Whether a push or pull system is used

Size of raw material, WIP and finished goods

When maintenance is done

Whether the systems are centralised or decentralised

Process technology Amount of automation

Whether the technology is new or old

Whether to develop technology internally or purchase it from external sources

Factory layout

Facilities Location of facilities

Size of facilities

Whether facilities are general purpose or specialised

Capacity planning

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Manufacturing strategy

Competitivepriorities

Customerneeds

Market positioning

Competitors’ actions

Decision criteria

Manufacturing

Understanding markets

Required performance

Strategic decisions

Based on Slack and Lewis (2008)

Manufacturing strategies in Sweden

● Used in larger companies

● Less common in small/medium sized companies

● Often poor alignment with corporate objectives

● Suffers beccause of short term thinking

● Not allways formally documented

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Reference literature

Hill, T. (2000), Manufacturing Strategy – Text and Cases, Second edition, New York: Palgrave

Leong, G. K., Snyder, D. L. and Ward, P. T. (2008), "Research in the process and content of manufacturingstrategy." Omega, Vol18, No. 2, pp. 109-122.

Miller, J. G. and Roth, A. V. (1994), “A Taxonomy of Manufacturing Strategies”, Management Science, Vol. 40, No. 3, pp. 285-304.

Mills, J., Platts, K. and Gregory, M. (1995), “A Framework for the Design of Manufacturing Strategy Processes, A contingency approach”, International Journal of Operations and Production Management, Vol. 15, No. 4, pp. 17-49.

Miltenburg, J. (2005), Manufacturing strategy: How to formulate and implement a winning plan, New York: Productivity Press.

Mintzberg, H., Ahlstrand, B. and Lampel, J. (2009), Strategy Safari, Second Edition, London: Prentice Hall.

Mintzberg, H., Quinn, J. B. And Ghoshal, S. (1999), The Strategy Process, Revised European Edition, London: Prentice Hall.

Porter, M. E. (2004), Competitive Strategy: Techniques for Analyzinf Industries and Competitors: With a new introduction, New York: Free press.

Rudberg, M. (2002), Manufacturing strategy: linking competitive priorities, decision categories and manufacturingnetworks. Production-Economic Research.

Slack, N. and Lewis, M. (2008), Operations Strategy, Second Edition, Harlow: Pearson Education.

Swamidass, P. M. and Newell, W. T. (1987), “Manufacturing Strategy, environmental uncertainty and performance: a path analytical model”, Management Science, Vol. 33, No. 4, pp. 509-524.