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 / Autumn 2006 / Issue 44(originally published by Booz & Company)


Who Manages Manufacturing?

But in other cases, the manufacturing executive can be stretched too far. At one automotive supplier, which was facing a huge market downturn and losing some of the company’s key clients, the manufacturing director decided to dedicate a significant percentage of his time to accomplishing two goals: helping the commercial director create and evaluate new products, and pushing the technical engineers to develop in-house robots to perform a crucial production stage.

This set of priorities seemed to make sense. Working with the commercial director was important because of the highly technical nature of the product that the company sold, and robotics promised to increase productivity and reduce labor costs. But the strategy backfired for two reasons. First, the company unexpectedly was offered the opportunity to use idle capacity by offering a new series of products whose inherent characteristics were totally different from those of the original. As a result, the robots that were being tested on the original products’ specifications were useless. Second, and even worse, this focus on time-consuming — and ultimately unnecessary — activities diverted the manufacturing director’s attention from other relevant operations. Consequently, the company had a hard time delivering on its promises to new customers; performance in plant changeover time, scheduling, and maintenance processes deteriorated during that period; and overall asset effectiveness and delivery scheduling slipped.

There are ways to create a more holistic view of the overall business within the manufacturing function without wasting time. A leading Brazilian beer company instituted a program in which all manufacturing executives take part in a company-wide marketing and sales program to encourage a customer-oriented culture. The process is very well structured. Every year, for one day, the executives participate in the sales operation. Accompanied by a salesperson, they ride in a delivery truck as it makes its rounds between distributors and retailers. This allows manufacturing executives to get out into the market and get a feel for what is happening through informal conversations. Company executives claim that since this program was started, the manufacturing function has been more willing to respond and adjust to requests made by marketing intelligence and R&D areas. They consider the investment of one day a year more than worthwhile.

Similarly, a tobacco company decided to involve manufacturing executives in focus groups so that they could understand some of the seemingly “crazy” ideas that marketing came up with, ostensibly based on customer preferences. For instance, manufacturing executives learned how much customers were bothered by tobacco leaves’ not being densely compacted in the cigarette. After that, they developed shop-floor solutions to avoid this quality problem.

Uncertain about Costs
One of the most significant results of our survey was the wide gap separating the respondents’ belief in the importance of cost management as a competitive edge, and the actual impact of day-to-day cost analysis practices. An overwhelming majority (91 percent) of respondents identified cost competitiveness as a high priority. This was well ahead of the next two items on the list: how to deal proactively with safety/quality issues and what type of measurement system to use to track performance. (See Exhibit 2.) But whereas cost competitiveness was at the top of the agenda of the manufacturing chiefs we surveyed, they tend to know little about their competitors, and they generally don’t use competitive information as a regular component of their decision making. Only a third of respondents said that they understood their own detailed cost structure or those of their competitors very well. More than half (56 percent) said that they understood their own manufacturing cost structure well but not those of key competitors — that is, they run their plants with very limited understanding of what their competition is doing.

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  1. Eliyahu M. Goldratt, Theory of Constraints: What Is This Thing Called Theory of Constraints and How Should It Be Implemented? (North River Press, 1990): The master of corporate fables shows how to see the patterns of operations flow.
  2. Kaj Grichnik, Conrad Winkler, and Peter von Hochberg, “Manufacturing Myopia,” s+b, Spring 2006: Argument that the root cause of industrial decline is not cheap overseas labor or technological change, but the piecemeal implementation of manufacturing strategy. Click here.
  3. Wallace J. Hopp and Mark L. Spearman, Factory Physics: Foundations of Manufacturing Management (Irwin/McGraw-Hill, 1995): The most comprehensive guide for a strategy-oriented manufacturing manager.
  4. Jeffrey Rothfeder, editor, Manufacturing Realities: Breaking the Boundaries of Conventional Practice (strategy+business Books, 2006): How to build supply chain competence and confidence, from the top down and the inside out. Click here.
  5. James P. Womack and Daniel T. Jones, Lean Solutions: How Companies and Customers Can Create Value and Wealth Together (Free Press, 2005): Exploration of the link between customer awareness and manufacturing prowess.
  6. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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