Resolving the Trade-off between Process Variety and Cost: An Inquiry from within the Plant

Abstract

While marketing people are concerned with demand variety, operations people are more concerned with process variety. Operational flexibility can be regarded as the capability to deal with process variety with little cost penalty. This requires the resolution of the trade-off between process variety and cost. "Trade-offs are at the heart of manufacturing strategy, but we know little about their underlying sources" (Clark, 1996, p57). To search for the underlying sources for trade-off resolution, the roles of two distinctive process activities — process development and process execution — are explored, as are the roles of the functional performers of these two process activities — manufacturing engineering (ME) and production (P). Process development is technically difficult and procedurally flexible, whereas process execution is technically simple and procedurally rigid. This research converges all market requirements into a unitary concept — process variety on the factory floor. Thus the task in the operating core becomes clearly defined — building up process flexibility as a type of capability to deal with process variety. This conceptual and practical treatment can largely eliminate the confusion seen in flexibility studies due to vague definitions of various flexibility measures. A longitudinal qualitative case study in this research has revealed a practical and effective approach to resolving the trade-off: a larger proportion of process variety can be distributed to process development rather than process execution. In the thesis, this practice is called the rule of process variety distribution. Accordingly, a plant must make a decision as to where it locates its limited resources to build and bank superior capability so that it can be both flexible and cost effective. At the research sites, the rule of process variety distribution is carried out by plant management as a two-pronged strategy — a relatively more flexible ME and a relatively more rigid P: On the one hand, a flexible and capable ME builds flexibility and reliability into the processes it develops. On the other hand, P follows the well-designed procedures to rigidly carry out process execution (including process changeover). That is to say, process development activities should simplify and stabilise the process as much as possible (by eliminating the unintentional process variety and reducing intentional process variety as much as possible) so that process execution can be smooth and consistent. Two imperatives to enable a proper process variety distribution and the two-pronged strategy are found and validated in the research — superior process flexibility (as a form of capability) in process development and positive interaction between ME and P. From both managerial and technical aspects, the thesis discusses some relevant tactics to generate and sustain such imperatives. A natural implication of this research is that the debate (or paradox) between factory focusing and manufacturing flexibility can be resolved in the following way: focusing and flexibility are two demonstrated practices in a dynamic performance spectrum. The range of this spectrum is determined by ME's potential flexibility, and the dynamics of the spectrum is determined by the interaction between ME and P. A plant may demonstrate different degrees of flexibility to meet different market requirements at different times. Differentiating potential flexibility from demonstrated flexibility is critical in the future research on manufacturing flexibility.