Download Aligning marketing and manufacturing strategies with the market

INT. J. PROD. RES., 1999, VOL. 37, No.16,
3599-3618
Aligning marketing and manufacturing strategies with the market
w. L. BERRYt, T. HILLt*
and J. E. KLOMPMAKER§
In strategic marketing decisions substantial emphasis is placed on market segmentation and product/service differentiation. This follows from separate, intensive analyses of customers and competitors. Based on these analyses, the resultant
segmentation and differentiation schema, and an intensive review of the firm's
own strengths, weaknesses, opportunities and threats, the firm makes one of its
most important and critical decisions: which customers to serve and which products to emphasize, referred to as positioning. On the other side of the same corporate coin, manufacturing
makes decisions on process and infrastructure
investments based upon the technologies required, and its perception of what it
needs to do well in order to fulfil its role. In the same way as with marketing
decisions, the firm now makes another of its most critical decisions by committing
itself to major investments in manufacturing that are characterized by high value
and long time scales to change. On the one hand, these positioning decisions by
marketing invariably include little emphasis in determining the customer requirements that must be supported by manufacturing, and fail to investigate the ability
of manufacturing to support these requirements. On the other hand, manufacturing decisions do not reflect key insights on the needs of current and future markets. As a consequence, many businesses fail to achieve their strategic business
objectives, due, in part, to the inability of marketing and manufacturing to jointly
develop consistent strategies. We call this a lack of alignment. The methodology
outlined in this paper concerns how to align marketing and manufacturing strategies by using markets as the center piece of both developments. Doing this
highlights the recognition that markets need to form the common denominator
of both marketing and manufacturing strategy development. This methodology is
illustrated by using an actual example drawn from plant-based research. Several
key questions are addressed in this methodology. How does marketing view
customers and markets? What is manufacturing's view of the same customers
and markets? To what extent is manufacturing actually able to support the
demands that these customers and markets are placing on a firm's capabilities?
It is important to check with the use of data, the actual operating performance
against the required capabilities. In cases where substantial differences exist
between customer and market requirements and manufacturing capabilities, strategic options (both in marketing and manufacturing) to resolve these differences
need to be addressed in making strategic business decisions.
I.
Introduction
Despite two decades or more of research on the process and content of manufacturing strategy, core dimensions still remain at large:
Revision received September 1998.
tThe Max M. Fisher College of Business,
The Ohio
State University,
Columbus,
OH 43210, USA.
t The London Business School, The University
of London,
UK.
§The Kenan-Flagler
Business School, The University
of North
USA.
.To
whom
correspondence
should
be addressed.
e-mail:
2100 Neil
Carolina,
Avenue,
Chapel
Hill,
[email protected]
International Journal of ProductionResearchISSN 0020-7543prinl/ISSN 1366-588Xonline (!d 1999Taylor & Francis LId
hllp:/ /www .landf.co.uk/JNLS/prs.hlm
hllp:/ /www .laylorandfrancis.com/JNLS/prs.hlm
3600
w. L. Berry et al
(a) there is no generally accepted method for its analysis and development;
(b) there is no framework for organizing management thinking regarding its
formulation that is generally accepted by executives and researchers;
(c) there are no commonly held concepts and language to communicate issues
and options among those concerned with its development and implementation.
Furthermore, the links between manufacturing strategy and other functional strategies are frequently unclear with the result that management's ability to connect the
strategic options in one function with relevant options in other functions is often
very limited. The result is that the 'bunker' mentality within a business is not only
reinforced but is also extended to the formulation and development of functional
strategies. Finally, debate and discussion of the linkages between manufacturing
strategy and marketing strategy are critical if a business is to be competitive in its
markets. The fact that management is often unable to link strategic options between
functions limits this debate and the effectiveness of strategic outcomes in any business.
This paper presents a framework and methodology for guiding the development
of functional strategy in both marketing and manufacturing that has been tested in
numerous businesses over the past fifteen years. Furthermore, the approaches used
in marketing have been applied successfully by marketers for nearly forty years.
The purpose of this paper is to provide a comprehensive statement on how to link
the functional strategies developed within marketing and manufacturing and to
illustrate these approaches by using a worked example of one company. The
approaches outlined are the result of many business-based applications. The company example is intended to illustrate the points embodied in the approaches used
while providing additional insights and emphasis throughout.
The paper builds on some of the key views held by the authors and which have
been derived from their extensive research in businesses.
(a) The analysis of customers and markets provides the basis for linking the
strategy development efforts in both of these functions.
(b) Frameworks and methodologies are an essential aid for executives when
formulating, articulating, debating, and implementing functional strategies
such as marketing and manufacturing.
(c) Similarly, frameworks and methodologies are essential for guiding research
in the study and analysis of functional strategies.
As would be expected, these views are reflected throughout the paper and help to
fonn some of the themes and outcomes on which the work is based. An outline of the
content and rationale of the paper is now provided. The first section provides an
overview of the framework and methodology we use in analysing and developing the
functional strategies of marketing and manufacturing. Then we give an example that
illustrates the steps in each of the frameworks and how the supporting methodology
works. The final section presents the conclusions which have been reached based on
extensive field research completed (but not reported in detail here) over the past
fifteen years in applying this framework and methodology to companies in such
diverse businesses as furniture, packaging, chemicals, electronics, printing, steel
and automotive components.
Aligning marketing and manufacturing strategies
3601
2.
Framework and methodology overview
Many have argued that strategic choices in manufacturing need to be made in
competitive terms, thereby enabling manufacturing to do certain things better than
competitors (Clark 1996, Fine and Hax 1985, Hayes and Pisano, 1996). Cost, quality, dependability and flexibility have been proposed as key competitive priorities,
with the understanding that manufacturing must determine on which of these dimensions it seeks to be distinctive (Fine and Hax 1985, Hayes and Wheelwright 1984,
Wheelwright and Kent Bowen 1996). Plant focus has been recognized as a means of
supporting strategic development in which different products are sold in different
markets that require different competitive priorities (Hayes and Pisaro 1996). As an
example, Benningson (1996) provides an illustration where market and competitivebased business analyses were used to cross reference market segments and manufacturing processes in terms of order size and frequency to improve order scheduling
performance. Voss and Winch (1996) also illustrate the use of order winning criteria
and the concept of positioning choice as a way to link manufacturing strategy to
market needs.
However, despite the substantial progress made in research on the process and
content of manufacturing strategy, there is no framework and methodology for
developing manufacturing strategy that is generally accepted by both the marketing
and manufacturing functions in a business. One result is that among those concerned
with strategic development and implementation there are neither commonly held
concepts nor language to communicate issues and options. This paper addresses
this gap by presenting a methodology that is both consistent with the strategy
methodology generally used by marketers and successfully links the strategic perspectives of manufacturing into the corporate debate. This methodology has been
successfully applied in numerous firms to check the alignment between the strategies
which marketing and manufacturing have developed.
The framework and methodology presented here is based on the view that the
market is the common denominator when developing functional
strategies.
Consequently, it is important to ensure that the views of key functions on how
markets work and what constitutes the competitive factors are recognized. Then
differences can be resolved so that a more informed view is reached and common
agreement on the competitive factors in markets is shared. Once the nature of the
market(s) is understood, the strategic tasks of marketing, manufacturing and other
functions are clear. The proposed framework and methodology to align marketing
and manufacturing strategies consists of the five steps below.
.Step I: elicit marketing's view of the market and identify its strategic initiatives.
.Step 2: establish marketing's view of the market in terms of customer requirements and verify that the views on customer needs are correct both in terms of
perspective and emphasis.
.Step 3: check manufacturing's performance against those customer requirements for which it is solely or partly responsible.
.Step 4: compare current and future manufacturing investments and developments (i.e. manufacturing strategy), with the customer requirements for which
it is solely or partly responsible.
.Step 5: identify the investments and developments necessary to resolve the
differences between customer requirements and manufacturing's performance.
w. L. Berry et at.
3602
Table
Alignment
process overview: marketing's
view of business and initiatives.
The basis for this approach derives from the work of Hill (1994) in developing a
manufacturing strategy framework. This framework is included as table I. It begins
with an analysis of business objectives and marketing strategy, moves to a description of markets and customer requirements in terms of the relevant order winners
and qualifiers, and ends with an analysis of manufacturing strategy in terms of
process and infrastructure investments. This framework has had extensive field testing in a wide range of industries, representing a significant sample size. This includes
48 companies ranging in size from annual sales of $40 million to $5 billion in the
following industries: packaging, furniture, steel, automotive, aerospace, textiles,
tobacco, plastics, pharmaceuticals, electronics, telecommunications, apparel, and
communications. The companies were located in the USA, Canada, Mexico,
Thailand, UK, Spain, France, Germany, Portugal and South Africa.
The methodology presented here extends Hill's work in two ways. First, it explicitly links Hill's framework to the marketing strategy framework that is generally
accepted by both executives and researchers (Corey 1992). Second, it provides the
methodology needed to apply this overall framework to strategic business decisions.
2.1.
Examining marketing's view of the business-step 1
To examine marketing's view of the business we used the framework presented in
figure 1 to describe and review the marketing strategy of the company (as a convenience to the reader, all portions of this paper that illustrate the application of our
methodology to Anonke Apparel will be set in italic type). The first step in the
methodology concerns examining marketing's view of the business and its strategic
initiatives. The marketing strategy framework shown in figure 1 indicates the process
by which marketers study markets and formulate strategies to serve them (Corey
1992).
Marketing/Manufacturing
strategy illustration-Anonke
Apparel: To i[[ustrate the
manufacturing strategy framework and methodo[ogy we have se[ected an appare[ company [ocated in Thai[and named Anonke Appare[. Thisfirm is an interesting examp[e in
three ways:
(a) it competes in wor[d markets that are intense[y competitive;
(b) it exports 100% of its product sa[es;
Aligning marketing and manufacturing strategies
3603
J
Market
Product
Segmentation
Differentiation
Marketing
Strategy
Figure
I.
Developing
a marketing
strategy.
(c) the chief executive has a well-conceived manufacturing strategy which involves
an investment in advanced manufacturing technology in direct support of
market requirements.
As with much of marketing, analysing and understanding customers is paramount. We want to know who they are; what they buy from our product line;
when, where and how often their purchases occur; why they buy, that is, what
benefits they seek; and how they buy which means what is their buying process.
Based on answers to these and similar questions, patterns of buying or groupings of
customers start to emerge called market segments. An essential element in market
segmentation is to assign customers to segments so that all customers within a
segment exhibit similar buying behaviour, while customers across segments exhibit
dissimilar buying behaviour (Buzzell 1987). This is because the goal of all marketing
strategies is to affect buying behaviour in such a way as to work to the benefit of the
selling firm while meeting the demands of customers. By working with customers
with similar buying behaviours, marketers can develop a strategy for that market
segment which is specific and peculiar to that segment. By the same token, they can
develop specific, unique strategies for other segments. This bias has come to be called
target marketing.
While acknowledging that customer differences are key, recognizing that other
firms are trying to do the same thing avoids myopic strategies which fail to recognize
the key role played by competitors. Even though it is true that all marketers try their
best to serve their chosen customers, their competitors are attempting to do the very
same thing. It is also true that competitors in a market possess unique capabilities.
Recognizing, acknowledging and specifying those differences is the task of product
w. L. Berry et al.
3604
Segment Al
.widely
.heavily
.brands
.designer
.bought
Segment
.much like Al except bought more on product features
.smaller than Al customers
.small ad budgets; promote only in home countries
.own their own retail outlets
A2
SegmentB:
recognized brands
advertised
known because of footwear lines
specifies fabric, color and fabric supplier
monthly for delivery four months hence
.have no designers
.submit
samples and Anonke selects
.five month delivery typical
.some buy directly from finished goods inventory
Table 2
Anonke's customers/segments.
differentiation. Here the marketer objectively acknowledges where a firm is strong
and where various competitors might be stronger, or weaker.
Finally, the marketer explicitly recognizes that marketing is simply one component of a firm's overall business strategy. Using time-honoured and dependable tools,
portfolio analysis (Hedley 1977), industry analysis (porter 1980) core competency
assessment (Prahalad and Hamel 1990) and other strategic analytic weapons, business strategists build strategies, set objectives for the firm and provide corporate
direction. These analyses also determine where a firm is strong (possessesthe necessary skills, capabilities and resources) in order to build or maintain a competitive
advantage.
Based on these three, key analyses, referred to as the three C's (customers,
competitors and company), the marketer makes one of the most important decisions
that a firm faces: which markets to serve with which products/services and using
which strategy. From this key decision all other marketing decisions simply flow.
Marketing programs in each of the major areas of marketing, first called the four P's
(product, price, place and promotion) by McCarthy (1960), are then developed to
bring these marketing strategies to the marketplace.
Marketing strategy-Anonke
Apparel: Anonke Apparel's market segmentation
scheme is shown as table 2. Three major segments are identified by the firm: segment
Al consists of companies with world-wide reputationsfor their brands, large advertising
budgets and high levels of product and process knowledge; segment A2 is made up of
firms similar to those in segment Al except that they are smaller, have lower advertising budgets and are mostly only known in their home markets; segment B consists of
customers that are very nimble, act and react quickly, and are not averse to copying
designs originally developed by some of their larger competitors.
Customer analysis/market segmentation-Anonke Apparel: Three major initiatives
comprise Anonke's current marketing strategy (see table 6). These include targeting
large us companies in segment Al, targeting several European customers in segments
A2 and B, and emphasizing hard-to-manufacture products, e.g. raincoats. across all
segments. Each of these strategies is based upon separate rationales. The large us
companies are of interest because they provide large annual orders which help simplify
business and production planning. The European .firms targeted demand higher quality,
Aligning marketing and manufacturing strategies
3605
Volume
Anonke compared to its competitors.
Figure 2.
Other Thai companies
Globally: Hong Kong, Taiwan, Singapore, Korea, China, Japan, and Eastern Europe
New competition coming from Indonesia and Malaysia
Table
Anonke's competitor categories.
3.
Differ from product to product
One major competitor in raincoats and long coats (1. E. Garment Company)
Three in men's, women's and children's jackets (Thai Masa, Far East Woven, and Autraya
Garment)
Two in sportswear (Thai Hong Kong Garment and Best Week)
Major strengths: longer runs
standard products
lower costs
Table
4.
Anonke's Thai competitors.
but are far less price-sensitive. These characteristics clearly play to Anonke's strengths
as illustrated earlier in the differentiation analysis. Finally, by emphasizing hard-tomake products, Anonke is seeking markets which draw upon their manufacturing
strengths and move them away from price-sensitive, low margin segments.
Competitor analysis-Anonke
Apparel: Anonke competes with local Thai firms ,
large global firms, and new competitors entering the market, especially from
Southeast Asia (see table 3). On a day-to-day basis, however, Anonke most often
faces its Thai counterparts. Making this task particularly difficult for Anonke is the
fact that each Thai competitor seems to compete in a distinct manner, particularly in
terms of products manufactured and sold (see table 4). Generally, Anonke's Thai
competitors have longer runs, more standard products, and lower manufacturing
costs. Under the process choiceframework developed by Hill (1994), Anonke's competitors use high-volume batch processes. Anonke, on the other hand, has developed a lowvolume batch process to meet the needs of small volume customers as we will demonstrate later (seefigure 2).
w. L. Berry et al.
3606
Product
A1
Blouse
Ski wear
Stadium jacket
Men's shorts
Jackets/pants
Jackets
Raincoats
Coats
Children's jackets
Parkas
Pants
Jogging suits
Children's shorts
x
Table
5.
x
x
x
x
x
A2
B
x
x
x
x
x
x
x
x
x
Anonke's products by segment.
Target large US companies like Zeus and Leland (segment A.) because they place large orders
and order once/year.
Target several European customers because of higher prices and stricter quality requirements
(segments A2 and B).
Emphasize difficult-to-manufacture
products: more raincoats and fewer shirts.
Table
6.
Anonke's marketing initiatives.
Product differentiation-Anonke
Apparel: Anonke's product line by segment is
shown in table 5. Comparing this with the data shown in table 4, it becomes apparent
that Anonke's competitors differ significantly within each segment. Thus, Anonke's
competitive advantage may be stronger or weaker depending upon the market segment
under review. Generally, however, Anonke offers a much broader line than nearly all its
Thai competitors. and this broad product line has important implications for manufacturing strategy.
2.2. Estab[ishingcustomerrequirements-step 2
Although buying pattern type, geographic location, and retail outlet type
often representcritical segmentation dimensions in formulating marketing strategy,
this view of the market provides little information concerning the customer
requirements placed on manufacturing. An alternative approach is to segment
markets in a way that provides manufacturing with insights into customer and
market requirements, using the order winning and qualifying criteria proposed by
Hill (1994). (Order winners are those criteria that enable a company to win orders
against competitors. Qualifiers (Q) are those criteria that a company must meet
for a customer to even consider it as a possible supplier, with some displaying a
high level of sensitivity to order loss. Qualifiers can also be order losing sensitive
(QQ». This approach provides manufacturing with a description of the market that
can be related directly to manufacturing capabilities and manufacturing strategy
options.
The process for developing order winners and qualifiers indicated in table 7
differs from firm to firm and from situation to situation but typically involves several
steps. First, salesand marketing executivesare interviewed to prepare a judgement
Aligning marketing and manufacturing strategies
Sources:(I)
(2)
(3)
(4)
3607
Marketing interviews/discussion
Order sample from marketing/manufacturing
Information on manufacturing segments
Rethought manufacturing segmentation.
Table 7.
Alignment process overview: customer requirements.
sample, usually containing 30-50 customers and products that provide a representative sample of relevant market segments. The appropriate size of the sample
depends upon the number of distinct market segments to be reviewed. Next, discussions are held with marketing and sales executives to identify the potential order
winners and qualifiers for each of the customers in this sample. Once the set of order
winners and qualifiers has been reduced to a small number of key items, the last step
involves developing weights for each of the order winners, and identifying the order
losing sensitivity of each qualifier.
The customer data in the sample has two important uses. First, this data provides
a check on management's judgement concerning the relative importance of order
winners and qualifiers. For example, the data can be used to check the actual level of
customer price sensitivity, the degree of delivery speed pressure actually experienced
from customers, or the actual demands concerning the level of quality conformance
in a product specification. When differences occur between the data in the order
sample and the managerial judgements, these need to be resolved. Second, the data
in the customer order sample can be reorganized to reflect major groupings of
customers that have similar order winners and qualifiers, and similar order winner
weightings. Such groupings form the basis for market segments that are characterized in manufacturing terms, indicating important differences in the customer
requirements placed on manufacturing between segments.
Order winners and qualifiers-Anonke Apparel: Twenty-seven customers worldwide
were selected by the sales and marketing executives at Anonke as representative of the
market segments served by the company. Table 8 shows illustrative data from the
judgement sample which includes the critical manufacturing and non-manufacturing
order winners and qualifiers, and their respective weightings.
.The data in the judgement sample were organized to identify groupings of customers
with similar order winners and qualifiers. Consequently, the customers were grouped
into the five different market segments shown in table 9. These segments place the
following four very different sets of requirements on manufacturing.
(a) Segment FC (Few Competitors) involves small customer orders, has declining
sales, and is not highly price sensitive.
w. L. Berry et al.
3608
(a)
Home
Customer
Buying
office
pattern
location
Pierre Duree
A2
France
Ibrahim
A2
France
Iberian
B
Spain
Daisy Wraps
Couti
B
B
USA
Production
Segment
FC
Oexibility
Q/Q
Q
p
Quality
Delivery
Delivery
speed
reliability
Q/Q
Q/10
Q
Q
Q/Q
0/15
0110
0/15
Price
Capacity
Product
uplift
features
Q
20/20
20
40110
20/20
Q/Q
70/70
Q?
Italy
10!?
20(1
30/?
10{1
Leland
Al
USA
10/10
10/20
15/15
25125
15/15
Eurotech
Al
USA
10/10
10/15
15/15
30135
15/15
20/20
20/20
20/20
20/30
10/10
20/20
20/20
20/20
20/25
10/10
10/10
10/20
15/15
15/15
20/20
20/20
Larouche
B
Swiss
Fontainbleau
B
France
LV
Phoenix-EEC
Phoenix-USA
Al
Al
10/10
10/20
15/15
20120
Zeus-USA
Al
10/10
10/20
15/15
25/25
15/15
Zeus-EEC
Al
USA
10/10
10/20
15/15
15115
20/20
B
Gernlany
20/20
20/20
20130
30/30
A2
B
Netherlands
20/20
20/20
20/20
30/30
Gernlany
10/10
10/10
30/30
France
10/10
20/20
20/20
10/20
30/30
20/0
2010
10/?
20/20
10j?
30/?
20130
20/20
0/20
20/20
20/10
10/10
20/?
Qj?
30/?
Q/IO
Q/10
Jean Valjean
Monrnouth
Bach
Naorni
B
Mulder
B
Germany
Netherlands
PF
QIQ
30/0
Toddlers
Al
France
10/?
Niebuhr
B
Gernlany
10/0
Q/Q
10/20
Peppi
Surnata
A2
Italy
10/10
20/15
10/10
A2
Japan
20/20
B
Gernlany
20/?
Q?
10f'!
Q/Q
Q/20
Apres
Gorgio
Candida
Etyia
ltalia
Table 8(a).
30/20
A2
France
Q/Q
A2
Italy
10/10
20/20
20/20
B
Italy
10/10
20/20
20/20
A2
Italy
10/10
20/20
20/20
PC
10/0
Anonke's market segments by order winning criteria: manufacturing
20/20
related.
(b) Segment P (Price) is very price-sensitive and is increasing its demands for
reliable delivery.
(c) Segment PC (Partnership Collection) places a major emphasis on delivery
reliability with moderate growth and mid-range customer order sizes.
(d) Segments LV (Large Volume) and PF (Product Features) have high growth
potential, place a wide range of customer order sizes that require production
flexibility,
emphasize delivery speed and delivery reliability, and are price
sensitive.
For Anonke,four key order winners requirefurther analysis to evaluate manufacturing
performance and capabilities: price, delivery speed, delivery reliability, and manufacturing's ability to provide small to medium customer order quantities. This latter
capability provides a strong, sustainable competitive advantage for Anonke in terms of
meeting the needs of speciality shops and boutique customers.
2.3. Checking manufacturingperformance-step 3
An understanding of a company's markets in terms of order winner and qualifier
data provides the basis for analysing both a firm's manufacturing strategy and its
performance against thesecustomer and market requirements. The ellipse shown in
Aligning marketing and manufacturing strategies
3609
(b)
Home
Customer
Buying
office
pattern
location
Sales
Country of
Market
Have
Partnership
Few
Segment
relation
origin
familiarity
quota
(collection,
(competitors)
FC
Q/Q
Q
25{35
35/15
35
35
Pierre Duree
A2
France
Ibrahim
A2
France
Iberian
B
Daisy Wraps
Couti
B
Spain
USA
B
Italy
10/?
20/?
Leland
AI
USA
10/10
10/0
Eurotech
Al
USA
10/10
10/0
Larouche
B
Swiss
Fontainbleau
B
France
Phoenix-EEC
AI
Germany
Phoenix-USA
20/10
10
10!10
p
10/10
10/10
20/20
20/20
5/5
10/0
0/5
10/0
10!10
10/0
10/10
AI
10110
10/0
5/5
Zeus-USA
AI
10110
10/0
5/5
Zeus-EEC
AI
10/10
10/0
10/10
Jean Valjean
Monmouth
Bach
Naomi
USA
B
Germany
10/0
A2
B
Netherlands
10/10
B
Mulder
LV
B
Germany
20/10
10/0
France
10/10
20/10
Netherlands
PF
20/0
Toddlers
AI
France
Niebuhr
B
Germany
Peppi
Sumata
A2
A2
Italy
0/20
Japan
20/20
B
Germany
A2
France
A2
Italy
B
Italy
A2
Italy
Apres
Gorgio
Candida
Etyia
Italia
0/20
10/0
10(!
10/?
lo/lo
10/0
10/0
20/25
10/0
20/"
PC
Q/Q
20/20
Q/Q
20/10
50/30
30/30
20/20
20/20
30/30
30/30
Order winning criteria (xx/yy) where xx=current
year and yy=three
years hence. If yy=O, this
customer will be phased out. If yy = ?, a major change is occurring within a customer's management.
Product features: superior workmanship or fabric material. Sales relationship: longstanding sales relationship. Country of origin: purchased because it was produced in a particular country. Market familiarity:
superior knowledge of local market. Have quota: have available quota where competitors do not.
Partnership (collection): long term customer relationship in producing a given collection; the customer
is reluctant to change suppliers because design detail confide.ntiality is desired.
Table
8(b).
Anonke's
market
segments by order winning
criteria:
non-manufacturing
related.
table 10 indicates the need for debate regarding how well the current manufacturing
strategy supports the market requirements placed on the company, both now and in
the future. Where gaps in performance exist, this diagram also indicates the need to
debate potential strategic options that would improve the competitiveness of the
company by reducing the gap between market requirements and manufacturing
capabilities.
The first step in assessing company performance against market requirements, i.e.
against the key order winners and qualifiers, is to collect operating data for the
representative customers and products in the judgement sample. The data shown
in table II and figure 3 has been included to illustrate how company performance
can be assessedin terms of key order winners and qualifiers. In this case, price and
delivery speed and reliability are critical areas at Anonke Apparel.
w. L. Berry et at.
3610
Segments
Product
Few
Order winners
competitors
Few competitors
Partnership/colI.
Product features
Market familiarity
Sales relationship
Have quota
Price
Delivery speedt
Delivery rel.~
Production flex.
35/25
30/35
20/20
15/10
% Sales/growth§
Product difficulty
Buying pattern
Order size
4/-5
t 150 days-now;
Partnership/
features
Price
35/30
20/20
11/11
16/16
15/15
collections
27/27
15/15
14/13
20/20
47/37
21/24
13/19
16/16
13/13
10/18
A2
1084
45 days after fabric
8/15
20/18
16/12
57/272
3-5
Al
11592
3/-44
1-3
B
31588
delivery,
16/16
60-120
days-future.
22/245
1-3
A2,
B
3132
14/132
1-3
A2, B
4366
t 2 weeks in peak season. § All
in
percentages.
Table
9.
Anonke's market requirements/order
winners.
Issues:price, delivery reliability, delivery speed,production flexibility.
Table lO.
Anonke's alignment process overview: manufacturing's
performance.
Information such as that shown in table 11 and figure 3 should include customer
and market profitability analyses,and cost estimatesof supplying products in various volumes (including those outside the normal range). The contemporary work on
Activity-Based Costing to determine cost drivers, and the Theory of Constraints to
identify process bottlenecks and their impact on product profitability provide an
excellent framework for contribution margin analysis (Campbell et al. 1997,
Spoede 1996). Such an approach ensuresthat marketing strategies are developed
which take into account the company's capabilities and their customers' contributions to profitability as distinct from their contributions to revenue. (Elishberg and
Steinberg (1987) surveyedjoint decision-making categoriesand concluded that there
Aligning marketing and manufacturing strategies
Productivity
3611
by Order Size
.Flexibility
important in
two segments: "Large
Volume" and "Product
Features"
.Doing
fine in A2 (data
insufficient to look at A
and B)
0
Figure
5000
3.
10000
Anonke's
15000
manufacturing
performance:
Few
competitors
Price related:
Dir. mat. (% price)
Dir. Mat. ($/pc.)
Cont. marg. ($/pc.)
Cont. marg. (% price)
Cont. margin ($/hr.)
Delivery related:
Avg. quote LT (days)
Avg. actual LT (days)
Avg. lateness (days)
51
13.73
10.62
39
2.54
146
173
27
Price
67
2.54
0.72
19
.38
172
176
4
Large
volume
63
8.24
3.14
24
.48
170
197
27
flexibility
Partnership
collections
Product
features
60
14.95
7.27
29
.77
58
13.27
7.53
33
2.28
164
161
190
166
26
5
Actual and quoted delivery speedsare not meeting customer requirements;actual delivery speedis not
meeting quoted speeds.
Table 11. Anonke's manufacturing
performance: price and delivery related.
must be a concurrent analysis of manufacturing
costs and marketing benefits in
product mix decisions.)
As an illustration of this point, the contribution margin $ per labour hour
data shown in table 11 was an important aspect of this analysis because of the
constraint on the availability of skilled labour faced by Anonke Apparel. This constraint led the company to inv~st in an industrial training facility to develop
employee skills to produce enhanced product features. It is important to identify
key constraints on manufacturing performance, and to assesstheir impact on profitability as illustrated by the data shown in table 11. Such constraints may involve
specific processes, machines, critical employee skills (as in the case of Anonke
Apparel), or even functional department capacities such as engineering design or
final product testing.
Manufacturing performance--Anonke Apparel: A t Anonke there are four key order
winners: delivery speed, delivery reliability, manufacturing's ability to make low to
medium size orders, and price. This step is illustrated using the Anonke data shown
in table 11 and figure 3.
Delivery speed is an important issue with Anonke's customers. Currently, one major
customer in the large volume (LV) segment is pressing for 150 day lead times. The
3612
Table 12.
w. L. Berry et al
Alignment process. Overview: manufacturing
strategy versus current performance.
company expects that other customers in the large volume (LV) and product
features (PF) segments will soon be pressing for delivery lead times between 60 and
120 days.
The delivery information for customers in the judgement sample indicates that
Anonke currently promised customers delivery lead times averaging 146 to 172 days
(see table 11), depending on the market segment. It also indicates that the delivery lead
times actually experienced by customers average 166 to 197 days. depending on the
market segment. During the peak selling season (April to September) customers experience even longer delivery lead times averaging from 143 to 236 days, depending on the
market segment.
Likewise. delivery reliability is an important issue with customers. Overall, actual
deliveries currently average 4 to 27 days after the promised delivery date. Further ,
deliveries average 26 to 27 days late in the two highest growth segments (L V and
PF). Customers expect delivery within a two week window during the peak selling
season for April through September. During this period. however, deliveries average
15 to 86 days after the promised delivery date.
Production's ability to provide small to medium order quantities is important in both
the LV and PF segments (see table 8). To check the company's performance against
this aspect of production capability. relevant data on productivity, contribution margin,
and customer order sizes were collected. The plot of productivity (units per hour)
against customer order size shown in figure 3 includes all the data for customers in
segment A2. This plot shows that productivity is roughly constantfor a very wide range
of customer order sizes in the low to mid volume range. Similar plots were observedfor
contribution margin/labour hour versus customer order size. These results indicate that
the production process provides good support for this market requirement.
Price is a key criterion in two segments: P and L V. The data in table 11 indicate
that the percent contribution margin in these two segments is low. The principal reason
for this is that the direct material cost, which is primarily fabric cost, is high. Therefore.
while previous investments by the company in automated pattern making and laser cloth
cutting have helped to reduce cost, manufacturing needs to support further corporate
efforts in direct material cost reduction.
Aligning marketing and manufacturing strategies
3613
Process choice is low volume batch
Table
13.
Anonke's manufacturing
strategy
2.4.
Comparing manufacturing strategy to actual performance-step 4
As with all functional strategies, manufacturing strategy comprises the developments and investments made in processes and infrastructure to support markets (see
table 12). As argued throughout, we believe that markets (current and future) are the
common denominator of functional strategies. Once these are understood and agreement is reached on where to compete and grow, then manufacturing's strategic role
is to develop the capabilities to support those order winners and qualifiers for which
it is solely or jointly responsible. In this way it needs to be market-driven. However ,
there are times when it also needs to be market-driving, i.e. determining what order
winner and qualifier changes can be made in line with its existing capabilities or
capabilities which it then develops.
Because of the absence of a well-established framework and methodology for
manufacturing strategy, very little formal information typically exists in companies
to document a firm's manufacturing strategy. As a consequence, we take the following approach in conducting interviews with manufacturing executives to understand
their manufacturing strategy.
The first requirement for information concerns the major investments made in
manufacturing and major programs instituted in manufacturing that have been
undertaken by the company during the last several years. These reflect its manufacturing strategy. In particular, we are interested in the business benefits resulting
from these investments rather than the details of the process technology and so on.
This approach is illustrated using data from Anonke.
Manufacturing strategy versus current performance--Anonke Apparel: During the
past five years Anonke has made several major investments in manufacturing. These
investments, shown in table 13, have several objectives.
Investments to reduce cost
The investments in computer technology for pattern-making and a laser cloth cutting machine provided important benefits by reducing fabric waste and decreasing direct
labour costs. Likewise, the special purpose sewing machines provided equipment that
performs operations such as embroidery and button hole making to improve productivity and reduce direct labour cost.
Investments to meet low-volume orders
The investment in sewing lines reduced the level of difficulty in the sewing operations
by transferring the more difficult operations to sub-assembly stations operated by
highly skilled emplo}'ees. The business benefits here included lower learning and change-
Order
Corporate
objectives
Table 14.
Marketing
strategy
Alignment
Manufacturing
strategy
winning
criteria
process overview: manufacturing's
Process
Infrastructure
view of business and initiatives.
over times between customer orders. This investment representated a deliberate decision
to invest in a low-volume batch process choice to create competitive advantage as
indicated in the diagram in figure 2.
Investments to support product features
The investment in an industrial training facility provided important benefits in the
development of employee skills to produce enhanced product features.
Several conclusions can be drawn by comparing the manufacturing strategy with the
performance data provided by the order sample. This involves comparing actual manufacturing capabilities to the market requirements.
(a) Manufacturing initiatives have provided important support for three of the
order winning criteria: price, manufacturing's ability to cope successfully
with low to medium customer order specifications. and product features.
(b) Investment in sewing lines provides good support for low- to mid-volume
markets, and positions the company as the most effective in processing low
volume batch products.
(c) Although the investments in automated pattern making and laser cutting
support low cost production, a key area for improvement is to further reduce
fabric cost, especially if the A 1 market segment is to be emphasized.
(d) While the investment in automated pattern making shortens this step in the
process, manufacturing does not currently have the capability to support current and future market requirements for delivery speed and delivery reliability.
2.5. Developing strategic issuesand recommendations-step 5
The final step in our methodology is to identify the areas of misalignment
between marketing and manufacturing strategy, and to develop options to improve
the strategic fit between these two functions. As a consequence,the debate may
involve a discussion of changesin both marketing and manufacturing strategy, i.e.
a discussion involving markets, marketing initiatives, and manufacturing investments. This is indicated by the large ellipse in table 14.
To illustrate this point the strategy issues/recommendation
discussionfor Anonke
Apparel included below highlights two important areas of misalignment at this company. Theseare:
Aligning marketing and manufacturing strategies
3615
Marketing:
Growing emphasison three segments:large volume, product features and partnership
collections
difficult-to-manufacture products
Manufacturing:
supporting delivery speed and reliability
supporting price sensitive segments
performance reward systems
Table
15.
Anonke's alignment process overview: develop strategy issues/recommendations.
(a) the inability of the company to meet the delivery speed and reliability requirements of the large volume and product features market segments;
(b) the focus on the large volume segment which does not exploit the company's
investment in low/mid volume production flexibility in the factory nor the skill
level of the workforce.
These require discussion and debate within the company to resolve the differences in
marketing and manufacturing strategy.
At Anonke, the key manufacturing options to improve strategic alignment {shown
in table 15) involved reducing customer lead times and increasing delivery reliability.
Further analysis of the data collected in the representative sample revealed that, currentl)', over half the operations lead time is explained by delays in ordering fabric once
the customer orders have been accepted, and starting manufacturing once fabric has
been received from suppliers.
Such delays could be avoided by making enhancements to the company's manufacturing planning and control system to improve customer order tracking in purchasing
fabric, in placing and receiving orders from suppliers, and in scheduling manufacturing
operations such as pattern-making, cloth cutting, and sewing operations. Other
enhancements include introducing improved capacity planning methods to ensure that
sufficient capacity exists to begin manufacturing operations once fabric has been
received. Furthermore, since the lead time to purchase fabric represents one-third of
the customer lead time, still another option involves making changes in the purchasing
area to improve the quality of forecast information concerning fabric requirements and
colours, or investing in inventory to stock standardfabric types. A further option would
be to change the company's performance measurement system to evaluate delivery
speed and delivery reliability performance on a regular basis.
Other strategic options to be considered involve reducing direct material cost to
better support the A1 market segment. Alternatives here include an increased emphasis
on sourcing and supplier development by purchasing to improve supplier pricing .
Asowith manufacturing, marketing needs to review the strategic decisions concerning market positioning to bring the marketing and manufacturing strategies into better
alignment. Three major options in marketing strategy become apparent from this process overview and application.
Thefirst was to review Anonke's current emphasis on the A1 segment. This segment
has represented a major sales growth area for the company, with over half the current
sales volume. There are several important reasons that justify this initiative. Such sales
involve high volume, non-seasonal items that enable the company to level factory
3616
w. L. Berry et at.
output. Even so, when these sales are viewed in terms of their contribution margin, they
are much less attractive than the A2 market segment. Furthermore, the Al segment
does not exploit the low/mid-volume production flexibility of the factory nor the skill
level of the workforce. It also places pressure on the company's infrastructure, requiring
investment and development of the purchasingfunction in order to cope with highfabric
costs and tight delivery dates. In fact, the Al segment fits the high volume/low cost
manufacturing strategy of the company's competitors much better than the niche/low to
medium volume production strategy adopted by Anonke Apparel.
A second major option was to increase the company's emphasis on some of its
European customers. These customers, while more demanding when it comes to product
quality, are less price-sensitive. This means that they better fit Anonke's chosen manufacturing strategy than the large us firms in the Al segment currently being courted by
marketing.
The final option was to increase further the emphasis on difficult-to-manufacture
garments. Again, these products fit Anonke's manufacturing strategy in much the same
way as with its European customers.
3.
Conclusions on the application of the methodology
This framework and methodology provides a way of organizing management
thinking about manufacturing strategy and how it relates to a firm's markets and
marketing strategy, and a way of articulating manufacturing strategy to other business functions. The Anonke example demonstrates how this methodology enabled
an assessment of:
(a) the critical market requirements that need to be supported by manufacturing;
(b) the actual performance against these requirements;
(c) the relationship of particular manufacturing investments to the market
requirements;
(d) the current marketing strategy and how it fits with manufacturing in view of
the overall investment;
(e) the strategic options for improvement in both manufacturing and marketing.
We have revised the framework and proposed methodology shown in figure I to
provide an explicit link between the strategy perspectives of marketing and manufacturing. The revised framework and proposed methodology is shown in figure 4.
This figure implies that the strategic options in marketing can be connected with
strategic options in manufacturing and vice versa. For example, the investments at
Anonke in production's ability to cope effectively with low to medium customer
order quantities relate directly to marketing's initiative to target speciality shops
and boutiques in the European market, i.e. the product features segment noted in
table 8 which exhibits important sales growth and profitability as shown in tables 9
and II. This implies that the marketing and manufacturing strategy debate can and
should influence the market positioning decisions noted in figure 4. In this way a
manufacturing strategy can be developed to support marketing strategy, and to
develop competitive advantage.
The framework and methodology is hard-data-driven. The discussion and debate
of the marketing and manufacturing strategies are based on factual arguments and
data instead of opinions. The ability of manufacturing to support specific customer
requirements can be evaluated by measuring actual manufacturing capabilities and
performance. For example, production's low volume capability, as defined in figure 3
Aligning marketing and manufacturing strategies
Figure 4.
3617
Business strategy debate.
of this paper, can be measured in terms of productivity and contribution margin, and
data can be used to support strategic arguments to target market segments with low
volume production requirements, i.e. the product features segment noted in table 8.
Finally, the framework and methodology enables manufacturing performance to
be tested against customer requirements to assessthe alignment between marketing
and manufacturing strategy .The delivery speed and reliability issues in Anonke
provide an interesting example of this. Clearly, the current and future market
requirements for short reliable customer lead times cannot currently be supported
by manufacturing. Therefore, discussion and debate are necessary in order to
develop strategic initiatives in manufacturing to retain competitive advantage. In
this way the manufacturing strategy framework and methodology presented here
indicate areas of mis-alignment between marketing and manufacturing strategy, and,
therefore, drives the business strategy debate!
References
BENNINGSON, L. A., 1996, Changing manufacturing strategy. Production and Operations
Management, S (1).
BUZZELL, R., 1987, Note on market definition and segmentation. Harvard Business School,
Reference No.579-083.
CAMPBELL, R., BREWER, P. and T. MILLS, 1997, Designing an information system using
activity-based costing and the theory of constraints, Journal of Cost Management,
Jan./Feb.
CLARK, K. B., 1996, Competing through manufacturing and the new manufacturing paradigm: is manufacturing
strategy passe? Production and Operations Management,
5 (1).
COREY, E. R., 1992, Marketing strategy-An
Overview, Harvard Business School, Reference
No.579-054.
3618
Aligning marketing and manufacturing strategies
ELISHBERG, J. and STEINBERG, R., 1987, Marketing-production
decisions in an industrial
channel of distribution. Management Science, 33 (8).
FINE, C. H. and HAX, A. C., 1985, Manufacturing strategy: a methodology and an illustration.
Interfaces, 15 (6).
HAYES, R. H. and WHEELWRIGHT, S. C., 1984, Restoring our Competitive Edge (New York:
Wiley).
HAYES, R. H. and PISANO, G. P., 1984, Manufacturing strategy: at the intersection of two
paradigm shifts, Production and Operations Management, 5 (I).
HEDLEY, B., 1977, Strategy and the business portfolio. Long Range Planning.
HILL, T ., 2000, Manufacturing Strategy: Text and Cases, 3rd edn (Homewood, III.: Irwin).
MCCARTHY, E. J., 1960, Basic Marketing: a Managerial Approach (Homewood, Ill.: Irwin).
PORTER,M. E., 1980, Competitive Strategy (Free Press).
PRAHALAD, C. K. and HAMEL, G., 1990, The core competence of the corporation, Harvard
Business Review, May-June.
SPOEDE,C., 1996, Accounting and the theory of constraints. APICS Conference Proceedings,
45-50.
Voss, C. A. and WINCH, G. M., 1996, Including engineering in operations strategy.
Production and Operations Management, 5 (I).
WHEELWRIGHT, S. C. and KENT BOWEN, H., 1996, The challenge of manufacturing advantage.
Production and Operations Management, 5 (I).