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Manufacturing excellence – Lecture 2 – 4 th Aug. 2018

Lean manufacturing
 Lecture-2 Manufacturing strategy
2. Manufacturing Strategy
2.1. Introduction to Operations strategy,
2.2. Competitive priorities
2.3. Incorporating manufacturing perspective in corporate
Strategy
2.4. Missing the links in manufacturing strategy
 Manufacturing strategy
Introduction
Since Skinner‘s breakthrough article in 1969, the importance
of manufacturing management has gained momentum.
Manufacturing companies have shifted from financial strategies to
manufacturing strategies to derive competitive strategy and
profitability. Although financial strategies are still important to
a manufacturing company, it is manufacturing strategies that
are being used to increase profitability
 Manufacturing strategy (Skinner’s)
• Manufacturing strategy can be considered as a source of
competitive advantage to achieve competitive capability of a
business unit
• With the boundaries of business, and desired competitive
advantages identified, each functional area (typically,
marketing, sales, R&D, manufacturing) develop strategies that
support business focus.
• Each of the functional strategies will have interactive
relationships with the business strategy and among one
another. Relationships are proactively decided.
• Among all the functions, manufacturing is the most
misunderstood from the strategic point of view.

• Ref : https://www.slideshare.net
 Manufacturing strategy
• Manufacturing excellence is broadly defined as dynamic
process that provides unique value, competitive advantage
and delight to customers and suppliers.
• Many of these definitions point out that there is a set of
performance objective based on which future competition
will be fought. Manufacturing process has to equip with right
capability so that concerned business could keep on winning
the battle ay any point of time.
• These performance objectives have been termed differently
by various authors. Manufacturing mission, competitive
priority, manufacturing advantages, manufacturing objectives
etc. are some of the examples.
• It is important that manufacturing companies add / focus to
custom build their solutions or strategies to their specific
needs based on their competitive priority in addition to the
above.
 What is operations management ?
• Operations management is an area of management concerned
with designing and controlling the process of production and
redesigning business operations in the production
of goods or services. It involves the responsibility of ensuring
that business operations are efficient in terms of using as few
resources as needed and effective in terms of meeting customer
requirements. It is concerned with managing the process that
converts inputs (in the forms of raw materials, labor, and energy)
into outputs (in the form of goods and/or services.

• Operations management is the central core function of every

company. This is true regardless of the size of the company, the
industry it is in, whether it is manufacturing or service, or is for-
profit or not-for-profit.
 Introduction to operations strategy
• Globally business is wide open due to economic liberalization
• Generally manufacturing has been managed in isolation
• Management performance has traditionally been evaluated
on the basis of financial measures such as ROI and short term
results rather than long term and customer point of view
• Marketing and finance strategies have to be well interfaced
well with manufacturing strategy / plan
• Operations strategy is now viewed as a major competitive
weapon
 What is operations strategy ?
• A plan specifying how an organization will allocate resources in order to support
infrastructure and production. An operations strategy is typically driven by the
overall business strategy of the organization, and is designed to maximize the
effectiveness of production and support elements while minimizing costs
• Strategy is a sets of plans and policies by which a company aims to gain long
term advantage over its competitors

• Operations strategy – The classical view was put forward by Skinner as given
below

• Time horizon refers to the length of time required for the strategy to have an
effect. Short term operations decisions effect can be measured in days or weeks.
Medium term operations decisions effect can be measured in weeks and
months.
• Strategy is generally associated with long term decisions. Choosing the timing,
location, and the scale of construction of new manufacturing facilities are
typically long term manufacturing and operations strategy decisions.
Constant exercise in business
 Operations strategy contd..
• The notion of focus in manufacturing strategy was first considered by Skinner in
1974. He defined 5 key characteristics

• Process knowledge
• Market demands
• Product volumes
• Quality level
• Manufacturing tasks

• Evaluation
There are several dimensions along which one can evaluate production /
operations strategy . The most significant are
1. Cost
Pricing is a key to market differentiation and competitiveness, a
major means of strategy evaluation.
2. Quality
In market product quality is a major determinant of product
Success.
 Operations strategy contd..
3. Profitability
Ultimately, it is the profitability of a product line that the success
of a strategy undertaken to produce and sell it.
4. Customer satisfaction
It is the customer satisfaction that makes the manufacturer stays and
sustained in the business.

• Skinner (1974) cites a number of causes for the common inconsistencies

observed in most firms. The include the following
Professionalism – Professionals are not working towards the same goal rather
trying to optimize the personal contributions for which factors may be many.
Further product proliferation, changes in the manufacturing task which are not
made very explicit.
 Operations strategy contd.. (Important)
• Subsequently, number of researchers have depicted the manufacturing
function as the missing link in corporate strategic process and emphasized that
manufacturing can be formidable competitive weapon if equipped and
managed properly. (Hayes and Wheelwright (1984) and categorized
manufacturing organization in 4 stages, according to manufacturing strategic
roles.
• In stage I – Organisations react blindly to the demands placed on them from
the top and offer no strategic advantage to the firm
• In stage II – Organisations follow the trends of the industry prarctices
• The difference between stage III and stage IV lies in their pro-activeness
• In stage IV -
1. Manufacturing is involved upfront in major marketing and engineering
decisions
2. Efforts are made to anticipate the potential of new manufacturing practices
and technologies
3. Long range programmes are pursued in order to acquire manufacturing
capabilities in advance of needs
Therefore in stage IV, organisations are fully proactive and they follow world
class practices.
 Operations strategy contd.. (Important)
• Various researchers (Skinner 1969, Hill 1987, Gerwin 1993) elaborated
customer expectations on attributes such as quality, cost, delivery, flexibility
and innovation which are popularly termed as competitive priorities.
 Competitive priorities (V. Important)
• Quality

– Defect free : Conformance. Conformance is the degree to which

a product's design and operating characteristics
meet predetermined standards.

– Performance : Performance refers to a product's primary

operating characteristics

– Reliability : Reliability refers to a product's mean time until

failure or between failures

– Durability : Durability is defined as mean time until replacement.

 Competitive priorities

– Appearance /Aesthetics : A product's looks, feel, smell,

sound, or taste are its aesthetic qualities

– Features : Features are the bells and whistles of a product

or service

– Service : Serviceability. Serviceability is defined by speed,

courtesy, competence and ease of repair
 Competitive priorities
• Innovation
– New products, First to market
• Delivery
– On-time
– Right quantity
• Cost
– Competitive / low
• Flexibility
– Volume change
– Product Mix
– Customisation
– Design changes
 Now the question is

• Will you compete on

Cost?
Quality?
Time?
Flexibility?
• All of the above? Some? Tradeoffs?
 Order winner, order qualifier (Very important)

• Hill (1987) introduced the concept of order winner and order

qualifiers and differentiated between them
• Order qualifiers are those criteria that a company must meet
for a customer
• Order winners are those criteria that win the order in market
place
• Hill also identified order winners and qualifiers which are
market and time specific and categorised into manufacturing
related and non –manufacturing related
• Manufacturing related criteria include quality, cost delivery,
flexibility, demand increase, product range and distribution
• Non-manufacturing may include design, leadership, marketing
and sales
 Analyse order qualifiers and winners (V. Imp)

Work on strategy (Target )

High How it will be different from
Immediate action is required
Competition ?
Satisfiers
Unique selling point

Ta
Competitiveness
Immediate Plan
Minimum most criteria
to be a viable competitor
Low Delighters, Exciters
Already late ?
Dissatisfiers ?

Order qualifier Order winner

Current criterion capability
 ORDER QUALIFIERS AND ORDER WINNERS

• Firms must also exercise some caution when making decisions

based on order winners and qualifiers. Take, for example, a
firm producing a high quality product (where high quality is
the order-winning criteria). If the cost of producing at such a
high level of quality forces the cost of the product to exceed a
certain price level (which is an order-qualifying criteria), the
end result may be lost sales, thereby making "quality" an
order-losing attribute.

Ref : http://www.referenceforbusiness.com/management/Ob-Or/Order-Winning-
and-Order-Qualifying-Criteria.html#ixzz4ZNzlJwbP
 Strategy

• Strategy
Strategy is a guide how to pursue the company’s mission and
strategic vision and how to achieve it

Try to answer 4 Questions

1. Where do we compete ?
2. Why customers will come to me?
3. What we need to do ?
4. How to sustain ?
• Integrating a business strategy usually is one of many steps in
a larger business planning process. A business plan begins
with an overall vision. From the vision, a mission
statement for the business is constructed, usually the shorter
and more precise the better. A mission leads to specific goals
the business will achieve to accomplish its mission and that in
turn leads to strategy to achieve goals. Specific tactics are
usually then developed to support the business strategy.
 Evolving operations strategy

Corporate vision

Corporate Mission Corporate strategy

Global business Competitive Business strategy Core competency/

Environment priorities Strength

Product plan

Operations strategy

Manufacturing Company specific

excellence dynamic decisions
 Performance objectives Vs Decision areas

Quality Critical

Cost Critical

Delivery Critical

Flexibility Critical

Capacity Supply Process Organisation

network technology development
• Operational strategies refers to the methods companies use to
reach their objectives. By developing operational strategies, a
company can examine and implement effective and efficient
systems for using resources, personnel and the work process.
Service-oriented companies also use basic operational strategies to
link long- and short-term corporate decisions and create an
effective management team.

• Corporate Strategy
• Corporate strategies involve seeing a company as a system of
interconnected parts. Just as the muscles of the heart depend on
brain functions in a human body, each department in a company
depends on the others to stay healthy and achieve desired
outcomes. The additional core strategies that a company uses
should support the corporate strategy and use cross-functional
interactions.

• Ref: http://smallbusiness.chron.com
• Customer-driven Strategies
• Operational strategies should include customer-driven approaches to
meet the needs and desires of a target market. To do so, a company
must develop strategies that evaluate and adapt to changing
environments, continuously enhance core competencies and develop
new strengths on an ongoing basis. When evaluating environments, a
company should monitor market trends to take advantage of new
opportunities and avoid possible threats.
• Developing Core Competencies
• Core competencies are the strengths and resources within a company.
While core competencies can vary by industry and business, they can
include having well-trained staff, optimal business locations and
marketing and financial expertise. By identifying core competencies, a
company can develop processes such as customer satisfaction, product
development and building professional relationships with stakeholders
• Ref: http://smallbusiness.chron.com
• Competitive Priorities
• The development of competitive priorities comes from the
creation of a corporate strategy, market analysis, defining core
processes and conducting a needs analysis. To create
competitive priorities, an organization evaluates operational
costs, the quality of a product or service, the time it takes to
develop and deliver a good or service and the flexibility of a
good or service with regard to variety, volume and
customization. Competitive priorities should include being
able to provide a quality product or service at a fair cost that
consistently meets the needs of a customer.

• Ref: http://smallbusiness.chron.com
• Product and Service Development
• Strategies behind the development of products and services
should consider design, innovation and added values. When
developing new customer products, a company can decide to
be a leader in introducing a new product or service, wait for
the introduction of innovations on the market to improve
upon them or wait to see if a company's innovation is
successful before moving forward. When developing a
service, companies should consider packaging it with
immediately observable and psychological benefits and
support services. When developing a good or service, a
company should consider the wants of its customers, how its
stands against the competition and how its technical
measures relate to its customers' need.
• Ref: http://smallbusiness.chron.com
Ref : TJ Hill
 Missing the links in manufacturing strategy
(Very important)
Manufacturing in the corporate strategy - MCS ( Ref : Skinner
edited by Voss CA)
• In spite of failures in the market place still many manufacturing
organizations are not competitive because of the following
- Piecemeal decisions
- Short term performance, objectives and measurement systems
- Attempting to optimise on almost every dimensions
- Command and control workforce management
- A primary focus on reducing cost and increasing productivity
- Buying and installing or copy the solutions with out deep
understanding of the business need specific and the pre-requisites
for improvements
 Missing the links in manufacturing strategy

Four links are missing generally in most manufacturing

organisations
• Leadership
• Managers capable of implementing MCS
• Ideas which are conceptually sound and complete
• Favorable organisation structures
 Missing the links in manufacturing strategy

1. Leadership which understands and accepts the new

• Historically “ biological rejection “ of MCS is due to mind set
of manufacturing efficiency, productivity and cost
• Need to think differently and set examples of how operational
function can structured to create a strong competitive force
• When Leaders create a strategy, the best minds in the
organization come together.
 Leadership as the starting point of strategy

• Even the best strategy can fail if a corporation doesn’t have a cadre of
leaders with the right capabilities at the right levels of the
organization.
• When it comes time to implement a strategy, many companies find
themselves stymied at the point of execution. Having identified the
opportunities within their reach, they watch as the results fall short of
their aspirations. Too few companies recognize the reason.
• Mismatched capabilities, poor asset configurations, and inadequate
execution can all play their part in undermining a company's strategic
objectives. Although well-regarded corporations tend to keep these
pitfalls squarely in their sights, in our experience far fewer companies
recognize the leadership capacity that new strategies will require, let
alone treat leadership as the starting point of strategy.
• Ref: By Tsun-yan Hsieh and Sara Yik
2. Managers capable of implementing MCS
• Knowledge of the business situations of the company
• Understanding about manufacturing strategy
• Need for the knowledge in process technology and process
and equipment selection as they are very much part of
structuring any operations
 Missing the links in manufacturing strategy
3. Ideas which are conceptually sound and complete
• Trade-offs
• Manufacturing task to choice of manufacturing polices which
form the structure
• Strategy is about making choices, trade-offs; it's about
deliberately choosing to be different. Michael Porter
 Missing the links in manufacturing strategy-Trade-off

• A trade-off (or tradeoff) is a situation that involves losing one

quality or aspect of something in return for gaining another
quality or aspect. More colloquially, if one thing increases,
some other thing must decrease. Tradeoffs can occur for
many reasons, including simple physics (into a given amount
of space, you can fit many small objects or fewer large
objects). The idea of a tradeoff often implies a decision to be
made with full comprehension of both the upside and
downside of a particular choice, such as when a person
decides whether to invest in stocks (more risky but with a
greater potential return) versus bonds (generally safer, but
lower potential returns).
• In economics, a trade-off is commonly expressed in terms of
the opportunity cost of one potential choice, which is the loss
of the best available alternative.
 Missing the links in manufacturing strategy - Trade-off

• Cost leadership is a low-cost, broad-based market strategy.

Firms pursuing this type of strategy must be particularly
efficient in engineering tasks, production operations, and
physical distribution. Because these firms focus on a large
market, they must also be able to minimize costs in marketing
and research and development (R&D). A low-cost leader can
gain significant market share enabling it to procure a more
powerful position relative to both suppliers and competitors.
This strategy is particularly effective for organizations in
industries where there is limited possibility of product
differentiation and where buyers are very price sensitive.
 Missing the links in manufacturing strategy - Trade-off

• Overall cost leadership is not without potential problems.

Two or more firms competing for cost leadership may
engage in price wars that drive profits to very low levels.
Ideally, a firm using a cost-leader strategy will develop an
advantage that others cannot easily copy. Cost leaders also
must maintain their investment in state-of-the-art
equipment or face the possible entry of more cost-effective
competitors. Major changes in technology may drastically
change production processes so that previous investments
in production technology are no longer advantageous.
Finally, firms may become so concerned with maintaining
low costs that they overlook needed changes in production
or marketing.
Trade-offs (The cost quality relationship egg.)
High
The new view The old view

The right view

Cost Start

Low
Low Quality High
 Missing the links in manufacturing strategy
4. Favorable organisation structures
• One of the organisational issues that a business needs to address is
where decision-making power resides in the structure.
• Decision-making is about authority. A key question is whether
authority should rest with senior management at the centre of a
business (centralised), or whether it should be delegated further
down the hierarchy, away from the centre (decentralised)
• The choice between centralised or decentralised is not an either/or
choice. Most large businesses necessarily involve a degree of
decentralisation when it starts to operate from several locations or
it adds new business units and markets. The issue is really how
much independence do business units or groups within a business
have when it comes to the key decisions?
 Missing the links in manufacturing strategy

• Centralized organizational structures rely on one individual to

make decisions and provide direction for the company. Small
businesses often use this structure since the owner is
responsible for the company’s business operations.

• Decentralized organizational structures often have several

individuals responsible for making business decisions and
running the business. Decentralized organizations rely on a
team environment at different levels in the business.
Individuals at each level in the business may have some
autonomy to make business decisions.
Organisation structure conventional (old ? ) egg.

CEO

Head Opn. Head QA

Plant mgr Manager QA

L1

Production Manager QA
Mgr. L2
 Organisation structure - Shared responsibilities egg.

• TEI CEO

Head Opn. Head QA

Plant mgr Manager QA

L1

Production Manager QA
manager L2
 Basic idea of manufacturing strategy

• Seven performance objectives need to be considered

1. Cost , efficiency , productivity

2. Delivery, lead time
3. Quality
4. Service, reliability
5. Flexibility for product change
6. Flexibility for volume change
7. The investment required in the production system

A strategic objective is based on one or two of the seven objectives

derived from the firm’s competitive strategy economics and
technological opportunities
• Manufacturing Strategy
In general terms, manufacturing strategy can be defined as
the set of the co – coordinated objectives and action
programmes that are applied to a firms manufacturing
function and aimed at securing the medium and long term,
sustainable advantage over that firm’s competitors.
Manufacturing strategy generally involves issues like the
following –
1. Manufacturing capacity
2. Production facilities
3. Use of the technology
4. Vertical integration
5. Quality
6. Production planning/materials control
7. Organization
8. Personnel
• Procedure for the formulation of the manufacturing strategies is
• Hill Methodology –
• a. Provides a connection between the different levels of the
strategy making.
• b. The first step involves the understanding of the long term
corrective objectives of the organization.
• c. The next step involves the development of the marking strategy
in order to achieve the corporate objectives.
• d. The third step is the translation of the marketing strategy into the
‘competitive factors’ which are further split into the ‘order winners’
and the ‘order qualifiers’.
• e. The fourth step is the selection of the manufacturing process.
• f. This selection depends on the volume/variety analysis ‘structural
feature’.
• g. The last step is selecting the ‘infrastructural features’ of the
manufacturing process.
• Different companies with in the same industry have different
strengths and weaknesses and choose to compete in different
ways
• Different production systems have different operating
characteristics and each involves a different set of trade-offs
• A production system should have customised design that
reflects the priorities and trade offs inherent in the firm’s own
competitive situation and strategy
• Therefore no one operating system is universally superior
under all competitive situations and for all companies
• Every operating system embodies a set of trade-offs
• Some will be particularly good at producing standard ised
products at high volume and low cost
• Others will excel at responding quickly to shifting demand for
more customised products
• Ref: http://smallbusiness.chron.com
• Technology flexibility
• Capacity flexibility
• Develop mfg. technology internally ?
• Off the shelf or custom eqpt ?
• Lead or lag in mfg technology wrt competition

• Operating strategies cannot be static. They must provide the

capabilities that both support and drive rapidly evolving
challenges and strategies.
Week end home work
Understand your companies operations strategy and how is it
linked to various other inputs as given in the evolution of
strategy diagram in this lecture.
……………………………………………………………………………………………………
End of lecture
Any questions or clarifications please ?

Thanks