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Competing through Manufacturing
35E00100 Service Operations and Strategy #1 Fall 2015
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Topics Introduction Manufacturing strategy Summary
Why manufacturing management is important? Basics of manufacturing planning and control Manufacturing strategy Key elements Alternative paradigms Manufacturing capability Strategic choices Best practices Summary
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Sales / Marketing Function Is Important...
Discounts Bonuses Taxes Prices Campaigns Sales activities J F M A S O N D Project Configure MTO Wholesale e-Sales Service sales Direct delivery Contract deliveries MTS Contracts Product specifications Currencies Retailing
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Role of Manufacturing Management
Control costs Strategic fit Manufacturing Plan, Execute, Control Deliver right quantity Understand customer needs Execute on time Meet customer requirements
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The Basic Framework Manufacturing Planning and Control (MPC) System
Resource planning Production planning Demand management Master production scheduling Front end Material and capacity plans Detailed material planning Detailed capacity planning Engine Vendor systems Shop floor systems Back end Vollmann et al. 1997, 5
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Information Flows in Manufacturing
Markets / Customers Material requirements Orders Demand forecasts Production planning Master scheduling Shop status Schedule performance Scheduling constraints Capacity status Schedule Shop orders Release dates Job loading Material requirements planning, Capacity planning Detailed scheduling Scheduling and Rescheduling Dispatching Shop floor management Modified from Pinedo and Chao 1999, 7
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MPC System Must Respond to the Environment
Forces for change Typical responses Shorter product life cycles Time-based competition Quality requirements Flexibility /responsiveness Reduced overhead costs Automation Cell manufacturing Simplification MRP JIT Technology Products Processes Systems Techniques Marketplace dictates Company strategy Mfg strategy MPC system Manufacturing processes Vollmann et al. 1997, 10
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What Is Manufacturing Strategy?
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Many Definitions Have Been Offered…
Dangayach & Deshmunkh 2001, 886
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Alternative Paradigms of Mfg Strategy
Case- oriented Studies 1960s 1970s Manufacturing Capabilities 1980s Strategic Choices Best Practices 1990s In the future? Performance measurement Effect of organizational customer on mfg strategy MS and green mfg Relevance of mfg strategy to SMEs Sector-specific strategies 2000s
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Cycles of Manufacturing Strategy
Order winners Key success factors Generic mfg strategies Shared vision Manufacturing Capabilities World class mfg Benchmarking BPR TQM Learning from the Japanese Continuous improvement Best Practices Contingency approaches Internal and external consistency Choice of processes Focus Process and infrastructure Strategic Choices in Manufacturing Voss 1995, 14
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Cycles of Manufacturing Strategy
Capabilities Best Practices World class mfg Benchmarking BPR TQM Learning from the Japanese Continuous improvement C Order winners Key success factors Generic mfg strategies Shared vision A Strategic Choices in Manufacturing Contingency approaches Internal and external consistency Choice of processes Focus Process and infrastructure B Voss 1995, 14
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Development of Mfg Strategy
Business strategy concepts that have influenced manufacturing strategy Value chain analysis (Porter 1986) Core competence (Prahalad & Hamel 1990) BPR (Hammer 1990, Hammer & Champy 1993) Competing on capabilities (Stalk, Evans & Shulman 1992) Noteworthy steps Manufacturing as a competitive weapon (Skinner 1969) Focused factories (Skinner 1974) Evolution of manufacturing strategy (Wheelwright and Hayes 1985) Time-based competition (Stalk 1988) Process management Supply chain management
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Evolution of Manufacturing Strategy
Stage 1 Internally Neutral “Minimize manufacturing’s negative impact” Stage 2 Externally Neutral “Achieve parity with competitors” Stage 3 Internally Supportive “Provide credible support to the business strategy” Stage 4 Externally Supportive “Manufacturing as a significant contributor to competitive advantage” Manufacturing should actively seek to influence corporate strategy and to develop and exploit manufacturing capability proactively. Manufacturing (and operations) have been a limited contributor to competitive advantage since most companies are stuck at stage 2. Wheelwright & Hayes 1985, 3
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Product life cycle stage Process life cycle stage
B Matching Process Choice with Strategy The original product-process matrix by Hayes and Wheelwright (1979) Product structure Product life cycle stage One of a kind Low volumes; many products High volumes; few products Commodity product Jumbled flow (job shop) Void High Commercial printer I Disconnected line flow (batch) Heavy equipment Process structure Process life cycle stage II Flexibility & Unit cost Connected line flow (assembly line) Auto assembly III Sugar refinery Continuous flow IV Void Low High Low Product Variety
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Studies Linked to Product-Process Matrix
B Studies Linked to Product-Process Matrix Effectiveness of the matrix in explaining operating mfg strategies McDermott and Greiss (1994) Noori (1990, 1991) Miller and Roth (1994) Safizadeh et al. (1996) Applications to the analysis of manufacturing performance Hanson et al. (1993) Voss (1995) Robustness of the original set of practices and trade-offs Flynn et al. 1999 Link between process and product (Ahmad and Schroeder 2002) Significant, but not strong Innovative initiatives used by off-diagonal companies 100 200 300 400 500 600 Process type Product type
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World Class Manufacturing (WCM)
Background Initiated by the increasing competitiveness of Japanese in the early 80s Behavior among U.S. Manufacturers Wide implementation of improvement programs such TQM and JIT Use of programs as solutions rather than as stepping-stones Development of the WCM concept Hayes and Pisano (1986) coined the term Criticized that lean manufacturing, continuous improvement or WCM are not strategies to gain competitive advantage Schonberger (1986) “Blended management marshals resources for continued, rapid improvement” Introduced a 17-point action agenda to guide toward mfg excellence Hanson et al. (1994) and Collins et al. (1996) “WCM is the achievement of standard in both practice and performance that allows to equal or surpass the very best international plants.” Made empirical analyses in Europe and developed a simple framework.
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Factors Measured Made in Europe Study
Organization and culture Vision and strategy Management style Employee involvement Training Benchmarks Job flexibility Problem solving Customer orientation Design process Plant and equipment Layout and automation Batch sizes and kanban Order release Warehousing Maintenance Housekeeping Priority orders Business Measurement Market share Customer satisfaction Employee morale Inventory turnover Cash flow Return on net assets Productivity and costs Performance measurement Opinions about Relative competitiveness Strategy priorities Inhibitors of vision Time frame of improvement Sources of external advice Background info Size of the firm, etc.
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Industry Makes a Difference
Paper & Wood Order processing Supplier lead times Customer deliveries Scrap / rework Defects Batch sizes Metal New product yield Product reliability Order processing Priority orders Cycle times Training Electrical Preventive maintenance Information systems Equipment changeover Deliveries New product yield Cycle times Chemical Training Product reliability Deliveries Cycle times Stock holding Design process Machinery Stock holding Batch sizes Information systems Warranty claims Product reliability New product yield Food & Drink Cycle times Deliveries Inventory turns Batch sizes Business mgmt Preventive maintenance Hanson et al. 1994, 14
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WCM in Europe Performance/Practice Framework and Results from Finland
World class Finnish mfrs ≥ 5 % better Mfg strategy Market share Information systems Equipment layout Finnish mfrs ≥ 5 % worse Deliveries Inventory turns Warranty claims Business process mgmt Benchmarking Won’t go the distance 0 % 80 % Contenders 4 % 35 % 60 % Makeweights 22 % Performance 50 % Punch-bags Promising 39 % 0 % 50 60 80 % Practice Hanson et al. 1994, 8
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Key Points Manufacturing also matters! MPC systems
A basic structure exists Change along with technology, products, market requirements, etc. Manufacturing strategy Its definition is somewhat ambiguous. Typically at least one of the following is included: Competitive priorities (cost, quality, delivery time etc.) Manufacturing approach (MTS, MTO, ATO etc.) Outsourcing (Make-or-buy) Alternative paradigms support each other. Industries and countries differ…
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Abbreviations Used ATO = assembly-to-order
BPR = business process re-engineering JIT = just-in-time Mfg = manufacturing MPC = manufacturing planning and control MRP = materials requirements planning MS = manufacturing strategy MTO = manufacture-to-order MTS = manufacture-to-stock TBC = time-based competition TBM = time-based management TQM = total quality management WCM = world class manufacturing
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