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Strategic roles of manufacturing

Strategic roles of
manufacturing

Jens O. Riis, John Johansen and Brian Vejrum Waehrens


Center for Industrial Production, Aalborg University, Aalborg, Denmark, and

Linda Englyst
rhus, Denmark
Vestas Control Systems, A
Abstract
Purpose The challenges facing industrial enterprises include coping with an increased distribution
of activities and the related need to deal with task interdependencies, as well as coping with
uncertainty and complexity. This opens for a discussion of current thinking and practices of
manufacturing and its strategic role. The aim of the paper is to explore future changes in strategic
roles of manufacturing.
Design/methodology/approach A review of the literature on manufacturing strategy has
focused on different ways of positioning manufacturing as a means for identifying and defining the
strategic roles of manufacturing in an industrial company. To understand how industrial companies
have dealt with some of the global challenges and have changed their strategic roles of manufacturing
over a period of 3-7 years, interviews are carried out in six small and medium-sized companies,
representing different industries, such as textile, mechanical and electronic industries. The case stories
form a basis for identifying issues for future manufacturing strategic roles in the form of research
propositions and implications.
Findings The literature review has resulted in a grouping of the strategic roles of manufacturing.
The first group of contributions relates directly to the extent and selected objectives of manufacturing
contribution to competitive advantage. The second group positions a company in a value chain or a
supply chain. The third way of classifying strategic roles focuses on the mutual interplay between
functions leading to a primary role and four supporting roles. The fourth classification identifies
different roles that a plant can play in a network of manufacturing plants of a company. To a large
extent, the groups are mutually exclusive which suggests that an industrial company may use several
classifications to find a configuration of strategic manufacturing roles that is in line with the
environmental challenges and internal strength. The empirical findings form a basis for developing
research propositions about the roles of manufacturing in the future: an important issue for an
industrial firm will be to combine the various typologies into a configuration of strategic
manufacturing roles; the strategic roles of manufacturing supporting other functions will become
increasingly important, emphasizing the importance of strengthening the interplay with other
functions and development of holistic competencies and knowledge sharing across functions and
disciplines; a companys development over the next years may be seen as a sequence of moves similar
to a game of chess, suggesting a capability to develop scenarios for the next series of moves.
Practical implications The paper suggests that management of industrial companies: develops a
combination of classifications of manufacturing roles appropriate for the companys specific situation;
identifies supportive strategic roles of manufacturing leading to explicit focus on the interplay with
other functions and strengthening of holistic competencies and knowledge sharing across functions
and disciplines; views the pursuit of a global manufacturing strategy as a series of adaptive moves,
instead of a once-for-all decision.
Originality/value The findings open for a discussion of current thinking and practice of
manufacturing and its strategic roles pointing to a new perception of manufacturing and to future
challenges and development patterns.
Keywords Strategic manufacturing, Strategic planning, Manufacturing industries
Paper type Research paper

933
Received January 2007
Revised May 2007
Accepted June 2007

Journal of Manufacturing Technology


Management
Vol. 18 No. 8, 2007
pp. 933-948
q Emerald Group Publishing Limited
1741-038X
DOI 10.1108/17410380710828262

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1. Challenges to manufacturing
The environment of manufacturing has undergone significant changes in the past
decade posing severe challenges to the way manufacturing is perceived and practiced.
Two of the most notable challenges are increased levels of complexity and uncertainty,
which cannot be ignored or reduced, but need to be addressed. This suggests a
dynamic systems view focusing on interdependencies and complementarities of roles
and tasks within the manufacturing system.
The increased global operation, both with respect to markets and supply, has
broadened the scope of manufacturing. At the same time, the drastic reductions in
product lifecycles and delivery times have eliminated inventories and, as a
consequence, have called for management of interdependencies among subsystems.
Furthermore, the output of a manufacturing effort, i.e. the creation of value to
customers, has been broadening from manufactured artefacts (goods) alone to also
include service and knowledge associated with the artefact.
In addition to the increased complexity the environment has become more dynamic.
Not only do we experience more frequent changes in customers preferences, and
products and manufacturing processes. But the direction of change has also become
more difficult to predict. This calls for an unprecedented capability of a manufacturing
system to be agile.
The need to look at manufacturing in a new way is supported by the European
Union initiative manufacturer. A Vision for 2020 report (European Commission,
2004) describes, among other things, a needed transition in four main areas:
(1) from resource-based to knowledge-based manufacture;
(2) from linearity to complexity;
(3) from individual to system competition; and
(4) from mono-disciplinarity to trans-disciplinarity.
The report also emphasizes the need to innovate manufacturing and to integrate
multiple perspectives and disciplines. It opens up for a number of questions to be posed
to current thinking and practices of manufacturing. First of all, it introduces an
increased strategic reach of operations. Secondly, it opens for a richer and more
embracing understanding of manufacturing, which cannot only be thought of as a
fulfillment activity, but as an activity that brings novel combinations in collaboration
internally and with its environment. And it calls for an understanding of
manufacturing as a network of complex and development-oriented relations.
This paper will focus on the changes in the strategic roles of manufacturing that are
initiated by the above-mentioned challenges. In the next section, we shall review
manufacturing strategy literature and especially discuss various ways of describing the
strategic roles of manufacturing. To understand how industrial companies have dealt with
some of the global challenges and have changed their strategic roles of manufacturing we
have carried out interviews in six small and medium-sized companies, representing
different industries. The case stories form a basis for identifying issues for future
manufacturing strategic roles in the form of research propositions and implications.

2. Strategic roles of manufacturing


The two papers by Skinner (1969, 1974) put manufacturing on the agenda of general
managers by introducing such concepts as manufacturing strategy, manufacturing task
and focused factory. It was a serious attempt to argue that manufacturing has a
contribution to make in the competitiveness of an industrial enterprise. The
manufacturing task captures the specific requirements and demands on manufacturing
and provides a basis for prioritizing goals. Different tasks lead to different focused
factories.
The role of manufacturing indicates the strategic contribution of manufacturing to
the competitive strength of a company. Based on empirical findings, Hayes and
Wheelwright (1984) identified four different roles of manufacturing: internally neutral,
externally neutral, internally supportive, 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).
Coming from a different perspective, Senge (1996) supports this maturity model as he
identifies three learning waves within the quality movement. He argues that companies
are highly concerned with improving tangible work processes, which he qualifies as the
first wave. The second wave deals with improving how work is conducted, which opens
up for an appreciation of the inherent systems dynamics. The third wave gradually
emerges from the previous two with learning as a natural part of life in an organization.
Applying maturity thinking to the distribution of manufacturing directs attention to the
questions of strategic progression and learning within a manufacturing system, and
firmly places the view and role of manufacturing in a corporate setting on the strategic
agenda.
Positioning manufacturing in its wider environment has become a question of fit
and focus. An important contribution was made by the identification of the concepts
Order Winners and Order Qualifiers (Hill, 1985), which is concerned with matching
competitive conditions to appropriate organizational structures. 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).
Voss (1995) introduces three paradigms of manufacturing strategy, which have
proved to be quite robust to the test of time, respectively: competing through
manufacturing; strategic choices in manufacturing, and best practice. In the first
paradigm he includes Skinner, Hayes Wheelwright, and Hill in the second paradigm. In
his 2006 revisit to the paradigms, he stresses the need to look beyond the underlying
stages/maturity assumption that characterizes each of the paradigms, but rather to see
manufacturing development as an iterative process in which each of the three
paradigms is revisited regularly (Voss, 2006). With the increased distributed
manufacturing and increased complexity there is a need for adding more dimensions to
strategic roles of manufacturing.
Another way of characterizing the strategic role of manufacturing was proposed by
Johansen and Riis (2005) based on the thesis that an industrial company can occupy a
number of different positions in the supply chain. These positions influence the way in
which a company develops products and seeks out knowledge, as well as the roles of
its production function and the relationships with other companies in its networks.
Three archetypal companies were proposed:

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(1) The focused firm, which specializes in a particular sphere of knowledge.


(2) The networking firm, which puts other companies together, coordinates and
develops their mutual activity.
(3) The integrating firm, which assembles other companies components into
products.
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. For example,
manufacturing may make a significant contribution by supporting sales in fast ramp-ups
of customized products, and product development by a capability to prototyping.
Johansen and Riis (2005) identified 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).
The discussion so far has seen manufacturing as one unit of operation, either as one
single plant or the overall contribution of the companys plants. However, when a
company has several plants often spread geographically individual plants may play
different roles. Ferdows (1989, 1997) characterized plants by their primary location
driver and the level of competence in terms of various functional resources and
management responsibilities. For example, a low-competence site established mainly
for reasons related to low-cost production was defined as an offshore site. Such a site is
established to produce specific items to be exported for further operations or sale. It
would not be expected to be innovative, and its managers follow the instructions and
plans handed down to them. At the other extreme, a lead factory spans a wide range of
functional competencies and managerial responsibilities, and creates new processes,
products and technologies for the entire company drawing on access to skills and
knowledge. Other types of factories are source factories, server factories, contributors,
and outposts.
Most of the contributions to manufacturing strategy take outset in the focus and fit
perspective with its emphasis on offering customers what they want. But
manufacturing competencies and their development may also create competitive
advantage for the company (Hayes et al., 2005). In view of increased difficulties in
predicting market developments and distributed production facilities, the dynamic
capabilities dimension of strategic development will be an important issue in the future
(Teece et al., 1997). This may change our paradigm of manufacturing based on
resources to manufacturing based on knowledge, which explicates the need to look
beyond fit, focus and trade-offs, as they may not be sufficient for competitive success.
Another paradigm shift may take place from managing settled dyadic relationships
to managing unsettled networks (Karlsson, 2003). He identifies the new manufacturing
challenge as one of managing the extraprise, due to the increased reliance on activities
outside the formal boundary of the company. Still we know too little about managing
activities outside the formal reign of control, especially when it comes to handling the
dynamic effects of the relationship (Mayer and Argyres, 2004) or analyzing the overall
network structure and the companys position in it, so as to be able to engage
effectively in the reconfiguration of the network (Gnyawali and Madhavan, 2001;
Koka et al., 2006).

In conclusion, the review of part of the literature on manufacturing strategy has


presented a variety of different ways of positioning manufacturing as a means for
identifying and defining the strategic roles of manufacturing in an industrial company.
The first group of contributions (Skinner, Hayes, Wheelwright, and Hill) relates
directly to the extent and selected objectives of manufacturing contribution to
competitive advantage. The second group positions a company in a value chain or a
supply chain (Porter, Johansen and Riis). The third way of classifying strategic roles
focuses on the mutual interplay between functions leading to a primary role and
four supporting roles (Johansen and Riis). The fourth classification identifies different
roles that a plant can play in a network of manufacturing plants of a company
(Ferdows).
To a large extent they are mutually exclusive which suggests that an industrial
company may find it appropriate to use several classifications to find a configuration
of strategic manufacturing roles that is in line with the environmental challenges and
internal strength. We shall return to this issue after having seen in six case stories how
strategic roles of manufacturing evolve in practice.
3. Case stories
With the aim to study how an industrial enterprise identifies its strategic roles of
manufacturing and how shifts of roles take place we have visited and interviewed six
firms. All of them have been engaged in setting up manufacturing abroad, although
with different number of years of experience. They represent small and medium size
industrial companies and come from various industries, such as textile, mechanical and
electronic industries. In terms of the three archetypal firms introduced by Johansen and
Riis (2005), four companies are integrating firm, one focused firm, and one networking
firm. Two researchers spent half a day visiting the company and met with top
management; in most of the cases both the Danish manufacturing facilities and the
plant abroad were visited. The questions raised took outset in the various
classifications of strategic manufacturing roles presented in the preceding section
and the competitive forces at play in the past 3-7 years development path.
3.1 Electronic systems supplier case A
Company A is a supplier of electronic equipment and systems designed by customers.
Owing to a strong price competition in Europe, the company decided to establish an
offshore factory in China. After two years, manufacturing was running smoothly with
a mixture of Danish and Chinese management methods and a blend of manual and
automated operations, and the company now plans to move a considerable part of its
domestic manufacturing to its Chinese plant. The customers are still located in Europe
and the Danish operation takes care of sales, technical specifications and production
preparation. This has put emphasis on managing the interaction between the Danish
organization and the Chinese plant in handling customer orders, emphasizing the roles
of ramp-up, benchmarking and prototyping production.
In the first place, the company was able to save 20-25 percent of its costs
compared to manufacturing in Denmark. However, the competition in Europe forced
the company to lower its prices. Furthermore, several Chinese suppliers are now active
on the European market, and some customers are also establishing themselves in
China, with the consequence that the competition has moved from Europe to China.

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The company has realised that it is a challenge to compete with local Chinese suppliers,
who have a domestic advantage.
3.2 Focused firm in the mobile phone industry case B
Company B develops and manufactures components to the mobile telephone industry.
It is known for its high quality standards and is on the forefront of innovation in the
industry. The company has approximately 3,000 employees, of which 75 are based at
the headquarters in Denmark. In the span of five years the company has gone from
lead production in Denmark to lead production in China.
In 1999, a customer service centre was established in China to serve the rising Asian
market. As a consequence, of the IT crisis in 2000 it was decided to move full scale
production from Denmark to China, while all product and process development
activities were retained in Denmark, along with some ramp-up activities. This initial
move was based on cost consideration mainly. A secondary driver, but increasingly
important, was the emergence of a local market in China.
By 2006, all manufacturing activities were relocated to China, after realizing that the
drivers for production development in China were different from the accumulated
experience in Denmark. In particular, production processes in China are based more on
manual work, while only quality sensitive processes are automated. This decision was
reached after realizing the difficulty of transferring Danish production technology and
knowledge to China, but also based on the need for increased flexibility in the
production.
A small R&D department was established in Shanghai to support ramp-up
activities and initial indigenous development activities in China, primarily to serve
Asian customers. Proximity to the customer is a key issue for product development
and the major customers still have their development activities in Europe, which
supports an extension of the R&D mandate in Denmark.
In 2006, it was decided to give the Chinese production site status of competence
centre for manufacturing, thus recognising that manufacturing competence was no
longer primarily based in Denmark. The proximity to suppliers of key components
played an important role in this decision, which has instigated the setup of a Chinese
sourcing department, while only strategic sourcing remains in Denmark. By the end of
2006, a new offshore production site in Vietnam has opened, primarily because of lower
wages. It is made possible with strong support from the Chinese technical department.
Manufacturing will primarily consist of full scale production in parallel to the Chinese,
while prototyping production will take place in China alone.
3.3 Machinery for two worlds case C
Company C is a strategic business unit within a multinational company; it develops,
manufactures and sells machinery for producing consumer products in the food industry.
Its customers are large international companies demanding high quality and frequent
introduction of new products. To meet these demands company C manufactures highly
automated and flexible production lines.
Some years ago the customers were attracted by the large Chinese market which led the
company to establish server-based production facilities in China collocated at the facilities
of its parent company. However, it turned out that the Chinese market wanted simple and
cheap consumable products, and that Chinese competitors were manufacturing ten-years

old copies of the companys products. The low wages stimulated a very low degree of
automation which was contrary to the effort of company C over the past decade.
So, in order to compete on the Chinese market, the office in China had to ask the
product engineering department located in Denmark to retrieve some of its old
products, and more over to give them a thorough overhaul to cut production costs. This
caused severe problems, due to the physical and mental distance between Chinese
product engineering needs and the Danish engineers expectations and experiences
which were primarily built on feedback from the Western market context.
As a second wave in the companys internationalization process, this led the
company to enter a joint venture with one of the best Chinese competitors who knew
the Chinese customers expectations and had a well functioning network of suppliers.
Over the years, the product program has gradually been expanded and renewed thanks
to Chinese product engineering capability. This means that the site has gradually
changed its scope towards the contributor role.
A third wave has just begun in which the Chinese plant has been asked to
produce units and parts for the Western products in an effort to save costs. This has
been made possible due to the increased level of quality and precise delivery capability
of the Chinese plant, and because the Western customers increasingly are asking for
smaller, cheaper and more flexible machines in order to become more demand driven.
Although coming from different outsets they start to match the requirements from the
Chinese customers.
As can be seen, the role and content of manufacturing in China has changed over
time. Especially, its interaction with product engineering has played a significant role,
and also the development of reliable local sourcing has provided a basis for the Chinese
plant to play a role in international operations of the company. In the future, the
company expects more integrated cooperation between its international production
and sourcing units, as well as seeking increased knowledge sharing between product
development and engineering at the mother company and its local engineering units,
emphasizing the role of prototype production.
3.4 World wide presence for the marine industry case D
Company D is a world leader of equipment for the marine industry. Product
development and engineering design take place at the headquarters in Denmark where
the main manufacturing facilities also used to be. But over the years manufacturing
capabilities have been established in five locations around the world. Its large market
share may be attributed to its world wide service organization, and the company now
wants to see itself also as a world wide manufacturer within close proximity to
customers.
As a consequence, of acquisitions, an effort has been made in recent years to
streamline the company product program. This has included the development of an
IT-supported product generator to facilitate sales and order processing. This has also
provided a basis for establishing mutual production standards at the five production
sites, which has produced significant quality improvements and paved the way for a
streamlining of global operations.
The strategic role of manufacturing is first of all that of full scale production world
wide for key components. This is close to customers, thus reducing the heavy
transportation costs. The second strategic role of manufacturing is to manage the value

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chains from order specification with customers, suppliers through production to


delivery and mounting at customers thus calling on ramp-up and prototyping
production.
3.5 Global orientation in industrial market case E
Company E has been able to establish itself as a major global player on the market for
high-end products for the industrial market. It has sales and service offices in most
countries and has built manufacturing facilities in many countries.
As a result of an expansion strategy smaller competitors have been acquired, and
major production capabilities have been established as a green-field operation in five
countries around the world (Eastern Europe, China, India, Russia, and Mexico). The
company has perceived itself as being internationally oriented with the main
manufacturing facilities in Denmark where the headquarters are, and where also R&D,
product development and logistics are located. But a few years ago the company
decided that expansion of manufacturing in the future should be realized abroad.
Production costs have been reduced in the new developing countries, but a great
managerial effort has been necessary to keep up to quality standards and delivery
performance. Machining tools with a considerable level of automation have been
installed as a means of securing quality of the production processes.
Management of the new plants have followed a policy of local sourcing which has
required an additional effort in terms of quality and delivery performance. This
has been successful to the extent that the old plants have started to use the best
suppliers world wide.
Despite a global product program some modifications have been necessary to fit
local markets. This has initiated a process of establishing an engineering facility
associated with the Chinese and Hungarian production plants, which are evolving from
offshore sites to source/contributor factories, as they contribute to corporate process
and product development, and to own and corporate sourcing.
The Danish headquarters continue to function as lead factory based on an access to
skills and knowledge, established here through decades.
3.6 Integrator in the textile industry case F
Company F is a medium size textile company offering high quality woven textiles to
industrial customers. Originally it mastered a broad number of production processes
in-house. But less than ten years ago the company started an outsourcing process and
today the company is primarily managing a network of suppliers and serves as a systems
integrator with close contact to customers. This involves not only managing the daily
operations and logistics, but to an increasing degree also monitoring and negotiating with
all actors in the value chains. For example, the logistics manager maintains personal
contact with the vendors of wool in New Zealand. The company buys the wool and calls on
full scale spinning and weaving factories abroad to process the wool to specifications.
At factories in Lithuania weaving takes place on machinery owned by the company
and originally located in Denmark, now leased by the Lithuanian supplier.
High quality demands have led the company to maintain and further develop
production engineering competencies, when the weaving operation was outsourced.
The Lithuanian plant is essentially an offshore full scale operation focused on costs

and efficiency, while product and process development, laboratory and prototype
production resides in the Danish headquarters.
Final treatment, like dying, softening and washing, is still carried by the company
lead factory, mainly because of the wish to control important processes. The
subsequent processes, such as sewing and upholstery, have traditionally been carried
by customers. But in line with the role as a system integrator, the company is now
offering to find suppliers for these processes. The company is not likely to undertake
benchmarking production itself, but is more tuned to further build up sourcing and
negotiation skills, e.g. to offer prototyping and ramp-up at suppliers.
In Table I we have summarized the case stories with respect to their strategic roles
of manufacturing.
As may be seen from Table I, the case companies illustrate that case A as a focused
firm uses only a few types in the Ferdows model and the Johansen and Riis model. In
contrast, case F as a Networking Firm draws on a much wider scope of partners and
vendors. The remaining case companies, as an integrating firm, apply a variety of
different combinations of strategic roles.
A common characteristic of the cases is the increased importance of the mutual
interplay between manufacturing and the other functions of industrial firms, and this
is significantly challenged by the move towards distributed manufacturing.
Another common characteristic is the dynamic development with self-exciting
elements calling for a sequential planning.
In the next section we shall further elaborate on these two development features.
4. Propositions on strategic roles of manufacturing
The case stories depict recent years development in industrial enterprises of content and
shifts in strategic manufacturing roles. In the following, we shall extend this
development to address expectations to what may happen in the future. We shall
express these expectations in the form of propositions that need to be discussed and
tested in future research. However, it is possible to derive some significant implications:
P1.

Configuration of strategic manufacturing roles, at the level of the network,


will become a key issue in future manufacturing.

The dynamic effects challenge the capacity to work with networks, because the sheer
number of relations does not lend itself easily to central role governance.
When production, sales and marketing, and product development take place at the
same location in a well-functioning company, the three functions enjoy an extensive,
informal communication and cooperation. Production is contributing to help sales
deliver a customized sales order, and it interacts with product development to ensure
manufacturability. Yet, such cooperation rests on informal relationships and tacit
knowledge, often with the consequence that the combined strategic roles played by
production have not been recognized by corporate management or by production itself.
A key challenge, therefore, will be to deal with tacit task interdependencies, not found
in the formal role descriptions or in contracts between trading partners. As
manufacturing becomes increasingly distributed, interdependencies need to change
too, in order to encounter shifts in proximity and stickiness of knowledge. Nodes of a
network rely on others for knowledge, but knowledge is sticky and therefore activities
would centre around key knowledge inputs.

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Table I.
Strategic manufacturing
roles of the six case
stories

Typology
Johansen and
Riis

Integrating firm
Two lead factories in
Europe and one
server based facility
in China, moving
toward a contributor
role
Full scale production All sites possess
more or less all
in China and
production roles,
Vietnam, ramp-up,
prototyping and lab although European
production in China sites seem to be more
advanced

Integrating firm
From lead factory to
outpost in DK.
Chinese source
factory, and offshore
factory in Vietnam

Focused firm
Lead factory in DK
and offshore site in
China, with the
Chinese factory
moving towards
source factory status
DK prototype and
full scale production
and Chinese factory
with full scale
production

Archetype
Typology
Ferdows

Products

Partly customized
machinery for the
food industry.
Low/middle
complexity
Highly automated to Manually, wage
semi automation
intensive

Price competitive,
quality conscious
market

Low complexity,
mass-produced
components for the
mobile industry

Price competitive
mass-market

Customer specified
electronic
components and
systems, with low to
medium complexity
Manufacturing Automated/manual

Cost-driven, price
competition

Manually, and wage A mix of highly


intensive
automated and semi
automated processes
Integrating firm
Integrating firm
Lead factory in DK, Lead factory in DK.
four server factories Four server factories
world wide, with two
world wide
moving towards
source/contributor
status
Full scale production Lead factory has all
at all sites, ramp-up roles. Full scale
production at all
and prototype
sites; some ramp-up
production in DK
and prototyping in
factory
source/contributor
factories

Textiles for the


furniture industry.
Competing on
quality and price

High-end products
for the industrial
market. The
company operates
globally
Standardized
products, middle
complexity

Equipment for the


marine industry
world wide. Price
and delivery are key
parameters
Customized
products, relatively
complex

(continued)

All production is
outsourced to
suppliers
Networking firm
Outsourced offshore
facilities in Eastern
Europe. Lead factory
in DK (final
treatment, and
logistics)
Full-scale production
at offshore site,
mainly prototype
and laboratory
production at lead
factory

Woven textiles, low


complexity

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Market

Case

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Issues and
perspectives

Case

The Danish plant, in


the long run, will be
forced to down-size
production and focus
on new roles
(benchmarking,
ramp-up, etc.) to
survive. The Chinese
site has potentials
for prototype,
ramp-up and
benchmarking
production as
customers move to
China

E
Source/contributor
plants are
developing towards
lead factories
containing most
production roles. In
consequence the role
of the DK lead
factory will change.
The company is
evolving into a
genuine global
company

D
The Danish
headquarter serves
as a knowledge node
in the network

C
European factories
are likely to turn into
assembly plants as
the Chinese factory
contributes
increasingly with
component
manufacturing. In
the years to come
engineering and
R&D (prototyping,
etc.) will be split
between all sites,
maybe consolidated
in Denmark and
China

B
The Danish site has
been closed down
and contains only
headquarter
activities. In the first
place the idea was to
keep some
development
activities in
Denmark, but it
turned out to be
inefficient, among
other things, due to
proximity issues

The original lead


factory is evolving
towards a business
(rather than
production) oriented
Network company,
not possessing any
production processes
by itself

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Table I.

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With the increased offshoring and outsourcing of production these tacit, strategic roles
become evident and call for explicit management attention. The case examples indicate
that production in almost all cases plays a combination of strategic roles. Thus,
configuration of the combination of strategic roles that production should play in a
specific company is a key issue. We believe that the introduction of the various
strategic roles may help initiate a strategic discussion of an important contribution that
manufacturing is making, that often has been neglected or taken for granted.
Furthermore, it will open up a discussion of reconfiguration of the manufacturing
network, which goes beyond operations efficiency and into operations effectiveness.
Case B details an example of a dynamic configuration of an internal manufacturing
network, which over time has shifted its centre of gravity to China and absorbed new roles
and responsibilities in this process. Case C is an example of a company that has been forced
to define a new combination of strategic roles that implied engaging in a joint venture with
a foreign competitor. And case F demonstrates a deliberate strategic decision on the
production competencies to be maintained in-house, often in cooperation with suppliers.
As an implication, the proposition points to a future needed focus on using the
various typologies in combination to configure the strategic manufacturing roles most
suited to the individual industrial company. The typologies may also provide a basis
for continuous attention to anticipate needed shifts in strategic manufacturing roles:
P2.

The indirect strategic roles of manufacturing will become increasingly


important.

Not to neglect the significance of the role of full-scale production, it seems that the
contributions that manufacturing makes to competitive advantage in cooperation with
other functions will become more important in the future; for example, ramp-up,
benchmarking, prototyping, and lab production.
In companies with increased customisation of products the role of prototype
production will require more attention and, on the other hand, offers potential for a
differentiated corporate strategy. As pointed out by Slack et al. (2004), attention should
be given to the increased integration of product and service offerings.
The proposition is supported by Maletz and Nohria (2001) who point to the need to
manage white spaces, i.e. the large, but mostly unoccupied territory in every company
where rules are vague, authority is fuzzy, budgets are nonexistent, and strategy is
unclear and where, as a consequence, entrepreneurial activity that helps reinvent
and renew an organization takes place.
Because of the increased dynamics and uncertainty of demand, ramp-up production
is expected to come to play an important role. This calls for modular and platform
thinking in design of production systems and well-described business processes.
Global production points to management of the value chain, i.e. the interplay in
various networks with respect to both daily operations and introduction of new
products, technologies and systems.
Case F clearly demonstrates that the key role of production is that of managing virtual
manufacturing focusing not only on supply chain management, but also on
the maintenance of sufficient competencies at the suppliers. This calls for establishing
and maintaining strategic alliances and extensive personal relationships. Both case D and
E show the increased awareness of the importance of the interplay between product
development, handling of customer orders, and production and supply chain management.

As an implication, P2 points to the need to focus attention on developing


competencies in managing the interplay between functions, e.g. sales, product
development, sourcing, and manufacturing.
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
complex interplay between many actors involved in a value chain will become
important. The strategic roles of manufacturing imply this kind of competencies.
In many companies, the competitive strength lies in these complex competencies
requiring a holistic thinking. When managers have been asked to identify the key
competencies of their company, they most often point to holistic competencies. And
when asked how this is documented, it turns out that holistic competencies are tacit
and located in the hands, heads and minds of a group of employees, and in their
interplay with the historically generated systemic set-up (Drejer and Riis, 2000).
Knowledge sharing across organizational boundaries will become a key issue in the
future industrial enterprise, and we predict that new forms of accelerated learning will
be developed, such as systematic experimentation and simulation of future scenarios
by way of a combination of computer simulation and interactive organizational
learning methods (e.g. simulation and role-playing games).
Case E has recognized the need for knowledge sharing between its manufacturing
sites around the world, not only on specific production processes, but in particular the
management practice of stimulating continuous improvements and systematizing
cooperation between production development, production engineering, operations and
suppliers in the introduction of new products. The company considers using the
development of scenarios for future production practice (strategic challenges,
organizational forms, business processes, management systems and production
technologies and processes) as a vehicle for a joint exchange of ideas and know-how
between managers and engineers of the various manufacturing sites.
Case D has spent much effort on developing an IT-supported product configurator
to help sales in their dialogues with customers. At the same time, it will provide
a framework for developing a common production platform for the various production
sites:
P3.

From value chain to value web.

Four of the six case companies were identified as an integrating firm serving as an
OEM company at the end of a supply chain. Most of them have adopted an outsourcing
strategy to focus on product development, assembly and distribution, as also pointed
out by Karlsson (2003). However, when we look at manufacturing, a shift of thinking
may be observed, for example in case D and E, from a single lead factory in Denmark to
several lead factories forming a web of interactions. For example, one factory has been
designated a center of excellence in a specific production process (foundry).
A key question is how companies will be capable of retaining sufficient
competencies in-house for leading the development of future activities. Longitudinal
studies will be required to study the dynamic effects as competencies unfold within
manufacturing (networks).

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The archetypal networking firm is characterized by a number of nodes (partners)


offering complementary capabilities useful for the products and services offered,
illustrated by the case company F.
An implication of the move from a value chain thinking to that of a value web is that
the power structure becomes more distributed and diffuse. In most cases, the
integrating firm holds the final word, being closest to the customers and being willing
to adopt the risk. In the networking firm all complementary contributions are
necessary, and the power lies among several partners.
As a consequence, P3 calls for a shift from a trade-off thinking to a capability for
working with dualities, e.g:
.
Living with hierarchical roles and evolving networks.
.
Empowering employees and middle management and setting direction.
.
Centralising strategy and decentralising operations.
.
Standardising for cost, reliability and global reach and customising for
responsiveness.
An interesting aspect to explore is the potential synergy for example expressed by
Milgrom and Roberts (1995) that doing more of one thing increases the returns of doing
more of another. This points to the notion of strategic complementarities, according to
which investing in one practice makes it more profitable to invest in another, setting off
a potential virtual circle of high performance:
P4.

Shifts in strategic manufacturing roles may be seen as a sequence of moves


similar to a multi-player game.

Case C illustrates how a first set of decisions to establish production in China led to
unforeseen consequences, which called for a new set of decisions and essentially set the
company off on a new trajectory. The case description talks about three waves of
decisions and reactions from the environment.
Case A also demonstrates that the initial decision to establish production in China
might have been justified; but due to the reactions from customers and competitors
new challenges and opportunities emerged.
These and similar case examples have led us to use an analogy to a game (e.g.
chess). A player makes a move, and the other player reacts and makes his/her move,
which leads the first player to make a new move. The ability to foresee more than just
one move is a key to success in chess and other games.
Cases A, B and C illustrate that management was not aware of this dynamic process
and was caught by the irreversible nature of operational realities. Company C,
however, managed to turn the situation into an advantage by doing something
extraordinary, namely acquiring a Chinese competitor.
As an implication, an organizational learning approach is warranted, which
emphasizes experiential expansion and connectivity between parts. In a distributed
manufacturing network, a concerted effort is needed to transfer the work-object and to
explicitly codify and transmit sticky knowledge through systemic and social
communication channels. The difference between tacit and explicit interdependences is
critical for understanding the implications of increased distribution.

Another implication is a need to develop interactive scenarios, perhaps in the form


of social experimental simulations, which would explore possible consequences of a
series of moves. We find that this way of thinking about strategic planning is quite
different from the traditional development of a master plan for the next period. Such
experimental simulations may include identification of irreversible elements requiring
special management attention.

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manufacturing

947
5. Conclusion
This paper took its outset in the challenges facing industrial enterprises of coping with
an increased distribution of activities and the related need to deal with task
interdependencies, as well as coping with uncertainty and complexity. This has called
for a discussion of current thinking and practices of manufacturing related to the
traditional best fit, trade-off and role perceptions. The focus of the paper has been on
changes in strategic roles of manufacturing. A review of current typologies of strategic
roles that manufacturing can play pointed to a need for drawing on different typologies
for configuration of a set of strategic roles for an individual industrial firm. Six case
stories illustrated the development in strategic roles of manufacturing in small and
medium sized companies over a period of 3-7 years. The empirical findings formed the
basis for developing research propositions about the roles of manufacturing in the
future to be tested. They gave rise to significant implications pointing to a new way of
viewing strategic manufacturing roles.
For example, an important issue for an individual industrial firm will be to combine
the various typologies into a configuration of strategic manufacturing roles.
The interplay with other functions will require holistic competencies and
knowledge sharing across functions and disciplines taking into account tacit
knowledge and informal working modes.
The emergence of transnational networks in distributed manufacturing implies new
practices of manufacturing beyond trade-off thinking to be able to deal with dualities.
Finally, a companys development over the next years may be seen as a sequence of
moves similar to a game of chess.
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Corresponding author
Jens O. Riis can be contacted at: riis@production.aau.dk

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