Manufacturing Operations Strategy

Third edition

by Terry Hill and Alex Hill

Chapter summaries

Chapter 1

  • Global competition increased significantly in the 1980s and has accelerated ever since.
  • Over the past 30 years, the manufacturing output of countries such as the UK and US has declined in comparison to others such as Germany, Japan and France.
  • Emerging nations in East and Southeast Asia are prospering from the development of their manufacturing industry.
  • A nation’s prosperity depends on its comparative productivity with other countries. Emerging nations are successfully challenging Western economies and, for the first time in its history, the US may see a fall in living standards over the next 20 years.
  • Asian automobile companies are significantly more productive than those in the more established manufacturing nations of North America and Europe.
  • Successive UK governments have seen overseas competition as necessary for developing a strong domestic manufacturing base, but the UK manufacturing industry has been slow to respond.
  • High-volume UK industries such as motorcycles, automobiles, trucks and shipbuilding have been lost to emerging nations.
  • Many North American and European countries have failed to recognize the size of the competitive challenge they face and the impact of increasing world manufacturing capacity. There is still too little research and development investment. Senior managers lack operations experience and do not involve operations managers in strategic discussions.
  • Operations managers must become less obsessed with meeting short-term performance targets and start thinking strategically. Managers striving to overcome competitors work and think differently to those simply meeting operational targets.
  • Operations managers must take the initiative, change their role and think and act more strategically.
Back to top

Chapter 2

Faced with the pressures of increasing competition, businesses need to coordinate the activities of their principal functions within a coherent strategy. All functional contributions and insights are essential to understand, resolve and agree strategic direction. Within manufacturing companies, operations strategic as well as operational roles are essential to the wellbeing of the business. Given the size of operations investments, getting it right is critical as reinvestment is sizable and takes a long time to effect. This chapter addresses the following:
  • Functional strategies within the context of a firm – strategy is at different levels, from corporate through business unit to functional, while the interface between them is essential.
  • Executive roles – an executive’s role comprises content (both day to day and strategic) and style (the task of managing people). The emphasis in this chapter concerns the strategic role of the operations executive.
  • Business unit strategy – concerns determining how it competes in its different markets and the mix of market-driven and market-driving scenarios.
  • Developing an operations strategy – operations executives need to be proactive rather than reactive in strategy formulation. As with other functional strategies, markets set the agenda and link business objectives through to functional strategies.
  • Order-winners and qualifiers – a key dimension in better understanding markets is to distinguish between the role of qualifiers (necessary to get onto and remain on a customer’s list of potential suppliers) and order-winners (those criteria that win business from other qualified, potential suppliers).
  • Outputs of operations strategy – developing a strategy concerns closing the gap in terms of how well operations supports the needs of customers for which it is responsible.
Back to top

Chapter 3

The rationale behind the perspectives and characteristics of order-winners and qualifiers was introduced in the last chapter. Understanding these fully and reviewing operations’ alternative ways of supporting them is now provided:
  • Strategic scenarios and approaches – strategy formulation tends to be expressed in general terms. It is essential when developing strategy that clarity in terms of priorities and direction is provided.
  • Today’s markets – today’s markets are characterized by increasing difference (rather than increasing similarity) and speed of change. This requires executives to gain clarity and insight and continuously discuss markets so as to improve clarity and identify changes early.
  • Trade-offs – the ongoing debate about trade-offs has raised questions concerning whether they can be eliminated or not. In reality, trade-offs need to be addressed at five different levels from decisions concerning which business unit should be allocated some or all of the available funds through which market, which order-winner or qualifier, which function and which investment.
  • Order-winners and qualifiers – the market provides the agenda for all functional strategies. Consequently, some are operations related and operations specific, while others are not part of operations’ provision.
  • Benchmarking – the role and attributes of using benchmarking allows companies to make performance comparisons within their own group of companies, within their own sector and against other companies in unrelated sectors. It is part of the way to achieve superior performance within one’s own markets.
Back to top

Chapter 4

  • Operations strategies can be market-driven, market-driving or both.
  • Businesses must analyse markets before they can develop an operations strategy. They need to agree the current and future markets in which to compete and determine the known or anticipated order-winners and qualifiers within these markets.
  • Customer needs can only be determined by analysing how they behave rather than listening to what they say they want.
  • The most important orders are those a business turns away as these define who they are and the market in which they compete.
  • Analysing markets starts with understanding executive opinion of market order-winners and qualifiers and then testing them with data showing actual demands for different customers, orders and products.
  • Once market order-winners and qualifiers are known, operations can determine its key strategic tasks, review current performance against these tasks and identify areas for improvement. Typical analyses and improvements are described in the chapter.
  • Successful strategy development and execution concerns balancing gut feel with in-depth analysis so that action is not delayed, but also focuses on areas of maximum impact, given the investment funds available.
  • Generic strategies such as low cost or differentiation promise much, but deliver little. Successful strategies are tailored to the specific needs of a business.
Back to top

Chapter 5

The most significant decisions a manufacturing company has to make concern customers, products and the processes by which to make them. This chapter covers the task of deciding which operations process to use and addresses the following issues:
  • Factors involved in making products – the category or type of product, the product complexity and the volumes involved are key factors in the task of making products.
  • Types of manufacturing process – there are five generic types of manufacturing process – project, jobbing, batch, line and continuous processing. Each is distinct from the other. While project and continuous processing are product/industry-type specific, the other three choices provide alternatives to a range of industries. Which one fits depends on the level of volume and repetition involved.
  • Business implications of process choice – products have both a technical and business dimension. The former relates to the design, material and similar aspects, while the latter defines the business aspects (for example volumes, order-winners and qualifiers). Operations concerns providing the business specification of its products and selecting the most appropriate process to provide these dimensions.
  • Hybrid processes – to gain a better fit between the business requirements and process characteristics, companies may choose a hybrid process (a mix of two generic types) as the best way. Hybrids may or may not be IT based.
  • Technology strategy – advances in computer control have afforded fresh opportunities to compete in the manufacturing sector.
Back to top

Chapter 6

With markets as the agenda and functions investing and managing in line with their strategic roles, a company needs to assess the level of fit between needs and provision or check the future level of fit in the light of changes. Product profiling provides such a check and covers the following issues:
  • The need to expand operations strategy’s language base – to ensure that it makes an appropriate and full contribution to the business strategy debate and resolution, operations needs to explain its perspectives in such a way that other functions can relate and in the context of the overall business.
  • Product profiling – selecting relevant market and operations dimensions, products/customers/markets can then be assessed in terms of where they fit. The key here is to keep the number of dimensions small so that the role of providing a way to discuss the level of fit between market requirements and operations characteristics is maintained.
  • Using product profiling – the outcomes of profiles are part of the way companies can assess current levels of alignment, the origins of any deterioration of fit or alert companies to alignment issues in the future.
Back to top

Chapter 7

  • The complexity of managing operations results from the size of its management and strategic task.
  • The management task comes from the number and interrelated nature of the tasks involved and the strategic task reflects the level of fit between its strategic objectives and process and infrastructure capability.
  • Focus creates a limited and consistent set of management and strategic tasks within an operation that enable it to better align processes and infrastructure to business and market needs.
  • Focus moves away from the principles of economies of scale and control through specialists that have expanded product ranges, increased facility sizes and created unclear strategic tasks.
  • Businesses can choose to focus their operation around resources, markets or a combination of the two using six alternative approaches: process, volume, variety, geography, products, markets or order-winners.
  • Businesses must consider the cost, management and strategic implications before focusing operations. A movement away from economies of scale brings management benefit, but potentially some cost disadvantages.
  • Order-winner focus is the only approach with strategic benefits. However, this is often the second step for organizations as it is a more difficult concept to understand and implement.
  • It is not necessary to focus all products and processes. Equally, the advantages and disadvantages of each approach mean a combination may be most appropriate.
  • Organizations can use an operation-within-an-operation arrangement to overcome the lower equipment utilization and investment costs that focus can create.
  • Maintaining focus must be a conscious strategic decision. Focus does not occur naturally. In fact, corporate neglect and traditional views of what is best for a business tend to prevent it. The range of products supplied, markets served and processes used must be continually reviewed to ensure that a single consistent strategic task is present in each unit.
Back to top

Chapter 8

  • Operations tended to be arranged on the principles of economies of scale and control through specialists. Facilities are usually large, with similar processes grouped together and infrastructure centralized into specialist functions.
  • When focusing operations, companies must understand their business and market requirements and use a combination of approaches. It is not necessary to focus all products or processes. The optimal solution often involves a combination of focus approaches and all products or processes may not be focused.
  • Focus should only be applied if it meets business and market requirements.
  • Focus involves six main steps that tend to be iterative in nature. Initially, it must review processes to identify any that are too expensive to duplicate. Market order-winners and qualifiers must then be identified. Based on these two reviews, a focus approach is selected for products and customer orders. Products and customer orders are then grouped using the focus approach selected. Processes and infrastructure are allocated and physically moved to each unit to meet their capacity and capability requirements.
  • Maintaining focus is a conscious strategic decision. Businesses will become naturally unfocused over time as markets are dynamic and operations capabilities relatively fixed. The range of products supplied, markets served and processes used must be continually reviewed to ensure a single consistent strategic task is present in each unit.
Back to top

Chapter 9

The increasing move by companies to outsourcing has increased the key decision area of make or buy and the task of managing the supply chain that results. Key areas within this aspect of operations are discussed:
  • What is a supply chain? – the mix of internal and external phases of a supply chain need to be recognized and their joint roles in providing products need to be well managed.
  • Make or buy? – choosing whether to make or buy is a key decision and various considerations need to be taken into account, including the retention of core technology, strategic factors and the supply chain management issues involved.
  • Deciding what and how much to make in-house – the mix of benefits derived from making in-house and those derived from outsourcing offer different outcomes. These include compound market and technological intelligence, increased control over aspects of a firm’s competitive environment, the provision of low-cost opportunities, more ability to differentiate products with in-house provision compared to freeing resources, reducing operating costs, access to world-class capabilities and increased focus on a company’s own core tasks that come with outsourcing.
  • Alternatives to making in-house – rather than making in-house, companies can choose from a range of halfway positions including joint ventures and non-equity-based collaborations.
  • Domestic versus offshore sourcing options – the decision whether to outsource using domestic or offshore providers needs to be based on the level of strategic fit. Recent research shows that with low-cost alternatives is a reluctance to respond to changes in either product or lead time requirements.
  • E-procurement – the increasing role of e-procurement needs to be considered as part of the supply chain provision.
  • Managing the supply chain – a range of issues needs to form part of the task of managing the supply chain including managing uncertainty, level of customer/supplier dependence, the role of supply clusters and the ways to cushion the supply chain from the inherent instability of the market.

Back to top

Chapter 10

  • Infrastructure is used to manage processes and support markets.
  • It comprises a number of complex interacting elements that must be aligned to business and market needs. Some examples of the aspects involved are functional support, operations planning and control systems, systems engineering, clerical procedures, payment and reward systems, work structuring and organizational structure.
  • Infrastructure is typically managed in functional areas where there is little strategic debate between functions. This often leads to unconnected, uncoordinated, functionally biased and reactive developments.
  • Functions resist infrastructure developments as they challenge their size, roles, responsibilities and activities. To overcome this, decisions must be based on data or evidence of actual current and future market requirements.
  • Businesses must make incremental infrastructure developments based on continual market reviews. Step changes should be avoided wherever possible, as they are costly, disruptive, difficult to get right and difficult to change once made.
  • Cross-functional teams must be empowered to identify improvement areas with high return, compare alternative developments, consider all elements and make incremental changes.
  • Many organizations make inappropriate infrastructure decisions. Examples of these are managing through specialist functions, creating functional silos, supporting delivery systems from a distance, paying and rewarding inappropriately, creating too many management layers and reducing line roles and responsibilities.
  • To overcome these problems, businesses must redefine functional objectives based on a cross-functional market review supported with data. They must challenge existing management structures, redefine roles and responsibilities, pay and reward based on skills and performance, reduce overheads, flatten management structures and set up cross-functional improvement teams.
  • Once the appropriate infrastructure has been developed, it must be managed to support business and market needs. Three critical areas of management focus are quality conformance, inventory and operations planning and control systems.
Back to top

Chapter 11

This chapter provides some critical observations on the accounting and finance function’s contribution within a business, the measures of performance used by companies and the impact on the operations function:
  • Investment decisions – investment is the lifeblood of development. It is essential, therefore, that a business takes a strategic-based view when evaluating investment proposals and to separate those that are strategic and those that are operational in orientation.
  • Strategic investments to be based on order-winners and qualifiers – where investments are strategic in nature, they need to address the order-winners and qualifiers within relevant markets.
  • One reason to substantiate an investment – to bring clarity as to why an investment is being proposed, companies should seek to establish the one reason that substantiates the proposal.
  • Quantify working capital and infrastructure investments – while the ‘hardware’ of a proposed investment is specified and acknowledged, additional investment in working capital and for infrastructure is often understated only to be eventually met in an after-the-event way.
  • Post-investment audits – while the detail underpinning investment proposals is typically well explained and substantiated, most companies do not undertake post-investment audits to ascertain the actual benefits secured and to use this learning in assessing future proposals.
  • Performance measurements – ‘what gets measured gets done’ holds true for most companies. Selecting what to measure, therefore, is the key first step. Dimensions such as avoiding long lists, establishing priorities, separating strategic from operational measures, holding regular reviews, looking forward as well as backwards and measuring all parts of a supply chain are key to sound management.
  • Setting targets – key issues when setting targets include debating the assumptions on which targets are based and ensuring that the targets set are feasible.