MM ZG512 Manufacturing

Strategy
Rajiv Gupta
BITS Pilani
Live Lecture 3
 Recitation 3
• Module 1
– Assignment
• Module 2
– Topics Covered in Prerecorded Lectures 3 and 4
• Module 3
– Discussion on Prerecorded Lecture 3
• Module 4
– Discussion on Prerecorded Lecture 4
• Module 5
– Brief Summary of Prerecorded Lecture 5
• Module 6
– Brief Summary of Prerecorded Lecture 6
• Module 7
– Discussion Questions for the Next Recitation

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 Recitation 3
• Begin Module 1
– Assignment

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 Assignment
• Choose a company, either the one you work for, or
have worked for, or any other company
• You will start by analyzing the industry in which the
company operates using Porter’s 5 Competitive Forces
• Then you will try to define what Generic Strategy the
company follows (or should follow) giving appropriate
reasons for your conclusions
• This will be a multi part assignment. The rest of the
assignment will be described as we go along the
semester.
• You will be required to submit a complete paper at the
end of the semester.

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 Recitation 3
• End of module 1

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 Recitation 3
• Begin Module 2
– Topics Covered in Prerecorded Lectures 3 and 4

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 Prerecorded Lecture 3
• In Lecture 3 we continue with Porter’s 5 Competitive
Forces.
• Threat from substitute products refers to products
and services that provide the same function to the
customer , and therefore may be considered
interchangeable.
• Examples would be alternatives modes of
transportation, alternative building materials, etc.

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 Prerecorded Lecture 3
• Bargaining power of buyers refers to the clout that a
buying entity has in negotiating a price.
• The tendency of the buyer is to get as low a price for
the product or service and he will try to do so.
• The ability of the buyer to effectively negotiate the
price depends on several factors, including the
relative sizes of the companies, and how critical the
product is to the buyer’s business, the difficulty for
the buyer to switch to a competitor, and the ability of
the buyer to backward integrate.

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 Prerecorded Lecture 3
• The seller, on the other hand will try to extract as
high a price as he can for his goods or services.
• The same factors apply to the seller as to the buyer,
but in reverse.

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 Prerecorded Lecture 4
• In Lecture 4 we discuss the 3 Generic Strategies as
postulated by Michael Porter, i.e., Overall Cost
Leadership, Differentiation, and Focus strategies.
• The Overall Cost Leadership Strategy calls for a
company to excel in controlling the total cost of
providing the goods or services to the customer. This
allows the company to have lower market prices and
therefore, higher market share.
• The Differentiation Strategy calls for a company to
develop unique products that can command a higher
price in the market.
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 Prerecorded Lecture 4
• The higher price can lead to higher margins, but
comes with a lower market share.
• The Focus Strategy requires a company to develop a
narrow niche in the market. This may be based on
product or customer base. Within the niche area, the
company excels in providing the product either at a
low price, or with unique features. This gives the
company an edge over its competition, but only in
the focus area.
• Each of the generic strategies requires a different set
of skills and management focus.
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 Prerecorded Lecture 4
• Typically it is not possible for a company to adopt
more than one generic strategy as each strategy
requires the complete attention of the management
team.
• A company must choose one generic strategy based
on what it considers its strengths and weaknesses
relative to the rest of the industry and the market.
• An option not available to a company is to be “Stuck
in the Middle,” i.e., not have a clear strategy.

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 Recitation 3
• End of module 2

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 Recitation 3
• Begin Module 3
– Discussion Questions Based on Prerecorded
Lecture 3

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 Recitation
• Discussion questions
– Are there products or services that can substitute for your
company’s offerings? Is your company aware of these?
– How does your company prepare itself for substitutes?
– How much leverage do your customers have in establishing
prices of the products you sell? How do you handle it?
– How much leverage do your suppliers have over your
company? How do you tackle it?
– Does your company work toward anticipating shifts in the
competitive scenario? How?

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 Recitation
• Discussion questions
– In the article on the Indian automotive industry, what do
you understand from the 5 Factor Analysis of the auto
industry?
– What should be the learning for an automotive company
considering venturing into the Indian market?
– In the article applying Porter’s 5 Competitive Forces to the
airline industry, do you agree with the author?
– What does the analysis reveal about the industry?

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 Recitation 3
• End of module 3

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 Recitation 3
• Begin Module 4
– Discussion Questions Based on Prerecorded
Lecture 4

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 Recitation
• Discussion questions
– Which of the generic strategies does your company follow?
Give some examples to illustrate
– What kind of skills do you see that the company requires
and has for the generic strategy adopted by your
company?
– What can you say about the organizational structure and
management approach as it relates to the generic strategy
of your company?
– How successful is your company in implementing its
generic strategy?

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 Recitation 3
• End of module 4

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 Recitation 3
• Begin Module 5
– Brief Summary of Prerecorded Lecture 5

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Summary of Prerecorded Lecture 5
• In Lecture 5 we begin by discussing Competitive
Advantage and the measures for assessing a
company’s competitive ability.
• The common measures used, such as Return on
sales, Market Share and Shareholder Value do not
adequately measure how well a company is utilizing
its resources.
• Return on Invested Capital, or ROIC, is a more
suitable measure to indicate the ability of a company
to effectively utilize its resources and should be used
in preference to the others.
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Summary of Prerecorded Lecture 5
• We can increase ROIC in one of two ways, either by increasing
the selling prices of the product we sell, or by reducing the
cost of delivering the product to the customer.
• Each of these approaches requires us to adopt a different
strategy. For example, in order to be able to charge a higher
price, we would typically adopt a Differentiation Strategy,
while you would use an Overall Cost Leadership Strategy to
reduce the cost of delivery.
• We create value for the customer by either performing certain
activities, or by getting someone else to perform them for us.
The total set of all activities that need to be performed to
create value for the customer is referred to as the Value
System. The set of activities a company performs in-house is
called the Value Chain.

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Summary of Prerecorded Lecture 5
• A company must decide which activities to perform in-
house, and which ones to outsource.
• This is a departure from the traditional make-buy
decision where we decide whether to make a product in-
house or to outsource it. In the Value Chain approach
you decide to outsource a specific activity.
• Also there is a different way of looking at traditional
vertical integration. Vertical integration focuses on
ownership of assets. In practice, you can have a range of
relationships with partners that can be used.

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Summary of Prerecorded Lecture 5

Types of Relationships

Vertical Arm’s length

Joint venture Long term
Integration relationship
relationship

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 Customer Value Chain
• An alternative approach “The Customer Value
Chain” is discussed in the book “Unlocking the
Customer Value Chain” by Thales Teixeira.
• He talks about a Customer Value Chain (CVC) as
consisting of the activities that a customer has to
go through in acquiring a product/service and
using it.
• According to Teixeira, a lot of the current
disruption in markets today are due to startups
uncoupling various activities in the CVC.
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 Customer Value Chain

The above illustrates a simplified CVC for any consumer in any market. Typically,
In the traditional markets, the customer performed all the activities in the CVC at
one company.

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 Decoupling the CVC

The above figure shows how disrupters can, and do, decouple
the coupled activities in the CVC and steal customers from an
incumbent only for the decoupled activities.

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Examples of Decoupled Activities
Activity Value AddingVa Non Disruptor
ValueAdding

Watching TV Watch show Watch ads TiVo

Shopping Test/try Purchase Amazon

Communication Talk/text Connect Skype

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 Costs Targeted by Decouplers
• According to Teixeira, decouplers target one or
more of three types of costs borne by the
consumer when they consider decoupling a
CVC
– Monetary costs
– Effort
– Time

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Summary of Prerecorded Lecture 5
• There are 6 manufacturing outputs, viz., Cost,
Quality, Performance, Flexibility, Delivery, and
Innovativeness. The values of these outputs depend
on the industry and the configuration of the
production and delivery system.
• Each organization needs to decide what outputs it
wants to focus on. That depends on the type of
customers and their requirements. Once a choice is
made with regard to the output, the system can be
planned to deliver the output.
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Summary of Prerecorded Lecture 5
• Each type of product typically tends to pose a particular
requirement on the manufacturing system.
• If we try to combine products with different
requirements and produce them on a common system,
we will not do well.
• We need to understand the requirements of the products
that we have chosen to produce and then design a
system to provide a limited number of the requirements.
Only then will the production system be able to deliver
the kind of outputs that we desire. This is called
developing a focus.

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 Recitation 3
• End of module 5

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 Recitation 3
• Begin Module 6
– Brief Summary of Prerecorded Lecture 6

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Summary of Prerecorded Lecture 6
• In order to determine how to add value, a company
needs to ask 3 questions, which customers do we
serve, which requirements of these customers to
serve, and at what price.
• Based on the answers to these questions, we will
determine the requirements posed to our
manufacturing and delivery system.
• Each manufacturing system has certain characteristic
which makes it more suitable for certain
manufacturing tasks, and unsuitable for other tasks.

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Summary of Prerecorded Lecture 6
• Wickham Skinner proposed the concept of a Focused
Factory where he suggested that we design a
manufacturing system for optimally satisfying the
needs of a limited number of manufacturing tasks.
• If a company had products that called for a variety of
manufacturing tasks based on the outputs desired, it
was better to have multiple focused factories.
• A Plant Within a Plant (PWP) is the result of a larger
plant being subdivided into smaller plants based on
focus on a narrow set of manufacturing
requirements.
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Summary of Prerecorded Lecture 6
• A focused factory needs to have the type of
equipment, its configuration, and the operating
policies based on what is most suitable for the
product characteristics.
• Examples of the basis of focus include faster delivery,
lower cost, higher quality, greater flexibility, etc.
• A Product Volume/Variety vs. Flow/Layout Matrix
was introduced which suggested different layouts
and different types of production systems for high
and low volume products, with low and high variety,
respectively.
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Volume-Variety/Layout-Flow Matrix

Functional
or Process Layout Job Shop

Batch Production
Cellular Layout

Operator-paced or
Product Machine-paced line
or Line Layout
Continuous
production
Continuous Flow

Large variety Few products One product

Low volume Medium volume High volume
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Summary of Prerecorded Lecture 6
• There are 3 broad types of production systems, i.e.,
job shop, batch production, and line production.
• There are 3 basic types of layout based on product
volumes and variety, i.e., layout by product, layout by
process, and cellular layouts.
• Based on the corresponding volumes and variety of
the products being produced, the right layout and
the right production system may be selected.

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 Recitation 3
• End of module 6

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 Recitation 3
• Begin Module 7
– Discussion Questions For the Next Recitation
based on Prerecorded lectures 5 and 6

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 Next Recitation
• Discussion questions
– What measure of performance does your organization use
to judge how well it is doing vis a vis the competition?
– How good do you think this measure is in determining the
true competitive ability of your organization?
– Does your company either forward integrate or backward
integrate? How has been the experience?
– How would you rate your company in terms of the 6
manufacturing outputs as discussed in the lecture?
– Can you suggest alternative outputs that may be more
relevant to your company?

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 Next Recitation
• Discussion questions
– Do your company’s plants exhibit any focus in terms of
manufacturing, or are they general purpose manufacturing
plants?
– Would your organization gain from developing a focus? How?
Why?
– Where would you place your company in terms of the
volume/variety matrix? What type of flow and layout do you
have?
– What type of layout and production system do you have in
place?
– How well suited is your infrastructure and the physical facilities
for the type of requirements posed by the volume and variety of
products? What are the challenges?

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Questions?

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