Manufacturing activity - Strategic Management

With this developing profile of its products in mind, the company should turn its attention to the processes by which these are made, looking for areas of potential cost reduction, alternative production methods, alternative formulae or composition of products, and technological developments which could improve costs. To aid this study, it may be useful to use work-study techniques or value analysis. There is frequently a general assumption in companies that its production processes are efficient. This they may be. The question to be answered is whether they can be more efficient, or is it possible to achieve the same end product by cheaper alternatives. This is the point in time when the company should examine make-or-buy situations for its components, and should look at the prices of outside services in comparison with its own costs.


The graph in Figure provides an answer to those who argue that production is a sacrosanct area. This shows efficiency ratings on a theoretical yield basis for the processing of a basic commodity in a food plant. For years the plant had had an average efficiency of about 94–95 per cent. Suddenly it slumped dangerously. Corrective action brought a modest improvement. At this stage a process engineering team was brought in – not as part of a corporate appraisal but as an operational necessity.

Successive actions gradually increased the yield, which soon passed the old average of 94–95 per cent. Improvement continued, and at one point a yield greater than the theoretical maximum was obtained. The point of the story is that after the study the plantwas operated more efficiently than it had ever been, although earlier in the year management would have argued that it was already efficient. In this case it took what proved to be a happy accident to bring about improvements. Consideration of the process should include the raw materials, the standard. set for their purchase, and the efficiency of the company as buyers.

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