KIG4067 MANUFACTURING STRATEGY

WEEK 5 : DEVELOPING AN OPERATIONAL STRATEGY: METHODOLOGY

 DEVELOPING A STRATEGY

Diverse and dynamic needs Organisations must

of market cannot be met recognise differences across
with the selection and their markets and develop
application of ONE or more multi-strategies to address
generic options. these separate needs.

It’s distillation process that

identifies the very essence
Strategy is not process
and purpose of a business
leading to generalisations
before building the
capability to achieve this.
STRATEGY SETS THE DIRECTION OF A
BUSINESS AND POINTS IT AT THE MARKET
STRATEGY DEVELOPMENT IS AN
INTERACTIVE PROCESS
STRATEGY CAN BE MARKET DRIVEN AND
MARKET DRIVING
ANALYZING MARKETS AND DEVELOPING AN
OPERATIONAL STRATEGY

Analyse market Develop an operations strategy

Agree markets Determine market Identify key strategic Review current Prioritize
order-winners and task performance and investments and
qualifiers identifying developments
improvements

Agree current and Determine the order Identify key order- Assess how well Prioritize the
future markets in winners and winners and operations currently investment and
which to compete qualifiers for these qualifiers and supports these development
market supported by strategic tasks and improve support of
operations and identify areas for strategic tasks
translate them into improvement
strategic tasks
ANALYSE MARKET
 ASPECT TO CONSIDER WHEN ANALYSING MARKET

Market must be analyze in depth and on ongoing basis

Companies to allocate time, attention and resources
Hard work and need senior management full attention
Analyse customer behaviour not customer voice
 AGREE MARKETS

The first step in analysing Once the markets and their Then it is able to judge
markets is to agree in which characteristics are agreed, the whether a piece of business
ones the business wishes to company starts to gain control fits its strategic direction
compete today and in future. of its strategy
DETERMINE MARKET ORDER-WINNER AND QUALIFIERS

Discussion and debate to

determine market order-winners The objectives is to distinguish
and qualifiers needs to be essential differences within a
structured and data used to test company’ chosen markets
views and opinions.

This view is then tested against

Start with some stated view of
other functional perspectives
the market as a focal point of
and with data showing how
discussion.
customers actually behave.
Determine marketing’s view of the market

HOW
Test marketing’s view with other functional perspectives of the market

Test executive opinion of order winner and qualifiers

Test executive opinion of customers and products within a market segment with data

Outcomes of debating and testing market order-winners and qualifiers

 DETERMINE MARKETING’S VIEW OF THE MARKET

Segment Establish Select and weight

Segment the market Establish for each Select and weight the
from a marketing point segment appropriate order winner and
of view and choose future planning horizons qualifiers for each
products or customers that reflect the relevant segment for both current
that represent each timescales involved. and future time periods,
chosen segment Normally this is given as using the products and
two future time periods customers that
represent each segment
as part of this step.
TEST MARKETING’S VIEW WITH OTHER FUNCTIONAL
PERSPECTIVES OF THE MARKET

Marketing’s view of the Other functions express

market then forms the basis of opinions, ask questions and
discussion and is challenged seek clarification of why
by the opinions by other segments works the way
functions. marketing suggest.

This leads to an improved

This may alter the weightings
understanding between
contributed to particular
functions and revised
order-winner and qualifiers or
understanding of the markets
change them all together
in which a company competes.
TEST EXECUTIVE OPINION OF ORDER-WINNER AND
QUALIFIERS WITH DATA

Data must then be collected and analysed to replace opinions with facts

The discussion seeks to identify any further analysis necessary to verify conclusions

The analysis will Not be of equal value in all situations. Some may be
difficult to undertake due to data availability, while others will not identify
differences that would yield further insights.
Sometimes overlap
 Test the subjective
Be based on
views of executives
representative
with the reality of
customer orders or
the orders placed by
contracts selected
customers and the
and verified by the
demands they make
executives involved.
on the business.
EXAMPLES

Price
When price is order-winner/qualifiers,
companies need to review the actual
costs and margins for those customers
orders
Contribution should be low for order-
winner
Contribution should be high for
qualifiers
In many instances, companies use their
own form of standard costs as the basis
of reviewing margins.
However these cost calculations are
invariably inaccurate
Companies must analyse the actual costs incurred

The actual costs must include as many direct costs as possible

Using these actual costs, business must test executive opinion of order-winners and qualifiers
and market segmentation proposed.

Many executives opinions will be proved wrong

Actual costs – shop floor records on actual labour, materials and other direct costs incurred

If not available, make one –off arrangement to capture the costs

Test estimated contribution with actual
contribution
•Compares the estimated contribution (based
on standard costs) against the actual
contribution recorded for a representative
sample of orders.
•The reason for this difference – standard
production times and material costs are
generated during initial cost estimation –
rarely updated during the life of the product.
•E.g things could change – working methods,
batch sizes
•Thus it is important to determine actual costs
before accurate contribution figure can be
calculated
ACTUAL VERSUS ESTIMATED CONTRIBUTION FOR A NUMBER
OF REPRESENTATIVE PRODUCTS
 A COMPARISON OF ACTUAL CONTRIBUTION FOR A GROUP OF
REPRESENTATIVE PRODUCTS TO BE ORDER-WINNER WEIGHTING
GIVEN TO PRICE
 Test executive opinion of price as an order-winner or
Test qualifier with actual contribution

Use as many direct costs as possible to calculate

Use actual contribution

Test actual contribution with actual per machine

Test hour
 COMPARISON OF CONTRIBUTION PERCENTAGE AND
CONTRIBUTION PER MACHINE HOUR FOR REPRESENTATIVE
ORDERS

Contribution Machine hours

Order ref. Price (£) Direct costs (£) Contribution per machine hour (£)
(£) (%)
631 220 44 176 80 1.5 117
205 568 454 454 80 3.9 116
216 1,246 269 977 78 11.2 87
470 244 56 188 77 4.0 47
298 1960 462 1,496 77 9.3 161
607 3612 830 2,782 77 13.3 209
512 134 32 102 76 1.5 66
483 4,010 1,004 3,006 75 21.5 140
658 166 42 124 75 0.7 107
313 1,134 306 828 73 5.7 145
284 864 246 618 72 2.1 294
182 724 65 159 71 4.7 14
573 1,066 320 746 70 3.1 240
417 3,345 1,140 2,205 66 7.9 279
Test executive opinion of market segments with
actual contribution of customers in that segment
•The initial view of the market from marketing’s
perspective will identify segments and assume
that all customers and orders in that segment are
similar
•This assumption need to be tested with data
•From marketing perspective, it may make sense
to cluster these customer together, but for
operations capability to support them, they need
to be resegmented
 CONTRIBUTION PERCENTAGE OF SALES AND
CONTRIBUTION PER MACHINE HOUR FOR REPRESENTATIVE
ORDERS FOR TWO SEGMENTS

Actual contribution Actual contribution

Customer % sales Per machine hour Customer % sales Per machine hour

Segment 1 Segment 2

Hulton 41.8 918 Prelpac 14.0 243

Avis Robins 24.6 431 JRR 8.6 186

MKC 8.6 288 Sheuks 16.1 115

Clairelle 12.4 152 Dells (1.0) (64)

Artiste 30.7 714 Avenols 22.3 408

Quality conformance

Need to be reviewed for products, orders or customers

Delivery reliability

Before measuring delivery reliability, ‘on time’ needs to be defined.

Delivery reliability tends to be measured for the business rather

than for a specific product, order or customers
Delivery speed

The delivery speed requirements of a customer is analysed by comparing the date

and time a customer places an order with the date and time of requested delivery

Sometimes customers will put forward the requested delivery after the order has
been placed

Customers who request short delivery lead times must be contacted to confirm if
this really their requirements

In some cases they really do not need to, this can caused by their current working
practices or inaccurate computer systems
Product range

Must review info on latest product types

New type must be used for each product variant to reflect changes such as size, color or
packaging
It is then possible to assess how ranges have increased and decreased over an appropriate
time period for a products or customers
Demand fluctuations

It is necessary to analyse both the date and volume or orders placed, and the date and volume
of products requested
Look when the demand fluctuation occurs – during order entry vs. fulfillment processes

Analyse must be perform on specific products and customers to highlight difference between
them
TEST EXECUTIVE OPINION OF CUSTOMERS AND PRODUCTS
WITHIN A MARKET SEGMENT WITH DATA

The process of testing order-winners and qualifiers often shows that the
initial grouping of products, ranges of products into market segments is
inaccurate

Orders from the same customer often have significantly different order-
winner and qualifiers from each other depending on factors as the stage
in their life-cycle and the nature of the markets their customers serve
OUTCOMES OF DEBATING AND TESTING MARKET ORDER-
WINNER AND QUALIFIERS

Forms the basis

Helps to align
Improves market for developing
functional
understanding an operations
strategies
strategy
 DEVELOPING AN OPERATIONS
STRATEGY

1. IDENTIFY KEY STRATEGIC

TASK

Identify key order-winners and qualifiers must support

the market review

Form strategic tasks

i.e. price is key order-winners; costs must be reduced

throughout all aspects of operation
i.e. quality conformance is key qualifiers; errors must
be reduced and quality built into the process rather
than checks after events
2. REVIEW CURRENT
PERFORMANCE AND
IDENTIFY
IMPROVEMENTS
Price
• Review actual material, direct labour and overhead costs
• Map activities and identify areas of waste
• Review mix production volumes in an operation
• Review mix production run lengths in operation
• Review actual contributions per machine hour
• Review product pricing
• Review quality conformance
• Review delivery reliability
• Review delivery speed
 PRIORITIZE INVESTMENTS AND DEVELOPMENTS

Assessing based on these criteria

• Cost of implementing the improvements
• Ease of implementing the improvements
• Impact of making the improvements

Then considers two aspects that help to create focus when prioritising actions and
allocating resources
• Impact of doing nothing
• Speeding up implementation