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Some of the strongest industries in the United States and other developed countries are in the
service sector. The consulting and financial services industries, in particular, hire thousands of
college graduates each year. This fact has prompted many to suggest that manufacturing in
developed countries has not only declined in importance but is on a path toward extinction. It seems
clear to us, however, that nations care deeply about manufacturing. This is particularly true in certain
industries, including microprocessors, computers, and automobiles, which are considered vital in
today’s world. These industries are often the source of innovation, productivity improvements, and
high-skill jobs. Operational excellence in these industries can be the primary source of competitive
advantage. Dell Computer, for instance, has used inventory management, supplier relationships,
rapid response, and information technology to change the rules of competition in the personal
computer industry.
Our observations also suggest that although they receive little attention in the press, the
textile/apparel, machine tool and food industries are also considered vital. Why is this so? We think
it is due to at least two reasons. The first is that food and machine tools are fundamental to national
security. Without an industry that manufactures and distributes food, a nation is very vulnerable if it
is isolated due to a conflict; and in such situations, without machine tools (machines that make
machines), the hardware that drives the economy will grind to a halt. The second reason is simply
jobs. The textile/apparel industry employs millions of people worldwide, many in low-skill entry-level
jobs.
This note was written by Professor David Pyke and revised October, 2000. Reproduction without
written permission is prohibited. It has been publis hed as, “The way forward for operations
strategy.” The Financial Times, Part Four of Mastering Management, October 23, 2000
TH E AM O S TU C K SC H O O L DA R T M O U T H COLLEGE 2
Without this industry a nation can face high levels of The operations strategy itself is made up of three
unemployment and has reduced capacity to bring people levels: (1) mission, (2) objectives, and (3) management
such as immigrants into the workforce. levers, as shown in the figure below.
Even if you are not in the manufacturing business
MISSION
yourself, it is important that you understand
OBJECTIVES
manufacturing issues so you will be successful with your Cost
Reliability
A THREE-LEVEL FRAMEWORK
Flexibility Volume
We begin by stressing that the operations strategy of New Product Development
the firm should be in concert with other functional area
Customization and Product Mix
strategies, including marketing, finance, and human
MANAGEMENT LEVERS Facilities
resources.1 Sometimes, however, one function should
Capacity
take precedence over the others. One firm went through a
painful period of not responding to customer needs in a Vertical
1
Note that many firms are eliminating functional areas and
1. MISSION
organizing by business processes. For instance, a major
multinational food and beverage firm recently
The operations mission defines a direction for the
reengineered in a way that redefined roles to be more
operations function. McDonald’s, for instance, uses four
responsive to the customer. A common reengineering
terms to describe its operational mission: quality,
approach is to replace the operations, logistics and
cleanliness, service, and value. The annual report in 1988,
marketing functions with teams that are process-focused.
more than 30 years after defining those words, still
For instance, one team may be devoted to generating
devoted a page to each of the mission terms. Because the
demand, while another focuses on fulfilling demand. The
mission should not change significantly over time, the
members of the generate demand team perform many of
mission statement is often somewhat vague. Otherwise, it
the tasks that traditionally have been done by marketing
would have to be reworded frequently as changes occur in
but they may carry out other functions as well, including
the environment, competition, or product and process
new product development. The fulfill demand team often
technology. Employees need to know that there is a
looks like the manufacturing or operations function but
consistent direction in which their company is moving.
may include logistics, sales, and marketing as well. The
The mission must be attractive to excellent people. A
idea is to align the organizational structure with the
sleepy statement of direction, resembling the mission of
processes the firm uses to satisfy its customers. Barriers
most other firms in the industry, would make it difficult to
between functions that created delays and tension are
attract the best employees. Therefore, a mission statement
removed, enabling the firm to meet customer orders in a
should incorporate some of the excitement of top
more seamless way. For our purposes the operations
management and should communicate to employees,
function and the fulfill demand process will be used
investors, and customers that this is an excellent firm.
interchangeably.
TH E AM O S TU C K SC H O O L DA R T M O U T H COLLEGE 3
hand, achieved 3-1/2 year development times, which were all functions or is one facility focused on a particular
subsequently matched by Chrysler and Ford. Once again, market, a particular process, or a particular product?
however, Toyota has raised the bar by introducing the Many manufacturing companies have one “parent plant”
Ipsum in a record 15 months. Product mix/customization that is responsible for oddball parts and new product
flexibility is the ability of a company to offer a wide range introduction. When products reach highvolume
of products. This may simply mean that the catalog manufacture, they are moved to a satellite plant where
contains many items, or it may mean that the firm has the efforts are focused on excellence in that particular product
ability to develop customized products. Many machine and/or process
tool companies produce a single product for a given Decisions involving the magnitude and timing of
customer, and then never produce that exact product capacity expansioninteract with facility location decisions.
again. For instance, some firms set limits on the number of
Some have argued that delivery and flexibility are the employees that may work at any one location,, making
most important objectives in some industries because possible better communication and teamwork. As demand
cost-cutting programs and quality improvement programs grows, additional expansion at the same site would violate
have “leveled the playing field” on cost and quality. the limit, and a new plant site must be found. A
These firms then compete on “time”—rapid introduction Massachusetts textile manufacturer had rapidly expanding
of new products and rapid delivery of existing products. sales in Europe. When capacity in the Massachusetts
The phrase “time-based competition” has been used to factory was no longer able to meet total demand, they had
describe this phenomenon. to determine whether to expand in Massachusetts,
Finally, we note that the objectives are dynamic. For elsewhere in the U.S., or in Europe. The final decision was
instance, as a new product begins full-scale production, to build in eastern Germany to exploit lower transportation
the firm may emphasize flexibility to design changes and costs and import duties for European sales, and to take
on time delivery so that market share is not lost to advantage of tax breaks offered by the German
competitors. Over time, as the product design stabilizes, government.
the emphasis may change toward quality and cost. Make/buy decisions are at the heart of vertical
integration. Some firms make components, perform final
3. MANAGEMENT LEVERS assembly, and distribute their products. Others focus
only on product design and final assembly, relying on
Although the operations objectives provide other firms to manufacture components and to distribute
measurable goals, they do not indicate how a firm should finished goods. Facilities, capacity, and vertical
pursue those goals. The ten management levers— integration decisions are primarily made for the long term
facilities, capacity, vertical integration, quality because they involve bricks and mortar and significant
management, supply chain relationships, new products, investment.
process and technology, human resources, inventory The tools, programs and techniques used to achieve
management, and production planning and scheduling— quality goals comprise the quality management lever.
provide the tactical steps necessary to achieve the goals.2 This lever is distinct from the quality objective in that the
Interestingly, in the late 1970s researchers did not objective specifies the definition and measurable targets,
include quality management, supply chain relationships, and the lever specifies the means to achieve the targets.
new products, and human resources in the list of Quality management includes such things as statistical
management levers. Today, these areas are considered process control (SPC), Taguchi methods, and quality
critical to competitive success. Certainly new levers will circles. Note that different definitions of quality may
be introduced in the next decade. The categories for the dictate the use of different quality procedures.
operations objectives, on the other hand, have not The supply chain relationships lever focuses on
changed. relationships with suppliers and customers in the firm’s
Facilities decisions concern the location and focus supply chain. These relationships may take very different
of factories and other facilities. Where does a company forms. For instance, General Electric has developed a
locate its factories and distribution centers to meet the “trading process network” that involves putting part
needs of its customers? Are multiple facilities required or specifications on the Internet so that a large number of
will a single location suffice? Does each facility perform suppliers can bid on the job. These Internet “virtual
markets” are exploding, particularly in business-to-
business transactions. (See Pyke, 2000.) Other firms
2 maintain strategic alliances with a small number of
See also Fine & Hax (1985).
TH E AM O S TU C K SC H O O L DA R T M O U T H COLLEGE 5
suppliers or customers. Some of the recent supply chain were rewarded for the volume of their output without
initiatives, such as Vendor Managed Inventory (VMI), regard for quality. In other words, the quality objectives
involve restructuring supply chain relationships, often and policies were inconsistent with the human resources
reducing the number of suppliers while encouraging policies. Reward systems had to be rearranged to fit with
electronic communication among supply chain partners the quality goals.
(Johnson & Pyke, 2000). Finally, in the process of auditing a manufacturing
The procedures and organizational structures that strategy, managers should understand distinctive
facilitate new product introduction are the core of the new competencies at the detailed level of the management
products lever. The days of a focused team of engineers levers. These distinctive competencies should inform the
working without input from marketing or manufacturing objectives, mission, and business strategy. Thus,
are gone. Most firms now employ multifunctional teams, information flows both ways, from business strategy to
composed of design engineers, marketing personnel, management levers and from levers to business strategy.
manufacturing managers, and production line workers.
The new products lever specifies the reporting REFERENCES
relationships as well as any procedures for setting
milestones in the development process. Fine, C., & Hax, A. (1985). Manufacturing Strategy: A
The process and technology category encompasses Methodology and an Illustration. Interfaces, 15(6), 28-
the choice of a production process and the level of 46.
automation. The Product-Process matrix is a useful Garvin, D. A. (1987). Competing on the Eight Dimensions
framework for analyzing process choices.3 of Quality. Harvard Business Review, 101-109.
Human resources involves the selection, promotion,
Hayes, R., & Wheelwright, S. (1979a). "The Dynamics of
placement, reward, and motivation of the people that make
Process-Product Life Cycles." Harvard Business
the business work. The inventory management lever
Review, 57(2), 127-136.
encompasses decisions regarding purchasing,
Hayes, R., & Wheelwright, S. (1979b). "Link
distribution, and logistics, and specifically addresses
when and how much to order. Finally, production Manufacturing Process and Product Life Cycles."
planning and scheduling focuses on systems for Harvard Business Review, 57(1), 133-140
Pyke, D. F. (2000). Matching B2B e-Commerce to Supply
controlling and planning production
Chain Strategy. Supply Chain Management
Review, Global Supplement(July/August), 16-19.
GENERAL COMMENTS
Silver, E. A., Pyke, D. F., & Peterson, R. (1998). Inventory
Management and Production Planning and
We conclude with several general comments. First,
Scheduling. (3rd ed.). New York: John Wiley & Sons.
researchers and practitioners are continually introducing
new terms that describe some important aspect of
management. An example is supply chain management.
The supply chain relationships lever, of course, pertains
to supply chain management, but so do inventory
management, production planning and scheduling, vertical
integration, and new products. Occasionally it is
necessary to introduce a new lever to focus attention on
the important issues, but other times the existing levers
adequately serve the purpose.
Second, the policies in place for each of the ten levers
should be consistent not only with the operations
objectives but also among themselves. If there are
inconsistencies, the firm should initiate action programs to
mitigate any negative effects. For instance, many
companies historically pursued quality improvement
programs without changing worker incentives. Workers
3
See Hayes and Wheelwright (1979a and b) and Silver,
Pyke, and Peterson (1998), Chapter 3.