3.5 Operation strategy

Operation strategy determines how and where a product or service is to be manufactured. It deals with the level of vertical integration in the deployment of physical resources, and relationships with suppliers. It should also deal with the optimum level of technology the firm should use in its operations processes. See the Global Issue feature to see how differences in national conditions can lead to differences in product design and manufacturing facilities from one country to another.

Advanced Manufacturing technology (AMT) is revolutionizing operations worldwide and should continue to have a major impact as corporations strive to integrate diverse business activities by using computer-assisted design and Manufacturing (CAD/CAM) principles. The use of CAD/CAM flexible Manufacturing systems, computer numerically controlled systems, automatically guided vehicles, robotics, Manufacturing resource planning (MRP II), optimized production technology, and just-in-time techniques contribute to increased flexibility, quick response time, and higher productivity. Such investments also act to increase the company’s fixed costs and could cause significant problems if the company is unable to achieve economies of scale or scope. Baldor Electric Company, the largest maker of industrial electric motors in the United States, built a new factory by using new technology to eliminate undesirable jobs with high employee turnover. With one-tenth the employees of its foreign plants, the plant was cost-competitive with plants producing motors in Mexico and China.

3.5 Operation strategy

A firm’s manufacturing strategy is often affected by a product’s life cycle. As the sales of a product increase, there will be an increase in production volume ranging from lot sizes as low as one in a job shop (one-of –a-kind production using skilled labor) through connected line batch flow (components are standardized: each machine functions like a job shop but is positioned in the same order as the parts are processed ) to lot size as high as 100000 or more per year for flexible manufacturing systems (parts are grouped into manufacturing families to produce a wide variety of mass-produced items) and dedicated transfer lines (highly automated assembly lines that make one mass-produced product using little human labor) according to this concept, the product becomes standardized into a commodity over time in conjunction with increasing demand.

Flexibility thus gives way to efficiency. Increasing competitive intensity in many industries has forced companies to switch from traditional mass production using dedicated transfer lines to a continuous improvement production strategy. A mass-production system was an excellent method to produce a large number of low-cost, standard goods and services. Employees worked on narrowly defined repetitious tasks under close supervision in a bureaucratic and hierarchical structure. Quality, however, often tended to e fairly low. Learning how to do something better was the prerogative of management; workers were expected only to learn what was assigned to them. This system tended to dominate manufacturing unit the 1970. Under the continuous improvement system developed by Japanese firms, empowered cross-functional teams strive constantly to improve production processes. Managers are more like coaches than like bosses. The result is a large quantity of low-cost, standard goods and services, but with high quality. The key to continuous improvement is the acknowledgment that workers experience and knowledge can help managers solve production problems and contribute to tightening variances and reducing errors.

3.5 Operation strategy

Because continuous improvement enables firms to use the same low-cost competitive strategy as do mass-production firms but at a significantly higher level of quality, it is rapidly replacing mass production as an operations strategy.

The automobile industry is currently experimenting with the strategy of modular manufacturing in which pre-assembled-line workers, who quickly piece the modules together into a finished product. For example, General Motors built a new automotive complex in Brazil to make its new subcompact, the Celta. Sixteen of the 17 buildings were occupied by suppliers, including Delphi, Lear, and Goodyear. These supplies delivered pre-assembled modules (which comprised 85% of the final value of each car) to GM’s build a single module comprising the motor, transmission, fuel line, rear axle, brake- fluid lines, and exhaust system, which was then installed as one piece. GM hoped that this manufacturing strategy would enable it to produce 100 vehicles annually per worker compared to the standard rate of 30 to 50 autos per worker. Ford and Chrysler have opened similar modular facilities in Brazil.

The concept of a product’s life cycle eventually leading to one-size-fits- all mass production is begin increasingly challenged y the new concept of mass customization. Appropriate for an ever- changing environment, mass customization requires that people, processes, units and technology reconfigure themselves to give customers exactly what they want, when they want it .in the case of Dell Computer, customers use the Internet to design their own computers. In contrast to continuous improvement, mass customization requires flexibility and quick responsiveness.