manufacturing strategy full report
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17-02-2010, 06:23 PM



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ABSTRACT
Nowadays every company is trying to spread their wings in the global and domestic markets, for this they are using various business strategies, be it marketing or manufacturing. There are many manufacturing innovation process like TQM, TPM, QFD, JIT etc. This study has the purpose of testing the importance of consistency between manufacturing strategies and practices in achieving better business performances. An empirical test has been conducted & compared on the data sets of 3 different countries and gap analysis is also noted
INTRODUCTION
There are many three letter manufacturing innovation approaches such as BPR (Business Process Reengineering), TQM (Total Quality Management), TPM (Total Productive Maintenance), QFD (Quality Function Deployment), CAM (Computer Aided Manufacturing), CAD (Computer Aided Drafting), JIT (Just In Time). In order to be more competitive and profitable all most all companies are using these strategies nowadays. Manufacturing strategies consists of two elements, the manufacturing task and the pattern of choices. First deals with competitive priorities such as quality, cost, flexibility etc, while second is considered with manufacturing structure and infrastructure that company makes to achieve manufacturing tasks. There have been many theoretical and empirical researches to investigate relationship between manufacturing strategies, practices and performances. Strategically important activities should be given more importance and under allocation of manufacturing resource should be avoided to achieve a more balanced and cost effective use of them. An empirical test has been conducted on the data sets from three different nations, each of which have quite different manufacturing capabilities and competitive environments. This is to see whether a consistency-performance relationship can be generalized. Consistency measures along with other strategy and implementation measures are then compared to investigate which measures are more effective to differentiate high & low performance ones.
MANUFACTURING STRATEGIES
Manufacturing strategy is an important functional component of business strategy. Manufacturing has the power to strengthen or weaken a companyâ„¢s competitive ability. The four basic pillars of manufacturing are cost efficiency, quality, flexibility and dependability. This framework has generally influenced the terminology and direction of manufacturing strategy research
Many empirical studies have reported that well formulated and effective manufacturing strategies, aligned with business strategies and goals can produce better performances. For example, a study reveals that the business units with a formulated manufacturing strategy outperformed the business units without one in terms of business performance such as return of sales. This study helps to highlight the importance of manufacturing strategy to productivity
The relationship between business strategic orientation and manufacturing strategic orientation and business performance has been analyzed. One-study reports that internally and externally oriented business have achieved the competitive advantage with higher returns on investment and lower business risk components. Based on competitive priorities three distinct clusters of manufacturing strategy groups have also been formed and compared in terms of the business context, manufacturing activities and manufacturing performance measures.
MANUFACTURING PRACTICES AND PERFOMANCES
There are many manufacturing practices used by companies, which is also very effective. Here we look into detail of some of the common manufacturing practices used worldwide
1) BUSINESS PROCESS REENGINEERING (BPR)
A common theory among marketing managers is the product life cycle theory, which suggest that a product has 4 stages in its life cycle- Introduction, growth, maturity & decline. Maturity is that level where the product attains maximum profit & demand, but after maturity the product sales slowly starts to decline down and finally it comes to standstill. If that happens company will loose money and reputation, so the company will do extensive research under its R&D department and finally a renewed product is fed into the market. This type of reengineering of the product and saving it by including new features and dimensions and thereby increasing its sales once again is called business process reengineering. For example Hindustan Motors (HM) realised that sales of the ambassador is dipping at a very alarming rate towards end of 1990â„¢s, so HM face lifted ambassador by including latest features like power windows and power steering and as a result sales of ambassador is now again started increasing. So BPR is an important manufacturing practice nowadays.
TOTAL QUALITY MANAGEMENT (TQM)
Total quality management is an enhancement to the traditional way of doing business. TQM integrates fundamental management techniques, existing improvement efforts and technical tools under a disciplined approach.
TQM requires six basic concepts:
1) A committed and involved management to provide long term organizational support
2) An unwavering focus on the customer, both externally & internally
3) Effective involvement and utilization of the entire work force
4) Continuous improvement of the business and production process
5) Treating suppliers as partners
6) Establish performance measures for the process
The purpose of TQM is to provide a higher quality product at a lower price and thereby increasing its position in the market. In TQM small organizations will be able to make the transformation much faster than large ones. TQM is a customer-oriented practice, which gives top priority to service and cost.
Different obstacles in TQM are lack of management commitment, inability to change organizational culture, improper planning, no teamwork, inadequate attention to customers
Main benefits of TQM are growth in operating income, increase in sales, increase in total assets etc.

3) QUALITY FUNCTION DEPLOYMENT (QFD)
Quality function deployment is a planning tool used to fulfill customer expectations. It is a disciplined approach to product design, engineering and production and provides in-depth evaluation of the product. QFD focuses on customer expectations or requirements. It is employed to translate customer expectation in terms of specific requirements that can be deployed through many processes. QFD is a team-based management tool in which customer expectations are used to drive the product development process.
By implementing QFD, an organization is guaranteed to implement the voice of the customer in the final product.
QFD helps in identifying new quality technology and job functions to carry out operations. QFD enables the design phase to concentrate on customer requirements, thereby spending less time on redesign and modifications.

Various benefits of QFD includes improved customer satisfaction , reduces implementation time, promotes team work and provides documentation.
4) JUST IN TIME (JIT)
Just in time production is a process-control method and production philosophy that provides parts, components and assemblies to production at the exact time they are needed. The result JIT production is less inventory of raw materials, smaller inventories of parts, less work in process, and shorter lead times. Benefits of JIT production are a significant reduction in floor space, less overhead, and, most importantly, a reduction in cost. A possible pitfall of JIT production is a reduction of inventories to critically low levels. Consequently, care must be taken to choose suppliers with excellent quality products and services as well as knowledge of production lead and process times. The supplier must drastically reduce time setup time or its cost will increase. Because there is little or no inventory, the quality of incoming materials must be very good or the production line must be shut down. To be successful JIT requires exceptional quality and reduced setup times. Most noted example is that of Rolls Royce which makes cars according to personal interest under a specified time

5) TOTAL PRODUCTIVE MAINTAINENCE
Total productive maintenance is keeping the current plant and equipment at its highest productive level through cooperation of all areas of organization. Individuals working together without regard to organizational structure, using their skills and ingenuity, have a common objective in peak performance or total productivity. This approach does not mean that such basic techniques are not used; they are necessary to build a foundation for a successful TPM environment. The total maintenance function should be directed towards the elimination of unplanned equipment and plant maintenance.
The over goals of TPM are
1) Maintaining and improving equipment capacity
2) Maintaining equipment for life
3) Using support from all areas of cooperation
4) Encouraging input from all employees
5) Using teams for continuous improvement

The basic steps to get an organization started towards TPM
1) Management learns new philosophy
2) Management promotes new philosophy
3) Training is funded and developed for everyone in the organization
4) Areas of needed improvement are identified
5) Performance goals are formulated
6) An implementation plan is developed
7) Autonomous work groups are established
An effective total productive maintenance program will lead to improved quality and productivity
6) COMPUTER AIDED ENGINEERING (CAE)
Computer aided engineering is of mainly two types
1) Computer-aided drafting
2) Computer-aided manufacturing

CAD & CAM have bridged the gap between design and rapid prototypes
CAD
Computer aided drafting software is used to produce engineering production drawings; these drawings can be drawn in planar view, isometric view & 3D perspective, with complete dimensioning and tolerancing. The power of CAD allows changes to be easily incorporated in to the drawings in a fraction of time required by old methods. Another major advantage of CAD is its compatibility with downstream production and engineering software and hardware. Drawings from CAD can be easily fed into software packages such as computer aided manufacturing, design for manufacture and CNC machines.
CAM
Computer aided manufacturing software is used to identify machine tool paths and other production parameters to optimize the machining of a part. CAM software identifies critical machining parameters base primarily on geometry, size, dimensions and tolerances and material. CAM systems work seamlessly with most CAD. Machine tools, such as mills, lathes and presses that are completely controlled by a microprocessor are called computer numerical control (CNC) machine tools.
Once a part has been completely drawn using a CAD, it can be easily transferred to CAM program and then machined through an interface between the CAM program and CNC machine.

All the above strategies mentioned are equally effective and can produce positive results for the company. Combination of management techniques and management accounting practices enhance the performance of companies under a particular strategic orientation In many companies there is still a lack of consistency between business strategy, performance measurement systems and improvement actions
EMPIRICALSTUDY
We are doing the empirical study by four different methods, Questionnaire, Scale reliability method, GAP analysis, Discriminant analysis
THE SAMPLE
The questionnaire survey for this research was conducted as a part of International Manufacturing Strategy Survey 2 (IMSS) initiated by PerLindberg, Chalmers University of Technology in Sweden, London School of Business in England. Researchers from 20 different countries have been involved in establishing a common manufacturing database in order to compare different manufacturing strategies among nations.
This research focuses on how different manufacturing strategies effect affect company performance. Sample used consists of fifty Korean, 41 American, 29 Japanese companies selected from IMSS2 database
SECTION CONTENTS
Section A Strategies, goals &costs
Section C Past &planned activities in manufacturing
Section D Performance measures
The above sections include items such as strategic orientation or manufacturing goals to achieve. Nine Strategic orientation items, measured in a 5-point likert scale (5=very important) were selected from section A, each refers to the relative perceived importance of the respective manufacturing goal. Items about manufacturing practices were selected in section C & profit before tax sales and inventory values are selected from Section D
SCALE RELIABILITY
FACTORS ITEM QUESTIONAIRE QUESTION CRONBACH @
Manufacturing strategy Cost Lower selling prices -
Quality Product design and quality
Manufacturing quality 0.5907
Flexibility Wider product range
More new products
Greater order size flexibility 0.6543
Delivery Faster deliveries
Dependable deliveries 0.5096
Customer Service Superior customer service -
Practices Cost ABC (Activity-based costing)
TPM (Total Productive Maintenance)
Energy conservation process 0.5848
Quality SPC (Statistical Process control)
Quality Function Deployment
Quality policy deployment 0.6889
Flexibility NC/CNC/DNC
AGVâ„¢s (Automatic Guided Vehicles)
CAM/FMC/FAS 0.6364
Delivery JIT Lean production
JIT delivers to customers
Pull scheduling 0.6869
Customer Service Benchmarking
KAIZEN (Continuous improvement) 0.5576

Both the manufacturing strategy variables and the manufacturing practice variables were classified into 5 categories for further analysis in terms of generally accepted manufacturing capabilities: cost, quality, flexibility, delivery &customer service. Each of the categorized scales was stastically tested to see if it has high enough internal consistency or reliability. As shown in table all of cronbachâ„¢s alpha values exceeds 0.5 levels, which is generally considered adequate for exploratory work. Each scale was represented by average of respective item measures. Performance measures were also converted to two widely used business performance measures: profit to sales ratio and inventory turnovers
GAP ANALYSIS
The absolute value of the difference between each strategic orientation variable and respective practice variable was defined as the gap variable. To analyze the overall effect of gap on companyâ„¢s performance, the whole sample is divided into 2 groups: superior &inferior. Median values of profit to sales ratio and inventory turnovers were used to divide these groups.
CAPABILITY CATEGORY SUPERIOR GROUP INFERIOR GROUP T VALUE (p VALUE)
Cost 1.062 1.531 -1.96 (0.048)
Quality 1.293 1.692 -2.02 (0.043)
Flexibility 1.801 2.626 -2.75 (0.008)
Delivery 1.214 1.108 -0.64 (0.543)
Customer Service 1.086 1.680 -2.75 (0.008)
Above table shows the difference between average gap values of the superior and inferior groups in terms of profit to sales performance by manufacturing capability categories. Each value shows significant difference from each other. Higher the congruence between the strategic orientation and manufacturing practices a company has, the higher its profit to sales ratio
CAPABILITY CATEGORY SUPERIOR GROUP INFERIOR GROUP T VALUE (p VALUE)
Cost 1.446 1.240 0.32 (0.747)
Quality 1.532 1.851 -0.43 (0.668)
Flexibility 1.611 1.469 1.05 (0.332)
Delivery 1.812 1.552 1.32 (0.208)
Customer Service 1.157 1.003 0.48 (0.635)
Above table shows the difference between average gap values of the superior and inferior groups in terms of inventory turnovers by manufacturing capability categories .All the gaps fail to show a statistically significant difference between these 2 groups, it may be as a result of relatively high difference of average in inventory levels among sampled industries. Industry difference may have a higher effect on inventory turnovers than the gap variable.
DISCRIMINANT ANALYSIS
To apply discriminant analysis, strategic orientation, practices implementation and the gap between them are considered as independent variables while superior and inferior groups are considered as dependent variables. Again data sets from three different countries are taken and analyzed.
For this discriminant analysis we differentiated groups by profit to sales ratio only since as mentioned above inventory turnovers seemed not to be appropriate as a performance measures of gap analysis. From this we can assess the independent variables have relative importance to dependent variables. Discriminant analysis was carried out on a whole sample group in order to see which independent variable contributes most when the superior group is discriminated from inferior group.
The result from discriminant analysis applied to all companies regardless of their origin is summarized in a table below
Dependent
Variable Independent
Variable Wilkâ„¢s
Lambda Significance Discriminant function coeff.
Performance
Group Gap
(delivery)
Eigen Canonical
Value Cor. 0.696
Wilkâ„¢s
Lambda 0.051
Chi-square 1.000
Sig. Hit-ratio
0.436 0.551 0.696 3.800 0.051 100%

From the above table, the delivery gap is the only available variable in differentiating superior and inferior group. None of the strategies or practices variables are useful for discriminating these groups. But from the result of this discriminant analysis we may argue that it is not sufficient to simply place more emphasis on a certain strategic orientation such as certain manufacturing practice such as statistical process for analyzing a firmâ„¢s performance. Now samples from three different countries namely Korea, USA and Japan were taken and three consecutive discriminant analyses were done, were also done to confirm whether the proposed gap variables consistently outperform other strategy or practice variables across the nations.

KOREAN SAMPLE
Dependent
Variable Independent
Variable Wilkâ„¢s
Lambda Significance Discriminant function coeff.
Performance
Group Practices
(Quality)
Gap(quality)
Gap(flexibility)
Canonical
Eigen value Cor. 0.073
0.020
0.001
Wilkâ„¢s
Lambda 0.009
0.020
0.038
Chi-square 5.981
-6.497
-5.098
Sig. Hit-ratio
1118.109 1.000 0.001 10.530 0.015 100%
Here we see that two gap variables (quality &flexibility) and one practice variable (quality) is statistically significant for discriminating the superior group from the inferior one. This result implies that a manufacturer in the Korean sample is more a superior performance group if its quality and flexibility focused strategic organization and practices. Thus, we can confirm that gap variable play an important role for discriminating performance groups in Korean sample too.
US SAMPLE
Dependent
Variable Independent
Variable Wilkâ„¢s
Lambda Significance Discriminant function coeff.
Performance
Group Gap (flexibility)
Gap (cost)

Eigen value Canonical
Cor. 0.036
0.001
Wilkâ„¢s
Lambda 0.018
0.027
Chi-square -4.399
-4.428
Sig. Hit-ratio
1335.500 1.000 0.001 7.198 0.027 100%
For the US sample only the gap variables for flexibility for flexibility and cost are included as a statistically significant variable in the discriminant function. A manufacturer with less variation between strategic orientation and practice implementation in terms of both flexibility and cost has more probability of belonging to superior group in this sample. The consistency between manufacturing strategies and practices is more important than strategic orientation or practice implementation itself in achieving better performance.
JAPANESE SAMPLE
Dependent
Variable Independent
Variable Wilkâ„¢s
Lambda Significance Discriminant function coeff.
Performance
Group Practice
(delivery)
Practice
(customer service)
Eigen value Canonical
Cor. 0.062
0.001
Wilkâ„¢s
Lambda 0.032
0.033
Chi-square 7.572
7.507
Sig. Hit-ratio
891.167 0.999 0.001 6.794 0.033 62.50%
No gap variable is included in the discriminant function in the Japanese sample. Instead, it includes only variables regarding delivery and customer service. In Japan the consistency between strategies and practices is more important for achieving higher performance than strategic orientation or practice implementation alone. Japanese sample shows a less satisfactorily discriminating result compared to other samples, the hit ratio being only 62.5%, which may be considered to be marginally higher than the random estimation. One possible reason might be that it has a relatively limited number of respondents.
CONCLUSIONS
This study was conducted for the purpose of empirically testing the importance of consistency between manufacturing strategies and practices in achieving better business performances. An empirical test was conducted on the data sets from three different nations namely Korea, US and Japan, each of which have varied manufacturing potential and competitive environments. This international comparison is to see whether this consistency-performance relationship can be generalized regardless of the nation specific characteristics of manufacturing systems.

Her we have learned from this study is that the gap variable indicating inconsistency between manufacturing strategy and implementation practices play an important role than the strategy or implementation variable in discriminating superior and inferior performance groups. From the data obtained from US & Korea, the gap variables of flexibility, quality and cost show more important contribution for discriminating between business performance groups. But none of these gap variables succeeds to outperform other strategy or implementation variables in discriminating between performance groups in Japan whose discriminating coefficients higher than the other two countries. From these we can find that the overall discriminating power of the proposed gap variables can be considered to be significant based on this finding.
REFERNCES
1) J.C Miller, A.V. Roth - A taxonomy of manufacturing strategies, Management Science
2) Dale H. Besterfield, Glen H Besterfield - Total Quality Management
3) W. Skinner “ Manufacturing in the Corporate Strategy & The Focused factory
4) P.Swamidass, W. Newell “ Manufacturing strategy, environmental uncertainty and performance: A path synthetic model
5) T. Hill “ Manufacturing Strategy
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