|Rahmat Nurcahyo||Department of Industrial Engineering, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia|
|Alan Dwi Wibowo||Agroindustrial Technology Department, Lambung Mangkurat University, Jl A Yani Km.36, Banjarbaru, Kalimantan Selatan 70714, Indonesia|
|Renta Robasa||Department of Industrial Engineering, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia|
|Indah Cahyati||Department of Industrial Engineering, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia|
A strategic plan is an essential part of the manufacturing process and can be considered from different perspectives, such as a market-based view or a resource-based view. This study investigates strategic planning in manufacturing from the resource-based perspective, which uses functional capabilities as determinants for manufacturing strategy. Automotive component manufacture is adopted for the case study. This includes both automobile and motorcycle component manufacture. Multiple regression analysis is used to describe statistically the relationship between the manufacturing strategies and the functional capabilities. The major finding of this paper is that capability in production or operations significantly influences all aspects of manufacturing strategy. The study also shows that functional capabilities carry extensive influence in strategic manufacturing planning as leverage points to help a company achieve its goals.
Cost reduction strategy; Flexibility strategy; Functional capabilities; Manufacturing strategy; Product delivery strategy; Quality strategy
Increased competitiveness can be achieved by increasing capabilities and implementing appropriate strategies (Kocoglu et al., 2012; Yang, 2013). A manufacturing strategy can be a powerful weapon for achieving business objectives (Swamidass & Newell, 1987) and for creating corporate excellence in relation to business competitors (Amoako-Gyampah, 2003). The idea of a manufacturing strategy originated with Skinner in 1969, while the term “manufacturing strategy” was introduced by Wheelwright in 1978 (Nurcahyo & Maemunsyah, 2013). A manufacturing strategy is a structured pattern followed in the decision-making process in order to align it with a company's business strategy (Hayes & Wheelwright, 1984). The manufacturing strategy has been described as the content or the “what” and the process as the “how” (Papke-Shields et al., 2006). The content of a manufacturing strategy includes the manufacturing tasks, the competitive priorities, the order winners, and the qualifiers for production competence (Swink & Hegarty, 1998).
The ability of a company to make decisions is closely associated to its approach to its strategic manufacturing content, also known as its decision categories, which comprise both its structural and infrastructural categories (Hayes & Wheelwright, 1984). Having a strategic manufacturing process is dependent on the formulation of strategies (Hayes & Wheelwright, 1984; Voss, 1990; Marucheck et al., 1990), the implementation of those strategies (Hayes &Wheelwright, 1984; Voss, 1990; Marucheck et al., 1990; Hallgren & Olhager, 2006), and on improvements (Hallgren & Olhager, 2006). Manufacturing strategy planning is an activity that is related to the formulation of strategies for the manufacturing process. The ability of a company to implement its improvements will be driven by actions in the company’s decision categories, which in turn, will have a positive impact on the company’s manufacturing capability and enable it to achieve its objectives (Hallgren & Olhager, 2006).
1.1. Strategic Manufacturing Plan
Having a strategic manufacturing plan is a vital part of the manufacturing process. The manufacturing process can be considered from two conflicting viewpoints, the market-based view (MBV) and the resource-based view (RBV) (Nurcahyo & Maemunsyah, 2013). Many studies have investigated strategic manufacturing planning from the MBV perspective (Amoako-Gyampah, 2003; Gerwin, 1993; Marucheck et al., 1990; Nurcahyo & Wibowo, 2015), while the RBV approach has not been widely used in strategic manufacturing planning (Nurcahyo & Maemunsyah, 2013). The MBV approach is broadly used to synchronize strategic design with the potential target market with the aim of capturing the market efficiently. However, if the design does not also consider the role of its internal resources, the resulting design will not work effectively (Thun, 2008). The RBV approach should be used in a complementary way if the potential support from internal resources is to be included in the design of strategic manufacturing planning. It is therefore important to research the RBV approach in order to provide a holistic understanding to support the design of an effective strategic manufacturing plan.
The market-based view uses an external perspective, which states that the manufacturing strategy is derived from the business strategy, and in determining manufacturing strategy, attention is focused on the needs of the market (Thun, 2008). In contrast, the resource-based view uses an internal perspective where resources and capabilities are considered as the primary determinants of the manufacturing strategy (Thun, 2008). Voss (1990) suggests that there are three paradigms in manufacturing strategy: competing through manufacturing capabilities, competing through strategic choices, and competing through best practices and world class manufacturing. The competing through manufacturing capabilities paradigm was first introduced by Skinner. This was further developed by Robert Hayes and Steven Wheelwright (Junttila, 2000). This paradigm takes the view (Prahalad & Hammel, 1990) that competence is the source of competitive advantage. This perspective is in line with the RBV that states that manufacturing strategy is developed from capability.
A wide range of research has explored the formulation of manufacturing strategy, either focusing on design or on planning (Kim & Arnold, 1996). Many case studies have been used to investigate the learning process in strategic planning for manufacture (Papke-Shields et al., 2006). Various dimensions of manufacturing strategy have been developed (Spring & Dalrymple, 2000), but these are all consistent with four variables first described by Skinner. This study focuses on Skinner’s description of manufacturing strategy (1969), which considers the four factors of cost, quality, delivery, and flexibility. These four factors are at the core of manufacturing strategy. The manufacturing strategy of the automobile industry was developed around the quality approach (Lindstrom & Winroth, 2010). All steps in the formulation of strategy must be validated; thus the desired-direction of the firm must be supported by robustness and reliability in its manufacturing process. These are all key factors in the development of manufacturing strategies that work in parallel with improvements in manufacturing capabilities.
1.2. Functional Capabilities
The capability of an organisation is its set of integrated resources that achieve a particular task or activity. Determining the capability of an enterprise is usually based on one of two approaches, the functional approach or the value chain approach (Thompson & Strickland, 1998). Many different types of capability have been explored by the experts, including both manufacturing capabilities and functional capabilities. Hitt and Ireland (1985) describe types of capability in terms of their functionality. They can also be understood as latent variables: general administration, production/operations, engineering and research and development (R&D), marketing, finance, personnel/human resources, public and governmental relations. Many researchers have assessed the impact that manufacturing strategy has on manufacturing capability in terms of achieving a company’s objectives. In this research, the relationship between manufacturing strategies and functional capabilities will be examined. This will be interpreted as the construction of a framework for strategic manufacturing planning. The aim of this study is to investigate the effect of functional capabilities on the preparation of a strategic manufacturing plan. The uniqueness of this study is its use of the resource-based perspective in developing a strategic manufacturing plan, as most recent research has focused on the market-based perspective. The initial hypothesis is that the functional capabilities are strongly influential in the development of a strategic manufacturing plan.
Functional capability significantly influences the development of a strategy aimed at achieving manufacturing objectives for both automobile parts manufacturers and motorcycle parts manufacturers. The most important capability when developing a manufacturing strategy is the production/operations dimension. In each strategic area, including flexibility, product delivery, quality, and cost reduction, production/operations impact strongly on strategy development. In addition, other capabilities have a middle level impact on strategy development. This paper has shown that functional capabilities could be a leverage point for accelerating the achievement of a company’s goals through the development of its manufacturing strategy. In terms of a flexibility strategy, the order of priorities should be production/operations, finance, and then public and government relations. The top priority for the development of a delivery strategy is the functional capability of production/operations. However, if the company is using a quality strategy approach, the order of priorities for its functional capabilities will be production/operations, human resources, and then engineering and R&D. Finally, the order of priorities for functional capabilities in developing a cost reduction strategy will be general administration, production/operations, and then engineering and R&D. Although marketing has a significant relationship with the development of a cost reduction strategy, the relationship is negative. Therefore, this variable is not considered as a priority in the development of a cost reduction strategy.
This paper is limited to the automotive industry and it is possible that other strategic industries would show significant differences. Our study has implications for future research such as an investigation into the RBV approach with other strategic industries. A combination of MBV and RBV would improve the model and the future use of hybrid methods to present a more dynamic mathematical model could have a major impact on industrial activity.
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