You are on page 1of 15
(1984), provide manufacturing objectives that offer the firm a competitive advantage (Hayes and Wheelwright (1979), and focus on a consistent pattern of decision-making within key manufacturing resource categories (sec Hayes and Wheel- wright (1984), Buffa (1984), Edmondson and Wheelwright (1989), and Hill (1989) Within these broad categories, manufscturing strategy focuses on the following competitive variables (Buffa (1984) and Porter (1980): cost/price, quality, delivery, flexibility, product design, and after market service. Hayes and Wheel- wright (1984) categorized manufacturing strategy decision varlables into the following eight groups: capacity, facilities, technology, vertical integration, workforce, quality, mane facturing planning and control systems, and organization. (This categorization is not unique with both Hill (1989) and Buffa (1984) proposing alternatives) These categories suggest a clear link berween manufaevuring and corporate strategy. Only recently has manufacturing strategy been empiri- cally analyzed (Millerand Roth (1987) and Schroeder, Ander- son, and Cleveland (1986). Despite Buffa’s (1980) suggestion that researchers in operations management should consider developing “a rational decision process” for strategic manu- facturing decisions, there hs been a lack of theoretical atten~ tion to the process of formulating and implementing 2 manufacturing strategy once an overall corporate strategy has been defined (Anderson, Cleveland, and Schroeder (1989). ‘The few empirical studies that have been done suggest that a stronger role for manufacturing within the hierarchy of corporate strategy formulation should improve perfor- mance. Richardson, Taylor and Gordon (1985) showed that improving the focus in both the corporate mission and the manufacturing tasks and increasing congruence between the corporate and manufacturing objectives each produced better corporate performance within the Canadian electronics industry. Swamidass and Newell (1987) demonstrated that an enhanced role for manufacturing managers in strategic dec sion making resulved in better business performance. Fine and Hax (1985) developed a framework for formulating manufacturing strategy in an electronics firm based on the product-process life cycle (Hayes and Wheelwright (19794 and 1979b)), the product_process innovation curve, and the concept of factory focus (Skinner 1974)), Recently, Edmond- sonand Wheelwright (1989) described the role that manufac- turing plays in sustaining a competitive advantage overtime. Overall, this research shows that strong ties between man- facturing and corporate strategy have positive effects on performance. ‘This study extends earlier research by examining the link- ages between manufacturing and corporate strategy formulae tion and implementation as practiced by a crosssectional representation of firms. Although the results are exploratory, they provide a preliminary comparative analysis of how serategy is formulated and implemented in practice, as well assome hypotheses for future eegarch directions. The overall question we examine is: In practice, how is manufacturing strategy formulated and implemented within a corporate serategy framework? Methodology Since this research is exploratory in nature, a qualitative research methodology was used. Burgelman (1983) states that such an approach is appropriate when the research is artempt- ing to gain new insights into an “as yet incomplely documented phenomena,” Data were collected during a practitioner conference in which industry representatives described how manufacturing seracegy was actually practiced in their firms. The conference setting allowed for a greater amount of unstructured partici- pant input than would have been possible using question naires, and further, it allowed for dialogue between the researchers and participants to dlarfy issues as well as co develop points of interest that emerged during discussions, ‘The cost of this higher quality of information was that 2 lower aumber of firms could be sampled. “Twenty firms who had made conscious attempt at imple- renting manufacturing strategy were invited to the confer- ence, Some declined because of schedule conflics, while others declined because they felt their firm's strategy devel- ‘opment was not far enough along to subject it to scrutiny. Thus, there was some bias and self-selection among the participant firms. The final list of participants consisted of six firms representing the following industries: computer ‘equipment and electronic instruments, telecommunications, farniture, petroleum (electrical submersible pumps), valves, and pharmaceuticals. Each firm was represented by at least cone person at the level of Vice President of Manufacturing or higher, and in three cases, corporate officials with titles such as Director of Strategic Manufacturing or Director of Corpo- rate Development and Planning also participated in the pre- sentation. Five of the presenters hed been involved in the process of formulating manufacturing strategy for the corpo- ration, while one of the presenters had been involved in the development of manufacturing strategy at the SBU level Each firm was given up to ninety minutes to make a presentation about its experience with manufacturing strat egy formulation followed by a question and answer period. [After the conclusion of the presentations, a half day was set aside for continued questions and unstructured discussion of high interest copies that had emerged from the presentations. ‘The diseussion period was initiated by an agendz of questions presented to the participants in round robin style. This agenda consisted of questions identified by the researchers as 4 . CPIM Systems and Technologies Reprints © APICS recurring problems in the formulation and implementation cof manufacturing strategy afterall the presentations had been completed, ‘To provide a common background and format for the presentations, the participants were provided with a defini- tion of manufiewuring strategy and a lise of issues to address Since the literature indicates that many different interpreta- tions of “manufacturing strategy” exist, particularly among practitioners, (gee Swamidsss (1986) and Schroeder, et a. (1986), it was necessary to provide all participants with common terminology. The following definition was pro- vided: Manufacturing strategy is a collective pattern of coordi nated decisions that act upon the formulation, reformulation, and deployment of manufacturing resources and provide a competitive advantage in support of the overall strategy iniciative ofthe firm or the SBU. In addition, the participants were asked to consider the following questions when preparing their presentations: Manufacturing Strategy Issues © What are the objectives of manufacturing strategy? © How is manufzcturing strategy formulated? © How is manufacturing strategy related to marketing strat egy? © Who is responsible for the formulation of the strategy? © How formally and frequently is the strategy formulated or reviewed? © How is the manufacturing strategy related to corporate strategy? © What are the elements of the major categories of strategy? Manufacturing Strategy Experience ‘What were the considerations in implementation? How is evaluation and feedback done? ‘What problems were encountered in implementation? eeoe How long has your firm been involved in manufacturing strategy? ‘What lessons have you learned? ‘© How do you evaluate your manufacturing strategy effec- tiveness? ‘The conference was videorapedin its entizety to enable the researchers to provide an accurate representation of the pro- cesses described by the participants. In addition, this freed the researchers from the burden of note taking and enabled them to participate to a greater extent, All of the participants presentation materials were also accumulated to help assure accurate depiction of the strategy process. Finally, che process descriptions that emerged from the conference were written by the researchers and then carefully reviewed by the corpo- rate participants for accuracy. In each case, the participants provided final approval of the data and descriptions used in the research study. Description of the Participants Each of the participating firms was selected on the basis of its known experiences with manufacturing strategy. Not surprisingly, each firm was performing very well within its industry as evidence by its profitability and market share. ‘The cross section of firms represented not only a diversity of products, bu also diversity in verms of size, complexity, and geographic location. Three of the firms were classified as “large” firms with sales varying from $1 billion to $8 billion annually and employed from 18,000 to 82,000 people world- wide. The other three firms had sales that varied from $100 million to $310 million annually and employed from six hundred to six thousand people. Many of the firms were smult-plant and multi-divsional, while others, including one of the larger firms, did all manufacturing in a single plane ‘Some of the firms had very long histories, having been in existence for over one hundred years, while ochers had been in existence for only thirty years. Some ofthe firms, like the furniture manufacturer, competed in very mature industries, ‘while the two electronics firms had significant activity within newly emerging technologies. Despite these diversities, the firms had several things in common. All of the firms had established excellent manufac- turing planning and control systems. Some firms and some divisions of the larger firms had attained class A status in MRP use. Each firm had 2 manufacturing data base that was accurate and up-to-date. Each of the firms was involved in implementing Justin-Time although the actual stage of implementation varied widely among the firms. Most impor- tantly, all these fiems had achieved credibility within the manufacturing function by demonstrating an ability to pro- duce and ship products on time through the successful use of a manufacturing planning and control system. This result may imply that manufaccuring’s “getting its house in order” is a prerequisite to che initiation of the strategy proces. ‘The panicipants reached a general consensus that condi- tions within their respective industries were growing increas- ingly complex. All of che firms mentioned the new challenges created by growing international competition, shorter prod uct life cycles, and customer demands for high quality prod- ucts. In addition, the two electronics firms mentioned problems created by rapid technological obsolescence. Two ‘of the firms that supplied products to the petroleum industry bhad considered basic survival to bea key challenge as che price © aPics CPIM Systems and Technologies Reprints 5 of oll dropped during the early cighties. The pharmaceutical firm focused on problems with government regulation of drugs and pharmaceuticals, while the telecommunications firm discussed the paradox of deregulation thac had created both problems and opportunities for the firm. No firm considered itself to be the low cost producer in the industry, although many of the firms mentioned th increasing impor. tance of costs as the industry geew more competitive or was economically depressed. All firms considered their compe- tencies to be in innovation, quality, and service. These char- acteristics are consistent with the characteristics of the participants reported in an empirical study of business stat~ egy conducted by Schroeder etal. (1986). Descriptions of Manufacturing Strategy The following sections describe the manufacturing strat- egy process for each ofthe six firms. Acthe end of the section are two tables that provide a detailed comparison of the six firms’ experiences, Firm 1: The Manufacturer of Computer Equipment With annual sizes of over cight billion dollars and 82,000 employees worldwide, this highly decentralized firm uses a hierarchical approach to corporate and manufacturing strat- egy formulation as shown in Figure 1. Corporate strategy represents the starting point for manufzcturing strategy and for the business plans ofthe operating units. At the corporate Figure 1. The Manufaccuring Strategy Process for the Computer Equipment Manufacturer level, broad corporate strategic objectives are formulated that Provide a set of expectations for lower level manufacturing stratogies. The responsibility for formulating group-level manufac suring strategy rests on the group manufacturing managers, ‘who represent the manufacturing departments of the various related divisions within the group. A fundamental goal in formulating group-level strategy is to identify and integrate all strategic elements at the group level co the plans and strategies developed at other levels within the corporation. Thus, in addition to che corporate strategy and business plan, the group must respond to its own business plan, the plans of the Corporate Manufacturing Council (in which each group participates) and any ongoing major R&D program activities that will involve the group. Initial efforts at a group-level manufacturing strategy focus on how the group's manufacturing resources can make a contribution to the higher level plans, and in particular, how they can provice a competitive advantage. After potential comperitive contributions are defined, exch division within the group is polled ewice in order to deter- ‘mine what manufacturing strategy is actually being followed. ‘The approach involves prioritizing the major bases of com- petition (¢g., quality, cost, availability design) for each divi sion. Each respondent is first asked to rank the competitive variables in importance to the customer, and ata later point in time, is asked how the variables would be ranked based on their perceived importance in day-to-day operations. The discrepancies in these results provide the basis for evaluating how patterns of decisions are being made. The group looks at categories of resources (using the Hayes-Wheelwright clas sification) to decide what opportunities for change in manu facturing are possible. Specific strategies are formulated for each of the categories of manufacturing resources and, in addition, performance measures and tactics for accomplish: ing the strategy areselected. AA division manufacturing strategy is formulated by estab- lishing strategic objectives that ae consistent with the group manufacturing strategy. Yet at the same time, there is an effort to provide an appropriate level of detail to focus the strategy to a division's strategic objective. The process involves defining the strategic objective, creating a specific tactical plan for each strategic objective and then defining specific performance measures for each tactical objective. The process is further refined by identifying appropriate depart- mental tactical objectives for each department within the division. Wich the support of the tactical plans, performance measures, activity plans for implementation of the tactical plans, and supporting organizational plans, implementation can be easily monitored and strategies can be executed. 6 CPIM Systems and Technologies Reprints © APICS