Manufacturing Strategy in A Nutshell

Hayes & Wheelwright define Manufacturing Strategy as "A pattern of decisions affecting the key elements of a manufacturing system." There is more to it but this definition will suffice for now. Almost any discussion of Manufacturing Strategy can apply equally to "non-manufacturing" operations such as finance services or transportation. Simply substitute the word "Operations" for Manufacturing.

Over extended periods of time this pattern of decisions (Manufacturing Strategy) creates a structure of facilities, equipment, information systems and attitudes. It becomes "the way we do things around here." This structure then determines the firm's ability to compete and its profitability to the extent that these are controlled by manufacturing.

Every manufacturer has a Manufacturing Strategy , whether:

Here we introduce a series of articles on Manufacturing Strategy and Operations Strategy.  Our first article explores strategy; strategy in general, and, then, within the business context.

Why a Formal Manufacturing Strategy?

In the 1970's, when American manufacturing was being challenged by overseas firms and appeared to be in serious decline, Wickham Skinner made a number of observations that eventually led to the concept of Manufacturing Strategy." Skinner noticed that, in many cases:

• Manufacturing was focused on cost control while Marketing emphasized other reasons for buying the product such as quality, delivery or variety.
• Most cost reduction efforts were aimed at Direct Labor which represented a small and decreasing portion of the cost structure.
• Many American factories had become so large and complex they were impossible to manage well.

Optimizing Manufacturing Capability

Every firm wants to optimize their manufacturing. But, optimization requires some criteria. Many companies just assume that the criteria is cost and, especially, direct labor cost and capital cost. In fact, there are other factors that might be optimized. For example:

These various dimensions of manufacturing performance often conflict. For example low cost and high variety often require different types of equipment and different plant layouts. Moreover, a manufacturing system, like any other engineering design, cannot optimize all dimensions simultaneously. The question of which dimension is most important constantly shifts in many firms. Near the end of the month, delivery is most important. After the first of the month, cost labor cost is most important. When an important customer complains, quality is most important.

Wickham Skinner suggests the identification of a "Key Manufacturing Task" that becomes the unchanging, stabilizing criteria for a variety of decisions, both strategic and tactical. Terry Hill describes "Order Winning Criteria" as a way of arriving at the Key Manufacturing Task.

Support of Marketing Strategy

Marketing may develop a strategy that manufacturing simply cannot fulfill. Or manufacturing may optimize on the wrong parameters. A factory built for low labor cost may not be suitable for a marketing strategy that requires the rapid and continual introduction of new products. For an example, see our articles on Apple, Foxconn & Manufacturing Strategy.

Coordinating With Financial Strategy

The coordination of Marketing, Finance and Manufacturing strategies is critical for long-term competitiveness. This coordination is often lacking. Marketing may emphasize a Cost Leadership strategy, for example, while finance is unaware that such a strategy may require continual and long-term capital investment.

Decision Guidance

One of the most important functions of Manufacturing Strategy is the guidance of lower level, shorter-term decisions. For example, should we buy this automated equipment or take a more manual approach? The automated equipment may bring lower direct labor costs but reduce new product flexibility. The correct answer depend upon whether Marketing is pursuing a cost leadership strategy or an innovation strategy. The innovation strategy may require many new product introductions and have far shorter product life cycles.

Systems Thinking

Most manufacturing people visualize their factories as static of steady-state models. Such Mental Models can be quite misleading. Real systems often exhibit strange behaviors that are unpredictable with steady-state models. Systems Thinking is vital for the leader of any organization, particularly so in manufacturing.  Our website has a number of pages related to or showing examples of Systems Behavior:

---

Where Does The Strategy Apply?

Almost everywhere. Here is a partial listing of areas that a Manufacturing Strategy might address:

Structure

Process Linkage (Workflow) Process Scale Process Flexibility Process Technology

Capacity Targets Supplier Requirements Supplier Relations Make-Buy Policy

Facilities

Site Size Utility Systems Site Location

Site Focus Plant Layout

Non-Physical Infrastructure

Accounting System Labor Reporting Personnel Policies Employee Skills, Education & Attitude Corporate Culture

Management Style Scheduling Approaches Maintenance Quality Communications

It is never too early to develop a formal manufacturing strategy. It is sometimes too late if the firm is in the last extremity. In most cases, a firm has had recurrent difficulties with production, quality, new products or all the above. This situation may actually be essential for creating a sense of urgency. New leadership, especially when a difficult situation has existed for some time, often initiates the strategic debate.