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2015‐09‐17
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Manufacturing strategyAntti Salonen
KPP3192015-09-15
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KPP319 – Industrial Excellence
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● Manufacturing strategy guides long term development of manufacturing
● Production development realizes the manufacturing strategy
● Simulation as a tool applied in production system development
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Manufacturing Strategy
Production
Development
Simulation
KPP319 – Industrial ExcellenceCourse Approach
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What is a strategy?
A classic definition:
”Top management’s plans to attain outcomes consistent with the organization’s missions and goals!”
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A plan:
• A direction or guideline• A plan for future actions• A path from here to there (the intended scenario)
A strategic planning horizon is typically 3-5 years
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A pattern:
The pattern of actions over time (historic actions)
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Historic actionsAction plan
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Historic actionsAction plan
Is this how it really works?
?
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A position:•How the company positions on a market
A perspective:•Company branding (action patterns)
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Market
CompanyCorporate Corporate
vision
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A trick:
A ploy or scheme towards the competitors
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Why strategies?
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Strategy sets direction
Pro: the organization gets cohesive
Con: the organization gets blinders
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Strategy focuses effort
Pro: the organization coordinates activities
Con: may lead to “groupthink”
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Strategy defines the organization
Pro: the co-workers find identity
Con: the organization gets stereotype
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Strategy provides consistency
Pro: the organization gets less ambiguous
Con: decreases the creativity
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…so, what is strategy?
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“A strategy is the pattern or plan that integrates an organization’s
major goals, policies and action sequences into a cohesive whole. A
well-formulated strategy helps to marshal and allocate an
organization’s resources into a unique and viable posture based on its
relative internal competencies and shortcomings, anticipated changes
in the environment and contingent moves by intelligent opponents.” (Mintzberg et al. 1999, p.5).
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Formulating strategies
• Effective formal strategies contain three essential elements:• goals to be achieved,• policies for guiding or limiting actions, and• the major action sequences that accomplish the defined goals within
the limit sets.
• Effective strategies develop around a few key concepts and thrusts, which give them cohesion, balance and focus.
• Strategy deals not only with the unpredictable but also withthe unknowable.
• All complex organizations should have a number ofhierarchically related and mutually supporting strategies. These strategies must be more or less complete in themselves.
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Formulating strategies
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Formulating strategies
Company Vision and Mission
• Describes the very idea of the enterprice• Are formulated in the business plan
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Formulating strategies
Branch competitionNegotiation strength of the suppliers
Negotiation strength of the customers
Threats from substitutes
Threats from new enterprices
Based on Porter, 2004
The company’s market position: “Porter’s five forces”
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Formulating strategies
How to compete
• Cost
• Quality
• Flexibility
• Deliverability
• Innovativeness
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Formulating strategies
S.W.O.T.
CompanyStrengths
External Opportunities
External Threats
CompanyWeaknesses
Positive Negative
Internal in Company
External factors
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Road map
Here weare
Here wewhish to
be
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OKWhat about manufacturing strategy?
Strategy hierarchy
Corporate strategy
Business strategy
Functional strategy
Business strategy
Functional strategy
Functional strategy
Functional strategy
Functional strategy
Functional strategy
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Manufacturing strategy
• Definition: “the effective use of manufacturing strengths as a competitive weapon for the achievement of business and corporate goals”from Mills et.al. (1995); Swamidass and Newell (1987)
• The essence of manufacturing strategy is to formulate explicitly how manufacturing decisions will be made so that manufacturing will help the company achieve a long-term advantage over its competitors. Miltenburg (2005)
• Process and content. How strategy is made and what constitutes a strategy
Formulating the manufacturing strategy
1. Determine the corporateobjectives.
2. Determine marketing strategies tomeet these objectives.
5. Provide the manufacturinginfrastructure to support production.
4. Establish the appropriate process to manufacture these products(process choice).
3. Assess how different productsqualify in their respective markets and win orders against competitors.
Rudberg (2002)
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Framework for Manufacturing strategy
Corporate objectives
Marketing strategy
Order-Qualifyers-Winners
Manufacturing strategy
Process choice Infrastructure
Growth
Survival
Profit
Return on investment
Other financialmeasures
Product markets and segments
Range
Mix
Volumes
Standardization versus customization
Level of innovation
Leader versus follower alternatives
Price
Conformance quality
Delivery
Speed
Reliability
Demand increases
Color range
Product range
Design
Brand name
Technical support
After-sales Support
Choice of alternative
processes
Trade-offs embodied in
the process choice
Role of inventory in the processconfiguration
Make or buy
Capacity
Size
Timing
Location
Function support
Manufacturing planning
and control systems
Quality assurance and
control
Manufacturing systems
engineering
Clerical procedures
Compensation
agreements
Work structuring
Organizational structure
From Hill (2000)
Example of corporate objectives
Company xx will experience growth of at least 10 % per year.
Company xx will become market leader in Central Europe
Profitability: Operating margin of more than 8 % over the course of a business cycle.
Our mission is to create effective Supply Chains, that satisfy our Customers’ needs.
By motivated and competent personnel we will exceed the expectations regarding continuous improving of material flows, product quality, choice of vendors and realization of production plans.
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Order qualifyers
● Qualifiers gain entry to and maintain a company’s position within a market but do not win orders.
● Qualifiers have order-losing not order-winning characteristics.
● Need to identify qualifiers which
● are order-losing sensitive
● have potential to become order-winners.
Order winners
● Not all order-winners are manufacturing-related
● Typically as products mature, order-winners become increasingly a manufacturing task
● Order-winners and qualifiers are time and market specific
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Process choice
Process choice is about choosing the right way to manufacture products.
1. First the company must decide how much to buy from outside
2. Identify the appropriate engineering-technology alternatives to complete the tasks embodied in each product so that the product can be assembled with conformance quality.
3. Decide the manufacturing processes. Do the company have all the needed machines, capacity, inventory etc.
Content model
Mills, et.al. (1995)
The Manufacturing strategy content
Competitivepriorities
Decision criteria
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Content model
Competitive priorities “ the capabilities the manufacturing unit must have in order for the firm to compete given the overall business and marketing strategy” (Miller and Roth, 1994)
Decision areas“the pattern of manufacturing choices that a company make” (Miller and Roth, 1994)
“consisting of many individual decisions that affect the ability of the firm to meet long term objectives” (Leong et al., 1990)
Competitive priorities
●Cost
●Quality
●Delivery
●Flexibility
●Innovativeness
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Competitive priorities
Competitive priorities (with definition) Sample of measurement criteriaCost Unit product/labour/material costCost of material, labour, overhead, and other resources to produce a Total manufacturing overhead costProduct. Inventory turnover - raw material, WIP, finished goods
Capacity/machine utilizationQuality Internal failure cost - waste and reworkQuality is the extent to which materials and operations conform External failure costto specifications and customer Consistent qualityexpectations. Quality of incoming material from suppliers
DependabilityConformance to specification
Delivery Quoted delivery timeDelivery time is the time between order taking and delivery to the Percentage of on-/off--time deliveriescustomer. Delivery reliability
Inventory accuracyManufacturing lead-time
Competitive priorities
Flexibility Number of part processed by a group of machines
Flexibility is the ability to decrease and increase manufacturing of Number of products in the product line
existing needs. Companies should be Average production lot size
able to respond to changes at the Average volume fluctuation
market and changes of order Length of frozen schedule
quantities. Number of setups
Time of setups
Innovativeness Number of engineering change orders per year?
The ability to quickly introduce new Number of new products introduced each year?
products, processes or make design Lead time to prepare customer drawings
changes to existing products. Customization
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Decision areas
From Mills, et.al. (1995)
Decision areas
● Human resource
● Organization structure and control
● Sourcing
● Production planning and control
● Process technology
● Facilities
From Miltenburg (2005), Manufacturing Strategy
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Decision areas
Decision criteria Sample of CharacteristicsHuman resources Skill level
Mix of skilled and unskilled employeesAmount of trainingResponsibility and participation in decision making
Organisation structure and controls Organisation structure
Centralised or decentralised manufacturing systemThe importance of line and staffHow managers are selected
Sourcing Numbers of suppliers and their capabilitiesRelationship with suppliers
Procedure of deciding whether a product will be produced internally or externally
Decision areas
Production planning and control Whether a push or pull system is used
Size of raw material, WIP and finished goods
When maintenance is done
Whether the systems are centralised or decentralised
Process technology Amount of automation
Whether the technology is new or old
Whether to develop technology internally or purchase it from external sources
Factory layout
Facilities Location of facilities
Size of facilities
Whether facilities are general purpose or specialised
Capacity planning
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Manufacturing strategy
Competitivepriorities
Customerneeds
Market positioning
Competitors’ actions
Decision criteria
Manufacturing
Understanding markets
Required performance
Strategic decisions
Based on Slack and Lewis (2008)
Manufacturing strategies in Sweden
● Used in larger companies
● Less common in small/medium sized companies
● Often poor alignment with corporate objectives
● Suffers beccause of short term thinking
● Not allways formally documented
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Reference literature
Hill, T. (2000), Manufacturing Strategy – Text and Cases, Second edition, New York: Palgrave
Leong, G. K., Snyder, D. L. and Ward, P. T. (2008), "Research in the process and content of manufacturingstrategy." Omega, Vol18, No. 2, pp. 109-122.
Miller, J. G. and Roth, A. V. (1994), “A Taxonomy of Manufacturing Strategies”, Management Science, Vol. 40, No. 3, pp. 285-304.
Mills, J., Platts, K. and Gregory, M. (1995), “A Framework for the Design of Manufacturing Strategy Processes, A contingency approach”, International Journal of Operations and Production Management, Vol. 15, No. 4, pp. 17-49.
Miltenburg, J. (2005), Manufacturing strategy: How to formulate and implement a winning plan, New York: Productivity Press.
Mintzberg, H., Ahlstrand, B. and Lampel, J. (2009), Strategy Safari, Second Edition, London: Prentice Hall.
Mintzberg, H., Quinn, J. B. And Ghoshal, S. (1999), The Strategy Process, Revised European Edition, London: Prentice Hall.
Porter, M. E. (2004), Competitive Strategy: Techniques for Analyzinf Industries and Competitors: With a new introduction, New York: Free press.
Rudberg, M. (2002), Manufacturing strategy: linking competitive priorities, decision categories and manufacturingnetworks. Production-Economic Research.
Slack, N. and Lewis, M. (2008), Operations Strategy, Second Edition, Harlow: Pearson Education.
Swamidass, P. M. and Newell, W. T. (1987), “Manufacturing Strategy, environmental uncertainty and performance: a path analytical model”, Management Science, Vol. 33, No. 4, pp. 509-524.