m strategy2

7/28/2019 M Strategy2

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Manufacturing Strategy

Lecture 2

Professor Bernard HonProfessor Bernard HonSchool of EngineeringSchool of Engineering

Outline of Lecture 2Outline of Lecture 2

Principles and nature of manufacturing.

STEEP analysis of business environment.

Porters Five Force Model of Competition.

Value Chain Analysis.

Core competency.


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The Principles of ManufacturingThe Principles of Manufacturing

The highest efficiency in production is obtained bymanufacturing the required quantity of product, ofthe requiredquality, atthe required time bythe bestand the cheapest method.

Alford L P & Bangs J R (1952)Alford L P & Bangs J R (1952)

The Nature of ManufacturingThe Nature of Manufacturing

Variability

Uncertainty

Com lexit

No Laws of Manufacturing


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Vision and MissionVision and Mission

V s on: An mage o t e uture we see tocreate.

Vision Statement: An aspirational descriptionof what a company wants to be in the future.

statement explaining a companys corepurpose and values. It concentrates on thepresent.

GMGM

Vision: to be the world leader in transportationroducts and related services. We will earn our

customers enthusiasm through continuousimprovement driven by the integrity, teamwork, andinnovation of our people.

Mission: a multinational corporation engaged insocially responsible operations, worldwide. It is

e ca e o prov e pro uc s an servces o sucquality that our customers will receive superior valuewhile our employees and business partners willshare in our success and our stock-holders willreceive a sustained superior return on theirinvestment..


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ToyotaToyota

Vision: aims to achieve long-term, stablegrowth in harmony with the environment, theglobal economy, the local communities itserves, and its stakeholders.

Mission: seeks to create a more prosperoussociety through automotive manufacturing.

UnileverUnilever

Unilever's mission is to add Vitalit to Life, bmeeting everyday needs for nutrition, hygieneand personal care with brands that helppeople feel good, look good, and get moreout of life.

everywhere.


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Mission Statement ExamplesMission Statement Examples

BMW: to be the most successful premiummanufacturer in the industry.

3M: to solve unsolved problems innovatively.

Walt Disney: to make people happy.

Ford: to become the worlds leading consumercompany or automotive products and services.

Unilever: Meeting the everyday needs of peopleeverywhere.

Company Objective of NCRCompany Objective of NCR

To produce a product the market wants at

a price it is prepared to pay while

achieving a superior return on investment

and continuous growth.


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Industrial Environment- STEEPIndustrial Environment- STEEP

Social

Technological

Economic

Environmental

Political

The Five Force Model of CompetitionThe Five Force Model of Competition

Potential

Rivalry among competing firms

Price competition Product innovation

Threat of

new entrants

entrants

Suppliers Buyers

Bargaining

power

Bargaining

power

Product differentiation

Substitutes

Threat of

substitute

products

M. E. P orter


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Threat of New EntrantThreat of New Entrant

Bring additional capacity

Reduce profitability in a stable market

Forces existing companies to be more

Barriers to EntryBarriers to Entry

Customer loyalties

Capital requirement

Switching costs incurred when buying froma new supplier

Access to distribution channels Tangible and intangible disadvantanges for

late entrants

Government policy


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Bargaining Power of SuppliersBargaining Power of Suppliers

No satisfactory substitute products

The buyer is an insignificant customer

The part is a key component

High switching costs for alternative

supplier

Threat of forward integration

Bargaining Power of BuyersBargaining Power of Buyers

a single buyer

The part constitutes a large portionof the buyers costs

Low switchin costs

Threat of backward integration intothe suppliers market


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Threat of Substitute ProductsThreat of Substitute Products

High threats when switching costsare low, price of substitute is low,quality and performance of substituteis better.

differentiated customer-driven

product.

Intensity of Rivalry among CompetitorsIntensity of Rivalry among Competitors

Numerous or equally balanced competitors

Slow industry growth

High fixed or inventory costs

Lack ofdifferentiation orswitchin costs

High strategic stakes, e.g., geographical

High exit barriers


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Internal and External Environment

External EnvironmentExternal Environment

What the FirmMight DoWhat the FirmMight Do Sustainable

Competitive

Advantage

What the FirmCan DoWhat the FirmCan Do

Discovering Core CompetenciesDiscovering Core CompetenciesCompetitiveCompetitiveAdvantageAdvantage

Gained throu ghGained throu gh

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitive

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

ResourcesResources

** TangibleTangible

** IntangibleIntangible

CapabilitiesCapabilities

Teams o fResourcesTeams o f

Resources

van agevan age

Criteria ofSustainable

Advan tages

ValueChain

Analysi s

Outsource Valuable Rare Costly to imitate Non-substitutable Hitt, Ireland & Hoskisson


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ResourcesResources

What a company has to work with:

its assets, including its people and thevalue of its brand name.

Tangible ResourcesTangible Resources

Financial

Physical

Human Resources

Organizational


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Intangible ResourcesIntangible Resources

Technological

Innovation

Culture

Reputation

Value Chain AnalysisValue Chain Analysis

Value Chain Analysis: is a techniquedeveloped by Michael Porter toidentify and evaluate a companysresource and capabilities.


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Value Chain AnalysisValue Chain Analysis

Primary Activities: include the major product lifecycle activities from product creation,distribution toafter-sales services.

Support Activities: provide the infrastructuralactivities to enable the primary activities to takepace.

Assessment of the Value Chain

Primary Activities

Assessment of the Value Chain

Primary Activities

Inbound logistics

Operations

Outbound logistics

Services


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Assessment of the Value Chain Support Activities

Assessment of the Value Chain Support Activities

Purchasing

Product and Process Development

Human Resources Management

Infrastructure

Value Chain Analysis

Firm Infrastructure

Support

Activi ties Technological Development

Human Resource Management

Procurement

ns

d ic

e

Primary Activities

Inbound

Logistic

Operatio

Outboun

Logistics

Marketin

&

Sales

Ser

M E Porter


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Value Chain Analysis- OutsourcingOutsourcing

Support

Activities Technological DTechnological Development

Human ResourceHuman Resource Management

ProcProcurement

ns

nd

s icic

e

Technological

Development

Human Resource Management

Procurement

Firms often purchase a portion oftheir value-creating activitiesfrom specialty external supplierswho can perform these functionsmore efficiently

Primary Activities

Inbound

LoLog

istic

Opera

Operati

Outb

Outboou

Logi

Logistic

Mark

etin

&S

&Sales

Serv

Serv

InboundLogistics

Operations

Outbound

Logistics

erv ce

Marketing& Sales

Use of the Value Chain AnalysisUse of the Value Chain Analysis

To identify core competencies.

To create an outsourcing policy.

To support the formulation of abusiness strategy.


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Criteria of Sustainable Competitive AdvantagesCriteria of Sustainable Competitive Advantages

a ua e : are ose a e p a company expoopportunities and/or neutralise threats in its externalenvironment.

Rare : are those possessed by few competitors.

Costly to imitate : are those that other companiescannot develop easily.

Non-substitutable : are those that do not havestrategic equivalents such as company-specificknowledge.

Core CompetenciesCore Competencies

Core competencies are a source ofsustainable advantage only when they allowthe company to create value by exploitingexternal environmental opportunities.


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Examples of Core CompetenciesExamples of Core Competencies

Functional A reasFunctional Areas CompetenciesCompetencies ExamplesExamples

ManagementManagement

MarketingMarketing

Human ResourcesHuman Resources

Effective marketEffective market--driven links withdriven links withsuppliers and customerssuppliers and customers

Effective promotion of brandEffective promotion of brand--name productsname products

Effective and extensive trainingEffective and extensive trainingprogramprogram

NCRNCR

GilletteGillette

MotorolaMotorola

R and DR and D

ManufacturingManufacturing

Product InnovationProduct Innovation

Rapid product innovationsRapid product innovations

Labour & StaffingLabour & Staffing

Toyota Production System, J IT,Toyota Production System, J IT,7W.7W.

iPod,iPod, iPhoneiPhone,, iPadiPad

IntelIntel

ToyotaToyota

AppleApple

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