MMVA ZG512 Manufacturing

Strategy
Rajiv Gupta
BITS Pilani
Session 8
 Session 8
• Module 1
– Recap of Session 7
• Module 2
– FMS and Just In Time Systems
• Module 3
– Product Life Cycles
• Module 4
– BCG Matrix
• Module 5
– Competing Through Manufacturing
• Module 6
– Summary and Wrap-up

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 Session 8
• Begin Module 1
– Recap of Session 7

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 Recap of Session 7
• In Session 7, we discussed manufacturing levers
such as human resources, facilities, technology,
etc., which are factors that can be adjusted to
suit the type of production system selected.
• We also discussed the extension of the product
volume/layout matrix to the product life cycle
curve and saw how these are correlated
• We discussed how it becomes necessary to
adjust the production system as the product
moves through the stages of its life cycle
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 Recap of Session 7
• It was discussed that most companies strive to be
on the principal diagonal of the volume/layout matrix
as this represents the best way to meet the
customer requirements.
• However, certain companies have developed
special niches off the diagonal which offer some
special advantages.

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 Session 8
• End of module 1

6
 Session 8
• Begin Module 2
– FMS and Just In Time Systems

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 FMS
• Flexible Manufacturing Systems (FMS) are systems that
use automated, integrated equipment that can be used
to produce parts in small batches
• The main advantages these systems provide over
traditional batch production systems is the degree of
automation and real time control that permits ease of
real time scheduling.
• In addition, the machines used are typically CNC
machines with very low setup or changeover times
making FMS suitable for producing in small lot sizes

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 FMS
• The machines are typically connected by a handling
system which can include Automatic Guided Vehicles
(AGVs), conveyors, and robots. This allows the
production of a variety of products on the same system.
• Sophisticated software and programming is required not
only for the processes (CNCs) but also for the material
handling as it tends to be integrated.
• Any new product introduced in production would need to
be programmed in. The geometry, cutting path of the
tools, the sequence of operations, the tooling, etc. will
typically need to be developed. This takes time and
requires expertise.
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 FMS
• The capital required for an FMS is very high. Perhaps
that may be a reason why such systems are not found
very commonly in practice.
• In addition to the cost of capital, the people required to
program and maintain the equipment are very highly
skilled and would need to be paid more highly compared
to typical operators in a traditional batch production
shop.
• Due to the sophisticated equipment, the level of process
control can be very high and therefore conformance to
specifications may be very good.

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 Where I Differ From the Book
• The book mentions that FMS provides the lowest cost
per unit of all systems. It is not clear what costs are
considered in coming up with this assessment. I
seriously doubt it because if this were the case, we
would have had many more FMSs in use for small to
medium size batches
• The book mentions that the flow is line flow. I disagree.
The material handling system typically uses conveyors,
AGVs, and robots which can be programmed for
different sequences in which parts may be
machined/assembled.

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 Where I Differ From the Book
• The book mentions that these are very flexible, and at
the same time the raw material inventories are low. The
flexibility of these systems assumes the availability of
raw materials. This means that the suppliers may charge
a premium for stocking parts needed at short notice. This
will drive up material cost and therefore, the cost of
production.
• The book talks about manufacturing outputs such as
performance and innovation, which I don’t think are
affected by the use of an FMS

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 Just In Time (JIT) Systems
• Although the book tries to treat JIT in the same way as a
job shop or a batch production system, I don’t think the
comparison is very valid.
• As compared to job shops, etc. which are characterized
by layouts and the broad material flow, a JIT system is
not just a type of layout and flow.
• In fact there is no common understanding about what
constitutes JIT.
• Also, the number of successful JIT systems is very few
for us to draw inferences about them.
• So to compare a JIT system to some of these traditional
production systems may not be appropriate.
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 Just In Time (JIT) Systems
• In the course on lean, we had covered aspects of lean
which include a very different management approach.
• As discussed in the lean course, some aspects of the JIT
approach tend towards a different mind-set and are
almost philosophical in their scope and impact.
• Specifically, the emphasis on waste elimination,
continuous improvement, employee involvement,
supplier partnerships, problem solving in the gemba,
mentoring, planning systems etc. are specific elements
of JIT which do not have parallels in other production
systems we have discussed.

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 Just In Time (JIT) Systems
• There are a few aspects of JIT that we can use to put in
the context of the other production systems. These are:
– The layouts usually tend to be cellular with general purpose
machines and multi-skilled workers that work as a team
– Significant attention is paid to training of all employees and
employee involvement
– Scheduling tends to be easier within a cell. Some co-ordination
is required for scheduling across multiple cells
– Flexibility is generally very high
– The machines are extremely well maintained and have very low
set-up times.
– Inventory levels are low
– Lead times are typically very short
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 Session 8
• End of module 2

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 Session 8
• Begin Module 3
– Product Life Cycles

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 Product Life Cycles

Development Introduction Growth Maturity Saturation Decline

Sales

Time
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 Product Life Cycles
• During the development stage, there is only cash
outflow, no inflow of revenues
• During the introduction stage, there is a heavy cash
outflow for advertising, promotions, etc., and very low
revenues
• During the growth phase, the revenues pick up and the
company generally starts to break even somewhere in
this range
• Costs may be needed as you want to capitalize on the
market’s acceptance of the product or service. Costs for
manufacturing in volumes is required

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 Product Life Cycles
• During the maturity phase, the sales of the product have
generally peaked. Competition has entered the market
and growth potential is limited
• The product or service does not require too much
support during this phase.
• During the saturation phase, some companies try to offer
minor differentiating features which do not require much
time and cost to develop and market to keep the product
going. This could include new packaging, colors, new
uses of the product, etc.
• This may give some additional sales for a short time
period. May require some promotions for the additional
features 20
 Product Life Cycles
• The addition of some new features may give some
additional sales for a short time period. May require
some promotions to make the people aware of the new
developments
• During the decline and withdrawal phase, the product
has outlived its useful marketable life. Some new fashion
or technology has made the product obsolete or less
popular. The cost of propping up the product with
features is greater than any gain in revenues
• The company has to determine when is a good time to
withdraw the product based on the availability of a new
product.
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 Additional features added

Sales

Time
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 Session 8
• End of module 2

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 Session 8
• Begin Module 4
– BCG Matrix

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Boston Consulting Group Matrix
“Wildcat” “Star”
(Competitive Struggle) (Funding Required)
Growth

“Dog” “Cash Cow”

(Divestiture) (Consistent Cash Generation)

Market Share
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 Stars
• Stars – products in markets experiencing
high growth rates with a high or increasing
share of the market
• Potential for high revenue growth
• Need to be nurtured and funded

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 Cash Cows
• High market share
• Low growth markets – maturity stage of
PLC
• Low cost support
• High cash revenue – positive cash flows

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 Dogs
• Products in a low growth market
• Have low or declining market share
(decline stage of PLC)
• Associated with negative cash flow
• May require large sums of money to
support

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 Wildcats
• Products having a low market share in a
high growth market
• Need money spent to develop them
• May produce negative cash flow
• Potential for the future?

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 Session 8
• End of module 4

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 Session 8
• Begin Module 5
– Competing Through Manufacturing

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 Competing Through
Manufacturing
• Steven C. Wheelwright and Robert H.
Hayes in their HBR article titled
“Competing Through Manufacturing” have
defined four stages of development that a
company can pass through. Each of these
stages denotes a particular role that
manufacturing plays in the company’s
competitive success.

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 Competing Through
Manufacturing
• The Stages in Manufacturing’s Strategic Role
are:
– Stage 1 in which we minimize manufacturing’s
negative potential, i.e. “Internally Neutral”
– Stage 2 in which we achieve parity with competitors,
i.e., “Externally Neutral”
– Stage 3 in which manufacturing provides credible
support to the business strategy, i.e., “Internally
Supportive”
– Stage 4 in which we pursue a manufacturing-based
competitive advantage, i.e., “Externally Supportive”
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 Stage 1-Internally Neutral
• Top managers regard manufacturing incapable of
influencing competitive success and seek to minimize its
negative impact
• Manufacturing capability is viewed as a result of
decisions about capacity, facilities, technology and
vertical integration
• No strategic importance to workforce policies, planning
and measurement systems, and incremental process
improvements
• Reliance is on outside experts to help on issues related
to manufacturing

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 Stage 1-Internally Neutral
• Top management insists that all decisions with regard to
facilities, equipment, etc. be flexible so that they do not
get locked into an incorrect decision.
• All equipment is sourced from outside vendors and
reliance on vendors for all technology information
• Internal detailed management control systems oriented
toward near-term performance
• Little to no involvement of top management in
manufacturing
• Found in consumer products and some high technology
companies where they feel the company’s edge is due to
the product and not the process.
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 Stage 2-Externally Neutral
• Top management looks at manufacturing to have parity
with major competitors
• They will follow common industry practices in equipment
purchases, and capacity additions as well as workforce
practices (such as bargaining with unions)
• Management tends to view capital investment in new
equipment and facilities as the most effective means for
gaining temporary competitive advantage
• Economies of scale through production rate seen as the
best way to get manufacturing efficiency

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 Stage 2-Externally Neutral
• This type of approach is found in industries where the
competitors are well established and everyone is
following the same approach to maintain the status quo.
• Found in the auto industry in the US and
pharmaceuticals

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 Stage 3-Internally Supportive
• Manufacturing is expected to actively support and
strengthen a company’s competitive position.
• Decisions regarding manufacturing are screened to
ensure that they are consistent with the organization’s
competitive strategy
• A manufacturing strategy is formulated and pursued
actively
• Management is on the lookout for long term trends that
could have an effect on manufacturing’s ability to
respond to the needs of the organization.

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 Stage 3-Internally Supportive
• The manufacturing managers in such companies take a
broad view of their role by seeking to understand the
business strategy and the competitive advantage the
company is pursuing.
• However top management only wants manufacturing to
support its business strategy not become involved in
formulating it.
• Examples of this are the beer industry in the US

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 Stage 4-Externally Supportive
• The most progressive stage of manufacturing
development.
• The company’s competitive strategy rests significantly on
its manufacturing capability. Manufacturing does not
dictate strategy to the rest of the company, but is a
significant part of the strategy formulation.
• Management anticipates the potential of new
manufacturing practices and technologies and seek to
acquire expertise in them ahead of time.
• Equal emphasis is placed on plant and equipment
decisions as well as on management policies in
manufacturing
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 Stage 4-Externally Supportive
• Manufacturing is involved up-front in major marketing
and engineering decisions and does not just play a
reactive role.
• Companies, rather than industries can be cited in this
category. Toyota, Texas Instruments, Mars Candy

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 Session 8
• End of module 5

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 Session 8
• Begin Module 6
– Summary and wrap up

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 Summary
• We discussed two of the production systems
from the book that don’t seem to fall neatly into
the other categories, i.e., FMS and the JIT
system
• Certain points were made with regard to what
makes these systems a little unique as
compared to others
• I pointed out where I differed from the book in
the case of the FMS

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 Summary
• There is similarity in the BCG matrix and the
stages in the product life cycle
• We can use the BCG matrix to decide which
products need to be supported and funded, and
which ones should be weeded out.
• Wheelwright and Hayes have developed a four
level scale for assessing the role of
manufacturing in achieving competitive
advantage. These levels were discussed.

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 Session 8
• End Module 6
– Summary and wrap up

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