Competing through Manufacturing 35 E 00100 Service Operations

Competing through Manufacturing 35 E 00100 Service Operations and Strategy #1 Fall 2015

Topics Introduction n Why manufacturing management is important? n Basics of manufacturing planning and control Manufacturing strategy n Key elements n Alternative paradigms - Manufacturing capability - Strategic choices - Best practices Summary 35 E 00100 Service Operations and Strategy #1 2 Aalto/BIZ Logistics

Sales / Marketing Function Is Important. . . J F M AM J J A S O N D Contract deliveries Wholesale Project Discounts e-Sales Bonuses Campaigns Service sales Contracts Taxes Prices Currencies Product specifications Retailing MTO Sales activities Direct delivery Configure 35 E 00100 Service Operations and Strategy #1 MTS 3 Aalto/BIZ Logistics

Role of Manufacturing Management Control costs Strategic fit Manufacturing Deliver right quantity Plan, Execute, Control Execute on time 35 E 00100 Service Operations and Strategy #1 Understand customer needs Meet customer requirements 4 Aalto/BIZ Logistics

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The Basic Framework Manufacturing Planning and Control (MPC) System Resource planning Production planning Demand management Master production scheduling Detailed capacity planning Front end Detailed material planning Engine Material and capacity plans Shop floor systems 35 E 00100 Service Operations and Strategy #1 Vendor systems Back end 7 Vollmann et al. 1997, 5 Aalto/BIZ Logistics

Information Flows in Manufacturing Markets / Customers Material requirements Orders Demand forecasts Production planning Master scheduling Capacity status Material requirements planning, Capacity planning Scheduling constraints Shop orders Release dates Scheduling and Rescheduling Schedule performance Detailed scheduling Schedule Dispatching Shop status Job loading Shop floor management 35 E 00100 Service Operations and Strategy #1 8 Modified from Pinedo and Chao 1999, 7 Aalto/BIZ Logistics

MPC System Must Respond to the Environment Forces for change Typical responses Marketplace dictates Technology Products Processes Company strategy Systems Techniques Mfg strategy Flexibility /responsiveness Reduced overhead costs Automation Cell manufacturing Simplification Manufacturing processes MPC system 35 E 00100 Service Operations and Strategy #1 Shorter product life cycles Time-based competition Quality requirements 9 MRP JIT Vollmann et al. 1997, 10 Aalto/BIZ Logistics

What Is Manufacturing Strategy? 35 E 00100 Service Operations and Strategy #1 10 Aalto/BIZ Logistics

Many Definitions Have Been Offered… 35 E 00100 Service Operations and Strategy #1 11 Dangayach & Deshmunkh 2001, 886 Aalto/BIZ Logistics

Alternative Paradigms of Mfg Strategy 1950 s 1960 s Caseoriented Studies 1970 s 1980 s 1990 s Manufacturing Capabilities Strategic Choices Best Practices 2000 s 35 E 00100 Service Operations and Strategy #1 12 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 Aalto/BIZ Logistics

Cycles of Manufacturing Strategy Order winners Key success factors Generic mfg strategies Shared vision Best Practices Manufacturing Capabilities Strategic Choices in Manufacturing Contingency approaches Internal and external consistency Choice of processes Focus Process and infrastructure 35 E 00100 Service Operations and Strategy #1 13 World class mfg Benchmarking BPR TQM Learning from the Japanese Continuous improvement Voss 1995, 14 Aalto/BIZ Logistics

Cycles of Manufacturing Strategy Order winners Key success factors Generic mfg A strategies Shared vision Best Practices Manufacturing Capabilities Strategic Choices in Manufacturing Contingency approaches Internal and external consistency Choice of processes B Focus Process and infrastructure 35 E 00100 Service Operations and Strategy #1 14 World class mfg C Benchmarking BPR TQM Learning from the Japanese Continuous improvement Voss 1995, 14 Aalto/BIZ Logistics

A Development of Mfg Strategy Business strategy concepts that have influenced manufacturing strategy n Value chain analysis n Core competence n BPR (Porter 1986) (Prahalad & Hamel 1990) (Hammer 1990, Hammer & Champy 1993) n Competing on capabilities (Stalk, Evans & Shulman 1992) Noteworthy steps n Manufacturing as a competitive weapon (Skinner 1969) n Focused factories (Skinner 1974) n Evolution of manufacturing strategy n Time-based competition (Wheelwright and Hayes 1985) (Stalk 1988) n Process management n Supply chain management 35 E 00100 Service Operations and Strategy #1 15 Aalto/BIZ Logistics

A Evolution of Manufacturing Strategy Stage 1 Stage 2 Stage 3 Stage 4 Internally Neutral Externally Neutral Internally Supportive Externally Supportive “Minimize manufacturing’s negative impact” “Achieve parity with competitors” “Provide credible support to the business strategy” “Manufacturing as a significant contributor to competitive advantage” • 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. 35 E 00100 Service Operations and Strategy #1 16 Wheelwright & Hayes 1985, 3 Aalto/BIZ Logistics

B Matching Process Choice with Strategy The original product-process matrix by Hayes and Wheelwright (1979) Product structure Product life cycle stage One of a kind Low volumes; High volumes; many products few products Commodity product Void Jumbled flow (job shop) I Commercial printer Disconnected line flow (batch) Heavy equipment Process structure II Process life cycle stage Connected line flow (assembly III line) Sugar refinery Void High 35 E 00100 Service Operations and Strategy #1 Flexibility & Unit cost Auto assembly Continuous flow IV High Low Product Variety 17 Low Aalto/BIZ Logistics

B Studies Linked to Product-Process Matrix Link between process and product Effectiveness of the matrix in explaining operating mfg strategies (Ahmad and Schroeder 2002) n Significant, but not strong n Mc. Dermott and Greiss (1994) n Innovative initiatives used by off- n Noori (1990, 1991) diagonal companies n Miller and Roth (1994) n Safizadeh et al. (1996) Applications to the analysis of manufacturing performance n Voss (1995) Robustness of the original set of practices and trade-offs n Flynn et al. 1999 500 Process type n Hanson et al. (1993) 600 400 300 200 100 200 300 400 500 600 Product type 35 E 00100 Service Operations and Strategy #1 18 Aalto/BIZ Logistics

C World Class Manufacturing (WCM) Background n Initiated by the increasing competitiveness of Japanese in the early 80 s n 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 n Hayes and Pisano (1986) coined the term - Criticized that lean manufacturing, continuous improvement or WCM are not strategies to gain competitive advantage n Schonberger (1986) - “Blended management marshals resources for continued, rapid improvement” - Introduced a 17 -point action agenda to guide toward mfg excellence n 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. 35 E 00100 Service Operations and Strategy #1 19 Aalto/BIZ Logistics

C Factors Measured Made in Europe Study Organization and culture n n n n n Business Measurement Vision and strategy Management style Employee involvement Training Benchmarks Job flexibility Problem solving Customer orientation Design process n n n n Opinions about Plant and equipment n n n Layout and automation Batch sizes and kanban Order release Warehousing Maintenance Housekeeping Priority orders 35 E 00100 Service Operations and Strategy #1 Market share Customer satisfaction Employee morale Inventory turnover Cash flow Return on net assets Productivity and costs Performance measurement Relative competitiveness Strategy priorities Inhibitors of vision Time frame of improvement Sources of external advice Background info n Size of the firm, etc. 20 Aalto/BIZ Logistics

C Industry Makes a Difference 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 35 E 00100 Service Operations and Strategy #1 Metal Electrical + New product yield + Product reliability + Order processing – Priority orders – Cycle times – Training Machinery + Stock holding + Batch sizes + Information systems – Warranty claims – Product reliability – New product yield 21 + 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 Hanson et al. 1994, 14 Aalto/BIZ Logistics

C WCM in Europe Performance/Practice Framework and Results from Finland Performance 80 % 60 % 50 % World class Won’t go the distance 0% Contenders 4% 35 % Makeweights 22 % Promising 39 % 0% 60 Mfg strategy Market share Information systems Equipment layout n n n Deliveries Inventory turns Warranty claims Business process mgmt Benchmarking 80 % Practice 35 E 00100 Service Operations and Strategy #1 n n Finnish mfrs ≥ 5 % worse Punchbags 50 Finnish mfrs ≥ 5 % better Hanson et al. 1994, 8 22 Aalto/BIZ Logistics

Key Points Manufacturing also matters! MPC systems n A basic structure exists n Change along with technology, products, market requirements, etc. Manufacturing strategy n Its definition is somewhat ambiguous. n 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) n Alternative paradigms support each other. Industries and countries differ… 35 E 00100 Service Operations and Strategy #1 23 Aalto/BIZ Logistics

Abbreviations Used ATO = assembly-to-order BPR JIT Mfg MPC MRP MS MTO MTS TBC TBM TQM WCM = business process re-engineering = just-in-time = manufacturing planning and control = materials requirements planning = manufacturing strategy = manufacture-to-order = manufacture-to-stock = time-based competition = time-based management = total quality management = world class manufacturing 35 E 00100 Service Operations and Strategy #1 24 Aalto/BIZ Logistics