Director: Corporate-911
Many of you that know me will know that I am an outspoken advocate of the current supply chain crisis being a root cause of financial distress. This is getting ever more serious as the crisis lingers. Unfortunately, there is no end in sight and this could impact the manufacturing process.
Companies are doing their best to manage the crisis. However, this is turning into an exercise in extreme patience with some companies barely coping. I recently read an article on the Harvard Business Review website which points out linking the manufacturing process and product life cycles, which is an important undertaking when it comes to managing the crisis.
The product-process matrix: linking manufacturing
The article points out that the process life cycle has been attracting increasing attention from business managers and researchers over the past several years. Just as a product and market pass through a series of major stages, so does the production process used in the manufacture of that product. The process evolution typically begins with a “fluid” process—one that is highly flexible, but not very cost efficient—and proceeds toward increasing standardization, mechanization, and automation. This evolution culminates in a “systemic process” that is very efficient but much more capital intensive, interrelated, and hence less flexible than the original fluid process.
Graph By: HBR
Using a product-process matrix, Exhibit I suggests one way in which the interaction of both the product and the process life cycle stages can be represented. The rows of this matrix represent the major stages through which a production process tends to pass in going from the fluid form in the top row to the systemic form in the bottom row. The columns represent the product life cycle phases, going from the great variety associated with startup on the left-hand side to standardized commodity products on the right-hand side.
Diagonal position
The article adds that a company (or a business unit within a diversified company) can be characterized as occupying a particular region in the matrix, determined by the stage of the product life cycle and its choice of production process for that product. Some simple examples may clarify this. Typical of a company positioned in the upper left-hand corner is a commercial printer. In such a company, each job is unique and a jumbled flow or job shop process is usually selected as being most effective in meeting those product requirements. In such a job shop, jobs arrive in different forms and require different tasks, and thus the equipment tends to be relatively general purpose. Also, that equipment is seldom used at 100% capacity, the workers typically have a wide range of production skills, and each job takes much longer to go through the plant than the labor hours required by that job.
Further down the diagonal in this matrix, the manufacturer of heavy equipment usually chooses a production structure characterized as a “disconnected line flow” process. Although the company may make a number of products (a customer may even be able to order a somewhat customized unit), economies of scale in manufacturing usually lead such companies to offer several basic models with a variety of options. This enables manufacturing to move from a job shop to a flow pattern in which batches of a given model proceed irregularly through a series of work stations, or possibly even a low volume assembly line.
The article point out that even further down the diagonal, for a product like automobiles or major home appliances, a company will generally choose to make only a few models and use a relatively mechanized and connected production process, such as a moving assembly line. Such a process matches the product life cycle requirements that the automobile companies must satisfy with the economies available from a standardized and automated process.
Finally, down in the far right-hand corner of the matrix, one would find refinery operations, such as oil or sugar processing, where the product is a commodity and the process is continuous. Although such operations are highly specialized, inflexible, and capital intensive, their disadvantages are more than offset by the low variable costs rising from a high volume passing through a standardized process.
The article points out that the examples cited thus far have been the more familiar “diagonal cases,” in which a certain kind of product structure is matched with its “natural” process structure. But a company may seek apposition off the diagonal instead of right on it, to its competitive advantage. Rolls-Royce Ltd. still makes a limited product line of motorcars using a process that is more like a job shop than an assembly line. A company that allows itself to drift from the diagonal without understanding the likely implications of such a shift is asking for trouble. This is apparently the case with several companies in the factory housing industry that allowed their manufacturing operations to become too capital intensive and too dependent on stable, high-volume production in the early 1970s.
As one might expect, when a company moves too far away from the diagonal, it becomes increasingly dissimilar from its competitors. This may or may not, depending on its success in achieving focus and exploiting the advantages of its niche, make it more vulnerable to attack. Coordinating marketing and manufacturing may become more difficult as the two areas confront increasingly different opportunities and pressures. Not infrequently, companies find that either inadvertently or by conscious choice they are at positions on the matrix very dissimilar from those of their competitors and must consider drastic remedial action. Most small companies that enter a mature industry start off this way, of course, which provides one explanation of both the strengths and the weaknesses of their situation.
The article adds that one example of a company’s matching its movements on these two dimensions with changes in its industry is that of Zenith Radio Corporation in the mid-1960s. Zenith had generally followed a strategy of maintaining a high degree of flexibility in its manufacturing facilities for color television receivers. We would characterize this process structure at that time as being stage 2. When planning additional capacity for color TV manufacturing in 1966 (during the height of the rapid growth in the market), however, Zenith chose to expand production capacity in a way that represented a clear move down the process dimension, toward the matrix diagonal, by consolidating color TV assembly in two large plants. One of these was in a relatively low-cost labor area in the United States. While Zenith continued to have facilities that were more flexible than those of other companies in the industry, this decision reflected corporate management’s assessment of the need to stay within range of the industry on the process dimension so that its excellent marketing strategy would not be constrained by inefficient manufacturing.
Photo By: Canva
It is interesting that seven years later Zenith made a similar decision to keep all of its production of color television chassis in the United States, rather than lose the flexibility and incur the costs of moving production to the Far East. This decision, in conjunction with others made in the past five years, is now being called into question. Using our terminology, Zenith again finds itself too far above the diagonal, in comparison with its large, primarily Japanese, competitors, most of whom have mechanized their production processes, positioned them in low-wage countries, and embarked on other cost-reduction programs.
The article points out that incorporating this additional dimension into strategic planning encourages more creative thinking about organizational competence and competitive advantage. It also can lead to more informed predictions about the changes that are likely to occur in a particular industry and to consideration of the strategies that might be followed in responding to such charges. Finally, it provides a natural way to involve manufacturing managers in the planning process so that they can relate their opportunities and decisions more effectively with marketing strategy and corporate goals. The experience of the late1960s and early 1970s suggests that major competitive advantages can accrue to companies that are able to integrate their manufacturing and marketing organization with a common strategy.
Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner
