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Manufacturing StrategyThe unique nature of each manufacturing process and the market served limit the prac¬tical range of alternative strategies. Manufacturing strategic range is constrained by both marketing and technological forces. Prevailing marketing practices serve to ground manufacturing strategy in terms of customer acceptability. Technology drives strategy to a manufacturing model that is competitive. For example, a manufacturer having a process dominated by economy of scale may desire to improve process flexi¬bility. However, significant investment will typically be required to increase frequency and repetition.Over time, the changing nature of the market and available technology serve to alter a firm's existing strategic posture. Consider, for example, the steel industry, which was long dominated by processes highly dependent on economy of scale. Re¬cent years have witnessed market acceptance of a wide range of new steel-based mate¬rials combined with value-added services. The birth of the Steel Service Center has in-('Steven A. Melnyk and R. T. Christensen, op. cit., p. 17. troduced postponement as a way to increase customer accommodation. The nature of basic steel production has also undergone dramatic change. New process methods are being perfected that reduce long-time dependence on high-scale manufacturing processes. The combined impact of these changes in market and process has shifted the strategic posture of steel producers.Matching Manufacturing Strategy to Market RequirementsIn Chapter 3, typical marketing strategies were classified as being mass, segmental and focused, or one-on-one.21 These strategies are differentiated, in part, in terms of the re-quired degree of product and service accommodation. Mass marketing requires limited product/service differentiation. In contrast, one-on-one marketing strategy builds on unique or customized product/service offerings for each and every customer. The strategic marketing posture of a firm in terms of flexibility and agility to accommodate specific customer requirements is directly related to manufacturing capability. To a sig¬nificant degree, a firm's manufacturing capability drives the feasible range of effective marketing strategy. For a manufacturing firm to effectively compete, it must be able to integrate manufacturing capability into a meaningful marketing value proposition.Strategic AlternativesThe most common manufacturing strategies are make-to-plan (MTP), make-to-order (MTO), and assemble-to-order (ATO). It is also common to refer to MTP as make-to-stock (MTS).22As a general rule, MTP strategies are characteristic of industries exploiting econ-omy of scale that results from long production runs. Significant finished goods inven-tory is typically manufactured in anticipation of future customer requirements. The lo-gistical requirement to support MTP is warehousing capacity to store finished product and to facilitate product assortment for specific customers. When flexible manufactur¬ing is introduced to speed up switchover, the inventory lots produced are typically smaller in quantity. However, warehouses are still required for temporary storage and to facilitate product assortment.In contrast, MTO manufacturing strategies seek to manufacture to customer speci¬fication. While MTO may not be as limited as the traditional job shop, exact quantities and configurations are produced in relatively small quantities. Logistical capacity may be required for temporary storage and to achieve outbound transportation consolida¬tion, but most product produced in a MTO environment is shipped direct to customers.In ATO situations, base products and components are manufactured in anticipa-tion of future customer orders; however, the products are not fully assembled or cus-tomized until a customer's order is received. Such final assembly reflects implementa-tion of the principle of manufacturing or form postponement.23 The need for logistical capacity is critical in ATO operations. In fact, an increasing amount of ATO product finalization is being performed in distribution warehouses. The attractiveness of an ATO manufacturing strategy is that it has the potential to combine some facets of economy of scale typical of MTP with a degree of MTO flexibility. Full implementa-tion of an ATO strategy requires that warehouse operations be integrated in the process to perform customizing and assembly operations. Industry Insight 5-4 illus-trates the importance of logistically supporting an original equipment manufacturer.21Chapter 3, p. 69.22This general classification draws upon Robert H. Hayes and Gary P. Pisan°, "Beyond World Class: The New Manufacturing Strategy,- Hanurd Business Review, January/February, 1994, pp. 77-86.23See Chapter I. p. 18. INDUSTRY INSIGHT 5-4 CRITICAL PARTS DELIVERED WITHIN HOURSSpeed is increasingly a key supply chain differentiator, especially in the supply of critical parts, where customers expect delivery within hours, not days.Two primary forces are driving development of this service niche. First, original equipment manufacturers have warranty contracts with their end users, which frequently include protec¬tions against downtime losses. Second, many parts supply operations are fragmented as compa¬nies generally have multiple service territories and different service providers for each. Faced with pressures to reduce inventory levels and associated investments, OEMs and other compa¬nies need greater visibility, not only to parts availability, but also to pipeline contents—a diffi¬cult challenge when responsibilities are spread across numerous networks."OEMs are always looking to improve their service to their end users, and having a service parts network with a high parts availability and rapid response time to their field engineers en¬ables them to improve system uptime," says Scott Collins, VP of service parts logistics for Sonic Air, a division of United Parcel Service. Throughout the last decade Sonic Air, in con¬junction with UPS, has focused on designing a service network to specifically meet the needs of these OEMs. "We give the OEMs a single point of contact, we use our own network, and we have systems connectivity across that entire network," states Collins.
Sonic owns a central parts distribution center with more than 1 million square feet of space within 3 miles of the UPS air hub in Louisville, an arrangement that enables Sonic to provide late-night processing of orders with delivery guaranteed by 10:30 A.M. the next day, or even ear¬lier if customers use premium services. From that distribution center, Sonic replenishes its net¬work of more than 400 field support bank locations worldwide. With the exception of a few dedicated sites, the field support banks are multiclient facilities.
Orders can come in to Sonic from customers by EDI, Internet, fax, or via one of several call centers Sonic operates, as late as I A.M. for next-day availability. Orders are routed to the appro-priate dispatcher, who then alerts the respective branch operations that the particular part has to be pulled and dispatched for delivery. Parts can be sent overnight directly to certified engineers (CEs) in the field. Another option is a hold-for-pickup service at any of the 1,430 UPS service counters designated as sites where CEs can snag the parts as early as 7:30 A.M.
The Sonic strategy is to locate field support banks close to the end-user population of their customers to minimize the time from order entry to delivery. "Our network runs 24x7, and right now we can serve 68 percent of the U.S. business population within an hour, 88 percent in two hours, and 99 percent in four hours," says Collins.
Sonic also uses its Louisville distribution center to provide repair and refurbishment ser¬vices, maintaining a staff of more than 300 technicians to provide rapid turnaround of equip¬ment such as laptop computers, hard drives, monitors, and telecommunications devices, includ¬ing the programming of cell phones.
Getronics (formerly Wang Getronics) is currently in the ramp-up phase of a new service pro-gram. Sonic technicians now perform 1,100 repairs a month for Getronics on a wide array of computer parts, peripherals, and point-of-sale equipment and Sonic expects to see that number rise from 6,000 to 8,000 as the program comes fully online.
Sonic also provides Getronics with end-of-runway central warehousing, which improves Getronics' efficiency and reduces some of the fixed and variable costs associated with the parts operation. "The Sonic/UPS relationship has allowed Getronics to enhance our overall logistics services to our customers by consolidating our freight services—ground, air, and next-flight-out, warehousing, and repair—in one central facility," says Richard Fogarty, VP of service delivery for Getronics. "This allows us to take advantage of freight savings and enables us to reduce our investments in parts by cutting the cycle time for returning defective parts to a serviceable con-dition. Getronics can also offer a higher level of logistics consulting services to our customers by using the Sonic nationwide network of parts distribution centers, which provide four-hour parts delivery in major business areas for our client base."
Sonic is reconfiguring its information systems. "By the first quarter of next year, we are going to have a fully integrated service parts system that ties together order entry, dispatch, order management, repair, inventory management, billing, and financials," says Collins. An in-
ventory management system interconnecting the network will help identify which parts to store at particular locations, based on the frequency of failures experienced by the end-user popula¬tion. "Hopefully, this visibility across the entire network will enable customers to do a better job planning and thus be able to reduce the total cost of the inventory in the pipeline," he adds.
Sonic provides much of this informa
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