Setting Up New Manufacturing Unit in an Established Organization

A new manufacturing plant has to fit into a multi-plant operations strategy. The different operations strategies could be:

Plants Manufacturing Distinct Products or Product Lines:

However, each plant services the entire market area for the organization. This strategy is necessary where the needs of technological and resource inputs are specialized or distinctively different for the different products/product-lines. For instance, a high quality precision product-line should preferably not be located along with other product-line requiring little emphasis on precision. It may not be proper to have too many contradictions such as sophisticated and old equipment, highly skilled and semi-skilled personnel, delicate processes and those that could permit rough handling, all under one roof and one set of managers. Such a setting leads to much confusion regarding the required emphasis and the management policies. Product specialization may be necessary in a highly competitive market; it may also be necessary in order to fully exploit the special resource potential of a particular geographical area. Instances of product specialization could be many: A watch manufacturing unit and a machine tools unit; a textile unit and a sophisticated organic chemicals unit; an injectable pharmaceuticals unit and a consumer products unit; etc. All these pairs have to be distinctively different in technological sophistication, in process, and in the relative stress on certain aspects of management. The more decentralized these pairs are in terms of the management and in terms of their physical location, the better would be the planning and control and the utilization of the resources.

Manufacturing Plants each Supplying to a specific market area:
Here, each plant manufactures almost all of the company’s products. This type of strategy is useful where market proximity consideration dominates the resources and technology considerations. This strategy requires a great deal of coordination from the corporate office. An extreme example of this strategy is that of soft-drinks bottling plants. The Associated Cement Companies Ltd, have 17 cement factories spread over Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Haryana, Andhra Pradesh, Karnataka, Tamil Nadu, Himachal Pradesh and Bihar. Fertilizer Corporation of India Ltd. Has plants at Durgapur, Gorakhpur, Nangal, Namrup, Sindri, Trombay, Barauni, Korba and Haldia.

Manufacturing plants divided according to the product/product line being manufactured; and these special-product plants located in various market areas. This type of a combination strategy may be possible for a large organization.

Plants divided on the basis of the processes or stages in manufacturing:

Each production process or stage of manufacturing may require distinctively different equipment capabilities, labor skills, technologies, and managerial policies and emphasis. Since the products of one plant feed into the other plant, this strategy requires much centralized coordination of the manufacturing activities from the corporate office who are expected to understand the various technological and resources nuances of all the plants. Sometimes such a strategy is used because of the defence/national security considerations. For instance, the Ordnance Factories in India.

Plants Emphasizing Flexibility in Adapting to Constantly Changing Product Needs:

This requires much coordination between plants to meet the changing needs and at the same time ensure efficient use of the facilities and resources.

The new plant or branch facility has to fit into the organization’s existing strategy, mainly because the latter has been the product of deep thinking about the long-term prospects and problems, and strengths and weaknesses for the organization as a whole.

Frequent changes in the long-term strategy, in order to either alleviate temporary problems or improve the efficiency temporarily, are not healthy for the organization. Rather, such temporary palliatives may give rise to more complications in the future. In any facility location problem the central question is: “Is this a location at which the company can remain competitive for a long time?” rather than “Is it cheaper to do business here?”

It may also be noted that for an established organization in order to add on to the capacity, there can be ways other than opening up new operations facilities:

(a) Expansion of the facilities at the existing site/sites;
(b) Relocation of the facilities (closing down the existing ones).

The procedure (a) is acceptable until it does not violate the basic business and managerial outlines, i.e. philosophies, purposes, strategies and capabilities. For instance, expansion should not compromise on quality, delivery, or customer service. If it does, it is an indication that the diseconomies of scale such as incompatibilities, loosening of the management control and inflexibilities have crept into the system. It is then appropriate to look for a new location for the expanded portion of the activity. Procedure (b) is a drastic step which can be called as ‘Uprooting and Transplanting’. Unless there are very compelling reasons, relocation is not done. The reasons are almost never of increasing plant size but those of either bringing radical changes in technology, resources availability or other destabilization. There have been instances in the past of some large firms shifting their plants and headquarters from Calcutta to Hyderabad and Bangalore.