Manufacturing Strategy

Ken Homa

Manufacturing Strategy
Capacity
Level
Deployment

Centralization
Vertical integration
Scope / focus

Capacity
Aggregate level
Deployment
By product & part
By process
By geography

Aggregate Capacity
Demand Variation
180
160
140
120
100
80
60
40
20
0

Base
"Real"

1 2 3

4 5 6 7 8 9 10 11 12

Capacity Utilization
Target 85-90% utilization
Long-run :
Prudently add anticipatory capacity :
within existing facitliies, then new
Avoid adding costly last chunk

Short-run :
Use excess capacity to build inventory
for high demand periods
Add overtiime to boost capacity when reqd
Can run > 100% for brief periods
Focus on bottlenecks (CCRs)

Centralization /
Decentralization

Supplier

Supplier

Supplier

Manufacturing
Plant

DC

DC

DC

Supplier

Supplier

Mfg
Plant

DC

Supplier

Mfg
Plant

DC

DC

Manufacturing Strategy
Centralized
Leverages fixed costs & investment
Consistent quality contol
Simplified supply chain

Decentralized
Closer to market
More manageable

Scale determines range of affordable options

Vertical Integration

Vertical Integration
Where on The Continuum ?

Assembly
Only

Vertically
Integrated

Raw Material
Parts
Components
Sub-assemblies
Modules

Final Assemblies

Vertical Integration Drivers

Availablity
Scale economies
Learning curve
Control

Factory Orientation
Broad line factories
Scale & scope economies
Flexible capacity

Focused factories
Narrow product scope
Common parts & processes
Often full products

Plants within plants

Focused Factories
A
1

P
L 2
A
N 3
T
S
4

PRODUCTS

X
X X
X

Manufacturing Strategy
Capacity
Centralization
Vertical integration
Scope / focus

Manufacturing Strategy