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Session 2
Manufacturing Strategy and Competitiveness

OBJECTIVES

Manufacturing Strategy

Competitive Dimensions
Strategy Design Process A Framework for Manufacturing Strategy Order Qualifiers and Winners

Strategy

Strategy is defined as the determination of basic long term goals and the objectives of the enterprise and the adoption of courses of action and allocation of resources to meet these goals and objectives.

Hierarchy of strategies

The strategy can be for three major levels. Corporate Strategy what set of businesses should we be in? Business Strategy How we should compete in a given business? Functional Strategy How can this function contribute towards the competitive advantage of the business?

Health of the manufacturing function in a company is at the heart of its success.

Manufacturing Strategy
Example
Expansion More market share

Strategy Level
Corporate strategy

Business Strategy

Increase Org. Size

Manufacturing Strategy

Increase Production Capacity

Policy Decisions on Processes and Infrastructure

Build New Factory

Manufacturing Strategy

Manufacturing objectives are derived from business objectives. Manufacturing policies are developed to address these objectives. Manufacturing objectives cover such aspects as cost, quality, delivery and flexibility. There are trade-offs between them. Trade-off decisions are required in a number of key areas

Key areas
1)

plant and equipment; production planning and control;

2)

3)

labour and staffing; product design / engineering; and

organisation and management.

4)

5)

Components of strategy

Operations Effectiveness,

- in core business processes needed to run the business.

Taking orders, handling returns manufacture and shipping of product, cost associated with doing business initiatives such as quality improvement, process redesign, technology investment have shown short term results.

Customer management,

- relates to better understanding of customer needs and

relationships, e.g.. segmenting customers takes longer to realise.

product innovation

development of new products, markets, takes still

longer to realize for manufacturers.

Dealing with Trade-offs

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.

Cost

Flexibility
Quality

Delivery

Strategic issues
Manufacturing

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capacity Production facilities Use of technology Vertical integration Quality Production planning/materials control Organisation Personnel All issues are of concern to Technology management

Current Issues
Low

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Cost Countries (LLCs) - set up manufacturing in geographical areas with a low cost base. Outsourcing - suppliers all over the world can be identified and contracted Mass customization - adopt technologies with increased flexibility and respond quickly and costeffectively to customization demands

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Competitive Dimensions

Cost or Price
Make the Product or Deliver the Service Cheap

Quality
Make a Great Product or Deliver a Great Service

Delivery Speed
Make the Product or Deliver the Service Quickly

Delivery Reliability
Deliver It When Promised

Coping with Changes in Demand

Change Its Volume

Flexibility and New Product Introduction Speed

Change It

Other Product-Specific Criteria

Support It

Manufacturing Strategy

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Strategy Design Process

Strategy Map
Financial Perspective

What it is about!
Improve Shareholder Value

Customer Perspective

Customer Value Proposition

Internal Perspective

Build-Increase-Achieve

Learning and Growth Perspective

A Motivated and Prepared Workforce

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Kaplan and Nortons Generic Strategy Map

In the Kaplan and Nortons Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components:

1. Improve cost structure: Lower direct and indirect costs 2. Increase asset utilization: Reduce working and fixed capital

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Kaplan and Nortons Generic Strategy Map (Continued)

In the Kaplan and Nortons Generic Strategy

Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components:

1. Build the franchise: Develop new sources of revenue 2. Increase customer value: Work with existing customers to expand relationships with company

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Kaplan and Nortons Generic Strategy Map (Continued)

In the Kaplan and Nortons Generic Strategy

Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace:

1. Product leadership 2. Customer intimacy 3. Operational excellence

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Kaplan and Nortons Generic Strategy Map (Continued)

In the Kaplan and Nortons Generic Strategy

Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning:

1. Strategic competencies 2. Strategic technologies 3. Climate for action

Operations Strategy Framework

Customer Needs

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New product : Old product

Competitive dimensions & requirements

Quality, Dependability, Speed, Flexibility, and Price

Enterprise capabilities Operations and Supplier Capabilities Operations & Supplier capabilities

R&D R&D

Technology

Systems Technology Systems

Support Platforms

People People

Distribution Distribution

Financial management

Human resource management

Information management

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Order Qualifiers and Winners

Defined
Order

qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers winners are the criteria that differentiates the products and services of one firm from another

Order

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Order Qualifiers and Winners

Defined
Order

qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers winners are the criteria that differentiates the products and services of one firm from another

Order

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Steps in Developing a Manufacturing Strategy

1. Segment the market according to the product group 2. Identify product requirements, demand patterns, and profit margins of each group 3. Determine order qualifiers and winners for each group 4. Convert order winners into specific performance requirements

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Question Bowl
An operations strategy is concerned with which of the following? a. Setting specific policies and plans b. Short-term competitive strategies c. Coordination of operational goals d. All of the above e. None of the above Answer: c. Coordination of operational goals

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Question Bowl
Typically a strategy breaks down into what major components? a. Operations effectiveness b. Customer management c. Production innovation d. All of the above e. None of the above Answer: d. All of the above

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Question Bowl
A criterion that differentiates the products and services of one firm from another can be which of the following? a. An order qualifier b. An order winner c. PWP d. KPI e. None of the above

Answer: b. An order winner

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Question Bowl
A travel agency processed 240 customers on Day 1 with a staff of 12, and 360 customers the on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2? An increase in productivity from Day 1 to Day 2 A decrease in productivity from Day 1 to Day 2 The same productivity from Day 1 to Day 2 Can not be computed from data above None of the above Answer: a. An increase in productivity from Day 1 to Day 2(Day 1 productivity = 240/12=20 Day 2 productivity = 360/15=24)

a. b.

c.
d. e.

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Question Bowl
In addition to traditional financial measures, what critical questions can a Balanced Scorecard help a company answer? a. How do customers see us? b. What must we excel at? c. How can we continue to improve and create value? d. All of the above e. None of the above

Answer: d. All of the above

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Service

Strategy Capacity Capabilities Measures

Productivity

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Service Strategy Capacity Capabilities

Process-based

Capacities that transforms material or information and provide advantages on dimensions of cost and quality

Systems-based

Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand
Capacities that are difficult to replicate and provide abilities to master new technologies

Organization-based

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What is Productivity?

Defined

Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs

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Total Measure Productivity

Total Measure Productivity = Outputs Inputs

or
= Goods and services produced All resources used

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Partial Measure Productivity

Partial

measures of productivity =

Output or Output or Output or Output

Labor Capital Materials Energy

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Multifactor Measure Productivity

Multifactor measures of productivity =

Output
Labor + Capital
or

.
+ Energy

Output
Labor + Capital +

.
Materials

Example of Productivity Measurement

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You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Which productivity measure should be used? Answer: Could be classified as a Total Measure or Partial Measure. Is productivity increasing or decreasing? Answer: Last weeks productivity = 480/2000 = 0.24, and this weeks productivity is = 560/2400 = 0.23. So, productivity is decreasing slightly.