Manufacturing flexibility: methods for measuring the impact of product variety on performance in process industries

Abstract

Product variety is often assumed to yield competitive advantage by offering products or services tailored to specific market segments. This strategy should result in more total sales volume or higher prices, and presumed profit, gained by meeting more specialized demands. However, achieving competitive advantage through increased product variety is heavily dependent on the proper alignment of the marketing and manufacturing strategies. This paper shows that adding product variety can have adverse cost and margin implications when marketing and manufacturing strategies are mis-aligned. The critical strategic issues involve product pricing and manufacturing flexibility in product mix. We report methods that can be used to measure product mix flexibility and manufacturing performance in terms of costs and margins based on actual orders and production data. Such methods provide a means of empirically diagnosing the degree of strategic mis-match using actual operating data. These methods are general in nature, and have been tested in field research on high volume batch processes that are representative of many firms in process industries. The results show that gaining competitive advantage through increased product variety requires a clear understanding of the process choice required to support the contemplated range of product volumes, and the cost and profitability trade-offs involved. q

Mass Customization Versus Mass Production: Variety and Price Competition

“…Empirical and analytical studies have shown however that incongruence between product plans and supply process leads to poor performance (Randall and Ulrich 2001, Berry and Cooper 1999, Safizadeh et al 1996, de Groote 1994. Hence, adopting customization requires shifts in both marketing and operations strategy.…”

Supply Chain Resilience Analysis: A Brazilian Automotive Case

“…For example, Fisher (1997), Randall and Ulrich (2001), Lee (2002), Qi, Boyer and Zhao (2009) study the relationship between SC structure, product structure and external environment. Berry and Cooper (1999) conclude that flexibility does not always lead to higher profitability; the level of flexibility needs to be aligned with the requirements placed upon the SC. Another focus of SC flexibility is the design of SCs.…”

Product mix strategy and manufacturing flexibility

“…[27,28]). We refer specifically to product mix flexibility and the capacity of production equipment to handle the product mix changes [29], and we follow Berry and Cooper [29] that defined product mix flexibility as the ability to manufacture a wide range of products or variants with expected low changeover costs. Gerwin [30] focused on equipment and features related to volume and mix flexibility.…”