Manufacturing Strategy

A manufacturing strategy can be defined as the pattern of organizational decisions that determine the ability of a manufacturing firm to deliver its product and service requirements to customers. Successful implementation of manufacturing strategies requires the coordination of physical assets, production capabilities, and [Page 1066]relationships as manufacturing firms move from individual facilities to business networks. The importance of manufacturing strategy has increased in the last 30 years due to increasing global competition, and a firms manufacturing ability is now seen as key to competitive advantage.

While the field of manufacturing has had a long history, strategies specific to manufacturing firms have emerged fairly recently. From the mass production era in the 1900s until the 1960s, organizations viewed manufacturing solely in terms of equipment to convert raw materials into finished products and production arrangements such as plant layouts. Long-term organizational strategy was formulated by finance and marketing departments with manufacturing's role limited to the production of the varieties, quantities, and quality specified by these functions. Decisions were primarily about plant, equipment, and personnel with little effort allocated to examining the potential of manufacturing beyond that of a support function.

Initial ideas regarding manufacturing strategy emerged in the late 1960s, as researchers and organizations realized that manufacturing firms were responsible for a large proportion of a firm's physical and human assets. Arguments were made for manufacturing to become more central in formulating strategy, rather than the tactical position it occupied at the time. Few organizations paid attention to the arguments, and the 1980s brought increasing competition from Japanese firms, particularly in automobiles and consumer products. These relative newcomers provided a combination of lower prices and higher quality, something that was not thought possible at the time. Incumbent organizations at the time viewed cost and quality as linked, with higher quality only being achieved at a higher cost. As a result, Japanese firms began taking market share from U.S. and European manufacturers, with many organizations forced to close or sell their businesses.

Since these organizations viewed manufacturing as plant and equipment, the first response was to invest heavily in new production facilities with automated machinery. However, while some organizations experienced success, the costs of these investments took a heavy toll on others, most notably General Motors, whose $60-billion investment in automation generated little return. Organizations realized that there was a need for better management of manufacturing and a greater understanding of how manufacturing could contribute to organizational competitiveness.

Significant research effort was allocated to manufacturing strategy and researchers have created a range of frameworks of increasing sophistication to aid organizations. Initially, frameworks examined equipment, personnel, and management systems required for manufacturing at a single facility. More recent research has expanded the decision areas to include the coordination of manufacturing networks. Increasingly, firms shift the production of items that they cannot produce competitively to other locations, and manufacturing organizations can be viewed as a network of coordinated business relationships. As such, manufacturing strategy decision areas now incorporate decisions on whether an organization will make an item in-house or buy it from another firm. While they examine a range of organizational characteristics, these frameworks can be divided into five perspectives: top-down, bottom-up, market requirements, internal capabilities, and best practice.

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