What Manufacturing Strategy Is
Manufacturing strategy is the set of decisions about how to configure, manage, and develop the production system to create the capabilities that enable the business strategy to succeed. The manufacturing strategy is not the production schedule, the capacity plan, or the quality policy — it is the higher-level framework that defines what the manufacturing operation should be excellent at (its competitive priorities), how the manufacturing assets should be configured to deliver that excellence (the structural decisions about capacity, facilities, technology, and vertical integration), and how the manufacturing operation should be managed to build the capabilities that differentiate the business in its specific competitive context (the infrastructural decisions about workforce, planning systems, quality management, and performance measurement).
The manufacturing strategy principle that most clearly distinguishes the operations that consistently outperform their industry peers: the alignment between the manufacturing operation’s competitive priorities and the competitive priorities of the business strategy it supports. The business strategy that competes on the speed of new product introduction to market requires a manufacturing operation that excels at flexibility and rapid changeover; the one that competes on cost leadership requires a manufacturing operation that excels at efficiency and scale; and the one that competes on product quality and reliability requires a manufacturing operation that excels at defect prevention and process consistency. The manufacturing operation that pursues all competitive priorities simultaneously without making the explicit choices that concentration requires typically excels at none of them — and the business strategy that requires a specific manufacturing excellence cannot be executed by a manufacturing operation that is mediocre at everything rather than excellent at something.
Competitive Priorities in Manufacturing
The manufacturing competitive priorities that most clearly define the dimensions on which a manufacturing operation can differentiate: cost (producing the product at the lowest total cost per unit, enabling pricing that the higher-cost competitor cannot match or generating the margin that the same-price competitor cannot achieve), quality (producing product that consistently meets or exceeds specifications with minimal defects, reducing warranty costs and building the reputation that commands price premium), delivery (producing and delivering product in the shortest lead time and with the highest on-time delivery reliability, enabling the customer service that builds switching costs and customer loyalty), and flexibility (the ability to accommodate product mix changes, volume changes, and product introduction changes quickly and with minimal cost — enabling the responsiveness that serves customers whose requirements are variable and unpredictable).
The manufacturing competitive priority trade-off that most clearly reveals why attempting to excel on all dimensions simultaneously typically produces mediocrity on all dimensions: the resource allocation conflict between the investments that produce excellence on each dimension. The cost efficiency that requires long production runs and minimal changeover conflicts with the flexibility that requires frequent changeover and shorter runs; the quality excellence that requires extensive process controls and testing adds cost that the efficiency priority minimises; and the delivery speed that requires excess capacity buffering adds cost that the cost efficiency priority eliminates. The explicit choice of which competitive priority to pursue most aggressively — and which to achieve only to a threshold level required to avoid competitive disadvantage — is the manufacturing strategy decision that most enables the specific excellence the business strategy requires.
Make or Buy Decisions
The make-or-buy decision framework that most reliably guides the vertical integration choices that determine which activities are performed in-house versus outsourced: the assessment of strategic importance (does performing this activity in-house create the competitive differentiation that the business strategy depends on, or is it a commodity activity that any competent supplier can perform?), the capability advantage (does the business have or can it develop a genuinely superior capability to perform this activity versus the best available outsource partner?), and the cost comparison (after accounting for the full cost of in-house performance including overhead allocation, management attention, and capital investment, is the in-house cost competitive with the outsource cost?).
The outsourcing decision that most frequently produces the strategic vulnerability that the make decision would have prevented: the outsourcing of activities that are more competitively important than they appear in the short-term cost comparison. The manufacturer who outsources the production of a specific component because the cost comparison favours the supplier may discover over time that the supplier’s capability and customer relationships have made the supplier an important differentiator of the product that the manufacturer sells — and that the dependency on the supplier has created a power relationship that the manufacturer’s cost analysis did not anticipate. The strategic importance assessment that looks beyond current cost to the future competitive significance of the specific capability is the analysis that most protects against the outsourcing decisions whose long-term strategic cost exceeds their short-term financial benefit.
Capacity Strategy
The manufacturing capacity strategy that most effectively aligns capacity investment with the business’s growth strategy and competitive priorities: the capacity timing decision that determines whether to invest in capacity ahead of demand (which prevents the stockouts and delivery failures that demand that exceeds capacity produces, but accepts the underutilisation cost of capacity that demand has not yet filled), at the level of demand (which minimises underutilisation but risks the lost sales and customer dissatisfaction that occasional demand spikes produce), or behind demand (which ensures full utilisation but accepts the customer service consequences of demand consistently exceeding supply).
The capacity investment analysis that most accurately assesses the true cost of adding capacity: the lifecycle cost analysis that includes not only the initial capital cost but the ongoing operating cost (the fixed overhead that persists regardless of production volume), the maintenance cost over the asset’s useful life, the workforce cost of staffing the additional capacity, and the flexibility value (or constraint) that the specific type of capacity provides. The capacity investment in a highly specialised, single-purpose production line has a different flexibility profile than the investment in flexible manufacturing cells that can be reconfigured for different products — and the flexibility value or constraint may prove more important to the business’s long-term competitive position than the unit cost difference between the two approaches.
Technology Investment in Manufacturing
The manufacturing technology investment decision framework that most reliably identifies the technology investments that create competitive advantage versus those that merely automate existing inefficiency: the value creation assessment that asks whether the technology enables a genuinely different and better outcome for the customer (faster delivery, higher quality, greater customisation, lower cost) rather than only a more efficient production of the same outcome. The technology that enables the manufacturer to produce a product quality that was not previously achievable, to deliver a lead time that competitors cannot match, or to offer the mass customisation that competitors’ production systems cannot accommodate is the technology that creates competitive advantage; the one that produces the same outcome more cheaply has improved economics but has not changed the competitive position.
The manufacturing technology adoption sequencing that most efficiently builds on existing operational excellence rather than using technology to compensate for operational weakness: the principle that process improvement should precede automation, and that automation should standardise and accelerate an already excellent process rather than attempting to automate a chaotic or inefficient one. The automated production line that automates a poor process produces poor results at high speed and at the high cost of the automation investment; the one that automates an excellent, well-understood, stable process produces excellent results at high speed at the justified cost of the automation. The lean manufacturing work that eliminates waste and stabilises the process before automation is selected is the process preparation that most ensures automation investment produces the return it is intended to generate.