Marketing and Manufacturing

7/30/2019 Marketing and Manufacturing

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INT. J. PROD. RES., 1999, VOL. 37, No.16, 3599-3618

Aligning marketing and manufacturing strategies with the marketw. L. BERRYt, T. HILLt* and J. E. KLOMPMAKERIn strategic marketing decisions substantial emphasis is placed on market seg-mentation and product/service differentiation. This follows from separate, inten-sive analyses of customers and competitors. Based on these analyses, the resultantsegmentation and differentiation schema, and an intensive review of the firm'sown strengths, weaknesses, opportunities and threats, the firm makes one of itsmost important and critical decisions: which customers to serve and which prod-ucts to emphasize, referred to as positioning. On the other side of the same cor-porate coin, manufacturing makes decisions on process and infrastructureinvestments based upon the technologies required, and its perception of what itneeds to do well in order to fulfil its role. In the same way as with marketingdecisions, the firm now makes another of its most critical decisions by committingitself to major investments in manufacturing that are characterized by high valueand long time scales to change. On the one hand, these positioning decisions bymarketing invariably include little emphasis in determining the customer require-ments that must be supported by manufacturing, and fail to investigate the abilityof manufacturing to support these requirements. On the other hand, manufactur-ing decisions do not reflect key insights on the needs of current and future mar-kets. As a consequence, many businesses fail to achieve their strategic businessobjectives, due, in part, to the inability of marketing and manufacturing to jointlydevelop consistent strategies. We call this a lack of alignment. The methodologyoutlined in this paper concerns how to align marketing and manufacturing stra-tegies by using markets as the center piece of both developments. Doing thishighlights the recognition that markets need to form the common denominatorof both marketing and manufacturing strategy development. This methodology isillustrated by using an actual example drawn from plant-based research. Severalkey questions are addressed in this methodology. How does marketing viewcustomers and markets? What is manufacturing's view of the same customersand markets? To what extent is manufacturing actually able to support thedemands 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 performanceagainst the required capabilities. In cases where substantial differences existbetween customer and market requirements and manufacturing capabilities, stra-tegic options (both in marketing and manufacturing) to resolve these differencesneed to be addressed in making strategic business decisions.

I. IntroductionDespite two decades or more of research on the process and content of manu-facturing strategy, core dimensions still remain at large:

Revision received September 1998.tThe Max M. Fisher College of Business, The Ohio State University, 2100 Neil Avenue,Columbus, OH 43210, USA.t The London Business School, The University of London, UK.

The Kenan-Flagler Business School, The University of North Carolina, Chapel Hill,USA..To whom correspondence should be addressed. e-mail: [email protected] Journal of ProductionResearch SSN 0020-7543prinl/ISSN 1366-588Xonline (!d 1999Taylor & Francis LId

hllp:/ /www landf.co.uk/JNLS/prs.hlmhllp:/ /www la ylorandfrancis.com/ NLS/prs.hlm


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w. L. Berry et al600(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 issuesand options among those concerned with its development and implementa-

tion.Furthermore, the links between manufacturing strategy and other functional strate-gies are frequently unclear with the result that management's ability to connect thestrategic options in one function with relevant options in other functions is oftenvery limited. The result is that the 'bunker' mentality within a business is not onlyreinforced but is also extended to the formulation and development of functionalstrategies. Finally, debate and discussion of the linkages between manufacturingstrategy and marketing strategy are critical if a business is to be competitive in itsmarkets. The fact that management is often unable to link strategic options betweenfunctions limits this debate and the effectiveness of strategic outcomes in any busi-ness.

This paper presents a framework and methodology for guiding the developmentof functional strategy in both marketing and manufacturing that has been tested innumerous businesses over the past fifteen years. Furthermore, the approaches usedin 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 linkthe functional strategies developed within marketing and manufacturing and toillustrate these approaches by using a worked example of one company. Theapproaches outlined are the result of many business-based applications. The com-pany example is intended to illustrate the points embodied in the approaches usedwhile providing additional insights and emphasis throughout.

The paper builds on some of the key views held by the authors and which havebeen derived from their extensive research in businesses.

(a) The analysis of customers and markets provides the basis for linking thestrategy development efforts in both of these functions.

(b) Frameworks and methodologies are an essential aid for executives whenformulating, articulating, debating, and implementing functional strategiessuch as marketing and manufacturing.(c) Similarly, frameworks and methodologies are essential for guiding researchin the study and analysis of functional strategies.

As would be expected, these views are reflected throughout the paper and help tofonn some of the themes and outcomes on which the work is based. An outline of thecontent and rationale of the paper is now provided. The first section provides anoverview of the framework and methodology we use in analysing and developing thefunctional strategies of marketing and manufacturing. Then we give an example thatillustrates the steps in each of the frameworks and how the supporting methodologyworks. The final section presents the conclusions which have been reached based onextensive field research completed (but not reported in detail here) over the pastfifteen years in applying this framework and methodology to companies in suchdiverse businesses as furniture, packaging, chemicals, electronics, printing, steeland automotive components.


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Aligning marketing and manufacturing strategies 36012. Framework and methodology overview

Many have argued that strategic choices in manufacturing need to be made incompetitive terms, thereby enabling manufacturing to do certain things better thancompetitors (Clark 1996, Fine and Hax 1985, Hayes and Pisano, 1996). Cost, qual-ity, dependability and flexibility have been proposed as key competitive priorities,with the understanding that manufacturing must determine on which of these dimen-sions 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 ofsupporting strategic development in which different products are sold in differentmarkets that require different competitive priorities (Hayes and Pisaro 1996). As anexample, Benningson (1996) provides an illustration where market and competitive-based business analyses were used to cross reference market segments and manu-facturing processes in terms of order size and frequency to improve order schedulingperformance. Voss and Winch (1996) also illustrate the use of order winning criteriaand the concept of positioning choice as a way to link manufacturing strategy tomarket needs.

However, despite the substantial progress made in research on the process andcontent of manufacturing strategy, there is no framework and methodology fordeveloping manufacturing strategy that is generally accepted by both the marketingand manufacturing functions in a business. One result is that among those concernedwith strategic development and implementation there are neither commonly heldconcepts nor language to communicate issues and options. This paper addressesthis gap by presenting a methodology that is both consistent with the strategymethodology generally used by marketers and successfully links the strategic per-spectives of manufacturing into the corporate debate. This methodology has beensuccessfully applied in numerous firms to check the alignment between the strategieswhich marketing and manufacturing have developed.

The framework and methodology presented here is based on the view that themarket is the common denominator when developing functional strategies.Consequently, it is important to ensure that the views of key functions on howmarkets work and what constitutes the competitive factors are recognized. Thendifferences can be resolved so that a more informed view is reached and commonagreement on the competitive factors in markets is shared. Once the nature of themarket(s) is understood, the strategic tasks of marketing, manufacturing and otherfunctions are clear. The proposed framework and methodology to align marketingand manufacturing strategies consists of the five steps below.

.Step I: elicit marketing's view of the market and identify its strategic initia-tives.

.Step 2: establish marketing's view of the market in terms of customer require-ments and verify that the views on customer needs are correct both in terms ofperspective and emphasis.

.Step 3: check manufacturing's performance against those customer require-ments for which it is solely or partly responsible.

.Step 4: compare current and future manufacturing investments and develop-ments (i.e. manufacturing strategy), with the customer requirements for whichit is solely or partly responsible.

.Step 5: identify the investments and developments necessary to resolve thedifferences between customer requirements and manufacturing's performance.


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w. L. Berry et at.602

Alignment process overview: marketing's view of business and initiatives.able

The basis for this approach derives from the work of Hill (1994) in developing amanufacturing strategy framework. This framework is included as table I. It beginswith an analysis of business objectives and marketing strategy, moves to a descrip-tion of markets and customer requirements in terms of the relevant order winnersand qualifiers, and ends with an analysis of manufacturing strategy in terms ofprocess and infrastructure investments. This framework has had extensive field test-ing in a wide range of industries, representing a significant sample size. This includes48 companies ranging in size from annual sales of $40 million to $5 billion in thefollowing industries: packaging, furniture, steel, automotive, aerospace, textiles,tobacco, plastics, pharmaceuticals, electronics, telecommunications, apparel, andcommunications. 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 expli-citly links Hill's framework to the marketing strategy framework that is generallyaccepted by both executives and researchers (Corey 1992). Second, it provides themethodology 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 infigure 1 to describe and review the marketing strategy of the company (as a con-venience to the reader, all portions of this paper that illustrate the application of ourmethodology to Anonke Apparel will be set in italic type). The first step in themethodology concerns examining marketing's view of the business and its strategicinitiatives. The marketing strategy framework shown in figure 1 indicates the processby which marketers study markets and formulate strategies to serve them (Corey1992).

Marketing/Manufacturing strategy illustration-Anonke Apparel: To i[[ustrate themanufacturing strategy framework and methodo[ogy we have se[ected an appare[ com-pany [ocated in Thai[and named Anonke Appare[. Thisfirm is an interesting examp[e inthree ways:

(a) it competes in wor[d markets that are intense[y competitive;(b) it exports 100% of its product sa[es;


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Aligning marketing and manufacturing strategies 3603

J

MarketSegmentation ProductDifferentiation

MarketingStrategy

Figure I. Developing a marketing strategy.

(c) the chief executive has a well-conceived manufacturing strategy which involvesan investment in advanced manufacturing technology in direct support ofmarket requirements.

As with much of marketing, analysing and understanding customers is para-mount. 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, whatbenefits 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 ofcustomers start to emerge called market segments. An essential element in marketsegmentation is to assign customers to segments so that all customers within asegment exhibit similar buying behaviour, while customers across segments exhibitdissimilar buying behaviour (Buzzell 1987). This is because the goal of all marketingstrategies is to affect buying behaviour in such a way as to work to the benefit of theselling firm while meeting the demands of customers. By working with customerswith similar buying behaviours, marketers can develop a strategy for that marketsegment which is specific and peculiar to that segment. By the same token, they candevelop specific, unique strategies for other segments. This bias has come to be calledtarget marketing.While acknowledging that customer differences are key, recognizing that otherfirms are trying to do the same thing avoids myopic strategies which fail to recognizethe key role played by competitors. Even though it is true that all marketers try theirbest to serve their chosen customers, their competitors are attempting to do the verysame thing. It is also true that competitors in a market possess unique capabilities.Recognizing, acknowledging and specifying those differences is the task of product


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w. L. Berry et al.604Segment Al

Segment A2

SegmentB:

.widely recognized brands.heavily advertised.brands known because of footwear lines.designer specifies fabric, color and fabric supplier.bought monthly for delivery four months hence

.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

.have no designers.submit samples and Anonke selects

.five month delivery typical.some buy directly from finished goods inventoryTable 2 Anonke's customers/segments.

differentiation. Here the marketer objectively acknowledges where a firm is strongand where various competitors might be stronger, or weaker.

Finally, the marketer explicitly recognizes that marketing is simply one compon-ent of a firm's overall business strategy. Using time-honoured and dependable tools,portfolio analysis (Hedley 1977), industry analysis (porter 1980) core competencyassessment (Prahalad and Hamel 1990) and other strategic analytic weapons, busi-ness strategists build strategies, set objectives for the firm and provide corporatedirection. These analyses also determine where a firm is strong (possesses he necess-ary skills, capabilities and resources) in order to build or maintain a competitiveadvantage.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 decisionsthat a firm faces: which markets to serve with which products/services and usingwhich 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 tobring these marketing strategies to the marketplace.

Marketing strategy-Anonke Apparel: Anonke Apparel's market segmentationscheme is shown as table 2. Three major segments are identified by the firm: segmentAl consists of companies with world-wide reputationsfor their brands, large advertisingbudgets and high levels of product and process knowledge; segment A2 is made up offirms similar to those in segment Al except that they are smaller, have lower advertis-ing budgets and are mostly only known in their home markets; segment B consists ofcustomers that are very nimble, act and react quickly, and are not averse to copyingdesigns originally developed by some of their larger competitors.

Customer analysis/market segmentation-Anonke Apparel: Three major initiativescomprise Anonke's current marketing strategy (see table 6). These include targetinglarge us companies in segment Al, targeting several European customers in segmentsA2 and B, and emphasizing hard-to-manufacture products, e.g. raincoats. across allsegments. Each of these strategies is based upon separate rationales. The large uscompanies are of interest because they provide large annual orders which help simplifybusiness and production planning. The European .firms targeted demand higher quality,


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VolumeFigure 2. Anonke compared to its competitors.

Other Thai companiesGlobally: Hong Kong, Taiwan, Singapore, Korea, China, Japan, and Eastern EuropeNew competition coming from Indonesia and MalaysiaTable 3. Anonke's competitor categories.

Differ from product to productOne 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 AutrayaGarment)Two in sportswear (Thai Hong Kong Garment and Best Week)Major strengths: longer runsstandard productslower costs

Table 4. Anonke's Thai competitors.

but are far less price-sensitive. These characteristics clearly play to Anonke's strengthsas illustrated earlier in the differentiation analysis. Finally, by emphasizing hard-to-make products, Anonke is seeking markets which draw upon their manufacturingstrengths 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 fromSoutheast Asia (see table 3). On a day-to-day basis, however, Anonke most oftenfaces its Thai counterparts. Making this task particularly difficult for Anonke is thefact that each Thai competitor seems to compete in a distinct manner, particularly interms of products manufactured and sold (see table 4). Generally, Anonke's Thaicompetitors have longer runs, more standard products, and lower manufacturingcosts. Under the process choiceframework developed by Hill (1994), Anonke's compe-titors use high-volume batch processes. Anonke, on the other hand, has developed a low-volume batch process to meet the needs of small volume customers as we will demon-strate later (see igure 2).


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w. L. Berry et al.606Product A1 A2 B

xxxxx x xxxxxxxx

BlouseSki wearStadium jacketMen's shortsJackets/pantsJacketsRaincoatsCoatsChildren's jacketsParkasPantsJogging suitsChildren's shorts x

Table 5. Anonke's products by segment.

Target large US companies like Zeus and Leland (segment A.) because they place large ordersand 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 isshown in table 5. Comparing this with the data shown in table 4, it becomes apparentthat Anonke's competitors differ significantly within each segment. Thus, Anonke'scompetitive advantage may be stronger or weaker depending upon the market segmentunder review. Generally, however, Anonke offers a much broader line than nearly all itsThai competitors. and this broad product line has important implications for manu-

facturing strategy.2.2. Estab[ishingcustomer equirements-step 2Although buying pattern type, geographic location, and retail outlet typeoften represent critical segmentation dimensions in formulating marketing strategy,this view of the market provides little information concerning the customerrequirements placed on manufacturing. An alternative approach is to segmentmarkets in a way that provides manufacturing with insights into customer andmarket requirements, using the order winning and qualifying criteria proposed byHill (1994). (Order winners are those criteria that enable a company to win ordersagainst competitors. Qualifiers (Q) are those criteria that a company must meetfor a customer to even consider it as a possible supplier, with some displaying ahigh level of sensitivity to order loss. Qualifiers can also be order losing sensitive(QQ. This approach provides manufacturing with a description of the market thatcan be related directly to manufacturing capabilities and manufacturing strategyoptions.The process for developing order winners and qualifiers indicated in table 7differs from firm to firm and from situation to situation but typically involves severalsteps. First, salesand marketing executives are interviewed to prepare a judgement


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Sources: I) Marketing interviews/discussion(2) Order sample from marketing/manufacturing(3) Information on manufacturing segments(4) Rethought manufacturing segmentation.Table 7. Alignment process overview: customer requirements.

sample, usually containing 30-50 customers and products that provide a represen-tative sample of relevant market segments. The appropriate size of the sampledepends upon the number of distinct market segments to be reviewed. Next, discus-sions are held with marketing and sales executives to identify the potential orderwinners and qualifiers for each of the customers in this sample. Once the set of orderwinners and qualifiers has been reduced to a small number of key items, the last stepinvolves developing weights for each of the order winners, and identifying the orderlosing sensitivity of each qualifier.The customer data in the sample has two important uses. First, this data providesa check on management's judgement concerning the relative importance of orderwinners and qualifiers. For example, the data can be used to check the actual level ofcustomer price sensitivity, the degree of delivery speed pressure actually experiencedfrom customers, or the actual demands concerning the level of quality conformancein a product specification. When differences occur between the data in the ordersample and the managerial judgements, these need to be resolved. Second, the datain the customer order sample can be reorganized to reflect major groupings ofcustomers that have similar order winners and qualifiers, and similar order winnerweightings. Such groupings form the basis for market segments that are character-ized in manufacturing terms, indicating important differences in the customerrequirements placed on manufacturing between segments.

Order winners and qualifiers-Anonke Apparel: Twenty-seven customers worldwidewere selected by the sales and marketing executives at Anonke as representative of themarket segments served by the company. Table 8 shows illustrative data from thejudgement sample which includes the critical manufacturing and non-manufacturingorder winners and qualifiers, and their respective weightings..The data in the udgement sample were organized to identify groupings of customerswith similar order winners and qualifiers. Consequently, the customers were groupedinto the five different market segments shown in table 9. These segments place thefollowing four very different sets of requirements on manufacturing.

(a) Segment FC (Few Competitors) involves small customer orders, has decliningsales, and is not highly price sensitive.


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3608 w. L. Berry et al.(a)

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ProductionSegment Oexibility

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PCTable 8(a). Anonke's market segments by order winning criteria: manufacturing related.

(b) Segment P (Price) is very price-sensitive and is increasing its demands forreliable delivery.

(c) Segment PC (Partnership Collection) places a major emphasis on deliveryreliability with moderate growth and mid-range customer order sizes.

(d) Segments LV (Large Volume) and PF (Product Features) have high growthpotential, place a wide range of customer order sizes that require productionflexibility, emphasize delivery speed and delivery reliability, and are pricesensitive.

For Anonke,four key order winners requirefurther analysis to evaluate manufacturingperformance and capabilities: price, delivery speed, delivery reliability, and manu-facturing's ability to provide small to medium customer order quantities. This lattercapability provides a strong, sustainable competitive advantage for Anonke in terms ofmeeting the needs of speciality shops and boutique customers.

2.3. Checking manufacturingperformance-step 3An understanding of a company's markets in terms of order winner and qualifierdata provides the basis for analysing both a firm's manufacturing strategy and itsperformance against thesecustomer and market requirements. The ellipse shown in


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Aligning marketing and manufacturing strategies 3609(b)

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PCOrder winning criteria (xx/yy) where xx=current year and yy=three years hence. If yy=O, thiscustomer 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 relation-ship. 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 customeris 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 manufacturingstrategy supports the market requirements placed on the company, both now and inthe future. Where gaps in performance exist, this diagram also indicates the need todebate potential strategic options that would improve the competitiveness of thecompany by reducing the gap between market requirements and manufacturingcapabilities.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 therepresentative customers and products in the judgement sample. The data shownin table II and figure 3 has been included to illustrate how company performancecan be assessed n terms of key order winners and qualifiers. In this case, price anddelivery speed and reliability are critical areas at Anonke Apparel.


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w. L. Berry et at.610Segments

Productfeatures

Partnership/collections

Fewcompetitors Pricerder winners

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Few competitorsPartnership/colI.Product featuresMarket familiaritySales relationshipHave quotaPriceDelivery speedtDelivery rel.~Production flex.% Sales/growthProduct difficultyBuying patternOrder size

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percentages.Anonke's market requirements/order winners.able 9.

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 customerand market profitability analyses,and cost estimates of supplying products in vari-ous volumes (including those outside the normal range). The contemporary work onActivity-Based Costing to determine cost drivers, and the Theory of Constraints toidentify process bottlenecks and their impact on product profitability provide anexcellent framework for contribution margin analysis (Campbell et al. 1997,Spoede 1996). Such an approach ensures hat marketing strategies are developedwhich take into account the company's capabilities and their customers' contribu-tions to profitability as distinct from their contributions to revenue. (Elishberg andSteinberg (1987) surveyed oint decision-making categoriesand concluded that there


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Aligning marketing and manufacturing strategies 3611Productivity by Order Size

.Flexibility important intwo segments: "LargeVolume" and "ProductFeatures".Doing fine in A2 (datainsufficient to look at Aand B)

0 5000

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10000 15000Anonke's manufacturing performance: flexibility

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Delivery related:Avg. quote LT (days)Avg. actual LT (days)Avg. lateness (days)Actual and quoted delivery speeds re not meeting customer requirements;actual delivery speed s 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 inproduct mix decisions.)As an illustration of this point, the contribution margin $ per labour hourdata shown in table 11 was an important aspect of this analysis because of theconstraint on the availability of skilled labour faced by Anonke Apparel. This con-straint led the company to inv~st in an industrial training facility to developemployee skills to produce enhanced product features. It is important to identifykey constraints on manufacturing performance, and to assess heir impact on profit-ability as illustrated by the data shown in table 11. Such constraints may involvespecific processes, machines, critical employee skills (as in the case of AnonkeApparel), or even functional department capacities such as engineering design orfinal product testing.

Manufacturing performance--Anonke Apparel: A t Anonke there are four key orderwinners: delivery speed, delivery reliability, manufacturing's ability to make low tomedium size orders, and price. This step is illustrated using the Anonke data shownin table 11 and figure 3.Delivery speed is an important issue with Anonke's customers. Currently, one majorcustomer in the large volume (LV) segment is pressing for 150 day lead times. The


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w. L. Berry et al612

Table 12. Alignment process. Overview: manufacturing strategy versus current performance.

company expects that other customers in the large volume (LV) and productfeatures (PF) segments will soon be pressing for delivery lead times between 60 and120 days.

The delivery information for customers in the judgement sample indicates thatAnonke 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 leadtimes actually experienced by customers average 166 to 197 days. depending on themarket segment. During the peak selling season (April to September) customers experi-ence even longer delivery lead times averaging from 143 to 236 days, depending on themarket segment.

Likewise. delivery reliability is an important issue with customers. Overall, actualdeliveries 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 andPF). Customers expect delivery within a two week window during the peak sellingseason for April through September. During this period. however, deliveries average15 to 86 days after the promised delivery date.

Production's ability to provide small to medium order quantities is important in boththe LV and PF segments (see table 8). To check the company's performance againstthis 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 insegment A2. This plot shows that productivity is roughly constantfor a very wide rangeof customer order sizes in the low to mid volume range. Similar plots were observed orcontribution margin/labour hour versus customer order size. These results indicate thatthe 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 indicatethat the percent contribution margin in these two segments is low. The principal reasonfor 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 clothcutting have helped to reduce cost, manufacturing needs to support further corporateefforts in direct material cost reduction.


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3613ligning marketing and manufacturing strategies

Process choice is low volume batchTable 13. Anonke's manufacturing strategy

2.4. Comparing manufacturing strategy to actual performance-step 4As with all functional strategies, manufacturing strategy comprises the develop-

ments and investments made in processes and infrastructure to support markets (seetable 12). As argued throughout, we believe that markets (current and future) are thecommon denominator of functional strategies. Once these are understood and agree-ment is reached on where to compete and grow, then manufacturing's strategic roleis to develop the capabilities to support those order winners and qualifiers for whichit 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 orderwinner and qualifier changes can be made in line with its existing capabilities orcapabilities which it then develops.Because of the absence of a well-established framework and methodology formanufacturing strategy, very little formal information typically exists in companiesto document a firm's manufacturing strategy. As a consequence, we take the follow-ing approach in conducting interviews with manufacturing executives to understandtheir manufacturing strategy.The first requirement for information concerns the major investments made inmanufacturing and major programs instituted in manufacturing that have beenundertaken by the company during the last several years. These reflect its manu-facturing strategy. In particular, we are interested in the business benefits resultingfrom 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 thepast five years Anonke has made several major investments in manufacturing. Theseinvestments, shown in table 13, have several objectives.

Investments to reduce costThe investments in computer technology for pattern-making and a laser cloth cut-

ting machine provided important benefits by reducing fabric waste and decreasing directlabour costs. Likewise, the special purpose sewing machines provided equipment thatperforms operations such as embroidery and button hole making to improve productiv-ity and reduce direct labour cost.

Investments to meet low-volume ordersThe investment in sewing lines reduced the level of difficulty in the sewing operationsby transferring the more difficult operations to sub-assembly stations operated by

highly skilled emplo}'ees. The business benefits here included lower learning and change-


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Orderwinningcriteria

Manufacturing strategyCorporateobjectives Marketingstrategy Process Infrastructure

Alignment process overview: manufacturing's view of business and initiatives.able 14.

over times between customer orders. This investment representated a deliberate decisionto invest in a low-volume batch process choice to create competitive advantage asindicated in the diagram in figure 2.

Investments to support product featuresThe 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 theperformance data provided by the order sample. This involves comparing actual manu-facturing capabilities to the market requirements.

(a) Manufacturing initiatives have provided important support for three of theorder winning criteria: price, manufacturing's ability to cope successfullywith low to medium customer order specifications. and product features.(b) Investment in sewing lines provides good support for low- to mid-volumemarkets, and positions the company as the most effective in processing lowvolume batch products.(c) Although the investments in automated pattern making and laser cuttingsupport low cost production, a key area for improvement is to further reducefabric cost, especially if the A 1 market segment is to be emphasized.(d) While the investment in automated pattern making shortens this step in theprocess, manufacturing does not currently have the capability to support cur-rent and future market requirements for delivery speed and delivery reliability.

2.5. Developing strategic issuesand recommendations-step 5The final step in our methodology is to identify the areas of misalignmentbetween marketing and manufacturing strategy, and to develop options to improvethe strategic fit between these two functions. As a consequence, he debate mayinvolve a discussion of changes n both marketing and manufacturing strategy, i.e.a discussion involving markets, marketing initiatives, and manufacturing invest-ments. This is indicated by the large ellipse in table 14.To illustrate this point the strategy issues/recommendationiscussionor AnonkeApparel included below highlights two important areas of misalignment at this com-pany. Theseare:


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Marketing:Growing emphasis on three segments: arge volume, product features and partnershipcollectionsdifficult-to-manufacture productsManufacturing:supporting delivery speed and reliabilitysupporting price sensitive segmentsperformance reward systemsTable 15. Anonke's alignment process overview: develop strategy issues/recommendations.

(a) the inability of the company to meet the delivery speed and reliability require-ments of the large volume and product features market segments;

(b) the focus on the large volume segment which does not exploit the company'sinvestment in low/mid volume production flexibility in the factory nor the skilllevel of the workforce.

These require discussion and debate within the company to resolve the differences inmarketing and manufacturing strategy.At Anonke, the key manufacturing options to improve strategic alignment {shownin table 15) involved reducing customer lead times and increasing delivery reliability.Further analysis of the data collected in the representative sample revealed that, cur-rentl)', over half the operations lead time is explained by delays in ordering fabric oncethe customer orders have been accepted, and starting manufacturing once fabric hasbeen received from suppliers.Such delays could be avoided by making enhancements to the company's manu-facturing planning and control system to improve customer order tracking in purchasingfabric, in placing and receiving orders from suppliers, and in scheduling manufacturingoperations such as pattern-making, cloth cutting, and sewing operations. Otherenhancements include introducing improved capacity planning methods to ensure thatsufficient capacity exists to begin manufacturing operations once fabric has beenreceived. Furthermore, since the lead time to purchase fabric represents one-third ofthe customer lead time, still another option involves making changes in the purchasingarea to improve the quality of forecast information concerning fabric requirements andcolours, or investing in inventory to stock standardfabric types. A further option wouldbe to change the company's performance measurement system to evaluate deliveryspeed and delivery reliability performance on a regular basis.

Other strategic options to be considered involve reducing direct material cost tobetter support the A1 market segment. Alternatives here include an increased emphasison sourcing and supplier development by purchasing to improve supplier pricing .

Asowith manufacturing, marketing needs to review the strategic decisions concern-ing market positioning to bring the marketing and manufacturing strategies into betteralignment. Three major options in marketing strategy become apparent from this pro-cess overview and application.Thefirst was to review Anonke's current emphasis on the A1 segment. This segmenthas represented a major sales growth area for the company, with over half the currentsales volume. There are several important reasons that justify this initiative. Such salesinvolve high volume, non-seasonal items that enable the company to level factory


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w. L. Berry et at.616output. Even so, when these sales are viewed in terms of their contribution margin, theyare much less attractive than the A2 market segment. Furthermore, the Al segmentdoes not exploit the low/mid-volume production flexibility of the factory nor the skilllevel of the workforce. It also places pressure on the company's infrastructure, requiringinvestment and development of the purchasingfunction in order to cope with highfabriccosts and tight delivery dates. In fact, the Al segment fits the high volume/low costmanufacturing strategy of the company's competitors much better than the niche/low tomedium volume production strategy adopted by Anonke Apparel.

A second major option was to increase the company's emphasis on some of itsEuropean customers. These customers, while more demanding when it comes to productquality, are less price-sensitive. This means that they better fit Anonke's chosen manu-facturing strategy than the large us firms in the Al segment currently being courted bymarketing.The final option was to increase further the emphasis on difficult-to-manufacturegarments. Again, these products fit Anonke's manufacturing strategy in much the sameway as with its European customers.3. Conclusions on the application of the methodology

This framework and methodology provides a way of organizing managementthinking about manufacturing strategy and how it relates to a firm's markets andmarketing strategy, and a way of articulating manufacturing strategy to other busi-ness functions. The Anonke example demonstrates how this methodology enabledan 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 ofthe 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 toprovide an explicit link between the strategy perspectives of marketing and manu-facturing. The revised framework and proposed methodology is shown in figure 4.This figure implies that the strategic options in marketing can be connected withstrategic options in manufacturing and vice versa. For example, the investments atAnonke in production's ability to cope effectively with low to medium customerorder quantities relate directly to marketing's initiative to target speciality shopsand boutiques in the European market, i.e. the product features segment noted intable 8 which exhibits important sales growth and profitability as shown in tables 9and II. This implies that the marketing and manufacturing strategy debate can andshould influence the market positioning decisions noted in figure 4. In this way amanufacturing strategy can be developed to support marketing strategy, and todevelop competitive advantage.The framework and methodology is hard-data-driven. The discussion and debateof the marketing and manufacturing strategies are based on factual arguments anddata instead of opinions. The ability of manufacturing to support specific customerrequirements can be evaluated by measuring actual manufacturing capabilities andperformance. For example, production's low volume capability, as defined in figure 3


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Figure 4. Business strategy debate.

of this paper, can be measured in terms of productivity and contribution margin, anddata can be used to support strategic arguments to target market segments with lowvolume production requirements, i.e. the product features segment noted in table 8.

Finally, the framework and methodology enables manufacturing performance tobe tested against customer requirements to assess he alignment between marketingand manufacturing strategy .The delivery speed and reliability issues in Anonkeprovide an interesting example of this. Clearly, the current and future marketrequirements for short reliable customer lead times cannot currently be supportedby manufacturing. Therefore, discussion and debate are necessary in order todevelop strategic initiatives in manufacturing to retain competitive advantage. Inthis way the manufacturing strategy framework and methodology presented hereindicate areas of mis-alignment between marketing and manufacturing strategy, and,therefore, drives the business strategy debate!

ReferencesBENNINGSON, L. A., 1996, Changing manufacturing strategy. Production and OperationsManagement, 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 usingactivity-based costing and the theory of constraints, Journal of Cost Management,

Jan./Feb.CLARK, K. B., 1996, Competing through manufacturing and the new manufacturing para-digm: is manufacturing strategy passe? Production and Operations Management,5 (1).COREY, E. R., 1992, Marketing strategy-An Overview, Harvard Business School, ReferenceNo.579-054.


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3618 Aligning marketing and manufacturing strategiesELISHBERG, J. and STEINBERG, R., 1987, Marketing-production decisions in an industrialchannel 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 twoparadigm 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).

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