Understanding Manufacturing Strategy and its Implications.pdf

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www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 07, May-2013 Page 48

Understanding Manufacturing Strategy and its Implications

S. Rick Fernandez Hurtado, Research Center for Global Innovation & Chinese Entrepreneurship,

School of Management, Shanghai University, Shanghai, 99 Shangda Road,

Shanghai 200444, China, [email protected]&

Laaria Mingaine, School of Management, Shanghai University, Shanghai, 99 Shangda Road,

Shanghai 200444, China, [email protected]

Abstract

The companies that are able to turn their manufacturing organizations into sources of

competitive advantage are those that can harness various improvement programs, in the service of a

broader manufacturing strategy that emphasizes the selection and growth of unique operating

capabilities.

Properly implemented and well-aligned manufacturing strategy in a firm should include aspectssuch as the anticipation of new technology, and a link between manufacturing strategy and business

strategy, a formal strategic planning process, which involves the firm management, and

communication of the manufacturing strategy to firms personnel.

However, it has been reported by researchers that the task of assessing manufacturing strategy

is often hampered by a lack of understanding of the term manufacturing strategy and the absence of

explicitly denned manufacturing strategies within most manufacturing firms. Consequently, this paper

assessed the meaning of manufacturing strategy in the context of literature reviews and its applications

in manufacturing performances. The paper proposals a model of manufacturing strategy involving five

decision areas namely: 1) plant and equipment; 2) production planning and control; 3) labor and

staffing; 4) product design / engineering; and 5) organization and management.

Keywords: Strategy, manufacturing strategy, manufacturing performance

1. Introduction

A manufacturing strategy is a critical component of the firm's corporate and business strategies,

comprising a set of well-coordinated objectives and action programs aimed at securing a long-term,

sustainable advantage over the firm's competitors. A manufacturing strategy should be consistent with

the firm's corporate and business strategies, as well as with the other managerial functional strategies.

This section of the paper reviews the need for strategy formulation, understanding

manufacturing strategy as well as manufacturing performance.

2. Need for strategy formulationCompetition in industry has been complicated with the number and distribution of buyers and

sellers, product differentiation, entry barriers, vertical integration, diversification and cost structures.

Business success would rely significantly on the formulation and implementation of viable strategies.

Pun et al (2004) defines a strategy as a plan, or something equivalenta direction, a guide or course

of action into the future, a path to get from here to there, and also as a pattern, that is, consistency in

behavior over time. The strategy should match the organizations resources (e.g., financial,

manufacturing, marketing, technological and workforce) to its changing environment and in particular

its markets and customers in the pursuit of its goals and objectives.

A strategy becomes a fundamental framework through which an organization cansimultaneously assert its vital continuity and facilitate its adaptation to a changing environment. A

strategy consists of process, content and context. Process refers to how strategy is made and

addresses issues of competitive priorities, which includes cost, quality, delivery speed and


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dependability, flexibility and innovation aspects. Process is a pattern or procedure in which strategy is

developed and implemented, Dangayach and Deshmukh (2001). The context includes both internal

factors (e.g., the enterprises structural, cultural and political facets) and external factors (e.g., sectorial,

economic, social, political, and competitive environments). Even if the strategy is undocumented,

informal, or unplanned and even if the business is unaware of, unconscious of, or flatly denies it, a

strategy exists. For instance, location, premises, facilities, technology, employees, product lines, targetmarkets, supply and distribution channels, reputation, standards and procedures are chosen, created

and adhered to for various lengths of time. When defined and adopted consciously, a formal strategy

can become a set of guidelines for future activities.

Strategy formulation is concerned with the definition of company mission and objectives, the

assessment of internal and external environments, and the determination of strategic choices Pun et al

(2004). It integrates the planning elements and the implementation parameters, and allows

management to measure the progress and evaluate the results. The strategy formulation process

employs a variety of critical variables and suggests possible cause-and-effect relationships that

determine the operational and business performance of a firm. The strategy formulation function has a

strongly entrepreneurial character, in the sense that managers have to choose among alternative

strategies and pursue approaches that entail adventureness and risk-taking Rick, 2012. With respect tothe dynamic business environments, many researchers and practitioners have proposed different

planning models, frameworks and methodologies for strategy formulation. These planning models,

frameworks and methodologies have distinct features, with each contributing important ingredients

and attributes for holistic, maximally useful strategy formulation. They provide some references and

guidance for firms to identify opportunities, affirm positioning and formulate viable strategies.

Nevertheless, there is no one strategy that is optimal for all companies. Individual

organizations have to determine what makes the most sense in light of their positions in the industry

and a thorough, integrated analysis of the external environment and assessment of the organizations

internal competencies Pun et al., (2004). Linking strategy formulation to implementation is a challenge

that manufacturing businesses face today, but the rewards for those who succeed will be handsome.

Strategy has been defined as the determination of the basic long-term goals and the objectives

of an enterprise, and the adoption of courses of action and the allocation of resources necessary for

carrying out these goals. Such a broad definition of strategy covers a multitude of decisions from

"What business should we be in?" to "How can manufacturing contribute to the competitive advantage

of this business?"

Recognizing this has led to the idea of a hierarchy of strategy with three major levels:

Corporate Strategywhat set of businesses should we be in? Business Strategyhow should we compete in a given business? Functional Strategyhow can this function contribute to the competitive advantage of the

business?

Manufacturing strategy is one such functional strategy, Platts (2000).

3. Understanding manufacturing strategy

After doing an extensive literature review on manufacturing strategy, Dangayach and

Deshmukh (2001) come up with the following definitions of manufacturing strategy:

Manufacturing strategy refers to exploiting certain properties of the manufacturingfunction as a competitive weapon.

Manufacturing strategy is a sequence of decisions that over time, enables a business unit toachieve a desired manufacturing structure, infrastructure and set of specific capabilities.

Manufacturing strategy is a critical part of the firms corporate and business strategies,comprising a set of well-coordinated objectives and action programs aimed at securing along-term sustainable advantage over competitors.
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Manufacturing strategy represents a coordinated approach, which strives to achieveconsistency between functional capabilities and policies and the agreed current and future

competitive advantage necessary for success in the marketplace.

Manufacturing strategy is the effective use of manufacturing strengths as a competitiveweapon for the achievement of business and corporate goals.

Manufacturing strategy is the overall plan for, how the company should manufactureproducts on a worldwide basis to satisfy customer demand.

Manufacturing strategy in todays turbulent competitive environment a company morethan ever needs a strategy that specifies the kind of competitive advantage it is seeking in

the marketplace and articulates how that advantage is to be achieved.

Manufacturing strategy is decisions and plans affecting resources and policies directlyrelated to sourcing, production and delivery of tangible products.

Manufacturing strategy is the choice of a firms investment in processes and infrastructurethat enables it to make and supply its products to chosen markets.

Manufacturing Strategy derives from the Greek word Strategos that translates as "the General's art".

The word retains much of its original meaning:

Decisions and actions with long-term and wide-ranging consequences. Pinpointing vulnerabilities in the opponent's position. Exploiting resources and deployment relative to opponents. Using topography, and technology for advantage.

Manufacturing Strategy ensures a match, or congruence, between the company's markets and the

capabilities of production Lee (2006), it addresses issues that include as the following table 1:

Table 1.

Manufacturing strategy determines how production supports the general objectives of the plant for

competiveness through the appropriate design and use of production resources and capacities. In order

to achieve this support, it is essential for manufacturing strategy to be aligned with both marketing

strategy and business strategy in general, Jimenez et al (2011)

The concept of manufacturing strategy is often traced to Skinner's 1969 Harvard Business

Review article, "Manufacturing- Missing Link in Corporate Strategy". Skinner suggested a top-down

approach to manufacturing. Manufacturing objectives should be derived from business objectives, and

then manufacturing policies developed to address these objectives. Manufacturing objectives cover

such things as cost, quality, delivery and flexibility and usually there are trade-offs between them.Trade-off decisions are also required in a number of key areas in order to support the manufacturing

objectives.

Platts (2000) defines manufacturing strategy as a pattern of decisions, both structural and

infrastructural, which determine the capability of a manufacturing system and specify how it will

operate to meet a set of manufacturing objectives which are consistent with overall business objectives.

4. Manufacturing performance measurementPerformance measurement is indispensable to manufacturing enterprise. If the effective

efficiency of an activity cannot be measured, it could not be properly controlled. While mechanistic or

physical measurements could be made extremely accurately due to advances in metrology, the

measurement of manufacturing performance remains an unsettled subject due to the diverse and multi-dimensional nature of manufacturing. By definition, performance is concerned with what happened in

the past or what is happening in the present instance and therefore it is observable and measurable,

Hon (2005) and Rick (2013).

Capacity

Facilities

Technology

Suppliers

Quality

Scheduling

Material

Organization

Personnel


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Performance measures are indispensable for management to understand the state of the

manufacturing system and to take appropriate action for maintaining competitiveness as shown in

Figure 1. The generic functions of manufacturing performance measures are summarized as follows:

a. To reflect the current state of manufacturing situation.

b. To monitor and control operational efficiency.

c. To drive improvement program.d. To gauge the effectiveness of manufacturing decisions.

Figure 1. Functions of performance management model, modified from Hon (2005)

5. Emerging Manufacturing strategy in manufacturing performance

This section of the article reviews the applications of manufacturing strategy in manufacturing

performance. It specifically reviews, manufacturing strategy in implementation of business

performance, Manufacturing strategy as defined by capabilities, resources, and their relationship to

manufacturing performance, Manufacturing strategy in three distinct paradigms, Manufacturing

strategy; configuration from business strategy, organizational structure and environment,

Manufacturing strategy; a strategic approach and a paradigmatic approach, Manufacturing strategy in

context: environment, competitive strategy and manufacturing strategy as well as Manufacturing

strategy, business strategy and firm performance in a mature industry.

5.1. Manufacturing strategy in implementation of business performance

Rho et al (2001) conducted a study on the importance of consistency between manufacturing

strategy and practices in achieving better business performance. The researchers focused on how

different manufacturing strategy and practices affect company performance. The sample used for this

research consisted of fifty Korean, forty-one American and twenty-nine Japanese manufacturing

companies selected from the International Manufacturing Strategy Survey database.

The empirical test result from this study implied that the gap variable indicating inconsistency

between manufacturing strategy and implementation practices plays a more important role than the

strategy or implementation variable in discriminating the superior from the inferior performance

groups. For those data sets from the US and Korea, the gap variables of flexibility, quality and/or cost

showed more significant contribution in discriminating business performance groups. But none of thegap variables outperform other strategy or implementation variables in discriminating performance

groups in Japan.


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5.2. Manufacturing strategy as defined by capabilities, resources, and their relationship to

manufacturing performanceSchroeder et al (2002) examined manufacturing strategy on a resource-based view of the firm.

They explored the role of resources and capabilities in manufacturing plants that could not be easily

duplicated, and for which ready substitutes were not available. Based on data from 164 manufacturing

plants, the authors empirically demonstrated that competitive advantage in manufacturing (asmeasured by superior plant performance) resulted from proprietary processes and equipment, which in

turn was driven by external and internal learning. The implication was that resources such as standard

equipment and employees with generic skills obtainable in factor markets were not as effective in

achieving high levels of plant performance, since they were freely available to competitors. The

authors also demonstrated the important role of internal and external learning in developing resources

that were imperfectly imitable and difficult to duplicate.

The capability of the plant to incorporate internal and external learning into proprietary

processes and equipment emerged as an important contributor to manufacturing performance. The

authors suggested that the resource-based view was an appropriate theoretical framework for

addressing shortcomings in manufacturing strategy research Rick, 2012. They advanced the following

mode l:

Model 1. Resource based model. Modified from Schroeder et al (2002)

The resource base view implied that such innovations could only contribute to competitive

advantage when competitors who have access to the factor markets cannot easily duplicate them. By

empirically demonstrating that routinized learning and idiosyncratic, proprietary processes were

associated with better performance, the authors demonstrated the approach for understanding the link

between long-term investments manufacturing processes and competitive advantage. They believedthat framing the role of manufacturing processes in that manner was a contribution to the

manufacturing strategy literature that would aid future theoretical developments in that line of research.

They empirically showed that the reliability and validity of internal learning, external learning, and

proprietary process and equipment constructs in a manufacturing context.

5.3. Manufacturing strategy in three distinct paradigms

Voss (1995) proposed three distinct, but related paradigms, which related to the content rather than

process of manufacturing strategy. These are;

Competing through manufacturingThis approach can lead to very high visibility for manufacturing strategy in an organization. Thevisible focus on competing on a limited coherent set of factors can be a uniting force within


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organization where it can lead employees and managers sharing a common vision and the potential of

creating debate between manufacturing, marketing and corporate strategies.

Strategic choiceThis can provide a clear view of a wide number of choices that a company has. It can lead to matching

the whole of the operations strategy to the market positioning, which can result in strong internal as

well as external consistency of a firm. This would lead to a focused manufacturing, from whichsuperior performance would be derived.

Best practiceThis approach shows strong linkages between adoption of best practice and operating performance.

Companies with best practice perform better than those without. Many companies are seeking best

practice as the basis of their manufacturing strategy.

Clearly the three different paradigms should not be treated in isolation, and indeed many authors and

experts bring at least two of them together. It can be concluded that all three paradigms of

manufacturing strategy partially overlaps each other, as shown by figure 2:

Figure 2. Manufacturing strategy in three disnct paradigms, modified from Voss (1995)

5.4. Manufacturing strategy configuration from business strategy, organizational structure and

environment

Ward et al (1999) used the emerging approach of strategic configurations as a vehicle for

synthesizing manufacturing strategy with widely accepted views of competitive strategy, environment,

and structure. The configuration introduced in their paper suggests the predominant modes in whichmanufacturing capabilities can be marshaled to strengthen the strategic position of the business unit.

The configurationally approach was chosen because it yields a systematic, detailed, and holistic image

of reality, without attributing causation to any of the individual parts of the model.

Thus, the authors argue that there is an underlying theme or consistency among environmental,

structural, and strategic dimensions without implying that it is always, for example, environment

which determines the appropriate structure and strategy for a business unit. The configurations are

composed of tight constellations of mutually supportive elements The authors argues that

manufacturing strategy, competitive strategy, environment, and structure are configured or interlinked

such that there are natural congruencies between these elements. Figure 3 illustrates the connections

between these forces.

Direct links are proposed to exist between all elements except the link between structure andenvironment. Competitive strategy has strong relationships with environment. Traditional contingency

literature suggests that environment influences strategy, Leong et al (2006).


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Manufacturing strategy is also hypothesized to have a strong, bi-directional link with

environment. Mutual causality also exists between strategy (whether competitive or manufacturing)

and structure. Business strategies have an influence on structure, Zhao et al (2006). Conversely,

structure can influence competitive strategy as shown in the model below.

Figure 3. Configuration from business strategic, organizational structure and environment model,

modified from Ward et. Al (1996)

5.5. Manufacturing strategy; a strategic approach and a paradigmatic approach

Wang et al (2008) introduced two approaches for planning manufacturing strategy, a strategic

approach and a paradigmatic approach. The key decisions of these two approaches were located in the

choices of competitive priorities and manufacturing paradigms. Three hypothesis models on the

relationships between these two approaches in a turbulent environment were founded with the help of

structural equation modeling and tested with 107 samples from the Chinese manufacturing industry.

The results suggest that when established the relationships (Rick, 2012) between manufacturing

strategy and business strategy, the mediate function of competitive priorities is not suitable for

manufacturing paradigms, and it is more appropriate to make the key decisions in each approach based

on business strategy directly.

The strategic approach model focused on the external consistency among manufacturing

strategy, business strategy and other functional strategies, such as marketing strategy, and on theinternal consistency among the components of manufacturing strategy, such as competitive priorities

and action plans, shown in the figure 4.


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Figure 4. Strategic approach model, modified from Wang et al (2008)

A paradigmatic approach regards that innovative manufacturing paradigms and practices can embody

new rules and sets of coherences between various choices about manufacturing, and provides the best

practices for benchmarking. To elaborate in detail, this approach has three components, as shown in

the figure 5.

Figure 5. Paradigmatic approach model, modified from Wang et al (2008)

5.6. Manufacturing strategy in context: environment, competitive strategy and manufacturing

strategy

Ward et al (1996) developed a conceptual model of manufacturing strategy from the literature

and tested the model using data from a sample of manufacturers in three industries in the United States.Their research contributes to manufacturing strategy literature in four ways. First, it supports

empirically a model of manufacturing strategy that is predominant in the conceptual literature. Second,

it demonstrates that the strategic linkages in manufacturing businesses are clearer among good


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performers than poor performers. Third, the research suggests that competitive strategy acts as a

mediator between an organizations environment and its manufacturing strategy Rick, 2013. Fourth,

their findings suggest that the relationship between competitive strategy and performance is mediated

by manufacturing strategy.

Their model suggests that environmental dynamism affects both competitive strategy and

manufacturing strategy. Competitive strategy is cast in a mediating relationship because it intervenesbetween environmental dynamism and manufacturing strategy. The model also implies that

competitive strategy directly influences manufacturing strategy. Further, the model suggests that the

relationship of environment, competitive strategy, and manufacturing strategy is linked to performance.

The model also implies that direct links exist between strategies and performance as shown by the

figure 6.

Figure 6. Environment, competitive strategy and manufacturing strategy model, modified from Ward

et al (1996)

5.7. Manufacturing strategy, business strategy and firm performance in a mature industry

Williams et al (2004) investigated the relationship between manufacturing strategy, business

strategy and firm performance in a mature industry. Past research was synthesized, and a parsimonious

conceptual framework was developed. The framework was then tested on a sample of 85 firms in the

broadwoven fabric industry (SIC 2211).

The results show a significant relationship between the business strategy and the manufacturing

strategy of the firm. They support the argument found in the literature that functional level strategies

should support business level strategies. A significant relationship was also found betweenmanufacturing strategy and performance of the firm. In particular, the manufacturing function's quality

assurance process and its ability to deliver a quality product/service were found to correlate

significantly with firm performance.

The primary objective of developing a business units strategy is to enhance its performance

and competitive position. Based on synthesis of the literature, Williams et al (2004) developed a

framework to relate business level strategy, manufacturing strategy, and business unit performance. In

this framework, the business units strategy provides a guideline for the development of manufacturing

strategy. Business unit performance is a result of how these manufacturing strategies are implemented.

The figure 7 provides a schematic representation of the framework.


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Figure 7. Business strategy and firm performance in a mature industry model, modified from Williams

et al (2004)

6. Discussion, Summary and proposed manufacturing strategy

The importance of manufacturing strategy has never been questioned and has been emphasized

in many theoretical concepts, frameworks, and models. Studies dealing with the connection between

manufacturing strategy and manufacturing performance have played an important role in the

development of manufacturing strategy in the direction of operationalization, arising questions, and

elaborating methodology.

The literature has shown that, there is no simple cause and effect relationship between

manufacturing strategy and manufacturing performance; a well-selected portfolio of strategy is needed

to reach manufacturing success. There are five decision areas: 1) plant and equipment; 2) productionplanning and control; 3) labor and staffing; 4) product design / engineering; and 5) organization and

management. These basic ideas (trade-offs and consistency of objectives/policies) have formed the

foundation from which the current understanding of manufacturing strategy has developed.

Manufacturing strategy should include the five decision areas to bring effective manufacturing

performance. The proposed model of manufacturing strategy involves strategies applied in the five

decision areas as shown by the figure 8.


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Figure 8. Proposed manufacturing strategy and its implication to manufacturing performance

7. METHODOLOGY OF THE STUDY

This section of the article focuses on rationale of the methodology used in the study; it also

summarizes the methods used in the study.

7.1. Rationale of the methodologyA review of the Literature was adapted for this study. Review of the Literature was appropriate

for the study since as Laaria (2005) quoting Wiersma (2002) observed, Literature review were

conducted to determine the status given and were concerned with the gathering of facts rather than the

manipulation of variables. In the study the research was interested in getting facts from literature on

the understanding manufacturing strategy and its application on manufacturing performance.

Furthermore, according to Good (2006) a literature review was useful in that it not only secures

evidence concerning existing situations or current conditions but also identifies standards or norms

with which to compare present conditions in order to plan the next step.

Studies were identified through an electronic search of the databases such as Science Direct,

Web of Science, library files and reference list. In addition, the literature review was extended to the

Internet, by use of Google, Yahoo, Baidu, and other internet search engines. Initially 66 articles wereidentified as potentially relevant for study, of these, 27 articles were excluded based on title and

abstract that did not match the requirements of this study. 39 articles were retrieved for more detailed

evaluation, 18 articles were further excluded because they did not meet inclusion criteria. Only 21

articles were reviewed in this study. The diagram 1 below shows Systematic review flow diagram for

the articles reviewed in the study.


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Diagram 1.Systematic review flow diagram for the articles reviewed in the study

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