2023-24 Lecture 1 - MMS 7204 (Developing A Manufacturing Strategy)

2/11/2024
MMS 7204 Manufacturing Strategy
LECTURE ONE
Developing a Manufacturing Strategy
Course Lecturer
Dr Catherine Wandera
2/11/2024 1
2023/2024 MMS 7204 Manufacturing Strategy
Outline of Lecture One
1. Developing a Manufacturing Strategy

1.1 Introduction to Manufacturing Strategy
1.2 Manufacturing Strategy: Principles and Concepts
1.3 Functional Manufacturing Strategies
1.4 Manufacturing Philosophies
1.5 The Context of Corporate Strategies
1.6 Developing a Manufacturing Strategy
1.7 Decision Categories in a Manufacturing Strategy
1.8 Operational Tasks in a Manufacturing Strategy
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1.1 Introduction to Manufacturing Strategy
❑ What is a Manufacturing Strategy?
✓ A manufacturing strategy is a framework for designing,

organizing, managing and developing the resources of a
manufacturing system and shaping a consistent pattern of
manufacturing decisions in order to achieve an adequate mix of
performance characteristics which allow the company to meet its
business objectives and increases the competitiveness of a
manufacturing business.
✓ A manufacturing Strategy has an important contribution to

enhancement of a manufacturing business’s competitiveness.
2023/2024 MMS 7204 Manufacturing Strategy 3 2/11/2024
Four Stages of the Strategic Role of Manufacturing Function
❑ A manufacturing 1. Internally Neutral 2. Externally Neutral

strategy establishes Minimize the negative Achieve parity with
the degree to which a effect of manufacturing. competitors.
company’s resources
are aligned to the Four Stages of the Strategic Role of
needs of its target the Manufacturing Function in a
market so it directly Manufacturing Company
affects the company’s
4. Externally Supportive
overall revenue, rate 3. Internally Supportive
Manufacturing
of growth, and level of Provide support to the
contributes significantly
Business Strategy of the
profit. organization.
to Competitive
Advantage
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Three Reasons for Importance of Manufacturing Strategy
(1)
Increased pressure owing to growing international
manufacturing competition which is made more
intense by the movement towards globalization.
(2) (3)
Increased manufacturing Development of a
potential gained from faster Three Main better understanding
growth in development of new Reasons for of the strategic role
manufacturing technologies so Importance of of manufacturing in
manufacturers’ need to Manufacturing enhancing the
continuously develop their ability Strategy competitiveness of a
to use the new technologies for business
competitive benefits. undertaking.
Five Characteristics of Manufacturing Decisions

management of the manufacturing
1. Manufacturing involves the bulk of the company's assets and human resources
support the need for strategic
manufacturing decisions that
2. Many decisions regarding manufacturing resources require a long time to take effect;
Five characteristics of
therefore, they require a long term outlook of the future to support them.
3. Once made, many of decisions regarding manufacturing resources will normally take
function
a long time and substantial amounts of resources to revert
4. Manufacturing decisions directly affect the way companies can compete in the
market place. It is accepted that there is no agreed “best way” to manage
manufacturing resources as different configurations of manufacturing resources will
result in different levels of manufacturing performance in different aspects (e.g.
delivery, flexibility, quality and cost)
5. Manufacturing decisions require strategic orientation to enable them support and be

supported by other functions of the business in order to strengthen the business
strategy of the company.
2023/2024 MMS 7204 Manufacturing 6 2/11/2024

Strategy
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1.2 Manufacturing Strategy: Principles and Concepts
1. Strategic Objectives
✓ Strategic objectives are long-term organizational goals that help to convert a

mission statement from a broad vision into more specific plans and projects.
▪ Strategic objectives are specific, measurable, and realistic translations of the
organization’s mission statement that can be used by management to guide
decision-making.
▪ Strategic objectives act as indicators to predict future organizational
performance and set major benchmarks for success.
✓ Strategic objectives are a part of a two-year or four-year strategic plan that

identifies key strengths and weaknesses of the organization and sets out specific
actions that the organization will implement to achieve its mission/ vision.
2. Operational Objectives
❑ Operational objectives are daily, weekly or monthly project benchmarks
that are set out to implement the broad-based strategic objectives.
✓ Operational objectives provide a means for management and staff

to break down a larger strategic objective into workable tasks; e.g.
the strategic objective framed as “to increase sales revenue by 50
percent” can be achieved through the operational objective “to
develop and execute an effective advertising plan” along with
other operational objectives related to manufacturing of products,
such as “to improve the quality of product”.
✓ In a similar manner as strategic objectives, the operational

objectives should be specific, measurable and realistic though their
focus is narrower than the focus of strategic objectives.
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Strategic Objectives Vs Operational Objectives
1. The major difference between strategic objectives and operational

objectives is their time frames:
✓ Operational Objectives are short-term goals while Strategic

Objectives are long-term goals.
2. Strategic Objectives and Operational Objectives function differently

in practice:
✓ Strategic objectives are broad-based (high level) goals that give

the overall direction of a manufacturing business.
✓ Operational objectives are short-term goals that are useful in

everyday time and asset allocation through daily tasks and
weekly or monthly projects.
1.3 Functional Manufacturing Strategies
❑ Manufacturing strategy
1. 2.
encompasses all manufacturing
decisions that aid in satisfying Make to Stock Make to Order
customers’ needs and wants, (MTS) (MTO)
from determining products
customers want, deciding how to Functional
produce those products, and Manufacturing
planning for delivery of products Strategies
to customers.
3. 4.
❑ Companies now move from being
Assemble to Engineer to
manufacturing-driven to Order (ATO) Order (ETO)
customer driven.
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1. Make to Stock (MTS)

❑ Make-to-Stock (MTS) is a ❑ MTS is a push-type manufacturing
manufacturing approach where approach that provides a rapid response to
products are built before a final customer demands through production of
purchaser is identified and products in response to forecasted demand; e.g.
production volume is driven by the automotive industry allows dealers to find
historical demand information. an exact (or a close) match to the customer’s
desired vehicle within the dealer networks and
❑ Sales forecasting for MTS this can be used to justify stock levels.
relies on market projections,
✓ MTS is an expensive manufacturing approach
expectations and statistical
in terms of holding stock of high cash value as
data from the ERP system; finished goods and also transportation of
sales forecasting is finished goods since stocked products are not
transformed into a production stocked where they are required.
planning.
Primary Problems in MTS Manufacturing Strategy

1. Profitability of MTS products is affected when perishable goods are
manufactured in excess of market demand so the products have to be
discounted or disposed of.
2. New product developments (NPDs) and new product introductions

(NPIs) to meet the emerging customer needs is slow, inefficient and
complicated in the Make-to Stock strategy.
3. Consolidating retailers and distributors of products enforces a high

demand and restriction on MTS manufacturers:
✓ i.e. shelf-space restrictions, retailer’s own brands, reduced number
of products and brands, and discounts on trade and promotion
usually limit overall growth and profitability of MTS manufacturers.
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2. Make to Order (MTO)
❑ Make-to-Order (MTO) ❑ MTO is a pull-type manufacturing approach

where a manufacturer starts production only after
is a demand driven
receiving a customer's order, i.e. manufacturing is
manufacturing
being pulled by demand for the product.
approach in which the
manufacture of the ✓ MTO does not mean that all suppliers in the supply
products only starts chain (i.e. the MTO manufacturer supplier network)
when a confirmed order should produce parts only when a customer order is
for products has been confirmed; rather the manufacturer identifies parts
received by the that can be built in advance and other parts are
manufacturer (i.e. made when a customer order is received.
production orders are ✓ MTO is good for highly configured products, e.g.
caused by sales orders). automobiles, computer servers, or products where
holding inventories is very expensive, like aircrafts.
Comparison of MTS and MTO Manufacturing Strategies

❑ MTS involves keep large inventories of products which requires a
large storage space, while MTO does not require a large storage
space since products made to order are taken by the customer
immediately.
✓ Manufacturing strategies in most process industries are
moving away from the inefficient make-to-stock processes.
✓ Businesses seek globalization, increased market share and
profitability, reduced costs, and improved customer and
market responsiveness; therefore, the trend is towards the
more responsive make-to-order manufacturing strategy which
allows consolidation of assets and increased return on
investment.
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3. Assemble to Order (ATO)

❑ Assemble-to-order (ATO) is a ❑ Assemble-to-Order (ATO) system consists
manufacturing approach where the of multiple components and end-products.
basic parts of the product are ✓ In ATO, the decision on components to
already manufactured but not yet procure or produce must be made well
assembled so that products are before demand for the end-product
assembled quickly and customized materializes but the components (parts)
to a certain extent when the are assembled into end-products only
customer order is received. after information on customer demand is
received.
❑ ATO requires tight control over
parts in inventory and resource ✓ Therefore, an operating policy of an
schedules, and support for easy Assemble-to-Order system is a
order customization while avoiding combination of a component production
risks of demand and cost volatility. policy and an inventory allocation
policy.
4. Engineer to Order (ETO)

❑ ETO is a tailor-made solution that requires
engineering development before the product is
❑ Engineer-to-Order manufactured.
(ETO) is a demand
driven manufacturing ✓ The product is engineered to meet the
specifications desired by the customer according to
approach in which the
the customer order received.
product is designed,
engineered, and built ✓ Representatives of the customer engage with the
manufacturing team throughout the development
to specifications only
process to ensure that all the product
after the customer
specifications are met.
order has been
received. ✓ ETO process is used for very complex or very
specialized products, e.g. enterprise software,
special aircraft, or even a pair of jeans, etc.
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1.4 Manufacturing Philosophies

1) Traditional Manufacturing: 3) Green manufacturing: Manufacturing
This is where manufacturing is that focuses on reducing pollution and
done and waste generated is taken waste by minimizing natural resource
to a landfill resulting in an use, recycling and reusing what was
overhead charge. considered waste, and reducing
emissions.
2) Lean Manufacturing:
Manufacturing that focuses on 4) Sustainable manufacturing: This is
an extension of green manufacturing in
optimizing processes and
which manufacturing of products is done
eliminating waste; this helps to
through economically-sound processes
cut costs by generating the that minimize the negative
maximum amount of value for the environmental impacts while conserving
customer with the least amount of energy and natural resources.
waste.
Evolution of Manufacturing Waste Elimination

Strategy
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1.5 The Context of Corporate Strategy
❑ Corporate strategy is concerned

with the entirety of a business
1. 2.
where decisions are made for the Allocation of Organization
business overall growth and Resources Design
direction.
✓ Corporate strategy for a The Four Components
manufacturing business of Corporate Strategy
should enable the
manufacturing firm to create 4.
3.
value, develop a unique Strategic Trade-
Portfolio
marketing advantage, and Offs
Management
seize maximum market share. (Prioritization)
(1) Allocation of Resources: People and Capital

1) People: 2) Capital:
▪ Identifying core competences and ▪ Allocating resources
ensure they are distributed across across business units so as
the firm, to earn the highest risk-
adjusted return,
▪ Moving leaders to places where they
are needed most and where they add ▪ Analyzing external
most value (i.e. changes of personal opportunities (mergers
over time based on priorities). and acquisitions), and
▪ Ensuring an appropriate supply of ▪ Allocating capital between
talent is available in all business internal (projects) and
units. external opportunities.
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(2) Organization Design

❑ The firm puts in 1) Head Office (Centralized vs Decentralized):
place the necessary ▪ Determine the level of autonomy to give business units, and
corporate structure decide whether decisions are made top-down or bottom-up
and related systems and influence of business units on the strategy.
to create maximum
2) Organization structure (Reporting):
value.
▪ Integrate business units and business functions to reduce
▪ Establish the role redundancies, and divide large initiatives into smaller projects,
of the corporate
▪ Allow a balance between risk and return by separating
head office and the
responsibilities,
reporting structure
of individuals and ▪ Develop centers of excellence,
business units in ▪ Determine appropriate delegation of authority,
terms of vertical ▪ Set governance structures and reporting structures (top-down,
hierarchy. matrix reporting)
(3) Portfolio Management

❑ Portfolio management decisions involve 3. Managing risk through
managing how business units diversification of products
compliment each other in terms of: and reducing correlation of
results across the business
1. Deciding the businesses to do.
units,
2. Determining the extent of vertical
integration. 4. Creating strategic options
by investing in new
▪ Vertical integration is a strategy opportunities.
where a firm streamlines its
operations by taking direct 5. Monitoring the competition
ownership of its production landscape to ensure a well
process rather than relying on balanced portfolio relative
external suppliers or contractors. to market trends.
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(4) Strategic Trade-offs

❑ It is not always possible for a ❑ Strategic Trade-Offs involve balancing
manufacturing business to take the trade-off between risks and returns.
advantage of all feasible business
▪ Ensure that desired levels of risk
opportunities because business
management and returns generated
decisions always entail a degree of
are pursued.
risk.
❑ Companies need to establish an ❑ Incentives guide in determining the
optimal strategic mix of risk levels of risk and returns that
management and generation of managers may seek.
returns. Therefore, it is important ❑ Responsibilities of risk management
for a company to strategically and return generation should be
balance the trade-offs between risks separated so that each can be pursued
and returns. to the desired level.
1.6 Developing a Manufacturing Strategy

❑ All manufacturing systems have specific business objectives to achieve. The
manufacturing strategy is developed as follows:
(i) The business objectives are derived from the organization’s mission
statement.
(ii) A business strategy is then developed to enable the organization to meet

its business objectives.
(iii) A business strategy should be flexible enough to accommodate any

necessary changes.
(iv) The business strategy is used to formulate both the marketing and the
manufacturing strategy which are implemented by people who
undertake processes (Scallan, 2003).
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Developing a Manufacturing Strategy

Strategy
1.7 Decision Categories in a Manufacturing Strategy
1. Capacity Decisions
2. Process
6. Human Decisions
Resource
Decision Six Basic Decision
Categories in a
Manufacturing Strategy
5. 3. Facility
Infrastructure Decisions
Decisions
4. Make or Buy Decisions
(Scallan, 2003)
Strategy
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Basic Decision Categories in a Manufacturing Strategy (1)

1. Capacity Decisions: 2. Process Decisions:
✓ The capacity decisions deal with ✓ The process decisions
establishing the available resources deal with deciding the
and resources that are required in type of system to be
order to meet the customer demand. employed to produce
products that meet the
✓ In effect the following questions are
customer demands.
asked in relation to capacity decision:
✓ Companies may employ
(i) What has to be made?
hybrid systems.
(ii) What will be used to make it?
(Scallan, 2003).
(iii) When and how will this be
achieved?
(Scallan, 2003).
3. Facility Decisions: 4. Make or Buy Decisions:
✓ The main focus of the ✓ The purpose of the “make or buy

facility decision is the decision” is to identify what is to
layout of the factory be made in-house and what is to
plant and the assigning be sub-contracted.
of specific products to ✓ The “make or buy decision”
specific plants at an influences the capacity
organization level: decisions, facility decisions and
(Scallan, 2003). process decisions.
(Scallan, 2003).
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5. Infrastructure Decisions: 6. Human Resource Decision:
✓ The infrastructure decision ✓ The human resource
considers the following policies decisions include the
and organization aspects that following two main decisions:
are required to meet the (i) Identifying the functions
business objectives: and organizational
(i) Production Planning and structure required.
Control System (ii) The Reward system
(ii) Quality Assurance System
✓ Other decision categories
(iii) Organizational Structure have a huge influence on the
(Scallan, 2003). human resource decision.
(Scallan, 2003).
1.8 Operational Tasks in a Manufacturing Strategy

❑ Development of a Manufacturing Strategy 4. Define the general facility requirements
demands an analysis of the requirements and for manufacturing the new enclosure
impacts of the product and its associated product.
quality, reliability, and robustness
5. Define the necessary processes and the
requirements on facilities, personnel, and
necessary skills for personnel to
equipment.
fabricate, tool, assemble, test, and
❑ Operations create a manufacturing strategy. support the product.
Operations must perform the following tasks 6. Identify any specific tools or equipment
(Jia and Bai (2011): necessary to build and test the product.
1. Develop a high-level value stream to 7. Compile capital requirements for
identify business processes and manufacturing and testing the product
manufacturing process flows. based upon the sales forecast.
2. Initiate development of any new processes 8. Establish target fabrication, assembly,
and identify any special skills required. and test times.
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References
1. Hill Terry, 1995. Developing a Manufacturing Strategy: Principles and Concepts. In: Manufacturing
Strategy. Palgrave, London, Print ISBN: 978-1-349-13726-8, Online ISBN: 978-1-349-1374-4,
https://doi.org/10.1007/978-1-349-13724-4_2
2. ZümbülAtan, TaherAhmadi, ClaraStegehuis, Ton deKok, IvoAdan, 2017. Assemble-to-order
systems: A review, European Journal of Operational Research, Volume 261, Issue 3, 16 September
2017, Pages 866-879
3. Urban Wemmerlöv, 1984. Assemble-to-Order manufacturing: Implications for materials
management, Journal of Operations Management, Volume 4, Issue 4, August 1984, Pages 347-368.
4. Charles R. Standridge, 2020. Introduction to Production: Philosophies, Flow, and Analysis,
https://scholarworks.gvsu.edu/books/22/, Accessed March 18th, 2023
5. Corporate Finance Institute Team (CFI Team). Corporate Strategy,
https://corporatefinanceinstitute.com/resources/management/corporate-strategy/, Accessed March
18th, 2023
6. Peter Scallan, 2003. Introduction to Manufacturing, Process Planning: The Design/ Manufacture
Interface, Pages 1-34, Butterworth-Heinemann, ISBN 9780750651295, https://doi.org/10.1016/B978-
075065129-5/50002-7
31 2/11/2024
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2/11/2024

MMS 7204 Manufacturing Strategy

Outline of Lecture One

1. Developing a Manufacturing Strategy

1.1 Introduction to Manufacturing Strategy

❑ What is a Manufacturing Strategy?

✓ A manufacturing strategy is a framework for designing,

✓ A manufacturing Strategy has an important contribution to

2023/2024 MMS 7204 Manufacturing Strategy 3 2/11/2024

Four Stages of the Strategic Role of Manufacturing Function

❑ A manufacturing 1. Internally Neutral 2. Externally Neutral

2023/2024 MMS 7204 Manufacturing Strategy 4 2/11/2024

Three Reasons for Importance of Manufacturing Strategy

Five Characteristics of Manufacturing Decisions

a long time and substantial amounts of resources to revert

5. Manufacturing decisions require strategic orientation to enable them support and be

2023/2024 MMS 7204 Manufacturing 6 2/11/2024

1.2 Manufacturing Strategy: Principles and Concepts

✓ Strategic objectives are long-term organizational goals that help to convert a

✓ Strategic objectives are a part of a two-year or four-year strategic plan that

✓ Operational objectives provide a means for management and staff

✓ In a similar manner as strategic objectives, the operational

Strategic Objectives Vs Operational Objectives

1. The major difference between strategic objectives and operational

✓ Operational Objectives are short-term goals while Strategic

2. Strategic Objectives and Operational Objectives function differently

✓ Strategic objectives are broad-based (high level) goals that give

✓ Operational objectives are short-term goals that are useful in

1.3 Functional Manufacturing Strategies

1. Make to Stock (MTS)

2023/2024 MMS 7204 Manufacturing Strategy 11 2/11/2024

Primary Problems in MTS Manufacturing Strategy

2. New product developments (NPDs) and new product introductions

3. Consolidating retailers and distributors of products enforces a high

2. Make to Order (MTO)

❑ Make-to-Order (MTO) ❑ MTO is a pull-type manufacturing approach

2023/2024 MMS 7204 Manufacturing Strategy 13 2/11/2024

Comparison of MTS and MTO Manufacturing Strategies

3. Assemble to Order (ATO)

4. Engineer to Order (ETO)

1.4 Manufacturing Philosophies

Evolution of Manufacturing Waste Elimination

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1.5 The Context of Corporate Strategy

❑ Corporate strategy is concerned

(1) Allocation of Resources: People and Capital

2023/2024 MMS 7204 Manufacturing Strategy 20 2/11/2024

(2) Organization Design

2023/2024 MMS 7204 Manufacturing Strategy 21 2/11/2024

(3) Portfolio Management

(4) Strategic Trade-offs

1.6 Developing a Manufacturing Strategy

(ii) A business strategy is then developed to enable the organization to meet

(iii) A business strategy should be flexible enough to accommodate any

2023/2024 MMS 7204 Manufacturing Strategy 24 2/11/2024

Developing a Manufacturing Strategy

2023/2024 MMS 7204 Manufacturing 25 2/11/2024

1.7 Decision Categories in a Manufacturing Strategy

Basic Decision Categories in a Manufacturing Strategy (1)

Basic Decision Categories in a Manufacturing Strategy (2)

3. Facility Decisions: 4. Make or Buy Decisions:

✓ The main focus of the ✓ The purpose of the “make or buy