PINTO'S PROSE: Strategic Manufacturing

In today’s turbulent and fast-moving business environment, many corporate managers view manufacturing either as a black box or simply as a line item on a spreadsheet.

Aw 565 Jimpinto Web
That’s a serious mistake. Since 1970, America has imported more than it has exported, and U.S. companies have lost their dominant positions in many industries, with their competitive position deteriorating rapidly.

The challenges include increased levels of complexity and uncertainty coming from increased globalization of markets and operations, the diversified demands of customers, drastic reductions in product lifecycles, and manufacturing and technology obsolescence. The manufacturing knowledge base has become more complex, and this process is likely to continue.

The connection between manufacturing and corporate success is rarely seen as more than the achievement of high efficiency and low costs. Top managers, most often with marketing or financial backgrounds, unknowingly delegate a large portion of basic manufacturing policy decisions to lower levels. This abdication of responsibility is part of the reason why many manufacturing policies and implementations developed at lower levels reflect assumptions about corporate strategy that are incorrect or misconstrued. The company’s facilities, equipment, personnel, controls and policies burden it with a noncompetitive posture that may take years to turn around.

Weapon or millstone?

The manufacturing function is either a competitive weapon or a corporate millstone. It is seldom neutral. Few top managers are aware that manufacturing decisions, which appear to be routine, frequently come to limit the corporation’s strategic options. When companies fail to recognize the relationship between manufacturing decisions and corporate strategy, their production systems often become seriously noncompetitive, expensive and time-consuming to change.

The current economic downturn has forced global manufacturers to look at cost-efficient, enterprise-wide integration and real-time decision making. The inability to translate business-specific vision and demand variability to operational plant-floor strategies results in obsolete inventory, underutilized plant capacity and subsequent need for shutting down plants. Reducing the size and complexity of operations has been the primary drive in manufacturing over the past decade. Today, becoming a world-class manufacturer depends on the ability to create an organizational structure that is flexible enough to meet customer demands at the lowest cost with the highest quality; this ultimately gains strategic advantage.

The concept of manufacturing strategy is often traced to Skinner’s 1969 Harvard Business Review article, “Manufacturing—Missing Link in Corporate Strategy.” Skinner suggested a top-down approach to manufacturing. Manufacturing objectives should be derived from business objectives, and then manufacturing policies developed to address these objectives.

Manufacturing objectives cover such things as cost, quality, delivery and flexibility, and usually there are trade-offs among them. Trade-off decisions are also required in many key areas in order to support the manufacturing objectives. These basic tradeoffs, and the consistency of objectives/policies, have formed the foundation from which the current understanding of manufacturing strategy has developed.

Strategic manufacturing is a hot topic today, considered by many to be the next step beyond Lean Manufacturing. Production-operations capabilities are viewed as a core competence, with a long-term view of the business, being fully aware of all market opportunities. Manufacturers must plan strategies to outperform competitors by targeting sectors in which the company can compete, while deliberately avoiding those in which it cannot.

Manufacturing strategy must be made an integral part of corporate strategy, including such things as product innovations, process technology, quality, materials management and human resources. Strategic manufacturing decisions will include investment in technology, expanding into new plants and adding capacity, strategic buyer/supplier relationships, the extent of vertical integration and joint ventures. What must be focused on is the strategic role and importance of manufacturing, which enables competitiveness in global markets.

Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: jim@jimpinto.com. Or review his prognostications and predictions on his Web site: www.jimpinto.com.

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