Productive Systems and Positioning Strategies

As the product develops through its life cycle, the productive system goes through a life cycle of its own from a job shop system (process focused, to order)  when the product is in its initial stages through intermediate stages to a continuous system when the product is demanded in large volume.

Relationship between the product life cycle and productive system types

*Introduction – Process focused, to order   (Job shop)

*Process focused, to order (batch).

*Product focused to stock (Batch).

*Product focused to stock (Continuous)

These stages of product and process development are interdependent and feed on each other. There is the dependence of the proper type of productive system on the volume of product that is sold. But, in addition, the volume of product sold is dependent in part on costs and in part on the price – quality competitive position, both of which are dependent on the use of the appropriate productive system. All of the factors that operate in a productive system is to reduce costs and is an important element in a manager’s competitive strategy. The results of cost reduction can indeed be used as the basis for aggressive pricing, which may in itself be an important factor in building market share and building experience. For example, in anticipation of a lower cost per unit at larger volumes in future time periods, a firm may price its products even lower than the initial cost of production. In such aggressive pricing, however, risks must be balanced against potential benefits.

Process Life cycles and technology:

Another factor correlated with the development of the process life cycle is the employment of rather different levels of process technology at each stage of development. When volumes are low, reflecting a great deal of variety in product designs, the process technology must reflect the need for flexibility. In a machine shop, for example, it might involve employing basic machine tools. Automation has not been available to these low volume operations in the past, but numerically controlled machines promise to change this situation. As the product volume increases, variety in the line decreases reinforcing the volume effect, and product focused facilities become justified. The process technology employed with facilities dedicated to a product becomes specialized with operations more integrated and more mechanization, automation, and numerically controlled processes used. Finally, when the product matures and becomes virtually a commodity, variety is further reduced, cost is the dominant competitive weapon productive systems are fully integrated and process technology emphasizes high levels of mechanization and automation, including computer control and robotics.

Very important product / process technological developments are currently taking place that will affect our ability to deal effectively with product design flexibility and low volume demand. For example, computer aided design (CAD), makes possible specifications for the design of custom computer chips. When these design specifications are directly transferred into manufacturing specifications – computer aided manufacturing (CAM) – we have a CAD / CAM system. Custom designed chips can be produced almost as inexpensively as high volume designs on a per unit basis. The CAD / CAM connect is currently being applied widely in industry. Similarly so called flexible manufacturing systems are being developed that tie a number of numerically controlled machine tools together through a material handling system and automation computer control. The result is automation for the production of low volume products.

Interdependent product lines:

Companies today commonly have complex product lines that may compete in different markets. But even though the products and markets may be different, it may be possible to exploit complementarity and interdependence in the production functions:

Suppose, for example, that a company competes in three basic product markets – colour TVs, hand calculators and digital watches – requiring the following main manufacturing activities:

*Product specific components manufacture

*Integrated circuit manufacture (ICs)

*Housing manufacture

*Acoustical  component manufacture

* Assembly

The structure for each of the three product lines is shown. The percentage numbers in the boxes indicate the value added by manufacture at each stage for each product, and the vertical length of each box is in proportion to these percentages. The value  added by manufacturer here is simply the accumulation of the variable costs of manufacture for each product line at each stage. Some of the activities for a given product are independent of the other products,  such as the product specific components. However, the other activities are common to at least two of the product lines. For all three largest value added percentage is for integrated circuits (ICs) the next largest is for assembly.

Interdependence provides some advantages in the scale of operations and experience accumulation for ICs and assembly and to a lesser extent, for plastic housings and acoustical components. Although the volume of ICs required for colour TVs might justify process technology of a base level, when the volume of ICs required for all three product lines is taken into account, higher levels of mechanization and automation may be justified. The scale of operations for the combined product lines can contribute to efficiency of operations in ICs, making the company more cost competitive in all three product lines. Furthermore, the larger total volume contributes to organizational   learning and the experience curve effects to which we have alluded. These effects are particularly important for ICs because they represent such a large percentage of the value added for all three products. Cost competitiveness is enhanced for all three products.