Manufacturing Strategy Concepts Introduction to Operations Strategy

Manufacturing Strategy Concepts STRATEGY DEVICE FOR -DISCIPLINED PLANNING & THINKING -COMMUNICATION -ORGANIZATION BUILDING Skinner on Manufacturing Strategy (1969) • different companies within the same industry have different strengths and weaknesses and choose to compete in different ways • different production "systems" have different operating characteristics and each involves a different set of tradeoffs • a production system must have a customized design that reflects the priorities and trade-offs inherent in the firm’s own competitive situation and strategy Skinner on Manufacturing Strategy Therefore, no one operating system is universally superior under all competitive situations and for all companies. Every operating system embodies a set of trade-offs. Some will be particularly good at producing standardized products in high volume at low cost; others will excel at responding quickly to shifting demand for more customized products. New, Competing Theory: Lean 1980’s: Japanese companies were succeeding not because they carefully made the right set of trade-offs among different priorities in their operations, but because they were capable of surpassing their Western counterparts across several dimensions at once. Lean production achieves lower cost, higher quality, faster product introductions, and greater flexibility-all at the same timeLean production can dominate any competitive situation. Lean production combines the advantages of craft and mass production, while avoiding the high cost of the former and the rigidity of the latter: requires less inventory, yields fewer defects, and produces an ever-growing variety of products. New, Competing Theory: Lean People should be broadly trained, rather than specialized. Staff is "overhead" and, with a high degree of work force "empowerment," not necessary. No amount of rejects or variance should be accepted (zero defects is the goal). Communication should take place informally and horizontally, among line workers rather than through hierarchies. Equipment should be general purpose and flexible. Production should be organized into "cells," rather than specialized by process stages. Continuous processes, with as little work-in-process inventory as possible, is preferable to batch processes. Inventory, like rejects, is waste. New, Competing Theory: Lean Throughput time is more important than labor or equipment utilization rates. Product development should be organized through crossfunctional teams, which pursue activities in parallel rather than sequentially. Implication: Manufacturing Strategy should devote less effort to customizing a production system and more effort trying to adopt the principles of the already-proven Lean Production System. What is Strategy 1. Operational Excellence is NOT a Strategy a. Establish a position you can preserve b. OE: doing same activities better 2. Strategy Rests on Unique Activities a. Offer a different value proposition 3. A Sustainable Strategy requires Trade-offs 4. You gotta have “Fit” a. System Elements: Consistent, Reinforcing, Optimized Consequences of Lean Thinking Western companies embarked on a wide range of programs (TQM, JIT, DFM, CE, empowerment, re-engineering) Many of these programs worked quite well and helped companies regain parity on costs and quality. However, simply adopting a set of generic improvement programs is not enough. (Only about one third of all the operations improvement programs that U.S. companies have undertaken were successful.) Further, programs that did achieve operational objectives (e.g., lower costs), often did not contribute to overall competitiveness. E.g., programs may reduce costs but diminish customer service, responsiveness, or flexibility. Consequences of Lean Thinking So, TQM, JIT, and other dimensions of "lean production" can re-shape operating performance, But, companies still need coherent approaches that • utilize these tools effectively and, • develop enterprise strategies Further, a static fit between operating strategy and competitive strategy (Skinner's focus) is not enough. Competitive environments are more turbulent. Technological changes are more rapid. Competitors (from around the globe) are more able. Therefore, operating strategies cannot be static. They must provide the capabilities that both support and drive rapidly evolving challenges and strategies. Skinner: Reasons for Inconsistent Manufacturing Structures 1. Manufacturing has a new manufacturing task but continues the old manufacturing policies and structure. 2. Managers in manufacturing have no clear, consistent definition or understanding of the manufacturing task facing the organization. 3. The manufacturing policies and the infrastructure being employed are inconsistent. Taken together, there is a distortion in coordination. 4. The organization lacks a focus. It is attempting to cover too many technologies or too many products and markets, too wide a range volume, and more than one manufacturing task. Skinner: Reasons for Inconsistent Manufacturing Structures (cont.) 5. The organization has the wrong equipment & process technology for the present manufacturing task. 6. Selection of products and processes for each plant in a multi-plant setup results in mixing together, somewhat at random, a product organization, a process organization, and a volume-focused organization (or any two of the three) instead of focusing around one type of organization. WHAT APPEAR TO BE ROUTINE MANUFACTURING DECISIONS FREQUENTLY COME TO LIMIT THE CORPORATION’S STRATEGIC OPTIONS, BINDING IT WITH FACILITIES, EQUIPMENT, PERSONNEL, AND BASIC CONTROLS AND POLICIES TO A NONCOMPETITIVE POSTURE WHICH MAY TAKE YEARS TO TURN AROUND. CORE CAPABILITIES NEW PROJECTS (New products, new processes, new suppliers) Clockspeed The Dynamics of Strategy Formulation & Execution Benchmark the Fruit Flies • Beware of Intel Inside • SC control point unstable (comp, assem, distrib) • SC structures oscillate -- int/int or mod/mod • The Bullwhip lives • Dependence/Independence has positive feedback •Projects feed capabilities & vice-versa •eBusiness accelerates Clockspeeds •All Advantage is Temporary •Align Architectures in Pdt, Proc, & SC •Tech & Comp drive clockspeeds Ve l gra e t In al/ rtic DOUBLE CAPABILITIES Product Process Supply Chain BOEING HELIX H lar odu M / l onta oriz Dependency PROJECTS LOSING AMERICA'S LEAD EVIDENCE: -Slow Productivity Growth Rates -Slow to Market with New Techs. -Lagging Quality vs. World Comp. -Trade Deficit -Weakening Currrency -Loss of Financial Independence -Inability to Manufacture Key Technologies (DRAM chips) CAUSES: -Outdated Strategies: -Mass Production of Std Goods -Parochialism-Not Invented Here -Short Time Horizons -Failure to invest in development and production capabilities -Neglect of Human Resources (Firm Level, National Level) -Failures of Cooperation Industry/Government, Buyer/Supplier,Management/Workforce THE TIMELESS SECRETS OF INDUSTRIAL SUCCESS 1. BEWARE OF COMPLACENCY 2. CONTINUALLY ENLIST THE HELP OF EMPLOYEES TO IMPROVE PRODUCT AND PROCESS 3. DENY EVERY INCH TO ACTUAL AND POTENTIAL COMPETITORS 4. STUDY COMPETITORS' SOURCES OF SUCCESS 5. DON'T BE TOO RATIONAL Can we map the strategic forces at Nokia? Macroeconomic Conditions Industry Forces -Industry Attractiveness Societal Wants and Conditions - Competitive Structure: Opportunities & Threats Goals Objectives & Competitive Priorities NMP Strategic Plan Gaining & Maintaining Competitive Advantage Functional Strategies & Projects Mktg. Finance Key Success Factors: Product Process DSNetwk Mfg. Logistics - Internal Coherence - Inter-functional Coordination - Strategic Fit Organization Culture & Capabilities FOUR STAGES OF THE STRATEGIC ROLE OF MANUFACTURING IN A COMPANY 1. INTERNALLY NEUTRAL Minimize the “negative effect” of manufacturing 2. EXTERNALLY NEUTRAL Achieve Parity with Competitors 3. INTERNALLY SUPPORTIVE Provide Support to the Business Strategy 4. EXTERNALLY SUPPORTIVE Manufacturing contributes significantly to competitive advantage Note: Inside-out vs. Outside-in of Clockspeed approach Stage 1 or 2 Corporation Sales R&D Marketing Finance Corporate Plans In Stage Four, Manufacturing gets an equal seat at the table Manufacturing Strategic Planning STAGE 4 CHARACTERISTICS MFG STRATEGY IS INTEGRATED W/ENGINEERING, FINANCE, PROCUREMENT, MARKETING/SALES 100% OF PEOPLE ARE KNOWLEDGE WORKERS -CONTRIBUTE MORE WITH MINDS THAN HANDS -UNDERSTAND THE BUSINESS & JOB -MASTERY OF ALL QUALITY TOOLS -SOUGHT AFTER BY COMPETITORS -LEADERSHIP, TEAMWORK -LIFELONG LEARNING AND TEACHING -CULTURE OF EXPERIMENTATION -DESIREABLE PLACE TO WORK -CHALLENGING, FULFILLING CAREERS PROCESS Stage 4 Characteristics -TECHNOLOGY LEADER -PROCESS DEVEL & IMPROV -INNOVATION IN METHODS & EQUIP IN-CONTROL & CAPABLE (Cpk > 2) INTELLIGENT USE OF INFORMATION TECHNOLOGY VALUE CHAIN BENCHMARK-DRIVEN -WORLD-CLASS PRACTICES -WORLD-CLASS MEASURES -REVERSE ENGINEERING -INFO EXCHANGE WITH THE BEST SUPPLIERS SEND THEIR BEST PEOPLE AND PARTS TESTBED FOR TECHNOLOGY INNOVATORS NETWORKED WITH CUSTOMERS MANUFACTURING STRATEGY FORMULATION 1. DRAFT MISSION STATEMENT (ADVISED BY BENCHMARKS) 2. SET OPERATING OBJECTIVES --QUALITY --COST --LEAD TIMES --FLEXIBILITY --CUSTOMER SATISFACTION --INNOVATIVENESS 3. DEVELOP POLICIES & PROCEDURES STRUCTURAL INFRASTRUCTURAL CAPACITY ACQUIS. FACILITIES EQUIPMENT/TECH. VERTICAL INTEG. HUMAN RESOURCES QUALITY ASSUR. PDTN. PLAN/CONT. PRODUCT DEVELOP. PERF. MEAS/EVAL CAPITAL ALLOC. ORG. STRUCTURES. SAMPLE MANUFACTURING STRATEGY TEXT MANUFACTURING VISION MANUFACTURE WORLD-CLASS QUALITY AUTO COMPONENTS IN THE PRESCRIBED VOLUMES, ON SCHEDULE, AT THE LOWEST COST MANUFACTURING MISSION ACHIEVE WORLD-CLASS STATUS (BYTHE YEAR 20xx) IN QUALITY COST, TIME, AND FLEXIBILITY WITH PEOPLE WHO HAVE A SHARED VISION AND OBJECTIVES THAT ARE BASED ON A CULTURE OF CONTINUOUS PROCESS IMPROVEMENT PERFORMANCE METRICS 1. 2. 3. 4. QUALITY: PRODUCT& PROCESS COST/PRODUCTIVITY TIME FLEXIBILITY SAMPLE MANUFACTURING STRATEGY FRAMEWORK (CONTINUED) PROCESSES PEOPLE -TECHNOLOGY -CAPABILITY -CONTROL -FLEXIBILITY -STD. OPER. PROCS. -SKILLS, TRAINING, HIRING PRACTICES -KNOWLEDGE, EXPERTISE, EMPOWERMENT -PARTNERSHIP W/ ACCOUNTABILITY -FLEXIBILITY -ENVIRONMENT VALUE CHAIN INTERNAL -PROCUREMENT/SUPPLY -ENGINEERING -MARKETING/SALES -DESIGN OFFICE -FINANCE -LABOR RELATIONS EXTERNAL -WORLD-CLASS BENCHMARKS -CUSTOMERS & DEALERS -SUPPLIERS -GOVERNMENT -UNIVERSITIES Major Manufacturing Decision Categories 1. FACILITIES • size • location • focus 2. CAPACITY • amount • timing • type 3. VERTICAL INTEGRATION AND PARTNER MANAGEMENT • direction • extent • interfaces • collaboration 4. PRODUCTION TECHNOLOGIES AND PROCESSES • equipment • automation • interconnectedness • scale • flexibility 5. WORK FORCE AND MANAGEMENT • wage policies • security • skill levels 6. LOGISTICS AND SUPPLY CHAIN • logistics facilities and methods • inventory policies • vendor coordination • production planning 7. ORGANIZATIONAL AND INCENTIVES • structure • reporting levels • degree of centralization • role of staff • control/reward systems • costing systems 8. BUSINESS PROCESSES: PRODUCT DEVELOPMENT, QUALITY INFRASTRUCTURE ETC. • interfaces and responsibilities • responsibilities • vendor development • monitoring and intervention Facilities and Capacity Capacity Issues: - Does Capacity lead or follow Demand; Use of suppliers - Capacity Decisions have long lead times and involve large increments Facility Issues: - Pure Space Needs - Geographic & Distribution Issues - Focus Issues - Corporate principles - Scale Issues - Means of Evaluation Manufacturing Technology Manufacturing Process Technology is a fundamental determinant of how a company competes - Processes have specific attributes that are appropriate for different products and life cycles - Any new process or technology will have a major effect on a business - Do you want off-the-shelf or custom equipment? - Do you want to lead or lag in manuf technology? - Do you want to develop manuf. tech internally? Process Productivity can be viewed Through the Process-Product Matrix Products Processes One of Kind Job Shop High Volume Not Productive Jumbled Process Rigid Not Flexible Continuous Strategic mission Organization strengths Performance measures • • OPERATIONS COSTS –unit costs –total (volume) costs –lifetime costs DEPENDABILITY AND TIME –percentage of on-time shipments –response to results for info or changes –product and volume flexibility –delivery time • • QUALITY – return rate – product reliability and durability – cost and rate of field repairs INNOVATIVENESS – product innovativeness – time to market and development cycle The Classic Plant Missions Mission Facilities Infrastructure Low Unit Cost Specialized Materials planning machines linked and control by the time cycle Repetitive work High service level Reserve machine Inventory capacity management Overtime and idle time Wide line General purpose Production machines and scheduling inventory of tools Changing assignments Custom service General purpose Design to cost machines Product innovation Flexible general purpose machines Design and development Labor Reliance on workers’ skills Team responsiveness Linking Strategies to Missions Mission Investment Requirements Marketing Strategy Sales Strategy Low Unit Cost Automation Narrow line and conservative design Price competition High service level Inventory and Image of flexible machines dependability Rapid delivery Custom service Reserve capacity Ability to respond Analysis of customers’ needs Product innovation Product development New market segments Market leadership Assessment of Operations Policies Operations Unit Decision Category Existing Policy Production Technologies & Processes Capacity Management Workforce Strengths Weaknesses Proposed Changes Assessment of Operations Policies (cont) Operations Unit Decision Category Business Processes Facilities Vert. Int and Partner Management Description of Past Policy Strengths Weaknesses ACTION AGENDA FOR MANUFACTURING EXCELLENCE 1. GET TO KNOW THE CUSTOMER 2. CUT WIP INVENTORIES 3. CUT FLOW TIMES 4. CUT SETUP & CHANGEOVER TIMES 5. CUT FLOW DISTANCE AND SPACE 6. REDUCE NUMBER OF SUPPLIERS 7. IMPROVE SUPPLIER PERFORMANCE 8. REDUCE PARTS PROLIFERATION 9. DESIGN FOR MANUFACTURABILITY 10. CROSS-TRAIN WORKERS AND MANAGERS 11. POST PRODUCTION, QUALITY, AND PROBLEM DATA 12. GIVE LINE PEOPLE FIRST CRACK AT SOLVING PROBLEMS 13. MAINTAIN & IMPROVE EXISTING EQUIPMENT & HUMAN CAPITAL 14. USE SIMPLE, CHEAP, MOVABLE EQUIPMENT 15. AUTOMATE INCREMENTALLY SKINNER’S PROCESS STEPS FOR MANUFACTURING STRATEGY 1. COMPETITIVE ANALYSIS 2. COMPANY AUDIT/INVENTORY 3. COMPANY STRATEGY FORMULATION 4. IMPLIED MANUFACTURING OBJECTIVES 5. COST STRUCTURES AND ECONOMIC CONSTRAINTS 6. TECHNOLOGY ANALYSIS 7. MANUFACTURING EVALUATION AND OPTIONS 8. DECIDE MANUFACTURING POLICIES 9. REQUIREMENTS/TARGETS FOR MFG ORGANIZATION 10. DESIGN SYSTEMS/PROCEDURES 11. CONTROL SYSTEMS 12. SET OPERATIONS PARAMETERS 13. MONITOR PERFORMANCE 14. CONTINUOUS IMPROVEMENT ON STRATEGY 15. CONTINUOUS IMPROVEMENT ON OPERATIONS AND POLICIES MONTHS Solutions Processes Foundations YEARS DECADES Strategic Dimensions - Gyroscope Daily Gyroscope rules: Decisions & Actions 9 Core holds the ’gyroscope’ Solutions Years Processes Concepts Roadmap s Core Decades Speed of changes & Risk taking Months up and running 9 Monthly/daily activities need to be balanced with each other and the core – not to shake the ’gyroscope’ 9 The clockspeed is faster in the top – the changes are faster, but smaller 9 The risk are bigger in the bottom – the changes are bigger