Manufacturing Talk

These two variety functions, the Driven and the Driver, need some deeper scanning. Let us take the driven variety function first.  The Driven Variety function comprises of multiple parameters with multiple factors which shape the behavior of these parameters.

1.  Product Parameter:  This parameter is a driven parameter, as most product requirements are driven by the market. Except for a very few manufacturers who develop innovations which become benchmarks in the market, others always follow and thus are driven. The greater the driving pull from the market, the lesser is the flexibility for the manufacturer to charge the price they desire. Even the innovators always get a dipstick survey to gauge the acceptability of their products from the market. Some of the factors which shapes the behaviour of the parameter are :

·         Product Configuration

·         Product features

·         Product Quality & reliability

·         Product ergonomics

·         Product color, look & feel

·         Product Hazards and risks

·         Product brand name

2.  Cost to Customer:  These are essential costs which the customer or the end consumer has to shell out post sale. The more a manufacturer is able to provide variety for the customer to choose during the post sales period, the longer would be the stay for the customer with that manufacturer. These costs if perceived to be high vis-à-vis the value they provide would immediately reduce the attractiveness of the product in the market and drive the manufacturer to reduce prices. So, they also fall in the driver category of the variety function. Some of these costs are mandatory as per law, but it is upon the manufacturing concerns business acumen to optimize them for the benefit of their customers. Those manufacturers who are able to influence a better deal for these mandatory costs enjoy a huge loyalty among their customers. Give here are some of the factors which shape this parameter behavior:

·         Running costs of fuel/ energy

·         Warranty, service or repair costs

·         Refill, renewal and re-issue charges

·         Disposal costs

·         Insurance, taxes and duties

3.  Sales and Distribution:  The various choices which the manufacturer provides to its customers either directly or through the multiple channels to place orders, buy, make payments and finally delivery of their desired products, the larger is the customer base. These manufacturers are the ones who rule the market and are in a position to define prices in the market. Some would argue that one would always go to a grocery store to buy vegetables. To this argument I would only respond…. Dominos make a greater impact in the market, as they have understood the need for fulfilling hunger and made home delivery of their pizzas to suit customer’s comfort. That is why they enjoy a wide patronageworldwide. So, the factors which would essentially shape the behavior of this parameter are:

·         Ease of accessibility

·         Level of availability

·         Store visibility

·         Awareness & promotion

4.  Regulatory Constraints:  To bring discipline in product manufacturing and corporate governance, the regulatory authorities sanction constraints on manufacturers. The impositions in some form or the other have a bearing on the cost of the production. Also, their non-compliance would tarnish the image of the manufacturers so much in the market, that it would severely impact the acceptability of the products in the market. Even though this parameter speaks about constraints instead of variety, it is those manufacturers who have adopted various techniques to make compliance a way of life who clamor less and succeed in the market. The factors shaping the behaviour of this parameter are:

·         Environmental constraints

·         Safety constraints

·         Operational prohibitions

·         Social responsibility requirements

1.  Process flexibility: This parameter is largely developed as an antidote to the demand for variety from the market. Manufacturers developed ways and means of blending mass production techniques with customization requirements to develop the “mass customization” methodologies. Perfected to some extent by Toyota through their Toyota Production Systems, they capture the concepts of Lean Manufacturing, and deploy simple efficient “autonomation” to achieve the both the economies of scale and variety of scope.  The factors aligned to this parameter are:

·         Ease of changeover

·         Waste elimination level

·         Level of plant load utilization

·         Man-to-machine synergy level

2.  Sourcing efficiency: This is the only weapon available for the manufacturers who can leverage enough influence on their suppliers for inducing variety into the products they purchase. But this largely depends on the how strong is the bond between the manufacturer and its supplier. Traditional “parent-child” relationship does not hold good in changed scenarios, where suppliers who serve multiple manufacturers have a dominant position. Toyota’s keiretsu system has also undergone structural changes, as manufacturers would also not like to live under the constant of single source. To bring in variety into production, products and even service styles a partnership needs to be developed with suppliers. To develop such a partnership the following factors should be considered:

·         Level of contractual obligations

·         Level of information and IP (Intellectual Property) sharing

·         Depth of technological strength

·         Soundness of financial strength

Most Chief Operating Officers (COO) would take a classical approach for cost calculations or price function definition while designing their optimal operations.  Where they generally face challenge is that the classical techniques do not look for factors which infuse the required change and variety which the market is demanding. Such a driven-to-driver variety function assessment would help them reach factors faster and more accurately.

Look-out for the next blog which takes a deep-dive into each of these parameters and techniques and explains how the manufacturers have mastered the two Driver-variety parameters to tilt the balance in their favour aginst all odds from the four Driven-variety parameters.