Miltenburg - 2007 - Setting Manufacturing Strategy for a Factory-within-A-factory

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Int. J. Production Economics 113 (2008) 307–323 www.elsevier.com/locate/ijpe

Setting manufacturing strategy for a factory-within-a-factory John Miltenburg School of Business, McMaster University, Hamilton, Ontario, Canada L8S 4M4 Received 1 June 2007; accepted 3 September 2007 Available online 5 October 2007

Abstract Manufacturing strategy is a plan for moving a company from where it is to where it wants to be. Determining the best manufacturing strategy is not easy because of the wide range of choices and constraints a company faces. Manufacturing strategy frameworks or models are helpful because they identify the objects that comprise manufacturing strategy and organize these objects into a structure that enables a company to understand and use the objects to develop strategy. Many frameworks are possible and there is no single framework that is best for all companies. In this paper, we are interested in the levels of cost, quality, delivery, and flexibility that manufacturing provides for each product family it produces. This is determined primarily by a company’s factories-within-a-factory (FWFs) and so the level of analysis in this paper is the FWF. We identify and examine five manufacturing strategy objects (production systems, manufacturing outputs, manufacturing levers, manufacturing capability, competitive analysis), linkages between these objects, and the manufacturing strategy framework for an FWF that follows from these objects and linkages. We apply the framework to the FWFs of two multi-national companies. This paper is descriptive and exploratory. Strategy objects, linkages, and framework are presented and their use is illustrated. The work of rigorous empirical analysis is left for future research. r 2007 Elsevier B.V. All rights reserved. Keywords: Manufacturing strategy; Focusing manufacturing; Factories-within-a-factory

1. Introduction Marketing professionals talk about four types of value: form, time, place, and possession. Manufacturing is primarily responsible for the form and time value-types with some participation from marketing and accounting. Manufacturing forms products by completing design and production activities in a timely manner. Manufacturing and marketing generate the place value-type through their distribution activities. Marketing and accounting are responsible Tel.: +1 905 5259140; fax: +1 905 5218995.

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for the possession value-type through activities such as pricing, credit, advertising, and customer service. Manufacturing creates value in its network of factories, distribution centers, offices, research laboratories, and so on. Factories can be large or small, and can consist of one or more factorieswithin-a-factory, FWFs (also called plants-within-aplant, PWPs). See Hill (2007). Manufacturing strategy can be analyzed at the level of industry, company, strategic business unit, network, factory, FWF, or product (Swink and Hegarty, 1998). In this paper, the level of analysis is the FWF. FWFs are important parts of a factory and a manufacturing network. Miltenburg (2005)

0925-5273/$ - see front matter r 2007 Elsevier B.V. All rights reserved. doi:10.1016/j.ijpe.2007.09.001

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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323

examines the constraints a manufacturing network imposes on the factories and FWFs that comprise it. In an FWF the form and time value-types are operationalized as levels of cost, quality, delivery, and flexibility that the FWF provides for the products it produces. The goal of manufacturing strategy for an FWF is to determine the levels of cost, quality, delivery, and flexibility that are required, and the actions that are needed to achieve these levels. Minor et al. (1994) and Dangayach and Deshmukh (2001) give good reviews of manufacturing strategy. At a macro level manufacturing strategy can be studied as one of several functional strategies in a hierarchy of industrial, corporate, business, and functional strategies (Gupta and Lonial, 1998), or as the way a company uses its assets and prioritizes its activities to achieve business goals and generate competitive advantage (Kotha and Orne, 1989; Miller and Roth, 1994). A distinction can be made between the content of manufacturing strategy and the process of formulating manufacturing strategy (Barnes, 2002; Papke-Shields et al., 2002; Platts et al., 1998). Pun (2004) gives an excellent review and synthesis of different processes for formulating manufacturing strategy. Ahmed and Montagno (1996), Devaraj et al. (2004), and others verify empirically a positive correlation between strategy formulation and company performance. Demeter (2003), for example, reviewed the literature from 1983 to 1999, completed an empirical analysis of the IMSS-II data (International Manufacturing Strategy Survey in 1996–1997), and found that ‘‘(T)he most important result y is that ROS (return on sales, which is the ratio of profit before tax to sales) is significantly higher in companies with existing MS (manufacturing strategy)’’ (pp. 210–211). Setting manufacturing strategy for an FWF is the subject of this paper. The next section describes the objects, linkages, and framework that comprise manufacturing strategy for an FWF. Section 3 illustrates the use of these objects, linkages, and framework by studying the manufacturing strategies of two multi-national companies. The paper finishes with a summary in Section 4. 2. New model for manufacturing strategy for a focused factory-within-a-factory Boyer and Lewis (2002) show that there is some agreement among researchers as to the framework and contents that comprise manufacturing strategy

at the level of an individual factory. They describe a framework with two objects: competitive priorities and operating decisions. Competitive priorities are the levels at which the factory is required to provide cost, quality, delivery, and flexibility. Operating decisions are decisions the factory makes in the structural and infrastructural areas that comprise it. There are four structural areas: capacity, facilities, technology, and vertical integration/sourcing, and four infrastructural areas: workforce, quality, production planning, and organization. Boyer and Lewis describe this as the ‘‘prevailing model of the content of operations strategy y (and this model) conveys the idea that operating decisions such as capacity, technology, workforce issues, and quality systems must be carefully matched with the organization’s key competitive priorities’’ (p. 10). Morita and Flynn (1997) show that a framework with three objects, which is one more than Boyer than Lewis, is also an appropriate way to organize the contents of manufacturing strategy for a factory. Their three objects are strategy, processes, and structure. Their first object, strategy, corresponds to Boyer and Lewis’s first object, competitive priorities. It is ‘‘the choice of product-markets, positioning and competitive features’’ (p. 968). The second object, which has no corresponding object in Boyer and Lewis’s framework, is called processes. It is ‘‘the manufacturing and technological choice y the process choice’’ (p. 968). The third object, structure, corresponds to Boyer and Lewis’s second object, operating decisions. This is ‘‘the choice of how to define roles of functional processes into specific tasks y as well as the organizational mechanisms which integrate individuals, groups, and units y It is the (object) where most of the practices identified as ‘best practices’ should be’’ (p. 968). Morita and Flynn emphasize the importance of the linkages between the three objects: the ‘‘thoroughness of the linkages between these (objects), especially with the manufacturing process, affects performance’’ (p. 969). In the subsections that follow we show that a framework with five objects is a very useful way to organize the contents of manufacturing strategy when the level of analysis is an FWF. The five objects are competitive analysis, manufacturing outputs, production systems, manufacturing levers, and manufacturing capabilities. These objects are firmly grounded in the literature. They are, for example, related as follows to the objects in Boyer and Lewis, and Morita and Flynn. The competitive

ARTICLE IN PRESS J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323

priorities object (Boyer and Lewis) or strategy object (Morita and Flynn) is similar to the competitive analysis object in this paper. This object determines the levels at which the FWF is required to provide cost, quality, delivery, performance, flexibility, and innovativeness for the product family it produces. These six outputs are called the manufacturing outputs. The processes object (Morita and Flynn) is similar to the production systems object in this paper. This object describes precisely the technological operating systems that are available to an FWF and, therefore, the levels at which the manufacturing outputs can be provided. The operating decisions object (Boyer and Lewis) or structure object (Morita and Flynn) is similar to the manufacturing levers object in this paper. This object describes the decisions the FWF makes in its structural and infrastructural areas. The manufacturing capabilities object describes the capabilities of each manufacturing lever and, therefore, the ability of the production system to provide high levels of the manufacturing outputs. The five objects of manufacturing strategy for an FWF do not follow one another in a sequential fashion. The linkages among them are more complex than this. The effect of linkages between objects is accounted for by arranging the objects into the multi-dimensional framework shown in Fig. 1 and by thinking of linkages in terms of the ‘fit’ among the objects. A ‘good’ manufacturing strategy for an FWF is one in which the results in each object fit or are consistent with the results in every other object. The presentation of the objects, linkages, and framework that follows is descriptive and exploratory. That is, we describe the objects, linkages, and framework and illustrate their use. However, we do not present any empirical analysis. We leave this work for future research. 2.1. Production systems In this paper, an FWF is a well-defined production system that produces most or all products in a product family and, with respect to these products, provides six manufacturing outputs: cost, quality, delivery, performance, flexibility, and innovativeness. Technologically speaking only seven different production systems are possible: job shop, batch flow, operator-paced line flow, equipment-paced line flow, continuous flow, just-in-time, and flexible manufacturing systems. Following Womack et al.

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(1990, pp. 12–14) we may group these production systems into three categories: craft production (job shop, batch flow), mass production (operator-paced line flow, equipment-paced line flow, continuous flow), and lean production (just-in-time, flexible manufacturing). Production systems are well known. See, for example, Schmenner (1993) (who uses the term ‘production process types’ rather than production systems), or Hill (2000) (who uses the term ‘manufacturing process types’), or Miltenburg (2005). The production system object is depicted in Fig. 1 by the block in the middle left area of the figure. Although similar in form, this representation extends the traditional product–process matrix of Hayes and Wheelwright (1979). Their matrix identifies the production processes that are used to produce a product at different stages in the product’s life cycle. For example, a product that is in the introduction stage of its life cycle is produced by a job shop process. The production system object in this paper is broader than this. The starting point for the production system object is the realization that only a limited number of production systems are available for use in an FWF. (This is one example of trade-offs, which, along with other trade-offs, is discussed later in Section 2.7.) These production systems differ from each other in many ways. Three particularly important ways in which they differ are product mix (number of products produced and production volume of each product), layout and the resulting material flow, and manufacturing outputs (delivery, cost, quality, performance, flexibility, innovativeness). These three key differences give a convenient way to represent the production systems object. This is what is done in the middle left and middle right blocks of Fig. 1. There the seven production systems are arranged according to production mix, layout and material flow, and manufacturing outputs. This is not the only way to represent the production systems object. The product profiling approach of Hill (2000, p. 145) is a different representation. 2.2. Manufacturing outputs This paper separates the manufacturing outputs provided by an FWF into six individual outputs: delivery, cost, quality, performance, flexibility, and innovativeness. Fig. 2 gives definitions for these outputs. Other researchers separate manufacturing outputs into different numbers of individual outputs.



Fig. 1. Manufacturing strategy framework for a factory-within-a-factory (Miltenburg, 2005).

Mapes et al. (1997) identify seven individual outputs: cost, quality consistency, quality specification, lead time, delivery reliability, flexibility, and innovativeness. Quality specification in this scheme is similar to the performance output in this paper in

that both have to do with ‘‘product features y more expensive materials y higher levels of precision’’ (p. 1024). Lead time and delivery reliability in this scheme are combined into the delivery output in this paper. Many researchers use


Cost

Cost of material, labor, overhead, and other resources used to produce a product.

Quality

Extent to which materials and activities conform to specifications and customer expectations, and how tight or difficult the specifications and expectations are.

Delivery time and delivery time reliability

Time between order taking and delivery to the customer. How often are orders late, and how late are they when they are late?

Performance

Product’s features, and the extent to which the features permit the product to do things that other products cannot do.

Flexibility

Extent to which volumes ofexisting products can be increased or decreased to respond quickly to the needs of customers.

Innovativeness

Ability to quickly introduce new products or make design changes to existing products.

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Fig. 2. Manufacturing outputs provided by a factory-within-a-factory.

only four individual outputs: cost, quality, delivery, and flexibility. Ward et al. (1998) empirically develop operational measures for these four outputs. Quality in this scheme combines the quality and performance outputs in this paper. Flexibility in this scheme combines the flexibility and innovativeness outputs in this paper. Most often the difference in the number of outputs is due to ‘‘the lack of generally accepted definitions of these key concepts’’ (Mapes et al., 1997, p. 1021). Another reason for the difference in the number of outputs is the level of analysis. If the level of analysis is an entire company or an entire factory, then a smaller number of broader manufacturing outputs can be appropriate. However, if the level of analysis is an FWF that uses a single production system to produce a limited mix and volume of products that meets and exceeds customer expectations, then a slightly larger number of narrowly defined manufacturing outputs is more useful for developing strategy. No production system is able to provide all manufacturing outputs at the best possible levels. (As we will see later in Section 2.7, this reflects an ‘integrative’ approach to trade-offs, which we take in this paper.) Therefore it is necessary to determine which outputs are most important to customers now and which outputs will be most important in the future. De Meyer (1998), for example, investigates changes in the relative importance of outputs between 1986 and 1996 at European manufacturing companies. Once we know which outputs customers require, then we can select the production system that is best able to provide these outputs.

Consider, for example, the equipment-paced line flow production system in the middle left block in Fig. 1. This production system produces a small number of different products in high volumes on specialized, synchronized equipment arranged in a line. It provides short delivery time and high delivery time reliability because it operates at high speeds for long continuous periods of time without stoppages for changeovers or breakdowns. It provides low cost because high production volume produces high equipment utilization, which spreads costs over a large number of units. It provides a high level of quality because the specialized, automated equipment is designed to reliably produce products that meet all specifications. The equipment-paced line flow production system provides a low level of performance. A high level of performance requires a steady stream of new products as well as enhancements to existing products. In order to produce these products, changes must be made to equipment and processes. This is difficult for an equipment-paced line flow production system because it is so specialized. It is costly to change automated machines and specialized tooling, retrain operators, change processes at suppliers, and so on. And it is costly to take highspeed lines out of production in order to make these changes. Changes can be made from time to time, but not with the regularity needed to provide a high level of performance year after year. In a similar way, the specialization of the equipment-paced line flow production system makes it impossible to provide high levels of flexibility (i.e. change


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products and volumes) and innovativeness (i.e. make product design changes and introduce new products). 2.3. Manufacturing levers It is useful to divide a production system into infrastructural and structural subsystems. In this paper, we use three infrastructural subsystems: human resources, organization structure and controls, and production planning and control; and three structural subsystems: sourcing, process technology, and facilities. Fig. 3 gives definitions for these subsystems. Different ways in which a production system can be divided into subsystems are reviewed by Fine and Hax (1985), Leong et al. (1990), and others. Hallgren and Olhager (2006), for example, recommend four infrastructural subsystems and four structural subsystems. Any division of a production system into subsystems should have the following characteristics. Subsystems should be comprehensive (i.e. all manufacturing decisions fall within the subsystems), discriminating (i.e. manufacturing decisions can be broken into analyzable pieces and each piece falls within one subsystem), and reflective (i.e. the subsystems are consistent with manufacturing’s view of itself). Each of the infrastructural and structural subsystems is the subject of its own rich literature. Sourcing, for example, is the subsystem that connects the production system with the production systems of the FWF’s suppliers. Hines and Rich

(1998) examine the sourcing subsystem at Toyota where the just-in-time production system is in use. Several researchers have examined subsystems when flexibility is one of the most important manufacturing outputs. For example, Kathuria and Partovi (1999) examine the human resources subsystem, Vickery et al. (1999) examine the organization structure and controls subsystem, and Lau (1999) examines aspects of several subsystems (e.g. workforce autonomy in the human resources subsystem, inter-departmental relationships and communication in the organization structure and controls subsystem, and aspects of the process technology subsystem and the sourcing subsystem). In all three papers, flexibility is defined broadly and includes the flexibility and innovativeness manufacturing outputs in this paper. Kathuria and Partovi found empirically that relationship-oriented practices, such as networking, team building, supporting, mentoring, inspiring, recognizing and rewarding, and participative leadership and delegation practices are important in the human resources subsystem when flexibility is an important manufacturing output. Vickery et al. empirically examined the relationship between the product customization aspect of flexibility and the organizational structure subsystem, and found that product customization is associated with more formal control, fewer layers, and narrower spans of control. They report that ‘‘small firms can plan on cutting one entire layer of the hierarchy when a firm makes the transition from high standardization to high customization y (and)

Human resources

Skill level, wages, training,promotion policies, employment security, and so on, of each group of employees.

Organization structure

Relationships between groups ofemployees in the production system. How are decisions made? What is the underlying culture? What systems are used to measure performance and provide incentives?

and controls

Production planning and control

Rules and systems that plan and control the flow ofmaterial, production activities, and support activities such as maintenance and the introduction of new products.

Sourcing

Amount of vertical integration. What is the relationship with suppliers? How does the production system manage other parts of the supply chain?

Process technology

Nature of the production processes,type of equipment, amount of automation, and linkages between parts of the production process.

Facilities

Location, size, focus, and types and timing of changes.

Fig. 3. Manufacturing levers or subsystems that comprise a production system.


senior spans of control decrease, on average, by about one subordinate’’ (p. 387). Spring and Dalrymple (2000) found that when product customization is very important the organization structure is adjusted so that design ‘‘engineering activities become part of routine, repetitive operations’’ (p. 464). They also examine how linkages between production systems, manufacturing outputs, and manufacturing capability (Section 2.4) make possible new manufacturing practices such as mass customization and agile manufacturing. Each subsystem is an equally important part of a production system in the sense that no subsystem can be marginalized or overlooked. In this paper, we use the phrase manufacturing levers instead of production subsystems in order to emphasize the concept that managers make adjustments to the production subsystems. Adjustments vary in size and scope. Small adjustments are made to one or more levers to improve an existing production system. Large adjustments are made to all six levers to improve greatly an existing production system, or to change an existing system to a different production system. For example, to change a batch flow production system to a just-in-time production system an FWF needs to make significant adjustments to human resources, organization structure and controls, production planning and control, sourcing, process technology, and facilities. New manufacturing practices are groups of adjustments to several levers. Examples of new practices are total quality management, computer-integrated manufacturing, and supply chain management. The current position of a manufacturing lever is the outcome of managerial decisions made in a particular production subsystem over a long period of time. The current positions of all six levers determine the type of production system, the level of capability of the production system, and the levels at which the manufacturing outputs are provided (Fig. 1). Consequently adjustments to the manufacturing levers are not made haphazardly. Adjustments must be appropriate for the production system in use. Consider, for example, wage policies which are part of the human resources lever. An incentive wage scheme is appropriate for a batch flow production system but is not appropriate for a just-in-time production system. Adjustments should help the production system provide the required manufacturing outputs. For example, if a batch flow production system wants to raise its level of flexibility it can change its incentive wage scheme

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to encourage operators to do rapid setups and produce products in smaller batches and penalize operators who avoid setups by producing large batches. Finally, the effect an adjustment to one lever has on the other levers should be considered. For example, the previous change to the incentive wage scheme in the batch flow production system will affect scheduling in the FWF (i.e. production planning and control lever) and at suppliers (i.e. sourcing lever), and equipment setups (i.e. process technology lever). In summary, possible adjustments to a manufacturing lever must take into account the linkages within the manufacturing levers object and the linkages between this object and the other factory manufacturing strategy objects (Fig. 1). 2.4. Manufacturing capability Manufacturing improvement activities (which are also called improvement initiatives, best practices, world-class manufacturing techniques, new technology practices, and hard and soft technologies) are adjustments to manufacturing levers. Filippini et al. (1998) found that individual improvement activities are often elements in a sequence of improvement activities. There are four common sequences and the sequence used depends in large part on the ‘‘variety of end product, y levels of unitary volume and y continuity in the productive process’’ (p. 205). In other words the sequence used depends on the product mix, volume, and material flow, which are the variables in Fig. 1 that prescribe the production system in use. This means that the sequence of improvement activities used depends on the production system in use. Similarly, Morita and Flynn (1997) found that companies use clusters of best practices (they use the term ‘best practices’ instead of improvement activities) that are appropriate for the production system in use. ‘‘Each cluster is a set of contingent, or linked, practices which should be selected together for maximum effectiveness. This is consistent with the process choice model’’ (p. 977). Some FWFs have no difficulty making improvements or changes, even very large ones. Other FWFs struggle to make small changes. One factor that has an important affect on an FWF’s ability to make changes is the level of manufacturing capability of the production system. New manufacturing capabilities are built on a foundation of existing capabilities. The larger this foundation is, the easier it is to build on. A production system with a high



level of capability can make changes quickly and easily. Even more importantly a high level of manufacturing capability enables a production system to provide high levels of the manufacturing outputs. Morita and Flynn (1997) report that the ‘‘strength of the relationship between best practices (i.e. improvement activities) and performance also suggests that the use of best practices must be considered as part of building factory capability y (and) the creation of competitive advantage’’ (p. 979). Improvement activities that raise the level of manufacturing capability can enable an FWF to operate with a less than ideal production system. For example, an FWF operating with a batch flow production system having a very high level of capability may be able to provide the cost and quality outputs at the same level as a competitor’s FWF operating with an equipment-paced line flow production system with a low level of capability. In their survey of 128 plants, Ahmad and Schroeder (2002) found that ‘‘less than half of the plants operate near the diagonal of the (product–process) matrix y (T)he off-diagonal plants are using innovative initiatives to overcome the lack of product structure and process structure match’’ (p. 103). The notion of ‘innovative initiatives’ to build manufacturing capability is part of what the literature calls dynamic capability (Da Silveira, 2005). Dynamic capability relies on improvements to push the boundaries or limits that technology imposes on manufacturing processes and, therefore, is one approach for dealing with trade-offs in manufacturing. (More on this follows in Section 2.7.) A production system’s overall level of capability is the sum of the capabilities of each subsystem or lever. The higher the manufacturing capability of each lever is, the higher will be the overall capability of the production system. In this paper, the manufacturing capability of a lever is measured on a scale from 1.0 to 4.0. (See the lower left block in Fig. 1.) A value of 1.0 indicates an infant level of capability; 2.0 is industry average; 3.0 is adult; and 4.0 is world class. (This scale is similar to the ‘stages of manufacturing effectiveness’ in Wheelwright and Hayes (1985).) Exactly what constitutes each level of capability for each lever depends on the production system and is usually determined from benchmarking studies. The level of capability is not necessarily the same for each lever. However, levers with lower levels of capability diminish the overall level of capability of the production system. Good

manufacturing strategy identifies these levers and the adjustments that are needed to raise the low levels of capability. The goal is to have a production system where all levers have the same high level of capability. 2.5. Competitive analysis An FWF should use the production system that is most able to produce the mix and volume of products in its product family and provide the manufacturing outputs required by its customers (Adamides and Voutsina, 2006). The competitive analysis object (upper right block in Fig. 1) organizes the information that is required to identify this production system. First, specific measures or ‘attributes’ that are important to customers are determined for each manufacturing output. For example, important attributes of quality may be rework cost per unit, defects per unit, warranty cost as a percent of sales, and so on. Next, values of each attribute are collected for the product family produced by the FWF, the average product family in the industry, and the best product family in the industry. On the basis of these values the FWF decides whether each manufacturing output is market qualifying, order winning, or relatively unimportant, and then selects the production system that is best able to provide the market qualifying and order winning outputs. A manufacturing output is market qualifying, order winning, or relatively unimportant, depending on whether it is provided at a high, very high, or medium level. Market qualifying outputs are what customers expect to receive. A product needs these outputs to be competitive in its market (Hill, 2000). Providing a market qualifying output requires providing each attribute of that output at a high level. An order winning output is provided at a higher level than the market qualifying level. It is provided at the order winning level, which is the highest level possible in the industry. Consequently order winning outputs are not common in a product’s market. Yet they are important to customers and, therefore, are a very important reason that customers buy from an FWF. If the level of an order winning output is raised, then orders increase. Providing an output at an order winning level makes an FWF an industry leader for that product and output. Competitive analysis aligns manufacturing and marketing when it matches production systems with


market qualifying and order winning manufacturing outputs. Ward et al. (1998) and others find considerable empirical support for the goal of aligning manufacturing and marketing. ‘‘(T)he expected relationship between process choice (i.e. production system) and competitive priority (i.e. manufacturing outputs) that is central to much of the conceptual work in manufacturing strategy can be demonstrated empirically’’ (p. 1043). Other schemes for achieving this alignment are possible. Hallgren and Olhager (2006) separate outputs into two categories: marketing and manufacturing. For marketing they identify seven ‘market requirements’ (quality, price, delivery speed and reliability, product range, customization, and innovativeness) and for manufacturing they identify four ‘main manufacturing capabilities’ (cost, quality, lead time, and flexibility). They measure the seven market requirements for each product family and set relative priorities. From these and other information they then set objectives for the four manufacturing capabilities. Manufacturing–marketing alignment is a type of focus. In this paper, we say that an FWF is focused when it uses the production system that is best able to produce the mix and volume of products and provide the market qualifying and order winning manufacturing outputs that are desired by the FWF’s customers. Bozarth and Edwards (1997) found additional types of focus in their study of 26 US factories. They found market requirements focus, manufacturing characteristics focus, and market–manufacturing congruence. Market requirements focus is similar to Hallgren and Olhager’s seven ‘market requirements’, and to the market qualifying and order winning concepts in this paper. Manufacturing characteristics focus is ‘‘the degree of internal consistency found in the physical processes and infrastructural elements y (for example) process choices, work-force skills, planning and control systems’’ (pp. 162–163). Market–manufacturing congruence is ‘‘the degree of fit between market requirements and manufacturing characteristics. Congruence is distinct from the other two dimensions: one can have a focused set of market requirements y and a focused set of manufacturing capabilities y but incongruence between the two’’ (p. 163). Bozath and Edwards conclude that ‘‘the results support the general argument that market requirements focus and manufacturing characteristics focus have an impact on manufacturing performance. A lack of focus in either market requirements or manufacturing

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characteristics in the plant was shown to be associated with poorer performance’’ (pp. 177–178). In another study, this time of 782 UK factories, Mapes et al. (1997) found that their ‘‘research also confirms existing thinking on manufacturing focus. y Plants with a narrow product range tend to perform better on most measures of operating performance than plants with a wide product range’’ (p. 1032). 2.6. Illustrative example The well-documented competitive battle between Yamaha’s and Honda’s motorcycle businesses in the early 1980s (Stalk and Hout, 1990) is easy to analyze using the five manufacturing strategy objects. In 1981 Yamaha opened a new, state-ofthe-art motorcycle factory and overtook Honda to become the largest motorcycle manufacturer in the world. Honda, which had been concentrating on its automobile business, launched a counterattack. It raised the levels of its market qualifying outputs, which were cost and delivery, by cutting prices and flooding distribution channels. It also raised the levels of its order winning outputs, which were innovativeness and performance, by introducing new products and raising the technological sophistication of its existing products. More specifically, over the next 18 months Honda introduced or replaced 113 motorcycle models (Yamaha responded with 37 changes) and introduced new features such as four-valve engines, composite materials, and direct drive. Yamaha could not provide its manufacturing outputs at the new market qualifying levels, let alone at the order winning levels, and demand for its products plummeted. Yamaha’s President ended the ruinous fight with Honda with a public statement: ‘‘We want to end the Honda–Yamaha war. It is our fault. Of course, there will be competition in the future, but it will be based on a mutual recognition of our competitive positions’’ (Stalk, 1988). Fig. 4 displays Yamaha’s and Honda’s manufacturing strategies and identifies the strategic reasons as to why Honda was able to overcome Yamaha’s challenge to its leadership in the motorcycle industry. Honda raised the levels of its market qualifying outputs and order winning outputs so fast and so high that Yamaha could not keep up. Yamaha’s products no longer met customer expectations and so customers left Yamaha and placed their orders with Honda. Honda was able to do this for the following two reasons.



Fig. 4. Manufacturing strategy at Honda and Yamaha motorcycles.

2.6.1. Production systems Honda’s production systems were more suitable for providing the order winning outputs than Yamaha’s. Honda used operator-paced line flow production systems and JIT production systems, whereas Yamaha

used equipment-paced line flow production systems. Operator-paced line flow and JIT production systems are able to provide higher levels of performance and innovativeness (i.e. the order winning outputs) than the equipment-paced line flow production system.


2.6.2. Manufacturing capability Honda had a higher level of manufacturing capability. Yamaha had just completed a period of expansion during which it built new facilities, hired new employees, started new processes, and launched new systems. The expansion spread Yamaha’s existing manufacturing capability over a large number of sites and operations. This dilution of expertise reduced Yamaha’s overall level of manufacturing capability. Fig. 4 shows manufacturing capability profiles for Honda and Yamaha. The level of manufacturing capability for each of the first three levers was 3.5 for Honda and 2.5 for Yamaha. The lower figures for Yamaha were the result of its expansion. The level of manufacturing capability for sourcing was 4.0 at Honda because Honda’s suppliers were the best in the industry. The levels of manufacturing capability for process technology and facilities were high for Yamaha because many of its processes and facilities were new. The levels of manufacturing capability for process technology and facilities were also high for Honda. Although processes and facilities at Honda were older, the company’s established improvement programs had made numerous improvements over the years. Not only was Honda’s manufacturing capability profile better than Yamaha’s profile, but the three levers (organization structure and controls, production planning and control, and sourcing), which most affected the order winning outputs (performance and innovativeness), had higher levels of capability at Honda. 2.7. Trade-offs Trade-offs are a part of each manufacturing strategy object. An important trade-off in the competitive analysis object is the level at which outputs will be provided. Will an output be market qualifying or order winning? Products may qualify for consideration by customers in one way but win orders in a different way. Trade-offs in the production systems object follow from the technological nature of production systems. Consider, for example, job shop and equipment-paced line flow production systems. The job shop is more flexible but the equipment-paced line flow production system has a faster pace of production. Trade-offs also exist in the manufacturing levers and the manufacturing capability objects. Decisions made in these objects are affected by decisions made previously in the objects, by decisions made about

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the market qualifying and order winning outputs, by the production system in use, and so on. Boyer and Lewis (2002) categorize trade-off research into rigid, cumulative, and integrative models. In the first category, a trade-off is ‘‘the need for plants to prioritize their strategic objectives and devote resources to improving those capabilities. For example y plants must make choices between achieving low costs or high flexibility’’ (p. 11). In this category a trade-off is a choice between mutually exclusive alternatives. Hence trade-offs in this category are called rigid. In the cumulative category the alternatives in a trade-off are not mutually exclusive. ‘‘Plants improve along all four dimensions y (by) developing capabilities that reinforce one another. y (For example,) advanced manufacturing technology—flexible manufacturing systems, computer-integrated manufacturing, and other programmable automation—helps develop multiple capabilities simultaneously’’ (p. 11). The ‘sand cone’ model of Ferdows and De Meyer (1990) is an example of a cumulative trade-off model. ‘‘Plants should build capabilities sequentially, first seeking high quality, then dependable delivery, followed by low costs and flexibility. Each successive capability becomes the primary focus once minimum levels of the preceding capabilities have been achieved’’ (Boyer and Lewis, 2002, p. 11). The integrative trade-off category believes that some elements of the rigid trade-off model and some elements of the integrative tradeoff model are present in an FWF. This is the view taken in this paper. Trade-offs are technological boundaries that are always present. But the boundaries can be moved within limits. Boundaries ‘move out’ when, for example, improvements and new technology raise manufacturing capability. Boundaries ‘move in’ when, for example, the alignment between manufacturing and marketing deteriorates. There are limits to how far the boundaries can be moved. For example, raising the level of capability of a job shop production system to a world-class level of capability by making improvements and adding technology will not produce the same level of cost as an equipmentpaced line flow production system with a worldclass level of capability. Da Silveira and Slack (2001) found the same view of trade-offs among managers at five companies in the UK and Brazil. ‘‘Trade-offs are not the problematic issue for practicing managers that they are for academics. y (They are) an easily understood concept, which



describes the operational compromises routinely made by managers. y (T)rade-offs are seen as focusing attention on the areas of an operation most in need of improvement. y (S)ome trade-offs are more clearly governed by identifiable resource and capability constraints than others’’ (p. 962). 3. Applying the new model for manufacturing strategy in an FWF Pun (2004) reports that many manufacturing strategy frameworks are possible and no single framework is best for all companies. Safsten and Winroth (2002) examined the effectiveness of a framework similar to Fig. 1 for small- and mediumsized manufacturing companies. Based on their work at two Swedish companies they report that the framework is useful. In this section we illustrate the use of the new model (i.e. Fig. 1) for manufacturing strategy in an FWF by studying the strategic activities of two multi-national manufacturing companies: Groupe Dutailier and Rheem Manufacturing. 3.1. Groupe Dutailier Dutailier was founded in 1976 in a small town near Montreal, Canada. For the next 12 years it manufactured living room and bedroom furniture and rocking chairs. In 1988 Dutailier dropped its living room and bedroom furniture in order to focus on one particular type of rocking chair called a glider rocker. It concentrated all of its R&D activities on developing glider rocker products for selected target markets. The decision to focus was the start of a journey that made Dutailier a leader in glider rocker products for North America and Europe. The company is now North America’s largest manufacturer of glider rockers and offers one of the largest selections of glider rocker products. There are more than 45 different styles, 70 fabrics, and 15 finishes, all organized into three product collections. Dutailier began in 1976 with 40 employees in one factory. In 1991 there were 550 employees in four factories. Today the company, which is still family owned, employs more than 780 employees in seven factories in Canada, the United States, and England. Dutailier’s factories are organized into FWFs. The FWFs use job shop, batch flow, and operatorpaced line flow production systems. Other mass production systems (i.e. equipment-paced line flow and continuous flow) and lean production systems

(i.e. JIT and FMS) are not used because they are technologically unable to manufacture upholstered wood furniture products. Dutailier does use some just-in-time practices (e.g. setup time reduction and quality control) but it does not use the JIT production system. Fig. 5 describes the manufacturing activities at each factory. The first facility in Fig. 5 is the company’s lead factory at Saint-Pie. (‘Lead’ refers to the strategic reason for a factory. Ferdows (1997) describes six strategic reasons for a factory and six corresponding factory types: lead, contributor, source, server, outpost, and off-shore. See also Miltenburg (2005).) The Saint-Pie factory has three FWFs. One FWF is a job shop production system that is used for new product introductions and for product and process innovations. Innovativeness and flexibility are the most important manufacturing outputs. The factory also has an FWF with a batch flow production system that produces lowvolume, high-end products. Performance and innovativeness are important for the high-end products. The third FWF is an operator-paced line flow production system that produces higher-volume products. These products are in the mature stage of their product life cycles and so cost and delivery are important. The next facility is at Saint-Elie de Caxton. This is the company’s contributor factory for ottoman products. It is a small facility and has one FWF with an operator-paced line flow production system that produces high-volume products. Cost and delivery are the important manufacturing outputs. Fig. 5 gives similar information for Dutailier’s other facilities. Fig. 6 transfers some of the information from Fig. 5 to the FWF strategy worksheet. Notice that the same production systems are used in several FWFs. This allows the company to develop and follow standard practices, employ common improvement programs, and share information in the FWFs that use the same production system, and, consequently, increase the levels of manufacturing capability to above average and adult. The synergistic combination of the best production system and high level of capability produces the highest possible levels of manufacturing outputs. Finally, notice in Fig. 5 that the first six facilities are focused on the production of glider rocker products. However the last facility, at Sainte-Anne-dela-Perade, produces an entirely different product family—high-quality, wood bedroom furniture for babies, children, and teens. This facility was

ARTICLE IN PRESS J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323 Facility (1) Saint-Pie (head office and original facility -- lead factory)

Details Head Office … 80 people

Focus R&D, Sales, Customer Service & After Sales, Marketing, Production Planning, Purchasing, Computing, Technical Services, Credit, Finance & Accounting, Quality, Human Resources Focused on production of middle- to high-end wood glider products

FWFs 1. Job shop for new products

Important Manufacturing Outputs Innovativeness, flexibility

2. Batch flow for low volume, highend products

Performance, innovativeness

3. Operator-paced line for medium volume, middle-end products

Delivery, cost

18,500 sf, 60 people

Focused on production of ottoman products

4. Operator-paced line for high volume products

Delivery, cost

48,000 sf, 100 people

Focused on production of high volume wood glider products for large U.S. and Canadian chain stores

5. Operator-paced line high volume products

Delivery, cost

85,000 sf, 100 people

Focused on production of ‘high performance’ products (i.e. products made of metal, wood, leather that glide, swivel, recline)

6. Batch flow for low volume products

Performance, innovativeness

Focused on upholstered products and chair cushions for other facilities.

8. Operator-paced line for high volume products

Delivery, cost

Assemble components imported from North America

9. Batch flow

Flexibility, delivery

Focused on production of wood bedroom furniture

10. Batch flow for low volume products 11. Operator-paced line for medium volume products

Flexibility, quality

Factory … 110,000 sf, 220 people Saint-Elie de Caxton (acquisition in 1990 of Les Artisants du Bois Caxton, Inc.) Joliette (acquisition in 1988 of Les Freres Pelletier Canada, Inc.) Saint-Hyacinthe (new factory established in 1997)

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Martinsville, Virginia (acquisition in 1990 of Regent Industries) Perivale, England (new facility established in 1993)

53,000 sf, 60 people

Sainte-Anne-de-la-Perade (acquisition in 2003 of E.G. Furniture)

60,000 sf, 100 people

European Sales … 30 people Warehouse/factory … 18,800 sf, 30 people

Performance, quality 7. Operator-paced line for medium volume products

Cost, quality

1. The information in Facility, Details, and Focus is from the company website (www.dutailier.ca).

Fig. 5. Manufacturing facilities at Dutailier.

acquired in 2003 and marks Dutailier’s decision to diversify its product line. This reverses the decision the company made 25 years earlier to focus on glider rockers. The decision in 2003 to diversify is not unreasonable so long as the new product lines are produced in separate FWFs. It would be inappropriate to produce these new products in FWFs that are focused on glider rocker products. This would cause problems for the specialized production systems, reduce the level of manufacturing capability, and lower the levels of the manufacturing outputs. 3.2. Rheem manufacturing In 1927 Richard and Donald Rheem of California formed the Rheem Manufacturing Company. By 1936 the company was manufacturing water heaters and distributing them coast-to-coast in the United States. In 1939 Rheem opened its first foreign factory near Sydney, Australia, and 8 years later it opened a second foreign factory in Hamilton, Canada, to serve the Canadian market. Rheem began manufacturing warm air furnaces in 1947 and central air conditioning systems in 1965. In 1973 Rheem sold its manufacturing operations in Australia. In 1986 Rheem’s three divisions—Water Heaters, Air Conditioning, and Rayback (a sub-

sidiary that manufactured swimming pool heaters)— generated an annual revenue of $725 million. In 1988 Paloma Industries of Nagoya, Japan, a familyowned company and the world’s largest producer of gas appliances, purchased Rheem for $850 million. Today the Paloma Group of Companies employs 10,400 people. In 2002 Rheem began a major initiative to improve the performance of its sagging Air Conditioning Division. The division’s market share had dropped to 11% from a high of 16% in the mid1980s. One reason for the decline was an old product line that was in need of redesign. Rheem installed a new management team and started programs to improve cost, quality, and customer service. 3.2.1. Events in Australia In 2002 Rheem re-acquired its Australian manufacturing operations. These operations, which employed 1400 people and generated $150 million in annual revenue, included water heater businesses in Australia and New Zealand, a solar water heater company, and a joint-venture business in China. 3.2.2. Events in Canada In 1989 the United States and Canada signed a free trade agreement to eliminate import and export



Fig. 6. Manufacturing strategy at Dutailier’s FWFs.

duties, relax foreign investment restrictions, and ease business travel between the two countries. This reduced the need for a Canadian factory whose sole purpose was to serve the Canadian market. However, rather than close the Canadian factory, Rheem decided to focus the factory’s production. In 1993 production was focused on 40-gallon (181 liter) water heaters. All other products were transferred to the Water Heater Division factory in Montgomery, Alabama (USA). The Canadian factory, though small, was strategically important. Water heater products sold in Canada were slightly different from products sold in the United States, large Canadian commercial customers wanted the reliability of a local manufacturer, and transportation costs from the factory in Alabama to customers in Canada

were high. So the batch flow production system in the Canadian factory was changed to an operatorpaced line flow production system. Manufacturing equipment was upgraded and the number of employees was reduced from 255 to 150. (The Montgomery factory had more than 1000 employees.) In 1994 Mexico joined the free trade agreement between the United States and Canada. (The new agreement was called the North American Free Trade Agreement or NAFTA.) Several years later the Water Heater Division opened a new factory in Nuevo Laredo, Mexico, to take advantage of that country’s low labor costs. It quickly became apparent that the cost of production in the large Mexican factory was so low that, even with the high cost of transportation from Mexico to Canada, it


was significantly more profitable to produce in Mexico and ship to Canada than to produce in Canada. At about the same time new government policies in Canada aimed at deregulating business and increasing trade reduced the importance of the large Canadian commercial customers. So by the late 1990s there was no longer any need to have a factory in Canada. The Canadian factory used an operator-paced line flow production system to produce a medium volume of 40-gallon water heaters (Fig. 7). Even with an adult level of manufacturing capability, this production system was not able to provide the order winning levels of cost and quality and the market qualifying level of delivery required in the very competitive marketplace for water heaters. The Canadian factory needed to change its production system to an equipment-paced line flow production system with a high level of capability. But this production system required new, expensive manufacturing equipment, a much higher production volume, and time to raise the level of manufacturing capability. When the Water Heater Division, headquartered in Montgomery, Alabama, decided not to make this investment, or assign this production volume, and or let the Canadian factory raise its capabilities, the factory’s fate was sealed. In 2005 Rheem announced its intention to move its Canadian production to Mexico, and in 2006 it closed the 60-year-old Canadian factory. 4. Summary The manufacturing strategy framework for an FWF consists of five objects: production systems, manufacturing outputs, manufacturing levers, manufacturing capability, and competitive analysis, and the linkages between these objects. An FWF uses one production system to produce most or all products in a product family and provide six manufacturing outputs: cost, quality, delivery, performance, flexibility, and innovativeness. No FWF is able to provide all outputs at the best possible levels. So it is important to determine which outputs are most important to customers. These are the market–qualifying and order–winning outputs. There are seven production systems: job shop, batch flow, operator-paced line flow, equipment-paced line flow, continuous flow, just-in-time, and flexible manufacturing systems. Each produces a unique mix of products and volumes, and provides a unique combination of manufacturing outputs.

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A production system consists of six subsystems called manufacturing levers. They are human resources, organization structure and controls, production planning and control, sourcing, process technology, and facilities. Adjustments to manufacturing levers must consider the linkages between manufacturing levers and the linkages between strategy objects. For example, each adjustment must be appropriate for the production system in use and must help the production system provide the manufacturing outputs at required levels. The levels at which the manufacturing outputs are provided depend on the production system in use and its level of manufacturing capability. A production system’s level of capability is the sum of the levels of capability of each subsystem or lever. Manufacturing capability is measured on a continuous scale from 1.0 to 4.0: 1.0 is an infant level of capability; 2.0 is an industry average level; 3.0 is an adult level; and 4.0 is a world-class level. Competitive analysis identifies the manufacturing outputs that customers desire. It requires information on the FWF’s products, competitors’ products, customer requirements, and the current production system. Outcomes from the competitive analysis are the market qualifying and order winning manufacturing outputs for the product family, and the production system that can provide these outputs and can be put into practice by the FWF. Fig. 1 arranges the five manufacturing strategy objects for an FWF into a manufacturing strategy framework. We illustrate the use of these objects and framework by studying the strategic activities of Groupe Dutailier Inc. and Rheem Manufacturing Company. We can also use the five objects and manufacturing strategy framework to formulate a manufacturing strategy for an FWF. First we determine the FWF’s current manufacturing state by examining its production system, its manufacturing capability, and its manufacturing outputs. Second we determine the FWF’s desired future manufacturing state by using the competitive analysis object. Finally we use the manufacturing levers object to determine the changes that are required to move the FWF from its current manufacturing state to its desired future manufacturing state. Safsten and Winroth (2002) studied this process at some small- and medium-size manufacturing companies. This paper is descriptive and exploratory. A manufacturing strategy framework for an FWF is presented and its use is illustrated. The strategy



Fig. 7. Manufacturing strategy in Rheem’s Canadian factory.

objects and the framework they comprise are not analyzed empirically. This work is left for future research. There are other areas where more research can be done. More detailed descriptions can be developed for each manufacturing strategy object. New objects can be developed. Other frameworks can be developed, and relationships between different frameworks can be studied.

Acknowledgments This research was supported by Grant A5474 from the Natural Sciences and Engineering Research Council of Canada. I also thank the editor

and the referees for their comments on earlier versions of this paper.

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