Manufacturing Strategy

A new stark reality emerged in the 1980s — the impact of industrial competition. In most industrial nations, the struggle to survive had become, by then, an integral part of each manufacturing company’s way of life. To downsize, once an anathema to business, had become an acceptable course of action, demanded by necessity or some comprehensive corporate strategic decision. The economic world of the 1980s was very different from that of the 1960s and 70s. The 1990s continued the trend. The new millennium has increased the pace.

Companies invest in a wide range of functions and capabilities in order to make and sell products at a profit. Consequently the degree to which a company’s functions are aligned to the needs of its markets will significantly affect its overall revenue growth and profit. The appropriate investment in processes and infrastructure in manufacturing is fundamental to this success. The reality is that a lack of fit between these key investments and a company’s markets will lead to a business being well wide of the mark. If a firm could change its manufacturing investments without incurring such penalties as long delays and large reinvestments, then the strategic decisions within manufacturing would be of little concern or consequence. However, nothing could be further from the truth. Many executives are still unaware

that what appear to be routine manufacturing decisions frequently come to limit the corporation’s strategic options, binding it with facilities, equipment, personnel, basic controls and policies to a non-competitive posture, which may take years to turn round.

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The last chapter introduced the concept of order-winners and qualifiers, discussed the rationale behind these perspectives and outlined their distinguishing characteristics. This chapter examines these dimensions more fully, explaining specific criteria in some detail.

The last two chapters introduced the concepts and principles underpinning the development of a manufacturing strategy. They also discussed the key strategic task of developing a clear understanding of how a company competes. This chapter addresses the question of how you develop a manufacturing strategy.

The way a business decides to make its products is a choice many executives believe to be based on the single dimension of technology. As a consequence, they leave this decision to engineering/process specialists on the assumption that they — the custodians of technological understanding — are best able to draw the fine distinctions that need to be made. The designation of these specialists as the appropriate people to make such decisions creates a situation in which the important manufacturing and business perspectives are at best given inadequate weight and, in many instances, omitted all together.

A company needs to have a comprehensive understanding of how well manufacturing can support its business as alternative processes are chosen. The size of and timescales involved in these process investments create issues that must be addressed in the corporate strategy debate. Chapter 5 discussed the implications of process choice, provided insights and, consequently, outlined some of the blocks on which to build manufacturing’s strategic dimensions. Assessing how well existing processes fit an organization’s current market requirements and making appropriate choices of process to meet future needs are critical manufacturing responsibilities, owing to the high investment associated with the outcomes of these decisions.

Manufacturing is inherently a complex task and managing this complexity is a key corporate role. The complexity involved, however, does not emanate from the nature of the individual tasks that the job comprises. In all but highly technical, special product market segments, it is not difficult to cope with the technology of the product or process. In most situations, the process technology and wherewithal to make the product involved have been purchased from outside, with appropriate engineering and technical know-how provided inside to support the manufacturing requirement and underpin any necessary development. In a similar way, product design and the associated technology falls under the auspices of the customer and/or design function. Hence, neither process nor product technologies are generally difficult to understand or manage from the viewpoint of the manufacturing function.

The principles and concepts underpinning focus were outlined in the last chapter. We now turn our attention to the steps to take when developing focused plants.1

Companies rarely, if ever, own the resources and activities necessary to make a product from start to finish including delivery to customers. The decision on what to make and what to buy and the task of managing the supply chain that results are, therefore, key strategic issues within manufacturing. They concern the width of a firm’s internal span of process (how much of a product it makes in-house), the degree and direction of vertical integration alternatives and its links and relationships at either end of the process spectrum with suppliers, distributors and customers.

The need for a business to resolve the issues of process choice in line with the manufacturing strategy requirement has been paramount in this book so far. To reiterate, companies must clearly understand which manufacturing processes can best meet the needs of the marketplace, or how well existing processes provide the order-winners and qualifiers for products and/or customers in different segments. However the task facing manufacturing is not simply to choose the process and necessary hardware. Once this has been analysed and the trade-offs reconciled, the emphasis shifts. The company must now ensure that the structure and composition of the component parts, or functions, that provide its necessary internal systems and communications are also developed in line with the manufacturing strategy requirement. Process choice concerns the features of hardware, the tangible ways in which products are manufactured. But the task is more than this. The supporting structures, controls, procedures and other systems within manufacturing are equally necessary for successful, competitive manufacturing performance.

Two common denominators are used in manufacturing businesses as the basis for control and performance measurement. The first is the time base on which manufacturing principally works. Product mix and volumes, capacity, efficiency, utilization and productivity are all normally measured by time. The second common denominator is that of money. At the corporate level, forecast activity levels, performance measures, levels of investment and similar activities use the money base. The importance of getting the correct links between the time-based and money-based measures is self-evident — correct not only in terms of being accurate, but also in reflecting the key perspectives associated with the business itself.

‘Our review of actual sales during the last nine months indicates no improvement compared with our results over the past several years’, concluded Roger Whinston, the general manager of Aztec Holdings.

‘Now that we have had the opportunity to gain sufficient understanding of this new part of our business, it is opportune to address the several areas of potential improvements we have already identified’, remarked Dave Cullis, managing director of the Franklin, Singleton and Cotton (FSC) plant. He was referring to the fact that FSC had only recently been taken over by the Brannan Group and that he had assumed overall executive responsibility for this plant as well as his other executive commitments elsewhere in the group. He continued by identifying one of these opportunities as being:

the solvent-free lamination process and the potential market opportunities that exist. As the only solvent-free process we have in Europe then we anticipate that we should now be able to compete in those segments of our overall market that require solvent-free adhesion by building on our existing business and seeking further opportunities that this alternative technology offers. Early next month we will meet to review these particular issues. This will give us a chance to consider the analysis work completed so far and to identify, and ideally provide, any other information that will help us in deciding what best to do with the additional capacity we have in this part of our business.

Curt Muller sat back. He had just finished analysing last month’s performance summary for the two manufacturing units, a review that confirmed the significant disparity between their results. After discussions, initiatives and promises, the Norwich plant’s performance was still well short of target. In addition, this was in marked contrast to the Edinburgh plant, which seemed to go from strength to strength. The reasons for this difference were not at all apparent. In fact, the similarity of investments and approaches undertaken at each site made comparisons easier to make and contrasts easier to conclude. The problem was to identify the fundamental nature of this difference, which was marked in itself and difficult to understand given the circumstances involved.

‘If we are to adhere to product launch schedules, we must try every mould on receipt, then bring in the mould maker to modify it as required, regardless of whether we can then go ahead and produce initial launch quantities’, said George Brett, the manufacturing director. ‘If we leave mould testing until we are ready for a production run there is a risk that the need for substantial mould modification will cause us to miss launch dates.’

Matt Boyd, the Group CEO of Jackson Engineering (JE), was reviewing a proposal from Jackson Precision Castings (JPC), one of the businesses which reported to him, and he looked pleased.

‘Well, Alan, I think congratulations are in order’, were Paul Sharman’s opening comments. ‘It looks as though we have a commercially viable product, now that it has come through the final phase of technical testing. The market is receptive, and two of our major customers are demanding supplies as soon as possible. The prospects look good.’ Paul Sharman, managing director of Klein Products (KP), was responding to the report given by the technical director, Alan Gibson, on a plastic replacement for a major metal packaging product. ‘It not only fits the relatively high technical profile of our business’, he continued, ‘but also presents the chance of multiplying, by a quantum leap compared to other products, the enormous commercial opportunity of exploiting technical advantage with high volumes. It comprises a large market, much greater than any of our current segments.’

‘Our meeting with the group board was most rewarding’, was Barry Levenger’s opening remark to the executive team of Meta Products.

‘The competitive nature of our markets is demanding on several dimensions’, explained Steve Bishop, chief executive officer of Millstone Packaging.

In conclusion, it seems agreed that we should go ahead and quote for the two new items in the VR100 product range, one of high and one of low volume demand. I support this decision, for it is essential that we increase our sales revenue to a level where the potential for making an adequate return becomes available. Our current organizational structure, the strengths that come from our position in the market, the inherent design, manufacturing capability, available plant, and process capacity provide us with the wherewithal to take on these two new items with relatively little outlay. The products are compatible with our existing range and should present few manufacturing problems.

Norex Printing Services (NPS) is part of MRB Holdings, a large financial services group. NPS comprises a printing and mailing facility based in Manchester, UK. Some years ago, the board of MRB Holdings completed a strategic review that resulted in a revised mandate for NPS to operate more as an independent profit centre, seeking additional business outside the group. Until that time the major work of NPS was to provide the printing and mailing tasks for MRB’s retail bank including corporate and personal bank statements and other related tasks as well as a whole range of printing and mailing work for other companies in the group.

Norm Phillips, chief executive officer of Ontario Packaging, was summing up a meeting on manufacturing investment proposals, which was intended to be the initial phase of a modernization programme within the company.

‘Well, Jim’, concluded Gerry Townsend, ‘I do not understand why the downward trend in our financial performance is still continuing and particularly why last month does not show the improvement we expected.’ Gerry Townsend, managing director of Peterson Carton Services, was discussing the management accounts for February with Jim Redman, the financial director.

Brian Finn, the chief executive of Precision Steel (PS) was addressing the board of directors, following a meeting to discuss a recent report titled ‘Future Marketing Strategy Proposals’, completed on behalf of the company. In addition to the board, Bill Carey (a senior executive from the strategic unit within the group central services, who had been responsible for preparing the report) had also attended the final part of this meeting in order to answer any queries not addressed earlier.

Pete Kovac, vice-president operations at Rumack Pharmaceuticals’ plant in Bakers-field, California, was addressing the managers responsible for production, engineering and materials respectively (see Exhibit 1) at the weekly meeting to review current issues and progress on agreed developments.

Pierre Reinman, CEO of Santal (SA), was introducing a presentation reviewing the company’s existing organizational structure within the context of its overall business requirements.

‘Growth opportunities we know to be substantial within our business overall’, commented Matthew Jones, CEO of Northrop Industries. ‘Given this and the profit margins we are currently able to maintain, then capitalizing on this opportunity is a corporate priority. Our concern, however, is whether manufacturing can support this future growth by meeting the needs of future customers while maintaining its support for the existing business’.

Jim Meadows, managing director of Shire Products, was addressing a board of directors’ meeting to discuss some of the performance measures and other reviews currently used in the business.

Gary Wilson, vice-president, manufacturing, of Tama Electronics, was summarizing an agenda item of an executive meeting entitled ‘Manufacturing Strategy Developments’.

The long-awaited transition for the US electric power industry into the nuclear age has been slowed by a number of factors, including technological difficulties and public resistance. But a specific and unexpected cause for delay has been one company’s crucial failure to deliver a single vital component of nuclear power plants. The failure, basically, was a management failure, and on a scale that would be cause for concern even to a fly-by-night newcomer to the nuclear industry. The company, however, was no newcomer. It was proud old Babcock & Wilcox Co. (B & W), a pioneer of the steam generating business, whose boilers were used in one of the first central power plants ever built (in Philadelphia, in 1881). B & W had an impressive $648m in sales last year, making it 157th on Fortune’s, list of 500 largest industrials, and it has been engaged in nuclear work in a major way for 15 years, producing, among other things, atomic power systems for Navy submarines.

Greg Procter, vice-president of marketing for the Tyndall Furniture Company, knew that the single most important marketing decision a company made was the selection of products and markets to serve. He was acutely aware of the need to focus his firm’s resources because sales growth in the most recent period had slowed significantly. Profits were also below the industry average. Further complicating the task he faced were the dramatic changes going on in the industry. He was most concerned about the increasing competition at the retail level. A major problem was the recent popularity of galleries in the retail store. He had to decide just where he would marshall his energies, both on products and on markets.

Don Rutkowski (vice-president, manufacturing) was just finishing his presentation of a proposal to invest in a new rough mill at the company’s component plant in Grand Rapids, Michigan (see Exhibit 1). He concluded:

It is most important that we come to a decision in the near future. As the issues involved have been discussed for some time now, the proposed investment is not something that’s new to us all. However, in order to capitalize on the advantages that having a modernized rough mill will provide, an important consideration is to phase its introduction in line with marketing’s plans for a new product range linked to the High Point Furniture Fair this time next year. Getting the timing right is often, as we all known, as important as the investment itself.

Don Rutkowski was just concluding a meeting with his plant managers and key staff people. A great deal of work had gone into the preparation of this proposal and management was enthusiastic about it.