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CONCEPT OF MANUFACTURING STRATEGY

INTRODUCTION:

Like armies, manufacturing organizations need a

strategy to meet their objectives and to manage
their resources, i.e. people, machines, methods,
materials and money.

A manufacturing strategy is a critical component of

a firms corporate and business strategies.

It comprises of a set of well coordinated objectives and

action programs aimed at securing a long-term,
sustainable advantage over the firms competitors.

It should be consistent with the firms corporate

and business strategies, as well as with other
managerial functions

CURRENT POSITION:

In many industrial companies, strategic development are

predominantly based on corporate decisions.

Manufacturing managers come late into these

discussions, making it difficult to influence decisions and
outcomes.
Results in formulation of strategies which manufacturing
is unable to successfully support.
This happens because the basic link between
manufacturing processes (infrastructure investments
and developments in manufacturing) and the market is
not made.

Overall, the business suffers.

WHY THIS CURRENT POSITION?

This happens because the attention of manufacturing

managers focuses primarily on the day to day part of their
work

They are more concerned with operational details and are

output oriented, while in strategic terms, their role is seen
as being reactive.

They continue to concern themselves primarily with short

term issues.

In most countries, manufacturing management still takes a

sub-ordinate role in strategic terms to the marketing or
finance functions.

A strategic approach to manufacturing management is

essential if companies are to survive

PURPOSE OF SUBJECT OF MANUFATURING STRATEGY?

To raise manufacturing mangers sights

To help them to analyze and discuss strategic issues and

think in a strategic way

To enable manufacturing managers to provide appropriate

corporate level inputs, and

To enable other executives to recognize and appreciate the

strategic perspective which emanates from manufacturing
and needs due consideration

DESIGNING A MANUFACTURING STRATEGY

INTRODUCTION:

For most industrial companies, the manufacturing operation is

the largest, the most complex, and the most difficult-to-manage
component of the firm.

Therefore, it is essential for the firm to have a comprehensive

manufacturing strategy to aid in organizing and managing the
firms manufacturing system.

The firms Manufacturing Strategy cannot be formed in a vacuum,

as it effects and is effected by many organizations inside and
outside the firm.

Because of the interrelationships

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

The above interrelationship is illustrated in the diagram in the

next slide.

INTERRELATIONSHIPS AMONG THE FIRM, ITS

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COMPETITORS AND MARKETS
First:

In developing the Manufacturing

Strategy, manufacturing function
must work with the finance,
marketing, engineering and R&D,

personnel and purchasing

functions.

Second:

Manufacturing Strategy design

requires careful monitoring of the
markets external to the firm in

conjunction with the other

functional
groups within the firm

MANUFACTURING STRATEGY DESIGN 9

With the above necessary elements
of the Manufacturing Strategy
design in mind, we will now discuss
the following:
1.

Corporate Strategic Planning Process

2.

Conceptual issues that are important

for Manufacturing Strategy design

CORPORATE STRATEGIC PLAN

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A strategy can either be formal, with the help0of a
structured planning process,
or

Stated implicitly by the actions of the various

managers with in the firm.

We will discuss how a formal manufacturing

strategy can
be developed

CORPORATE STRATEGIC PLANNING PROCESS

1.

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

2.

The process must define all major tasks to be addressed

in setting up corporate strategy and the sequence in which
they must be completed.

3.

The planning process adopted by a firm depends on the

degree of complexity of the firms business, its
organizational structure and its internal culture.

4.

Some fundamental tasks that can guide the strategic

planning process of most firms are given in the table in the
next slide.

MAJOR TASKS TO BE ADDRESSED IN

SETTING UP CORPORATE STRATEGY
S.
No:

1
2

Task

Level

Discussion

Defining
Vision of
the firm

Corporate

Areas the firm will compete;

firms mission(product,
markets, geographical scope,
how the firm will gain
competitive advantage,
expectations of growth &
profitability.

Planning
guideline
s

Corporate

Define primary issues to

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

Define
the

Business

Product; markets;
geographical scope; spell out

MAJOR TASKS TO BE ADDRESSED IN

SETTING UP CORPORATE STRATEGY
S.
No:

Task

Level

1
3

Discussion

Firming
Corporate
of
business
&
function
al
strategie
s

Consolidation of business &

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

Function
al
Strategy

Define functional strategies,

programs & budgets to
consolidate firms
requirements/ create unique
strengths.

Functional

MAJOR TASKS TO BE ADDRESSED IN

SETTING UP CORPORATE STRATEGY

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4

ROLE OF CORPORATE, BUSINESS AND FUNCTIONAL

MANAGERS IN THE DEVELOPMENT OF MANUFACTURIGNG
1
STRATEGY.
Manufacturing strategy is designed at all three hierarchical
levels of a firm, i.e. corporate, business and functional5level.

The corporate level identifies the role that

manufacturing should play in pursuit of competitive
superiority. Objectives are normally expressed in four areas:

Cost: labour, materials, etc.

Quality: percentage defective or rejected, cost of quality,

etc

Delivery: percentage on time shipments, average delay,

etc.

Flexibility: product mix, volume flexibility, lead time for

new products

Business level managers ensure that the business

moves in the desired competitive position.

The functional managers have to formulate

corresponding functional programs.

FACTORS AFFECTING THE ALLOCATION OF

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MANUFACTURING DECISION MAKING
RESPONSIBILITIES
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Allocation of responsibilities for development of manufacturing
strategy is affected by:
1.

Organizational structure of the firm:

Divisionalized companies with highly decentralized
decision-making tend to give little or no manufacturing
decision-making to corporate managers.
Highly centralized corporations allow corporate staff to get
involved in decisions related to technology choice,
manufacturing of new products, human resource policies,
quality policies, vendor selection, etc.

FACTORS AFFECTING THE ALLOCATION OF

MANUFACTURING DECISION MAKING
RESPONSIBILITIES
2.

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Organizations degree of product or process

focus:
Product focused organizations are flexible and
fast reacting, with many plant with staff suborganizations. Plant managers tend to have
responsibility over a wide range of decisions.
Process focused organizations need large
capital investments and are inflexible to changes
in product mix or volumes. Business unit
managers have more control over decisions.

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FACTORS AFFECTING THE ALLOCATION OF

MANUFACTURING DECISION MAKING
RESPONSIBILITIES
3.

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Industry and competitive structure of the

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

FACTORS AFFECTING THE ALLOCATION OF

MANUFACTURING DECISION MAKING RESPONSIBILITIES
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0
4.

The firms competitive strengths:

Firms whose success is dependent on R&D and
innovations, corporate managers have much influence
over new product development and technology choice.
If the firm is dependent on low cost due to economies of
scale, efficient plant design, etc., corporate managers will
generally control decisions relating to facilities, capacity,
product design, technology choice and purchasing, while
the business unit and manufacturing managers will
control the operating level decisions.

THE STRATEGIC DECISION AREAS IN MANUFACTURING

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A manufacturing strategy must be comprehensive in the
1

sense that it should provide guidelines for addressing the

many facets of manufacturing decision making.

Nine areas that provide a coverage of the broad set of

issues that must be addressed by a manufacturing strategy
are:
1. Facilities
2. Capacity
6. Human
3. Vertical integration
resources
4.
5.

Process/ technologies
Scope/ new products

7. Quality
8. Infrastructure
9. Vendor relations

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The figure displays the nine decision areas and

shows/ suggests which other functional
departments in the firm have input into each
set of decisions.

THE NINE STRATEGIC MANUFACTURING DECISION

CATEGORIES
1.

2
3

Facilities: Facilities decisions are long-term manufacturing decisions. For

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

Facilities may be focused by geography, product groups, process

types, volumes, etc. Facilities focused decisions usually depend on
the economies of production and distribution for that industry.
2.

Capacity: Capacity decisions are interconnected with facility

decisions. Important capacity decisions include how to deal with

cyclical demand, whether to add capacity in anticipation of

future
demand, and how to use capacity decisions to effect the capacity
decisions of its competitors.
3.

Vertical Integration:

Important issues related to vertical

integration include the cost of the business acquired/ entered,

degree of supplier reliability in the important factors of
production, and the relative transactions cost, etc.

THE NINE STRATEGIC MANUFACTURING DECISION CATEGORIES

4.Process/

Technologies: To choose the process types, i.e.

project, job shop, assembly line, continuous flow, etc. Recent
innovations in CAD, CAM, robotics and FMS have added more
complexity to technology decision problems.
5.Scope/

New products: The degree of difficulty is

influenced by the scope and range of products and processes
with which the manufacturing organization must be proficient,
as well as the rate of new product introductions into the
manufacturing organization. In well-run manufacturing
organizations, the manufacturing management must have
significant input into product scope and new product
decisions.
6.Human

Resources: The most important and the most

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

THE NINE STRATEGIC MANUFACTURING DECISION CATEGORIES

7.Quality

Management: Quality topics can be divided into

categories of design quality and conformance quality.
In areas of conformance quality
manufacturing managers play a most critical role, i.e., quality
measurement, economic justification of quality improvements
and allocation of responsibility for quality.
Manufacturing managers should be involved in some degree
with design quality, i.e. design for manufacture issues, etc.
8.
Manufacturing Infrastructure: For effective
implementation of manufacturing function, it is essential to
have a solid organizational infrastructure.
Planning and control systems, operating policies and
lines of authority and responsibility must be in place.
A corporate culture that reinforces the manufacturing strategy
is also very important requirement.

THE NINE STRATEGIC MANUFACTURING DECISION

CATEGORIES
9.Vendor

relations:

Two types:

a. The competitive approach: Competition between

various suppliers to supply
b.

The cooperative approach: Setting up a long term

relationship with one supplier based on mutual trust
and dependence (Japanese model)

Each approach is practiced by successful firms. However,

recent trend is
towards trying the cooperative approach.

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The end of this lecture