Manufacturing (Encyclopedia of Business and Finance)
One can trace the origins of modern manufacturing management to the advent of agricultural production, which meant that humans didn't constantly have to wander to find new sources of food. Since that time, people have been developing better techniques for producing goods to meet human needs and wants. Since they had additional time available because of more efficient food sources, people began to develop techniques to produce items for use and trade. They also began to specialize based on their skills and resources. With the first era of water-based exploration, trade, and conflict, new ideas regarding product development eventually emerged, over the course of the centuries, leading to the beginning of the Industrial Revolution in the mid-eighteenth century. The early twentieth century, however, is generally considered to mark the true beginning of a disciplined effort to study and improve manufacturing and operations management practices. Thus, what we know as modern manufacturing began in the final decades of the twentieth century.
The late 1970s and early 1980s saw the development of the manufacturing strategy paradigm by researchers at the Harvard Business School. This work focused on how manufacturing executives could use their factories' capabilities as strategic competitive weapons, specifically identifying how what we call the five P's of manufacturing management (people, plants, parts, processes, and planning) can be analyzed as strategic and tactical decision variables. Central to this notion is the focus on factory and manufacturing trade-offs. Because a factory cannot excel on all performance measures, its management must devise a focused strategy, creating a focused factory that does a limited set of tasks extremely well. Thus the need arose for making trade-offs among such performance measures as low cost, high quality, and high flexibility in designing and managing factories.
The 1980s saw a revolution in management philosophy and the technologies used in manufacturing. Just-in-time (JIT) production was the primary break through in manufacturing philosophy. Pioneered by the Japanese, JIT is an integrated set of activities designed to achieve high-volume production using minimal inventories of parts that arrive at the workstation "just in time." This philosophyoupled with total quality control (TQC), which aggressively seeks to eliminate causes of production defectss now a cornerstone in many manufacturers' practices.
As profound as JIT's impact has been, factory automation in its various forms promises to have an even greater impact on operations management in coming decades. Such terms as "computer-integrated manufacturing" (CIM), "flexible manufacturing systems" (FMS), and "factory of the future" (FOF) are part of the vocabulary of manufacturing leaders.
Another major development of the 1970s and 1980s was the broad application of computers to operations problems. For manufacturers, the big breakthrough was the application of materials requirements planning(MRP) to production control. This approach brings together, in a computer program, all the parts that go into complicated products. This computer program then enables production planners to quickly adjust production schedules and inventory purchases to meet changing demands during the manufacturing process. Clearly, the massive data manipulation required for changing the schedules of products with thousands of parts would be impossible without such programs and the computer capacity to run them. The promotion of this approach by the American Production and Inventory Control Society (APICS) has been termed the MRP Crusade.
The hallmark development in the field of manufacturing management, as well as in management practice in general, is total quality management (TQM). Although practiced by many companies in the 1980s, TQM became truly pervasive in the 1990s. All manufacturing executives are aware of the quality message put forth by the so-called quality gurus. Edwards Deming, Joseph M. Juran, and Philip Crosby. Helping the quality movement along was the creation of the Baldrige National Quality Award in 1986 under the direction of the American Society of Quality Control and the National Institute of Standards and Technology. The Baldrige Award recognizes up to five companies a year for outstanding quality management systems.
The ISO 9000 certification standards, issued by the International Organization for Standardization, now play a major role in setting quality standards, particularly for global manufacturers. Many European companies require that their vendors meet these standards as a condition for obtaining contracts.
The need to become or remain competitive in the global economic recession of the early 1990s pushed companies to seek major innovations in the processes used to run their operations. One major type of business process reengineering (BPR) is conveyed in the title of Michael Hammer's influential article "Reengineering Work: Don't Automate, Obliterate." The approach seeks to make revolutionary, as opposed to evolutionary, changes. It does this by taking a fresh look at what the organization is trying to do, and then eliminating non-value-added steps and computerizing the remaining ones to achieve the desired outcome.
The idea is to apply a total system approach to managing the flow of information, materials, and services from raw material suppliers through factories and warehouses to the end customer. Recent trends, such as outsourcing and mass customization, are forcing companies to find flexible ways to meet customer demand. The focus is on optimizing those core activities in order to maximize the speed of response to changes in customer expectations.
Based on the work of several researchers, a few basic operations priorities have been identified. These priorities include cost, product quality and reliability, delivery speed, delivery reliability, ability to cope with changes in demand, flexibility, and speed of new product introduction. In every industry, there is usually a segment of the market that buys productstypically products that are commodity-like in nature like sugar, iron ore, or coaltrictly on the basis of low cost. Because this segment of the market is frequently very large, many companies are lured by the potential for significant profits, which they associate with the large unit volumes of the product. As a consequence, competition in this segment is fiercend so is the failure rate.
Quality can be divided into two categories: product quality and process quality. The level of a product's quality will vary with the market segment to which it is aimed because the goal in establishing the proper level of product quality is to meet the requirements of the customer. Over-designed products with too high a level of quality will be viewed as prohibitively expensive. Under designed products, on the other hand, will result in losing customers to products that cost a little more but are perceived as offering greater benefits.
Process quality is critical since it relates directly to the reliability of the product. Regardless of the product, customers want products without defects. Thus, the goal of process quality is to produce error-free products. Adherence to product specifications is essential to ensure the reliability of the product as defined by its intended use.
A company's ability to deliver more quickly than its competitors may be critical. Take, for example, a company that offers a repair service for computer-networking equipment. A company that can offer on-site repair within one or two hours has a significant advantage over a competing firm that only guarantees service only within twenty-four hours.
Delivery reliability relates to a firm's ability to supply the product or service on or before a promised delivery due date. The focus during the 1980s and 1990s on reducing inventory stocks in order to reduce cost has made delivery reliability an increasingly important criterion in evaluating alternative vendors.
A company's ability to respond to increases and decreases in demand is another important factor in its ability to compete. It is well known that a company with increasing demand can do little wrong. When demand is strong and increasing, costs are continuously reduced because of economies of scale, and investments in new technologies can be easily justified. Scaling back when demand decreases may require many difficult decisions regarding laying off employees and related reductions in assets. The ability to deal effectively with dynamic market demand over the long-term is an essential element of manufacturing strategy.
Flexibility, from a strategic perspective, refers to a company's ability to offer a wide variety of products to its customers. In the 1990s companies began to adjust their processes and outputs to dynamic and sometimes volatile customer needs. An important component of flexibility is the ability to develop different products and deliver them to market. As new technologies and processes become widespread, a company must be able to respond to market demands more and more quickly if it is to continue to be successful.
Manufacturing strategy must be linked vertically to the customer and horizontally to other parts of the enterprise. Underlying this framework is senior management's strategic vision of the firm. This vision identifies, in general terms, the target market, the firm's product line, and its core enterprise and operations capabilities. The choice of a target market can be difficult, but it must be made. Indeed, it may lead to turning away businessuling out a customer segment that would simply be unprofitable or too hard to serve given the firm's capabilities. Core capabilities are those skills that differentiate the manufacturing from its competitors.
In general, customers' new-product or current-product requirements set the performance priorities that then become the required priorities for operations. Manufacturing organizations have a linkage of priorities because they cannot satisfy customer needs without the involvement of R&D and distribution and without the direct or indirect support of financial management, human resource management, and information management. Given its performance requirements, a manufacturing division uses its capabilities to achieve these priority goals in order to complete sales. These capabilities include technology, systems, and people. CIM, JIT, and TQM represent fundamental concepts and tools used in each of the three areas.
Suppliers do not become suppliers unless their capabilities in the management of technology, systems, and people reach acceptable levels. In addition, most manufacturing capabilities are now subjected to the "make-or-buy" decision. It is current practice among world-class manufacturers to subject each part of a manufacturing operation to the question: If we are not among the best in the world at, say, metal forming, should we be doing this at all, or should we subcontract to someone who is the best?
The main objectives of manufacturing strategy development are (1) to translate required priorities into specific performance requirements for operations and (2) to make the necessary plans to assure that manufacturing capabilities are sufficient to accomplish them. Developing priorities involves the following steps:
- Segment the market according to the product group.
- Identify the product requirements, demand patterns, and profit margins of each group.
- Determine the order winners and order qualifiers for each group.
- Convert order winners into specific performance requirements.
It has been said that America's resurgence in manufacturing is not the result of U.S. firms being better innovators than most foreign competitors. This has been true for a longtime. Rather, it is because U.S. firms are proving to be very effective copiers, having spent a decade examining the advantages of foreign rivals in product development, production operations, supply chain management, and corporate governance then putting in place "functional equivalents" that "incrementally improve" on their best techniques. Four main adaptations on the part of U.S. firms underscore this success:
- New approaches to product-development team structure and management have resulted in getting products to market faster, with better designs and manufacturability.
- Companies have improved their manufacturing facilities through dramatic reductions of work-in-process, space, tool costs, and human effort, while simultaneously improving quality and flexibility.
- New methods of customer-supplier cooperation, which borrow from the Japanese keiretsu (large holding companies) practices of close linkages but maintain the independence of the organizations desired by U.S. companies, have been put in place.
- Better leadershiphrough strong, independent boards of directors that will dismiss managers who are not doing their jobs effectivelyow exists.
In sum, the last few decades of the twentieth century witnessed tremendous change and advancement in the means of producing goods and the manner of managing these operations that have led to higher levels of quality and quantity as well as greater efficiency in the use of resources. In the new millennium, because of global competition and the expansive use of new technologies, including the Internet, a successful firm will be one that is competitive with new products and services that are creatively marketed and effectively financed. Yet what is becoming increasingly critical is the ability to develop manufacturing practices that provide unique benefits to the products. The organization that can develop superior products, sell them at lower prices, and deliver them to their customers in a timely manner stands to become a formidable presence in the marketplace.