Manufacturing Strategy DM202 Semester 2

Manufacturing Management DM202 Semester 2 ‘Manufacturing Strategy’ Colin Andrews: [email protected] Week 9 manufacturing Strategy  Introduction  Strategy Overview  Market Approach to Strategy  Manufacturing’s Response  Decoupling Point  Competing through strategy  Summ...

Manufacturing Management DM202 Semester 2 ‘Manufacturing Strategy’ Colin Andrews: [email protected] Week 9 manufacturing Strategy  Introduction  Strategy Overview  Market Approach to Strategy  Manufacturing’s Response  Decoupling Point  Competing through strategy  Summary Manufacturing Strategy Manufacturing Strategy   Make v Buy decisions  How much of my product do I make? (e.g. mobile phones / cars / clothes / aircraft)  Can be an economic decision (break even point, investment return)  Can be a strategic decision (control ‘know how’ etc.) Manufacturing goals  Responsiveness  Lowest cost producer  Flexibility  Dependability  Innovation Business Strategy - ‘Simple’ Plan Market Position Attract & Please Customers Conduct Compete Operations Successfully Achieve Business Objectives 5 Forces of Competition Threat Of New Competitors Bargaining Power of Suppliers Internal Competition Threat of New Technology Bargaining Power of Customers Competitive Strategy Competitive Strategy Lowest Cost Niche Differentiate ME Porter: 3 Generic Strategies Market Approach to Strategy Markets Dynamics  Market Stability (steady growth, rapid growth, fluctuating, static, decline)  Market Share (minimal, low, moderate, high)  Product Range (narrow, broad)  Product Characteristics (light, fast, durable etc.)  Customer Characteristics (early adopter, cautious, value focus etc.) Product matrix (the Boston Box) High Market Growth Low Low High Market Share Product Matrix   Problem Child:  Low share in a high growth market  Require finance and don’t bring returns  Could be future stars (could be failed stars) Dogs:  Low share in a low growth market  Require finance and don’t generate cash  Need to divest such products Product Matrix   Rising Stars:  High share in a high growth market  Require finance but bring great returns  The future cash cows Cash Cow:  High share in a low growth market  Require little finance and generate lots of cash  Will decline over time How Marketeers address the challenge Marketing Mix The ‘Marketing Mix’   4 Ps for marketing Each ‘P’ covers an aspect of the market facing activity that must be addressed  Each ‘P’ must be coordinated with the others  e.g. when entering new market  Limited product variation with clear differentiation  Penetration pricing  Direct sales  Targeted communication Manufacturing’s Response Product matrix – Manufacturing Choices High Capacity? Market Growth Capability? Quality Level? Low Low High Market Share Manufacturing’s Challenges  Fragmented manufacturing facilities  Mass customisation  Shortened product life cycles  Customer empowerment  ‘Zero Defect’ quality How the Operations Fit Together  Remember the SCOR model introduced in week 2 How the Operations Fit Together Set Direction Formulate Strategies Direct Business ‘Manage’ Processes ‘Operate’ Processes Get order Develop Product Fulfil Order Corporate Learning Manage Technology Support Personnel Manage Finance Support Product ‘Support’ Processes Linking ‘Operate’ Processes Activity Purchasing Goods Inward Raw Materials Store Production Test, Inspect, Pack Finished Goods Store Dispatch Decisions What triggers placing a purchase order, and with whom? Do incoming goods need to be inspected? Where are materials kept (centrally / offsite / lineside)? How is the equipment to be positioned? Is testing 100%, sample or nil? Where are goods kept (locally, customer lineside etc)? Who does this – in house or third party logistics? Manufacturing Mix  Cost  Quality  Speed  Dependability (Reliability)  Flexibility  Innovation The business has to make informed choices about how important each element is. Quality, cost and speed can be increased together (Toyota) but this impacts flexibility. Innovation & dependability also need to be balanced. Classification of Companies Components Subassemblies Finished goods stt s a cca e e r ofor f toto e cce u u dd o o r PPr Make To Stock (MTS) ce u od r P to r e d or Customers Suppliers Raw materials Assemble To Order (ATO) Make To Order (MTO) Engineer To Order (ETO) Stock held at this stage Differentiators vs. Capabilities From SAP White Paper Complexity vs. volume Manufacturing Analysis Manufacturing Architectures De-coupling Point Key concept: Postponement & the de-coupling point Leadtime Postponement Customers Leadtime De-coupling Point Key concept: The de-coupling point Lean Agile  Forecast driven  Economic batch quantities  Demand driven  Localised Configuration  Maximise efficiencies  Maximise effectiveness Strategic Inventory De-couple the supply chain Driven By Demand Driven By By Forecast o Where the forecast meets demand o Point at which strategic inventory is held o No need to hold inventory all along the supply chain Key concept: Postpone as much as possible Logistical Postponement: Delay committing products to particular market segments or customers as long as possible, preferably until firm orders have been received.; Hold stock back in a central location and distribute only when demand is known. Form postponement: Forecast at a generic level (its easier!) and delay final product configuration until firm orders have been received TASK: Find an example of a company that has introduced postponement. What did they postpone? What have been the benefits? READ: Articles available on VISION and relevant chapters in text Case: Dell Computers • 1983 – Michael Dell, a medical student, buys out-dated IBM PCs and upgrades them to sell at bargain prices • 1987 – Dell Computers build own PCs and sell direct to customers DELL Competitor X Customer -focused Product-focused Assemble-to-order Make-to-forecast JIT-based manufacturing Traditional approach Direct to customers, on-line sales Sell through traditional channels 11 days total inventory Several months inventory Lean & flexible (agile) Slow to respond Low risk of obsolescence High risk of obsolescence Time is the key Competing Through Strategy Competing through Strategy  High visibility of strategy internally and externally (if appropriate)  Good performance though having a shared vision  Bland statements of intent do not help  Good strategy is delivered through good infrastructure and excellent processes Strategic choices in Manufacturing    Strategy often shows the ‘why’ and the ‘what’, there are still a number of choices of ‘how’  These can support the intent of strategy  Or degrade it (too inflexible, too costly, etc.) Operations and Marketing have large areas of overlap  Marketing must understand the capability they are ‘selling’  Operations must develop the capability to meet ‘customer need’ Can have a link between the business strategy and manufacturing strategic actions  Business: Need to enter Asian markets  Manufacturing: Need to develop assembly processes in Vietnam ‘Best Practice’ impact of Manufacturing    Firms utilising generally recognised ‘Best practice’ (e.g. Lean, Six Sigma) are shown to perform better Application of ‘Best Practice’ must be thought through to fully benefit the firm Techniques must help the business achieve its strategic goals Manufacturing Strategic Approaches Competing thru’ Manufacturing Key Concepts Strategic Choices in manufacturing Best practice World Class Manufacturing Contingency approaches Order winners Benchmarking Key Success factors Internal and external consistency Capability Choice of process Business Process Reengineering Lean Generic strategies Process and infrastructure Six Sigma Shared Vision Focus Continuous Improvement Process Measurement Manufacturing Strategy IS ITERATIVE Competing through Manufacturing Choices in manufacturing Best Practice Summary   Different companies need different approaches  Some companies are at the leading edge of capabilities  Others are not (and may not need to be – excel at one thing)  Influencing factors (market conditions, manufacturing system, product) interact in complex ways  Factors need to be UNDERSTOOD Manufacturing needs to;  Integrate with business strategy  Find the balance point with other functions (marketing)  Adapt in a changing environment  Understand where the business fits to the changing landscape