Manufacturing Strategy

Manufacturing strategy is central to business strategy because it enables crucial “how to win” capabilities beyond cost, such as:

Flexibility and Responsiveness: The ability to handle changes in production volumes or product mixes; and to react quickly and effectively to product design changes, raw material changes, or customer order and delivery requirements (product options, order changes, delivery modes / timing / locations). These capabilities are central to winning with speed to market and customer intimacy.
Customization / Configure-to-Order Capability: Supports differentiation and customer intimacy strategies, and can enable localization.
Order windows and Delivery Speed: Even with a stable schedule, the ability to accommodate tighter order windows and deliver faster than competitors is fundamental to competing on performance.
New Product Introduction (NPI) speed: Fundamental to competing on innovation leadership, or on a fast-follower strategy with superior execution.
Resilience: The ability to withstand shocks or rapid changes in exchange rates, labor or input costs, trade conditions, shipping rates, pandemics, and other operational disruptions. Fundamental to competing on supply reliability.

“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

Elements of Manufacturing Strategy

Manufacturing strategy is the set of choices about what the company will make (versus procure); where it will be made; how it will be made; and with what capabilities and capacities. Manufacturing strategy choices include:

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.

Outputs, capabilities and tradeoffs in manufacturing strategy

The configuration of production assets is what gets most attention, but real capabilities result from not only the configuration of assets but the skills & knowledge (in people) to operate them and the organizational processes that guide how those people interact. A manufacturing strategy needs to define the appropriate mix of capabilities — consistent with the business strategy. Changes in the market environment as well as the business strategy can affect what should be the appropriate balance across capabilities. And always there are tradeoffs.

Client Engagement Examples

What Your Manufacturing Configuration Determines:

Production Cost

Any manufacturing configuration delivers a set of production costs. Achieving the targeted per unit delivered cost is a key driver of how you configure your production assets, but this must 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

Capacity Profiles & Production Rates

Any particular configuration has a set of capacity profiles: how many units of each type can be produced, and how much capacity can be swung from one product to others.
For each capacity profile, there is a maximum production rate for each product.

Flexibility

The locations of your factories, their capacities, and the redundancy of your production capabilities (can you make the same product or module in more than one location) sets the flexibility of your configuration. Flexibility enables resilience to changes in production costs, trading conditions (tariffs, non-tariff barriers), shipping disruptions and the like because production can be shifted (at least in part) away from disrupted locations to locations with better conditions. (see more on flexibility below)

Product 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.

Delivery / Fulfillment

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

Modular Manufacturing Strategy (MMS)

Distributes module production over a network of factories to:

Reduce production cost
Increase flexibility (make a wider range of product variants and volumes with the same assets)
Improve resilience to price shocks and production disruptions

Modules are subassemblies with standard dimensions and interfaces which are combined to assemble the final product. End products can be partially or completely modularized. Product variants can be produced by changing out modules, instead of requiring different integral designs.

Modular Manufacturing Strategy is a paradigm shift from standalone factories and supply bases to a network of factories making parts and supplying modules to each other for final assembly.

Even if every factory completes final assembly of some products, some capital-intensive or difficult processes can be completed in two or three locations, instead of at every factory or supply base. Locations with lower costs for certain activities can do relatively more of those things for the network, so a higher proportion of production is done in lower cost factories. By concentrating some work in a few locations (instead of all), more benefits of scale and focus can be realized.

If production capabilities are geographically distributed, the production network is also more resilient to disruptions and cost shifts.