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MMVA ZG512 Manufacturing
Strategy
Rajiv Gupta
BITS Pilani
Session 1
Session 1
• Module 1
– Introduction to Dr. Rajiv Gupta, faculty for MMVA ZG512
– Introduction to the course
– Overall course guidelines
• Module 2
– Introduction
• Definition
• Examples
• Module 3
– Need for Strategy
• Module 4
– Business Strategy and Other Strategies
• Module 5
– Summary and Wrap-up
2
Session 1
• Begin Module 1
– Introduction to Dr. Rajiv Gupta, faculty for
MMVA ZG512
– Introduction to the course and guidelines for
the course
3
• Dr. Rajiv Gupta
Education:
B.Tech. M.E. I.I.T. Delhi
M.S. I.E. North Carolina State University
Ph.D. I.E. Purdue University
Taught at The State University of New York at Buffalo,
General Motors Institute, and the University of Michigan,
Dearborn in the U.S.
S.P. Jain Institute in Singapore and Dubai, FORE School of
Management, School of Inspired Leadership and BITS, Pilani
4
Worked at Mahindra Logistics as Head of Solution
Design and Automotive Operations
Started and ran own Consulting Company as an

International Associate of Tompkins Associate of
Raleigh, North Carolina
5
Course Outline
• Text book:
– “Manufacturing Strategy,” by John Miltenburg,
Productivity Press, 2010
• Method of instruction: Live on-line sessions. In

addition there could be additional taped material
that will be available
• Neither the text book, nor the lecture notes, nor
the lectures substitute for each other. You need
all three to learn about the subject.
6
• It is the responsibility of the student to attend as
many of the live lectures as possible. Any
missed live lectures, can be watched in taped
format
• Students are urged to read the relevant chapters
from the book and other material that is made
available.
7
• For any questions, doubts pertaining to the
subject matter, please send me an email at
gupta.rm@wilp.bits-pilani,ac.in. For all
administrative questions, please call or write the
WILPD office at BITS Pilani. If you do not get a
satisfactory response please let me know.
• I expect you to keep regular with the material
covered in class and with the readings as
assigned. This is your responsibility.
8
• Assessment: There will be 2 exams and 2
on-line quizzes. The point breakdown will
be as follows:
– Mid-term exam (closed book) – 35%
– Final exam (open book) – 50%
– 2 on-line quizzes (open) – 15%
9
Session 1
• End of module 1
10
Session 1
• Begin Module 2
– Introduction
• Definition
• Examples
11
What Does Strategy Mean?
“ A careful plan or method for achieving a
particular goal usually over a long period of time”
Synonyms: game plan, master plan, grand design,
overall approach
In military:
“The art of planning and directing overall military
operations and movements in a war or battle.”
12
Strategy Origins
• The term probably is of Greek origin and dates
back to the 6th century B.C.
• The origins are from the military where strategy
was the approach to win wars
• Generals needed to understand how to deploy
their armies and weaponry for maximum impact.
• Sun Tzu, famous Chinese strategist wrote “The
Art of War,” the earliest text on strategy written
around 500 BC
13
Sun Tzu Quotes
• “that general is skilful in attack whose opponent
does not know what to defend; and he is skilful
in defense whose opponent does not know what
to attack.”
• “All warfare is based on deception. Hence, when
we are able to attack, we must seem unable;
when using our forces, we must appear inactive;
when we are near, we must make the enemy
believe we are far away; when far away, we
must make him believe we are near.”
14
Modern Business Strategy
• Modern english translation took place around
the 18th century
• The term came to be used in the context of
business strategy around1960 when Alfred
Chandler defined it as “The determination of
the basic long-term goals of an enterprise,
and the adoption of courses of action and the
allocation of resources necessary for carrying
out these goals."
15
Business Strategy Definitions
In 1980 Michael Porter defined strategy as
"...broad formula for how a business is going
to compete, what its goals should be, and
what policies will be needed to carry out
those goals" and the "...combination of
the ends (goals) for which the firm is striving
and the means (policies) by which it is
seeking to get there."
16
Examples of Strategy
• Henry Ford I had a strategy of providing
low cost automobiles for the common
man. His approach was not to offer
variety. The Model T was produced and
sold in one color – black.
• General Motors provided a variety of
automobiles including high-end, low-end,
to suit the needs of different customers
17
Other Examples
• McDonald’s focus is on the busy
businessman, college student etc. who
only has time for a quick bite. The system
is designed for quick turnover, low prices,
minimum service (self service)
• A fine dining restaurant focuses on the
ambience, service, and quality and taste of
the food. This comes at a price which its
patrons are prepared to pay.
18
Other Examples
• Apple comes up with new products every
one to two years. The focus is on
excitement, innovation, and features. Price
is not the selling point.
• Nokia, Motorola, etc. focus on low prices.
The target population is people who do not
care for the latest features, but those with
a limited budget.
19
Session 1
• End of module 2
20
Session 1
• Begin Module 3
– Need for Business Strategy
21
Need for Business Strategy
• Why do businesses need strategy?
– To articulate an approach to the business
– To specify how to prioritize alternatives and
options
– To determine a way to allocate scarce
business resources including capital
– To help in making decisions that have a long
term impact
– To help deal with competition
22
Articulate Business Approach
• Companies need to develop an image of
who they are and what business they are
in
• Customers identify with the company
image
• Banks and lending institutions feel more
comfortable with companies whose
approach is clearly stated
23
Prioritization of Alternatives
• Employees and managers need to make
decisions on a daily basis
• Some guiding principle or policy helps
people determine what is in the best
interest of the organization
• People also get a sense of stability and
purpose
24
Allocate Business Resources
• Most business resources are scarce,
including land, capital, people, etc.
• There has to be a rule/method of how
scarce resources should be allocated
25
Decisions With Long Term
Impact
• Certain decisions taken by a company
have long term implications
• Examples are where to locate plants
• Other examples could be the kind of
markets to serve
• Such decisions cannot be easily changed.
There is a significant uncertainty
underlying such decisions
26
Deal With Competition
• A company’s position vis a vis the
competition depends on its overall
approach to the business
• It has a lot to do with the kind of things that
are important to the company, such as
quality, speed, etc.
• This does not include short term plans
such as promotion campaigns
27
Decisions Regarding Strategy
• Tend to be long term in nature – typically
10 years and more in the future
• Tend to have risk and uncertainty, due to
the time frame and the size of investment
• Usually reflect the overall vision of top
management who have to take ownership
• Plans, policies, goals, tactics, etc. are
dependent on the strategy
28
Session 1
• End of module 3
29
Session 1
• Begin Module 4
– Business Strategy and Other Strategies
30
Strategy
• Government strategy or industrial strategy
• Corporate strategy
• Business strategy
• Functional strategy
31
Government Strategy
• Typically governments tend to form
policies that are designed to prioritize the
national efforts
• These may take the form of licensing,
taxation, interest rates, investment
incentives, etc.
• Certain industry sectors may be preferred
at different points in time based on
perceived need.
32
Corporate Strategy
• This refers to the overall strategy of the
corporation as a whole with regard to
focus on markets, investments, and
industry sectors that the corporation
chooses
• Typical corporations may be in several
different businesses and they may allocate
different amounts of capital based on
opportunities perceived.
33
Business Strategy
• Each of the individual businesses of a
corporation develops its own business
strategy to define its own markets,
products, competition, etc.
• Generally the strategies are developed
independently by the businesses
constrained by the level of capital funding
specified by the corporate.
34
Business Strategy
• The business strategy defines the overall
approach to conducting business. It may
include decisions such as what customers
and markets to serve, how these
customers and markets will be served, and
also what will be the main strengths of the
company while doing so over the long
term
35
Functional Strategy
• The various functional areas within a company
are also tasked with deriving their own strategies
• These strategies typically cover the ways in
which the functional areas expect to achieve
growth in the long term
• Typical functional strategies are developed
independently by the functions
• Common functional areas are Marketing,
Manufacturing, Engineering, etc.
36
Functional Strategies
• Ideally each of these strategies must support
the business strategy and each other
• The business strategy, in turn, must be based
on a realistic assessment of these strategies
• However, in practice, the functional strategies
are developed independently. There is little
mutual dependence and support.
• Also, the business strategy is often just a
sum of the individual functional strategies.
37
When Strategies Don’t Support
Each Other
• When business strategy, and each of the
functional strategies fail to support each
other, the company performance falters
• For example, marketing may have a
strategy to provide a large variety of
products while manufacturing may be
geared toward producing large quantities
of a small variety of products.
38
Examples
• A Marketing Strategy can include
decisions regarding
– When to introduce new products
– When and if to exit markets/products
– Pricing strategy. e.g. Estee Lauder
– Distribution strategy
– Promotion strategy
– Etc.
39
Examples
• Facilities Strategy
– Often part of manufacturing strategy
– May include decisions such as
• When and how to expand
• Dedicated vs. mixed use facilities
• Facility size and location
• Technology
• Example
40
Examples
• Manufacturing Strategy can include
decisions including
– Centralized vs. decentralized manufacturing
– External collaboration
– Mass production vs. batch production vs. job
shop
– Level and type of automation
– Vertical integration
41
Strategies Plans, Policies and
Philosophies
• Strategies are general, high level
approaches to help marshal the resources
of an organization to help achieve its long
term goals
• Plans tend to be more specific, more
shorter term and therefore should not be
confused with strategy
42
Strategies Plans, Policies and
Philosophies
• Policies tend to be rules to conduct day to
day operations and are not designed to
specifically affect company goals directly
• Philosophies tend to be too broad and are
designed more to shape behavior than
decisions.
43
Session 1
• End of module 4
44
Session 1
• Begin Module 5
– Summary and wrap up
45
Summary
• Strategy has its origin in the military where
the focus was to develop a high level
approach to overcome the enemy with
minimum loss to one’s troops
• In business, strategy has been defined as
an approach to help achieve business
ends, i.e., long term growth
46
Summary
• Business strategy becomes important due to the
need to provide a uniform direction to
employees and managers
• Development of strategy is generally the
responsibility of top management
• Ideally, corporate strategy, business strategy
and functional strategies should be mutually
supportive. But, in practice they tend to not
always be so.
47
Session 1
• End Module 5
48
Strategy
Rajiv Gupta
BITS Pilani
Session 2
Session 2
• Module 1
– Recap of Session 1
• Module 2
– Role and Limitations of Manufacturing in Business
Strategy Formulation
• Module 3
– Porter’s 5 Forces of Competition
– Threat of New Entrants
• Module 4
– Rivalry Among Existing Competitors
• Module 5
2
Session 2
• Begin Module 1
3
Recap of Session 1
• In Session 1, we introduced the topic of strategy
• We discussed how strategy had its origins in
warfare and in ancient Greece
• The use of the term in business context is about
60 years old
• Strategy is necessary in business as a means to
define the business a company is in
• Strategy helps make decisions in those cases
where the decisions have long term impact
4
Recap of Session 1
• Strategy helps employees and managers
understand the priorities and direction of
the organization.
• Strategy can be defined at the corporate
level, at the business unit level, and at the
functional levels. The strategies at each
level should be mutually supportive.
5
Session 2
• End of module 1
6
Session 2
• Begin Module 2
– Role and Limitations of Manufacturing in
Business Strategy Formulation
7
Business Strategy and
Functional Strategy
• Business strategy sets the overall direction
for the business in terms of customers,
markets, range of products, pricing, etc.
• Business strategy is typically evaluated on
how effective it is, i.e., whether the
company is involved in the right activities,
markets, etc., and not necessarily in terms
of how well the activities are performed,
i.e., on the efficiency
8
Business Strategy and
Functional Strategy
• Individual functional areas tend to be
evaluated on the basis of well they are
run, i.e., on their efficiency. They tend to
be less focused on doing the right things,
i.e., on their effectiveness
• This causes a schism between the
business strategy goals and the functional
strategy goals
9
Role of Manufacturing in
Business Strategy
• Typically manufacturing tends to not lead
the organization when it comes to
developing strategic goals. The role of
manufacturing tends to be more meeting
the requirements set by other areas
including marketing, sales and finance
• So generally manufacturing’s role in
business strategy is not well understood or
recognized
10
Role of Manufacturing
• Manufacturing had a more important role in
setting the direction for organization in the older
days when manufacturing capacity and
capability determined the profitability of the
organization
• With increased global manufacturing capacity,
the focus turned towards the ability to sell what
had been produced. This meant greater
emphasis on marketing, advertising, and pricing
issues
11
• Manufacturing executives and managers often
were busy trying to meet their schedules as
opposed to be concerned about looking at long
range issues
• The perspective of manufacturing turned more
inward especially after the 1960s and 1970s
• Even today, the focus of people in charge of
manufacturing is more on efficiency and
conformance to requirements than on the setting
of long term plans
12
• The kind of training that manufacturing
personnel tended to receive was more
focused on technology than on broader
issues
• Promotions and financial rewards were
also tied to how well the people performed
the tasks they were assigned. There was
less incentive to think beyond short term
goals.
13
• The result was that manufacturing was not
closely involved during strategy
formulation
• The manufacturing people started to feel
that their role was not strategic
• This is a serious drawback of several
organizations
14
Impact of Manufacturing
• Wickham Skinner did early research to
indicate that manufacturing had incorrectly
slid into a secondary role in the organization
• Among all the functional areas, the one that
contributes most directly to creating value for
the customer is manufacturing. All other
functions play a supporting role
15
Impact of Manufacturing
• Manufacturing has the biggest impact on
cost, quality and speed of delivery as
compared to other functions. Cost, quality
and speed of delivery are determinants of a
company’s market position
• Manufacturing represents the biggest
investment in terms of plant and equipment. If
incorrect decisions are made, they will impact
the organization’s competitive ability.
16
Session 2
• End of module 2
17
Session 2
• Begin Module 3
– Porter’s 5 Competitive Forces
– Threat of New Entrants
18
The Porter Framework
Industry Profitability is Determined by
Threat of
New Entrants
Bargaining Power Rivalry Among Bargaining Power

of Suppliers Existing Competitors of Buyers
Threat of Substitute
Products or Services
19
Threat of New Entrants
High barriers to entry come from major sources
• Large economies of scale
• Significant product differentiation
• Large capital requirements
• High switching costs
• Ready access to distribution channels
• Cost disadvantages independent of scale
• Restrictive government policies
20
Barriers to Entry
• Large economies of scale
– Certain industries are viable at large volumes
– Scale advantages can occur in any function including
manufacturing, purchasing, marketing, R&D, etc.
– Multi-business organizations can share costs of
certain functions, reducing costs
– New entrants face higher risk as a result
21
Barriers to Entry
• Significant product differentiation
– Existing companies have established brands
– New entrants have to spend significantly to overcome
customer loyalty
• Large capital requirements
– Certain industries require significant capital outlays.
E.g., aluminium, computer chips, etc.
– Some of the capital outlay may be due to R and D,
advertising, or production equipment
– Xerox created a barrier to entry by leasing equipment
22
Barriers to Entry
• High switching costs
– Could include employee retraining, technical help,
ancillary equipment, supplies
– Customizing supplies can make switching difficult
– Employees get comfortable with existing systems and
resist change
• Access to distribution channels
– Existing distribution channels may be reluctant to
provide outlets to new entrant
– Prime example is shelf space in food stores
23
Barriers to Entry
• Cost disadvantage independent of scale
– Proprietary technology
– Access to raw materials
– Government subsidies
– Favorable location
– Experience curves
• Government Policy
– Licensing requirements
– Restricted access to raw materials, e.g., coal mines
– Environmental regulations
– Product testing requirements 24
Session 2
• End of module 3
25
Session 2
• Begin Module 4
– Rivalry Among Existing Competitors
26
Rivalry Among Existing Competitors
Intense rivalry results from interacting factors

• Numerous or equally balanced competitors
• Slow industry growth
• High fixed costs
• Lack of product differentiation or low
switching costs
• Capacity augmented in large increments
• Diverse competitors
• High strategic stakes
• High exit barriers
27
• Numerous or equally balanced competitors

• When the number of existing competitors is large
and the industry is not dominated by a few
companies, there is a greater tendency for
instability due to individual moves by companies
• When the industry is dominated by a few players,
they impose more discipline
• Often foreign competitors tend to disrupt local
markets
28
• Slow industry growth

• If growth in the industry is slow, firms seeking growth
fight for market share
• Fight for market share makes the situation more
volatile as competitors have to outguess each other
• High fixed costs
• If fixed costs are high, there is a greater pressure for
higher capacity utilization
• This can often lead to aggressive price cutting to sell
excess stocks
• The same can be true if storage costs are high
29
• Lack of product differentiation or low switching

costs
• When there is little product differentiation, the product
is viewed as a commodity
• The main competitive factor then becomes price and
service
• In such cases, competition tends to become intense
and can lead to price wars
30
• Capacity augmented in large increments

• Certain chemical and process industries are limited
by large quantum of capacity increases
• When capacity has to be increased in large amounts,
it can lead to overcapacity and price cutting
• Diverse competitors
• Competitors from different backgrounds tend to follow
different competitive approaches
• Others find it difficult to read the moves of such
competitors
• Foreign competitors tend to add to diversity
31
• High strategic stakes

• Certain companies place a high premium on success
in a market for strategic reasons, e.g., foreign
competitors trying to get a foothold in a market
• Such companies will be willing to forego profitability
for a while and may destabilize the market
• High exit barriers
• When exit barriers are high, due to low liquidation
value of assets, or regulatory constraints, companies
may be forced to operate even when not profitable.
• They tend to drive down prices to keep their sales up
32
Session 2
• End of module 4
33
Session 2
• Begin Module 5
34
Summary
• The manufacturing function has the largest
stake in the success of the organization
• However, typically the manufacturing
function tends to be reactive rather than
proactive in strategy development
• Manufacturing managers and executives
are rewarded more for short term
performance than for setting strategic
objectives and achieving them
35
Summary
• Michael Porter has defined a structural
description of the forces that affect the
competitive position of an organization
• The five forces of Porter that define the
competitive position include barriers to entry,
existing competitors, substitute products,
bargaining power of buyers and the bargaining
power of suppliers
36
Session 2
• End Module 5
37
Strategy
Rajiv Gupta
BITS Pilani
Session 3
Session 3
• Module 1
• Module 2
– Porter’s 5 Forces of Competition (contd.)
• Threat of Substitute Products
• Module 3
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
• Module 4
– Structural Analysis and Competitive Strategy
• Module 5
2
Session 3
• Begin Module 1
3
Recap of Session 2
• In Session 2, we discussed the role that
manufacturing plays in the formulation of
business strategy
• We discussed how, in several companies,
manufacturing plays a reactive rather than a
proactive role
• Manufacturing represents the largest investment
among all functional areas and it is important
that we give importance to the function during
strategy development
4
Recap of Session 2
• We began the discussion on Michael
Porter’s 5 Forces that determine the
competitive structure of an industry
• The first two of these forces, i.e., The
Barriers to Entry and the Rivalry among
Existing Competitors were discussed.
5
Session 3
• End of module 1
6
Session 3
• Begin Module 2
• Threat of Substitute Products
7
Threat of
New Entrants

8
8
Threat of Substitute Products
Substitutes limit potential returns through
pricing
• Functionally equivalent products
• Threat from products with trends improving
price performance tradeoff versus the
industry’s product
• Threat from products produced by industries
earning high profits.
• Collective industry response may improve
position
9
• Functionally equivalent products
– Certain products may be considered different, but
could perform a similar function, e.g., sugar vs. high
fructose corn syrup, fiberglass vs styrofoam for
insulation
– With functionally equivalent products, people are
concerned about the cost vs. difference in
performance
– Similar examples exist in services, e.g., rail vs. road
vs. air transport
10
• Products with trends improving price
performance tradeoffs
– Electronics industry has a long term trend toward
improving price performance ratios
– Replacement of tapes with CDs, with DVDs with
memory sticks
11
• Products produced by industries earning high
profits
– Substitutes come into play when some technical
development leads to price reduction or performance
improvement
– Companies can analyze such trends to see whether
they can take actions to ward off the threat or use it
as part of their own strategy
– Example can be the use of electronic surveillance
systems replacing security guards. Companies can
opt to offer packages combining the two with the
security guards assuming a more skilled role
12
• Collective industry response may improve
position
– When an industry is faced with a threat of a substitute
product, advertising is sometimes used to point out
the strength of existing products or weaknesses of the
substitutes
– If the industry takes a collective step in advertising, it
has a bigger impact as opposed to the efforts of a
single company
13
Session 3
• End of module 2
14
Session 3
• Begin Module 3
– Porter’s 5 Competive Forces
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
15
Threat of
New Entrants

16
Bargaining Power of Buyers
Buyers are powerful from the following factors
• Few customers
• Purchases represent a significant amount of
buyer’s costs
• Purchases are undifferentiated or standard
• Low switching costs
• Low profitability
• Threat of backward integration
• Industry’s product is unimportant to the quality of
the buyer’s products or services
• Full information about markets, prices and costs
17
• Few customers
– When few, large customers exist, they can exert
significant pressure for more favorable terms
– If the buyer represents a large fraction of the sales,
losing the customer can be a large loss
• Purchases represent a significant amount of
buyer’s costs
– If the purchase represents a large amount of the
buyer’s costs, he will attempt to shop for a favorable
price as the reduction will have a significant impact on
his total cost, i.e., he is more price sensitive
18
• Purchases are undifferentiated or standard
– With fewer differences among competing products,
the buyer has more options and is less inclined to pay
a higher price
• Low switching costs
– High switching costs tie a buyer to a particular seller.
Conversely, low switching costs free up the buyer to
look at alternatives
19
• Low profitability
– When the buyer’s company is not very profitable, there is
greater pressure to reduce costs of purchased parts.
Hence more intense bargaining/negotiations.
– A more profitable company tends to be less price sensitive
• Threat of backward integration
– When the buyer’s company can integrate backward, it is a
threat to loss of business and can force a company to
negotiate
– Some companies decide to make some of the parts in-
house to keep the threat of backward integration credible
20
• Industry’s product is unimportant to the quality of
the buyer’s products or services
– When the quality of the buyer’s product is affected by
the product, the buyer will be less price sensitive
– This happens when the part is a critical part, e.g., oil-
field equipment or medical equipment
• Full information about markets, prices and costs
– When the buyer has information about demand,
market prices, and the supplier costs, he is in a better
position to negotiate
21
Bargaining Power of Suppliers
Suppliers are powerful from the following
factors
• Few suppliers
• Little threat from substitutes
• Industry is not an important customer of the
supplier
• Supplier’s product is an important input to
buyer’s business
• High product differentiation or switching costs
• Threat of forward integration
22
• Few suppliers
– When there are few, powerful suppliers, they
exert a great influence on prices and purchase
terms
– Also when the buyers are fragmented and small
• Little threat from substitutes
– Even large suppliers have to be careful if there
are substitute products in the market
– However, if the threat of substitutes is low, the
supplier can exert more pricing power
23
• Industry is not an important customer of the
supplier
– If a particular industry/company does not represent a
large percentage of the sales of a company, the seller
is not too concerned about the loss of business
– However, if the buyer is an important buyer, the seller
will be more flexible in negotiation
• Supplier’s product is an important input to buyer’s
business
– If the supplier’s product is critical to the buyer’s
business this raises the bargaining power of the seller
– This also happens when the product is not easily
stored
24
• High product differentiation or switching
costs
– High differentiation or switching costs work in
favor of the seller.
– Low differentiation or switching costs work in
favor of the buyer
• Threat of forward integration
– When the supplier shows a credible threat of
forward integration, it can give him greater
bargaining power
25
Session 3
• End of module 3
26
Session 3
• Begin Module 4
– Structural Analysis and Competitive Strategy
27
Structural Analysis
• Once a company understands the forces that
affect their competitive position, it can identify
its strengths and weaknesses vis a vis the
market and the competition
• The company is in a position to evaluate
whether there is a credible threat of substitute
products, whether they have a significant
barrier to entry by a new competitor, what is
their position vis a vis existing competitors,
etc.
28
Possible Approaches
• As a result of assessing the current competitive
threats, a company can decide to either take an
offensive or a defensive approach relative to its
own position
• Specific actions can include
– Positioning the firm to provide the best defense
against existing competitive forces
– Influencing the balance of forces through strategic
moves
– Anticipating shifts in factors and responding to them
29
Possible Approaches
• Positioning the firm
– The company takes the structure of the competition
and matches its own strengths and weaknesses to it.
– The company tries to build defense in their weak
areas and tries to exploit the points of weakness in
the competition
– There could be certain area where the company
should confront the competition, and where they
should avoid confrontation
– Example could be a low cost producer selling to
buyers that are not subject to competition from
substitutes 30
Possible Approaches
• Influencing the balance
– This is a more aggressive approach
– Here the company does not merely try to take into
account the current competitive scenario, but also
tries to change it to its own advantage
– Examples could be aggressive marketing to create
differentiation for the product or service or large
capital investments to create barriers to entry for
newcomers
31
Possible Approaches
• Anticipating shifts
– Industry tends to evolve. Some patterns of evolution
are predictable, e.g., as an industry grows mature, the
growth rates slow down, and advertising declines
– Companies need to evaluate whether these trends
affect the structure of competition. For example in
mature industries, differentiation is reduced. This
increases the power of buyers and lowers barriers to
entry. So competition would increase.
32
Strategy Framework
• Where are we now? Where are we taking
the business?
• How are we going to position our business?
• How are we going to get there?
• What are our options? What are our
competitors’ options?
• What are the five or six most critical
assumptions?
33
Strategy Framework
• What acquisition candidates will be
tracked and or acquired to implement the
strategy? What joint ventures or major
licensing arrangements will be pursued?
• What internal actions are needed to
support Strategy?
34
Session 3
• End of module 4
35
Session 3
• Begin Module 5
36
Summary
• In this class we completed the discussion on
Porter’s Structure of 5 Competitive Forces
• Specifically we discussed the Threat of
Substitute Products, The Bargaining Power of
Buyers and the Bargaining Power of Suppliers
• The Threat of Substitute Products can put
pressure on a company to be more flexible in
negotiations. The threat is greater or less
depending on different structural elements
37
Summary
• The Bargaining Power of powerful Buyers tends
to bring down the prices of products when the
seller has less clout in the market
• The Bargaining Power of Sellers tends to drive
up prices of purchased parts and raw materials
when the sellers have a strong presence
• Companies need to determine what is the best
way in which they ought to address the threats
from all 5 force after careful evaluation of their
situation
38
Session 3
• End Module 5
39
Strategy
Rajiv Gupta
BITS Pilani
Session 4
Session 4
• Module 1
• Module 2
– Generic Strategies
• Module 3
– Discussion of the Generic Strategies
• Module 4
– Choice of Strategy
• Module 5
2
Session 4
• Begin Module 1
3
Recap of Session 3
• In Session 3, we continued the discussion on
Michael Porter’s 5 Competitive Forces
• We saw how the threat of substitute products
can provide a competitive challenge to even
large organizations
• We also saw the bargaining power that buyers
and sellers can exert depending on their
strengths relative to a particular company.
Factors such as size, criticality, options, and the
threat of forward/backward integration were
discussed. 4
Recap of Session 3
• Once we have established the structure of
the competitive forces, we can assess our
strengths and weaknesses vis a vis the
general market
• We can choose to adopt an aggressive,
offensive approach or a defensive
approach to deal with the competition.
5
Session 4
• End of module 1
6
Session 4
• Begin Module 2
– Generic Strategies
7
Generic Strategies
• Overall Cost Leadership
• Differentiation
• Focus
• Each successful company tends to pursue

one
• It is difficult to pursue more than one strategy
as each strategy requires complete
management focus
8
Overall Cost Leadership
• Overall cost leadership requires a tight control
on all costs
• Companies tend to have large scale facilities for
low per unit costs
• Companies pursue low cost of purchased parts
• Companies may look to eliminate marginal
customer accounts
• Companies reduce unnecessary overhead costs
9
• Companies exploit experience curves to drive
down the cost of operations
• Management focus is on eliminating all sources
of avoidable costs
• At the same time care has to be taken to ensure
quality and service so that market share is not
reduced
10
• With cost leadership
– You can earn a good return even after the existing
competitors have brought down prices
– You create a barrier to entry for new entrants
– You can ward off the threat of substitute products and
services
– The bargaining power of buyers is limited up to the
price of the next most efficient competitor
– The power of sellers is mitigated by greater flexibility
in absorbing increases in input costs
11
• Overall cost leadership could require
– Large market share to gain scale advantages
– Favorable access to raw materials, tax benefits,
location
– Design of products for ease of manufacturing
– Higher up front capital investment in more efficient
equipment
– Aggressive pricing and higher start-up losses to build
market share
12
Differentiation
• Differentiation is the creation of something
unique about the product or service
• Differentiation may be achieved by:
– Brand image
– Design
– Technology
– Features
– Dealer network
– After sales service
13
Differentiation
• With differentiation you can
– Insulate against existing competitors by creating a
brand loyalty
– Create barriers to entry by providing uniqueness of
product or service
– Guard against substitute products by being not easily
substituted
– Fight buyers’ bargaining power as their choices are
limited and due to high switching costs
– Provide safety against sellers’ power due to inability
of the sellers to forward integrate
14
Differentiation
• With differentiation you
– Generally have higher margins as customers may be
willing to pay a premium price for the uniqueness.
However, although your product may be recognized
as unique, not all customers will be willing to pay a
premium price for it
– Trade off uniqueness against higher market share. A
highly differentiated product will have the image of
exclusivity.
– May have to trade-off with cost leadership position as
you incur costs to differentiate the product or service
15
Differentiation
• However, with differentiation
– You trade off uniqueness against higher market
share. A highly differentiated product will have the
image of exclusivity.
– Often the trade-off is with cost leadership position as
you incur costs to differentiate the product or service
– Although your product may be recognized as unique,
not all customers will be willing to pay a premium
price for it
16
Focus
• With a focus strategy, a company targets a
segment of the market for dominance
• The limited segment could be a buyer
group or industry, or a geographic region,
or for a particular product line
• The focus strategy allows a company to
serve the needs of the focus group better
than the competition
17
Focus
• Typically the focus could be either cost
leadership in the segment or differentiation in
the segment
• It is also possible to achieve both cost
leadership and differentiation, but only in the
limited segment
• Although the company may not have the
dominant position in the entire industry, it will
enjoy leadership position in the specific market
segment
18
Focus
• As in the case of overall cost leadership and
differentiation strategies, the focus strategy
provides strategic benefits against the 5
competitive forces
• The focus strategy allows the company to have
higher margins in the focused segment
• The company may use this approach to target
weak areas of the competition or to create a
position of strength for itself
19
Generic Strategies
Low Cost Position Uniqueness
Overall Cost
Industry wide Differentiation
Leadership
Limited market
segment
Focus
20
Session 4
• End of module 2
21
Session 4
• Begin Module 3
– Discussion of the Generic Strategies
22
Cost Leadership Strategy
Organizational
Skills and Resources Requirements
• Substantial capital • Tight cost control
investment • Structured organizational
• Superior process responsibilities
engineering skills • Incentives for meeting
• Higher supervision targets
capabilities
• Design for manufacture
and assembly
• Low cost distribution
23
Differentiation Strategy
Organizational
• Superior marketing skills • Coordination among
• Strong product marketing, R&D, and
engineering skills product development
• Strength in basic • Incentives for creativity
research (more qualitative based)
• Creative flair • Ability to attract creative
• Reputation for quality and talent from other
technology leadership organizations
24
Focus Strategy
Organizational
• Combination of skills • Combination of
required for the other two requirements for the other
strategies two strategies
25
Risks of Overall Cost
Leadership
• This strategy has risks associated with reliance
on scale and experience as barriers
• New technology can nullify past experience or
investment in capital equipment
• Newcomers may be able to learn either by hiring
people away from the company, or by investing
in facilities
• Inability to see changes in the market
• Inflation can eat into the cost advantage
26
Risks of Differentiation
• When the price differential between the
company and its competitors becomes too large,
buyers begin to sacrifice features, quality, etc.
• As buyers become more educated they can
more realistically assess the benefits of the
differentiated product or service
• As the industry matures, imitators are able to
narrow the gap in differentiation making the
company lose its advantage
27
Risks of Focus
• When the cost differential between the broad
range competitors and the focused company
becomes too large, buyers see little advantage
in the focused company
• The differentiation between the focused
company product and the generically available
product is reduced or eliminated
• Competitors find niches within the focus area
and create sub-focus areas driving out the
focused company
28
Session 4
• End of module 3
29
Session 4
• Begin Module 4
– Choice of strategy
30
Choice of Strategy
• Each generic strategy has its advantages,
requirements and risks
• No single strategy is appropriate for all
companies
• The choice of strategy depends on the
competitive structure of the market, the
company’s own strengths and weaknesses and
the management approach
• Not having a strategy is not an option
31
Choice of Strategy
• Generally speaking, a company stands to earn
above average profits if it is able to execute a
generic strategy well
• However, a company doing well may falter over
a period of time due to any of the risks
associated with the particular strategy
• A company that is “stuck in the middle” usually
earns below average profits in the industry and
is in danger of going out of business
32
Choice of Strategy
• A classic example of companies with clear cut
generic strategies was Ford and General Motors
nearly 80-90 years ago.
• Ford had built its reputation on being a low cost
producer. This had been achieved at the cost of
having no variety.
• GM, on the other hand, changed the game by
having a larger variety of products that appealed
to the customers. Ford had failed to anticipate
this and lost ground as a result
33
Stuck in the Middle
• Chrysler, on the other hand, was not
recognized for low cost or for its styling,
etc. It did revolutionize the minivan
industry and that sustained it for a while.
But other companies caught up and
Chrysler ultimately was taken over first by
Benz, and then by Fiat
• American Motors was a similar casualty in
the 1980s
34
Stuck in the Middle
• A company stuck in the middle loses market
share to the low cost leader as it cannot offer the
low prices of the market leader
• By the same token, the company also misses
out on higher margins of a company that adopts
a differentiation strategy as it cannot command a
premium price for its product or service
• As a result, the company flounders around with
little growth prospect and limited profitability
35
Stuck in the Middle
• Companies stuck in the middle often have
a confused management that is not
committed to pursuing a single strategy
• They flip flop between the generic
strategies and have a tough time surviving
36
Session 4
• End of module 4
37
Session 4
• Begin Module 5
38
Summary
• In this class generic strategies, as defined by
Porter, were discussed
• There are three generic strategies, overall cost
leadership, differentiation, and focus
• Most successful companies attempt to excel in
any one of the three areas as pursuing each
strategy requires the total concentrated effort of
the management as well as a specific allocation
of resources
39
Summary
• Each of the generic strategies requires a
different set of skills and organizational effort
• Each of the generic skills provides an edge to
the company in regard to the 5 competitive
forces
• Companies that are stuck in the middle typically
earn below average returns and may be at risk
of going out of business or being taken over
40
Session 4
• End Module 5
41
Strategy
Rajiv Gupta
BITS Pilani
Session 5
Session 5
• Module 1
• Module 2
– Competitive Advantage
• Module 3
– Creating Value
– Manufacturing Outputs
• Module 4
– Need for Manufacturing Focus
• Module 5
2
Session 5
• Begin Module 1
3
Recap of Session 4
• In Session 4, Porter’s three generic strategies
were introduced
• The three generic strategies were Overall Cost
Leadership, Differentiation, and Focus
• Most successful companies are able to pursue
any one of the three strategies. The reason for
this is that each strategy requires the complete
attention of management, a different allocation
of resources, and organizational requirements
4
Recap of Session 4
• Each of the three generic strategies can provide
an advantage to a company with regard to the 5
Competitive Forces. However, no single strategy
is best across all industries and companies
• The worst decision a company can make is to be
“stuck in the middle” as such a company will get
squeezed for market share by the cost leader,
and for margins by the differentiating company
5
Session 5
• End of module 1
6
Session 5
• Begin Module 2
– Competitive Advantage
7
Competitive Advantage
• All companies are, in their own words, trying to
beat the competition
• How the company measures its competitive
advantage affects the focus of the management
• Some common incorrect measures used by
management to measure competitive
performance are:
– Return on sales
– Growth rate
– Shareholder Value measured by stock price
8
• Return on sales:
– A lot of companies report the % profit earned
on the total value of the sales. This, however,
ignores the amount of capital invested to
achieve the sales and therefore does not
indicate how well the resources have been
utilized
9
• Growth:
– Companies often focus on high growth rates and
market share. However, these measures also fail to
take into account the profitability of the company.
Often, companies with high inventories drastically cut
prices to sell the excess inventory. A good example is
when General Motors and Toyota were in the battle to
be the largest seller of automobiles in the world.
General Motors declared bankruptcy in 2008. Toyota
lost its quality focus and had a huge product recall in
the early to mid 2000s.
10
• Shareholder Value:
– Company leadership focuses on the value of the
stock price as the executive promotions and pay is
quite often dependent on it. Stock price movement in
the short term may not reflect the actual correct
decisions by management. However, over the long
term, stock price appreciation could indicate
appropriate strategy adopted by the company
management
11
• So what measure appropriately defines
superior competitive performance of a
company?
• Porter suggests profitability, as measured
by the Return on Invested Capital (ROIC)
• ROIC reflects the effective utilization of a
company’s resources in creating economic
value
12
• A company with a competitive advantage over
its industry rivals should have a sustainably
higher profitability than the industry average
• One way for a company to achieve this is by
commanding a higher relative price for its
product/service using a differentiation strategy
• Another way is for the company to operate at a
lower relative cost with a cost leadership
strategy
13
Relative Price
• A company is typically able to command a
premium price for its product or service by
providing something unique to a customer which
makes the customer willing to pay extra. Luxury
cars such as Mercedes, Apple products are
examples
• The extra chargeable price is based on the value
perceived by the customer
• Typically an industrial customer is able to quantify
the benefit of a unique design or feature.
14
Relative Price
• A consumer, on the other hand, rarely has a
quantitative measure. A consumer typically makes
the decision on intangible dimensions or on the
emotional appeal of the product.
• In the food industry, consumers are willing to pay
premium prices for organic foods in the expectation
that it is good for them. In the US, consumers pay
premium prices for certain types of eggs because
the chickens are more ethically treated. Or the
consumer may find the taste better. Example of tap
water vs. bottled water.
15
Relative Cost
• To achieve lower relative cost a company must be
able to find more efficient ways to design, produce,
distribute, sell and service the product or service as
compared to other companies
• Low relative cost is often interpreted as low cost of
production. Often low relative cost can be achieved by
looking at all the activities performed and finding a
better way of reducing the cost by considering a key
contributor to cost. E.g., Southwest Airlines focuses on
faster aircraft turnaround times. Nucor Steel operated
out of a small corporate office with the “executive
dining room” a small deli across the street.
16
Relative Cost
• Dell does not design or make components. It offered
custom products in a short lead time. By doing so it
was able to reduce the inventory of purchased parts
as Dell only bought components for which there was
actual demand. The short lead time allowed Dell to
reduce in-process inventory and producing to order
left no finished inventory.
• By getting paid for its products before they had to
pay their suppliers, Dell had negative working
capital, a major cost advantage compared to its
rivals
17
Session 5
• End of module 2
18
Session 5
• Begin Module 3
– Creating Value
– Manufacturing Outputs
19
The Value Chain
Each industry, or company may have a different value chain.

The value chain consists of all activities a company performs
20
Overall Value System
• The overall value system consists of all activities
that are performed, irrespective of who performs
them. A company’s value chain is a subset of
the overall value system.
• The question to be considered by a
manufacturer is to what extent should they
vertically integrate. Also, is it better to be directly
involved in the distribution and the service
network, or should it be outsourced?
21
Overall Value System
• Sometimes it may make sense to do backward
integration due to cost advantages. However, in
certain industries, it has proven to result in higher
cost and ineffective management, e.g. the auto
industry in the US and their component division.
Sometimes proprietary technology might make
backward integration a necessity.
• Also, companies have often been involved in
downstream functions such as dealerships, or
financing. This provides a window to directly
interface with the customers and understand market
trends early. 22
Understanding Manufacturing
Outputs
• In order to make a decision about value system
activities that ought to be included in a
company’s value chain, we need to understand
exactly what are the outputs from a company
• The textbook defines 6 such outputs (Chap 4)
– Cost
– Quality
– Performance
– Delivery
– Flexibility
– Innovativeness
23
Outputs
• Cost – A product accumulates cost at various
stages of operations. A lower cost affords the
option to either lower the price (and gain market
share) or to increase margins.
• Quality – Traditionally quality refers to all
aspects of a product as perceived by the
customer. The book defines quality as the
conformance to specifications. Quality, as
defined, would be the result of process control.
24
Outputs
• Performance – The book ascribes unique design
features including durability, speed, capacity,
etc. as performance output. Typically
performance is designed into the product.
• Delivery – The lead time required to produce
and deliver a product is part of the delivery
output. In addition, the reliability of the promised
delivery date is also a key output regarding
delivery
25
Outputs
• Flexibility – Flexibility refers to the ability of
producing different products on the same
equipment on line. This enables a company to
provide for a variety of product mix and volumes
while still maintaining good resource utilization
• Innovativeness – This is the ability of a company
to design, and/or produce new products at a
regular interval.
26
Competing on the Basis of
Outputs
• Cost – Typically in industries where little
differentiation is possible, customers buy
primarily on price. Here companies must focus
on reducing the cost of operations, e.g., bulk
commodities.
• Quality – Consistency in taste is what drives
people to their favorite restaurants, e.g.,
McDonald’s, Udipi restaurants in Mumbai. This
requires companies to focus on process control
27
Outputs
• Performance – Customers of luxury cars are looking
for special features. Customers of home appliances
are looking for durability and specific performance
characteristics. Companies need to ensure their
products meet these needs.
• Delivery – Delivery speed in the on-line shopping
business of utmost importance. This requires ability to
store, transport and deliver with consistency. Also,
manufacturers may keep inventories of finished goods
or modular components to reduce delivery time. Airline
on-time arrivals are another example.
28
Outputs
• Flexibility – A restaurant that has a large menu, but
where half the dishes are not available, will not be
liked by customers. A manufacturer with a wide
range of options that can be delivered in a
reasonable time will outperform its competitors.
• Innovativeness – Innovativeness requires both the
ability to create what the customer will like (e.g.,
Apple) and the frequency with which new products
are designed and made available. Example would
be the time to design and produce new models of
cars.
29
Session 5
• End of module 3
30
Session 5
• Begin Module 4
– Need for Manufacturing Focus
31
Manufacturing Outputs
• We saw earlier that there are a number of different
requirements placed on a manufacturing system
based on which manufacturing responds by
providing a certain set of outputs
• For example one requirement may be that a variety
of different products be produced within the same
time frame on a common set of plant and equipment
• Another one could be to keep the delivery time low
• A third could be to have a vey low cost of production
32
Trade-Offs in Manufacturing
Output
• While some of the different requirements could
be met with a common plant and equipment, the
same plant may not be able to meet all
competing requirements equally well
• So if we try to provide all the requirements with
the help of the same equipment, people and
operating policies, the chances are that one or
more of the requirements will suffer
33
Example
• Consider a company that was producing small to
medium volumes of a custom made product in a plant
which had simple equipment, varied sequence of
processes for the different products, and a reasonable
variety of products.
• The company accepted a large order (20,000 pieces)
from one customer who was willing to pay a fraction of
the price the typical customer paid. Wanting to get into
higher volume business, the company accepted the
order
• What would happen?
34
Example
• In this particular example, the results were disastrous.
The operators as well as the supervisors were not clear
what parts were to be prioritized. The care with which
each operation was typically performed for the older
parts needed to be replaced by speed to finish the large
order. If the focus was placed on the large order, the
more profitable products got delayed. If setups were
broken, the cost of producing the large quantity went up
dramatically
• The end result was all customers, including the new one
were dissatisfied. Delivery deadlines were missed, costs
were significantly higher, people were confused and
frustrated. 35
Analysis
• Why did the situation in the example arise?
• Because each manufacturing system has certain
strengths, capabilities and requirements in terms of
operating policies, type of equipment, and
management focus
• When we try to mix together the requirements from
a number customers and products and try to do
everything on a common set of equipment, using
common operators and supervisors, and with
common policies, confusion reigns
36
Need for Focus
• As seen in the previous examples, trying to do
too many different tasks with a common set of
equipment, people and policies does not work
well for any of the tasks.
• In order to be able to do justice to the tasks, we
need to understand the specific demand placed
on manufacturing by a certain set of
requirements and choose an appropriate
manufacturing solution that best meets the
needs of that demand
37
Session 5
• End of module 4
38
Session 5
• Begin Module 5
39
Summary
• In this class we discussed the way to measure
competitive advantage and performance
• It was shown that ROIC is the best measure for
relative competitive strength as it measures how
well we are using our resources
• Higher ROIC can be achieved either by higher
relative price, or by lower relative cost. Each of
these requires a different strategy
40
Summary
• The company needs to decide whether to do all
activities in-house, or is it better to outsource
some activities
• There are 6 basic manufacturing outputs that a
company provides. The requirements of each
output may be different and may require a
different manufacturing configuration
• If we impose several competing requirements on
a common production system, none of the
requirements may be met effectively
41
Session 5
• End Module 5
42
Strategy
Rajiv Gupta
BITS Pilani
Session 6
Session 6
• Module 1
• Module 2
– Value and Focus
• Module 3
– Product Volume/Variety vs Layout/Flow Matrix
• Module 4
– Manufacturing Systems
• Module 5
2
Session 6
• Begin Module 1
3
Recap of Session 5
• In Session 5, we discussed the need to have the
right measure to judge the competitiveness of a
company
• We saw that the effective use of resources,
reflected by ROIC, is the best measure to
assess the health of a company compared to its
rivals
• ROIC can be achieved either by charging a
higher relative price, or by achieving a lower
relative cost
4
Recap of Session 5
• The strategies for being able to charge a higher
relative price, or achieving a lower relative cost are
different and should be selected based on what the
management feels is their strength
• The company needs to decide whether to do all
activities in-house, or is it better to outsource some
activities
• There are 6 basic manufacturing outputs that a
company provides. The requirements of each output
may be different and may require a different
manufacturing configuration
5
Session 6
• End of module 1
6
Session 6
• Begin Module 2
– Value and Focus
7
Value Proposition
Which customers? Which needs?
Which products?
Which end users?
Which features?
What channels?
Which services?
What relative price?
Premium? Discount? 8
Value Proposition
• Which customers?
– It is necessary to clearly define what segment of the
market you want to serve actively. Trying to serve
everybody may leave the people and systems in
disarray.
• Which needs?
– Within each customer segment, there will be a variety
of needs. You cannot meet all the needs effectively.
• What relative price?
– At what price will there be value for the customers
and an acceptable profitability for the company?
9
Value Proposition
• Once the three key questions are answered, the
basic business of the company is defined
• Now the job is to design the system to effectively
meet the needs we have chosen to satisfy
• Here the design of the manufacturing system is
critical
• Any attempt to use an inappropriate
manufacturing system for the task will result in
poor customer satisfaction and sub-optimal
profits
10
Focused Factory
• The concept of Focused Factory was advocated
by Wickham Skinner in the 1970s
• The whole premise of the Focused Factory was
that each manufacturing system had certain
characteristics which made it suitable for a
particular task as well as unsuitable for other
tasks
• Understanding this relationship can help
companies design the right manufacturing
system for the required task at hand
11
Focused Factory
• A manufacturing system consists of production
equipment, the manner in which it is organized,
the policies or methods we use to move
materials through the system and the people we
use to operate and supervise the operations
• It is important to understand the relationship
among these factors and the resulting output
from the system
• We need to match these outputs to the desired
outputs
12
Focused Factory
• According to Skinner, a large number of
companies try to use the same equipment, with
a common layout and set of operating policies
and operators to achieve a variety of
manufacturing tasks
• This results in none of the tasks being performed
well
• Skinner suggested that we consider forming
“Focused Factories” or factories within factories
which did one or a few manufacturing tasks well
13
Focused Factory
• Skinner proposed to rethink the manufacturing
problem by changing the mindset using the following
4 points:
– The problem is “How to compete” not “How to increase
productivity”
– The problem encompasses the efficiency of the entire
manufacturing organization, not just of the direct labor
– Focus each plant on a limited, concise, manageable set of
products, technologies, volumes, and markets
– Structure manufacturing policies for one manufacturing
task instead of several inconsistent, conflicting, implicit
tasks
14
Plant Within a Plant PWP
• When a plant has multiple requirements which must be
satisfied, it may become necessary to create sub-
factories or plants within a plant.
• Each sub-factory would be designed and run as a
focused factory, each focused on its own unique set of
manufacturing tasks.
• This may require some duplication of certain functions
and jobs. But the company should resist the temptation
to save costs by using a centralized staff group or
manufacturing operation.
• Having a dedicated plant for each manufacturing task
helps a company better serve its customers.
15
Session 6
• End of module 2
16
Session 6
• Begin Module 3
– Product Volume/Variety vs. Layout/Flow
Matrix
17
Variables Affecting
Manufacturing Output
• As discussed earlier, each set of demands provides
a different set of requirements for the manufacturing
system
• The principal manufacturing variables that we need
to start with are:
– The variety of products
– The demand volumes for the products
• Based on these variables we can design the 2 main
parts of the manufacturing system
– Layout
– Material Flow
18
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
19
Product Variety and Volumes
• Companies tend to produce either a large
number of products, each in small volumes (in
the extreme one of a kind), or a few products
produced in large volumes
• When the product variety is large, typically the
production steps and sequences required for
their production vary considerably
• In this case it is difficult to define an overall
material flow pattern for the entire range of
products produced
20
Product Variety and Volumes
• When the product variety is small, it becomes
easier to take one or two of the main products to
define the overall material flow for them
• This allows us to choose an appropriate layout
for the products, based on product variety and
volume
21
Layout Types
• There are 3 basic types of layouts commonly
found in plants
– Process or Functional Layouts – usually best suited
for low volume and one of a kind products
– Product or Line Layouts – best suited for high volume
production
– Cellular layouts – best suited for mid-range volume
products
• There is a fourth layout called the fixed position
layout which will not be discussed here
22
Layout Types
• Functional or Process Layouts – All machines
performing a similar function are placed in one
department. Parts arrive in the department and are
loaded on any available machine. High flexibility to
accommodate different products and volumes. Long lead
times as production across different departments is not
coordinated. Machines are more general purpose.
Workers more skilled. Work in Process inventories high,
but raw material and finished goods inventories low as
production is to order. Scheduling is complex. Quality is
the responsibility of the operator and supervisor of the
department.
23
Layout Types
• Line or Product Layouts – All machines required for a
particular product is are placed in the sequence required,
often in a line. Machines tend to be dedicated and
special purpose, and hence more efficient. Low flexibility
to accommodate different products and volumes. Lead
times short as the product moves directly from one
machine to the next. Workers may be less skilled. Work
in Process inventories low, but raw material and finished
goods inventories could be high as production may be to
stock. Scheduling is simple. Quality is the responsibility
of the operator and supervisor of the department.
24
Layout Types
• Cellular Layouts – Machines required for a family of
parts are placed in a cell. Usually the sequence of
operations for the family of parts is the same. There is
flexibility to accommodate different product mix and
volumes within the family. Short lead times as products
move directly from one machine to another. Machines
are more general purpose. Workers more skilled. Work
in Process inventories low, but raw material and finished
goods inventories could be high or low as production
could be to stock. Scheduling is simple. Quality is the
responsibility of the operator and supervisor of the
department.
25
Material Flow
• Material flow defines the way in which products move
through the plant
• The material flow through the plant varies with the
product variety and volume, and also on the layout being
used
• When the product variety is large and volumes low, the
layout used is the process layout and the material flow is
very irregular and not smooth due to the variety of flow
paths
• When the product variety is low and volumes high, the
product layout is typically used and the material flow is
typically smooth
26
Session 6
• End of module 3
27
Session 6
• Begin Module 4
– Production Systems
28
Production Systems
• There are basically 3 types of production
systems
• The book discusses 7 types. But several of
these are subsets of the above 3
• The 3 basic production systems are:
– Job Shop
– Batch Production
– Line or Continuous Production
29
Job Shop Production Systems
• Job shop production systems are used for very low
volume production. Several of the products may not be
repeated again. These products will be designed for a
customer and will be produced in very small quantities to
a specific customer order.
• Generally, because of the larger variety, there are
frequent set-ups
• Equipment tends to be general purpose and the layout
by process
• Material handling is awkward and over longer distances
• Expediting is commonly used to ensure products are on
time. Predicting completion dates is difficult
30
Batch Production Systems
• Batch production systems are used when individual
customers place orders in batch quantities. The system
may also be used to combine orders for similar products
into batches
• A batch of a product moves together through the shop
floor
• The layout used is generally either the process type or
the cellular type, depending on the commonality among
the products lending itself to the formation of part
families
• The machines tend to be more general purpose
31
Batch Production Systems
• If a process layout is used, the WIP inventory is high and
the lead times are longer. The material handling is
typically over longer distances. Expediting may be
required.
• If a cell layout is used, the WIP is low and the lead times
shorter. Material handling within the cell tends to be
directly between machines. But material handling among
cells may be required.
• Products may be produced to stock and production may
be based on a forecast.
• The book refers to Flexible Manufacturing Systems and
Just In Time in the context of batch production systems.
This issue will be covered later. 32
Line Production Systems
• In line production systems we tend to have higher
volumes of few products that are regularly demanded by
one or several customers
• Due to the higher volume of products line layouts with
dedicated equipment are commonly found in line
production systems
• Equipment tends to be specialized and customized for
the product(s) assigned to those machines
• Material flow tends to be smoother than the other
production systems. Material handling is generally
directly from one machine to another
33
Line Production Systems
• Work in Process inventories are low but finished goods
and raw material inventories could be high as line
producers tend to produce to stock based on forecasts
• The system is not very flexible to permit changes in
product mix or volume
• Little expediting is typically needed and scheduling is
simple
• An extreme form of the line production system is the
continuous production system in which the processes
are all connected to one another and the product is
made in continuously in large automated plants
34
Session 6
• End of module 4
35
Session 6
• Begin Module 5
36
Summary
• We discussed the reasons why we need to have
different methods for satisfying varying customer
requirements
• It was shown that Focused Factories allow
companies to cater to specific customer needs
by focusing on one or two critical characteristics
• By having a plant within a plant, a company can
satisfy multiple needs without losing its
competitive edge
37
Summary
• The product volume/variety vs layout/flow matrix
suggests the type of manufacturing configuration
suitable for specific types of production needs
• The 3 basic layout types are each suitable for 3
production systems, i.e., job shop, batch type or
line production.
• The choice of the right layout and production
system is necessary to match the manufacturing
solution to the manufacturing task.
38
Session 6
• End Module 5
39
Strategy
Rajiv Gupta
BITS Pilani
Session 7
Session 7
• Module 1
• Module 2
– Manufacturing Levers and the Job Shop Production
System
• Module 3
– Manufacturing Levers in Batch Production and Line
Production
• Module 4
– Volume/Variety vs. Layout/Flow Matrix and Product Life
Cycles
• Module 5
2
Session 7
• Begin Module 1
3
Recap of Session 6
• In Session 6, we discussed Focused Factories
• Focused Factories are designed to provide the
requirements of one or two manufacturing tasks
which will give the company a competitive
advantage
• A larger plant could be segregated into multiple
focused factories each with its own
infrastructure, operating policies and people.
4
Recap of Session 6
• We also discussed the product volume/layout matrix
• This matrix allows us to determine the right choice
of layout and production system based on the
volume and variety of products produced by the
company
• The production system consists of the infrastructure,
policies and people required to produce the product
5
Session 7
• End of module 1
6
Session 7
• Begin Module 2
– Manufacturing Levers and the Job Shop
Production Systems
7
Manufacturing Levers
• The book defines 6 manufacturing levers which
would need to be adjusted as one moves from one
production system to another
• These are:
– Human Resources
– Organizational Structure
– Sourcing
– Production Planning and Control
– Process Technology
– Facilities
8
• Human Resources
– The type of workers
– The skills required
– The amount and type of training required
– Job classifications
– Level of supervision
• Organizational Structure
– Centralization vs decentralization of control
– Whether the production system is a cost center or a
profit center
– Type of managerial skills needed
9
• Sourcing
– The degree of vertical integration
– Type of relationship with the vendors
– Capabilities of vendors
• Production Planning and Control
– Whether centralized or decentralized
– Whether push or pull
– Use of raw material inventories and finished goods
inventories
– Use of forecasts for planning production
– Ability to introduce changes
10
• Process Technologies
– Whether the machines are general purpose or special
purpose
– The degree of automation and integration
– The amount of standardization
• Facilities
– The size of the facilities/capacity
– Whether centralized or decentralized
– The layout
– Location
11
Matching the Manufacturing
Levers to Production Systems
• It becomes necessary to ensure that as
we choose and design different production
systems for different products, we also
choose the appropriate manufacturing
levers that match the characteristics of the
production system
• The levers also need to match with each
other
12
Job Shop System
• Human resources:
– High degree of skills required as the variety of products to
be produced is large and the equipment is not specialized
– Operators are expected to be trained before they are
hired. So the amount of training to be provided is minimal
– Incentives to retain the workers may be required as they
could be high demand in the industry
• Organization Structure
– Organized by function or process/decentralized
– Higher supervisory skills needed
13
Job Shop System
• Sourcing:
– Because of the variety produced the number of suppliers
could be large
– The company may not have much influence over the
suppliers
– The suppliers would need to be capable of providing the
range of products required
– Centralized planning usually with some form of ERP/MRP
– Production based on orders. Low raw and finished
inventories
– Frequent need for expediting. Changes accommodated
14
Job Shop System
• Production Technology:
– General purpose machines capable of handling a variety
of products. Require low capital investment
– Older equipment with long setups and run times
– Low level of automation and integration
– Less focus on preventive maintenance
• Facilities
– Generally small to medium sized facilities
– Layout by function or process
– Generally appear cluttered due to high level of WIP
– Imbalance in capacities
15
Session 7
• End of module 2
16
Session 7
• Begin Module 3
– Manufacturing Levers for Batch Production
and Line Production
17
Batch Production System
– Multi-skilled operators tend to be found where cellular
production is used
– In the case of functional layouts, worker skill levels are
high but narrow
– Training in teamwork may be needed in cells
– Organization is decentralized
– Less supervision needed in the case of cells
18
• Sourcing:
– Because of the variety produced the number of suppliers
could be large
– In the case of some suppliers the company may have
some influence due to larger volumes
– The suppliers would need to be capable of providing the
range of products required
– Centralized planning usually with some form of ERP/MRP
– Production based on orders. Low raw and finished
inventories. WIP low in cells, but high in process layouts
– Changes easily accommodated
19
– General purpose machines capable of handling a variety
of products. Require low capital investment
– Cells are run with low setup times and low frequency of
breakdowns, i.e., well maintained equipment
– Low level of automation but manual integration in cells
• Facilities
– Generally small to medium sized facilities
– Layout by process or cellular
– Cells will have better balanced capacity compared to
functional layouts
20
Line Production System
– Low degree of skills required as the equipment is
specialized, and possibly automated
– Operators are expected to perform to standards that are
stringent. They are trained to improve processes as the
focus is on reducing cost
– In some cases teamwork may be required and worker
involvement programs used for problem solving
– Often decentralized
– Lower supervisory skills needed
21
• Sourcing:
– Because of the larger volumes the number of suppliers
could be smaller. But this depends on the product
structure
– The company may have influence over the suppliers and
may develop longer term partnerships
– The suppliers could be involved in design activities
– Backward integration could be considered
22
– Often the production is based on a forecast and is to stock
– Raw material and finished goods inventories could be high
but WIP is usually low
– Either an ERP system or pull scheduling may be used
– Specialized machines that are better integrated. Require
high capital investment
– Equipment with shorter setups and run time. Focus is on
preventive maintenance.
– High level of automation
23
• Facilities
– Large facilities
– Layout by product often in long lines
– Capacities are balanced
24
Session 7
• End of module 3
25
Session 7
• Begin Module 4
– Volume/Variety vs. Layout/Flow Matrix and
Product Life Cycles
26
Variables Affecting
Manufacturing Output
• As discussed earlier, each set of demands provides
a different set of requirements for the manufacturing
system
• The principal manufacturing variables that we need
to start with are:
– The variety of products
– The demand volumes for the products
• Based on these variables we can design the 2 main
parts of the manufacturing system
– Layout
– Material Flow
27
Matrix
Functional
Batch Production
Cellular Layout
Operator-paced or
or Line Layout
Continuous
production
Continuous Flow

28
Extension to Product and
Process Life Cycles
• The product volume/layout matrix shown earlier
can be extrapolated to denote the stages in the
life cycle of a product from introduction to
decline and phase out
• At the time of product introduction in the market
volumes tend to be low. The focus is not on low
cost, but rather on the ability to provide a new
product on the market
• During this phase, the product generally
behaves as a low volume high variety product
29
Extension to Product and
Process Life Cycles
• As the product gains acceptance in the market
and matures, the focus changes to cost control
as there could be several other competitors in
the market
• Generally during this phase the main focus is to
standardize the product offering and the
processes used so that low cost per unit may be
obtained
• During this phase, the product generally moves
through the next two stages of volume
30
Matrix
Functional
Batch Production
Cellular Layout
Operator-paced or
or Line Layout
Continuous
production
Continuous Flow

New Product Gaining acceptance Maturity
31
Process Matching
• As a product moves through the phases in its life cycle, it
becomes necessary to also adjust the processes
required to meet the requirements
• If we do not adjust the process part of the
product/process matrix to match the evolving phases of
growth, we will find that we are off the diagonal, usually
above it
• In this case, if all the other competitors are also in a
similar situation, no one stands to gain. But if one
competitor chooses to move down in the process
dimension, he will gain in terms of lower cost of
production
32
Matrix
Functional
Batch Production
Cellular Layout
Operator-paced or
or Line Layout
Continuous
production
Continuous Flow

New Product Gaining acceptance Maturity
33
Off the Diagonal Points
• The points above the diagonal all represent
higher flexibility but also higher cost of
production as compared to points on the
diagonal or below it
• Certain companies in certain industries may
choose to operate above the diagonal if they feel
it provides them with a competitive advantage,
e.g., Rolls Royce provides custom made cars by
hand in an industry dominated by automated
assembly lines and can charge for the service
34
• When a company moves off the diagonal, it tends to
become dissimilar compared to its competitors
• Unless this is a deliberate attempt to create a special
niche, it results in the company becoming vulnerable to
attack
• The marketing and manufacturing functions tend to be
looking at different priorities which clash with each other,
e.g., for points below the diagonal, the manufacturing
function may be concentrating on lower cost at the
expense of flexibility, while marketing may be needing
more variety and less volume.
35
• When a company finds itself drifting off the
diagonal inadvertently, it needs to take
corrective action to align itself closer to the
diagonal, or it needs to try and see if it can
create and exploit a niche by remaining off the
diagonal
36
Session 7
• End of module 4
37
Session 7
• Begin Module 5
38
Summary
• We discussed manufacturing levers which are
characteristics of the type of production system
used
• It is necessary to adjust these levers depending
on which production system is being
implemented
• We also discussed the extension of the product
volume/layout matrix to the product life cycle
curve and saw how these are correlated
39
Summary
• As a product moves through the stages of
introduction, acceptance and maturity, it is
important to consider changing the production
system used for managing the plant
• Ideally it is best for a company to operate on the
principal diagonal but some companies may
choose to work in niche areas and go off the
diagonal
40
Session 7
• End Module 5
41
Strategy
Rajiv Gupta
BITS Pilani
Session 8
Session 8
• Module 1
• Module 2
– FMS and Just In Time Systems
• Module 3
– Product Life Cycles
• Module 4
– BCG Matrix
• Module 5
– Competing Through Manufacturing
• Module 6
2
Session 8
• Begin Module 1
3
Recap of Session 7
• In Session 7, we discussed manufacturing levers
such as human resources, facilities, technology,
etc., which are factors that can be adjusted to
suit the type of production system selected.
• We also discussed the extension of the product
volume/layout matrix to the product life cycle
curve and saw how these are correlated
• We discussed how it becomes necessary to
adjust the production system as the product
moves through the stages of its life cycle
4
Recap of Session 7
• It was discussed that most companies strive to be
on the principal diagonal of the volume/layout matrix
as this represents the best way to meet the
customer requirements.
• However, certain companies have developed
special niches off the diagonal which offer some
special advantages.
5
Session 8
• End of module 1
6
Session 8
• Begin Module 2
– FMS and Just In Time Systems
7
FMS
• Flexible Manufacturing Systems (FMS) are systems that
use automated, integrated equipment that can be used
to produce parts in small batches
• The main advantages these systems provide over
traditional batch production systems is the degree of
automation and real time control that permits ease of
real time scheduling.
• In addition, the machines used are typically CNC
machines with very low setup or changeover times
making FMS suitable for producing in small lot sizes
8
FMS
• The machines are typically connected by a handling
system which can include Automatic Guided Vehicles
(AGVs), conveyors, and robots. This allows the
production of a variety of products on the same system.
• Sophisticated software and programming is required not
only for the processes (CNCs) but also for the material
handling as it tends to be integrated.
• Any new product introduced in production would need to
be programmed in. The geometry, cutting path of the
tools, the sequence of operations, the tooling, etc. will
typically need to be developed. This takes time and
requires expertise.
9
FMS
• The capital required for an FMS is very high. Perhaps
that may be a reason why such systems are not found
very commonly in practice.
• In addition to the cost of capital, the people required to
program and maintain the equipment are very highly
skilled and would need to be paid more highly compared
to typical operators in a traditional batch production
shop.
• Due to the sophisticated equipment, the level of process
control can be very high and therefore conformance to
specifications may be very good.
10
Where I Differ From the Book
• The book mentions that FMS provides the lowest cost
per unit of all systems. It is not clear what costs are
considered in coming up with this assessment. I
seriously doubt it because if this were the case, we
would have had many more FMSs in use for small to
medium size batches
• The book mentions that the flow is line flow. I disagree.
The material handling system typically uses conveyors,
AGVs, and robots which can be programmed for
different sequences in which parts may be
machined/assembled.
11
Where I Differ From the Book
• The book mentions that these are very flexible, and at
the same time the raw material inventories are low. The
flexibility of these systems assumes the availability of
raw materials. This means that the suppliers may charge
a premium for stocking parts needed at short notice. This
will drive up material cost and therefore, the cost of
production.
• The book talks about manufacturing outputs such as
performance and innovation, which I don’t think are
affected by the use of an FMS
12
Just In Time (JIT) Systems
• Although the book tries to treat JIT in the same way as a
job shop or a batch production system, I don’t think the
comparison is very valid.
• As compared to job shops, etc. which are characterized
by layouts and the broad material flow, a JIT system is
not just a type of layout and flow.
• In fact there is no common understanding about what
constitutes JIT.
• Also, the number of successful JIT systems is very few
for us to draw inferences about them.
• So to compare a JIT system to some of these traditional
production systems may not be appropriate.
13
• In the course on lean, we had covered aspects of lean
which include a very different management approach.
• As discussed in the lean course, some aspects of the JIT
approach tend towards a different mind-set and are
almost philosophical in their scope and impact.
• Specifically, the emphasis on waste elimination,
continuous improvement, employee involvement,
supplier partnerships, problem solving in the gemba,
mentoring, planning systems etc. are specific elements
of JIT which do not have parallels in other production
systems we have discussed.
14
• There are a few aspects of JIT that we can use to put in
the context of the other production systems. These are:
– The layouts usually tend to be cellular with general purpose
machines and multi-skilled workers that work as a team
– Significant attention is paid to training of all employees and
employee involvement
– Scheduling tends to be easier within a cell. Some co-ordination
is required for scheduling across multiple cells
– Flexibility is generally very high
– The machines are extremely well maintained and have very low
set-up times.
– Inventory levels are low
– Lead times are typically very short
15
Session 8
• End of module 2
16
Session 8
• Begin Module 3
– Product Life Cycles
17
Product Life Cycles
Development Introduction Growth Maturity Saturation Decline
Sales
Time
18
Product Life Cycles
• During the development stage, there is only cash
outflow, no inflow of revenues
• During the introduction stage, there is a heavy cash
outflow for advertising, promotions, etc., and very low
revenues
• During the growth phase, the revenues pick up and the
company generally starts to break even somewhere in
this range
• Costs may be needed as you want to capitalize on the
market’s acceptance of the product or service. Costs for
manufacturing in volumes is required
19
Product Life Cycles
• During the maturity phase, the sales of the product have
generally peaked. Competition has entered the market
and growth potential is limited
• The product or service does not require too much
support during this phase.
• During the saturation phase, some companies try to offer
minor differentiating features which do not require much
time and cost to develop and market to keep the product
going. This could include new packaging, colors, new
uses of the product, etc.
• This may give some additional sales for a short time
period. May require some promotions for the additional
features 20
Product Life Cycles
• The addition of some new features may give some
additional sales for a short time period. May require
some promotions to make the people aware of the new
developments
• During the decline and withdrawal phase, the product
has outlived its useful marketable life. Some new fashion
or technology has made the product obsolete or less
popular. The cost of propping up the product with
features is greater than any gain in revenues
• The company has to determine when is a good time to
withdraw the product based on the availability of a new
product.
21
Additional features added
Sales
Time
22
Session 8
• End of module 2
23
Session 8
• Begin Module 4
– BCG Matrix
24
Boston Consulting Group Matrix
“Wildcat” “Star”
(Competitive Struggle) (Funding Required)
Growth
“Dog” “Cash Cow”

(Divestiture) (Consistent Cash Generation)
Market Share
25
Stars
• Stars – products in markets experiencing
high growth rates with a high or increasing
share of the market
• Potential for high revenue growth
• Need to be nurtured and funded
26
Cash Cows
• High market share
• Low growth markets – maturity stage of
PLC
• Low cost support
• High cash revenue – positive cash flows
27
Dogs
• Products in a low growth market
• Have low or declining market share
(decline stage of PLC)
• Associated with negative cash flow
• May require large sums of money to
support
28
Wildcats
• Products having a low market share in a
high growth market
• Need money spent to develop them
• May produce negative cash flow
• Potential for the future?
29
Session 8
• End of module 4
30
Session 8
• Begin Module 5
– Competing Through Manufacturing
31
Competing Through
Manufacturing
• Steven C. Wheelwright and Robert H.
Hayes in their HBR article titled
“Competing Through Manufacturing” have
defined four stages of development that a
company can pass through. Each of these
stages denotes a particular role that
manufacturing plays in the company’s
competitive success.
32
Competing Through
Manufacturing
• The Stages in Manufacturing’s Strategic Role
are:
– Stage 1 in which we minimize manufacturing’s
negative potential, i.e. “Internally Neutral”
– Stage 2 in which we achieve parity with competitors,
i.e., “Externally Neutral”
– Stage 3 in which manufacturing provides credible
support to the business strategy, i.e., “Internally
Supportive”
– Stage 4 in which we pursue a manufacturing-based
competitive advantage, i.e., “Externally Supportive”
33
Stage 1-Internally Neutral
• Top managers regard manufacturing incapable of
influencing competitive success and seek to minimize its
negative impact
• Manufacturing capability is viewed as a result of
decisions about capacity, facilities, technology and
vertical integration
• No strategic importance to workforce policies, planning
and measurement systems, and incremental process
improvements
• Reliance is on outside experts to help on issues related
to manufacturing
34
Stage 1-Internally Neutral
• Top management insists that all decisions with regard to
facilities, equipment, etc. be flexible so that they do not
get locked into an incorrect decision.
• All equipment is sourced from outside vendors and
reliance on vendors for all technology information
• Internal detailed management control systems oriented
toward near-term performance
• Little to no involvement of top management in
manufacturing
• Found in consumer products and some high technology
companies where they feel the company’s edge is due to
the product and not the process.
35
Stage 2-Externally Neutral
• Top management looks at manufacturing to have parity
with major competitors
• They will follow common industry practices in equipment
purchases, and capacity additions as well as workforce
practices (such as bargaining with unions)
• Management tends to view capital investment in new
equipment and facilities as the most effective means for
gaining temporary competitive advantage
• Economies of scale through production rate seen as the
best way to get manufacturing efficiency
36
Stage 2-Externally Neutral
• This type of approach is found in industries where the
competitors are well established and everyone is
following the same approach to maintain the status quo.
• Found in the auto industry in the US and
pharmaceuticals
37
Stage 3-Internally Supportive
• Manufacturing is expected to actively support and
strengthen a company’s competitive position.
• Decisions regarding manufacturing are screened to
ensure that they are consistent with the organization’s
competitive strategy
• A manufacturing strategy is formulated and pursued
actively
• Management is on the lookout for long term trends that
could have an effect on manufacturing’s ability to
respond to the needs of the organization.
38
Stage 3-Internally Supportive
• The manufacturing managers in such companies take a
broad view of their role by seeking to understand the
business strategy and the competitive advantage the
company is pursuing.
• However top management only wants manufacturing to
support its business strategy not become involved in
formulating it.
• Examples of this are the beer industry in the US
39
Stage 4-Externally Supportive
• The most progressive stage of manufacturing
development.
• The company’s competitive strategy rests significantly on
its manufacturing capability. Manufacturing does not
dictate strategy to the rest of the company, but is a
significant part of the strategy formulation.
• Management anticipates the potential of new
manufacturing practices and technologies and seek to
acquire expertise in them ahead of time.
• Equal emphasis is placed on plant and equipment
decisions as well as on management policies in
manufacturing
40
Stage 4-Externally Supportive
• Manufacturing is involved up-front in major marketing
and engineering decisions and does not just play a
reactive role.
• Companies, rather than industries can be cited in this
category. Toyota, Texas Instruments, Mars Candy
41
Session 8
• End of module 5
42
Session 8
• Begin Module 6
43
Summary
• We discussed two of the production systems
from the book that don’t seem to fall neatly into
the other categories, i.e., FMS and the JIT
system
• Certain points were made with regard to what
makes these systems a little unique as
compared to others
• I pointed out where I differed from the book in
the case of the FMS
44
Summary
• There is similarity in the BCG matrix and the
stages in the product life cycle
• We can use the BCG matrix to decide which
products need to be supported and funded, and
which ones should be weeded out.
• Wheelwright and Hayes have developed a four
level scale for assessing the role of
manufacturing in achieving competitive
advantage. These levels were discussed.
45
Session 8
• End Module 6
46

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MMVA ZG512 Manufacturing

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• High strategic stakes

Bargaining Power Rivalry Among Bargaining Power

Bargaining Power Rivalry Among Bargaining Power

• Each successful company tends to pursue

Each industry, or company may have a different value chain.

Which customers? Which needs?

What relative price?

Large variety Few products One product

Large variety Few products One product

Large variety Few products One product

Large variety Few products One product

Development Introduction Growth Maturity Saturation Decline

“Dog” “Cash Cow”

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