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Abstract
Manufacturing strategy is a plan for moving a company from where it is to where it wants to be. Determining the
best manufacturing strategy is not easy because of the wide range of choices and constraints a company faces.
Manufacturing strategy frameworks or models are helpful because they identify the objects that comprise
manufacturing strategy and organize these objects into a structure that enables a company to understand and use the
objects to develop strategy. Many frameworks are possible and there is no single framework that is best for all
companies.
In this paper, we are interested in the levels of cost, quality, delivery, and flexibility that manufacturing provides for
each product family it produces. This is determined primarily by a company’s factories-within-a-factory (FWFs) and so the
level of analysis in this paper is the FWF. We identify and examine five manufacturing strategy objects (production
systems, manufacturing outputs, manufacturing levers, manufacturing capability, competitive analysis), linkages between
these objects, and the manufacturing strategy framework for an FWF that follows from these objects and linkages. We
apply the framework to the FWFs of two multi-national companies. This paper is descriptive and exploratory. Strategy
objects, linkages, and framework are presented and their use is illustrated. The work of rigorous empirical analysis is left
for future research.
r 2007 Elsevier B.V. All rights reserved.
Mapes et al. (1997) identify seven individual out- that both have to do with ‘‘product features y
puts: cost, quality consistency, quality specification, more expensive materials y higher levels of
lead time, delivery reliability, flexibility, and in- precision’’ (p. 1024). Lead time and delivery
novativeness. Quality specification in this scheme is reliability in this scheme are combined into the
similar to the performance output in this paper in delivery output in this paper. Many researchers
use
Cost Cost of material, labor, overhead, and other resources used to produce
a product.
Delivery time and Time between order taking and delivery to the customer. How often
delivery time reliability are orders late, and how late are they when they are late?
Performance Product’s features, and the extent to which the features permit the
product to do things that other products cannot do.
only four individual outputs: cost, quality, delivery, Consider, for example, the equipment-paced line
and flexibility. Ward et al. (1998) empirically flow production system in the middle left block in
develop operational measures for these four out- Fig. 1. This production system produces a small
puts. Quality in this scheme combines the quality number of different products in high volumes on
and performance outputs in this paper. Flexibility in specialized, synchronized equipment arranged in a
this scheme combines the flexibility and innovative- line. It provides short delivery time and high
ness outputs in this paper. Most often the difference delivery time reliability because it operates at high
in the number of outputs is due to ‘‘the lack of speeds for long continuous periods of time without
generally accepted definitions of these key stoppages for changeovers or breakdowns. It
concepts’’ (Mapes et al., 1997, p. 1021). Another provides low cost because high production volume
reason for the difference in the number of outputs is produces high equipment utilization, which spreads
the level of analysis. If the level of analysis is an costs over a large number of units. It provides a
entire company or an entire factory, then a smaller high level of quality because the specialized,
number of broader manufacturing outputs can be automated equipment is designed to reliably pro-
appropriate. However, if the level of analysis is an duce products that meet all specifications. The
FWF that uses a single production system to equipment-paced line flow production system pro-
produce a limited mix and volume of products that vides a low level of performance. A high level of
meets and exceeds customer expectations, then a performance requires a steady stream of new
slightly larger number of narrowly defined products as well as enhancements to existing
manufacturing outputs is more useful for developing products. In order to produce these products,
strategy. changes must be made to equipment and processes.
No production system is able to provide all This is difficult for an equipment-paced line flow
manufacturing outputs at the best possible levels. production system because it is so specialized. It is
(As we will see later in Section 2.7, this reflects an costly to change automated machines and specia-
‘integrative’ approach to trade-offs, which we take lized tooling, retrain operators, change processes at
in this paper.) Therefore it is necessary to determine suppliers, and so on. And it is costly to take high-
which outputs are most important to customers now speed lines out of production in order to make these
and which outputs will be most important in the changes. Changes can be made from time to time,
future. De Meyer (1998), for example, investigates but not with the regularity needed to provide a high
changes in the relative importance of outputs level of performance year after year. In a similar
between 1986 and 1996 at European manufacturing way, the specialization of the equipment-paced
companies. Once we know which outputs customers line flow production system makes it impossible
require, then we can select the production system to provide high levels of flexibility (i.e. change
that is best able to provide these outputs.
products and volumes) and innovativeness (i.e. (1998) examine the sourcing subsystem at Toyota
make product design changes and introduce new where the just-in-time production system is in use.
products). Several researchers have examined subsystems
when flexibility is one of the most important
2.3. Manufacturing levers manufactur- ing outputs. For example, Kathuria and
Partovi (1999) examine the human resources
It is useful to divide a production system into subsystem, Vickery et al. (1999) examine the
infrastructural and structural subsystems. In this organization structure and controls subsystem, and
paper, we use three infrastructural subsystems: Lau (1999) examines aspects of several subsystems
human resources, organization structure and con- (e.g. work- force autonomy in the human resources
trols, and production planning and control; and subsystem, inter-departmental relationships and
three structural subsystems: sourcing, process tech- communica- tion in the organization structure and
nology, and facilities. Fig. 3 gives definitions for controls subsystem, and aspects of the process
these subsystems. Different ways in which a technology subsystem and the sourcing subsystem).
production system can be divided into subsystems In all three papers, flexibility is defined broadly and
are reviewed by Fine and Hax (1985), Leong et al. includes the flexibility and innovativeness
(1990), and others. Hallgren and Olhager (2006), for manufacturing out- puts in this paper. Kathuria and
example, recommend four infrastructural subsys- Partovi found empirically that relationship-oriented
tems and four structural subsystems. Any division practices, such as networking, team building,
of a production system into subsystems should have supporting, mentoring, inspiring, recognizing and
the following characteristics. Subsystems should be rewarding, and participative leadership and
comprehensive (i.e. all manufacturing decisions fall delegation prac- tices are important in the human
within the subsystems), discriminating (i.e. manu- resources subsystem when flexibility is an important
facturing decisions can be broken into analyzable manufac- turing output. Vickery et al. empirically
pieces and each piece falls within one subsystem), examined the relationship between the product
and reflective (i.e. the subsystems are consistent customization aspect of flexibility and the
with manufacturing’s view of itself). organizational structure subsystem, and found that
Each of the infrastructural and structural sub- product customization is associated with more
systems is the subject of its own rich literature. formal control, fewer layers, and narrower spans of
Sourcing, for example, is the subsystem that control. They report that ‘‘small firms can plan on
connects the production system with the cutting one entire layer of the hierarchy when a firm
production systems of the FWF’s suppliers. Hines makes the transition from high standardization to
and Rich high customization y (and)
Production planning Rules and systems that plan and control the flow ofmaterial,
production activities, and support activities such as maintenance
and control
and the introduction of new products.
Saint-Elie de Caxton 18,500 sf, 60 people Focused on production of ottoman 4. Operator-paced line for high Delivery, cost
(acquisition in 1990 of Les products volume products
Artisants du Bois Caxton,
Inc.)
Joliette 48,000 sf, 100 people Focused on production of high volume 5. Operator-paced line high volume Delivery, cost
(acquisition in 1988 of Les wood glider products for large U.S. and products
Freres Pelletier Canada, Canadian chain stores
Inc.)
Saint-Hyacinthe 85,000 sf, 100 people Focused on production of ‘high 6. Batch flow for low volume Performance, innovativeness
(new factory established in performance’ products (i.e. products products
1997) made of metal, wood, leather that glide, Performance, quality
swivel, recline) 7. Operator-paced line for medium
volume products
Martinsville, Virginia 53,000 sf, 60 people Focused on upholstered products and 8. Operator-paced line for high Delivery, cost
(acquisition in 1990 of chair cushions for other facilities. volume products
Regent Industries)
Perivale, England European Sales
(new facility established in … 30 people
1993) Warehouse/factory Assemble components imported from 9. Batch flow Flexibility, delivery
… 18,800 sf, 30 people North America
Sainte-Anne-de-la-Perade 60,000 sf, 100 people Focused on production of wood bedroom 10. Batch flow for low volume Flexibility, quality
(acquisition in 2003 of furniture products
E.G. Furniture) 11. Operator-paced line for medium Cost, quality
volume products
1. The information in Facility, Details, and Focus is from the company website (www.dutailier.ca).
acquired in 2003 and marks Dutailier’s decision to sidiary that manufactured swimming pool heaters)
diversify its product line. This reverses the decision — generated an annual revenue of $725 million. In
the company made 25 years earlier to focus on 1988 Paloma Industries of Nagoya, Japan, a family-
glider rockers. The decision in 2003 to diversify is owned company and the world’s largest producer of
not unreasonable so long as the new product lines gas appliances, purchased Rheem for $850 million.
are produced in separate FWFs. It would be Today the Paloma Group of Companies employs
inappropriate to produce these new products in 10,400 people.
FWFs that are focused on glider rocker products. In 2002 Rheem began a major initiative to
This would cause problems for the specialized improve the performance of its sagging Air Con-
production systems, reduce the level of manufactur- ditioning Division. The division’s market share had
ing capability, and lower the levels of the manu- dropped to 11% from a high of 16% in the mid-
facturing outputs. 1980s. One reason for the decline was an old
product line that was in need of redesign. Rheem
3.2. Rheem manufacturing installed a new management team and started
programs to improve cost, quality, and customer
In 1927 Richard and Donald Rheem of California service.
formed the Rheem Manufacturing Company. By
1936 the company was manufacturing water heaters 3.2.1. Events in Australia
and distributing them coast-to-coast in the United In 2002 Rheem re-acquired its Australian manu-
States. In 1939 Rheem opened its first foreign facturing operations. These operations, which em-
factory near Sydney, Australia, and 8 years later it ployed 1400 people and generated $150 million in
opened a second foreign factory in Hamilton, annual revenue, included water heater businesses in
Canada, to serve the Canadian market. Rheem Australia and New Zealand, a solar water heater
began manufacturing warm air furnaces in 1947 and company, and a joint-venture business in China.
central air conditioning systems in 1965. In 1973
Rheem sold its manufacturing operations in Aus- 3.2.2. Events in Canada
tralia. In 1986 Rheem’s three divisions—Water In 1989 the United States and Canada signed a
Heaters, Air Conditioning, and Rayback (a sub- free trade agreement to eliminate import and export
Fig. 6. Manufacturing strategy at Dutailier’s FWFs.
duties, relax foreign investment restrictions, and were high. So the batch flow production system in
ease business travel between the two countries. This the Canadian factory was changed to an operator-
reduced the need for a Canadian factory whose sole paced line flow production system. Manufacturing
purpose was to serve the Canadian market. How- equipment was upgraded and the number of
ever, rather than close the Canadian factory, Rheem employ- ees was reduced from 255 to 150. (The
decided to focus the factory’s production. In 1993 Montgomery factory had more than 1000
production was focused on 40-gallon (181 liter) employees.)
water heaters. All other products were transferred In 1994 Mexico joined the free trade agreement
to the Water Heater Division factory in Montgom- between the United States and Canada. (The new
ery, Alabama (USA). The Canadian factory, though agreement was called the North American Free
small, was strategically important. Water heater Trade Agreement or NAFTA.) Several years later
products sold in Canada were slightly different from the Water Heater Division opened a new factory
products sold in the United States, large Canadian in Nuevo Laredo, Mexico, to take advantage of
commercial customers wanted the reliability of a that country’s low labor costs. It quickly became
local manufacturer, and transportation costs from apparent that the cost of production in the large
the factory in Alabama to customers in Canada Mexican factory was so low that, even with the
high cost of transportation from Mexico to
Canada, it
was significantly more profitable to produce in A production system consists of six subsystems
Mexico and ship to Canada than to produce in called manufacturing levers. They are human
Canada. At about the same time new government resources, organization structure and controls,
policies in Canada aimed at deregulating business production planning and control, sourcing, process
and increasing trade reduced the importance of the technology, and facilities. Adjustments to manufac-
large Canadian commercial customers. So by the turing levers must consider the linkages between
late 1990s there was no longer any need to have a manufacturing levers and the linkages between
factory in Canada. strategy objects. For example, each adjustment
The Canadian factory used an operator-paced must be appropriate for the production system in
line flow production system to produce a medium use and must help the production system provide
volume of 40-gallon water heaters (Fig. 7). Even the manufacturing outputs at required levels. The
with an adult level of manufacturing capability, this levels at which the manufacturing outputs are
production system was not able to provide the order provided depend on the production system in use
winning levels of cost and quality and the market and its level of manufacturing capability. A
qualifying level of delivery required in the very production system’s level of capability is the sum
competitive marketplace for water heaters. The of the levels of capability of each subsystem or
Canadian factory needed to change its production lever. Manufacturing capability is measured on a
system to an equipment-paced line flow production contin- uous scale from 1.0 to 4.0: 1.0 is an infant
system with a high level of capability. But this level of capability; 2.0 is an industry average level;
production system required new, expensive manu- 3.0 is an adult level; and 4.0 is a world-class level.
facturing equipment, a much higher production Competitive analysis identifies the manufacturing
volume, and time to raise the level of manufacturing outputs that customers desire. It requires informa-
capability. When the Water Heater Division, head- tion on the FWF’s products, competitors’ products,
quartered in Montgomery, Alabama, decided not to customer requirements, and the current production
make this investment, or assign this production system. Outcomes from the competitive analysis are
volume, and or let the Canadian factory raise its the market qualifying and order winning manufac-
capabilities, the factory’s fate was sealed. In 2005 turing outputs for the product family, and the
Rheem announced its intention to move its production system that can provide these outputs
Canadian production to Mexico, and in 2006 it and can be put into practice by the FWF. Fig. 1
closed the 60-year-old Canadian factory. arranges the five manufacturing strategy objects
for an FWF into a manufacturing strategy frame-
4. Summary work. We illustrate the use of these objects and
framework by studying the strategic activities of
The manufacturing strategy framework for an Groupe Dutailier Inc. and Rheem Manufacturing
FWF consists of five objects: production systems, Company.
manufacturing outputs, manufacturing levers, man- We can also use the five objects and manufactur-
ufacturing capability, and competitive analysis, and ing strategy framework to formulate a manufactur-
the linkages between these objects. An FWF uses ing strategy for an FWF. First we determine the
one production system to produce most or all FWF’s current manufacturing state by examining
products in a product family and provide six its production system, its manufacturing capability,
manufacturing outputs: cost, quality, delivery, and its manufacturing outputs. Second we deter-
performance, flexibility, and innovativeness. No mine the FWF’s desired future manufacturing state
FWF is able to provide all outputs at the best by using the competitive analysis object. Finally we
possible levels. So it is important to determine use the manufacturing levers object to determine the
which outputs are most important to customers. changes that are required to move the FWF from its
These are the market–qualifying and order–winning current manufacturing state to its desired future
outputs. There are seven production systems: job manufacturing state. Safsten and Winroth (2002)
shop, batch flow, operator-paced line flow, studied this process at some small- and medium-size
equipment-paced line flow, continuous flow, just-in- manufacturing companies.
time, and flexible manufacturing systems. Each This paper is descriptive and exploratory.
produces a unique mix of products and volumes, A manufacturing strategy framework for an FWF
and provides a unique combination of is presented and its use is illustrated. The strategy
manufacturing outputs.
Fig. 7. Manufacturing strategy in Rheem’s Canadian factory.
objects and the framework they comprise are not and the referees for their comments on earlier
analyzed empirically. This work is left for future versions of this paper.
research. There are other areas where more research
can be done. More detailed descriptions can be
developed for each manufacturing strategy object.
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