Miltenburg - 2007 - Setting Manufacturing Strategy for a Factory-within-A-factory

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Int. J. Production Economics 113 (2008) 307–323

Setting manufacturing strategy for a factory-within-a-factory

John Miltenburg

School of Business, McMaster University, Hamilton, Ontario, Canada L8S 4M4

Received 1 June 2007; accepted 3 September 2007

Available online 5 October 2007

Abstract

Manufacturing strategy is a plan for moving a company from where it is to where it wants to be. Determining the best

manufacturing strategy is not easy because of the wide range of choices and constraints a company faces. Manufacturing

strategy frameworks or models are helpful because they identify the objects that comprise manufacturing strategy and

organize these objects into a structure that enables a company to understand and use the objects to develop strategy. Many

frameworks are possible and there is no single framework that is best for all companies.

In this paper, we are interested in the levels of cost, quality, delivery, and flexibility that manufacturing provides for each

product family it produces. This is determined primarily by a company’s factories-within-a-factory (FWFs) and so the level

of analysis in this paper is the FWF. We identify and examine five manufacturing strategy objects (production systems,

manufacturing outputs, manufacturing levers, manufacturing capability, competitive analysis), linkages between these

objects, and the manufacturing strategy framework for an FWF that follows from these objects and linkages. We apply the

framework to the FWFs of two multi-national companies. This paper is descriptive and exploratory. Strategy objects,

linkages, and framework are presented and their use is illustrated. The work of rigorous empirical analysis is left for futureresearch.

r 2007 Elsevier B.V. All rights reserved.

Keywords: Manufacturing strategy; Focusing manufacturing; Factories-within-a-factory

1. Introduction

Marketing professionals talk about four types of

value: form, time, place, and possession. Manufac-

turing is primarily responsible for the form and timevalue-types with some participation from marketing

and accounting. Manufacturing forms products by

completing design and production activities in a

timely manner. Manufacturing and marketing gen-

erate the place value-type through their distribution

activities. Marketing and accounting are responsible

for the possession value-type through activities such

as pricing, credit, advertising, and customer service.

Manufacturing creates value in its network of

factories, distribution centers, offices, research

laboratories, and so on. Factories can be large orsmall, and can consist of one or more factories-

within-a-factory, FWFs (also called plants-within-a-

plant, PWPs). See Hill (2007).

Manufacturing strategy can be analyzed at the

level of industry, company, strategic business unit,

network, factory, FWF, or product (Swink and

Hegarty, 1998). In this paper, the level of analysis is

the FWF. FWFs are important parts of a factory

and a manufacturing network. Miltenburg (2005)

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examines the constraints a manufacturing network

imposes on the factories and FWFs that comprise it.

In an FWF the form and time value-types are

operationalized as levels of cost, quality, delivery,

and flexibility that the FWF provides for the

products it produces. The goal of manufacturingstrategy for an FWF is to determine the levels of

cost, quality, delivery, and flexibility that are

required, and the actions that are needed to achieve

these levels.

Minor et al. (1994) and Dangayach and Deshmukh

(2001) give good reviews of manufacturing strategy.

At a macro level manufacturing strategy can be

studied as one of several functional strategies in a

hierarchy of industrial, corporate, business, and

functional strategies (Gupta and Lonial, 1998), or

as the way a company uses its assets and prioritizes

its activities to achieve business goals and generatecompetitive advantage (Kotha and Orne, 1989;

Miller and Roth, 1994). A distinction can be made

between the content of manufacturing strategy and

the process of formulating manufacturing strategy

(Barnes, 2002; Papke-Shields et al., 2002; Platts

et al., 1998). Pun (2004) gives an excellent review

and synthesis of different processes for formulating

manufacturing strategy. Ahmed and Montagno

(1996), Devaraj et al. (2004), and others verify

empirically a positive correlation between strategy

formulation and company performance. Demeter(2003), for example, reviewed the literature from

1983 to 1999, completed an empirical analysis of the

IMSS-II data (International Manufacturing Strat-

egy Survey in 1996–1997), and found that ‘‘(T)he

most important result y is that ROS (return on

sales, which is the ratio of profit before tax to sales)

is significantly higher in companies with existing MS

(manufacturing strategy)’’ (pp. 210–211).

Setting manufacturing strategy for an FWF is the

subject of this paper. The next section describes the

objects, linkages, and framework that comprise

manufacturing strategy for an FWF. Section 3

illustrates the use of these objects, linkages, and

framework by studying the manufacturing strategies

of two multi-national companies. The paper finishes

with a summary in Section 4.

2. New model for manufacturing strategy for a

focused factory-within-a-factory

Boyer and Lewis (2002) show that there is some

agreement among researchers as to the framework

and contents that comprise manufacturing strategy

at the level of an individual factory. They describe a

framework with two objects: competitive priorities

and operating decisions. Competitive priorities are

the levels at which the factory is required to provide

cost, quality, delivery, and flexibility. Operating

decisions are decisions the factory makes in thestructural and infrastructural areas that comprise it.

There are four structural areas: capacity, facilities,

technology, and vertical integration/sourcing, and

four infrastructural areas: workforce, quality, pro-

duction planning, and organization. Boyer and

Lewis describe this as the ‘‘prevailing model of the

content of operations strategy y (and this model)

conveys the idea that operating decisions such as

capacity, technology, workforce issues, and quality

systems must be carefully matched with the

organization’s key competitive priorities’’ (p. 10).

Morita and Flynn (1997) show that a frameworkwith three objects, which is one more than Boyer

than Lewis, is also an appropriate way to organize

the contents of manufacturing strategy for a

factory. Their three objects are strategy, processes,

and structure. Their first object, strategy, corre-

sponds to Boyer and Lewis’s first object, competi-

tive priorities. It is ‘‘the choice of product-markets,

positioning and competitive features’’ (p. 968). The

second object, which has no corresponding object in

Boyer and Lewis’s framework, is called processes. It

is ‘‘the manufacturing and technological choiceythe process choice’’ (p. 968). The third object,

structure, corresponds to Boyer and Lewis’s second

object, operating decisions. This is ‘‘the choice of

how to define roles of functional processes into

specific tasks y as well as the organizational

mechanisms which integrate individuals, groups,

and units y It is the (object) where most of the

practices identified as ‘best practices’ should be’’

(p. 968). Morita and Flynn emphasize the impor-

tance of the linkages between the three objects:

the ‘‘thoroughness of the linkages between these

(objects), especially with the manufacturing process,

affects performance’’ (p. 969).

In the subsections that follow we show that a

framework with five objects is a very useful way to

organize the contents of manufacturing strategy

when the level of analysis is an FWF. The five

objects are competitive analysis, manufacturing

outputs, production systems, manufacturing levers,

and manufacturing capabilities. These objects are

firmly grounded in the literature. They are, for

example, related as follows to the objects in Boyer

and Lewis, and Morita and Flynn. The competitive

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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323308



priorities object (Boyer and Lewis) or strategy

object (Morita and Flynn) is similar to the

competitive analysis object in this paper. This object

determines the levels at which the FWF is required

to provide cost, quality, delivery, performance,

flexibility, and innovativeness for the product familyit produces. These six outputs are called the

manufacturing outputs. The processes object (Morita

and Flynn) is similar to the production systems

object in this paper. This object describes precisely

the technological operating systems that are avail-

able to an FWF and, therefore, the levels at which

the manufacturing outputs can be provided. The

operating decisions object (Boyer and Lewis) or

structure object (Morita and Flynn) is similar to the

manufacturing levers object in this paper. This object

describes the decisions the FWF makes in its

structural and infrastructural areas. The manufac-turing capabilities object describes the capabilities of

each manufacturing lever and, therefore, the ability

of the production system to provide high levels of

the manufacturing outputs.

The five objects of manufacturing strategy for an

FWF do not follow one another in a sequential

fashion. The linkages among them are more

complex than this. The effect of linkages between

objects is accounted for by arranging the objects

into the multi-dimensional framework shown in

Fig. 1 and by thinking of linkages in terms of the‘fit’ among the objects. A ‘good’ manufacturing

strategy for an FWF is one in which the results in

each object fit or are consistent with the results in

every other object.

The presentation of the objects, linkages, and

framework that follows is descriptive and explora-

tory. That is, we describe the objects, linkages, and

framework and illustrate their use. However, we do

not present any empirical analysis. We leave this

work for future research.

2.1. Production systems

In this paper, an FWF is a well-defined produc-

tion system that produces most or all products in a

product family and, with respect to these products,

provides six manufacturing outputs: cost, quality,

delivery, performance, flexibility, and innovative-

ness. Technologically speaking only seven different

production systems are possible: job shop, batch

flow, operator-paced line flow, equipment-paced

line flow, continuous flow, just-in-time, and flexible

manufacturing systems. Following Womack et al.

(1990, pp. 12–14) we may group these production

systems into three categories: craft production (job

shop, batch flow), mass production (operator-paced

line flow, equipment-paced line flow, continuous

flow), and lean production (just-in-time, flexible

manufacturing). Production systems are wellknown. See, for example, Schmenner (1993) (who

uses the term ‘production process types’ rather than

production systems), or Hill (2000) (who uses the

term ‘manufacturing process types’), or Miltenburg

(2005).

The production system object is depicted in Fig. 1

by the block in the middle left area of the figure.

Although similar in form, this representation

extends the traditional product–process matrix of

Hayes and Wheelwright (1979). Their matrix

identifies the production processes that are used to

produce a product at different stages in theproduct’s life cycle. For example, a product that is

in the introduction stage of its life cycle is produced

by a job shop process. The production system object

in this paper is broader than this. The starting point

for the production system object is the realization

that only a limited number of production systems

are available for use in an FWF. (This is one

example of trade-offs, which, along with other

trade-offs, is discussed later in Section 2.7.) These

production systems differ from each other in many

ways. Three particularly important ways in whichthey differ are product mix (number of products

produced and production volume of each product),

layout and the resulting material flow, and manu-

facturing outputs (delivery, cost, quality, perfor-

mance, flexibility, innovativeness). These three key

differences give a convenient way to represent the

production systems object. This is what is done in

the middle left and middle right blocks of Fig. 1.

There the seven production systems are arranged

according to production mix, layout and material

flow, and manufacturing outputs. This is not the

only way to represent the production systems

object. The product profiling approach of Hill

(2000, p. 145) is a different representation.

2.2. Manufacturing outputs

This paper separates the manufacturing outputs

provided by an FWF into six individual outputs:

delivery, cost, quality, performance, flexibility, and

innovativeness. Fig. 2 gives definitions for these out-

puts. Other researchers separate manufacturing out-

puts into different numbers of individual outputs.

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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323 309



Mapes et al. (1997) identify seven individual out-

puts: cost, quality consistency, quality specification,

lead time, delivery reliability, flexibility, and in-

novativeness. Quality specification in this scheme is

similar to the performance output in this paper in

that both have to do with ‘‘product features y

more expensive materials y higher levels of

precision’’ (p. 1024). Lead time and delivery

reliability in this scheme are combined into the

delivery output in this paper. Many researchers use

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Fig. 1. Manufacturing strategy framework for a factory-within-a-factory (Miltenburg, 2005).




only four individual outputs: cost, quality, delivery,

and flexibility. Ward et al. (1998) empirically

develop operational measures for these four out-

puts. Quality in this scheme combines the quality

and performance outputs in this paper. Flexibility in

this scheme combines the flexibility and innovative-

ness outputs in this paper. Most often the difference

in the number of outputs is due to ‘‘the lack of

generally accepted definitions of these key concepts’’

(Mapes et al., 1997, p. 1021). Another reason for thedifference in the number of outputs is the level of

analysis. If the level of analysis is an entire company

or an entire factory, then a smaller number of

broader manufacturing outputs can be appropriate.

However, if the level of analysis is an FWF that uses

a single production system to produce a limited mix

and volume of products that meets and exceeds

customer expectations, then a slightly larger number

of narrowly defined manufacturing outputs is more

useful for developing strategy.

No production system is able to provide all

manufacturing outputs at the best possible levels.

(As we will see later in Section 2.7, this reflects an

‘integrative’ approach to trade-offs, which we take

in this paper.) Therefore it is necessary to determine

which outputs are most important to customers now

and which outputs will be most important in the

future. De Meyer (1998), for example, investigates

changes in the relative importance of outputs

between 1986 and 1996 at European manufacturing

companies. Once we know which outputs customers

require, then we can select the production system

that is best able to provide these outputs.

Consider, for example, the equipment-paced line

flow production system in the middle left block in

Fig. 1. This production system produces a small

number of different products in high volumes on

specialized, synchronized equipment arranged in a

line. It provides short delivery time and high

delivery time reliability because it operates at high

speeds for long continuous periods of time without

stoppages for changeovers or breakdowns. It

provides low cost because high production volumeproduces high equipment utilization, which spreads

costs over a large number of units. It provides a

high level of quality because the specialized,

automated equipment is designed to reliably pro-

duce products that meet all specifications. The

equipment-paced line flow production system pro-

vides a low level of performance. A high level of

performance requires a steady stream of new

products as well as enhancements to existing

products. In order to produce these products,

changes must be made to equipment and processes.

This is difficult for an equipment-paced line flow

production system because it is so specialized. It is

costly to change automated machines and specia-

lized tooling, retrain operators, change processes at

suppliers, and so on. And it is costly to take high-

speed lines out of production in order to make these

changes. Changes can be made from time to time,

but not with the regularity needed to provide a high

level of performance year after year. In a similar

way, the specialization of the equipment-paced

line flow production system makes it impossible

to provide high levels of flexibility (i.e. change

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Cost Cost of material, labor, overhead, and other resources used to produce

a product.

Quality Extent to which materials and activities conform to specifications and

customer expectations, and how tight or difficult the specifications

and expectations are.

Delivery time and

delivery time reliability

Time between order taking and delivery to the customer. How often

are orders late, and how late are they when they are late?

Performance Product’s features, and the extent to which the features permit the

product to do things that other products cannot do.

Flexibility Extent to which volumes of existing products can be increased or

decreased to respond quickly to the needs of customers.

Innovativeness Ability to quickly introduce new products or make design changes to

existing products.

Fig. 2. Manufacturing outputs provided by a factory-within-a-factory.




products and volumes) and innovativeness (i.e.

make product design changes and introduce new

products).

2.3. Manufacturing levers

It is useful to divide a production system into

infrastructural and structural subsystems. In this

paper, we use three infrastructural subsystems:

human resources, organization structure and con-

trols, and production planning and control; and

three structural subsystems: sourcing, process tech-

nology, and facilities. Fig. 3 gives definitions for

these subsystems. Different ways in which a

production system can be divided into subsystems

are reviewed by Fine and Hax (1985), Leong et al.

(1990), and others. Hallgren and Olhager (2006), for

example, recommend four infrastructural subsys-tems and four structural subsystems. Any division

of a production system into subsystems should have

the following characteristics. Subsystems should be

comprehensive (i.e. all manufacturing decisions fall

within the subsystems), discriminating (i.e. manu-

facturing decisions can be broken into analyzable

pieces and each piece falls within one subsystem),

and reflective (i.e. the subsystems are consistent with

manufacturing’s view of itself).

Each of the infrastructural and structural sub-

systems is the subject of its own rich literature.Sourcing, for example, is the subsystem that

connects the production system with the production

systems of the FWF’s suppliers. Hines and Rich

(1998) examine the sourcing subsystem at Toyota

where the just-in-time production system is in use.

Several researchers have examined subsystems when

flexibility is one of the most important manufactur-

ing outputs. For example, Kathuria and Partovi

(1999) examine the human resources subsystem,Vickery et al. (1999) examine the organization

structure and controls subsystem, and Lau (1999)

examines aspects of several subsystems (e.g. work-

force autonomy in the human resources subsystem,

inter-departmental relationships and communica-

tion in the organization structure and controls

subsystem, and aspects of the process technology

subsystem and the sourcing subsystem). In all three

papers, flexibility is defined broadly and includes the

flexibility and innovativeness manufacturing out-

puts in this paper. Kathuria and Partovi found

empirically that relationship-oriented practices,such as networking, team building, supporting,

mentoring, inspiring, recognizing and rewarding,

and participative leadership and delegation prac-

tices are important in the human resources

subsystem when flexibility is an important manufac-

turing output. Vickery et al. empirically examined

the relationship between the product customization

aspect of flexibility and the organizational structure

subsystem, and found that product customization is

associated with more formal control, fewer layers,

and narrower spans of control. They report that‘‘small firms can plan on cutting one entire layer of

the hierarchy when a firm makes the transition from

high standardization to high customization y (and)

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Human resources Skill level, wages, training,promotion policies, employment

security, and so on, of each group of employees.

Organization structure

and controls

Relationships between groups ofemployees in the production

system. How are decisions made? What is the underlying culture?

What systems are used to measure performance and provide

incentives?

Production planning

and control

Rules and systems that plan and control the flow ofmaterial,

production activities, and support activities such as maintenance

and the introduction of new products.

Sourcing Amount of vertical integration. What is the relationship with

suppliers? How does the production system manage other parts of

the supply chain?

Process technology Nature of the production processes,type of equipment, amount of

automation, and linkages between parts of the production process.

Facilities Location, size, focus, and types and timing of changes.

Fig. 3. Manufacturing levers or subsystems that comprise a production system.




senior spans of control decrease, on average, by

about one subordinate’’ (p. 387). Spring and

Dalrymple (2000) found that when product custo-

mization is very important the organization struc-

ture is adjusted so that design ‘‘engineering activities

become part of routine, repetitive operations’’(p. 464). They also examine how linkages between

production systems, manufacturing outputs, and

manufacturing capability (Section 2.4) make possi-

ble new manufacturing practices such as mass

customization and agile manufacturing.

Each subsystem is an equally important part of a

production system in the sense that no subsystem

can be marginalized or overlooked. In this paper,

we use the phrase manufacturing levers instead of

production subsystems in order to emphasize the

concept that managers make adjustments to the

production subsystems. Adjustments vary in sizeand scope. Small adjustments are made to one or

more levers to improve an existing production

system. Large adjustments are made to all six levers

to improve greatly an existing production system, or

to change an existing system to a different produc-

tion system. For example, to change a batch flow

production system to a just-in-time production

system an FWF needs to make significant adjust-

ments to human resources, organization structure

and controls, production planning and control,

sourcing, process technology, and facilities. Newmanufacturing practices are groups of adjustments

to several levers. Examples of new practices are total

quality management, computer-integrated manu-

facturing, and supply chain management.

The current position of a manufacturing lever is

the outcome of managerial decisions made in a

particular production subsystem over a long period

of time. The current positions of all six levers

determine the type of production system, the level of

capability of the production system, and the levels

at which the manufacturing outputs are provided

(Fig. 1). Consequently adjustments to the manu-

facturing levers are not made haphazardly. Adjust-

ments must be appropriate for the production

system in use. Consider, for example, wage policies

which are part of the human resources lever. An

incentive wage scheme is appropriate for a batch

flow production system but is not appropriate for a

just-in-time production system. Adjustments should

help the production system provide the required

manufacturing outputs. For example, if a batch flow

production system wants to raise its level of

flexibility it can change its incentive wage scheme

to encourage operators to do rapid setups and

produce products in smaller batches and penalize

operators who avoid setups by producing large

batches. Finally, the effect an adjustment to one

lever has on the other levers should be considered.

For example, the previous change to the incentivewage scheme in the batch flow production system

will affect scheduling in the FWF (i.e. production

planning and control lever) and at suppliers (i.e.

sourcing lever), and equipment setups (i.e. process

technology lever). In summary, possible adjust-

ments to a manufacturing lever must take into

account the linkages within the manufacturing

levers object and the linkages between this object

and the other factory manufacturing strategy

objects (Fig. 1).

2.4. Manufacturing capability

Manufacturing improvement activities (which are

also called improvement initiatives, best practices,

world-class manufacturing techniques, new technol-

ogy practices, and hard and soft technologies) are

adjustments to manufacturing levers. Filippini et al.

(1998) found that individual improvement activities

are often elements in a sequence of improvement

activities. There are four common sequences and the

sequence used depends in large part on the ‘‘variety

of end product,y

levels of unitary volume andycontinuity in the productive process’’ (p. 205). In

other words the sequence used depends on the

product mix, volume, and material flow, which are

the variables in Fig. 1 that prescribe the production

system in use. This means that the sequence of

improvement activities used depends on the produc-

tion system in use. Similarly, Morita and Flynn

(1997) found that companies use clusters of best

practices (they use the term ‘best practices’ instead

of improvement activities) that are appropriate for

the production system in use. ‘‘Each cluster is a set

of contingent, or linked, practices which should be

selected together for maximum effectiveness. This is

consistent with the process choice model’’ (p. 977).

Some FWFs have no difficulty making improve-

ments or changes, even very large ones. Other

FWFs struggle to make small changes. One factor

that has an important affect on an FWF’s ability to

make changes is the level of manufacturing cap-

ability of the production system. New manufactur-

ing capabilities are built on a foundation of existing

capabilities. The larger this foundation is, the easier

it is to build on. A production system with a high

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level of capability can make changes quickly and

easily. Even more importantly a high level of

manufacturing capability enables a production

system to provide high levels of the manufacturing

outputs. Morita and Flynn (1997) report that the

‘‘strength of the relationship between best practices(i.e. improvement activities) and performance also

suggests that the use of best practices must be

considered as part of building factory capability y

(and) the creation of competitive advantage’’

(p. 979).

Improvement activities that raise the level of

manufacturing capability can enable an FWF to

operate with a less than ideal production system.

For example, an FWF operating with a batch flow

production system having a very high level of

capability may be able to provide the cost and

quality outputs at the same level as a competitor’sFWF operating with an equipment-paced line flow

production system with a low level of capability. In

their survey of 128 plants, Ahmad and Schroeder

(2002) found that ‘‘less than half of the plants

operate near the diagonal of the (product–process)

matrix y (T)he off-diagonal plants are using

innovative initiatives to overcome the lack of

product structure and process structure match’’

(p. 103). The notion of ‘innovative initiatives’ to

build manufacturing capability is part of what the

literature calls dynamic capability (Da Silveira,2005). Dynamic capability relies on improvements

to push the boundaries or limits that technology

imposes on manufacturing processes and, therefore,

is one approach for dealing with trade-offs in

manufacturing. (More on this follows in Section 2.7.)

A production system’s overall level of capability

is the sum of the capabilities of each subsystem or

lever. The higher the manufacturing capability of

each lever is, the higher will be the overall capability

of the production system. In this paper, the

manufacturing capability of a lever is measured on

a scale from 1.0 to 4.0. (See the lower left block in

Fig. 1.) A value of 1.0 indicates an infant level of

capability; 2.0 is industry average; 3.0 is adult; and

4.0 is world class. (This scale is similar to the ‘stages

of manufacturing effectiveness’ in Wheelwright and

Hayes (1985).) Exactly what constitutes each level

of capability for each lever depends on the produc-

tion system and is usually determined from bench-

marking studies. The level of capability is not

necessarily the same for each lever. However, levers

with lower levels of capability diminish the overall

level of capability of the production system. Good

manufacturing strategy identifies these levers and

the adjustments that are needed to raise the low

levels of capability. The goal is to have a production

system where all levers have the same high level of

capability.

2.5. Competitive analysis

An FWF should use the production system that is

most able to produce the mix and volume of

products in its product family and provide the

manufacturing outputs required by its customers

(Adamides and Voutsina, 2006). The competitive

analysis object (upper right block in Fig. 1)

organizes the information that is required to

identify this production system. First, specific

measures or ‘attributes’ that are important to

customers are determined for each manufacturingoutput. For example, important attributes of

quality may be rework cost per unit, defects per

unit, warranty cost as a percent of sales, and so on.

Next, values of each attribute are collected for the

product family produced by the FWF, the average

product family in the industry, and the best product

family in the industry. On the basis of these values

the FWF decides whether each manufacturing

output is market qualifying, order winning, or

relatively unimportant, and then selects the produc-

tion system that is best able to provide the marketqualifying and order winning outputs.

A manufacturing output is market qualifying,

order winning, or relatively unimportant, depending

on whether it is provided at a high, very high, or

medium level. Market qualifying outputs are what

customers expect to receive. A product needs these

outputs to be competitive in its market (Hill, 2000).

Providing a market qualifying output requires

providing each attribute of that output at a high

level. An order winning output is provided at a

higher level than the market qualifying level. It is

provided at the order winning level, which is the

highest level possible in the industry. Consequently

order winning outputs are not common in a

product’s market. Yet they are important to

customers and, therefore, are a very important

reason that customers buy from an FWF. If the

level of an order winning output is raised, then

orders increase. Providing an output at an order

winning level makes an FWF an industry leader for

that product and output.

Competitive analysis aligns manufacturing and

marketing when it matches production systems with

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market qualifying and order winning manufacturing

outputs. Ward et al. (1998) and others find consider-

able empirical support for the goal of aligning

manufacturing and marketing. ‘‘(T)he expected

relationship between process choice (i.e. production

system) and competitive priority (i.e. manufacturingoutputs) that is central to much of the conceptual

work in manufacturing strategy can be demonstrated

empirically’’ (p. 1043). Other schemes for achieving

this alignment are possible. Hallgren and Olhager

(2006) separate outputs into two categories: market-

ing and manufacturing. For marketing they identify

seven ‘market requirements’ (quality, price, delivery

speed and reliability, product range, customization,

and innovativeness) and for manufacturing they

identify four ‘main manufacturing capabilities’ (cost,

quality, lead time, and flexibility). They measure the

seven market requirements for each product familyand set relative priorities. From these and other

information they then set objectives for the four

manufacturing capabilities.

Manufacturing–marketing alignment is a type of

focus. In this paper, we say that an FWF is focused

when it uses the production system that is best able

to produce the mix and volume of products and

provide the market qualifying and order winning

manufacturing outputs that are desired by the

FWF’s customers.

Bozarth and Edwards (1997) found additionaltypes of focus in their study of 26 US factories. They

found market requirements focus, manufacturing

characteristics focus, and market–manufacturing

congruence. Market requirements focus is similar to

Hallgren and Olhager’s seven ‘market requirements’,

and to the market qualifying and order winning

concepts in this paper. Manufacturing characteristics

focus is ‘‘the degree of internal consistency found in

the physical processes and infrastructural elements

y (for example) process choices, work-force skills,

planning and control systems’’ (pp. 162–163).

Market–manufacturing congruence is ‘‘the degree

of fit between market requirements and manufactur-

ing characteristics. Congruence is distinct from the

other two dimensions: one can have a focused set of

market requirements y and a focused set of

manufacturing capabilities y but incongruence

between the two’’ (p. 163). Bozath and Edwards

conclude that ‘‘the results support the general

argument that market requirements focus and

manufacturing characteristics focus have an impact

on manufacturing performance. A lack of focus

in either market requirements or manufacturing

characteristics in the plant was shown to be associated

with poorer performance’’ (pp. 177–178). In another

study, this time of 782 UK factories, Mapes et al.

(1997) found that their ‘‘research also confirms

existing thinking on manufacturing focus. y Plants

with a narrow product range tend to perform betteron most measures of operating performance than

plants with a wide product range’’ (p. 1032).

2.6. Illustrative example

The well-documented competitive battle between

Yamaha’s and Honda’s motorcycle businesses in

the early 1980s (Stalk and Hout, 1990) is easy to

analyze using the five manufacturing strategy

objects. In 1981 Yamaha opened a new, state-of-

the-art motorcycle factory and overtook Honda to

become the largest motorcycle manufacturer in theworld. Honda, which had been concentrating on its

automobile business, launched a counterattack. It

raised the levels of its market qualifying outputs,

which were cost and delivery, by cutting prices and

flooding distribution channels. It also raised the

levels of its order winning outputs, which were

innovativeness and performance, by introducing

new products and raising the technological sophis-

tication of its existing products. More specifically,

over the next 18 months Honda introduced or

replaced 113 motorcycle models (Yamaha re-sponded with 37 changes) and introduced new

features such as four-valve engines, composite

materials, and direct drive. Yamaha could not

provide its manufacturing outputs at the new

market qualifying levels, let alone at the order

winning levels, and demand for its products

plummeted. Yamaha’s President ended the ruinous

fight with Honda with a public statement: ‘‘We want

to end the Honda–Yamaha war. It is our fault. Of

course, there will be competition in the future, but it

will be based on a mutual recognition of our

competitive positions’’ (Stalk, 1988).

Fig. 4 displays Yamaha’s and Honda’s manufac-

turing strategies and identifies the strategic reasons

as to why Honda was able to overcome Yamaha’s

challenge to its leadership in the motorcycle

industry. Honda raised the levels of its market

qualifying outputs and order winning outputs so

fast and so high that Yamaha could not keep up.

Yamaha’s products no longer met customer ex-

pectations and so customers left Yamaha and

placed their orders with Honda. Honda was able

to do this for the following two reasons.

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2.6.1. Production systems

Honda’s production systems were more suitable for

providing the order winning outputs than Yamaha’s.

Honda used operator-paced line flow production

systems and JIT production systems, whereas Yamaha

used equipment-paced line flow production systems.

Operator-paced line flow and JIT production systems

are able to provide higher levels of performance and

innovativeness (i.e. the order winning outputs) than the

equipment-paced line flow production system.

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Fig. 4. Manufacturing strategy at Honda and Yamaha motorcycles.




2.6.2. Manufacturing capability

Honda had a higher level of manufacturing

capability. Yamaha had just completed a period of

expansion during which it built new facilities, hired

new employees, started new processes, and launched

new systems. The expansion spread Yamaha’sexisting manufacturing capability over a large

number of sites and operations. This dilution of

expertise reduced Yamaha’s overall level of manu-

facturing capability. Fig. 4 shows manufacturing

capability profiles for Honda and Yamaha. The

level of manufacturing capability for each of the

first three levers was 3.5 for Honda and 2.5 for

Yamaha. The lower figures for Yamaha were the

result of its expansion. The level of manufacturing

capability for sourcing was 4.0 at Honda because

Honda’s suppliers were the best in the industry. The

levels of manufacturing capability for processtechnology and facilities were high for Yamaha

because many of its processes and facilities were

new. The levels of manufacturing capability for

process technology and facilities were also high for

Honda. Although processes and facilities at Honda

were older, the company’s established improvement

programs had made numerous improvements over

the years. Not only was Honda’s manufacturing

capability profile better than Yamaha’s profile, but

the three levers (organization structure and con-

trols, production planning and control, and sour-cing), which most affected the order winning

outputs (performance and innovativeness), had

higher levels of capability at Honda.

2.7. Trade-offs

Trade-offs are a part of each manufacturing

strategy object. An important trade-off in the

competitive analysis object is the level at which

outputs will be provided. Will an output be market

qualifying or order winning? Products may qualify

for consideration by customers in one way but win

orders in a different way. Trade-offs in the

production systems object follow from the techno-

logical nature of production systems. Consider, for

example, job shop and equipment-paced line flow

production systems. The job shop is more flexible

but the equipment-paced line flow production

system has a faster pace of production. Trade-offs

also exist in the manufacturing levers and the

manufacturing capability objects. Decisions made

in these objects are affected by decisions made

previously in the objects, by decisions made about

the market qualifying and order winning outputs,

by the production system in use, and so on.

Boyer and Lewis (2002) categorize trade-off

research into rigid, cumulative, and integrative

models. In the first category, a trade-off is ‘‘the

need for plants to prioritize their strategic objectivesand devote resources to improving those capabil-

ities. For example y plants must make choices

between achieving low costs or high flexibility’’

(p. 11). In this category a trade-off is a choice

between mutually exclusive alternatives. Hence

trade-offs in this category are called rigid. In the

cumulative category the alternatives in a trade-off

are not mutually exclusive. ‘‘Plants improve along

all four dimensions y (by) developing capabilities

that reinforce one another. y (For example,)

advanced manufacturing technology—flexible man-

ufacturing systems, computer-integrated manufac-turing, and other programmable automation—helps

develop multiple capabilities simultaneously’’

(p. 11). The ‘sand cone’ model of Ferdows and

De Meyer (1990) is an example of a cumulative

trade-off model. ‘‘Plants should build capabilities

sequentially, first seeking high quality, then depend-

able delivery, followed by low costs and flexibility.

Each successive capability becomes the primary

focus once minimum levels of the preceding

capabilities have been achieved’’ (Boyer and Lewis,

2002, p. 11). The integrative trade-off categorybelieves that some elements of the rigid trade-off

model and some elements of the integrative trade-

off model are present in an FWF. This is the view

taken in this paper. Trade-offs are technological

boundaries that are always present. But the

boundaries can be moved within limits. Boundaries

‘move out’ when, for example, improvements and

new technology raise manufacturing capability.

Boundaries ‘move in’ when, for example, the

alignment between manufacturing and marketing

deteriorates. There are limits to how far the

boundaries can be moved. For example, raising

the level of capability of a job shop production

system to a world-class level of capability by making

improvements and adding technology will not

produce the same level of cost as an equipment-

paced line flow production system with a world-

class level of capability. Da Silveira and Slack

(2001) found the same view of trade-offs among

managers at five companies in the UK and Brazil.

‘‘Trade-offs are not the problematic issue for

practicing managers that they are for academics. y

(They are) an easily understood concept, which

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describes the operational compromises routinely

made by managers. y (T)rade-offs are seen as

focusing attention on the areas of an operation most

in need of improvement. y (S)ome trade-offs are

more clearly governed by identifiable resource and

capability constraints than others’’ (p. 962).

3. Applying the new model for manufacturing

strategy in an FWF

Pun (2004) reports that many manufacturing

strategy frameworks are possible and no single

framework is best for all companies. Safsten and

Winroth (2002) examined the effectiveness of a

framework similar to Fig. 1 for small- and medium-

sized manufacturing companies. Based on their work

at two Swedish companies they report that the

framework is useful. In this section we illustrate theuse of the new model (i.e. Fig. 1) for manufacturing

strategy in an FWF by studying the strategic activities

of two multi-national manufacturing companies:

Groupe Dutailier and Rheem Manufacturing.

3.1. Groupe Dutailier

Dutailier was founded in 1976 in a small town

near Montreal, Canada. For the next 12 years it

manufactured living room and bedroom furniture

and rocking chairs. In 1988 Dutailier dropped itsliving room and bedroom furniture in order to focus

on one particular type of rocking chair called a

glider rocker. It concentrated all of its R&D

activities on developing glider rocker products for

selected target markets. The decision to focus was

the start of a journey that made Dutailier a leader in

glider rocker products for North America and

Europe. The company is now North America’s

largest manufacturer of glider rockers and offers

one of the largest selections of glider rocker

products. There are more than 45 different styles,

70 fabrics, and 15 finishes, all organized into three

product collections.

Dutailier began in 1976 with 40 employees in one

factory. In 1991 there were 550 employees in four

factories. Today the company, which is still family

owned, employs more than 780 employees in seven

factories in Canada, the United States, and Eng-

land. Dutailier’s factories are organized into FWFs.

The FWFs use job shop, batch flow, and operator-

paced line flow production systems. Other mass

production systems (i.e. equipment-paced line flow

and continuous flow) and lean production systems

(i.e. JIT and FMS) are not used because they are

technologically unable to manufacture upholstered

wood furniture products. Dutailier does use some

just-in-time practices (e.g. setup time reduction and

quality control) but it does not use the JIT

production system.Fig. 5 describes the manufacturing activities at

each factory. The first facility in Fig. 5 is the

company’s lead factory at Saint-Pie. (‘Lead’ refers

to the strategic reason for a factory. Ferdows (1997)

describes six strategic reasons for a factory and six

corresponding factory types: lead, contributor,

source, server, outpost, and off-shore. See also

Miltenburg (2005).) The Saint-Pie factory has three

FWFs. One FWF is a job shop production system

that is used for new product introductions and for

product and process innovations. Innovativeness

and flexibility are the most important manufactur-ing outputs. The factory also has an FWF with a

batch flow production system that produces low-

volume, high-end products. Performance and in-

novativeness are important for the high-end pro-

ducts. The third FWF is an operator-paced line flow

production system that produces higher-volume

products. These products are in the mature stage

of their product life cycles and so cost and delivery

are important.

The next facility is at Saint-Elie de Caxton. This is

the company’s contributor factory for ottomanproducts. It is a small facility and has one FWF

with an operator-paced line flow production system

that produces high-volume products. Cost and

delivery are the important manufacturing outputs.

Fig. 5 gives similar information for Dutailier’s other

facilities. Fig. 6 transfers some of the information

from Fig. 5 to the FWF strategy worksheet. Notice

that the same production systems are used in several

FWFs. This allows the company to develop and

follow standard practices, employ common im-

provement programs, and share information in the

FWFs that use the same production system, and,

consequently, increase the levels of manufacturing

capability to above average and adult. The syner-

gistic combination of the best production system

and high level of capability produces the highest

possible levels of manufacturing outputs.

Finally, notice in Fig. 5 that the first six facilities are

focused on the production of glider rocker products.

However the last facility, at Sainte-Anne-de-

la-Perade, produces an entirely different product

family—high-quality, wood bedroom furniture for

babies, children, and teens. This facility was

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acquired in 2003 and marks Dutailier’s decision to

diversify its product line. This reverses the decision

the company made 25 years earlier to focus on

glider rockers. The decision in 2003 to diversify is

not unreasonable so long as the new product linesare produced in separate FWFs. It would be

inappropriate to produce these new products in

FWFs that are focused on glider rocker products.

This would cause problems for the specialized

production systems, reduce the level of manufactur-

ing capability, and lower the levels of the manu-

facturing outputs.

3.2. Rheem manufacturing

In 1927 Richard and Donald Rheem of California

formed the Rheem Manufacturing Company. By

1936 the company was manufacturing water heaters

and distributing them coast-to-coast in the United

States. In 1939 Rheem opened its first foreign

factory near Sydney, Australia, and 8 years later it

opened a second foreign factory in Hamilton,

Canada, to serve the Canadian market. Rheem

began manufacturing warm air furnaces in 1947 and

central air conditioning systems in 1965. In 1973

Rheem sold its manufacturing operations in Aus-

tralia. In 1986 Rheem’s three divisions—Water

Heaters, Air Conditioning, and Rayback (a sub-

sidiary that manufactured swimming pool heaters)—

generated an annual revenue of $725 million. In

1988 Paloma Industries of Nagoya, Japan, a family-

owned company and the world’s largest producer of

gas appliances, purchased Rheem for $850 million.Today the Paloma Group of Companies employs

10,400 people.

In 2002 Rheem began a major initiative to

improve the performance of its sagging Air Con-

ditioning Division. The division’s market share had

dropped to 11% from a high of 16% in the mid-

1980s. One reason for the decline was an old

product line that was in need of redesign. Rheem

installed a new management team and started

programs to improve cost, quality, and customer

service.

3.2.1. Events in Australia

In 2002 Rheem re-acquired its Australian manu-

facturing operations. These operations, which em-

ployed 1400 people and generated $150 million in

annual revenue, included water heater businesses in

Australia and New Zealand, a solar water heater

company, and a joint-venture business in China.

3.2.2. Events in Canada

In 1989 the United States and Canada signed a

free trade agreement to eliminate import and export

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Facility (1) Details Focus FWFs Important Manufacturing Outputs

Saint-Pie

(head office and original

facility -- lead factory)

Head Office

… 80 people

Factory… 110,000 sf, 220

people

R&D, Sales, Customer Service & After

Sales, Marketing, Production Planning,

Purchasing, Computing, TechnicalServices, Credit, Finance & Accounting,

Quality, Human ResourcesFocused on production of middle- to

high-end wood glider products

1. Job shop for new products

2. Batch flow for low volume, high-end products

3. Operator-paced line for medium

volume, middle-end products

Innovativeness, flexibility

Performance, innovativeness

Delivery, cost

Saint-Elie de Caxton

(acquisition in 1990 of LesArtisants du Bois Caxton,

Inc.)

18,500 sf, 60 people Focused on production of ottoman

products

4. Operator-paced line for high

volume products

Delivery, cost

Joliette

(acquisition in 1988 of LesFreres Pelletier Canada,

Inc.)

48,000 sf, 100 people Focused on production of high volume

wood glider products for large U.S. andCanadian chain stores

5. Operator-paced line high volume

products

Delivery, cost

Saint-Hyacinthe

(new factory established in

1997)

85,000 sf, 100 people Focused on production of ‘high

performance’ products (i.e. products

made of metal, wood, leather that glide,swivel, recline)

6. Batch flow for low volume

products

7. Operator-paced line for medium

volume products

Performance, innovativeness

Performance, quality

Martinsville, Virginia(acquisition in 1990 of

Regent Industries)

53,000 sf, 60 people Focused on upholstered products andchair cushions for other facilities.

8. Operator-paced line for highvolume products

Delivery, cost

Perivale, England

(new facility established in

1993)

European Sales

… 30 people

Warehouse/factory… 18,800 sf, 30 people

Assemble components imported fromNorth America

9. Batch flow Flexibility, delivery

Sainte-Anne-de-la-Perade

(acquisition in 2003 ofE.G. Furniture)

60,000 sf, 100 people Focused on production of wood bedroom

furniture

10. Batch flow for low volume

products11. Operator-paced line for medium

volume products

Flexibility, quality

Cost, quality

1. The information in Facility, Details, and Focus is from the company website (www.dutailier.ca).

Fig. 5. Manufacturing facilities at Dutailier.




duties, relax foreign investment restrictions, and

ease business travel between the two countries. This

reduced the need for a Canadian factory whose sole

purpose was to serve the Canadian market. How-

ever, rather than close the Canadian factory, Rheem

decided to focus the factory’s production. In 1993

production was focused on 40-gallon (181 liter)

water heaters. All other products were transferred

to the Water Heater Division factory in Montgom-

ery, Alabama (USA). The Canadian factory, though

small, was strategically important. Water heater

products sold in Canada were slightly different from

products sold in the United States, large Canadian

commercial customers wanted the reliability of a

local manufacturer, and transportation costs from

the factory in Alabama to customers in Canada

were high. So the batch flow production system in

the Canadian factory was changed to an operator-

paced line flow production system. Manufacturing

equipment was upgraded and the number of employ-

ees was reduced from 255 to 150. (The Montgomery

factory had more than 1000 employees.)

In 1994 Mexico joined the free trade agreement

between the United States and Canada. (The new

agreement was called the North American Free

Trade Agreement or NAFTA.) Several years later

the Water Heater Division opened a new factory in

Nuevo Laredo, Mexico, to take advantage of that

country’s low labor costs. It quickly became

apparent that the cost of production in the large

Mexican factory was so low that, even with the high

cost of transportation from Mexico to Canada, it

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Fig. 6. Manufacturing strategy at Dutailier’s FWFs.




was significantly more profitable to produce in

Mexico and ship to Canada than to produce in

Canada. At about the same time new government

policies in Canada aimed at deregulating business

and increasing trade reduced the importance of the

large Canadian commercial customers. So by thelate 1990s there was no longer any need to have a

factory in Canada.

The Canadian factory used an operator-paced

line flow production system to produce a medium

volume of 40-gallon water heaters (Fig. 7). Even

with an adult level of manufacturing capability, this

production system was not able to provide the order

winning levels of cost and quality and the market

qualifying level of delivery required in the very

competitive marketplace for water heaters. The

Canadian factory needed to change its production

system to an equipment-paced line flow productionsystem with a high level of capability. But this

production system required new, expensive manu-

facturing equipment, a much higher production

volume, and time to raise the level of manufacturing

capability. When the Water Heater Division, head-

quartered in Montgomery, Alabama, decided not to

make this investment, or assign this production

volume, and or let the Canadian factory raise its

capabilities, the factory’s fate was sealed. In 2005

Rheem announced its intention to move its Canadian

production to Mexico, and in 2006 it closed the60-year-old Canadian factory.

4. Summary

The manufacturing strategy framework for an

FWF consists of five objects: production systems,

manufacturing outputs, manufacturing levers, man-

ufacturing capability, and competitive analysis, and

the linkages between these objects. An FWF uses

one production system to produce most or all

products in a product family and provide six

manufacturing outputs: cost, quality, delivery,

performance, flexibility, and innovativeness. No

FWF is able to provide all outputs at the best

possible levels. So it is important to determine which

outputs are most important to customers. These are

the market–qualifying and order–winning outputs.

There are seven production systems: job shop, batch

flow, operator-paced line flow, equipment-paced

line flow, continuous flow, just-in-time, and flexible

manufacturing systems. Each produces a unique

mix of products and volumes, and provides a unique

combination of manufacturing outputs.

A production system consists of six subsystems

called manufacturing levers. They are human

resources, organization structure and controls,

production planning and control, sourcing, process

technology, and facilities. Adjustments to manufac-

turing levers must consider the linkages betweenmanufacturing levers and the linkages between

strategy objects. For example, each adjustment

must be appropriate for the production system in

use and must help the production system provide

the manufacturing outputs at required levels. The

levels at which the manufacturing outputs are

provided depend on the production system in use

and its level of manufacturing capability. A

production system’s level of capability is the sum

of the levels of capability of each subsystem or lever.

Manufacturing capability is measured on a contin-

uous scale from 1.0 to 4.0: 1.0 is an infant level of capability; 2.0 is an industry average level; 3.0 is an

adult level; and 4.0 is a world-class level.

Competitive analysis identifies the manufacturing

outputs that customers desire. It requires informa-

tion on the FWF’s products, competitors’ products,

customer requirements, and the current production

system. Outcomes from the competitive analysis are

the market qualifying and order winning manufac-

turing outputs for the product family, and the

production system that can provide these outputs

and can be put into practice by the FWF. Fig. 1arranges the five manufacturing strategy objects

for an FWF into a manufacturing strategy frame-

work. We illustrate the use of these objects and

framework by studying the strategic activities of

Groupe Dutailier Inc. and Rheem Manufacturing

Company.

We can also use the five objects and manufactur-

ing strategy framework to formulate a manufactur-

ing strategy for an FWF. First we determine the

FWF’s current manufacturing state by examining

its production system, its manufacturing capability,

and its manufacturing outputs. Second we deter-

mine the FWF’s desired future manufacturing state

by using the competitive analysis object. Finally we

use the manufacturing levers object to determine the

changes that are required to move the FWF from its

current manufacturing state to its desired future

manufacturing state. Safsten and Winroth (2002)

studied this process at some small- and medium-size

manufacturing companies.

This paper is descriptive and exploratory.

A manufacturing strategy framework for an FWF

is presented and its use is illustrated. The strategy

ARTICLE IN PRESS




objects and the framework they comprise are not

analyzed empirically. This work is left for future

research. There are other areas where more research

can be done. More detailed descriptions can be

developed for each manufacturing strategy object.

New objects can be developed. Other frameworks

can be developed, and relationships between differ-

ent frameworks can be studied.

Acknowledgments

This research was supported by Grant A5474

from the Natural Sciences and Engineering Re-

search Council of Canada. I also thank the editor

and the referees for their comments on earlier

versions of this paper.

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Miltenburg - 2007 - Setting Manufacturing Strategy for a Factory-within-A-factory