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A Complete Guide to Manufacturing Strategy

The manufacturing strategy can be defined as a long range plan to use the resources of the manufacturing system to support the business strategy and in turn meet the business objectives. This in turn requires a number of decisions to be made to allow the formulation of the manufacturing strategy.

What is Manufacturing Strategy?

“Manufacturing strategy deals with the long-term plan for production and technology to support your company’s business objectives. It considers the types of companies you want to compete against, the products you’ll make, and the operations and technologies that will be required to make them. In short, it’s about working with your business strategy to determine how you’ll produce and how you’ll compete.”

Manufacturing Strategy Plan

The manufacturing strategy plan is concerned with the relationship of the manufacturing system to the business strategy. The manufacturing strategy plan describes the processes and techniques to support the business strategy. What are the business processes which must be developed? The means for manufacturing individual parts and components? The final assembly process? How will the production schedules be determined? What systems must be established to develop this plan? What skills are needed to develop and implement this plan?

Who Needs to Know about Manufacturing Strategy:

The concepts of strategy, as well as the executive board level decisions, must be described in easy-to-understand terms for the general managers of the manufacture functions. What are the objectives? What is required from manufacturing? What must manufacturing deliver? What is the relationship of manufacturing to the other functions? What are the metrics that will be used?

The manufacturing strategy must be considered in the context of the business strategy. How does the manufacturing strategy fit into the markets being targeted for this business? What are the key market segments that will be developed for this business?

The manufacturing community must focus from an outside-in perspective rather than an inside-out perspective. The interests of the customers must be established as the highest priority. Why do they buy? Why do they buy from the company? Why do they buy from the company or its competitors? It is very important to identify all of the external and internal factors affecting their behaviour.

Procedures for manufacturing strategy:

  1. Integrate – manufacturing strategy must be integrated into the overall business strategy.
  2. Align – manufacturing strategy must be aligned with the overall business strategy.
  3. Monitor – manufacturing strategy must be monitored and adjusted as necessary.
  4. Compare – manufacturing strategy must be compared to external factors that affect the company.
  5. Develop – manufacturing strategy must be developed based on the business strategy.
  6. Direct – manufacturing strategy must be directed to support the business strategy.

The primary goal of the manufacturing strategy is to support the business strategy.

Two Types of Strategy:

  1. Industry strategy – the industry (supply/demand) is so strong and competitive that a business strategy can not offer a significant way to differentiate the product or to reduce/add costs. Competition is always making attempts at improving quality, function, demand, delivery, cost, service and other sources of differentiation. A business must try to compete on more than one of these. The most common extra strategies are cost minimization and quality maximization.
  2. Business strategy – the manufacturer’s business can be differentiated in such a way as to allow them to offer a product that is relatively unique. Each buyer may not be willing to pay extra for it, but multiple buyers will be. This allows the company to obtain above average revenue and profit growth. To the best of your understanding, what type of strategy exists for your company? Does your company need to focus on market share growth or the acquisition of new customers?
  • What are the Market Trends for our Industry?
  • What are the Market Trends for our Company?
  • What are the trends for our products? What are the trends for our customers?

Audit the Current Manufacturing Strategy; Develop a Decision Framework

“What is the current financing approach for the company? In most cases, once the internal growth plane is exploited, it is about cost reduction. The basic assumption is that once a company enters the matured stage of the product lifecycle, it must compete on minimizing costs and providing services. The result is a very high share of manufacturing. These companies become more and more dependent on external suppliers. The finance strategy is focused on these suppliers and any external customer.

The development of a decision framework helps to address what is the financial structure of real manufacturing companies in the marketplace today. Most of the changes are the result of international competition. In addition, we need to know what is it about the competition itself and how the financial structure of the company in relationship to the competition? Is there anything wrong with the current strategy?”

Risk Assessment; Risk Analysis; Management and Mitigation of the Problems

“Thorough risk analyses must follow the manufacturing strategy. What are the competitor risks? What are the product risks? The risks are important, but it’s equally important to show what protection the company has to avoid the risks. It’s not enough to simply describe the risks and to develop the plans to avoid the risks. It is also important to understand how the risks can be managed and managed.”

Main Elements in the Risk Assessment

  1. Product Risk – There may be the possibility that the customer may not buy the product. What are the rate of product failure? What is the potential risk of the product customer needs turn out to be different from the anticipated customer? Are there any regulatory or governmental issues that will prevent the sales or the product?
  2. Process Risk – Can’t make the process work acceptably. It may be difficult to define the process specification that is acceptable for a particular design. We must determine whether the processes proposed will produce the high enough quality for the customer to buy the product. Is there a potential for contamination? Will the necessary technology be available for the process development? Will the quality of the product be acceptable? Can we accept the risks associated with the qualification of new process development? What is the process cycle time? What is the cost of a reject for each process?
  3. Machine/Equipment Risk – Can’t get a machine. What is the availability of the candidate equipment and parts? Can’t find the needed equipment at a reasonable price. Can’t get the parts, thus creating a machine repair problem. Availability of the Service/Support. What is the current equipment condition?
  4. Process Layout Risk – What are the space requirements for the parts that can be added? Can’t find the needed space for new parts. Paying for more space than is required. What are the quality control limitations?
  5. Material Handling Risk – What are the requirement for material handling processes? Can’t avoid the traffic congestion through the warehouse? Do you have to add material handling equipment? Can’t find the needed material handling techniques?
  6. Utility Risk – What are the utility requirements for the site? Will we have to move the power or water supply? Is there a potential contamination of air or ground water, due to the process? Will the waste water be a problem?
  7. Personnel/Training Risk – Can’t find sufficient number of qualified personnel. Can’t get the required training. How do we recruit the necessary number of employees? Will we work against the employee unions to get favorable wages and benefits? What is the demographic breakdown of the affected workers?
  8. Computer Risk – What information system is required? Will the proper information system already be in place? Must we develop the necessary information system? Can’t get the best value information system for the organization. Is there a conflict between the computer systems at the suppliers or the customers?
  9. Measurement Risk – What is the measurement process? Can’t achieve the level of accuracy needed. Can’t control the measurement variability. Measurement variability is too high. Measurement will be too costly.
  10. Aesthetics Risk – Can’t get the perceived quality. Different customer segments place different emphasis on aesthetics.
  11. Reuse/Modification Risk – Can’t get the desired reuse or modification. Can’t get the desired result using the existing product. How easy is it to change the design? Can’t achieve the desired test coverage. Can’t achieve the desired quality results with the existing product. Can’t achieve the desired reliability/mean time between failure levels with the existing product.
  12. Design Risk – Can’t develop a solution. Can’t get the desired size. Can’t get the desired life. Can’t get the desired performance. Can’t get the desired reliability. Can’t get the desired weight.
  13. Manufacturing Technology Risk – Can’t achieve the desired cost. Can’t achieve the desired quality. Can’t achieve the desired reliability. Can’t achieve the desired mix of parts. Can’t achieve the desired space efficiency. Can’t achieve the desired throughput. Can’t achieve the desired cycle time. Can’t achieve the desired process variable flexibility.
  14. Manufacturing Location Risk – Can’t get the desired location. The cost of the land is too high. The local zoning laws limit the physical plant development options.
  15. Technology Risk – Can’t achieve the desired quality. Can’t achieve the desired manufacturability. Can’t achieve the desired reliability. Can’t make the process work acceptably.
  16. Regulatory Risk – What are the potential regulatory requirements for the production facility? Will the EPA or other agencies increase the fees to continue a permit? What are the potential hazards in the operating environment? Will the EPA require any remedial action? Can’t get the proper permits? Can’t get the necessary regulatory approvals in the expected time? Will there be any significant fines or penalties associated with the recycle/reclamation of the product?
  17. Corruption Risk – What are the hazards inherent in the product design? What are the hazards in the product application? Is the product available in the country of concern?
  18. Conflict Risk – What are the conflicts with the current marketing or sales strategy? Can’t get the desired configuration. Can’t get the desired modularity. Can’t get the desired production capacity. Can’t get the desired capital expenditure plan.
  19. Safety Risk – What have been the recent changes in the safety standards? What are the potential hazards in the product design? What are the potential hazards in the product application? What are the potential hazards in the recycling and reclamation of the product?
  20. Enviromental Risk – How do the environmental risks change over time? Can’t get the desired disposal of the product at the end of its useful life Can’t get the desired performance/cost tradeoffs.

How to pick a Manufacturing Strategy?

As you can see there are a number of risks associated with new products and manufacturing. The goal is to achieve balance between achieving the objectives and minimizing the risks.

There are three popular methods for evaluating new products and manufacturing strategies. These are considered tradeoffs since they do not remove all the risks. They just emphasize different risks. This is why they are effectively a method for “managing” as opposed to “reducing” risk.

The three methods are: Conventional R&D, Market Penetration and Small Pilot Production.

Conventional R&D

The quantity of R & D and product design development is limited. It is assumed that if there is no existing product, or the existing product has significant issues, that a significant amount of product redesign and modifications are necessary.
Of course this will add to the product cost
There is a risk that the development time will be much longer than planned. The development times can be long since multiple iterations of product development/improvement require refinement, revisions and testing. The risk here is that we will be stuck with a product that doesn’t sell.

The market penetration strategy is unusual since it emphasizes speed over quality. More of the R & D efforts are directed towards reducing the time and cost to get the initial product to market. While we assume that good enough quality is required in order to sell the initial design, the slower nature of the conventional development will have the side effect of increasing the cost of the design. Of course this means that there are more opportunities for competitors so you will need to make sure that you will have a cost advantage.

While the market penetration approach emphasizes getting the cost of the initial product down, the small pilot production emphasizes getting the overall cost of the process down. It does this by developing the manufacturing process and verifying the quality of the product before significant capital expenditures are made.

There are strategies where you combine the market penetration and small pilot production approach.

Which approach is better? The conventional approach is very low risk since all your time and money is spent in R & D. This means that almost all the critical path is within engineering. The market penetration approach does not produce as many critical path issues but if there are issues with the plans and the development of the product they will either result in market share losses or additional R&D. This means that the schedule and cost will extend out as all the issues are resolved. The market penetration approach also exposes you to the additional risk that you may be too optimistic about the timing, the cost or the quality of the plan.

Small pilot production approach is very risky too although for different reasons. If you cannot verify the product cost or are dissatisfied with the product quality, you will need to start over. This is a risk because the product development risk is much higher in small pilot production than conventional R&D. This means that any problems you have can cost you dearly.

Although the small pilot production method looks very similar to a market penetration approach, it is really a much more risky approach since you are moving towards large scale manufacturing before you have a good understanding of the risks.

The three approaches have different timing. The conventional approach is very slow to get started. You are shifting most of the emphasis to the back end of the project. The market penetration and small pilot production approaches are focused on the front end of the project and will spend most of their time on the first two steps: Exploratory Activities, and Product Development .

Market Penetration Production

Market Penetration Production approach is a high risk approach since you are shifting most of the emphasis to the front end of the project (Project Planning and Allocation step). The main assumption is that we realize that the process development and the project management steps are difficult to justify. You are justified in the belief that there is a great deal of inefficiency in the project management processes and there is a need for significant process development.

The risk with the Market Penetration Production approach is that the development time will be much longer than planned. The development times can be long since multiple iterations of product development/improvement require refinement, revisions and testing. The risk here is that we will be stuck with a product that doesn’t sell.

The other risk of the Market Penetration Production approach is that the product price is likely to be higher than expected since regular project management processes are not established. You will have to make sure that you are balancing the cost of development with the profit potential of the project.

The Market Penetration Production approach emphasizes getting the product to market faster and cheaper than the other approaches. However, the manufacturer must keep a careful watch on the cost and the risk. You don’t want to rush the quality or the prudence of the product. This could cause you to lose customers later.

Managing the Risk

There are some steps that can be taken to manage the risks. You can have a combination of strategies. If you combine these strategies, you can reduce your risk and provide better and more efficient results.

The first steps that you can use to manage the risks are:

Determine how long your product will be in development before the market has a chance to respond to the product.

The second step that you can use, “Cost and Timing Sensitivity Analysis” is used to make sure that you are simulating the risks in the project.

Build a project schedule

Project organization should be used to manage the project. This includes:

The third step is project staffing. This is a combination of organization and team development. It is important to get projects staffed properly so that you can be more efficient. The project should be staffed by experienced people who have a hands-on experience in the project. If you are going to have an inexperienced team, you should use them in support roles instead of project roles.

The fourth step is used to supplement the project plan when you add timing and cost uncertainty. This results in the Probabilistic Project Plan.

The fifth step is used to give an overall status and balance the project risk. This is the Status and Issue Management Process.

The sixth step is to analyze the project. This is a necessary step when you look at a Project Risk Analysis.

The seventh step is scheduling software and project management software.

The next step is the develop the plan. This is the best way to adjust the project schedule. The initial planning is critical to making sure that all the unknown variables are visible. Planning includes everything from quality, project management, accounting, human resources, and project staff.

The second set of steps is to develop an execution strategy.

The first step is to provide a plan of approach to the project.

The next steps are the techniques used to help the project manage. These steps are:

  • The last step is an overall status and balance the project risk.

The risks of the project are manageable by using these steps. Some of the methods used for project risk assessment are:

  • You need to develop a motivational strategy.
  • The next step is to select your strategy.
  • The next step is to move into the next phase of the project.

The final step to manage the risks is to develop your corrective action plan. This will be implemented in the correct phase of the project.

Market Penetration Production is a high risk approach since you are shifting most of the emphasis to the front end of the project (Project Planning and Allocation step). The main assumption is that there is a great deal of inefficiency in the project management processes and there is a need for significant process development.

The other risk of the Market Penetration Production approach is that the product price is likely to be higher than expected since regular project management processes are not established. You will have to make sure that you are balancing the cost of development with the profit potential of the project.

You could end up having a lack of necessary skills to develop the product.

Initial steps

There are a few steps that you will need to take:

  • Determine the costs of product quality.
  • Project organization should be used to manage the project.
  • Project staffing: You should use experienced people.
  • Project staffing: You need to make sure to have the skills necessary to manage the project.

The project should be staffed by experienced people who have a hands-on experience in the project.

You need qualified and experienced people.

If you are going to have an inexperienced team, you should use them in support roles instead of project roles.

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