VGSM Manufacturing Strategy - Jan 2011

Postgraduate Engineering Programmes
MANUFACTURING STRATEGY
Centre for Engineering Management M.S.Ramaiah School of Advanced Studies, Bangalore
Module Leader at MSRSAS V.G.S.MANI January 2010
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MODULE AIMS & SUMMARY Aims and summary This postgraduate module is designed to pursue the linkages between manufacturing strategy and a companys corporate strategy. Increasingly companies in global markets are competing through manufacturing, and to do this their strategies for manufacturing must support the companys marketing objectives and be able to provide a competitive advantage in the market place.
MODULE AIMS & SUMMARY This module helps a) manufacturing management to understand the strategic aspect of their role in realizing their organizations business b) emphasis the manufacturings strategic role in supporting and realizing companys business c) corporate management to better understand the complexity & interaction among the issues / challenges faced by manufacturing management
MODULE AIMS & SUMMARY

The module equips participants with an understanding of corporate and manufacturing strategy, and prepares them for taking a strategic role in a manufacturing organisation
Module Syllabus
Nature and Objectives of Strategy: Corporate strategy concepts, theories, models and tools of analysis; Product Life Cycles: BCG Matrix, Analysis of corporate strategy case studies. Manufacturing Strategy: Links between manufacturing strategy and company strategy, Contribution of manufacturing strategy to business performance and competitive advantage, Manufacturing strategy theories Market Qualifying and Order Winning Criteria: Quality, Delivery, Lead time, Flexibility, Innovativeness, Performance as order winners; Process choice, Study of Manufacturing Systems & their Characteristics: Fit between manufacturing systems and PLC; Product profiling, Manufacturing focus , Manufacturing infrastructure; Case studies Framework for Developing and Analysing Manufacturing Strategy: Study of product/ volume, Layout/ flow (PV/LF), Manufacturing levers, Levels of Manufacturing Capability, Competitive Analysis, Selection of appropriate Manufacturing systems, Supporting methodology for the design of a manufacturing strategy
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Module Syllabus
Change Management: Strategy Implementation Business Economics, Costing and Budgetary Analysis Strategy Performance Measurement: ERP as a tool for evaluation Workshop to analyse and present a few manufacturing strategy case studies Laboratory Practice ERP (IC soft / SAP ERP) - Review of modules like Sales, Purchase, Manufacturing, Quality control and Maintenance
Teaching and Learning Methods

Lecture Sessions Class Presentation Lab sessions on ERP (IcSoft)
Evaluation
Assignment: 100% Weightage
Software and Manuals IcSoft ERP
Module Delivery
Theory V G S Mani & VijayKumar Laboratory Vijay Kumar
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Module Resources
1. Lecture Notes on Manufacturing Strategy, MSRSAS 2. Strategic Management Theory - Charles W. Hill & Gareth Jones, All India Publishers & Distributors, Chennai, 1998 3. Manufacturing Strategy, Texts & Cases - Terry Hill, Palgrave, U.S.A., 20000 4. Manufacturing Strategy - John Miltenburg, Productivity Press, U.S.A., 1995 5. Radical Change: What Indian Companies must do to become world class - Ghosal, Piramal, Bartlett - Penguin Books of India, 2000 6. Count Your Chickens Before They Hatch - Arindam Choudhuri, Vikas Publishing, 2001 7. Reinventing the Factory II , Managing World Class Factory - Roy Harmon, The Free Press, Canada, 1992 8. Contemporary Strategy Analysis - Robert Grant, Blackwell Publishers, 1998 9. Manufacturing The Future : Strategic Resonance for Enlightened manufacturing - Steve Brown, Financial Times/ Prentice Hall, 2000
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Module Resources
10. Analysis of Manufacturing Enterprise: An Approach to Leveraging Value Delivery Process for Competitive Advantage - N. Viswanadham, Kluwer Academic Publishers, 2000 11. MIT: Manufacturing Strategy Concepts - http:// ocw.mit.edu/ index.html 12. Strategic Management - Text & Cases - V.S.P. Rao, V. Hari Krishna Excel Books, New Delhi , 2003 13. Modern Competitive Strategy Gordon Walker Tata McGraw-Hill Publishing Co. New Delhi, 2008 14. http://www.tatapeoplescar.com/tatamotors
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1. INTRODUCTION
V G S Mani Centre for Engg. Management
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SESSION OBJECTIVES This session provides an introduction to contemporary industrial scenario especially with respect to Indian situation Students are also exposed to the role of manufacturing and its contribution to the growth of a Nation Concepts regarding how industries are classified and types of manufacturing technology are also covered
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INTRODUCTION TO MANUFACTURING STRATEGY Market forces are so powerful and strong that it will mercilessly punish unwise investment and weak enterprises. Manufacturing must allow companies to exploit market opportunities without becoming a constraint. Many nations, who were industrial powers, have declined (e.g. Japan), while many new industrialized nations have emerged (e.g. China & South Korea)
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INTRODUCTION TO MANUFACTURING STRATEGY New issues are emerging

Environment, Removal of trade barriers, growth of world trade at a higher rate than global gdp, increased automation vs the need for higher employment, Newer technologies like cad, cam, cim, robotics, Innovations such as CD, VCD, DVD, mobile phones etc.
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MANUFACTURING CHARACTERISTICS AT VARIOUS PERIODS

Period 1940-50 1950-65 1965-80 1980-90 1990Characterized By Shortages Terminology PRODUCTION ERA
National Excess Capacity MARKETING ERA Concentrated Earnings FINANCE ERA
International Competition QUALITY ERA Global Excess Capacity PARTNERSHIP ERA

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INTRODUCTION TO MANUFACTURING STRATEGY Late 80s and early 90s brought a new dimension to the industries competition. Struggle to survive has become a way of life Time has become another extremely critical factor. A delay of 6 months in launching a consumer product can reduce lifecycle profit by 33%, whereas overspending on development by 50% will reduce profit by only 3%.
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INTRODUCTION TO MANUFACTURING STRATEGY Enterprises have to tackle all these issues and yet be successful. For e.g. In the same business, some companies fail while some others do extremely well. Companies that were successful earlier, have fallen by the way side (TWA, PAN AM AIRLINES, DEC,HMT, NGEF etc). It is the responsibility of the company to integrate industry specific and nation specific factors with companys resources, capabilities & strategies in order to enhance companys performance.
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ENVIRONMENTAL ISSUES INFLUECING BUSINESS
Globalization Time Compression Technology Integration
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ENVIRONMENTAL ISSUES INFLUECING BUSINESS Over a 1-2 year period, company performance is affected by industry related factors But over a 6-7 year period, industry factors play only a small part. Rest is management factors
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WHY COMPANIES FAIL - INABILITY TO ESCAPE THE PAST Track record of success No gap between expectations & performance Satisfied with current performance Accumulation of abundant resources Attitude that resources will win out Resources substitute for creativity
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WHY COMPANIES FAIL - INABILITY TO INVENT THE FUTURE Optimized business Success confirms practices systems Deeply etched Momentum is practices mistaken for leadership Vulnerability Failure to reinvent leadership
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CONTRIBUTION OF MANUFACTURING STRATEGY Manufacturing contributes to wealth creation activity of a nation. Roughly 35 % of GDP is contributed through industries in newly developing countries Many nations such as China, Japan, Korea, Germany and Italy have gained competitive advantage and high value additions through manufacturing route during the last decade and which was a key factor in their economic success
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focus was on higher efficiencies through improvements in fits and tolerances, assembly line techniques, reduction in product variety to reduce costs, work force training to achieve single specialized skill, SPM, transfer lines etc. Later, in response to competitive market forces, developments such as FMS, cellular manufacturing, JIT and agile manufacturing etc were developed. These developments have cut down inventories and work in progress
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Initially,
Unfortunately, there is little appreciation of the strategic role of manufacturing in corporate strategies. Many companies treat manufacturing function as an inevitable nuisance! It soaks up capital in facilities and inventories, it resists changes in products and schedules, its quality is never as good as it should be, its people are unsophisticated, tedious, detail oriented and unexciting.
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CONTRIBUTION OF MANUFACTURING STRATEGY As a result, manufacturing

has focused on day-to-day, short-term issues has a reactive approach to long term strategic planning has focused exclusively on efficiency; it has hindered it from visualizing the big picture. (Icarus syndrome) is simply not geared to companys corporate objectives is not designed to meet companys needs, in spite of having good facilities.
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At best, has remained a neutral force or quite often, it pulls in the opposite direction! As a consequence, top management has focused on improvements through non-manufacturing decisions such as outsourcing, M & A, take over, J.V. etc. This anomaly requires to be bridged; Manufacturing can offer strategic strength to its organization in the following ways.
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A. Provide manufacturing processes (including design of new products) that gives the business a distinct advantage in the market place. B. Provide coordinated manufacturing output and support which provides competitive advantage & enables the organization to win orders in the market place (cost, quality and performance, delivery, flexibility and innovativeness)
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industry must cease to operate the way it has been doing for the last 50 years The country must move to a new manufacturing ethos that is benchmarked to world size and class.
Indian
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EXCESS COST OF DOING BUSINESS IN INDIA High cost of materials Low productivity High interest costs Technological obsolescence Complex , irrational & multiple levels of taxes Complex regulations/ procedures Time delays/ corruption Nitpicking culture Poor managerial competence
(Ref - Vision 2020 Prof. Indiresan, ICFAI)

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INDIA & CHINA A COMPARISON

INDIA FOR THE YEAR 2003 (% of GDP) CHINA (% of GDP)
Agriculture Industry (Manufacturing) Services
22.2 26.6 (16.3) 51.2
14.6 52.3 (39.3) 33.1
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INDIA & CHINA A COMPARISON
China 2003 % GDP
India 2003 % GDP
India 2009 % GDP
India 2020 % GDP
Agriculture Industry (Manufacturing) Services
14.6 52.3 (39.3) 33.1
22.2 26.6 (16.3) 51.2
17.0 20.0
12.0 17.0
63.0
71.0
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CLASSIFICATION OF INDUSTRIES Industries are dominated by different types of competitive resources capacity, customers & knowledge Capacity driven industries
Physical Capital Investment is high in relation to cost or value addition Competition takes place mainly on price Pace of productivity improvement is modest Register low profitability Examples Steel, Textiles, Paper
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CLASSIFICATION OF INDUSTRIES Customer driven industries

Investments in brands/ customer relations account for a large part of cost/ value addition Companies compete across a number of non price aspects such as logistics, product positioning, publicity etc Advantages gained by these aspects are only temporary these are easily imitated Generally, these industries tend to be less mature & fragmented Examples household goods, food, beverages etc.
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CLASSIFICATION OF INDUSTRIES Knowledge Driven Industries

Highly investment driven especially in R & D, which accounts for a large part of its cost Industries excel in innovation Examples are Software, Electronics, Pharmaceuticals etc
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MANUFACTURING TECHNOLOGY TYPES Process Technology pertains to the techniques of producing and marketing goods and services It also includes work methods, equipment, distribution and logistics It is fully embedded in a firms value chain Improvements are designed to produce and market goods & services faster, more efficiently and in greater volumes
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MANUFACTURING TECHNOLOGY TYPES Product Technology pertains to technology that is built into the product/ services Changes in product technology add new features or provide new substitutes for existing products Process Technology refers to the way the firm is doing its business; Product Technology refers to the output of an organization
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SESSION SUMMARY Following concepts have been covered during this session
Contribution of manufacturing to economies of Nations Environmental issues influencing business Reasons why companies fail Manufacturing technologies Classification of Industries
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2. STRATEGY & ITS FORMULATION
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SESSION OBJECTIVES In this session, participants are taught the following concepts
Definition & characteristics of Strategy Role, Features and levels of strategy in an organization Intended and Emergent strategy Strategy Formulation Strategic Choice Missions and Goals
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STRATEGY DEFINITION Strategy is the pattern or plan that integrates an organisations major goals, policies and action sequences into a cohesive whole Managements plans to attain outcomes consistent with the organizations mission & Goals A well formed strategy helps to marshal and allocate an organisations resources into a unique and viable posture based on its relative competences and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents.
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STRATEGY - ADDITIONAL DEFINITIONS Science and art of military commands as applied to overall planning and conduct of large-scale combat operations Determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out the goals The pattern or plan that integrates an organizations major goals, policies and action sequences into cohesive whole
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Strategy Additional Definitions
An unified, comprehensive and integrated plan which is designed to ensure that basic objectives of the enterprise are achieved Pattern in a stream of decisions or actions A sequence of decisions that, over a period of time, enables a business to achieve a desired (market related) manufacturing structure (process choice), infrastructure and a set of specific capabilities Moving from where you are to where you want to be in future through sustainable competitive advantage
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CHARACTERISTICS OF STRATEGY
Associated with major issues Impact on the whole organisation Requires concentration of effort Long term
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CHARACTERISTICS OF STRATEGY
It is high level It is general Time span is long range Affects the whole organization Developed from the ground upwards Covers a wide range of activities Exploits a particular concept
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Strategic And Operations Planning

Strategic Planning Long Range Plans 3+ yrs Top Management Responsibility Broad Objectives Focus on planning & forecasting Tactical Planning Operational Planning Intermediate Short range < 1 yr Range 2 3 yrs Mid level Junior level management Departmental Internal day to day objectives activities Coordination Controls
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WHY HAVE A STRATEGY?
Optimise structural decisions Proactively plan for future changes Align capabilty to market needs Integrate sub-strategies holistically
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STRATEGIC DIMENSIONS
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STRATEGIC DIMENSIONS
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THE LEVELS OF STRATEGY

Strategy
Corporate
Defines the business in which the organisation will compete, determines the long term objectives and identifies the courses of action and allocation of resources. Focuses on how to compete in a given business, determines the competitive approach and the strategies for each business unit of a multi-product organisation. It is usual for a Strategic Business Unit to be treated as semiautonomous and therefore free to set their own strategy under the corporate umbrella. Focus often on cost leadership. Aim of the functional strategy is to obtain the maximum productivity from resources. Given the constraints set by the corporate and business strategies, functional departments must develop strategies in which their activities and skills are harnessed for the improvement of performance.
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Business
Functional
THE BUSINESS CONTEXT

Small Business
- Entrepreneurial vision - Management of growth
Multinational
- Central vs local control - Complexity - Multi layer management - Aligning operations with strategy - Communications
Public sector
- Political dimension - Slowness of decision making - Survival despite failure
Professional practice
- Regional markets - Traditional structures and mindsets
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STRATEGIC PRESSURES
Customers who demand more sophisticated products and services The emergence and availability of new technical solutions
Smaller business unit
THE BUSINESS UNIT
Strong collaboration with suppliers
There is a need to optimise resource bases
Time-to-market for new products is becoming ever more critical
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STRATEGIC MANAGEMENT MODEL

Formulation Implementation Evaluation
External analysis Establish mission Internal analysis Organisation control Structure Leadership Rewards Functional policies Production Marketing HR, etc. Formulate objectives Identify strategy
Feedback
Measure and evaluate performance Corrective action Contingency planning

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INTENDED Vs. EMERGENT STRATYEGY
Planning assumes strategy as an outcome of rational planning Ignores that strategy can emerge as response to unforeseen circumstances e.g. Haeber process for ammonia production Intended strategy deliberate strategy realized strategy
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INTENDED Vs. EMERGENT STRATEGY Unrealized strategy emergent strategy realized strategy Example of realized strategy- missiles development in India; Example of of emergent strategy - Sale of 50 cc Honda bike in USA; MTR ready made food in Bangalore Emergent strategy is generally successful; Most companies follow a combination of intended and emergent strategies
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DIFFERING PLANNING STYLES

1960s Planning for a period of stability and growth
Long term forecast Detailed planning Five year budgets Strategies for growth Manpower planning Gap analysis Product-market matrix Inflexible Over optimistic Alternatives not considered
1970s Planning for business under attack

Divisionalisation Exploratory forecasting Planning for change Environmental impact Sensitivity and risk analysis Too centralized No business linkage Too elaborate analysis
Early 1980s Planning for cutback and rationalization

Top management in charge of strategy Attempt to manage strategic change Explicit business philosophy and objectives Resource portfolios Short-term views Employee backlash
Late1980s Planning for growth, global consequences

Visible leadership Staff involvement Investment in new technology Company wide quality improvement Benchmarking Training Heavy staff demands Difficult integration Funding for new investments
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Problems
Techniques
Elements
DIFFERING PLANNING STYLES
1990's
Setting strategic direction in an uncertain environment
Current Issues
Environmental awareness
Crisis and recovery: managing turnaround situations
Customer satisfaction
Transforming cultures
Emerging markets
Achieving excellence
Cost out initiatives
Responding to deregulation and privatisation
Legislation
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ELEMENTS OF STRATEGY & ITS FORMULATION Definitions missions, goals, objectives, strategy Mission statement Is a framework for strategy formulation Identifies interrelationship between mission, stakeholders & strategies
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Mission statement must include Definition of business State objectives Attempt to satisfy both external and internal claimants, resolve conflicts Identify stake holders, identify their interests and concerns , likely claim on the business by stakeholders Identify critical strategic issues reject strategies conflicting with the needs of critical stakeholders.
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ESTABLISHING THE CORPORATE MISSION
MISSION STATEMENT
Inside Claimants Executive officers Board of directors Shareholders Employees
Business definition Major goals Philosophies
Outside Claimants Customers Suppliers Governments Unions Competitors Local communities General public
Strategic Management guided by mission Statement

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MISSION CRITERIA
Specific enough to have impact on behaviour of organisation
Focused more on customer need satisfaction than on product characteristics

Able to reflect essential skills
Attainable Flexible
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GOALS Goals specify how a company intends to go about attaining strategic intent. Usually companies mention increasing share holders wealth as a goal but it can lead to short term practices. This can be rectified by having secondary goals such as market share, innovation, measure of financial resources, social and employee issues.
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GOALS An example can be leader in the business segment G.E. wants to be No.1 or 2 in their line of business Hard goals - traditional financial measures Soft goals role of S.B.U. as a social entity. (Caution making unrealistic statements & targets)
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DEFINITION OF BUSINESS What is our business, what will it be, what should it be? (e.g. I.B.M. successfully transited from calculators/ typewriters to computers, but was not successful in transiting from main frame to P.C.) Consumer oriented rather than product oriented
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DEFINITION OF BUSINESS Multi-product company cannot just aggregate the individual businesses; Must identify the synergy & the reasons why business units are better off as a part of the multi-product company. e.g. identify vertical integration, commonality in marketing/ servicing etc.
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TERMINOLOGY
TERM Mission Goal Objective Strategies Action Task Reward
DEFINITION
Value and expectation of all General statement of aim or purpose Quantification of goal Action to achieve objectives
PERSONAL EXAMPLE
Be healthy and look good Lose weight Lose 5 kgs by 31st December Diet and exercise
BRITISH AIRWAYS
To be the best and most successful. Significant presence globally Take advantage of global expansion Create market alliances Acquire 70% stake in Sabena Profit sharing scheme
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Implementation steps Eliminate desserts, swim every day Payoff for reaching objective Buy a new suit
STRATEGY FORMULATION
DRIVERS CAPABILITIES GAP ANALYSIS PROVIDERS
Need strategic intent
RESPONSIVENESS
Companys weaknesses
Practices Methods Tools
COMPETENCY INFORMATION INFORMATION ORGANISATION TECHNOLOGY PEOPLE INNOVATION INFORMATION INFORMATION
FLEXIBILITY
SPEED
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External analysis Identify opportunities and threats

Est ablish mission
Internal analysis Identify strengths and weaknesses
For mulat e object ives
Ident ify and select st r at egy
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STRATEGIC CHOICE
I nt er nal analysis
Ext er nal analysis
M ission
St r at egy select ion
C om pat ibilit y w it h t oler ance
O bject ives
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FORMULATING OBJECTIVES
Objectives Provide direction Aid in evaluation Allow co-ordination Financial Non Financial
Measurable
Communicable
Realistic
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SETTING GOALS
Attainable Economic Applicable Consistent Understandable Measurable Stable Adaptable Legitimate Equitable Met with reasonable effort under the prevailing conditions Cost of setting and administering should be low in relation to activity Fit the condition under which they to be used Unify communication and operations throughout the company Expressed in simple, clear term to avoid misinterpretation Communicate with precision Long enough life to provide predictability and to amortise effort Designed so that elements can be added and brought up to date Officially approved Accepted as a fair basis for comparison
Customer focused Address areas important to the customer (internal/external)

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Various definitions of Strategy Why have a strategy? Strategic Pressures & Models Strategy formulation Methodology Establishing Missions & Objective Mission Criteria
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3. EXTERNAL ANALYSIS
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Broad /Macro Environment - P.E.S.T. factors Competitive Environment Porters 5 F Model Limitations of PEST & 5 F theories
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EXTERNAL ANALYSIS
Broad / Macro environment
P.E.S.T. Economic
Competitive environment
Political
New entrants Customer power Substitutes
Porter 5 force model
Supplier power
Competitors
Social
Technological
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MACRO ENVIRONMENT (P.E.S.T.)
Political trends
Change of governments Tougher legislation Resurgence of trade unions Conflict/Unification
Economic trends
Monetary union Exchange rates Inflation Shift of financial power
Social trends
Skill shortage Emergence of 'anti-growth' values Increase in home working Boom in leisure industries
Technological trends
Replacements for steel Development of public transport Information technology Communications
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PORTERS 5 FORCE MODEL
Threat of new entrants
New entrants
Industry competitors Suppliers Intensity of rivalry
Bargaining power of buyers
Customers
Bargaining power of suppliers
Substitutes
Threat of substitutes
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PORTERS 5 FORCE MODEL

Determinants of supplier power
Economies of scale Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Government policy Expected retaliation Bargaining leverage Ability to backward integrate Substitute products Impact on quality/performance Brand identity Product differences Price sensitivity Industry Growth Fixed costs/value added Intermittent over capacity Differentiation of inputs Switching costs Presence of substitute inputs Supplier concentration Importance if volume to supplier Cost relative to total purchases Impact of inputs on cost differentiation Threat of forward integration Relative price performance as substitutes Switching costs Buyer propensity to substitute
Entry Barriers
Determinants of Substitution threat
Determinants of buyer power
Switching costs Brand identity Product differences
Concentration and balance Diversity of competitors Exit barriers
Rivalry determinants
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EXTERNAL ANALYSIS Some companies do well because of external environment or country where they operate Others do badly because external environment is hostile E.G.- Indian professionals working abroad, inspectors harassment for indian industries
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EXTERNAL ANALYSIS Strategy must fit in with the environment or reshape the environment to ensure fit between intent and environment Opportunities & threats constitute external factors. Opportunities arise when environment tends to create a competitive advantage to the company; Threats arise when the environment endangers the integrity of the company.
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FIVE FORCES MODEL Five forces shape competition within the industry Stronger that any of these forces work (alone or in combination), more limited is the ability of the companies to raise prices and be more profitable; Hence they can be construed as threats. Weaker that the forces are, the more it is an opportunity for the company. Impact of 5 F change through time. Company may alter the impact of 5 F through its choice of strategy
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POTENTIAL COMPETITORS These are companies, which are not competing, but can do so if they chose. Ability to enter business is a function of entry barriers (costs, technology, brand loyalty, marketing infrastructure, economics of scale) Companies discourage potential competitors by raising entry barriers and through disinformation.
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RIVALRY AMONG ESTABLISHED COMPANIES Price wars may result from intense rivalry Extent of rivalry is determined by 3 factors viz.
competitive structure demand condition & height of exit barriers
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COMPETITIVE STRUCTURE Refers to the number and size distribution of companies in an industry i.e. It can be fragmented or consolidated single dominant company is called monopoly while a few dominant companies is called oligopoly
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FRAGMENTED INDUSTRY
Fragmented industry structure combined with low entry barrier results in boom & bust cycles (strong demand entrants hoping to cash in creation of excess capacity price war some companies are forced out industry capacity matches demand price stability) Low entry barrier + fragmented structure represents a threat Cost minimization & survival during bust cycle is the most apt strategy
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CONSOLIDATED INDUSTRIES In consolidated industrial situation, companies are interdependent. Competitive action of one company affects the business of its rivals. Can lead to dangerous competitive price spiral Between 1990&92, airlines in america lost more money than what they had made in the previous 50 years!
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CONSOLIDATED INDUSTRIES Since price war constitutes a threat, companies try to follow the price lead set by dominant company by tacit understanding Do you accept that market sets the price? But this arrangement can be unilaterally abrogated by one or more company during very adverse economic condition.
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CONSOLIDATED INDUSTRIES Companies try to minimize the threat by highlighting non price issues such as quality/ special features and by building brand loyalty. However, it may be difficult to distinguish between service providers e.g. Air travel, Cable TV Price is also used as a tool to increase demand
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DEMAND CONDITION
Growing demand (addition of new customers or more purchase by existing customers) tends to moderate competition In this situation, companies can increase business and revenue without taking business away from competitors. When demand is declining, company can grow/ sustain only by taking business away from competitors.
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EXIT BARRIERS
These can take the form of economic, strategic and emotional factors. Companies keep operating even if the business is not viable. Common types of exit barriers are
Investment in plant & machinery High cost of exit such as retrenchment compensation Emotional / sentimental attachment Strategic relationship between business units of a company Economically dependent on industry Political/ social factors (e.g. Kolar Gold Field/ NGEF)
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THE BARGAINING POWER OF BUYERS Buyers represent a competitive threat, when their demand increases without commensurate price increase (e.g. Increase in credit period, reduction in price, increase in quality etc) Raising of demands on suppliers by buyers, entirely depends on their power relative to the suppliers. Buyers are powerful, when buyers are large and few while suppliers are small and many (e.g. Auto components)
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THE BARGAINING POWER OF BUYERS Buyers purchase in large quantities Supplier depends on the buyer for a large percentage of his business Buyers can switch easily between suppliers When inputs can be purchased from several buyers at the same time When buyers can vertically integrate and supply their own needs
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THE BARGAINING POWER OF SUPPLIERS When supplier can force the buyer to increase the price of inputs, they represent a threat. Suppliers are powerful, when
Suppliers product has no substitute & is critical to the company Buyer is not an important customer to the company It is difficult for the buyer to switch to another supplier When supplier can vertically integrate and compete with the buyer When the buyer cannot vertically integrate backwards and meet their own requirements
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THE THREAT OF SUBSTITUTE PRODUCT The existence of close substitute product presents a competitive threat to the supplier industry e.g. Coffee can be substituted by tea. This restricts the price that the company can charge its customers.
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MACROENVIRONMENT (P.E.S.T.)
Industries are embedded in a wider macroenvironment of Politcal, Economic, Social &Technological factors. Demographic factors also play a role. These factors determine the health of a nation and its economy.
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MACROENVIRONMENT (P.E.S.T.) Economic improvement of economy ensures growing business volumes and reduces competitive pressures; Converse is also true. Other factors such as interest rates, currency value also contribute to the competitive factors and may pose a threat/ opportunity to the company. Inflation can slow down the economy and make prediction of future that much more difficult. (Misery index = inflation + unemployment)
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MACROENVIRONMENT (P.E.S.T.) Technological- can make existing products obsolete and create demand for new products; As such, represents both an opportunity and a threat. This is called a perennial gale of creative destruction. This factor also emphasizes the need for speedy product development and its introduction in the market.
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MACROENVIRONMENT (P.E.S.T.) Social this also creates opportunities and threats. E.G. Health consciousness resulted in opening health clubs & reduction of demand for cigarettes. Political political factors also create opportunities and threats. E.G. Liberalization of imports has created opportunities for traders but has threatened the industries. Similarly environmental concern has had its favourable/ adverse effects.
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MACROENVIRONMENT (P.E.S.T.) Demographic changing composition of population has created opportunities and threats. Likes and dislikes of younger group has created its own demands (soft drinks, pizza) and reduced demand for other products (formal clothes)
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MACROENVIRONMENT (P.E.S.T.)
There is a criticism that the two theories represent a static model in a dynamic world! Innovation gives companies an opportunity to reduce costs & revolutionize the industry structure. Hence the industry undergoes a transition, when the theories are not applicable.
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Convergence of PEST Factors
P1
P2
S1
S2
System 2 Why are E & T factors becoming common?

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System 1
LIMITATIONS OF P.E.S.T. & 5F
When the industrial structure is reshaped, it again attains a state of new equilibrium and the theories are again applicable. This is called punctuated equilibrium & competitive structure. There are many industries where innovation is continuous (hypercompetetive) and there are no periods of equilibrium (e.g. Autos)
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Macro & Competitive environment PEST & 5F theories; their limitations Elements of 5 Forces Supplier Power, Bargaining power of suppliers, Threat of substitute product, entry and exit barriers, Fragmented and consolidated Industrial Structure
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4. INTERNAL ANALYSIS
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Analyzing the internal organization Structures and Systems, Structural Changes Control Systems Culture, Style & Value Skills & Resources Resources Capability
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ANALYZING THE INTERNAL ORGANISATION
STRATEGY
Skills and resources Culture, style and values Structure and systems
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ANALYSING THE INTERNAL ORGANISATION

The strategy of a firm is influenced and constrained by the existing; Structure
Culture Values Resources
Awareness of these is essential to develop an insight into the reality of our organisation and thus how we ought to look in the future.
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STRUCTURE AND SYSTEMS Structure refers to the way in which a company is organised in terms of
Work flow Communication
Authority
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STRUCTURE AND SYSTEMS

Small company / narrow product range Larger company / diversified product range Divisional Matrix Mixture, usually taking the form of product and geographical divisions or functional and divisional structures operating in tandem
Type
Functional / Traditional
Organisation based Organisation on the primary tasks subdivided into it has to carry out units which are usually responsible for defined market or product areas
Form
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FUNCTIONAL STRUCTURE
Managing Director
Manufacturing
Sales and Marketing
Engineering
Finance
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DIVISIONAL STRUCTURE
CEO
Corporate Headquarters
Division A
Division B
Division C
Division D
Manufacturing
Sales and Marketing
Engineering
Finance
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MATRIX STRUCTURE
Product / Centre A Manufacturing
Product / Centre B
Product / Centre C
Sales
Etc
Customer
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MATRIX STRUCTURE A matrix is a system that indicates not only a multiple reporting structure, but also aligned processes and an associated organisational culture and behaviour pattern.
Focus on optimising customer relationships Communication happens both vertically and horizontally Intersections mean dedicated functional resources to product / centre Better focus on product for customer
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EMERGING STRUCTURES
Communication problems Conflicting priotities Lack of co-ordination
Functional
Functional Expansion
EMERGING STRUCTURES
CO-ORDINATION ACROSS THE ORGANISATION

Little specialisation Emergance of specialists Functional goals not linked
Expansion
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ACHIEVING CO-ORDINATION
Create small units Co-ordination Co-ordinate activities across functions across the organisation Formalise roles in a matrix structure
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STRUCTURAL CHANGE
Confusion
General management avoidance
Uncertainty
Retain historical structures
Anxiety
Reorganisation delayed
Consequence
Resentment
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STRUCTURAL CHANGE
Management approval Systems hinder strategic implementation Job descriptions
Avoid taking responsibility
Uncomfortable in using initiative Used defensively Avoidance of new problems

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CONTROL SYSTEMS
Do they measure only the things you can count ? Do the control systems measure what is important ?
Do they identify staff priorities ?
Is action identified to meet the required level of performance ?

126
CULTURE, STYLE AND VALUES Culture is the pattern of beliefs, expectations and values shared by the organisations employees Norms of behaviour will emerge, to which managerial hierarchy and the employees will follow Shared values and expectations will establish the degrees of individual
Responsibility Initiative Innovation
127
CULTURE, STYLE AND VALUES
Effectiveness
Competitive Edge
Change
Behaviour
GUIDE
128

Strategy making process influenced by management views Customers, reported performance, ex-employees, other managers, industry rumours Competition are formally rubbished Collective inferiority complex OBJECTIVE INFORMATION IGNORED OR DOWNGRADED IF IT DOES NOT FIT THE PREVAILING VIEW OF THE WORLD
129
There is safety in being big Managers know what they are doing
Views that keep the company doing what it has done in the past, and is doing now
We are trained to avoid risks at all costs
Loyalty brings promotion

130
CULTURE, STYLE AND VALUES Where Management is harmful to good decision making
Believed wrong or bad form to criticise Management Doubters are seen as not being Team Players Plain fear can prevent people from speaking their minds This predominant management style gets reinforced where Companys generally promote from within
131

High
8
Country club management Attention to needs of people, friendly atmosphere Team management People commitment leading to trust and respect
Concern for people
Middle of the road management Balancing necessity to get work out and maintaining morale
Impoverished management Exertion of minimum effort to get required work done
Authority-Compliance Minimum interference through procedures
Low Low 1
2 3 4 5 6 7 8 High
132
Concern for production
Autocratic Use of authority by leader
Democratic
Area of freedom
Tells Sells to group Announces decisions & permits questions Consults group & decides Presents problem asks for ideas & decides Presents problem & boundaries group decides Gives group freedom to define problem & decide
Fast
Slow
133
AUTOCRATIC STYLE Production-oriented leadership
Effective when - time is limited Ineffective when - members have a certain degree of skills-knowledge - group wants an element of spontaneity in their work - developing a strong sense of team is the goal
134
- individuals/group lack skill and knowledge - group does not know each other
DEMOCRATIC STYLE Employee-oriented leadership
Effective when - time is available Ineffective when - group is unmotivated - no skills or knowledge is in members - high degree of conflict is present - group is well motivated - a sense of team exists - there is some degree of skills or knowledge among the members of the group
135
CULTURE, STYLE AND VALUES Even when you believe democratic to be the correct style, pressure exists from
Colleagues you would be considered as weak Bosses youre not in control Staff we dont know how to respond to this unfamiliar approach
136
SKILLS AND RESOURCES Resources are those assets that form the input for the production of an organisations goods and services.
Personnel and managerial expertise Financial assets Physical plant and facilities
137
RESOURCE CAPABILITY
Value ValueChain ChainAnalysis Analysis
Resource Resourceaudit audit Measures Measuresof ofresource resourceutilisation utilisation(effectiveness (effectivenessand andefficiency) efficiency) Measure Measureof ofresource resourcecontrol control
Drawing DrawingComparisons Comparisons

Historical Historicalanalysis analysis Industry Industrynorms norms Experience Experiencecurve curve
Assessing AssessingBalance Balance

Product Productportfolio portfolioanalysis analysis Skills Skillsanalysis analysis Flexibility Flexibilityanalysis analysis
Identification Identificationof ofKey KeyIssues Issues

Strengths Strengthsand andweaknesses weaknessesanalysis analysis Distinctive Distinctivecompetence competence
138
SKILLS AND RESOURCES

Functional audit
Organisational capability audit
ORGANISATION
Distinctive competence = Competitive advantage
Inability to meet customer needs

139

Economies of scale
Linkages
Distinctive competence; Audit considerations
Response time
Learning and experience

140

Economies of Learning and scale experience
Can accrue in production, purchasing and distribution. Need to assess where competitors are exploiting scale economies more effectively. Do we communicate ideas and suggestions effectively? Do we thoroughly document changes and improvement?
Linkages
Response time
How rapidly can we respond to an order? How long does it take us to develop a new product? How soon can we deliver? Critical in creating competitive advantage.
141
Cost and performance of one activity is often affected by how other activities are performed. Eg Higher quality components can reduce production costs.

Internal Functional Areas Audit R&D Marketing Finance
Are R&D efforts well planned, directed and controlled? Is the R&D effort based on customer needs as revealed by market research? Have enough new products been generated by the R&D process? What is the extent of the marketing effort? To what degree is the firm marketing oriented? How capable is the marketing in identifying new opportunities? What is the financial standing of the company and what is the quality of financial management? Is the company investing to create competitive advantage?
Production
Is the manufacturing process meeting current competition? Is it flexible to meet future competition? Is the plant and equipment appropriate? Does it embody the latest technology?
Personnel
Does the company have the right people with the right skills in the right place? Does the firm offer competitive rates of pay and conditions of employment? Is the workforce informed about company developments?
142
EFFECTIVE
EFFICIENT
Doing the right thing
RESOURCES
Doing the thing right
Deployed in the best way
Utilised in the best way

143
SESSION SUMMARY
Following concepts have been covered during this session

Analyzing the internal Organization Strategy rests on a foundation consisting of a)skills & resources b) culture, style & values and c) structure & system Types of structures Kills & Resources Resource Capability
144
5. STRATEGY DEVELOPMENT
145
Combining External & Internal Analysis Developing SWOT / TWOS matrix Types of Strategies Growth, Stability and Retrenchment Strategies Generic Strategy and associated risks Product Life Cycles Product Portfolio BCG Matrix
146
COMBINING THE INTERNAL AND EXTERNAL ANALYSIS Strategy should arise from matching company strengths to environmental opportunities, while combating threats and removing its weak links
SWOT Analysis
STRENGTHS
WEAKNESSES
THREATS
OPPORTUNITIES
147
SWOT ANALYSIS
Many product lines Broad market coverage Manufacturing competence Good marketing skills Good materials management systems R&D skills Information system competences Brand name reputation Portfolio management skills Cost or differentiation advantage New venture management expertise Appropriate management style Appropriate organisational structure Appropriate control systems Ability to manage strategic change Well developed corporate strategy Good financial management
148
SWOT ANALYSIS
Obsolete, narrow product lines Rising manufacturing costs Decline in R&D innovations Poor marketing plan Poor materials management systems Loss of customer goodwill Inadequate information systems Inadequate human resources Loss of brand name capital Growth without direction Bad portfolio management Loss of corporate direction Infighting amongst divisions Loss of corporate control Inappropriate organisational structure / control High conflict and politics Poor financial management
149
SWOT ANALYSIS
Expand core business Exploit new market segments Widen product range Extend cost of differentiation advantage Diversity into new growth businesses Expand into foreign markets Apply R&D skills in new areas Enter new related businesses Enlarge corporate portfolio Reduce rivalry among competitors Make profitable new acquisitions Apply brand name capital in new areas Seek fast market growth
150
SWOT ANALYSIS
Attack on core business Increases in domestic competition Increases in foreign competition Change in consumer tastes Entry barriers Rise in new or substitute products Increase in industrial rivalry New forms of industry competition Potential for takeover Existence of corporate raiders Changes in demographic factors Changes in economic factors Downturn in economy Rising production costs Slower market growth
151
SWOT/ TOWS MATRIX
Strength
Weakness
Opportunities Threats
S-O Strategies S-T Strategies
W-O Strategies W-T Strategies
152
SWOT/ TOWS MATRIX S-O Strategies pursue opportunities that are a good fit to companys strengths W-O Strategies overcome weakness to pursue opportunities S-T Strategies identify the ways that the firm can use its strengths to reduce its vulnerability to external threats W-T Strategies establish a defensive plan to prevent the firms weaknesses from making it highly susceptible to external threats
153
IDENTIFYING AND SELECTING STRATEGY An organisations strategy describes its method for achieving strategic objectives Corporate strategy alternatives can be classified as being concerned with
Growth Stability Retrenchment
154
GROWTH VECTOR MATRIX
Product Present Market Market Penetration Product Development New
Present
New
Market Diversification Development

155
GROWTH STRATEGIES
Area How
Market penetration
Existing markets Winning a larger share with existing Existing products products/taking competitors business Low No investment in new products Little knowledge of market characteristics Market knowledge New product development Unknown market and product influences
Risk
Factors
Market development
New markets When existing markets offer few High Existing products prospects in growth/overcome loyalty
Product development
Existing markets New products New markets New products When there is low brand loyalty and/ or short product life cycles Low High
Diversification
Development beyond present markets High and products; - related, there is existing connections - unrelated (conglomerate), outside the scope of its existing operations
156
INTEGRATION STRATEGIES Integration strategies are usually considered as part of related diversification
Forward integration Control over distributors or retailers of its existing products or services Horizontal integration Control over competitors in the same business
Backward integration Control over inputs to its existing business
157
GROWTH STRATEGIES
ORGANIC
Culture Fast rate
Low risk
Job creation
Growth Type
Immediate market
Working business
ACQUISITION
158
Growth Strategies Horizontal Integration Horizontal Diversification Unrelated Diversification Vertical (Forward/ Backward) Integration Mergers Strategic Alliances (Partnerships)
159
STABILITY STRATEGIES Holding strategy

Company continues at present rate of development Retains market share Growth if the market grows Continuation of functional strategies
Harvesting strategy
Dominant market share Cost cutting and/or price increases to generate cash for future business expansion
160
Retrenchment Strategies
161
Retrenchment Strategies
Appropriate to reduce overall scale of an operation, or withdraw commitment to a particular market Liquidation - Withdraw from a declining market - Reinvest resources in new market areas Divestment - Selling off a business unit - Threats towards the present position - Conglomerates shrink back to their core business Turnaround - Business is failing and approaching bankruptcy - Part of the solution being the liquidation of assets and/or divestment
162
BUSINESS STRATEGIES How a Business Unit can most effectively compete

Results expected Resources required
Adopting a competitive position Defending itself against the five forces in the industry environment
163
GENERIC BUSINESS STRATEGIES
STRATEGIC ADVANTAGE STRATEGIC TARGET

Uniqueness perceived by the customer Low cost position
DIFFERENTIATION
Industry wide - Unique feature - Charge at premium price
OVERALL COST LEADERSHIP

- Avoid marginal accounts - Maximise cost reduction - Efficient scale facilities
Particular segment only
FOCUS
- Selects a segment/group in the market place - These are served to the exclusion of all others
164
Blue Ocean Strategy

Create uncontested market space Make the competition irrelevant Focus on non-customers Create and capture new demand Break the value-cost tradeoff (Seek greater value to customers and low cost simultaneously) Align the whole system of a firms activities in pursuit of differentiation and low cost.
165
Red Ocean Strategy

Compete in existing market space Beat the competition Focus on existing customers Exploit existing demand Make the value-cost tradeoff (create greater value to customers at a higher cost or create reasonable value at a lower cost) Align the whole system of a firms activities with its strategic choice of differentiation or low cost
166
Competitive Advantage
Competitive Advantage Low Cost Broad Target Competitive Scope Differentiation
Cost Leadership Toyota
Differentiation General Motors
Cost Focus - Hyundai

Narrow Target
Differentiation Focus BMW, Mercedes
167
COMPETENCE CHOICES AND GENERIC STRATEGIES

Cost leadership
Distinctive Market Product Competence segmentation differentiation
Differentiation High (principally by uniqueness) High (many market segments) R&D Sales and marketing
Focus Low to High (price or uniqueness) Low (one or a few segments)
Low (principally by price) Low (mass market) Manufacturing and materials management
Any kind
168
GENERIC STRATEGY RISKS

Cost Leadership - Loss of customer focus - There can only be one cost leader - Low cost positions can be copied
Focus - Target segment may disappear - Price attack - Excessive unit costs
Differentiation - Easily imitated - Specialists targeting one segment - Costs of differentiating

169
THE PRODUCT LIFE CYCLE It is important that companies are aware of the stage in the product life cycle that their various products and services are at;
Provides an indication of the most appropriate competitive and marketing strategies Important determinant of profitability Highlights the need for new products or services
It is not predictive but increases awareness and can indicate the need for change
170
THE LIFE CYCLE MODEL
Sales demand / Competition
Development
Growth
Shakeout
Maturity
Decline
Users / Buyers
Few: trial of early adopters
Growing adopters: trial of product Entry of competitors Attempt to achieve trial Fight for share Undifferentiated products
Growing selectivity of purchase May be many Likely price cutting for volume Shake-out of weakest competitors
Few competitors
Saturation of users Repeat purchase reliance Fight to maintain share Difficulties in gaining/taking share Emphasis on efficiency / low cost
Drop-off in usage
Competitive conditions
Exit of some competitors Selective distribution
171
172
THE PRODUCT LIFE CYCLE The length of the life cycle is decreasing for an increasing number of products
Technological changes in materials and processes Changing tastes of customers Competitive activity aimed at increasing market share in order to gain greater benefit from the experience effect
In evaluating product/service significance

Evaluate the current position Establish future priorities and needs Evaluate future potential opportunities
173
PRODUCT STRATEGIES
Introduction
Pioneering: Organisations who pioneer need defence ie patent, cost advantage or differentiation. Choice is in pricing high or low and the profitability effect. Imitation: Large numbers of products fail in the development stage. Stepping in after a competitor has stimulated early can prove successful.
Growth
Growth strategies require that new users and new uses are found for the product, or that existing users are persuaded to increase their consumption. These strategies are necessary during the growth phase and for extending the lifecycle once growth slows down
Saturation
Once demand for a product has reached saturation stage the appropriate strategy is to milk it by reducing expenditure on development and promotion and using the profits to fund the development of replacements.
Future
Expenditure on research and development should be aimed at having new replacement products available at the appropriate time. This requires constant awareness of competitor activity and changes in consumer tastes and insight into the new technological opportunities which might be available.
174
THE GROWTH SHARE MATRIX (THE BOSTON MATRIX)

Star business Wildcat business
HIGH Market Growth LOW

Movements of cash
Cash generating business
Dog business
Movements of business
HIGH
Market Share
LOW
175
THE PRODUCT PORTFOLIO (CHECKLIST OF STRATEGIES)

Stars
Invest for growth
- defend market leadership - accept moderate short term profits - take product into new markets; - develop the product further - work hard on selling
Wildcats
Opportunistic development
- invest heavily in selected products - introduce new products - improve market share - check consumer wants - check promotion
HIGH Market Growth LOW
Cash cows
Maintain market position
- maintain position in successful lines - prune less successful product lines - maintain prices - limit marketing expenditure - maintain share of key segments
Dogs
Rationalisation
- cut costs ruthlessly - maintain or raise prices - improve productivity - emphasize product quality / service - do not view as a marketing problem
HIGH
Market Share
LOW
176
177
Macro & Competitive environment PEST & 5F theories; their limitations Elements of 5 Forces Supplier Power, Bargaining power of suppliers, Threat of substitute product, entry and exit barriers, Fragmented and consolidated Industrial Structure
178
6. CHANGE MANAGEMENT
179
Understand the human factors behind change management Motivating and preparing employees for changes Force Field Analysis Strategic Change Management Approach & Process Employee Resistance & Coping Cycle Collaborative decision making and employee empowerment
180
STRATEGY IMPLEMENTATION
Functional policies
Organisational factors
Guidance for decision making In terms of functional activities Link formulation with implementation Structure Leadership style Motivation & needs
181
MOTIVATION AND NEEDS

Motivators
Achievement Recognition The work itself Responsibility Advancement
Hygiene factors
Company policy Administration Supervision Salary Interpersonal relations Working conditions
182
MOTIVATION AND NEEDS

Need to challenge and develop leading to capability Recognition of good performance and the development of status through recognition A requirement for belonging, acceptance and affiliation A need for a safe working environment, job security and other negotiated benefits The need for a basic living salary and the workspace in which to operate
Maslows hierarch of needs
183
Self actualisation
Esteem needs
Social needs
Safety needs
Physiological needs
MOTIVATIONAL FACTORS
50% 40% 30% 20% 10% 0% 10% 20% 30% 40% 50%
Achievement
Satisfiers or Motivators
Recognition Work itself Responsibility Advancement Company policy and administration
Dissatisfiers Or Hygiene Factors
Technical quality of supervision Salary / Wage Relationship with supervisor Working conditions
184
CHANGE MANAGEMENT
Obstacles to Change
Present State
Change Management
Ideal Future State
185
CHANGE PHASES
e m es e pl k r Im ra c t
nt
& ts ul
E d e n li ve st o lo th p m e rs as , s
C h a lle n g e p e o p le to a lig n th e ir p u rp o s e
cu U n rr e d e n t rs t si an tu at d io n
a p la n o el e p v e D a ng ch
186
CHANGE RELATIONSHIP
Difficulty of managing
HIGH
Bottleneck
Strategic
LOW
Non-critical
Leverage
Strategic importance
LOW
HIGH
187
FORCE FIELD ANALYSIS
Pushing Forces
Resisting Forces
Present Situation
188
FORCE FIELD ANALYSIS

Poor warehousing Customer pressure Good training programmes Inadequate documentation
Pushing Forces
Modern machinery
Shopfloor attitudes Low quality reputation
Proactive management
Resisting Forces
Poor internal relationships
Motivated supervision
Present Situation
189
Change Management
Elements of Change Management VISION SKILLS INCENTIVE RESOURCES ACTION PLANS ACTION PLANS ACTION PLANS ACTION PLANS ACTION PLANS Result Good Change Management Confusion
Notpresent VISION VISION
SKILLS Notpresent SKILLS
INCENTIVE INCENTIVE Notpresent
RESOURCES RESOURCES RESOURCES
Anxiety
Gradual Change Frustration
VISION VISION
SKILLS SKILLS
INCENTIVE INCENTIVE
Notpresent RESOURCES
Notpresent False Starts
When all the 5 elements are fully deployed, there is a successful change management
190
THE CYCLE OF CHANGE

7. Integration
Perceived Competence
2. Denial
That change is necessary. Retreat/withdrawal.
Of new skills and behaviors
6. Search
For meaning. Understanding reasons for success and failure. New models created.
3. Awareness
1. Shock
Mismatch between expectations and reality.
That change is necessary. Understanding own 5. Experimentation competence. And testing of new approaches and skills. Practice phase, trying to do things differently. Feedback. 4. Acceptance Is reality. Letting go of past comfortable attitudes
Beginning of Transition
Time
191
CHANGE MANAGEMENT PROCESS

Ending Neutral Zone Beginning
- help people discover the part they will play - verify that policies, procedures and priorities are consistent - model desired attitudes and behaviours - reward people for successfully changing - dont push for certainty or closure to quickly - encourage experimentation and dont punish failure - step back and reflect - solicit upward feedback - set short range goals - clarify the necessity of ending - identify and acknowledge losses - compensate people for losses
192
STRATEGIC CHANGE ELEMENTS
Reexamination
Integration
ELEMENTS
Simplification
Automation
Adaption
Reorganisation
Communication
193
STRATEGIC CHANGE APPROACH
Develop business vision and process objectives
Identify processes to be redesigned
Understand and measure existing processes
Identify IT levers
Design and build a prototype of the process
194
PROCESS INTEGRITY COMPONENTS
INTEGRITY COMPONENTS
Review of disaster recovery requirements Problem management procedures Batch scheduling procedures
Security policies and procedures Change control procedures Operations procedures
Report distribution procedures
R eview of the general control environment

195
SHARED VALUES
Top Management
Where to go
How to get there Company Employees
196
PRINCIPLES OF COLLABORATIVE RELATIONSHIPS

Behaviour Attitudes
People involvement Devolved authority Covert power Differentiated suppliers Pro-active innovation Prevention driven
Mutual respect Committed Open and sharing Trusting Focus on group gain
Collaborative Partnering
Extended guaranteed life Multi dimensional Shared design Single sourcing Relationship positioning Open info exchange High switching costs Self regulation Hands on Total acquisition cost Learning organisation Infrequent re-sourcing Transaction history Process measurement Team based Supplier investment
Measurements
Processes
Time
197
RISK SIGNIFICANCE
PROBABILITY OF OCCURENCE
LOW LOW Minor MEDIUM Significant HIGH Critical
LEVEL OF IMPACT
MEDIUM
Significant
Critical
Fatal
HIGH
Critical
Fatal
Fatal
198
THE COPING CYCLE
Denial
Defence
Discarding
Adaptation Acceptance
Performance Self-esteem
UNFREEZE
CHANGE
FREEZE
199
EMPLOYEE RESISTANCE
Resistance can be caused by;

Danger of losing job security Loss of power Skill or knowledge requirement Scepticism about results Functional units interests Resistance of customers
200
COLLABORATIVE DECISION MAKING

Separate the PEOPLE from the problem
Focus on INTERESTS behind positions
REFLECT on what you have learnt
Invent OPTIONS for mutual gain
Consider ALTERNATIVES
Develop an AGREEMENT
Apply OBJECTIVE criteria 201
COLLABORATIVE DECISION MAKING Separate the PEOPLE from the problem

Soft on the people, hard on the problem Put yourself in their shoes Listen before you talk Involve them from the start Help them save face Dont blame 3 kinds: Shared, Opposed, Different Ask why? Why not? Assert your interests not your position Formulate shared objectives
202
Focus on INTERESTS
COLLABORATIVE DECISION MAKING Invent OPTIONS

Invent before you judge Invent a wide range of options Leverage differences: Different interests, time value of money, forecasts
Apply OBJECTIVE criteria

Criteria: External standards of efficiency and fairness for deciding among options Examples: Market value, costs, core values, efficiency, corporate principles
203
COLLABORATIVE DECISION MAKING Consider ALTERNATIVES to agreement

What will you do if you dont reach agreement Review the costs to you and to them
Develop an AGREEMENT
Aim for a higher level solution Are there other possibilities?
REFLECT on what you have learnt

What worked / didnt work What would you do differently Ways to improve agreement What skills should you work on
204
EMPOWERMENT Empowerment is a PROCESS by which freedom and control are balanced so that supervisors and employees are authorised, enabled, held accountable and recognised for their contribution. Empowerment is a sense of PURPOSE which motivates people to stretch, be innovative and fully utilise their potential. Empowerment is PERFORMANCE in which everyone share responsibility for exceeding expectations.
205
TEN STEPS TO EMPOWERMENT
Direction - Alignment/Outcome - Standards - Resources Autonomy - Delegation - Freedom - Responsibility
Support - Coaching - Development
Performance - Evaluation - Reward/Recognition
206
MATRIX FORMULA
Top Management To;
- shared decision making - longer term strategic decisions - agreed shared priorities
From;
- unilateral decision making - short term decision making - special interest actions
Functional Management
-part focus - competitive - owned resources - whole focus - collaborative - shared resources
Product Management
- short term focus - weaker structure - special interest actions - longer term focus - stronger structure - negotiated process results
207
MATRIX FORMULA
Managers with two bosses - collocation is essential
- success requires empowerment - opportunity for more flexibility, greater choice and increased power
Processes
- must operate along two dimensions simultaneously - takes buy-in; changes occur within 12 to 18 months
Behaviour
- focus effort on two or more essential tasks simultaneously - commitment to a balanced reasoned response - rapid deployment of human resources - takes buy-in; changes occur within 2 to 4 years
Culture
- the ethos and spirit of the organisation must be consonant with the new form
- the behaviours must become

institutionalised - takes longest to evolve; changes within 5 to 10 years
208
FUTURE STRATEGIC CONTENT

ORGANISATIONAL STRUCTURE
- flatter management structure - fragmentation of functional expertise - verticalisation of supply chain - cross-functional team and project orientation - membership is disparate supply chains - new realities of performance measurement - managing teams in parallel - strategic focus - key supplier strategic alliances - greater reliance on IT - market/customer focus - strategic cost management - internal integration across the value chain - emphasis on time based strategies - distance education and knowledge exchange - performance enhancement systems development - concurrent learning and job performance
209
POLICIES, PRACTICES AND PROCEDURE
EDUCTION AND TRAINING NEEDS
Human issues affecting change management process Motivators & Hygiene Factors; overcoming employee Resistance Force Field Analysis Strategic Change Management Approach Collaborative decision making and employee empowerment
210
7. MANUFACTURING STRATEGY
211
Levels in Strategy Links between Corporate and Manufacturing Strategy Integration of Strategy Conflict between Marketing & Manufacturing future strategy Price/ Delivery/ Quality as order winners Manufacturing Strategy Process Steps
212
LINKS BETWEEN CORPORATE & MANUFACTURING STRATEGY Industrial (concerned with external environment) concerned with government policies, trade barriers, investment incentives, interest rates, banking policies, policies on inflation/ employment, infrastructure etc.(E.G. Reliance is supposed to have managed the external environment very well, but it does not explain how the company has grown enormously after 1991 post liberalization period) (good project management skills, and good financial engineering ?)
213
LINKS BETWEEN CORPORATE & MANUFACTURING STRATEGY Corporate defines business in which the organization will compete, determine the long term objectives and identify the course of action and allocation of resources. In todays context, global operations (manufacturing, marketing, sourcing etc) (global strategy) must form a part of the corporate strategy.
214
LINKS BETWEEN CORPORATE & MANUFACTURING STRATEGY Business focus by individual business within a corporate (SBU) on how to compete in a given business, determines the competitive approach and the strategies for each business unit of a multi product organization. It is usual for a SBU to be treated as semi autonomous and therefore free to set their own strategy under the corporate umbrella. It is common to emphasis on cost leadership/ cost differentiation and focus.
215
LINKS BETWEEN CORPORATE & MANUFACTURING STRATEGY SBUs strategy must support the corporate strategy and not work at cross purpose(e.g. Development of moly metal nozzles for rockets by one of the defence unit while the other one across the road was working on replacement of moly metal in all applications!) Functional aim of functional strategy is to obtain the maximum productivity from resources by individual functional units within a business e.g. Marketing, manufacturing and administration etc.
216
LINKS BETWEEN CORPORATE & MANUFACTURING STRATEGY Within the guidelines defined by the corporate and business strategies, functional departments must evolve strategies in which their activities and skills are harnessed for the improvement of performance. Role of manufacturing fits into this category and it must attempt to develop order winning outputs.
217
LINKS BETWEEN CORPORATE & MANUFACTURING STRATEGY Traditional approach was to ensure that Functional role did things right (efficiency) Corporate/ business role did the right things (effectiveness) Functional managers have confined their role to efficiency, management and control; They have neglected strategy (minding the store). This has led to a reactive role on their part.
218
LINKS BETWEEN CORPORATE & MANUFACTURING STRATEGY Business managers have also contributed to the problem by a) treating planning as their exclusive domain (ivory tower approach) & b) by assigning low caliber personnel to manufacturing function But focusing only on functional strategy without adequate attention to corporate/ business strategy is harmful to the organization in the long run. Operating effectiveness alone cannot be a strategy
219
INTEGRATION OF STRATEGIES
Functional strategies are not often linked to each other. Hence corporate strategies stop at the interface between functions. This is a serious weakness in strategy formulation and leads to failure of realizing a companys potential and their getting outperformed. Especially apparent is the failure to link manufacturing and marketing. This fault may be by design or default. It could be caused by an underlying belief that corporate improvement can be achieved by working solely at the corporate level.
220
INTEGRATION OF STRATEGIES Manufacturing must support a companys market into appropriate collection of facilities, structures, controls, procedures and people. It cannot function as a servicing unit for companys requests for products. This should form the basis for a manufacturing strategy and it should be well integrated with the marketing and corporate strategies. The attractiveness strength- contribution graph illustrates the issues
221
222
223
224
225
MANUFACTURING STRATEGY
Manufacturing systems
The way we manufacture. Continuous improvement. Manufacturing technology.
Markets
Demand. The product itself
Manufacturing control
Managing movement. Low inventory. Meeting demand.
Product technology
Design methodology. Innovation
Management of change
Methods. People.
226
STRATEGIC INTEGRATION
Corporate Objectives
Marketing Objectives
How do you win orders
Manufacturing Strategy
Process choice Infrastructure
227
SCOPE OF STRATEGY
Corporate Objectives
Marketing Objectives
How do you win orders
228
STRATEGIC INTEGRATION
Corporate Objectives Growth Survival Profit R.O.I.
Marketing Objectives Product market and segments Range Volume Mix Level of Innovation
How do you win orders Price Quality Conformance Delivery Product range Design Brand name Technical support After sales support
Alternative Processes Role of inventory Make or buy Capacity - size - timing - location
Function Support Systems Procedures Agreements Structure
229
MARKETING TO MANUFACTURE
Design Yes Maybe
Marketing No
Manufacture
230
THE DEGREE OF MATCH THE CURRENT MANUFACTURING SYSTEM AND INFRASTRUCTURE VERSUS THE SYSTEM NEEDED TO SUPPORT THE ORDER WINNING CRITERIA
Do nothing and live with the mismatch Change marketing strategy to improve the mismatch Change manufacturing strategy Change both
231
MARKETING CONFLICTS
Marketing view
All sales are good sales and contribute to increased turnover Promise customers short delivery times Disregard Economic Order quantities
Manufacturing view
We make some products more effectively than others We do not have process flexibility We are a high volume, low cost producer without flexibility
232
MANUFACTURING ISOLATED
In the Past
Manufacturing was told what to do There was no manufacturing strategy There was little investment in manufacturing facilities Manufacturing management excluded from decision making
Result
Manufacturing was ineffective Manufacturing was not matched to market needs Manufacturing was reactive Cant say no Just do as youre told
233
FUTURE STRATEGY
Manufacturing must develop a strategy in conjunction with other functions and on a equal basis Manufacturing personnel must be capable and be trained to think strategically This results in;
Manufacturing matched to market needs Manufacturing gets its share of investment Manufacturing invests in people, training, equipment and infrastructure to cope with the future changes in market conditions The organisation improves its competitive position, market share and profitability
CREATE ORDER WINNING CRITERIA

234
PRICE AS AN ORDER WINNER When organisations compete on price it must continuously improve its productivity, this enables;
Costs and prices to reduce Organisations to retain or improve its competitive advantage Kaizen or continuous process improvement leads to improvements in both productivity and quality
235
DELIVERY AS AN ORDER WINNER Delivery speed enables customers to

Meet short delivery requirements Manufacture with shorter lead times Deliver new products earlier
Make to stock enables delivery speed but incurs high stocks Make to order enables low stocks, but increases delivery time Assemble to order enables low stocks and reduces delivery time World Class production system (TPS) enables fast delivery speed, with no risk and with low stocks (Reduced process time, inter process delays, non value added activities)
236
QUALITY AS AN ORDER WINNER
Dimensions Performance Features Reliability Conformance Durability Serviceability Aesthetics Perception
Products primary operating characteristics Secondary characteristics Probability of a product failure within a given time Degree to which a product is manufactured to the specification A measure of a products life in terms of both its technical and economic dimensions Ease of servicing to include the speed and provision of after sales service How the final product looks How a customer views the product
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MARKET SHARE
SHARE OF THE MARKET = SHARE OF PREFERENCES X SHARE OF VOICES X SHARE OF DISTRIBUTION PREFERENCE = PRODUCT, PRICING & PROMOTION VOICE = FIRMS PROPORTION OF TOTAL PROMOTIONAL EXPENDITURE IN THE MARKET DISTRIBUTION = INCREASE THROUGH MORE INTENSIVE DISTRIBUTION
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BUILDING BLOCKS FOR COMPETETIVE ADVANTAGE

BUILD Resources Functional Differen tiation Value Creation Superior Profitability
S H Distinctive A Competences P E
Strategies Quality Efficiency Innovation Responsive
Low Cost
Capabilities
BUILD
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MANUFACTURING STRATEGY PROCESS STEPS
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SESSION SUMMARY

Links between corporate 7 manufacturing strategy Conflict between manufacturing and marketing future strategic content Price/ Quality/ Delivery as order winners building blocks of competitive advantage Manufacturing strategy steps
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8. MAKE OR BUY
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SESSION OBJECTIVES
In this session, participants are taught the following concepts

Make or Buy Decision as a part of Manufacturing Strategy Economics of Make or Buy Reasons for status-quo in make or buy decisions Factors to be considered in decision making Buyer Supplier relationship
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MAKE OR BUY
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MAKE OR BUY CHOICE
One of the key strategic issue in manufacturing is the decision regarding what to make and what to buy Companies rarely make their own products/ services from start to end Mostly these decisions have been taken on an adhoc manner and lack adequate strategic consideration
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MAKE OR BUY CHOICE
Traditional reasons for choosing between make or buy Inability to make in-house (technical capability/ high investment / low utilization) Retaining core technology e.g. Process valves and automobiles (retaining assembly stage onwards in order to ensure design security, final product quality & its testing, link with the customer etc)
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MAKE OR BUY
Which process has to be done in-house and which to subcontract (strategic level make-buy decision) This is not just based an analysis of costs There are strategic implications for
Span of processes Management and technical skills Complexity of manufacturing operations
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MAKE OR BUY CHOICE
Cost factors- when sources outside the company work out cheaper Especially true of highly labour oriented services
BREAK EVEN ANALYSIS
TOTAL COST -BUY
COST TOTAL COST MAKE MAKE-FIXED COST MAKE-VARIABLE COST BREAK -EVEN VOLUME
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MAKE OR BUY CHOICE
Transaction cost of outsourcing has to be factored in This is especially true in the Indian context where excise duty is locked up and cost of paper work is quite laborious In industries involving high cost materials, material balances have to be accurately tracked e.G. Metal processing & jewellery
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MAKE OR BUY CHOICE
This factor is offset by freeing of resources when supplies are bought; Also the benefit of specialist & better technology Cost is more accurately measurable when parts are outsourced But Activity Based Costing (ABC) approach indicates that the true cost of outsourcing to be higher than what has been assumed
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REASONS FOR STATUS QUO IN MAKING/ BUYING DECISIONS
It is always easier to tell than do! Normally, response to a make/buy decision is automatic, based on technology and then cost considerations Historical reasons that have not been reviewed
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REASONS FOR MAKE OR BUY STATUS QUO
Inertia & non-availability of executive resources to review the decisions taken earlier Avoiding of short term problems consequent to the changes Dominance of cost & technology factors
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Shedding of jobs is quite difficult hence make is easy way out! Many manufacturing units take a short term approach & off load the difficult part of the job! However, in the long term, this involves loss of skills ; know-how gets transferred to the supplier e.G. Ship building in Germany Japan
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Companies also off-load jobs in order to escape associated government regulations e.G. Such as environmental impact, safety/ health issues etc Many companies off load service functions in order to avoid dealing directly with the authorities
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MAKE OR BUY - FACTORS TO BE CONSIDERED
Make or buy decisions need to be made within the strategic context of the business do we create new strategic capabilities or outsource? What is the lead time? What is the effect on current vendors? Effect of the decision on companys order winners/ qualifiers (manufacturing outputs) (cost, delivery, reliability, quality etc), has to be carefully evaluated
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Similarly, assurance of supplies through make decision cannot be overlooked, if it is an order winning factor Issues concerning process and product technology needs to be factored in Current capacity utilization & implications of adding capacity
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Where a company does not possess product/ process technology, it buys it in the form of components. (E.G. Purchase of abrasive grains in manufacturing grinding wheels) This is especially true for companies which want to apply newer technologies
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Internal span of processes get narrowed or widened, based on make or buy decisions Whether to integrate backward and gain the value addition or live with the current value addition by outsourcing needs to be considered. Threat of component supplier integrating forward and taking away the business of the company has to be considered
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Where a wide span of activities creates entry barrier advantage to a company, it is a strategic advantage to make rather than buy Many multinational companies having manufacturing units in multi locations have changed the strategy of making/ buying to take advantage of reduced local tariffs and economy of scale of operations of the parent organisation
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When the volume of a product gradually diminishes and reaches a low level, it can be outsourced. This reduces the span of operations within the company. Typical examples include automobile and machinery spares. In the final stages, company only provides drawing to the buyer and indicates likely sources Supply chain & inventory issues are related to make/ buy decision
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MAKE OR BUY CHOICE - example
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Outsourcing
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SPAN OF PROCESS
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SPAN OF PROCESS
SPAN WIDE NARROW
MATERIAL DIVERSITY PROCESS DIVERSITY TECHNOLOGY LEVEL SKILL VARIETY COMPLEXITY THROGHPUT TIME DEPENDANCE FOCUS
HIGH HIGH LOW HIGH HIGH HIGH LOW LOW
LOW LOW HIGH LOW LOW LOW HIGH HIGH

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MANUFACTURER SUPPLIER RELATIONSHIP
Traditionally seen as adversarial Objectives seen to be in conflict Strategy is seen to be win-lose Actual result is lose - lose
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MANUFACTURER SUPPLIER RELATIONSHIP
Modern approach is collaborative Strategy is win win Based on confidence, trust, reliability & better information flows One of the common method to achieve these objectives is by merger (vertical integration) or by having financial tie up (typically automobile companies have part ownership of tier i suppliers)
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SESSION SUMMARY

Make/ Buy as a part of manufacturing strategy Role of cost vs. volume relationship & its impact in make/ buy decision Reasons for not reviewing make/ buy decisions Span of process & buy decisions Importance of collaborative relationship between buyers and suppliers
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9. MANUFACTURING PROCESSES
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SESSION OBJECTIVES

Manufacturing Process Types Project, Job, Batch, Line ,Continuous & Hybrid processes and their characteristics Volume Process relationship Implications and trade-off in process choice decisions
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PROCESS CHOICE
The way business organizes its manufacturing, in order to ensure the required manufacturing output, is determined by the choice of manufacturing process that it adopts The way a business decides to make its products is generally quite strongly influenced by technological factors alone. Hence this decision is left to the engineering/ technical specialists.
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PROCESS CHOICE
But it overlooks the fact that manufacturing is a business related function. Products have to not only meet their technical requirements, but they also have to be supplied in ways that can win orders. When choosing the appropriate ways in which to manufacture products, business will take the following steps.
decide on how much to buy and how much/ what to make. identify appropriate engineering/ technology alternatives choose between alternative manufacturing approaches.
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MANUFACTURING PROCESSES
There are 5 generic types of Project large scale, one-off, product manufactured at site (e.g. Civil construction) products are provided on a project basis. Jobbing products custom built for the users Batch - many products, low to medium volumes, orders are generally repeated
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Line when the volumes are large and the orders are repetitive, dedicated facilities are built for producing the same or similar products Continuous basic material is passed through successive stages of operations and which ends up as a single or multiple products. This system presupposes a very high volume and an ability to continuously move the products through the process. In fact, there are many products which can be manufactured only this way ( e.g. Petroleum refinery)
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Hybrid systems: They are mix of the processes listed above, which is usually achieved by the use of cnc machines. These are developed in response to the market needs by combining the advantages of two processes. Hybrids include nc, cnc, machining centres, fms, group technology, transfer lines, cellular manufacture and agile manufacturing etc. One of the disadvantages of these systems is the high initial cost associated with the some of the systems.
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Simpler classification Craft production (job shops, batch production) Mass production (line flow, continuous flow) Lean production (cnc, jit, fms, agile manufacture
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PROCESS CHOICES
Project Jobbing Batch Line Continuous

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PROCESS CHOICE & VOLUME
Process Choice Project Jobbing Batch Line Continuous Low

Petro-chemicals Civil engineering Purpose built equipment Engineering Consumer durables
Volume
High
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VOLUME Vs VARIABILITY
High
Civil engineering Purpose built equipment
Variability
Determined by markets
Engineering Consumer durables
Determined by companys
Low Low
Petro-chemicals
Volume
High
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HYBRID PROCESSES
Process Choice
Un connected machines
Jobbing
Machining centres
Batch
FMS and cells Linked batch Dedicated use of purpose built machines
Line Low
Mixed mode assembly
Transfer lines
Volume
High
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TRADE-OFFS IN PROCESS CHOICE
Process Choice UC machines M/C centres Cells Mixed mode Transfer Low Volume High
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Decreasing process flexibility and product range variety; higher investment cost and lower unit cost
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Characteristics of Manufacturing Systems
Process Craft Batch

Sp eed
ETO Engineer To Order MTO Manufacture To Order
Line
ATO Assemble To Order MTS Manufacture To Stock

xib ilit y
Continuous
Fle
Volume
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MANUFACTURING PRACTICES
Make to order Lot Based Mfg.

e.g. High end autos with options
Engineer to manufacture e.g. Projects

Capital equipment
Variability
Make to stock Process mfg. Chemicals/ petroleum Assemble to order Repetitive mfg. Autos
Complexity
(Ref: Manufacturing Strategy: An adaptive perspective, SAP White Paper www.sap.com/contactsap
MSRSAS 289 289
Product Continuum- Key Issues

(Ref Robert Hayes & Steven Wheelwright, Link Manufacturing Process and Product Life Cycles, HBR, Jan Feb1979)
Discontinuous Flow
Estimating cost and Delivery General Purpose Machinery Highly Skilled Labour Loading Plant and estimating Capacity Long Lead Time
Disconnected Batch Flow

Systematizing diverse elements Developing Standards and methods Limited Scheduling Balancing Process Stages
Connected Batch Continuous Flow Flow

Options and configurations Meeting material requirements Semi finished goods inventory Maximize throughputs & balance flexibility Demand Planning
Long term capacity management and capital funding Standardize materials and processes
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Process Continuum
(Ref Robert Hayes & Steven Wheelwright, Link Manufacturing Process and Product Life Cycles, HBR, Jan Feb1979)
Introduction
Growth
Growth
Maturity
Unique Products
Low Volume, High Variation
Higher Volume, Less Variation
Highest Volume, No Variation
Custom design is key to value proposition
Custom Design
Volume, product mix, and scheduling flexibility
Low Cost is key value proposition
Integrated customer relationship
QC, Service and scheduling flexibility
Distribution
Distribution planning and short lead time
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IMPLICATIONS OF PROCESS CHOICE
Each of the above system is able to provide a unique set of cost, quality, performance, delivery, flexibility & innovativeness in manufacturing (manufacturing outputs). Each system is uniquely suited to produce a particular mix of products and volumes. This provides an opportunity for companies to compete effectively in the market.
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IMPLICATIONS OF PROCESS CHOICE
It is the responsibility of manufacturing to select the best production system to meet the given market needs. This factor must be viewed n the light of the fact that markets are continuously changing with time and is an almost automatic process; On the other hand, manufacturing will not change unless there is a conscious decision to this effect and additional investment is committed. A company that fails to make such commitment is at a disadvantage in the market.
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Adaptive Manufacturing
Manufacturing KeyMarket Practices Differentiator Performance Indicator Production Throughput Cost Management Segment MarketShare Customer Satisfaction
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Period 1970s 1980s 1990s Beyond 2000s
Push Lean Flexible Adaptive
Cost Quality Availability LeadTime
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SESSION SUMMARY

Manufacturing Process Types Project, Job, Batch, Line ,Continuous & Hybrid processes and their characteristics Process characteristics effect of process on product variety, volume, material flow, layout, equipment, fixed and variable costs, employee and organization types
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10. OTHER MANUFACTURING RELATED TOPICS

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SESSION OBJECTIVES

Product Profiling Manufacturing Focus Manufacturing Levers Manufacturing Infrastructure
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PRODUCT PROFILING
When a company selects and invests in a process, a lot of trade-off is involved. Product profiling enables a company to test the current or anticipated level of fit between the characteristics of its market and the characteristics of its process and the infrastructural investment.
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PRODUCT PROFILING
The purpose of this assessment is as follows. To evaluate and improve the fit between the way a company wins orders in the market place and the ability of its manufacturing process to support this criterion It helps the company to evaluate fit between various functional strategies, if these had not been properly integrated into a corporate/ business strategy in the initial stages.
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PRODUCT PROFILING
It is not possible to have each and every aspect of the strategy absolutely correctly in place. Profiling helps to identify and highlight the mismatches and alert the company. Thereafter, it is a matter of conscious strategic choice for the company, whether to live with the mismatches or to correct them.
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PRODUCT PROFILING
Mismatches are brought about by the fact that markets are very dynamic. In addition, company can alter its marketing decisions relatively easily. On the other hand, the process choice gets fixed once a decision is taken and implemented. Changing nature of the markets is in opposition to the fixed nature of manufacturing investments. In order to reconcile this, business needs to become aware, recognize and act.
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PRODUCT PROFILING
Product profiling can be undertaken either at the Business or the Process Level Business level provides an overview of the degree of fit between significant parts of the business and existing manufacturing facilities. Process level checks the fit between the products that requires to be made and the equipment used.
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PRODUCT PROFILING
Procedure Select relevant aspects of the criteria (products/ markets/ investment/ cost/ infrastructure) from the matrix. Criteria selected must relate to issues at hand and must be small enough to allow the key issues to emerge Display the trade offs of process choice for each of the criterion selected. Profile the product by positioning each of the product against the selected criterion.
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PRODUCT PROFILING
Resulting profile illustrates the consistency between products and processes. Straight line indicates more consistency. Responses to product profiling
1) live with the mismatch 2) redress the profile mismatch by altering the marketing strategy 3) redress the profile mismatch by investing in and changing manufacturing and its infrastructure 4) apply a combination of 2 & 3.
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Reasons for Inconsistent Manufacturing Structure
Manufacturing has a new manufacturing task, but it continues the old manufacturing policies and structure Managers in manufacturing have no clear consistent definition or understanding of the manufacturing task facing the organization The Manufacturing policies and infrastructure being employed are inconsistent. Taken together, there is a distortion in coordination The organization lacks focus. It is attempting to cover too many technologies or too many products and markets, too wide range a volume and more than one manufacturing task
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MANUFACTURING FOCUS
Many companies try to do too many tasks in the same plant with the result that it does not do anything too well. This situation is not harmful if the competitors have also adopted the same process. But when the competitors organize their plant into small units specializing in a specific group of products or organize production in plant-within-plant concept (pwp), they can put the company at a very serious disadvantage.
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MANUFACTURING FOCUS
Linking companys manufacturing facilities to the appropriate competitive factors of its business, with a view to attain a greater competitive position, is defined as manufacturing focus. Along with other strategies of cost leadership & product differentiation, this method provides a company with competitive advantage.
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MANUFACTURING FOCUS
Manufacturing is said to be focused by organizing PWP system and using the most appropriate production system i.e. System which is most capable of providing market winning outputs.
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MANUFACTURING FOCUS
Benefits of focused manufacturing include

1) ability to use the best production system appropriate to marketing needs 2) effective cooperation between functional areas 3) efficient flow of materials 4) improved reactions to problems 5) closer ties with the market 6) more opportunities to improve 7) better costing system
There are situations where focus is not beneficial e.g when seasonal products are produced or where the products are in their declining life cycle.
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APPROACHES TO FOCUSED MANUFACTURING
Products/ markets this orients the manufacturing towards a particular customer or generic products. Process this groups together products that are made with similar processes, gaining the benefits of expertise available and improved utilization of equipment. Manufacturings strategic tasks this allocates products to a particular unit on the basis of different order winner/ qualifier that manufacturing must provide. Plant Within Plant (PWP) this involves physically dividing the resources & facilities so that each segment can cater to a different business segment.
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BARRIERS TO FOCUSED APPROACH
Marketing/ sales prefer to create demand by selling a very broad product line and adopt this as a strategy Manufacturing is also opposed to focusing due to inherent liking for flexibility and uncertainty regarding capacity utilization
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FOCUS METHODOLOGY
Develop manufacturing strategy Split processes and infrastructure to suit manufacturing strategy; Establish P-W-P concept Restrict task to meaningful & manageable limits Concentrate on focus progression (moving towards greater focus) and avoid focus regression Create awareness of benefits of focus and provide annual review
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MANUFACTURING LEVERS
Effective manufacturing finds it useful to divide a production system into six sub systems
A. Human resources - (mix of skilled/ multi skilled/ unskilled employees, job classification, levels of supervision, delegation of authority, participation in problem solving & improvement, employee growth opportunities) B. Organization structure & controls - (hierarchical / flat, role of line and staff functions, delegation of authority, performance measurement, use of profit/cost center concepts)
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C. Sourcing - (numbers of suppliers and their capability, relationship with suppliers, make/ buy decisions) D. Production planning & controls (centralized or decentralized, size of wip, finished goods, push or pull systems used, maintenance systems, design system) E. Process technology (layout, process used, automation levels, continuous improvement, quality control) F. Facilities (small or large, special or general purpose facilities, capacity planning, support departments role)
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Adjustments to manufacturing levers should consider the interaction among the factors before making any adjustment to any of the levers, in order to ensure that the changes are capable of providing the required output. Also certain amount of trade off will be necessary while making changes.
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MANUFACTURING INFRASTRUCTURE
After developing a manufacturing strategy, company must ensure that the structure and composition of various constituent functions are also simultaneously developed to ensure successful implementation of the planned strategy. They are equally necessary for deriving a competitive advantage in the business. Building infrastructure on a manufacturing strategy base provides this input.
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The high level of investment and their fixed nature is characteristic of infrastructure. It consists of a complex set of interacting responsibilities and functions. (e.g.. Manufacturing levers). Roles of individual functions and how they fit together is part of strategic overview. Fitting together their roles in a piece-meal fashion can lead to uncoordinated approach and defective infrastructure design.
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Hence some companies prefer a top-down approach, which addresses the issue of the role and need for various functions. (e.g. Ministry formation in government rarely follows this principle!) Failure to provide adequate infrastructure can result in
business getting affected due to lack of timely and accurate information which comes in the way of preventive/ corrective actions key infrastructural facility may not be available when it is needed most.
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SESSION SUMMARY

Product Profiling Manufacturing Focus Manufacturing Levers Manufacturing Infrastructure
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11. FRAMEWORK FOR DEVELOPING A MANUFACTURING STRATEGY

327
SESSION OBJECTIVES

Miltenburgs Manufacturing Strategy Framework
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FRAMEWORK FOR DEVELOPING A MANUFACTURING STRATEGY
A framework (also called PV-LF matrix) has been developed for analyzing manufacturing and developing a strategy for improving it. This helps to
Analyze an existing problem Generating and evaluating alternate strategies Analyzing competitors strategies Develop a complete manufacturing strategy
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This matrix incorporates some important characteristics

a) b) c) d) e) f) product & volumes (PV) factor layout & material flow (LF) factor manufacturing levers manufacturing outputs competitive analysis levels of manufacturing capability infant, average, adult & world class
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The procedure starts by asking the following questions & mapping the responses on the PV - LF matrix.
a) Where am I? b) Where do I want to be? c) How shall I get from where I am to where I want to be?
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SESSION SUMMARY
Following elements of manufacturing strategy have been covered during this session
product & volumes (PV) factor layout & material flow (LF) factor manufacturing levers manufacturing outputs competitive analysis levels of manufacturing capability infant, average, adult & world class Case Study - development of manufacturing strategy using these elements, including trade-off between the elements
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12. STRATEGY IMPLEMENTATION & EVALUATION

338
SESSION OBJECTIVES

Strategy Evaluation Pyramid, Characteristics of Evaluation Performance measurement information, Measures of performance Performance measurement tools Value stream mapping
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PERFORMANCE MEASUREMENT INFORMATION
How well are we doing Are we meeting our goals and targets Are our customers satisfied Are our processes in statistical control Where are improvements necessary
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MEASURES OF PERFORMANCE
Productivity Effectiveness Efficiency Quality Timeliness Safety
(Value Added) (Conformity to requirements) (Output) (Indicated by attributes) (Time for production output) (Health and working environment)
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CONTINUALLY MEASURING PERFORMANCE
Baseline measurement
To determine its current operating position and serve as a zero point to measure the success of the continuous improvement effort
Prioritise improvement areas

Select important areas to improve, those especially critical to safety, quality, productivity and profitability
Root cause analysis

Understand barriers to improvement. For each area all major causes must be logically documented
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Key Performance Metrics
One of the most powerful ways to change behaviour is by changing the metrics by which people are evaluated and rewarded Metrics: Integrating and leveraging data consolidated from many sources and the ability to transform that data into actionable information Metrics are also known as KPIs (key Performance Indicators)
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Metrics/ KPIs are like steering wheels they can turn company in the right or wrong direction! They need to be aligned companys strategy, should be monitored continuously and revised as necessary
Ref: Exact holding USA, How To Keep Your Finger On The Pulse Of Your Business In Challenging Times, 2009
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Inventory Levels Fixed Manufacturing Costs Average Cycle Times Scrap & Rework Variable Manufacturing Costs Profitability of Products/ mix across manufacturing sites Performance of key production assets Supplier on time delivery SPC Schedule cycle variance First pass yield
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Raw Material Quality Finished Goods Quality Demand/ Demand Variance Manufacturing line scheduling visibility Transportation logistics, schedules & Visibility Manufacturing Line capacity visibility Cycle time variability Asset availability/ maintenance related metrics OEE (Overall equipment effectiveness)
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Resources Drive Business Results
Resources
Processes/ Activities
Output
Costs
Business Results/ Value Addition
I I N F O R M A T I O N
Good business results are ensured by acting on timely & continuous flow of information about
DEPLOYMENT OF RESOURCES FOR ACTIVITIES RESULTS OF THESE ACTIVITIES (OUTPUT/ COSTS ) VALUE ADDITION TO THE CUSTOMER
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STRATEGY EVALUATION
Measure and evaluate performance
Contingency planning
Corrective action
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EVALUATION PYRAMID
Units of measure
Corporate reports: Money, ratios, index Broad measurement, against competition, time to launch new products Measures to establish quality goals and evaluate performance against them Technological units of measure for individual elements of product, process, service
Sensors
Composites of data expressed in such forms as summaries, ratios, indexes Upper management sensors to evaluate broad matters, data systems reports, audit, observations Summaries of product and process performance, derived from inspection and test Technological instruments to measure technological product and process features
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STRATEGIC CONTROL
Based on the feedback while implementing strategy, control function ensures that actions are moving in the right direction and the results are as planned Need for control is due to
Assess how well the firm is performing Uncertainty of prediction and corrections needed in implementation process (minor corrections or drastic changes)
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CHARACTERISTICS OF EVALUATION
Evaluation must be integrated with other aspects of strategy As goals and policies, evaluation systems must adapt to reflect changes Carefully weigh the value of evaluation to the investment in collection
Connected
Credible
Confidence of accuracy, relevance and representation
Adaptable
Clear
Simplicity: indicators in an easy-to-use form, available-understandable
Practical Fair
Reflect factors that can be influenced or controlled
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EVALUATION IMPLEMENTATION
Identify the process flow and critical activity Identify the performance targets and goals Establish performance measurement
Collect relevant data
Analyse result and report actual performance
Compare actual performance to goals
Integrate with management processes
Communicate results
Continue review if a new set of goals is needed
Feed into the strategy

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CRITICAL EVALUATION ACTIVITIES
CATEGORY Productivity User utility Value chain Competitive performance Business agility Investment targeting Management vision
DEFINITION Efficiency of expenditure of company resources Customer satisfaction and perceived value of services Impact of company on functional goals Comparison against competition Company operating systems and portfolio of operations Impact of investment on cost structure and revenue Understanding of the strategic value and ability
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Goal Setting and Action Planning

Goals must be established in an incremental manner and set in both the short term and the long term, to create a positive environment to fuel the improvement process. Goals must be accompanied by well focused action plans to guide the process improvement effort. Action plans must be direct and specific, but plans can and must change when needed
Work-the-Process
Focusing on the various root causes and utilising a variety of management tools (pareto, cause and effect, statistical capability analysis, team probelem solving) move towards the ultimate goal
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Performance Measurement
In order to determine if the action plan is having a positive effect on the process, the baseline measurement system must be continuously tracked for verification
Communicate Results
Take the initiative to communicate results internally to improve coordination and increase the focus of workers and managers. Leverage results by sharing them with the top management to obtain support and continued funding. Communicate results with customers to sustain partnerships.
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PERFORMANCE MEASUREMENT TOOLS

Departments FINANCE Quality Cost Delivery R.O.I Profit margins Share price Rate of failure 0 Defect delivery Conformance Preventative maintenance
Figures accuracy Debtor days Creditor days Stock turnover Defects per mill. Quality records Certification Tools (SPC, FMEA,teams) Cost of PM Cost of procedures
QUALITY
LOGISTICS Routings Expediting Response Transportation Service On-time delivery Customised delivery
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Departments HUMAN RESOURCES Quality Performance Turnover Motivation Recruitment Behaviour Culture Mission Customer satisfaction Efficient benchmarking Cost Training Disruption Wage rate Bonus Absence Delivery Training days Efficiency Promotion
SALES & MARKETING
Market surveys Communication Advertising
Correct segmentation Conformance
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Departments DESIGN & ENGINEERING Quality Innovation rate Product life Development duration Cycle time Right first time Process control JIT Cost Innovation cost R&D Conformance Delivery Production ready Response to market demand Time to market Breakdowns Schedule adherence
MANUFACTURING OPERATIONS
Productivity Cost of quality Product costing Stock Flexibility Floor space Development Alliances Order size
SUPPLY CHAIN
Partnerships Integration Communication
Lead times Location
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THE ADVANTAGES OF BENCHMARKING
It provides information on what standards must be surpassed in order to achieve a competitive advantage Benchmarking is motivating since it indicates standards and targets that have been achieved by others Resistance to change may be lessened if ideas for improvement come from other enterprises or competitors Benchmarking is broadening in that it prevents insularity and self-satisfaction
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TYPES OF BENCHMARKING
Appropriate and Effective
Inappropriate and ineffective

Unthinking direct copying of what others do
EXTERNAL Understand why and what others do. Appropriate to the circumstances
INTERNAL Measuring how close we are to achieving what is our ideal goal
Leads to fads which often fail due to
Copying the appropriate way of thinking and adapting this to our problems
Providing a basis for internal continuous improvement
Generalising from subjective experience
Not understanding what is appropriate under given circumstances

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BENCHMARKING PROCESS STEPS

PLANNING STAGE Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8 Step 9 Step 10 MATURITY STAGE Identify what is to be benchmarked Identify competitive companies Determine data collection method/collect Determine current performance gap Project future performance levels Communicate benchmarking findings Establish process improvement goals Develop action plans Implement specific actions and monitor progress Recalibrate benchmarks; return to 1
ANALSYSIS STAGE
INTEGRATION STAGE
ACTION STAGE
Leadership position attained Benchmarking practices are fully integrated into your organisation
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VALUE CREATION
A
Value V-P Price Cost P-C
B
V-P
B creates more value (V-P) B can charge higher price B is more profitable (P-C) B has lower cost
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P-C
VALUE CHAIN
Value chain refers to the idea that an organization consists of a chain of activities for transforming inputs to outputs to which customers attach some value All the functions within an organization such as production, quality, HRM, materials management have a role in creating a value for their products
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VALUE CHAIN
The process of transformation is composed of a number of primary activities and support activities that add value to the product Value addition can be arise from differentiation or from lowering of cost
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VALUE CHAIN
Examples of Primary Activities Production, Marketing, After Sales Service etc. Examples of support activities are HRM, IT, Materials Management etc.
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WASTE LEVELS
Primary Waste
An excess of production capacity elements, such as too many employees, too much equipment, or excess stock
Secondary Waste
Waste caused by producing too much, or by working too far ahead
Tertiary Waste
Waste from excess stock
Quarternary Waste
Waste from excess transportation, excess warehouse inventory, warehouse management, excess quality maintenance
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ROADMAP
Manufacturing Strategy Awareness revolution Workplace organisation TPM SMED Automation Process flow Level production Standardise operations World Class Manufacturing
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Employee Involvement
Visual Control
Multi skilling Pull Systems Foolproof Systems
SESSION SUMMARY

Need for Evaluation of progress of strategy implementation Measures of performance Performance measurement tools e.g. bench marking, Waste levels Value stream mapping Road map for improvement
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13. BUSINESS ECONOMICS

V G S Mani Engineering & Manufacturing Management
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How To Be A Successful Engineer?
To succeed, engineers must:

Technically be very competent & be a leader Work and Network with Good Communication Skills Learn to be business oriented Learn to Diagnose and Manage Marketplace changes Beware of Competition Understand the Relevance of Profit Learn the sense of money Understand the "Cost of Doing Business.
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Evaluate Output AND Costs Of Any Activity
Resources
Processes/ Activities
Output
Costs
Business Results/ Value Addition

V.G.S.MANI. 371
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Language Of Money Vs. Language Of Things
Senior managers speak the language of money EPS, NPV, ROI, PBT etc. Operating staff speak the language of things quantity, defect rates, downtime etc. Middle level managers must be bi-lingual
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Changing Concept of Costing
Old concept: Cost + Profit = Price New concept : Cost = Price (market driven what the traffic will bear) profit (business policy) Cost is only one of the aspect that determines the price Leads to concept of target costing, especially when sourcing custom designed new products (e.g. parts sourced for nano car ; airbags at $ 50/ unit instead of traditional $ 100/ unit)
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Costing System
Linking the cost of resources to products is called the costing system

Resources Material Products Product A
Labour
Manufacturing System
Product B
Services
Product C
Ref: The Managing Budgets Pocket Book Research Press, New Delhi. 1997
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Costing System
Primary Objective To assist decision making Costs needed for a) day to day operational decisions b) medium and long range strategic decision c) forward predicting cost implications
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Elements of Product Cost
Sum of Direct / Variable Cost : directly varies with output e.g. Material , Consumables, Power/ Utilities, cost of defectives, subcontracting cost etc. Variable overheads: varies less than proportionately with output e.g. lighting, bank charges Fixed overhead Salaries, rent, welfare, demand charges for power; remains constant, irrespective of the output
376
Direct Standard Costing
Process Standard is the starting point for cost estimation Direct Standard costing converts process standards into costs (standard quantities used x standard prices) Standard direct product cost Rs. 100/- (using 10 kg of material at Rs. 10/kg) Actual Cost is 100/- ; this appears very good!
377
Price & Usage Variance
But 20 Kg of materials purchased at Rs. 5/- per kg has been used (Usage variance Rs.100 unfavourable ; price variance is Rs 100 favourable); Conclusion 1 smart buyer but a lousy user! Conclusion 2 Dont look at total cost only; analyse price and usage variance also!
378
SITUATION
MATERIAL PRICE/ KG (Rs)
MATERIAL USAGE - KG
COST (Rs)
STANDARD COST
100
1.00
100.00
Price Usage Price Usage
125
0.80
100.00
80
1.25
100.00
379
Sr. No. 1 2
Usage Kg/Pc
Price Rs./ kg
Cost Rs./ pc
Comments Standard Cost Good Manufacturing Practice Low usage; but inefficient purchase system higher price; result higher product cost (price variance) Poor Manufacturing Practice higher usage; efficient purchasing system lower price; result higher product cost (usage variance)
2.0 1.5
20 28
40 42
2.5
18
45
Only an ERP system can trace costs to manufacturing practices and to systems
380
Overhead Costs
What are overhead costs? Running costs of operations such as wages, power, rent, telephones etc., which are not directly related to production/ output Depreciation is a non cash expense added as an overhead cost Overheads can be classified as variable and fixed
(see earlier slide for explanation)
There is no clear methodology available for distributing overhead costs on the products
381
Overhead Costs
They are distributed by Allocation, Apportionment or Absorption Each of the above method is arbitrary and not accurate! Activity based costing (ABC) is a rational method of distributing overheads to products
382
Breakeven point
Total Sale Total Costs
383
Working Capital Cycle
cash
Creditors payables
debtors
RM
FG
WIP
384
Working Capital Cycle
Working capital is usefully portrayed as a cycle of money through the business, starting and finishing with cash Complete the cycle as quickly and frequently as possible (velocity of cash circulation) Working capital is current assets less current liabilities Make your working capital WORK!
385
Marginal Costing
Price realized which fully covers the direct cost but only a part of variable + fixed overheads Better than keeping the plant idle, which does not cover any of the overhead Adopted when there is low demand or when there is intense competition Lot of business decisions are based on this concept
386
Budget
1. 2. 3. 4. 5.
Standard Cost of products Estimates of variable & fixed overheads Total of 1 + 2 gives the ex factory cost Units sold x standard price = Revenue Revenue (4) Cost (3) = Estimated Profit before tax PBT 6. Total actual revenue total actual cost = actual PBT 7. Sales/ Manufacturing review deviations in 4 & 3 8. Top management continuously monitors 6 for evaluating business performance
387
Typical Profit & Loss Account
Income:
Turnover Other income
Jobwork Int,Sale of (assets,Scrap),Dividends
388
Contd
Expenditure:
Raw Materials & Consumables Personnel Operating and other expenses Inventory incr /Decr Depreciation and Amortisation Impairment of Assets held for sale Financial Expenses Tax
389
Some Recap
We will recap our understanding of
Profit Cash flow Breakeven point
Even during NORMAL times above issues are at the core of good business mgt but during RECESSION managing above issues could make difference between going under or surviving
390
Some fundamentals of Profit and cash flow

Profit is not cash. It is a matter of timing Profit is assessed when we sell a product-ie when business makes the sale NOT when customer pays and cash is assessed when cash receipts exceed cash outflows. Profit=cash when customers dont ask for credit and you dont take credit from your supplier and you dont keep stocks. This obviously is not a reality for companies though it is true for petty traders Many profitable businesses run out of cash and this danger is more in a recession Both Profit and Cash have to be managed very carefully in a recession
391
Few steps to improve cash flow

Increase operating profit Sell unused/impaired assets Decrease stock and debtors Increase creditors Reduce interest burden Reduce Tax and Dividend Reduce/Resch Capital exp Manage working capital Complete working capital cycle fast and as frequently as possible (use measures or ratios to track the trend).Use ideas learnt in project mgt,pps supply chain etc Negotiate and manage credit terms Track aggressively your debtors
392
For Understanding Breakeven

Normally Top line growth is the driver for profits,BUT,specially during a recession the main objective of MGT is to reduce General and Cash Breakeven point. Also thinking will start to diversify into other areas of business OR some countercyclical products.
393
Contd
Breakeven chart Here is how to work out the breakeven point, using the example of a firm manufacturing compact discs. You can assume the firm has the following costs: Fixed costs: 10,000 Variable costs: 2.00 per unit You first construct a chart with output (units) on the horizontal (x) axis, and costs and revenue on the vertical (y) axis. On to this, you plot a horizontal fixed costs line (it is horizontal because fixed costs don't change with output). Then you plot a variable cost line from this point, which will, in effect, be the total costs line. This is because the fixed cost added to the variable cost gives the total cost. To do this, you multiply: variable cost per unit number of units
394
Contd
Once you have done this, you are ready to plot the total revenue line. To do this, you multiply: sales price number of units (output) If the sales price is 6.00 and 2.000 items were to be manufactured, the calculation is: 6.00 2,000 = 12,000 total revenue Where the total revenue line crosses the total costs line is the breakeven point (ie costs and revenue are the same). Everything below this point is produced at a loss, and everything above it is produced at a profit.
In this example of the CD manufacturing firm, you can assume that the variable cost per unit is 2 and there are 2 000 units = 4,000
M S Ramaiah School of
395
Contd
Fixed costs: 10,000, Variable costs: 2 per unit, Sales price: 6 per unit If you read downwards, it tells you how many units you need to produce and sell at this price to breakeven: 2,500 CDs If you read across, it tells you how much money you must spend before you recover your outlay: 15,000
396
Contd
Breakeven calculations As with any calculation, it is easy to make a mistake. There are two simple equations you can use to double-check your answer. You can calculate the breakeven point in: units costs/revenue Either way, the result should be the same. Calculating in units Learn this equation: Breakeven point in units = Fixed Cost/(Sales Price - Variable Cost) So using the CD example: Breakeven point = 10000/(6 - 2)= 10000/ 4 Breakeven point = 2,500 CDs Calculating in costs/revenue Learn this equation: For the breakeven point in costs/revenue, you then multiply the breakeven point in units, which you have just calculated, by the sales price. 2,500 6 = 15,000
397
Contd
What happens when:
Fixed cost is reduced Next Slide Variable cost is reduced Combination of Both Sales also decreases (Vol +Value/Piece)
398
Y
R E V + C O S t
Breakeven Analysis
TC=Total cost FC=Fixed cost VC=Var Cost Sales Rev
BEP 1
Tc1 original TC3 Red VC Tc2 Red FC
Tc4 Red vc+fc
3
Reduced Sales
2 4
X
Volume
399
Road To Profitability
Learning?
Fixed cost has to be dramatically reduced Actions should be to reduce Fixed costs and also to convert FC to VC VC also to be reduced
400
Quality Costs
401
Quality Costs
402
Short Term Vs. Long Term
Spend money now for future benefits e.g. buy a new machine Results in short term asset turns But results in increased output in the futur Long term improvements in asset turn and ROS
403
Performance Improvement
Actions Asset Turn Return on Sales ROS Return on Capital Employed ROCE
Supplier Rationalization
a) Reduce Prices b) Increase Credit Period
increases increases
increases increases
increases increases
Increase Capacity e.g. additional shifts

a) Reduces capital expenditure/ accelerates depreciation b) Increased sales & overhead absorption
increases increases increases

404
Increase Selling Price
Evaluating Capital Expenditure
1. Pay Back Period (PBP) 2. Net Present Value (NPV) 3. Internal Rate of Return (IRR)
More about financial evaluation in Project Management module!
405

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Postgraduate Engineering Programmes

MODULE AIMS & SUMMARY

Teaching and Learning Methods

Software and Manuals IcSoft ERP

Theory V G S Mani & VijayKumar Laboratory Vijay Kumar

V G S Mani Centre for Engg. Management

INTRODUCTION TO MANUFACTURING STRATEGY New issues are emerging

MANUFACTURING CHARACTERISTICS AT VARIOUS PERIODS

National Excess Capacity MARKETING ERA Concentrated Earnings FINANCE ERA

International Competition QUALITY ERA Global Excess Capacity PARTNERSHIP ERA

ENVIRONMENTAL ISSUES INFLUECING BUSINESS

Globalization Time Compression Technology Integration

CONTRIBUTION OF MANUFACTURING STRATEGY As a result, manufacturing

(Ref - Vision 2020 Prof. Indiresan, ICFAI)

INDIA & CHINA A COMPARISON

Agriculture Industry (Manufacturing) Services

22.2 26.6 (16.3) 51.2

14.6 52.3 (39.3) 33.1

INDIA & CHINA A COMPARISON

China 2003 % GDP

India 2003 % GDP

India 2009 % GDP

India 2020 % GDP

Agriculture Industry (Manufacturing) Services

14.6 52.3 (39.3) 33.1

22.2 26.6 (16.3) 51.2

CLASSIFICATION OF INDUSTRIES Customer driven industries

CLASSIFICATION OF INDUSTRIES Knowledge Driven Industries

2. STRATEGY & ITS FORMULATION

V G S Mani Centre for Engg. Management

Strategy Additional Definitions

Strategic And Operations Planning

WHY HAVE A STRATEGY?

THE LEVELS OF STRATEGY

THE BUSINESS CONTEXT

Smaller business unit

THE BUSINESS UNIT

Strong collaboration with suppliers

There is a need to optimise resource bases

Time-to-market for new products is becoming ever more critical

STRATEGIC MANAGEMENT MODEL

Measure and evaluate performance Corrective action Contingency planning

INTENDED Vs. EMERGENT STRATYEGY

DIFFERING PLANNING STYLES

1970s Planning for business under attack

Early 1980s Planning for cutback and rationalization

Late1980s Planning for growth, global consequences

DIFFERING PLANNING STYLES

Crisis and recovery: managing turnaround situations

Cost out initiatives

Responding to deregulation and privatisation

ESTABLISHING THE CORPORATE MISSION

Business definition Major goals Philosophies

Strategic Management guided by mission Statement

Specific enough to have impact on behaviour of organisation

Focused more on customer need satisfaction than on product characteristics

TERM Mission Goal Objective Strategies Action Task Reward

Need strategic intent

Practices Methods Tools

COMPETENCY INFORMATION INFORMATION ORGANISATION TECHNOLOGY PEOPLE INNOVATION INFORMATION INFORMATION

External analysis Identify opportunities and threats

Internal analysis Identify strengths and weaknesses

For mulat e object ives