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/