Configuration of Elements COMPETITIVE STRATEGY MANUFACTURING STRATEGY STRUCTUREENVIRONMENT PERFORMANCE

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

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

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

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

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

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

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)

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

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

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

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

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?

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

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)