Configuration of Elements

1. Configuration of Elements ENVIRONMENT STRUCTURE MANUFACTURING STRATEGY COMPETITIVE STRATEGY PERFORMANCE

2. Manufacturing Strategy Model Manufacturing Strategy • Process technology • Capacity • Quality systems • Production/inventory control • Workforce Management • Manufacturing Organization • Cost • Quality • Delivery time • Flexibility

3. Strategic Configurations • Configurations are a tightly linked set of four elements • No causation is implied among the elements • Start with consideration of competitive strategy • Alignment among elements is essential to optimal performance • Manufacturing strategy is of special interest to us

4. Manufacturing Capabilities • Some manufacturing capabilities are better suited to particular configurations • Manufacturing capabilities take time to develop • Flexibility is an important capability especially if it permits firms to transcend tradeoffs between cost, quality, and delivery time • Customers don’t experience flexibility directly, but they experience its consequences • Flexibility can be achieved through technological or organizational innovation

5. Configuration #1 – Niche Differentiator • What is the strategy? • Pursue segments that are”underserved” by broad differentiators or cost leaders • Make high value-added products, sometimes bundled with services • Maximize gross margins - Don’t compete on price • Respond nimbly to opportunities that other larger companies miss • Segments may be too small or stable to interest larger firms

6. Configuration #1 (Continued) • Environment • Pursue narrow segments (by customer, product technology or locale). • Who is willing to pay more for what you have to offer? • Segments change often because of fashions • Structure • Simple • Top organized by functions • Few levels of technical specialists • Lots of highly skilled workers

7. What Manufacturing Capabilities Match Configuration #1? • Achieve flexibility by technology or people? • General purpose equipment • Labor intensive skilled workers (motivated, multi-skilled, autonomous, well paid) • Focused facilities - short runs only • Inventory tends to be high despite desire to avoid it in a volatile environment • Outsource - use JIT • How to develop relationships when firm is a small buyer for your suppliers

8. Configuration #2 Broad Differentiator • What is the competitive Strategy? • Offer a wide range of products to a variety of markets • Compete on quality and service, brand – not price). • Grow by entering new markets and developing new products • Deal with competition from niche differentiators (low volume customized) and cost leaders (high volume low cost)

9. Configuration #2 (Continued) • Environment • Complex and heterogeneous • Structure • Decentralized around product/market units (businesses, divisions) • Best to coordinate between self-contained units, but liaisons and cross-functional teams help • Got to have lots of specialized engineers and marketers to develop new markets

10. What Manufacturing Capabilities Match Configuration #2 • Complexity and confusion are the enemy • Multiple products at different life cycle stages • What kind of plants and equipment should you have for both emerging and mature products • Capacity dynamics are challenging (“insufficient capacity” means the wrong kind of capacity). • Reallocation of resources is frequent but tougher to do with centralization • Diseconomies of scale develop from confusion of multiple flows

11. Configuration #3 – Cost Leaders • What is the strategy? • Compete on the basis of low cost • Rely on economies of scale • Low margins, but make money on volume • Focus on high volume stable, mature markets

12. Configuration #3 (Continued) • Environment • Stable environment (required because of large investment in specialized capital) • Structure • Large, centralized and bureaucratic • Lots of skilled specialists, but few skilled workers • Manufacturing Capability • Standardization around a dominant design • Capacity additions tend to be large and lumpy • Rely on vertical integration for economies but less so now

13. Configuration #4 - Lean Competitor • This is not a separate strategy but a capability solution for broad differentiators • Could differentiate by brand or service or we can transcend old tradeoffs with lean manufacturing • Can we transcend? • Porter says no. You will get “stuck in the middle” • Cost versus quality? • Quality versus delivery? • Cost versus delivery?

14. Lean Innovative Practices • Just-in-time • Continuous improvement • Simultaneous engineering • Autonomous teams • Outsourcing and alliances

15. GE Dishwasher Plant • Product innovation (plastic tub and door assemblies). Cost was initially higher • Proceed sequentially • Product/process design • Cost/Quality (economies of scale, worker training) • Flexibility (AMT)