For a successful manufacturing operation with cost effectiveness and profit earning proposition to the manufacturer, involves the skills of various management functions like Operations, Finance, Human Resources, and Marketing. This is the exact reason we have considered including it in the management articles and for the readers to know some what in detail about manufacturing.
The process by which materials and components are joined into products is typically called manufacturing, or production. Manufacturing firms represent significant and highly visible channel participants because they create products that become the primary concern of the overall distribution process. Manufacturing establishments create form utility. Manufacturing in combination with agriculture and mining serves to generate a flow of products, services, commodities, and materials that ultimately become the focal concern of marketing channels. Manufacturing is the link in the value-adding chain that converts most agricultural commodities and extracted materials into products for industrial or consumer use.
The balance of the distribution process serves to provide assortments of many different manufactured products for wholesalers, retailers, and customers. Manufacturing firms take on significant risk with the creation of products. For example, Procter& Gamble, Lever Brothers, and Colgate-Palmolive invested hundreds of millions of dollars in developing, market testing and launching super concentrated or compact powder detergents such as Ultra Tide, Wisk Power Scoop, and Fab Ultra. Reputable manufacturers assume full responsibility for the quality of products they produce and for their ultimate acceptance by customers. This responsibility is typified by widespread manufacturers’ warranties and money-back guarantees for customers who are not fully satisfied. While the extent of manufacturers’ risk in the overall distribution process is significant, it is focused or limited to the specific products produced, which typically represent a small proportion of those handled in the overall marketing channel.
The most visible manufacturers are firms that produce consumer products such as automobiles, appliances, food, clothing, pharmaceuticals, and beauty aids. Businesses that manufacture products for mass consumption often have highly publicized brands that are better known than the firm itself. Few consumers realize that such diverse consumer brands as Luvs, Oil of Olay, Duncan Hines cake mixes, Pert Plus, and Pringles are but a few of the many products manufactured and distributed by Procter & Gamble. In reality, firms that produce highly visible consumer brand products represent a small percentage of all establishments engaged in manufacturing. The majority of manufacturing establishments produce components, subassemblies, or ingredients that are sold to other business firms. Such business-to-business or industrial marketing is critical to the overall performance of final-product manufacturing. A manufacturer such as Ford is reported to regularly conduct business with thousands of vendors despite an aggressive program to reduce the number through supplier certification programs. Each of Ford’s vendors, in turn, has a network of suppliers, resulting in a significant proliferation of firms. The vast majority of manufacturing firms are relatively small and not highly visible to the consuming public.
A useful way to view manufacturing structure is in terms of the basic production process and the degree to which products are produced in anticipation of future sale. Both process and anticipation have a direct impact upon a manufacturer’s channel requirements. Buffa and Miller structured production inventory systems using a two- dimensional classification scheme. In terms of manufacturing process technology they classified firms as continuous or intermittent. Firms are also grouped based on relative inventory risk. Manufacturing performed in response to specific customer orders typically confronts less risk than one that produces in anticipation of future orders. Where a firm falls with respect to this two-dimensional classification scheme has a direct impact upon its channel requirements. For example, firms that build to inventory typically require a far more complex channel arrangement involving many more trading partners than those who build to customer orders.
In terms of process technology, firms engaged in continuous manufacturing are forced to place a great deal of attention upon rationalizing the production process. Because of the high cost production line changeover and the need to focus manufacturing efforts to achieve maximum economy of scale, continuous-process firms require a highly reliable supply vendor network, one capable of flowing materials and components parts as required to support production requirements. Because the nature of this process is so dependent upon vendor performance, many continuous-process manufacturers seek to maintain control by vertical integration or very formalized strategic alliances with key vendors.