YIELD MANAGEMENT IN MANUFACTURING: A CONCEPTUAL MODEL & RESEARCH PROPOSITIONS
Mohammad ModarresProfessor, Department of industrial Engineering
Sharif University of Technology, Tehran
Jamshid Nazemi
Assistant Professor, Department of industrial Engineering
AZAD University, Science & Research Branch, Tehran
2005
Proposition 1: The shorter the lead-time for any
specified class, the greater the price for an equal
remained capacity.
Proposition 2: The grater the price for a segment ,
the less the demand function.
Proposition 3: The grater the demand for a certain
segment, the grater the capacity assigned for the
segment.
Proposition 4: The greater the risk of demand for
a segment, the greater the price.
Proposition 5: The greater the planned capacity
for a segment, the less the probability of lost sale;
and the less the planned capacity for a segment the
greater probability of losing revenue.
Proposition 6: For any unsatisfied capacity, there
is an upper bound for discount on an equal revenue
amount
Proposition 7: For any specified discount policy,
there is a relationship between coefficients for optimal
prices versus optimal capacity allocated
Proposition 8: for dealers with advance capacity
purchase (ie. Booking) there is a price policy criteria
that motivates advanced selling of unsatisfied
capacity.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2305232
Learning in Manufacturing
Organisations: what factors predict
effectiveness?
by Helen Shipton, Jeremy Dawson, Michael West &
Malcolm Patterson
University of Wolverhampton Working Paper Series 2000
Proposition 1: Environmental uncertainty at one point in time will positively predict the subsequent
existence of managerial practices designed to promote OL.
Proposition 2: An organisations’s profitability at one point in time will positively predict the
subsequent existence of managerial practices designed to promote OL.
Proposition 3: the degree of organisational centralisation at one point in time will negatively predict
the subsequent existence of management practices designed to promote OL.
Proposition 4: The existence of effective and sophisticated HRM practices at one point in time will
predict (positively) the subsequent existence of management practices designed to promote OL.
Proposition 5: The existence of extensive quality management practices at one point in time will
positively predict the subsequent existence of managerial practices designed to promote OL.
http://www.wlv.ac.uk/pdf/uwbs_wp007-00%20shipton.pdf
Manufacturing strategy: propositions, current research, renewed directions
Morgan Swink, Michael H. Way, (1995) "Manufacturing strategy: propositions, current research, renewed directions", International Journal of Operations & Production Management, Vol. 15 Iss: 7, pp.4 - 26
Strategic types
The following propositions are presented:
P1: In a given market, certain combinations of product and process characteristics are more common in some firms than others. These combinations demarcate generic manufacturing structures.
P2: A manufacturing facility′s strategic structure can be distinctively typed by measuring characteristics of its mission, process design and infrastructure.
P3: There is a proper linkage between generic business strategies and the generic manufacturing structures which best support them. Improper linkage between generic strategies leads to poorer performance.
P4: Consistency of conformance of a firm′s products and processes to a specified profile contributes to the firm′s competitive success.
P5: Significant changes in markets, technology and capacity during the past two to three decades call for different manufacturing structures than those that were previously effective.
P6: Most American companies today are still using “mass production” approaches.
Competitive priorities
The following propositions are presented:
P1: Cost efficiency, quality, flexibility and dependability form the basic dimensions of manufacturing priorities.
P2: Choices among priorities involve trade-offs since conflicts exist between the structures required to support alternative priorities.
P3: Strategies which seek to offer superior performance simultaneously along each of these dimensions are internally incongruous and inferior to more focused strategies.
P4: There exists some “best” combination of competitive priorities for each competitive position in a given market.
P5: The basic manufacturing priorities are mutually supportive if pursued in the following order: (1) quality; (2) dependability; (3) flexibility; (4) cost.
Process design
The following propositions are presented.
Focus:
P1: A factory which focuses on a narrow product mix for a particular market niche will outperform the conventional plant.
P2: Focused factories will exhibit steeper manufacturing learning curves.
P3: Manufacturing should choose between product or process focus for each of its plants. The type of focus should change as products go through their life cycles:
introduction – process;
growth – product;
maturity – product;
decline – process.
P4: Firms which have separate manufacturing facilities and process technologies for products with different market requirements are more competitive than firms which produce from a single facility or process technology.
P5: Process-focused organizations tend to be:
more flexible to product introduction;
better suited to less complex, less capital intensive technologies;
better where flexibility and innovation are more important than planning and tight control;
better for companies whose dominant orientation is to a market or consumer group.
P6: Product-focused organization tend to be:
better suited to complex and divisible processes with large capital requirements;
not as flexible in output or product introduction;
not as efficient as a well-managed process focused organization;
easier to manage;
staffed with personnel who are more aware of technological process alternatives;
better able to manage efficient purchasing;
better at increasing span of process.
P7: Manufacturing complexity is determined by:
task size;
the interrelation of tasks;
the level of fit between manufacturing strategy and process plus infrastructure.
P8: The following developments tend to blur the focus of a plant:
evolution in marketing demands;
increased competitive pressures;
growth;
introduction of new technology.
Advanced technology/progressive systems
P9: Advances in technology will soon obviate the need for focus within factories.
P10: Greater leadership in process technology investment and development is more competitive than “me-too” or follower approaches.
P11: A plant-within-a-plant configuration yields the benefits of focus without sacrificing other economies of scale.
P12: JIT, plant-within-a-plant layouts and advanced technologies enable plants to perform at higher levels of cost efficiency, quality, dependability and flexibility than traditional plants.
P13: New computer-based process technologies are working against price-based competition and towards product customization.
Span of process
P14: The internal span of process is crucial to competitiveness and constrains the ability to change.
P15: Firms in dynamic markets who are vertically integrated are less competitive than firms who chose long-term single-source supply or distribution arrangements.
P16: Firms whose objective is market share dominance have greater process structure complexity than firms who do not seek market dominance.
Infrastructure
The following propositions are presented:
P1: Collective aspects of manufacturing infrastructure require the same level of investment and have the same impact as process choice.
Controls/measures
P2: Manufacturing controls should emphasize order-winning criteria.
P3: Economies of scale and the effects of under-utilization of equipment are seldom as critical to productivity and efficiency as are issues related to infrastructure.
P4: The ability of a company to minimize repercussions of below-quality work is related to the length of time between production and quality checks.
P5: Quality control is best achieved as a manufacturing responsibility, not a separate function.
P6: Advanced approaches which emphasize decentralized control on the factory floor and give operators greater planning and evaluation responsibilities (e.g. self-directed work teams, standardized work, skill-based pay) improve labour productivity and innovation.
P7: Accounting measures are inappropriate for measuring or controlling manufacturing performance. Instead, measures should reflect the types of process used. Typical measures:
reward foremen for getting product out the door;
provide no means for evaluating costs of product proliferation and changes in costs relative to volume changes;
cause a focus on reducing direct labour, even though it is a small component of total product cost.
P8: The use of cost and efficiency as the conventional yardsticks for planning, controlling and evaluating has contributed to the inability of US plants to compete. Criteria need to include quality, service, delivery, investment and flexibility.
Organization:
P9: Expansion into foreign countries is best accomplished with an entirely separate manufacturing organization.
P10: It is extremely difficult for a mixed manufacturing organization with a single central staff to achieve the kind of policy consistency and stability needed to compete and cope with change.
P11: A company should erect managerial dividing lines between its product and process-focused manufacturing segments.
P12: Western companies form functional units which operate below the strategic review level. This leads to unco-ordinated process designs.
Human resources:
P13: Specialization in manufacturing has decreased the support received from outside functions.
P14: Manufacturing positions are not attracting sufficient numbers of higher-achieving young people.
P15: Most manufacturing managers (and college students) view their careers as affording them less promotion opportunity and less impact on corporate directions than the positions of other functional managers.
Strategy formulation
The following propositions are presented:
P1: Most companies within industries share the same technology, systems, structures, etc. Differentiation results from the degree to which the strategic process matches the manufacturing process and infrastructure to volume and order-winning criteria.
P2: Marketing-led strategies produce extended product ranges which in turn incrementally alter the manufacturing task and build confusion and complexity.
P3: Top executives have delegated excessive amounts of manufacturing policy to subordinates due to their sense of personal inadequacy and a lack of awareness that a production system involves trade-offs and compromises.
P4: “Routine” decisions often serve to limit the corporation′s strategic options, binding it with facilities, etc. which are non-competitive and take years to turn around.
P5: Top level managers have an external view of strategy and perceive that manufacturing decisions address only internal issues. Marketing, sales and R&D are seen as much better bases for achieving a competitive advantage.
Formulation process
P6: As long as a technical point of view dominates manufacturing decisions, a degree of isolation from the realities of competition is inevitable.
P7: Company and individual goals are in conflict. Perceived successful directions for the business are different for individuals from different functional areas.
P8: US firms are characterized by too much emphasis on financial control, overly analytical management and market-driven behaviour.
P9: The following measures will promote effective controls on short-/long-term trade-offs:
increased top management involvement in budgeting;
economic trend/cycle analysis in budgeting;
delineation of goals and performance measures into short- and long-term components;
increased lower management involvement in strategic planning;
increased lower/upper management communication;
increased contingency planning;
more long-term commitments and joint ventures.
P10: Some integrated mechanism is needed to link manufacturing with corporate strategy in a way which translates it into a form directly applicable to manufacturing decisions.
P11: Conventionally, manufacturing has been managed from the bottom up. The top-down approach can give top management its entrée to manufacturing and the concepts it needs to take the initiative and truly manage the function.
P12: Market requirements provide a relevant basis for functional arguments to be put into perspective.
P13: Market-driven strategies tend to dampen innovativeness.
P14: Strategy must be regularly and frequently updated.
P15: The most effective progression for strategy development is means-ways-ends, not ends-ways-means.
Justification and implementation of strategic decisions
The following propositions are presented:
Marketing dominance:
P1: Market emphasis has resulted in a large investment in product innovation and a relatively small investment in process innovation and little strategic investment in manufacturing.
P2: Inappropriate investment decisions result from assuming that a similar manufacturing approach can be applied to meet different market requirements.
Decisions by specialists:
P3: Many businesses choose production processes solely on the basis of technology and leave the decisions to specialists.
P4: The scientific approach to the management of production results in the creation of a rigid, static system that stifles continual learning and the building of new capabilities.
P5: Specialists in the manufacturing plant seek to maximize their contributions and justify their positions. They have conventional views of success in each of their particular fields. These views are usually in conflict.
P6: Engineering prescriptions, technical solutions seeking problems and the belief that panaceas exist have led to uncompetitive positions for US firms.
P7: Most personnel who prepare capital expenditure proposals are not responsible for inventory levels or infrastructure requirements.
Criteria:
P8: The key factor in choosing a process is volume (work content multiplied by quantity).
P9: Plant decisions should base depreciation on the life of the product produced there as opposed to the type of plant used.
P10: Often, in adding a process, overhead is understated and in deleting a process it is overstated.
P11: When choosing processes, one needs to distinguish between technology (specifications) and the way a product is manufactured. Choosing only on the basis of technology is inappropriate.
P12: American companies need a two-tier capital budgeting system for their manufacturing plants: a short-term system based on quarterly reviews and a long-term system based on strategic plans.
P13: Many companies raise the hurdle rate significantly above the cost of money to allow for the risks associated with a project. This approach means that many relatively safe projects with returns less than the hurdle rate may be rejected even though they may have contributed significantly to the profitability of the company.
P14: Investment decisions using only accounting measures as criteria should move towards strategy-based review.
financial methods smooth cyclical business swings, this distorts the true nature of the business;
cost accounting does not give an estimate of the cost of not pursuing a particular investment;
emphasis on ROI has promoted the view of investments as singular decisions, not steps along a strategic path;
investment decisions often ignore intangible benefits and underestimate capital requirements.
Implementation:
P15: Successful implementation of AMT requires the specification of objectives and controls at business, system and technical levels.
P16: New equipment and process technologies have failed to meet strategic needs because they have been:
too costly, relative to benefits;
inflexible;
efficient only on long runs and high volumes;
full of bugs.
P17: Factors which have contributed to slow technological reform in factories include:
use of short-term financially orientated measures, artificially high hurdle rates;
management that has been strong on operations but short on strategic long-term planning;
manufacturing success based on efficiency rather than an ability to compete;
engineering innovations which have not matched or meshed with existing equipment;
an unfavourable economic condition;
negative reactions of the workforce.
P18: Manufacturing changes must span the infrastructure, they cannot be successfully made piecemeal.
