Manufacturing Strategies Explained.
Understanding the concept
A report published by CER (Comparative European Research) titled ‘The growing importance of the synergy effect in a business environment’, perfectly explains the synergy concept. Synergy is a core element present in many successful manufacturing strategies.
It is defined as a connection/interaction between different elements within a specific environment, creating, or subtracting the additional value in the process. Synergy in the context of biology, physics, and chemistry can either be positive or negative. How does this relate to business?
The synergy effect within a business is the result of mutual interaction between two individual company elements, usually achieved by executing a specific strategy. The strategy is aimed at generating synergy, resulting in increased efficiency and business growth. Synergy is the fundamental pillar on which a strong manufacturing strategy is standing (Comparative European Research, 2016).
Manufacturing strategies refer to ways in which companies decide to manufacture and produce the products their selling. Different variables must be considered when selecting the right manufacturing strategy such as labor/inventory costs, customer demand, product customization, raw material type, etc. According to ModusLink’s e-business leader Johannes van den Berg, “Having your manufacturing strategy align with your customer’s needs and wishes creates synergy within a business, resulting in increased production efficiency and growth.” There are many different manufacturing strategies. The three core strategies are explained below (Manufacturing Production, n.d.).
Manufacturing Strategies in Supply Chain
The importance of a proper manufacturing strategy is indisputable. The three main Supply Chain priorities reported by U.S. health services providers and pharma/life sciences executives for 2021 are the improvement of Supply Chain transparency, improving Supply Chain security, and finding the right suppliers (Statista, 2021). These priorities can be found across industries. The three elements all relate to manufacturing strategy. Keeping close contact with your supplier of raw materials is necessary when implementing any of the above manufacturing strategies. Reinforcement of supplier relations plays a crucial part in being able to up/downscale your production process effectively. Managing inventory properly using principles as JIT reinforces security within your Supply Chain and consequently can increase transparency when closely involving your suppliers.
Figure 1. (Top Supply Chain Priorities 2021) Statista. (2021, January 26). Supply chain priorities of U.S. provider and pharma/life sciences executives 2021. https://www.statista.com/statistics/1196032/supply-chain-priorities-health-services-provider-and-pharma-executives/
- Make to Stock (MTS)
This strategy is prominent in many businesses as it utilized traditional production based on demand forecasting. The core reason businesses choose this manufacturing strategy is actually because of predictable demand forecasting that comes with certain products. For instance, winter coats are evidently known to be purchased during winter, increasing the demand predictability. Companies can thus safely create and stock winter coats before they are purchased. Unpredictable demand does not incentivize this strategy as excess inventory can accumulate to significant problems.
- Make to Order (MTO)
Companies that use this strategy put manufacturing on hold until an order is received, minimizing stock levels. This strategy is often used in conjunction with customizable products such as computer hardware, industrial equipment, birthday cakes, etc. This strategy provides strong inventory and market control, however, also has some drawbacks. A constant and minimal stream of orders must be present to maintain the production facility in question. Customer waiting times also tend to be significantly longer (TheBusinessProfessor, n.d.).
- Make to Assemble (MTA)
This strategy involves the making of product parts before orders being received. In essence, the MTA strategy can be viewed as a combination of the above MTO and MTS manufacturing strategies as product parts are stocked, yet the final product is assembled only when an order has been received. Benefits as quick final assembly can be gained since parts are stocked. However, if orders are not received, unwanted stock accumulation is present quickly and is difficult to sell-off. This strategy is often seen in restaurants as ingredients are prepared beforehand yet the final dishes are assembled only when an order comes in to keep the dish fresh and flavorful.
The MTS, MTO, and MTA manufacturing strategies form the core strategies used by most businesses. These strategies can be further built upon with principles such as the Just-In-Time (JIT) principle that focuses on eliminating waste by making sure minimal stock levels are held through (party) automated product reordering systems. John Heffernan, Chief Supply Chain Officer at ModusLink believes that “maximizing the efficiency of your manufacturing strategy is of high importance as it will yield waste reduction and a more streamlined production process, optimizing your Supply Chain”
Need professional advice on the right manufacturing strategy/optimization? Contact one of ModusLink’s Industry experts by clicking here www.moduslink.com.
Comparative European Research. (2016, October). The growing importance of synergy effect in business environment(No. 1). Sciemcee Publishing. https://www.researchgate.net/publication/315657493_The_growing_importance_of_synergy_effect_in_business_environment
Manufacturing Production. (n.d.). Investopedia. Retrieved August 27, 2021, from https://www.investopedia.com/terms/m/manufacturing-production.asp
TheBusinessProfessor. (n.d.). Manufacturing Production (Strategy) – Definition. The Business Professor, LLC. Retrieved August 27, 2021, from https://thebusinessprofessor.com/en_US/business-management-amp-operations-strategy-entrepreneurship-amp-innovation/manufacturing-production-strategy-definition
Statista. (2021, January 26). Supply chain priorities of U.S. provider and pharma/life sciences executives 2021. https://www.statista.com/statistics/1196032/supply-chain-priorities-health-services-provider-and-pharma-executives/
The Same-Day Delivery concept.
The Same-Day Delivery concept
The internet allows people to achieve instant gratification for things that they want as they can get what they want, when they want it. All you must do is open a search engine such as Google and request the information that you were looking for. For the most part you can get what you want within seconds. This driver of instant gratification has been introduced in today’s fulfillment practices as the concept of ‘same-day delivery’.
Same-day delivery is mostly used as a tool for online companies to increase their sales. Customers are willing to pay an extra fee to get their products as fast as they can. The main reason for this is because it allows to narrow the gap of instant gratification compared with brick-and-mortar store shopping. Effectively implementing this concept does, however, require a vast number of resources which results in large companies adopting this practice for the most part, and leaving smaller companies behind as they gain a competitive advantage.
The advantages and disadvantages for companies and consumers
According to Marlin W Ulmer (Ulmer, 2017) and the EconoCourier website (EconoCourier, 2016), the same-day delivery concept comes with both advantages and disadvantages which are listed and further clarified below.
A recent article published by Fulfillmentworks (Fulfillmentworks, 2020) states there are 3 main disadvantages for both companies and consumers that correspond with the same-day delivery concept.
Same day delivery can be limiting the flexibility of companies due to disruptions in planning and order prioritization. Companies that don’t utilize the same-day delivery concept are able to adjust more easily in their fulfillment operations such as re-routing, altering contents, cancelling, and holding orders, to optimize their fulfillment strategy. Companies that utilize same-day delivery, however, do not have this flexibility as changes within the fulfillment process will result in delays which can upset consumers who paid for the same-day delivery option (Fulfillmentworks, 2020).
Efficiency is a key important factor within all fulfillment operations. A strong way to improve the efficiency in shipping is to group or batch orders, also known as consolidated shipping as this can reduce travel times. Same-day delivery limits the possibility of grouping orders as there is less time that is available to accumulate orders in your picking queue before the orders get processed.
The final disadvantage for both companies and consumers is concerning the sustainability aspect. It is inadvisable for sustainable companies to adopt a same-day delivery concept as their sustainability practices are offset by the inherit nature of the concept. 92% of consumers are more likely to trust companies that support social or environmental issues (Fulfillmentworks, 2020). This means that stressing the positive impact traditional delivery standards can have on the environment may improve your brand’s perception more than same day shipping would.
- The gain of a competitive advantage for companies
Utilizing the same-day delivery concept allows companies to gain a competitive advantage over other companies that do not make use of this concept. Research shows that consumers want to get their products as fast as they can. This reinforces the statement of gaining a competitive advantage when using the same-day delivery concept. The more companies start to make use of this concept, the more it becomes a standard for consumers. This means that an increase in utilization of this concept will also increase the necessity for other companies to adopt this concept as they are otherwise disfavored by consumers (Ulmer, 2017).
- Reduction in capital expense for companies
Companies that utilize same day delivery see a reduction in their inventory costs. The reason for this is that by reducing the amount of safety stock of items, they are able to reduce the stock warehouses hold for retail stores (EconoCourier, 2016).
- Increase in margins for companies
According to (EconoCourier, 2016), companies that offer same-day delivery also require their customers to pay an extra fee to realize this concept. This is mainly due to the extra costs associated for the abrupt same-day delivery request.
- Instant gratification for consumers
Consumers that need a specific product fast can use the concept of same-day delivery and reduce the amount of time it takes before they acquire their product. This means that they can reduce the time spent before they receive gratification by obtaining their product (EconoCourier, 2016).
There are plenty of indications that same-day delivery will become an even stronger standard in today’s fulfillment practices since companies that do not apply this concept lose their competitive advantage.
ModusLink is ready to help you understand what it would take for you to be able to implement same day delivery. We can analyze where you do business and where you want to do business and give you proposals as to the best approach, whether it’s a “universal” same day offering or a geographic dependent same day offering or some other criteria. Contact us today to begin your journey.
Umer, M. (2018). Dynamic pricing and routing in Same day delivery. Informs, 1-2.
Ulmer, M. (2017). Delivery-deadlines in same day delivery. Logistics research, September. From inventoryops: https://www.inventoryops.com/articles/same_day_shipping.htm
EconoCourier (2016, December 22). The advantage of same-day delivery to businesses and shops. From Econo courier blogpage: https://econo-courier.com/advantage-day-delivery-businesses-shops/
Fulfillmentworks. (2020, June 10). The disadvantages of same-day delivery. From Fulfillmentworks home: https://www.fulfillmentworks.com/blog/post/disadvantages-of-same-day-shipping/
Clarkec, I. D.-P. (2020). Same-day delivery with drone resupply. Informs, 1-2.
DHL, T. R. (2019, May 16). DHL . From DHL launches its first regular fully-automated and intelligent urban drone delivery service: https://www.dpdhl.com/en/media-relations/press-releases/2019/dhl-launches-its-first-regular-fully-automated-and-intelligent-urban-drone-delivery-service.html
EHang. (2021, January 29). EHang home page. From EHang: https://www.ehang.com/ehangaav
CNBC. (2019, July 15). How Amazon delivers on one-Day shipping .
Geekwire. (2016, December 22). How does amazon prime now deliver packages in under two hours?