NEW STRATEGIC ROLES OF MANUFACTURING: BEYOND FIT, FOCUS AND TRADE-OFF ABSTRACT This paper aims to view manufacturing from a new angle, and tries to look beyond fit, focus and trade-offs, approaches which may no longer be sufficient for long-term competitive success. Four cases from different industries are described and used to illustrate and discuss the possibility of manufacturing playing new strategic roles. Backward, forward and lateral interactive support are suggested to explicate how manufacturing can realize its new strategic roles.
Finally, four new strategic roles of manufacturing are suggested. They are: innovation manufacturing, ramp-up manufacturing, primary manufacturing, and service manufacturing. Keywords: manufacturing strategy, manufacturing roles INTRODUCTION Currently, manufacturing is viewed as a simple process of transforming materials into products mostly. Trying to propose ideas to make manufacturing work more efficiently and/or effectively, most studies take their outset in offering customers what they want at the lowest possible cost (Riis et al. 2007). However, this view no longer suffices as the environment of manufacturing has faced significant changes in the ast decade. In fact, the most notable challenges for manufacturing are increased levels of complexity and uncertainty coming from increased globalization, of markets and operations, the diversified demands of customers, drastic reductions in product lifecycles, and manufacturing and ICT technology progress. In a word, the knowledge base for manufacturing has become more complex and this process is likely to continue.
Therefore, it is quite important to change our perspectives on manufacturing, from a resource-based to knowledge-based view; from linearity to omplexity; from individual to system competition; and from mono-disciplinarity to trans-disciplinarity (European Commission, 2004). Manufacturing strategy is not Just about aligning operations to current competitive priorities but also about selecting and creating the operating capabilities a company will need in the future (Hayes and Pisano, 1994).
When manufacturing starts to play a somewhat different role, as sketched above, this opens for a discussion of current thinking and practices approaching manufacturing from the (traditional) best fit, focus and trade-off perspectives (Teece et al. 1997). Thus, this paper will focus on the changes in the strategic roles of manufacturing that are initiated by the challenges mentioned manufacturing. By pointing out shortcomings in existing research, the main questions of this paper are formulated, and the research method employed to research these questions described.
Then, four detailed cases are introduced and analyzed to provide the basis of four new strategic roles discussed next. The paper is concluded with a summary of the findings and directions for future research. LITERATURE REVIEW The notion of manufacturing strategy as a separate but related functional component f a business unit strategy was first put forward by Skinner in his two papers (1969, 1974). Currently, the dominant view is that research on manufacturing strategy consist of two categories??”content research and process research.
According to Adam and Swamidass (1992), content research addresses the decision scope of manufacturing strategy, which includes two core elements. The first element is a statement of “what the manufacturing function must accomplish”, or the “manufacturing task” (Skinner, 1978), which refers to critical competitive capabilities, e. g. quality, cost/efficiency, delivery/responsiveness, flexibility, innovation and ustomer service.
The second element of a manufacturing strategy is defined by the pattern of manufacturing choices that a company makes (Hayes and Wheelwright, 1984; Hayes et al. , 1988; Hill, 1989), namely structural or “bricks and mortar” decisions about facilities, technology, vertical integration, and capacity and major decisions about the manufacturing infrastructure, such as organization, quality management, workforce policies, and information systems architecture.
In process studies of manufacturing strategy, there are also two mainstream theories (Rafael and Dilts, 997), manufacturing strategy as a top-down (directed, intended) and as a bottom-up (emergent) process, respectively. In the literature about strategic roles of manufacturing, the role of manufacturing is “defined” as the strategic contribution of manufacturing to the competitive strength of a company. Hill (1983) proposes various concepts and ideas and gives practical examples of how to develop the strategic role of manufacturing.
Many authors in this line of research regard the positioning of manufacturing in its wider environment as a question of fit and focus. Hill (1985) efines the manufacturing task in terms of the capabilities that are critical to meeting customer demands. This means that manufacturing plays two key roles: qualifying for, and winning orders in, the market place. Within the perspective of fit and focus the strategic role of manufacturing can also be described by its location and contribution to the value chain of a company, following the ideas of Porter (1985).
Based on empirical findings, Wheelwright & Hayes (1985) identified four different roles (stages) of manufacturing: internally neutral, externally neutral, internally upportive, and externally supportive, which they saw as a maturity model of strategic manufacturing, proposing that manufacturing companies make a choice as to how they compete (Child, 1972). Gilgeous (2001) provides some evidence for the characteristics of strategic manufacturing effectiveness, to provide an empirical validation of the strategic role of manufacturing and to make the structure of the four-stage framework explicit.
Voss (1995) introduced three paradigms of manufacturing strategy, respectively: competing through manufacturing; strategic order winners, key success factors, capability, generic manufacturing strategies and hared vision. In the second paradigm he included contingency approaches, internal and external consistency, choice of process, process and infrastructure and focus. In the best practice paradigm, Voss included world-class manufacturing, benchmarking, process re-engineering, TQM, learning from the Japanese and continuous improvement.
In his 2006 revisited the paradigms and stressed that there is a need for adding more dimensions to the strategic role of manufacturing, following the increased distribution of manufacturing and increased complexity (Voss 2006). Most esearchers regard manufacturing “simply’ as a process of transforming materials into products and propose ideas to make manufacturing work more efficiently and/or effectively. Manufacturing strategy, then, concerns the question of how to pursue specific competitive priorities efficiently and effectively according to changes in corporate strategy and the internal and external environment.
In the focus and fit perspective dominating this approach, the emphasis is on offering customers what they want (Riis et al. , 2007). However, it is less clear how much freedom manufacturing should have to develop competences that go beyond immediate equirements (Hayes and Pisano, 1994), but ever more authors advocate the idea that manufacturing competencies and their development may also create competitive advantage for the company (Hayes et al. 2005).
Then, manufacturing strategy is not just about aligning operations to current competitive priorities but also about selecting and creating the operating capabilities a company will need in the future (Hayes and Pisano, 1994). In effect, the role of the manufacturing function starts to change. Rather than simply carrying out their assigned mission, they also have the authority to redefine that mission (Hayes and Pisano, 1996). This opens for a discussion of current thinking and practices of manufacturing related to the traditional best fit, trade-off and role perceptions.
Moreover, it may change our paradigm of manufacturing based on physical resources to manufacturing based on knowledge. Johansen & Riis (2005) propose another way of characterizing the strategic role of manufacturing based on the thesis that an industrial company can occupy a number of different positions in the supply chain. In view of the close interaction between the various functions of an industrial company it is difficult to identify a strategic role that manufacturing plays alone. Based on a survey including approximately 1,800 Danish companies, they identify five different roles.
Full scale production is carried out exclusively by manufacturing, whereas the following four roles are supporting one or more functions, such as ramp-up (sales and product development), prototype production (product development, sales and sourcing), benchmarking (sourcing), and laboratory production (product development). However, these authors do not account for how thy arrived at these five roles, nor do they provide empirical support for their findings or analyze the five strategic roles in detail.
Following the above discussions, the objective of this paper is to replicate, and elaborate on, the work of Johansen and Riis (2005), discuss and, possibly, modify and/ or add to the strategic roles for manufacturing these authors identified, and provide more detailed insight into the (modified, new) roles. Our objective calls for explorative in-depth research, for which, at this stage of theory development, case studies are the most suitable methodology (Yin, 1994). In the next section, four case stories from four different industries are introduced.
Open interviews and document study were the main methods used to perform the case tudies. CASE STORIES Company A is an OEM supplier of medical textiles, which has few but very important customers. Due to a strong price competition in the market for incontinence products, Company A has recently come to recognize the importance of customers’ demands. Manufacturing is not longer viewed as the dominant activity, but as a means for realizing customers’ needs and obtaining better customer satisfaction.
This change of manufacturing role has called for a greater understanding of which needs manufacturing should fulfill, as well as how these needs are satisfied for Company A. The result of these considerations is that most high-cost manufacturing was moved to factories in Ireland, Slovakia and US, where financial advantages can be picked up. However, on the other hand, central, that is, knowledge and competence intensive manufacturing tasks remained at company headquarters in Denmark.
The starting point is to combine manufacturing competence with product development, so that prototype production and process development are handled at headquarters, where there are two different manufacturing halls. One manufacturing hall is reserved for the R department, and has two primary functions: prototype roduction and laboratory. Here product developers have privileges to test new ideas and to produce and improve prototypes. They enjoy enough freedom to experiment with new products and new technologies.
This freedom combines with a wish of testing and experimenting, which makes products of Company A so attractive, and thus, its market position so strong. The other production hall handles the running-in of prototypes from the first hall. Here pilot series are made by new products, and are documented with the help of process flow and work-instructions. Company B focuses on developing and manufacturing unique, customer-specific components nd total solutions in the area of plastic and metal technologies.
Being an OEM supplier and facing strong competition from factories in China, it is under constant pressures to renew its product portfolio and manufacturing procedures, and price pressure increased, too. Company B used to be competitive, on flexibility and change- over ability, not on price, and needed to develop the capability to combine rapid adaptation to changing demands of customers with the efficiency of mass production, so as to provide specific, high quality and low price solutions to customers.
The actually strength of its current manufacturing system is the ombination of ramp-up manufacturing and mass manufacturing, that is, the combination of flexibility and efficiency. Although ramp-up manufacturing brings complexity to the production system, it also makes it possible for Company B to maintain manufacturing in Denmark and offer low prices simultaneously. To some extent, manufacturing of Company B could be viewed as a textbook example, which points out that manufacturing in Denmark could also be competitive, as customers companies in Scandinavia.
The operational objective of the case company is to deliver a large range of products to customers in order to satisfy their special emands. There are some clear demands for production, including low cost, high delivery reliability and constantly high quality, combined with the flexibility to produce and deliver kitchens with different configurations and made from different types of wood. Company C has well-developed, mature products and production processes, from component manufacturing to assembly of whole kitchens.
Its production system is made up by three departments: component department, special department and assembly department. As their names point out, the component department produces standard components, the special department roduces customer-specific components and the assembly department integrates components to make up the whole kitchens. The component department produces according to forecast, while the other two departments produce to customer order. Company D is one of four SBUs of a big energy company, which merged with another company to create the largest manufacturer of windmills in the world in 2004, delivering approx. 000 windmills per year. Mainly due to political and logistic issues, Company D follows a strategy that it only holds 10%-12% of its manufacturing in Denmark while the rest is outsourced to local suppliers. Its, consequently small scale, manufacturing system involves all the equipment and processes needed to produce windmills. This in-house manufacturing, which could be viewed the mini version of the manufacturing operations of Company D’s partners, acts as a benchmark for those partners. Company D selects proper suppliers and then helps them to improve their performance.
In order to support the knowledge transfer to its suppliers and help them improving their performance, Company D mainly relies on documents and a “supervisor corps”. Documents can be used as manufacturing the towers is not onsidered a core-competency and can be classified as low-tech manufacturing. Moreover, all the operations related to tower manufacturing are standard. Thus, it is possible for the suppliers to produce according to standard operating procedures. However, still, different kinds of problems may occur during the various manufacturing phases.
To tackle that, Company D utilizes the “supervisor corps”. The corps consists of experienced craftsmen (e. g. welders and CNC-operators) who visit the manufacturing sites and assist the external suppliers based on their expertise from the benchmarking manufacturing in Denmark. Thus, the supervisors are responsible for solving problems faced by the external suppliers, while they also bring back manufacturing knowledge to the Engineering and Manufacturing departments in Denmark from their problem solving experiences.
FINDINGS We summarize the case stories with respect to their strategic roles of manufacturing from four aspects: (1) the objectives, (2) the competitive priorities pursued (quality, cost/efficiency, delivery/ responsiveness, flexibility and innovation), (3) key resources (access to low cost production input factors; proximity to market; use of local echnological resources) according to Ferdows (1997), and (4) inter-relationships with other functions, as shown in Table 1 .
Objectives Competitive priorities Key resources Inter-relationships with other functions Company A Developing and testing new processes, new products and production equipment, even new technical/administrative systems Innovation Technological resources Mainly R&D and marketing, while external research centers, universities and customers could be involved Company B Establishing a production system to keep pace with increasing demands from technologies or markets as quickly as possible Flexibility and delivery
Proximity to R&D centers or markets Mainly between R&D and manufacturing and between marketing/ sales and manufacturing Company C Taking part in the company’s continuous development and profit making, and being able to live up to quality, price and on-time delivery Quality, price and on-time delivery Access to low cost production input factors (sometimes proximity to markets) Mainly focusing on manufacturing itself, but also working, more or less, as a caller to get help from other functions Company D Getting information of a certain production flow, which could be used as a benchmark, to help making some strategic decisions Flexibility
Mainly between manufacturing and outsourcing or procurement DISCUSSION New, different roles for manufacturing Viewed from a material flow perspective, manufacturing is the last function before products come out and are delivered to the market place. Before manufacturing, different sorts of information, knowledge and materials from different functions come together, and during manufacturing, they are transferred into specifications of manufacturing processes and used to support finished goods production.
After completion of the actual production process, manufacturing could be viewed as the tarting point of the delivery process. To some extent, manufacturing is arguably at the center of the entire operations of industrial companies, as a “processor” that collects all sorts of information, knowledge and materials from different functions, processes them and transfers them in the form of final products to the market place.
Besides its traditional role, the possibility exists for manufacturing to play additional roles through interactive support, which means manufacturing cooperates with specific functions, serves specific objectives and gives adequate support to these iewed as the center of the entire operations of industrial companies, it is natural that there could be three types of interactive support, namely backward interactive support (upstream), forward interactive support (downstream) and lateral interactive support.
Backward interactive support means that manufacturing takes part in activities, e. g. innovation and product development. Many studies refer to this area as, for example, integrated product development or concurrent engineering. Forward interactive support means that manufacturing takes part in activities after ompletion of the (physical) product, including distribution and after-sales service.
Four new strategic roles of manufacturing Following this line of thinking, the cases suggest four different strategic roles for the manufacturing function: (1) Innovation manufacturing, which takes part in R activities and works with R (maybe also with marketing) to realize innovations. In this role, the manufacturing function is home to the development and test of new technologies, products and/or management systems (Company A). (2) Ramp-up manufacturing, which mainly works with marketing (maybe also with R).
It aims to establish a production system capable to keep pace with increasing demands for a new product or in a new market. At the same time, it also embraces possibilities of a temporary set-up for the establishment and running-in of an assembly system based on new technologies (e. g. Company B). (3) Primary manufacturing, the traditional role, which aims to produce as efficiently and effectively as possible. Manufacturing capacity keeps pace with the demand for the company’s products. Pursuing priorities as to quality, price and on-time delivery is one of the most important tasks in this role.
Most 0M studies ake this role as their starting point (e. g. Company C). (4) Service manufacturing, which could be viewed as the aggregate of many different possible roles that manufacturing could play, and aims to serve specific context dependent objectives. Benchmarking manufacturing can be classified into this role (e. g. Company D). The first two roles – innovation and ramp-up manufacturing – involve backward interactive support as they take part in some activities before traditional manufacturing.
With regard to the third role, it Just concentrates on manufacturing itself and does not provide forward or backward interactive-support. Benchmarking manufacturing provides lateral interactive support, to parallel systems essentially producing the same components or products, but may also interact with upstream and downstream processes. We suspect benchmarking is Just one form of many actually providing services to other functions or production systems, inside or outside the company – hence the term service manufacturing.
Our observations are limited to four cases, in which we did not see any forward interactive support. However, it does not mean that this mode is not important. Furthermore, there may still be other trategic roles – further research is needed to investigate this. The four strategic roles of manufacturing differ from the classification of Johansen and Riis (2005) as follows (see Figure 1): 1) In practice, laboratory production and prototype production Moreover, according to our observations, they are in the same place in most of situations.
Therefore, we combine them into a new role??”innovation manufacturing. 2) Actually, comparing with other roles, full-scale production plays a traditional role, which focuses on the primary objective of manufacturing – producing more efficiently nd effectively and it is the only role carried out exclusively by manufacturing while other roles normally cooperate with other functions to realize supportive objectives. In order to describe these comparisons more clearly, we use primary manufacturing to replace full-scale production. ) We extend the conception of benchmark production to service manufacturing. Benchmarking production is one role, in which manufacturing services for the sourcing (purchasing) function to get relevant information about suppliers and also provides services to those suppliers. But manufacturing may still have possibilities to service for other objectives. That is why we propose the label service manufacturing as the aggregate of possible roles that manufacturing could play.
We saw no need to modify the ramp-up role proposed by Johansen and Riis (2005). Figure 1: Comparison of two typologies of strategic roles of manufacturing Furthermore, it is obvious that the four strategic roles are not necessarily entirely separated from each other. On the contrary, they can be related along two dimensions: time and place. Firstly, viewed from the time dimension, the four strategic roles seem to represent the typical product life cycle. Innovation anufacturing is relevant during the development phase of new products.
Ramp-up manufacturing is used during the introduction and growth phase. Certainly, primary manufacturing satisfies the maturity phase. Service manufacturing could be useful in many phases, depending on service provided and the internal or external customer(s) of that service. Secondly, along with the trend of globalization, it is more and more normal for industrial companies to have several plants spread geographically. And to some extent, the strategic role of plants could be decided by manufacturing roles.
Individual plants could be characterized by the manufacturing role(s) they play and they could be viewed as locating specific manufacturing roles in specific places and giving specific forms of support, depending on their role. This suggestion provides a starting point for discussing the role of plants in networks. Viewing manufacturing as a support activity Primary manufacturing is the only role that could be viewed as the traditional one, which mainly focuses on manufacturing itself to support producing efficiently and effectively.
Without denying the significance of primary manufacturing, it seems that he contributions that manufacturing makes to competitive advantage in cooperation with other functions will become more important in the future (Riis et al. , 2007). According to Porter (1985), manufacturing has always been treated as one of the primary activities in industrial value chains. But according to the analysis presented above, this point may need to be revised.
On the one hand, there is still room for manufacturing to play its traditional primary role. On the other hand, however, the manufacturing supports the development and test of new processes, new products nd production equipment, even new technical/administrative systems; ramp-up manufacturing supports the introduction and growing demand for new products and/or from new markets; and benchmarking manufacturing parallels production systems and informs the (out)sourcing function.
With the competitive environment changing continuously and ever faster, it is predictable that the indirect strategic roles of manufacturing (innovation, ramp-up, and service manufacturing) will become increasingly important in the future, which points to the need to focus attention on developing competencies in managing the interplay between manufacturing and ther functions, such as sales, product development, sourcing, distribution and after- sales service. As the indirect strategic roles come into focus and operations take place globally, new competencies are called for.
Traditionally, emphasis has been placed on knowledge and know-how about production processes; and this represents an important challenge for key processes. But increasingly the capability to manage the complex interplay between many actors involved in a value chain will become important. The strategic roles of manufacturing imply companies need to develop competencies in this area (Riis et al. 2007), but it is unclear as yet exactly what these competencies involve.
CONCLUSION AND FUTURE RESERACH This paper argues that manufacturing should no longer be viewed as a simple process of transforming materials into products as efficiently and effectively as possible. Viewed as the center of the entire operations of industrial companies, the possibility emerges for manufacturing to play different and equally important role. Through backward, forward and lateral interactive support, manufacturing could take part in other relevant activities before or after manufacturing and support operations of other (parallel) functions.
Thus, besides traditional role – primary manufacturing, this paper introduces three other strategic roles: innovation manufacturing, ramp-up manufacturing and service manufacturing. It is predictable that the discussion of these new strategic roles of manufacturing will become more and more important. Firstly, the globalization means that it is more and more normal for companies to have new product development in one place, ramp-up manufacturing elsewhere, and full capacity production in a third location.
Obviously, in different phases, manufacturing could have different effects, that is, play different roles. Secondly, in different situations, manufacturing needs input from or provides input to and, thus, has to cooperate with different functions to realize its own role. In order to know more about how manufacturing works with different functions in different phases and how manufacturing acts as a platform to support different activities, the four strategic roles of manufacturing are valuable to be researched.
Thirdly, following the cooperation with different functions, the knowledge used and created may differ from phase to phase. In order to make this knowledge aspect clearer and easier to be esearched, it is, again, valuable to focus on four roles of manufacturing. This paper tries to view manufacturing from a new angle, going beyond fit, focus and trade-offs. The findings provide the basis for future research, mainly focusing on three parts. and, possibly extend the findings. In practice more roles may be found. And, then, our understanding of each of the roles is rather limited.
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