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Competing through Manufacturing
35E00100 Service Operations and Strategy#1 Fall 2015
35E00100 Service Operations and Strategy #1 Aalto/BIZ Logistics2
Topics
Introduction Why manufacturing management is important? Basics of manufacturing planning and control
Manufacturing strategy Key elements Alternative paradigms
Manufacturing capability
Strategic choices
Best practices
Summary
35E00100 Service Operations and Strategy #1 Aalto/BIZ Logistics3
Sales / Marketing Function Is Important...
Discounts
Bonuses
TaxesPrices
Campaigns
Sales activities
J F M A M J J A S O N D
Project
Configure
MTO
Wholesale e-Sales
Service sales
Directdelivery
Contractdeliveries
MTSContracts
Product specifications
Currencies
Retailing
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Role of Manufacturing Management
Controlcosts
Understandcustomer needs
Deliverright quantity
Execute on time
Strategic fit
ManufacturingPlan, Execute,
Control
Meet customerrequirements
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35E00100 Service Operations and Strategy #1 Aalto/BIZ Logistics6
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The Basic FrameworkManufacturing Planning and Control (MPC) System
Front end
Engine
Back endVendor systems
Shop floor systems
Material and capacity plans
Detailed material planning
Detailed capacity planning
Resource planning
Production planning
Demand management
Master production scheduling
Vollmann et al. 1997, 5
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Detailed scheduling
Information Flows in Manufacturing
Modified fromPinedo and Chao 1999, 7
Shop floor management
Material requirements planning, Capacity planning
Production planningMaster scheduling
Scheduling and Rescheduling
Dispatching
Material requirements
OrdersDemand forecasts
Schedule
Shop ordersRelease dates
Job loadingShop status
Schedule performance
Scheduling constraints
Capacity status
Markets / Customers
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Mfg strategy
Typical responses
Shorter product life cyclesTime-based competition
Quality requirements
Flexibility /responsivenessReduced overhead costs
AutomationCell manufacturing
Simplification
MRPJIT
Technology
Products
Processes
Systems
Techniques
MPC System Must Respond to the Environment
Marketplace dictates
Company strategy
Manufacturing processes
Forces for change
MPC systemVollmann et al. 1997, 10
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What Is Manufacturing Strategy?
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Author Manufacturing strategy connotation Skinner (1969) Refers to exploiting certain properties of the mfg function as a competitive weapon.
Hayes and Wheelwright (1985)
A sequence of decisions that over time, enables a BU to achieve a desired mfg structure, infrastructure and set of specific capabilities.
Fine and Hax (1985)It is a critical part of the firms's corporate and business strategies, comprising a set of well coordinated objectives and action programs aimed at securing a long-term sustainable advantage over competitors.
Hill (1987)It represents a coordinated approach which drives to achieve consistency between functional capabilities and policies and the agreed current and future competitive advantage necessary for success in the marketplace.
Swamidass and Nevell (1987)
The effective use of manufacturing strengths as a competitive weapon for the achievement of business and corporate goals.
McGrath and Bequillard (1989)
Overall plan for, how the company should manufacture products on a world wide basis to satisfy customer demand.
Hayes and Pisano (1994)
In today's turbulent environment a company more than ever needs a strategy that specifies the kind of competitive advantage it is seeking in the markeplace and articulates how that advantage is to be achieved
Berry et al. (1995)The choice of a firm's investment in processes and infrastructure that enables it to make and supply its products to chosen markets
Cox and Blackstone (1998)
A collective pattern of decisions that acts upon the formulation and deployment of mfg resources. To be most effective, mfg strategy should act in support of the overall strategic directions of business and provide for competitive advantage.
Brown (1999)Driving force for continual improvements in competitive requirements / priorities and enable the firm to satisfy a wide variety of requirements.
Many Definitions Have Been Offered…
Dangayach & Deshmunkh 2001, 886
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ManufacturingCapabilities
Case-orientedStudies
Alternative Paradigms of Mfg Strategy
1950s
1970s
2000s
1960s
1980s
1990sStrategic Choices Best
Practices
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
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Cycles of Manufacturing Strategy
Voss 1995, 14
World class mfgBenchmarkingBPRTQMLearning from the JapaneseContinuous improvement
BestPractices
Order winnersKey success factorsGeneric mfg strategiesShared vision
ManufacturingCapabilities
Contingency approachesInternal and external consistency
Choice of processesFocus
Process and infrastructure
StrategicChoices in
Manufacturing
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Voss 1995, 14
Cycles of Manufacturing Strategy
Order winnersKey success factorsGeneric mfg strategiesShared vision
World class mfgBenchmarkingBPRTQMLearning from the JapaneseContinuous improvement
Contingency approachesInternal and external consistency
Choice of processesFocus
Process and infrastructure
BestPracticesManufacturing
Capabilities
StrategicChoices in
Manufacturing
A
B
C
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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
A
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• 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.
Stage 1
InternallyNeutral
“Minimizemanufacturing’s negative impact”
Stage 2
ExternallyNeutral
“Achieve parity with
competitors”
Stage 3
InternallySupportive
“Providecredible support to the business
strategy”
Stage 4
ExternallySupportive
“Manufacturing as a
significantcontributor
to competitive advantage”
Wheelwright & Hayes 1985, 3
Evolution of Manufacturing StrategyA
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Matching Process Choice with Strategy The original product-process matrix by Hayes and Wheelwright (1979)
Product structureProduct life cycle stage
One of a kind
Commodity product
Jumbled flow (job shop)
Low volumes; many products
High volumes;few products
Void
Sugar refinery
Disconnected line flow (batch)
Connected line flow (assembly line)
Continuous flow
Void
Commercial printer
Heavy equipment
Auto assembly
Process structureProcess life cycle stage
I
II
III
IV
Flexibility& Unit cost
Product VarietyHigh Low
Low
High
B
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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
0 100 200 300 400 500 600
100
200
300
400
500
600
Link between process and product (Ahmad and Schroeder 2002)
Significant, but not strong Innovative initiatives used by off-diagonal
companies
B
Product type
Pro
cess
typ
e
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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.
C
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Factors MeasuredMade 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.
C
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Industry Makes a Difference
Metal+ New product yield+ Product reliability+ Order processing– Priority orders– Cycle times– Training
Paper & Wood+ Order processing+ Supplier lead times+ Customer deliveries– Scrap / rework– Defects– Batch sizes
Chemical+ Training+ Product reliability+ Deliveries– Cycle times– Stock holding– Design process
Electrical+ Preventive maintenance+ Information systems+ Equipment changeover– Deliveries– New product yield– Cycle times
Food & Drink+ Cycle times+ Deliveries+ Inventory turns– Batch sizes– Business mgmt– Preventive maintenance
Machinery+ Stock holding+ Batch sizes+ Information systems– Warranty claims– Product reliability– New product yield
Hanson et al. 1994, 14
C
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WCM in EuropePerformance/Practice Framework and Results from Finland
50 %
60 %
80 %
Practice
Pe
rfo
rma
nc
e
50 60 80 %
Worldclass
Won’t go the distance
Promising
Contenders
Makeweights
Punch-bags
Hanson et al. 1994, 8
C
0 %
0 %
39 %
22 %
4 % 35 %
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
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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