INT. J. PROD. RES., 1999, VOL. 37, No.

16,

3599-3618

Aligning marketing and manufacturing strategies with the market

w. L. BERRYt, T. HILLt* and J. E. KLOMPMAKER

In strategic marketing decisions substantial emphasis is placed on market segmentation and product/service differentiation. This follows from separate, intensive analyses of customers and competitors. Based on these analyses, the resultant segmentation and differentiation schema, and an intensive review of the firm's own strengths, weaknesses, opportunities and threats, the firm makes one of its most important and critical decisions: which customers to serve and which products to emphasize, referred to as positioning. On the other side of the same corporate coin, manufacturing makes decisions on process and infrastructure investments based upon the technologies required, and its perception of what it needs to do well in order to fulfil its role. In the same way as with marketing decisions, the firm now makes another of its most critical decisions by committing itself to major investments in manufacturing that are characterized by high value and long time scales to change. On the one hand, these positioning decisions by marketing invariably include little emphasis in determining the customer requirements that must be supported by manufacturing, and fail to investigate the ability of manufacturing to support these requirements. On the other hand, manufacturing decisions do not reflect key insights on the needs of current and future markets. As a consequence, many businesses fail to achieve their strategic business objectives, due, in part, to the inability of marketing and manufacturing to jointly develop consistent strategies. We call this a lack of alignment. The methodology outlined in this paper concerns how to align marketing and manufacturing strategies by using markets as the center piece of both developments. Doing this highlights the recognition that markets need to form the common denominator of both marketing and manufacturing strategy development. This methodology is illustrated by using an actual example drawn from plant-based research. Several key questions are addressed in this methodology. How does marketing view customers and markets? What is manufacturing's view of the same customers and markets? To what extent is manufacturing actually able to support the demands that these customers and markets are placing on a firm's capabilities? It is important to check with the use of data, the actual operating performance against the required capabilities. In cases where substantial differences exist between customer and market requirements and manufacturing capabilities, strategic options (both in marketing and manufacturing) to resolve these differences need to be addressed in making strategic business decisions.

Introduction Despite two decades or more of research on the process and content of manufacturing strategy, core dimensions still remain at large:
Revision received September 1998. tThe Max M. Fisher College of Business,

I.

The Ohio

State University,

2100 Neil

Avenue,

Columbus, OH 43210, USA. t The London Business School, The University of London, UK. The Kenan-Flagler Business School, The University of North USA. .To whom correspondence should be addressed. e-mail:

Carolina,

Chapel

Hill,

thill@lbs.ac.uk

International Journal of ProductionResearch ISSN 0020-7543prinl/ISSN 1366-588Xonline (!d 1999Taylor & Francis LId hllp:/ /www .landf.co.uk/JNLS/prs.hlm hllp:/ /www .laylorandfrancis.com/ JNLS/prs.hlm

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(a) there is no generally accepted method for its analysis and development; (b) there is no framework for organizing management thinking regarding its formulation that is generally accepted by executives and researchers; (c) there are no commonly held concepts and language to communicate issues and options among those concerned with its development and implementation. Furthermore, the links between manufacturing strategy and other functional strategies are frequently unclear with the result that management's ability to connect the strategic options in one function with relevant options in other functions is often very limited. The result is that the 'bunker' mentality within a business is not only reinforced but is also extended to the formulation and development of functional strategies. Finally, debate and discussion of the linkages between manufacturing strategy and marketing strategy are critical if a business is to be competitive in its markets. The fact that management is often unable to link strategic options between functions limits this debate and the effectiveness of strategic outcomes in any business. This paper presents a framework and methodology for guiding the development of functional strategy in both marketing and manufacturing that has been tested in numerous businesses over the past fifteen years. Furthermore, the approaches used in marketing have been applied successfully by marketers for nearly forty years. The purpose of this paper is to provide a comprehensive statement on how to link the functional strategies developed within marketing and manufacturing and to illustrate these approaches by using a worked example of one company. The approaches outlined are the result of many business-based applications. The company example is intended to illustrate the points embodied in the approaches used while providing additional insights and emphasis throughout. The paper builds on some of the key views held by the authors and which have been derived from their extensive research in businesses. (a) The analysis of customers and markets provides the basis for linking the strategy development efforts in both of these functions. (b) Frameworks and methodologies are an essential aid for executives when formulating, articulating, debating, and implementing functional strategies such as marketing and manufacturing. (c) Similarly, frameworks and methodologies are essential for guiding research in the study and analysis of functional strategies. As would be expected, these views are reflected throughout the paper and help to fonn some of the themes and outcomes on which the work is based. An outline of the content and rationale of the paper is now provided. The first section provides an overview of the framework and methodology we use in analysing and developing the functional strategies of marketing and manufacturing. Then we give an example that illustrates the steps in each of the frameworks and how the supporting methodology works. The final section presents the conclusions which have been reached based on extensive field research completed (but not reported in detail here) over the past fifteen years in applying this framework and methodology to companies in such diverse businesses as furniture, packaging, chemicals, electronics, printing, steel and automotive components.

Aligning marketing and manufacturing strategies 2.

3601

Framework and methodology overview Many have argued that strategic choices in manufacturing need to be made in competitive terms, thereby enabling manufacturing to do certain things better than competitors (Clark 1996, Fine and Hax 1985, Hayes and Pisano, 1996). Cost, quality, dependability and flexibility have been proposed as key competitive priorities, with the understanding that manufacturing must determine on which of these dimensions it seeks to be distinctive (Fine and Hax 1985, Hayes and Wheelwright 1984, Wheelwright and Kent Bowen 1996). Plant focus has been recognized as a means of supporting strategic development in which different products are sold in different markets that require different competitive priorities (Hayes and Pisaro 1996). As an example, Benningson (1996) provides an illustration where market and competitivebased business analyses were used to cross reference market segments and manufacturing processes in terms of order size and frequency to improve order scheduling performance. Voss and Winch (1996) also illustrate the use of order winning criteria and the concept of positioning choice as a way to link manufacturing strategy to market needs. However, despite the substantial progress made in research on the process and content of manufacturing strategy, there is no framework and methodology for developing manufacturing strategy that is generally accepted by both the marketing and manufacturing functions in a business. One result is that among those concerned with strategic development and implementation there are neither commonly held concepts nor language to communicate issues and options. This paper addresses this gap by presenting a methodology that is both consistent with the strategy methodology generally used by marketers and successfully links the strategic perspectives of manufacturing into the corporate debate. This methodology has been successfully applied in numerous firms to check the alignment between the strategies which marketing and manufacturing have developed. The framework and methodology presented here is based on the view that the market is the common denominator when developing functional strategies. Consequently, it is important to ensure that the views of key functions on how markets work and what constitutes the competitive factors are recognized. Then differences can be resolved so that a more informed view is reached and common agreement on the competitive factors in markets is shared. Once the nature of the market(s) is understood, the strategic tasks of marketing, manufacturing and other functions are clear. The proposed framework and methodology to align marketing and manufacturing strategies consists of the five steps below. .Step I: elicit marketing's view of the market and identify its strategic initiatives. .Step 2: establish marketing's view of the market in terms of customer requirements and verify that the views on customer needs are correct both in terms of perspective and emphasis. .Step 3: check manufacturing's performance against those customer requirements for which it is solely or partly responsible. .Step 4: compare current and future manufacturing investments and developments (i.e. manufacturing strategy), with the customer requirements for which it is solely or partly responsible. .Step 5: identify the investments and developments necessary to resolve the differences between customer requirements and manufacturing's performance.

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Table

Alignment

process overview: marketing's

view of business and initiatives.

The basis for this approach derives from the work of Hill (1994) in developing a manufacturing strategy framework. This framework is included as table I. It begins with an analysis of business objectives and marketing strategy, moves to a description of markets and customer requirements in terms of the relevant order winners and qualifiers, and ends with an analysis of manufacturing strategy in terms of process and infrastructure investments. This framework has had extensive field testing in a wide range of industries, representing a significant sample size. This includes 48 companies ranging in size from annual sales of $40 million to $5 billion in the following industries: packaging, furniture, steel, automotive, aerospace, textiles, tobacco, plastics, pharmaceuticals, electronics, telecommunications, apparel, and communications. The companies were located in the USA, Canada, Mexico, Thailand, UK, Spain, France, Germany, Portugal and South Africa. The methodology presented here extends Hill's work in two ways. First, it explicitly links Hill's framework to the marketing strategy framework that is generally accepted by both executives and researchers (Corey 1992). Second, it provides the methodology needed to apply this overall framework to strategic business decisions. 2.1. Examining marketing's view of the business-step 1 To examine marketing's view of the business we used the framework presented in figure 1 to describe and review the marketing strategy of the company (as a convenience to the reader, all portions of this paper that illustrate the application of our methodology to Anonke Apparel will be set in italic type). The first step in the methodology concerns examining marketing's view of the business and its strategic initiatives. The marketing strategy framework shown in figure 1 indicates the process by which marketers study markets and formulate strategies to serve them (Corey 1992). Marketing/Manufacturing strategy illustration-Anonke Apparel: To i[[ustrate the manufacturing strategy framework and methodo[ogy we have se[ected an appare[ company [ocated in Thai[and named Anonke Appare[. Thisfirm is an interesting examp[e in three ways: (a) it competes in wor[d markets that are intense[y competitive; (b) it exports 100% of its product sa[es;

Aligning marketing and manufacturing strategies

3603

Market Segmentation

Product Differentiation

Marketing Strategy

Figure

I.

Developing

a marketing

strategy.

(c) the chief executive has a well-conceived manufacturing strategy which involves an investment in advanced manufacturing technology in direct support of market requirements. As with much of marketing, analysing and understanding customers is paramount. We want to know who they are; what they buy from our product line; when, where and how often their purchases occur; why they buy, that is, what benefits they seek; and how they buy which means what is their buying process. Based on answers to these and similar questions, patterns of buying or groupings of customers start to emerge called market segments. An essential element in market segmentation is to assign customers to segments so that all customers within a segment exhibit similar buying behaviour, while customers across segments exhibit dissimilar buying behaviour (Buzzell 1987). This is because the goal of all marketing strategies is to affect buying behaviour in such a way as to work to the benefit of the selling firm while meeting the demands of customers. By working with customers with similar buying behaviours, marketers can develop a strategy for that market segment which is specific and peculiar to that segment. By the same token, they can develop specific, unique strategies for other segments. This bias has come to be called target marketing. While acknowledging that customer differences are key, recognizing that other firms are trying to do the same thing avoids myopic strategies which fail to recognize the key role played by competitors. Even though it is true that all marketers try their best to serve their chosen customers, their competitors are attempting to do the very same thing. It is also true that competitors in a market possess unique capabilities. Recognizing, acknowledging and specifying those differences is the task of product

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w. L. Berry et al.
Segment Al .widely .heavily .brands .designer .bought recognized brands advertised known because of footwear lines specifies fabric, color and fabric supplier monthly for delivery four months hence

Segment

A2

.much like Al except bought more on product features .smaller than Al customers .small ad budgets; promote only in home countries .own their own retail outlets .have no designers .submit samples and Anonke selects .five month delivery typical .some buy directly from finished goods inventory Table 2 Anonke's customers/segments.

SegmentB:

differentiation. Here the marketer objectively acknowledges where a firm is strong and where various competitors might be stronger, or weaker. Finally, the marketer explicitly recognizes that marketing is simply one component of a firm's overall business strategy. Using time-honoured and dependable tools, portfolio analysis (Hedley 1977), industry analysis (porter 1980) core competency assessment (Prahalad and Hamel 1990) and other strategic analytic weapons, business strategists build strategies, set objectives for the firm and provide corporate direction. These analyses also determine where a firm is strong (possessesthe necessary skills, capabilities and resources) in order to build or maintain a competitive advantage. Based on these three, key analyses, referred to as the three C's (customers, competitors and company), the marketer makes one of the most important decisions that a firm faces: which markets to serve with which products/services and using which strategy. From this key decision all other marketing decisions simply flow. Marketing programs in each of the major areas of marketing, first called the four P's (product, price, place and promotion) by McCarthy (1960), are then developed to bring these marketing strategies to the marketplace. Marketing strategy-Anonke Apparel: Anonke Apparel's market segmentation scheme is shown as table 2. Three major segments are identified by the firm: segment Al consists of companies with world-wide reputationsfor their brands, large advertising budgets and high levels of product and process knowledge; segment A2 is made up of firms similar to those in segment Al except that they are smaller, have lower advertising budgets and are mostly only known in their home markets; segment B consists of customers that are very nimble, act and react quickly, and are not averse to copying designs originally developed by some of their larger competitors. Customer analysis/market segmentation-Anonke Apparel: Three major initiatives comprise Anonke's current marketing strategy (see table 6). These include targeting large us companies in segment Al, targeting several European customers in segments A2 and B, and emphasizing hard-to-manufacture products, e.g. raincoats. across all segments. Each of these strategies is based upon separate rationales. The large us companies are of interest because they provide large annual orders which help simplify business and production planning. The European .firms targeted demand higher quality,

Aligning marketing and manufacturing strategies

3605

Figure 2.

Volume Anonke compared to its competitors.

Other Thai companies Globally: Hong Kong, Taiwan, Singapore, Korea, China, Japan, and Eastern Europe New competition coming from Indonesia and Malaysia
Table 3.

Anonke's competitor categories.

Differ from product to product One major competitor in raincoats and long coats (1. E. Garment Company) Three in men's, women's and children's jackets (Thai Masa, Far East Woven, and Autraya Garment) Two in sportswear (Thai Hong Kong Garment and Best Week) Major strengths: longer runs standard products lower costs
Table 4.

Anonke's Thai competitors.

but are far less price-sensitive. These characteristics clearly play to Anonke's strengths as illustrated earlier in the differentiation analysis. Finally, by emphasizing hard-tomake products, Anonke is seeking markets which draw upon their manufacturing strengths and move them away from price-sensitive, low margin segments. Competitor analysis-Anonke Apparel: Anonke competes with local Thai firms , large global firms, and new competitors entering the market, especially from Southeast Asia (see table 3). On a day-to-day basis, however, Anonke most often faces its Thai counterparts. Making this task particularly difficult for Anonke is the fact that each Thai competitor seems to compete in a distinct manner, particularly in terms of products manufactured and sold (see table 4). Generally, Anonke's Thai competitors have longer runs, more standard products, and lower manufacturing costs. Under the process choiceframework developed by Hill (1994), Anonke's competitors use high-volume batch processes. Anonke, on the other hand, has developed a lowvolume batch process to meet the needs of small volume customers as we will demonstrate later (seefigure 2).

3606
Product Blouse Ski wear Stadium jacket Men's shorts Jackets/pants Jackets Raincoats Coats Children's jackets Parkas Pants Jogging suits Children's shorts
Table 5.

w. L. Berry et al.
A1

A2

x x x x x

x x x x

x x

x x x

x Anonke's products by segment.

Target large US companies like Zeus and Leland (segment A.) because they place large orders and order once/year. Target several European customers because of higher prices and stricter quality requirements (segments A2 and B). Emphasize difficult-to-manufacture products: more raincoats and fewer shirts.
Table 6.

Anonke's marketing initiatives.

Product differentiation-Anonke Apparel: Anonke's product line by segment is shown in table 5. Comparing this with the data shown in table 4, it becomes apparent that Anonke's competitors differ significantly within each segment. Thus, Anonke's competitive advantage may be stronger or weaker depending upon the market segment under review. Generally, however, Anonke offers a much broader line than nearly all its Thai competitors. and this broad product line has important implications for manufacturing strategy.

2.2. Estab[ishingcustomerrequirements-step 2 Although buying pattern type, geographic location, and retail outlet type often representcritical segmentation dimensions in formulating marketing strategy, this view of the market provides little information concerning the customer requirements placed on manufacturing. An alternative approach is to segment markets in a way that provides manufacturing with insights into customer and market requirements, using the order winning and qualifying criteria proposed by Hill (1994). (Order winners are those criteria that enable a company to win orders against competitors. Qualifiers (Q) are those criteria that a company must meet for a customer to even consider it as a possible supplier, with some displaying a high level of sensitivity to order loss. Qualifiers can also be order losing sensitive (QQ. This approach provides manufacturing with a description of the market that can be related directly to manufacturing capabilities and manufacturing strategy options. The process for developing order winners and qualifiers indicated in table 7 differs from firm to firm and from situation to situation but typically involves several steps. First, salesand marketing executivesare interviewed to prepare a judgement

Aligning marketing and manufacturing strategies

3607

Sources:(I) (2) (3) (4)

Marketing interviews/discussion Order sample from marketing/manufacturing Information on manufacturing segments Rethought manufacturing segmentation. Table 7. Alignment process overview: customer requirements.

sample, usually containing 30-50 customers and products that provide a representative sample of relevant market segments. The appropriate size of the sample depends upon the number of distinct market segments to be reviewed. Next, discussions are held with marketing and sales executives to identify the potential order winners and qualifiers for each of the customers in this sample. Once the set of order winners and qualifiers has been reduced to a small number of key items, the last step involves developing weights for each of the order winners, and identifying the order losing sensitivity of each qualifier. The customer data in the sample has two important uses. First, this data provides a check on management's judgement concerning the relative importance of order winners and qualifiers. For example, the data can be used to check the actual level of customer price sensitivity, the degree of delivery speed pressure actually experienced from customers, or the actual demands concerning the level of quality conformance in a product specification. When differences occur between the data in the order sample and the managerial judgements, these need to be resolved. Second, the data in the customer order sample can be reorganized to reflect major groupings of customers that have similar order winners and qualifiers, and similar order winner weightings. Such groupings form the basis for market segments that are characterized in manufacturing terms, indicating important differences in the customer requirements placed on manufacturing between segments. Order winners and qualifiers-Anonke Apparel: Twenty-seven customers worldwide were selected by the sales and marketing executives at Anonke as representative of the market segments served by the company. Table 8 shows illustrative data from the judgement sample which includes the critical manufacturing and non-manufacturing order winners and qualifiers, and their respective weightings. .The data in the judgement sample were organized to identify groupings of customers with similar order winners and qualifiers. Consequently, the customers were grouped into the five different market segments shown in table 9. These segments place the following four very different sets of requirements on manufacturing. (a) Segment FC (Few Competitors) involves small customer orders, has declining sales, and is not highly price sensitive.

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(a)
Home Buying office location

w. L. Berry et al.

Production Segment Oexibility

Delivery Quality Q/Q Q Q/Q Q? speed

Q/10 Q 0/15

Delivery reliability 0110

Price

Capacity uplift

Product features 20/20 20 20/20

10{1 15/15 15/15 10/10 10/10 20/20 20/20 15/15 20/20 30/30 30/30 30/30 30/30

Customer

pattern

Pierre Duree Ibrahim Iberian Daisy Wraps Couti Leland Eurotech Larouche Fontainbleau Phoenix-EEC Phoenix-USA Zeus-USA Zeus-EEC Jean Valjean Monrnouth Bach Naorni Mulder Toddlers Niebuhr Peppi Surnata Apres Gorgio Candida Etyia ltalia

A2 A2 B B B
Al Al B B Al Al Al Al

France France Spain USA Italy USA USA Swiss France Germany

FC p

Q/Q Q

Q/Q Q

0/15

40110 70/70

10!? 10/20 10/15 20/20 20/20 10/20 10/20 10/20 10/20

20(1

30/? 25125 30135 20/30 20/25 15/15 20120 25/25 15115 20130 20/20 10/10 10/20 2010 10j? 20130

10/10 10/10

15/15 15/15 20/20 20/20 15/15 15/15 15/15 15/15

LV

20/20 20/20 10/10 10/10 10/10

USA
Gernlany Netherlands Gernlany France Netherlands France Gernlany Italy Japan Gernlany PF

10/10 20/20 20/20 10/10 10/10 30/0 10/? 10/0 10/10 20/20 20/? Q/Q

B A2 B B B Al B A2 A2 B
A2 A2 B A2

20/20 20/20 20/20 20/20 20/0 Q/Q 20/15

10/20 10/10 0/20 20/20 20/? Q/IO 20/20 20/20 20/20

QIQ

10/? 20/20

30/? 20/20 30/20

20/10 Qj? Q/10 10/0

10/10 30/? 20/20 20/20 20/20 20/20

Q? Q/Q

10f'! Q/20

France Italy Italy Italy

PC

10/10 10/10 10/10

Table 8(a).

Anonke's market segments by order winning criteria: manufacturing

related.

(b) Segment P (Price) is very price-sensitive and is increasing its demands for reliable delivery. (c) Segment PC (Partnership Collection) places a major emphasis on delivery reliability with moderate growth and mid-range customer order sizes. (d) Segments LV (Large Volume) and PF (Product Features) have high growth potential, place a wide range of customer order sizes that require production flexibility, emphasize delivery speed and delivery reliability, and are price sensitive. For Anonke,four key order winners requirefurther analysis to evaluate manufacturing performance and capabilities: price, delivery speed, delivery reliability, and manufacturing's ability to provide small to medium customer order quantities. This latter capability provides a strong, sustainable competitive advantage for Anonke in terms of meeting the needs of speciality shops and boutique customers.

2.3. Checking manufacturingperformance-step 3 An understanding of a company's markets in terms of order winner and qualifier data provides the basis for analysing both a firm's manufacturing strategy and its performance against thesecustomer and market requirements. The ellipse shown in

Aligning marketing and manufacturing strategies

(b)
Home Buying office location

3609

Sales Segment relation

Country of origin

Market familiarity
20/10 10

Have quota

Partnership (collection,
25{35 35

Few (competitors)
35/15 35

Customer

pattern

Pierre Duree Ibrahim Iberian Daisy Wraps Couti Leland Eurotech Larouche Fontainbleau Phoenix-EEC Phoenix-USA Zeus-USA Zeus-EEC Jean Valjean Monmouth Bach Naomi Mulder Toddlers Niebuhr Peppi Sumata Apres Gorgio Candida Etyia Italia

A2 A2 B B B AI Al B B AI AI AI AI B A2 B B B AI B A2 A2 B A2 A2 B A2

France France

FC p

Q/Q Q
10!10
10/10 10/? 10/10 10/10

Spain USA Italy USA USA Swiss France Germany

10/10

20/20 20/20 20/? 10/0 10/0 10/0 5/5

LV

0/5 10!10 10110 10110

10/0 10/0 10/0 10/0 10/0

10/10 5/5 5/5 10/10

USA
Germany Netherlands Germany France Netherlands France Germany Italy Japan Germany France Italy Italy Italy

10/10

10/0 10/10

20/10 10/10

10/0 20/10

0/20

PF

20/0 10(! lo/lo 0/20 20/20 10/0 10/0

10/0 10/? 10/0 20/25

20/"

PC

Q/Q 20/20 20/20 20/20

Q/Q

20/10

50/30 30/30 30/30 30/30

Order winning criteria (xx/yy) where xx=current year and yy=three years hence. If yy=O, this customer will be phased out. If yy = ?, a major change is occurring within a customer's management. Product features: superior workmanship or fabric material. Sales relationship: longstanding sales relationship. Country of origin: purchased because it was produced in a particular country. Market familiarity: superior knowledge of local market. Have quota: have available quota where competitors do not. Partnership (collection): long term customer relationship in producing a given collection; the customer is reluctant to change suppliers because design detail confide.ntiality is desired. Table 8(b). Anonke's market segments by order winning criteria: non-manufacturing related.

table 10 indicates the need for debate regarding how well the current manufacturing strategy supports the market requirements placed on the company, both now and in the future. Where gaps in performance exist, this diagram also indicates the need to debate potential strategic options that would improve the competitiveness of the company by reducing the gap between market requirements and manufacturing capabilities. The first step in assessing company performance against market requirements, i.e. against the key order winners and qualifiers, is to collect operating data for the representative customers and products in the judgement sample. The data shown in table II and figure 3 has been included to illustrate how company performance can be assessedin terms of key order winners and qualifiers. In this case, price and delivery speed and reliability are critical areas at Anonke Apparel.

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Segments
Few

Product Price features

Partnership/ collections

Order winners
Few competitors Partnership/colI. Product features Market familiarity Sales relationship Have quota Price Delivery speedt Delivery rel.~ Production flex. % Sales/growth Product difficulty Buying pattern Order size
t 150 days-now; percentages.
Table

competitors

35/25 30/35 20/20 15/10

11/11

15/15 15/15

16/16

27/27

35/30 20/20

14/13

20/20 47/37 10/18

21/24 13/19 16/16 13/13 57/272 3-5 Al 11592

60-120 days-future.

16/16 8/15 20/18 16/12 22/245 1-3 A2, 3132 B

4/-5

3/-44 1-3 B 31588 delivery,

A2 1084
45 days after fabric

14/132 1-3 A2, B 4366

in

t 2 weeks in peak season. All

9.

Anonke's market requirements/order

winners.

Issues:price, delivery reliability, delivery speed,production flexibility. Table lO. Anonke's alignment process overview: manufacturing's performance.

Information such as that shown in table 11 and figure 3 should include customer and market profitability analyses,and cost estimatesof supplying products in various volumes (including those outside the normal range). The contemporary work on Activity-Based Costing to determine cost drivers, and the Theory of Constraints to identify process bottlenecks and their impact on product profitability provide an excellent framework for contribution margin analysis (Campbell et al. 1997, Spoede 1996). Such an approach ensuresthat marketing strategies are developed which take into account the company's capabilities and their customers' contributions to profitability as distinct from their contributions to revenue. (Elishberg and Steinberg (1987) surveyedjoint decision-making categoriesand concluded that there

Aligning marketing and manufacturing strategies

Productivity by Order Size

3611

.Flexibility important in two segments: "Large Volume" and "Product Features" .Doing fine in A2 (data insufficient to look at A and B)
0 5000

10000 Anonke's

15000 manufacturing performance: flexibility

Figure

3.

Few competitors

Price

Large volume

Product features

Partnership collections

Price related: Dir. mat. (% price) Dir. Mat. ($/pc.) Cont. marg. ($/pc.) Cont. marg. (% price) Cont. margin ($/hr.) Delivery related: Avg. quote LT (days) Avg. actual LT (days) Avg. lateness (days)

51 13.73 10.62 39 2.54

67 2.54 0.72 19 .38

63 8.24 3.14 24 .48

60 14.95 7.27 29
.77

58 13.27 7.53 33 2.28

146 173 27

172 176 4

170 197 27

164 190 26

161 166 5

Actual and quoted delivery speeds are not meeting customer requirements;actual delivery speedis not meeting quoted speeds. Table 11. Anonke's manufacturing performance: price and delivery related.

must be a concurrent analysis of manufacturing

costs and marketing benefits in

product mix decisions.) As an illustration of this point, the contribution margin $ per labour hour data shown in table 11 was an important aspect of this analysis because of the constraint on the availability of skilled labour faced by Anonke Apparel. This constraint led the company to inv~st in an industrial training facility to develop employee skills to produce enhanced product features. It is important to identify key constraints on manufacturing performance, and to assesstheir impact on profitability as illustrated by the data shown in table 11. Such constraints may involve specific processes, machines, critical employee skills (as in the case of Anonke Apparel), or even functional department capacities such as engineering design or final product testing. Manufacturing performance--Anonke Apparel: A t Anonke there are four key order winners: delivery speed, delivery reliability, manufacturing's ability to make low to medium size orders, and price. This step is illustrated using the Anonke data shown in table 11 and figure 3. Delivery speed is an important issue with Anonke's customers. Currently, one major customer in the large volume (LV) segment is pressing for 150 day lead times. The

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Table 12.

Alignment process. Overview: manufacturing

strategy versus current performance.

company expects that other customers in the large volume (LV) and product features (PF) segments will soon be pressing for delivery lead times between 60 and 120 days. The delivery information for customers in the judgement sample indicates that Anonke currently promised customers delivery lead times averaging 146 to 172 days (see table 11), depending on the market segment. It also indicates that the delivery lead times actually experienced by customers average 166 to 197 days. depending on the market segment. During the peak selling season (April to September) customers experience even longer delivery lead times averaging from 143 to 236 days, depending on the market segment. Likewise. delivery reliability is an important issue with customers. Overall, actual deliveries currently average 4 to 27 days after the promised delivery date. Further , deliveries average 26 to 27 days late in the two highest growth segments (L V and PF). Customers expect delivery within a two week window during the peak selling season for April through September. During this period. however, deliveries average 15 to 86 days after the promised delivery date. Production's ability to provide small to medium order quantities is important in both the LV and PF segments (see table 8). To check the company's performance against this aspect of production capability. relevant data on productivity, contribution margin, and customer order sizes were collected. The plot of productivity (units per hour) against customer order size shown in figure 3 includes all the data for customers in segment A2. This plot shows that productivity is roughly constantfor a very wide range of customer order sizes in the low to mid volume range. Similar plots were observedfor contribution margin/labour hour versus customer order size. These results indicate that the production process provides good support for this market requirement. Price is a key criterion in two segments: P and L V. The data in table 11 indicate that the percent contribution margin in these two segments is low. The principal reason for this is that the direct material cost, which is primarily fabric cost, is high. Therefore. while previous investments by the company in automated pattern making and laser cloth cutting have helped to reduce cost, manufacturing needs to support further corporate efforts in direct material cost reduction.

Aligning marketing and manufacturing strategies

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Process choice is low volume batch Table 13.

Anonke's manufacturing

strategy

2.4.

Comparing manufacturing strategy to actual performance-step 4 As with all functional strategies, manufacturing strategy comprises the developments and investments made in processes and infrastructure to support markets (see table 12). As argued throughout, we believe that markets (current and future) are the common denominator of functional strategies. Once these are understood and agreement is reached on where to compete and grow, then manufacturing's strategic role is to develop the capabilities to support those order winners and qualifiers for which it is solely or jointly responsible. In this way it needs to be market-driven. However , there are times when it also needs to be market-driving, i.e. determining what order winner and qualifier changes can be made in line with its existing capabilities or capabilities which it then develops. Because of the absence of a well-established framework and methodology for manufacturing strategy, very little formal information typically exists in companies to document a firm's manufacturing strategy. As a consequence, we take the following approach in conducting interviews with manufacturing executives to understand their manufacturing strategy. The first requirement for information concerns the major investments made in manufacturing and major programs instituted in manufacturing that have been undertaken by the company during the last several years. These reflect its manufacturing strategy. In particular, we are interested in the business benefits resulting from these investments rather than the details of the process technology and so on. This approach is illustrated using data from Anonke. Manufacturing strategy versus current performance--Anonke Apparel: During the past five years Anonke has made several major investments in manufacturing. These investments, shown in table 13, have several objectives. Investments to reduce cost The investments in computer technology for pattern-making and a laser cloth cutting machine provided important benefits by reducing fabric waste and decreasing direct labour costs. Likewise, the special purpose sewing machines provided equipment that performs operations such as embroidery and button hole making to improve productivity and reduce direct labour cost. Investments to meet low-volume orders The investment in sewing lines reduced the level of difficulty in the sewing operations by transferring the more difficult operations to sub-assembly stations operated by highly skilled emplo}'ees. The business benefits here included lower learning and change-

Order

Manufacturing
Process

strategy

Corporate objectives

Marketing strategy

winning criteria

Infrastructure

Table 14.

Alignment

process overview: manufacturing's

view of business and initiatives.

over times between customer orders. This investment representated a deliberate decision to invest in a low-volume batch process choice to create competitive advantage as indicated in the diagram in figure 2. Investments to support product features The investment in an industrial training facility provided important benefits in the development of employee skills to produce enhanced product features. Several conclusions can be drawn by comparing the manufacturing strategy with the performance data provided by the order sample. This involves comparing actual manufacturing capabilities to the market requirements. (a) Manufacturing initiatives have provided important support for three of the order winning criteria: price, manufacturing's ability to cope successfully with low to medium customer order specifications. and product features. (b) Investment in sewing lines provides good support for low- to mid-volume markets, and positions the company as the most effective in processing low volume batch products. (c) Although the investments in automated pattern making and laser cutting support low cost production, a key area for improvement is to further reduce fabric cost, especially if the A 1 market segment is to be emphasized. (d) While the investment in automated pattern making shortens this step in the process, manufacturing does not currently have the capability to support current and future market requirements for delivery speed and delivery reliability.

2.5. Developing strategic issuesand recommendations-step 5 The final step in our methodology is to identify the areas of misalignment between marketing and manufacturing strategy, and to develop options to improve the strategic fit between these two functions. As a consequence,the debate may involve a discussion of changesin both marketing and manufacturing strategy, i.e. a discussion involving markets, marketing initiatives, and manufacturing investments. This is indicated by the large ellipse in table 14. To illustrate this point the strategy issues/recommendation discussion for Anonke Apparel included below highlights two important areas of misalignment at this company. Theseare:

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Marketing: Growing emphasison three segments:large volume, product features and partnership collections difficult-to-manufacture products Manufacturing: supporting delivery speed and reliability supporting price sensitive segments performance reward systems
Table 15.

Anonke's alignment process overview: develop strategy issues/recommendations.

(a) the inability of the company to meet the delivery speed and reliability requirements of the large volume and product features market segments; (b) the focus on the large volume segment which does not exploit the company's investment in low/mid volume production flexibility in the factory nor the skill level of the workforce. These require discussion and debate within the company to resolve the differences in marketing and manufacturing strategy. At Anonke, the key manufacturing options to improve strategic alignment {shown in table 15) involved reducing customer lead times and increasing delivery reliability. Further analysis of the data collected in the representative sample revealed that, currentl)', over half the operations lead time is explained by delays in ordering fabric once the customer orders have been accepted, and starting manufacturing once fabric has been received from suppliers. Such delays could be avoided by making enhancements to the company's manufacturing planning and control system to improve customer order tracking in purchasing fabric, in placing and receiving orders from suppliers, and in scheduling manufacturing operations such as pattern-making, cloth cutting, and sewing operations. Other enhancements include introducing improved capacity planning methods to ensure that sufficient capacity exists to begin manufacturing operations once fabric has been received. Furthermore, since the lead time to purchase fabric represents one-third of the customer lead time, still another option involves making changes in the purchasing area to improve the quality of forecast information concerning fabric requirements and colours, or investing in inventory to stock standardfabric types. A further option would be to change the company's performance measurement system to evaluate delivery speed and delivery reliability performance on a regular basis. Other strategic options to be considered involve reducing direct material cost to better support the A1 market segment. Alternatives here include an increased emphasis on sourcing and supplier development by purchasing to improve supplier pricing . Asowith manufacturing, marketing needs to review the strategic decisions concerning market positioning to bring the marketing and manufacturing strategies into better alignment. Three major options in marketing strategy become apparent from this process overview and application. Thefirst was to review Anonke's current emphasis on the A1 segment. This segment has represented a major sales growth area for the company, with over half the current sales volume. There are several important reasons that justify this initiative. Such sales involve high volume, non-seasonal items that enable the company to level factory

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output. Even so, when these sales are viewed in terms of their contribution margin, they are much less attractive than the A2 market segment. Furthermore, the Al segment does not exploit the low/mid-volume production flexibility of the factory nor the skill level of the workforce. It also places pressure on the company's infrastructure, requiring investment and development of the purchasingfunction in order to cope with highfabric costs and tight delivery dates. In fact, the Al segment fits the high volume/low cost manufacturing strategy of the company's competitors much better than the niche/low to medium volume production strategy adopted by Anonke Apparel. A second major option was to increase the company's emphasis on some of its European customers. These customers, while more demanding when it comes to product quality, are less price-sensitive. This means that they better fit Anonke's chosen manufacturing strategy than the large us firms in the Al segment currently being courted by marketing. The final option was to increase further the emphasis on difficult-to-manufacture garments. Again, these products fit Anonke's manufacturing strategy in much the same way as with its European customers. 3. Conclusions on the application of the methodology This framework and methodology provides a way of organizing management thinking about manufacturing strategy and how it relates to a firm's markets and marketing strategy, and a way of articulating manufacturing strategy to other business functions. The Anonke example demonstrates how this methodology enabled an assessment of: (a) the critical market requirements that need to be supported by manufacturing; (b) the actual performance against these requirements; (c) the relationship of particular manufacturing investments to the market requirements; (d) the current marketing strategy and how it fits with manufacturing in view of the overall investment; (e) the strategic options for improvement in both manufacturing and marketing. We have revised the framework and proposed methodology shown in figure I to provide an explicit link between the strategy perspectives of marketing and manufacturing. The revised framework and proposed methodology is shown in figure 4. This figure implies that the strategic options in marketing can be connected with strategic options in manufacturing and vice versa. For example, the investments at Anonke in production's ability to cope effectively with low to medium customer order quantities relate directly to marketing's initiative to target speciality shops and boutiques in the European market, i.e. the product features segment noted in table 8 which exhibits important sales growth and profitability as shown in tables 9 and II. This implies that the marketing and manufacturing strategy debate can and should influence the market positioning decisions noted in figure 4. In this way a manufacturing strategy can be developed to support marketing strategy, and to develop competitive advantage. The framework and methodology is hard-data-driven. The discussion and debate of the marketing and manufacturing strategies are based on factual arguments and data instead of opinions. The ability of manufacturing to support specific customer requirements can be evaluated by measuring actual manufacturing capabilities and performance. For example, production's low volume capability, as defined in figure 3

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Figure 4.

Business strategy debate.

of this paper, can be measured in terms of productivity and contribution margin, and data can be used to support strategic arguments to target market segments with low volume production requirements, i.e. the product features segment noted in table 8. Finally, the framework and methodology enables manufacturing performance to be tested against customer requirements to assessthe alignment between marketing and manufacturing strategy .The delivery speed and reliability issues in Anonke provide an interesting example of this. Clearly, the current and future market requirements for short reliable customer lead times cannot currently be supported by manufacturing. Therefore, discussion and debate are necessary in order to develop strategic initiatives in manufacturing to retain competitive advantage. In this way the manufacturing strategy framework and methodology presented here indicate areas of mis-alignment between marketing and manufacturing strategy, and, therefore, drives the business strategy debate!

References BENNINGSON, L. A., 1996, Changing manufacturing strategy. Production and Operations Management, S (1). BUZZELL, R., 1987, Note on market definition and segmentation. Harvard Business School, Reference No.579-083. CAMPBELL, R., BREWER, P. and T. MILLS, 1997, Designing an information system using activity-based costing and the theory of constraints, Journal of Cost Management, Jan./Feb. CLARK, K. B., 1996, Competing through manufacturing and the new manufacturing paradigm: is manufacturing strategy passe? Production and Operations Management, 5 (1). COREY, E. R., 1992, Marketing strategy-An Overview, Harvard Business School, Reference No.579-054.

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ELISHBERG, J. and STEINBERG, R., 1987, Marketing-production decisions in an industrial channel of distribution. Management Science, 33 (8). FINE, C. H. and HAX, A. C., 1985, Manufacturing strategy: a methodology and an illustration. Interfaces, 15 (6). HAYES, R. H. and WHEELWRIGHT, S. C., 1984, Restoring our Competitive Edge (New York: Wiley). HAYES, R. H. and PISANO, G. P., 1984, Manufacturing strategy: at the intersection of two paradigm shifts, Production and Operations Management, 5 (I). HEDLEY, B., 1977, Strategy and the business portfolio. Long Range Planning. HILL, T ., 2000, Manufacturing Strategy: Text and Cases, 3rd edn (Homewood, III.: Irwin). MCCARTHY, E. J., 1960, Basic Marketing: a Managerial Approach (Homewood, Ill.: Irwin). PORTER,M. E., 1980, Competitive Strategy (Free Press). PRAHALAD, C. K. and HAMEL, G., 1990, The core competence of the corporation, Harvard Business Review, May-June. SPOEDE, C., 1996, Accounting and the theory of constraints. APICS Conference Proceedings, 45-50. Voss, C. A. and WINCH, G. M., 1996, Including engineering in operations strategy. Production and Operations Management, 5 (I). WHEELWRIGHT, S. C. and KENT BOWEN, H., 1996, The challenge of manufacturing advantage. Production and Operations Management, 5 (I).