Manufacturing Strategy

Manufacturing strategy defines what the company will make (versus procure); where it will be made; how it will be made; and with what capabilities and capacities.  It includes choices such as:

  • What you manufacture versus source; and how you source components, modules, parts, raw materials — locally, regionally, centrally?  Internally (from your other factories) or from other companies?
  • Where you build (footprint; including scale, number, concentration of plants); diversity / homogeneity of manufacturing capabilities; flexible or dedicated capacity?
  • How you build — manufacturing capabilities and processes; automation; process standardization; modular or integral manufacturing; how you schedule (batch, continuous)

Together, these choices deliver your manufacturing configuration:  what product types, models, modules, components, and parts are produced in which factories; and whether that production is spread across regions; concentrated in the regions where each product is sold; or networked, with some factories supplying others.  

Key tradeoffs in manufacturing strategy

Most of the time, manufacturing strategy needs to achieve the right balance of cost, quality, flexibility, and delivery — consistent with the business strategy.  Changes in the market environment as well as the business strategy can affect what should be the appropriate balance.

Cost

Achieving the targeted per unit delivered cost is a key driver, but this must usually take into account constraints on:

  • Factory and supply chain capital:  better tooling and more automation can often reduce manufacturing costs, but factory capital (or support for suppliers) is usually limited.  A crucial determinant of these capital requirements is desired capacity — which puts pressure on demand forecast accuracy.
  • Development capital:  a better design may be less costly to manufacture, but better designs are not costless

Quality

Defining and reaching the appropriate quality levels can be difficult and costly, depending on what those levels are — which are driven by the business strategy and the competition.  In deciding where to build what, you may also need to consider perceived quality — the value your customers may place on the “made in X” label.  This can drive strategies which assemble in destination markets, but of components imported from elsewhere.

Flexibility

Some business strategies or market environments put a premium on flexibility — the ability of manufacturing to withstand:

  • Exchange rate fluctuations
  • Changes in shipping rates
  • Changes in tariffs and non-tariff barriers
  • Economic disruptions
  • Major catastrophes (such as global pandemics)

Delivery

Major dimensions include:

  • Speed — from the time of order, how fast can it be delivered to the customer?
  • Accuracy — delivering the expected product when it was committed

“During times of relative stability, manufacturing strategy focuses on getting better at the things necessary to defend the position staked out in your business strategy.  In turbulent times, manufacturing strategy is about flexibility.”

— “Beyond World Class: the New Manufacturing Strategy,” Harvard Business Review

Manufacturing Strategy in Context:

Manufacturing strategy is also affected by — and in return affects — other functional strategies:

 

Marketing & Sales

What you want to sell to whom, and where:

  • How you define markets (segmentation) and identify opportunities relative to competition
  • How you brand
  • What product & service capabilities are needed to win in targeted segments

Product Development

How you design & engineer to deliver the needed product / service capabilities:

  • Technologies, design platform, modularization
  • Specifications (for features, quality, performance)
  • DFSS, DFManufacturability, DFServiceability

Order Fulfillment

Order Fulfillment (OF) is a coordinated process connecting:

  • Forecasting (plan the order)
  • Selling (get the order)
  • Supply management (acquire the material required)
  • Manufacturing (make what’s ordered)
  • Outbound logistics (deliver the order)
  • Invoice & collect (get the order paid for)

OF processes must be able to accommodate differences in Sales or Manufacturing strategies and priorities across geographies, product lines, and customer segments.

 

Supply Chain & Logistics

Supply Chain Management & Logistics (into & between plants) must bridge the needs of Engineering and Manufacturing to:

  • Develop the supply base in each location and globally…
  • For RM, parts, components, and modules…
  • To meet specs…
  • And get the right inputs to the right places at the right time

Client Engagement Examples

Global Modular Manufacturing Strategy

SITUATION:

This F50 company manufactures very large and expensive durable goods in numerous factories around the globe.  Having already moved to modular product design,  they wanted to explore ways to make use of that modularity to improve the flexibility, quality, cost effectiveness and efficiency of their sprawling manufacturing network.

SOLUTION:

We worked closely with executives and an operational core team to:

  • Establish, define, and measure the key parameters to balance, including: cost, quality, risk and flexibility
  • Determine and acquire key inputs such as product data, labor costs, tariffs, exchange rates, shipping rates, production costs, component/raw material supply costs, and many more
  • Provide design and operationalization assistance for a comprehensive multi-variant optimization model
  • Develop target scenarios and iteratively model both the financial and non-financial impacts of each scenario
  • Assess results and recommend “optimal” global manufacturing network – including dramatic changes in product modularity and manufacturing footprint  

RESULT:

The new manufacturing strategy – currently being implemented – is projected to save hundreds of millions of dollars in operational costs, while increasing network flexibility and reducing risk.  The optimization model is now being used in other business lines across the company.

Manufacturing Strategy for Growth

SITUATION:

This company was facing explosive growth and needed to expand capacity in order to meet market demand. They needed to determine in what locations to manufacture which products/components, incorporating numerous factors, including: current and future customer demand by region, location of current facilities, geographic labor conditions/costs, governmental stability, infrastructure costs, supply chain, etc.

SOLUTION:

We worked closely with executives and an operational core team to:

  • Determine a workable approach and objectives given an aggressive business strategy
  • Develop the numerous factors critical to the decision-making process and determine a set of viable candidate scenarios
  • Model the financial and assess the non-financial factors for each scenario
  • Decide on the optimal scenario/variants and formulate a strategy, including elements cost, risks and associated critical success factors

RESULT:

The strategy was implemented throughout Europe and Asia, generating significant profitable growth — the company returned record results within two years.

A good strategy will struggle without appropriate governance; governance without good strategy is just ritual; and neither is effective without the right people in a suitable structure.
Strategy, Organizational Architecture and Governance need to be aligned for the organization to succeed. A good strategy that is poorly executed due to ineffective operating governance or an unsuitable organizational structure is likely to fail (or at least underperform). A reorganization that doesn’t take into account dynamic strategy is less likely to meet its objectives; and operating governance, to ensure the right people are making the right decisions, must take into account the organizational architecture and the strategy.

 

Any of these elements may need to change due to new competitors, changed regulations, different input costs, new technologies, or any of the other myriad ways the business environment is continuously evolving. That doesn’t mean they all must change or that they must change together — successful companies carefully evolve as the environment changes, and we can enter in any of these practice areas to begin to make improvements.

 

We employ distinctive techniques (such as business wargaming and organizational simulations) across all our practice areas, as well as proprietary frameworks and processes.

 

Share This