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Int. J. Production Economics 113 (2008) 307–323

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Setting manufacturing strategy for a factory-within-a-factory

John Miltenburg
School of Business, McMaster University, Hamilton, Ontario, Canada L8S 4M4
Received 1 June 2007; accepted 3 September 2007
Available online 5 October 2007

Abstract

Manufacturing strategy is a plan for moving a company from where it is to where it wants to be. Determining the best
manufacturing strategy is not easy because of the wide range of choices and constraints a company faces. Manufacturing
strategy frameworks or models are helpful because they identify the objects that comprise manufacturing strategy and
organize these objects into a structure that enables a company to understand and use the objects to develop strategy. Many
frameworks are possible and there is no single framework that is best for all companies.
In this paper, we are interested in the levels of cost, quality, delivery, and flexibility that manufacturing provides for each
product family it produces. This is determined primarily by a company’s factories-within-a-factory (FWFs) and so the level
of analysis in this paper is the FWF. We identify and examine five manufacturing strategy objects (production systems,
manufacturing outputs, manufacturing levers, manufacturing capability, competitive analysis), linkages between these
objects, and the manufacturing strategy framework for an FWF that follows from these objects and linkages. We apply the
framework to the FWFs of two multi-national companies. This paper is descriptive and exploratory. Strategy objects,
linkages, and framework are presented and their use is illustrated. The work of rigorous empirical analysis is left for future
research.
r 2007 Elsevier B.V. All rights reserved.

Keywords: Manufacturing strategy; Focusing manufacturing; Factories-within-a-factory

1. Introduction for the possession value-type through activities such

Marketing professionals talk about four types of
value: form, time, place, and possession. Manufac-
turing is primarily responsible for the form and time
value-types with some participation from marketing
and accounting. Manufacturing forms products by
completing design and production activities in a
timely manner. Manufacturing and marketing gen-
erate the place value-type through their distribution
activities. Marketing and accounting are responsible
Tel.: +1 905 5259140; fax: +1 905 5218995.
E-mail address: miltenb@mcmaster.ca
as pricing, credit, advertising, and customer service.
Manufacturing creates value in its network of
factories, distribution centers, offices, research
laboratories, and so on. Factories can be large or
small, and can consist of one or more factories-
within-a-factory, FWFs (also called plants-within-a-
plant, PWPs). See Hill (2007).
Manufacturing strategy can be analyzed at the
level of industry, company, strategic business unit,
network, factory, FWF, or product (Swink and
Hegarty, 1998). In this paper, the level of analysis is
the FWF. FWFs are important parts of a factory
and a manufacturing network. Miltenburg (2005)

0925-5273/$ - see front matter r 2007 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2007.09.001
 ARTICLE IN PRESS
308 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
examines the constraints a manufacturing network
imposes on the factories and FWFs that comprise it.
In an FWF the form and time value-types are
operationalized as levels of cost, quality, delivery,
and flexibility that the FWF provides for the
products it produces. The goal of manufacturing
strategy for an FWF is to determine the levels of
cost, quality, delivery, and flexibility that are
required, and the actions that are needed to achieve
these levels.
Minor et al. (1994) and Dangayach and Deshmukh
(2001) give good reviews of manufacturing strategy.
At a macro level manufacturing strategy can be
studied as one of several functional strategies in a
hierarchy of industrial, corporate, business, and
functional strategies (Gupta and Lonial, 1998), or
as the way a company uses its assets and prioritizes
its activities to achieve business goals and generate
competitive advantage (Kotha and Orne, 1989;
Miller and Roth, 1994). A distinction can be made
between the content of manufacturing strategy and
the process of formulating manufacturing strategy
(Barnes, 2002; Papke-Shields et al., 2002; Platts
et al., 1998). Pun (2004) gives an excellent review
and synthesis of different processes for formulating
manufacturing strategy. Ahmed and Montagno
(1996), Devaraj et al. (2004), and others verify
empirically a positive correlation between strategy
formulation and company performance. Demeter
(2003), for example, reviewed the literature from
1983 to 1999, completed an empirical analysis of the
IMSS-II data (International Manufacturing Strat-
egy Survey in 1996–1997), and found that ‘‘(T)he
most important result y is that ROS (return on
sales, which is the ratio of profit before tax to sales)
is significantly higher in companies with existing MS
(manufacturing strategy)’’ (pp. 210–211).
Setting manufacturing strategy for an FWF is the
subject of this paper. The next section describes the
objects, linkages, and framework that comprise
manufacturing strategy for an FWF. Section 3
illustrates the use of these objects, linkages, and
framework by studying the manufacturing strategies
of two multi-national companies. The paper finishes
with a summary in Section 4.
2. New model for manufacturing strategy for a
focused factory-within-a-factory
Boyer and Lewis (2002) show that there is some
agreement among researchers as to the framework
and contents that comprise manufacturing strategy
at the level of an individual factory. They describe a
framework with two objects: competitive priorities
and operating decisions. Competitive priorities are
the levels at which the factory is required to provide
cost, quality, delivery, and flexibility. Operating
decisions are decisions the factory makes in the
structural and infrastructural areas that comprise it.
There are four structural areas: capacity, facilities,
technology, and vertical integration/sourcing, and
four infrastructural areas: workforce, quality, pro-
duction planning, and organization. Boyer and
Lewis describe this as the ‘‘prevailing model of the
content of operations strategy y (and this model)
conveys the idea that operating decisions such as
capacity, technology, workforce issues, and quality
systems must be carefully matched with the
organization’s key competitive priorities’’ (p. 10).
Morita and Flynn (1997) show that a framework
with three objects, which is one more than Boyer
than Lewis, is also an appropriate way to organize
the contents of manufacturing strategy for a
factory. Their three objects are strategy, processes,
and structure. Their first object, strategy, corre-
sponds to Boyer and Lewis’s first object, competi-
tive priorities. It is ‘‘the choice of product-markets,
positioning and competitive features’’ (p. 968). The
second object, which has no corresponding object in
Boyer and Lewis’s framework, is called processes. It
is ‘‘the manufacturing and technological choice y
the process choice’’ (p. 968). The third object,
structure, corresponds to Boyer and Lewis’s second
object, operating decisions. This is ‘‘the choice of
how to define roles of functional processes into
specific tasks y as well as the organizational
mechanisms which integrate individuals, groups,
and units y It is the (object) where most of the
practices identified as ‘best practices’ should be’’
(p. 968). Morita and Flynn emphasize the impor-
tance of the linkages between the three objects:
the ‘‘thoroughness of the linkages between these
(objects), especially with the manufacturing process,
affects performance’’ (p. 969).
In the subsections that follow we show that a
framework with five objects is a very useful way to
organize the contents of manufacturing strategy
when the level of analysis is an FWF. The five
objects are competitive analysis, manufacturing
outputs, production systems, manufacturing levers,
and manufacturing capabilities. These objects are
firmly grounded in the literature. They are, for
example, related as follows to the objects in Boyer
and Lewis, and Morita and Flynn. The competitive
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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
priorities object (Boyer and Lewis) or strategy
object (Morita and Flynn) is similar to the
competitive analysis object in this paper. This object
determines the levels at which the FWF is required
to provide cost, quality, delivery, performance,
flexibility, and innovativeness for the product family
it produces. These six outputs are called the
manufacturing outputs. The processes object (Morita
and Flynn) is similar to the production systems
object in this paper. This object describes precisely
the technological operating systems that are avail-
able to an FWF and, therefore, the levels at which
the manufacturing outputs can be provided. The
operating decisions object (Boyer and Lewis) or
structure object (Morita and Flynn) is similar to the
manufacturing levers object in this paper. This object
describes the decisions the FWF makes in its
structural and infrastructural areas. The manufac-
turing capabilities object describes the capabilities of
each manufacturing lever and, therefore, the ability
of the production system to provide high levels of
the manufacturing outputs.
The five objects of manufacturing strategy for an
FWF do not follow one another in a sequential
fashion. The linkages among them are more
complex than this. The effect of linkages between
objects is accounted for by arranging the objects
into the multi-dimensional framework shown in
Fig. 1 and by thinking of linkages in terms of the
‘fit’ among the objects. A ‘good’ manufacturing
strategy for an FWF is one in which the results in
each object fit or are consistent with the results in
every other object.
The presentation of the objects, linkages, and
framework that follows is descriptive and explora-
tory. That is, we describe the objects, linkages, and
framework and illustrate their use. However, we do
not present any empirical analysis. We leave this
work for future research.
2.1. Production systems
In this paper, an FWF is a well-defined produc-
tion system that produces most or all products in a
product family and, with respect to these products,
provides six manufacturing outputs: cost, quality,
delivery, performance, flexibility, and innovative-
ness. Technologically speaking only seven different
production systems are possible: job shop, batch
flow, operator-paced line flow, equipment-paced
line flow, continuous flow, just-in-time, and flexible
manufacturing systems. Following Womack et al.
309
(1990, pp. 12–14) we may group these production
systems into three categories: craft production (job
shop, batch flow), mass production (operator-paced
line flow, equipment-paced line flow, continuous
flow), and lean production (just-in-time, flexible
manufacturing). Production systems are well
known. See, for example, Schmenner (1993) (who
uses the term ‘production process types’ rather than
production systems), or Hill (2000) (who uses the
term ‘manufacturing process types’), or Miltenburg
(2005).
The production system object is depicted in Fig. 1
by the block in the middle left area of the figure.
Although similar in form, this representation
extends the traditional product–process matrix of
Hayes and Wheelwright (1979). Their matrix
identifies the production processes that are used to
produce a product at different stages in the
product’s life cycle. For example, a product that is
in the introduction stage of its life cycle is produced
by a job shop process. The production system object
in this paper is broader than this. The starting point
for the production system object is the realization
that only a limited number of production systems
are available for use in an FWF. (This is one
example of trade-offs, which, along with other
trade-offs, is discussed later in Section 2.7.) These
production systems differ from each other in many
ways. Three particularly important ways in which
they differ are product mix (number of products
produced and production volume of each product),
layout and the resulting material flow, and manu-
facturing outputs (delivery, cost, quality, perfor-
mance, flexibility, innovativeness). These three key
differences give a convenient way to represent the
production systems object. This is what is done in
the middle left and middle right blocks of Fig. 1.
There the seven production systems are arranged
according to production mix, layout and material
flow, and manufacturing outputs. This is not the
only way to represent the production systems
object. The product profiling approach of Hill
(2000, p. 145) is a different representation.
2.2. Manufacturing outputs
This paper separates the manufacturing outputs
provided by an FWF into six individual outputs:
delivery, cost, quality, performance, flexibility, and
innovativeness. Fig. 2 gives definitions for these out-
puts. Other researchers separate manufacturing out-
puts into different numbers of individual outputs.
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310 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323

Fig. 1. Manufacturing strategy framework for a factory-within-a-factory (Miltenburg, 2005).

Mapes et al. (1997) identify seven individual out-
puts: cost, quality consistency, quality specification,
lead time, delivery reliability, flexibility, and in-
novativeness. Quality specification in this scheme is
similar to the performance output in this paper in
that both have to do with ‘‘product features y
more expensive materials y higher levels of
precision’’ (p. 1024). Lead time and delivery
reliability in this scheme are combined into the
delivery output in this paper. Many researchers use
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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323 311

Cost Cost of material, labor, overhead, and other resources used to produce
a product.

Quality Extent to which materials and activities conform to specifications and

customer expectations, and how tight or difficult the specifications
and expectations are.

Delivery time and Time between order taking and delivery to the customer. How often
delivery time reliability are orders late, and how late are they when they are late?

Performance Product’s features, and the extent to which the features permit the
product to do things that other products cannot do.

Flexibility Extent to which volumes ofexisting products can be increased or

decreased to respond quickly to the needs of customers.

Innovativeness Ability to quickly introduce new products or make design changes to

existing products.

Fig. 2. Manufacturing outputs provided by a factory-within-a-factory.

only four individual outputs: cost, quality, delivery,
and flexibility. Ward et al. (1998) empirically
develop operational measures for these four out-
puts. Quality in this scheme combines the quality
and performance outputs in this paper. Flexibility in
this scheme combines the flexibility and innovative-
ness outputs in this paper. Most often the difference
in the number of outputs is due to ‘‘the lack of
generally accepted definitions of these key concepts’’
(Mapes et al., 1997, p. 1021). Another reason for the
difference in the number of outputs is the level of
analysis. If the level of analysis is an entire company
or an entire factory, then a smaller number of
broader manufacturing outputs can be appropriate.
However, if the level of analysis is an FWF that uses
a single production system to produce a limited mix
and volume of products that meets and exceeds
customer expectations, then a slightly larger number
of narrowly defined manufacturing outputs is more
useful for developing strategy.
No production system is able to provide all
manufacturing outputs at the best possible levels.
(As we will see later in Section 2.7, this reflects an
‘integrative’ approach to trade-offs, which we take
in this paper.) Therefore it is necessary to determine
which outputs are most important to customers now
and which outputs will be most important in the
future. De Meyer (1998), for example, investigates
changes in the relative importance of outputs
between 1986 and 1996 at European manufacturing
companies. Once we know which outputs customers
require, then we can select the production system
that is best able to provide these outputs.
Consider, for example, the equipment-paced line
flow production system in the middle left block in
Fig. 1. This production system produces a small
number of different products in high volumes on
specialized, synchronized equipment arranged in a
line. It provides short delivery time and high
delivery time reliability because it operates at high
speeds for long continuous periods of time without
stoppages for changeovers or breakdowns. It
provides low cost because high production volume
produces high equipment utilization, which spreads
costs over a large number of units. It provides a
high level of quality because the specialized,
automated equipment is designed to reliably pro-
duce products that meet all specifications. The
equipment-paced line flow production system pro-
vides a low level of performance. A high level of
performance requires a steady stream of new
products as well as enhancements to existing
products. In order to produce these products,
changes must be made to equipment and processes.
This is difficult for an equipment-paced line flow
production system because it is so specialized. It is
costly to change automated machines and specia-
lized tooling, retrain operators, change processes at
suppliers, and so on. And it is costly to take high-
speed lines out of production in order to make these
changes. Changes can be made from time to time,
but not with the regularity needed to provide a high
level of performance year after year. In a similar
way, the specialization of the equipment-paced
line flow production system makes it impossible
to provide high levels of flexibility (i.e. change
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312 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323

products and volumes) and innovativeness (i.e.
make product design changes and introduce new
products).
2.3. Manufacturing levers
It is useful to divide a production system into
infrastructural and structural subsystems. In this
paper, we use three infrastructural subsystems:
human resources, organization structure and con-
trols, and production planning and control; and
three structural subsystems: sourcing, process tech-
nology, and facilities. Fig. 3 gives definitions for
these subsystems. Different ways in which a
production system can be divided into subsystems
are reviewed by Fine and Hax (1985), Leong et al.
(1990), and others. Hallgren and Olhager (2006), for
example, recommend four infrastructural subsys-
tems and four structural subsystems. Any division
of a production system into subsystems should have
the following characteristics. Subsystems should be
comprehensive (i.e. all manufacturing decisions fall
within the subsystems), discriminating (i.e. manu-
facturing decisions can be broken into analyzable
pieces and each piece falls within one subsystem),
and reflective (i.e. the subsystems are consistent with
manufacturing’s view of itself).
Each of the infrastructural and structural sub-
systems is the subject of its own rich literature.
Sourcing, for example, is the subsystem that
connects the production system with the production
systems of the FWF’s suppliers. Hines and Rich
(1998) examine the sourcing subsystem at Toyota
where the just-in-time production system is in use.
Several researchers have examined subsystems when
flexibility is one of the most important manufactur-
ing outputs. For example, Kathuria and Partovi
(1999) examine the human resources subsystem,
Vickery et al. (1999) examine the organization
structure and controls subsystem, and Lau (1999)
examines aspects of several subsystems (e.g. work-
force autonomy in the human resources subsystem,
inter-departmental relationships and communica-
tion in the organization structure and controls
subsystem, and aspects of the process technology
subsystem and the sourcing subsystem). In all three
papers, flexibility is defined broadly and includes the
flexibility and innovativeness manufacturing out-
puts in this paper. Kathuria and Partovi found
empirically that relationship-oriented practices,
such as networking, team building, supporting,
mentoring, inspiring, recognizing and rewarding,
and participative leadership and delegation prac-
tices are important in the human resources
subsystem when flexibility is an important manufac-
turing output. Vickery et al. empirically examined
the relationship between the product customization
aspect of flexibility and the organizational structure
subsystem, and found that product customization is
associated with more formal control, fewer layers,
and narrower spans of control. They report that
‘‘small firms can plan on cutting one entire layer of
the hierarchy when a firm makes the transition from
high standardization to high customization y (and)

Human resources Skill level, wages, training,promotion policies, employment

security, and so on, of each group of employees.

Organization structure Relationships between groups ofemployees in the production

system. How are decisions made? What is the underlying culture?
and controls
What systems are used to measure performance and provide
incentives?

Production planning Rules and systems that plan and control the flow ofmaterial,
production activities, and support activities such as maintenance
and control
and the introduction of new products.

Sourcing Amount of vertical integration. What is the relationship with

suppliers? How does the production system manage other parts of
the supply chain?

Process technology Nature of the production processes,type of equipment, amount of

automation, and linkages between parts of the production process.

Facilities Location, size, focus, and types and timing of changes.

Fig. 3. Manufacturing levers or subsystems that comprise a production system.

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senior spans of control decrease, on average, by
about one subordinate’’ (p. 387). Spring and
Dalrymple (2000) found that when product custo-
mization is very important the organization struc-
ture is adjusted so that design ‘‘engineering activities
become part of routine, repetitive operations’’
(p. 464). They also examine how linkages between
production systems, manufacturing outputs, and
manufacturing capability (Section 2.4) make possi-
ble new manufacturing practices such as mass
customization and agile manufacturing.
Each subsystem is an equally important part of a
production system in the sense that no subsystem
can be marginalized or overlooked. In this paper,
we use the phrase manufacturing levers instead of
production subsystems in order to emphasize the
concept that managers make adjustments to the
production subsystems. Adjustments vary in size
and scope. Small adjustments are made to one or
more levers to improve an existing production
system. Large adjustments are made to all six levers
to improve greatly an existing production system, or
to change an existing system to a different produc-
tion system. For example, to change a batch flow
production system to a just-in-time production
system an FWF needs to make significant adjust-
ments to human resources, organization structure
and controls, production planning and control,
sourcing, process technology, and facilities. New
manufacturing practices are groups of adjustments
to several levers. Examples of new practices are total
quality management, computer-integrated manu-
facturing, and supply chain management.
The current position of a manufacturing lever is
the outcome of managerial decisions made in a
particular production subsystem over a long period
of time. The current positions of all six levers
determine the type of production system, the level of
capability of the production system, and the levels
at which the manufacturing outputs are provided
(Fig. 1). Consequently adjustments to the manu-
facturing levers are not made haphazardly. Adjust-
ments must be appropriate for the production
system in use. Consider, for example, wage policies
which are part of the human resources lever. An
incentive wage scheme is appropriate for a batch
flow production system but is not appropriate for a
just-in-time production system. Adjustments should
help the production system provide the required
manufacturing outputs. For example, if a batch flow
production system wants to raise its level of
flexibility it can change its incentive wage scheme
313
to encourage operators to do rapid setups and
produce products in smaller batches and penalize
operators who avoid setups by producing large
batches. Finally, the effect an adjustment to one
lever has on the other levers should be considered.
For example, the previous change to the incentive
wage scheme in the batch flow production system
will affect scheduling in the FWF (i.e. production
planning and control lever) and at suppliers (i.e.
sourcing lever), and equipment setups (i.e. process
technology lever). In summary, possible adjust-
ments to a manufacturing lever must take into
account the linkages within the manufacturing
levers object and the linkages between this object
and the other factory manufacturing strategy
objects (Fig. 1).
2.4. Manufacturing capability
Manufacturing improvement activities (which are
also called improvement initiatives, best practices,
world-class manufacturing techniques, new technol-
ogy practices, and hard and soft technologies) are
adjustments to manufacturing levers. Filippini et al.
(1998) found that individual improvement activities
are often elements in a sequence of improvement
activities. There are four common sequences and the
sequence used depends in large part on the ‘‘variety
of end product, y levels of unitary volume and y
continuity in the productive process’’ (p. 205). In
other words the sequence used depends on the
product mix, volume, and material flow, which are
the variables in Fig. 1 that prescribe the production
system in use. This means that the sequence of
improvement activities used depends on the produc-
tion system in use. Similarly, Morita and Flynn
(1997) found that companies use clusters of best
practices (they use the term ‘best practices’ instead
of improvement activities) that are appropriate for
the production system in use. ‘‘Each cluster is a set
of contingent, or linked, practices which should be
selected together for maximum effectiveness. This is
consistent with the process choice model’’ (p. 977).
Some FWFs have no difficulty making improve-
ments or changes, even very large ones. Other
FWFs struggle to make small changes. One factor
that has an important affect on an FWF’s ability to
make changes is the level of manufacturing cap-
ability of the production system. New manufactur-
ing capabilities are built on a foundation of existing
capabilities. The larger this foundation is, the easier
it is to build on. A production system with a high
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314 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
level of capability can make changes quickly and
easily. Even more importantly a high level of
manufacturing capability enables a production
system to provide high levels of the manufacturing
outputs. Morita and Flynn (1997) report that the
‘‘strength of the relationship between best practices
(i.e. improvement activities) and performance also
suggests that the use of best practices must be
considered as part of building factory capability y
(and) the creation of competitive advantage’’
(p. 979).
Improvement activities that raise the level of
manufacturing capability can enable an FWF to
operate with a less than ideal production system.
For example, an FWF operating with a batch flow
production system having a very high level of
capability may be able to provide the cost and
quality outputs at the same level as a competitor’s
FWF operating with an equipment-paced line flow
production system with a low level of capability. In
their survey of 128 plants, Ahmad and Schroeder
(2002) found that ‘‘less than half of the plants
operate near the diagonal of the (product–process)
matrix y (T)he off-diagonal plants are using
innovative initiatives to overcome the lack of
product structure and process structure match’’
(p. 103). The notion of ‘innovative initiatives’ to
build manufacturing capability is part of what the
literature calls dynamic capability (Da Silveira,
2005). Dynamic capability relies on improvements
to push the boundaries or limits that technology
imposes on manufacturing processes and, therefore,
is one approach for dealing with trade-offs in
manufacturing. (More on this follows in Section 2.7.)
A production system’s overall level of capability
is the sum of the capabilities of each subsystem or
lever. The higher the manufacturing capability of
each lever is, the higher will be the overall capability
of the production system. In this paper, the
manufacturing capability of a lever is measured on
a scale from 1.0 to 4.0. (See the lower left block in
Fig. 1.) A value of 1.0 indicates an infant level of
capability; 2.0 is industry average; 3.0 is adult; and
4.0 is world class. (This scale is similar to the ‘stages
of manufacturing effectiveness’ in Wheelwright and
Hayes (1985).) Exactly what constitutes each level
of capability for each lever depends on the produc-
tion system and is usually determined from bench-
marking studies. The level of capability is not
necessarily the same for each lever. However, levers
with lower levels of capability diminish the overall
level of capability of the production system. Good
manufacturing strategy identifies these levers and
the adjustments that are needed to raise the low
levels of capability. The goal is to have a production
system where all levers have the same high level of
capability.
2.5. Competitive analysis
An FWF should use the production system that is
most able to produce the mix and volume of
products in its product family and provide the
manufacturing outputs required by its customers
(Adamides and Voutsina, 2006). The competitive
analysis object (upper right block in Fig. 1)
organizes the information that is required to
identify this production system. First, specific
measures or ‘attributes’ that are important to
customers are determined for each manufacturing
output. For example, important attributes of
quality may be rework cost per unit, defects per
unit, warranty cost as a percent of sales, and so on.
Next, values of each attribute are collected for the
product family produced by the FWF, the average
product family in the industry, and the best product
family in the industry. On the basis of these values
the FWF decides whether each manufacturing
output is market qualifying, order winning, or
relatively unimportant, and then selects the produc-
tion system that is best able to provide the market
qualifying and order winning outputs.
A manufacturing output is market qualifying,
order winning, or relatively unimportant, depending
on whether it is provided at a high, very high, or
medium level. Market qualifying outputs are what
customers expect to receive. A product needs these
outputs to be competitive in its market (Hill, 2000).
Providing a market qualifying output requires
providing each attribute of that output at a high
level. An order winning output is provided at a
higher level than the market qualifying level. It is
provided at the order winning level, which is the
highest level possible in the industry. Consequently
order winning outputs are not common in a
product’s market. Yet they are important to
customers and, therefore, are a very important
reason that customers buy from an FWF. If the
level of an order winning output is raised, then
orders increase. Providing an output at an order
winning level makes an FWF an industry leader for
that product and output.
Competitive analysis aligns manufacturing and
marketing when it matches production systems with
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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
market qualifying and order winning manufacturing
outputs. Ward et al. (1998) and others find consider-
able empirical support for the goal of aligning
manufacturing and marketing. ‘‘(T)he expected
relationship between process choice (i.e. production
system) and competitive priority (i.e. manufacturing
outputs) that is central to much of the conceptual
work in manufacturing strategy can be demonstrated
empirically’’ (p. 1043). Other schemes for achieving
this alignment are possible. Hallgren and Olhager
(2006) separate outputs into two categories: market-
ing and manufacturing. For marketing they identify
seven ‘market requirements’ (quality, price, delivery
speed and reliability, product range, customization,
and innovativeness) and for manufacturing they
identify four ‘main manufacturing capabilities’ (cost,
quality, lead time, and flexibility). They measure the
seven market requirements for each product family
and set relative priorities. From these and other
information they then set objectives for the four
manufacturing capabilities.
Manufacturing–marketing alignment is a type of
focus. In this paper, we say that an FWF is focused
when it uses the production system that is best able
to produce the mix and volume of products and
provide the market qualifying and order winning
manufacturing outputs that are desired by the
FWF’s customers.
Bozarth and Edwards (1997) found additional
types of focus in their study of 26 US factories. They
found market requirements focus, manufacturing
characteristics focus, and market–manufacturing
congruence. Market requirements focus is similar to
Hallgren and Olhager’s seven ‘market requirements’,
and to the market qualifying and order winning
concepts in this paper. Manufacturing characteristics
focus is ‘‘the degree of internal consistency found in
the physical processes and infrastructural elements
y (for example) process choices, work-force skills,
planning and control systems’’ (pp. 162–163).
Market–manufacturing congruence is ‘‘the degree
of fit between market requirements and manufactur-
ing characteristics. Congruence is distinct from the
other two dimensions: one can have a focused set of
market requirements y and a focused set of
manufacturing capabilities y but incongruence
between the two’’ (p. 163). Bozath and Edwards
conclude that ‘‘the results support the general
argument that market requirements focus and
manufacturing characteristics focus have an impact
on manufacturing performance. A lack of focus
in either market requirements or manufacturing
315
characteristics in the plant was shown to be associated
with poorer performance’’ (pp. 177–178). In another
study, this time of 782 UK factories, Mapes et al.
(1997) found that their ‘‘research also confirms
existing thinking on manufacturing focus. y Plants
with a narrow product range tend to perform better
on most measures of operating performance than
plants with a wide product range’’ (p. 1032).
2.6. Illustrative example
The well-documented competitive battle between
Yamaha’s and Honda’s motorcycle businesses in
the early 1980s (Stalk and Hout, 1990) is easy to
analyze using the five manufacturing strategy
objects. In 1981 Yamaha opened a new, state-of-
the-art motorcycle factory and overtook Honda to
become the largest motorcycle manufacturer in the
world. Honda, which had been concentrating on its
automobile business, launched a counterattack. It
raised the levels of its market qualifying outputs,
which were cost and delivery, by cutting prices and
flooding distribution channels. It also raised the
levels of its order winning outputs, which were
innovativeness and performance, by introducing
new products and raising the technological sophis-
tication of its existing products. More specifically,
over the next 18 months Honda introduced or
replaced 113 motorcycle models (Yamaha re-
sponded with 37 changes) and introduced new
features such as four-valve engines, composite
materials, and direct drive. Yamaha could not
provide its manufacturing outputs at the new
market qualifying levels, let alone at the order
winning levels, and demand for its products
plummeted. Yamaha’s President ended the ruinous
fight with Honda with a public statement: ‘‘We want
to end the Honda–Yamaha war. It is our fault. Of
course, there will be competition in the future, but it
will be based on a mutual recognition of our
competitive positions’’ (Stalk, 1988).
Fig. 4 displays Yamaha’s and Honda’s manufac-
turing strategies and identifies the strategic reasons
as to why Honda was able to overcome Yamaha’s
challenge to its leadership in the motorcycle
industry. Honda raised the levels of its market
qualifying outputs and order winning outputs so
fast and so high that Yamaha could not keep up.
Yamaha’s products no longer met customer ex-
pectations and so customers left Yamaha and
placed their orders with Honda. Honda was able
to do this for the following two reasons.
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316 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323

Fig. 4. Manufacturing strategy at Honda and Yamaha motorcycles.

2.6.1. Production systems used equipment-paced line flow production systems.

Honda’s production systems were more suitable for Operator-paced line flow and JIT production systems
providing the order winning outputs than Yamaha’s. are able to provide higher levels of performance and
Honda used operator-paced line flow production innovativeness (i.e. the order winning outputs) than the
systems and JIT production systems, whereas Yamaha equipment-paced line flow production system.
 ARTICLE IN PRESS
J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
2.6.2. Manufacturing capability
Honda had a higher level of manufacturing
capability. Yamaha had just completed a period of
expansion during which it built new facilities, hired
new employees, started new processes, and launched
new systems. The expansion spread Yamaha’s
existing manufacturing capability over a large
number of sites and operations. This dilution of
expertise reduced Yamaha’s overall level of manu-
facturing capability. Fig. 4 shows manufacturing
capability profiles for Honda and Yamaha. The
level of manufacturing capability for each of the
first three levers was 3.5 for Honda and 2.5 for
Yamaha. The lower figures for Yamaha were the
result of its expansion. The level of manufacturing
capability for sourcing was 4.0 at Honda because
Honda’s suppliers were the best in the industry. The
levels of manufacturing capability for process
technology and facilities were high for Yamaha
because many of its processes and facilities were
new. The levels of manufacturing capability for
process technology and facilities were also high for
Honda. Although processes and facilities at Honda
were older, the company’s established improvement
programs had made numerous improvements over
the years. Not only was Honda’s manufacturing
capability profile better than Yamaha’s profile, but
the three levers (organization structure and con-
trols, production planning and control, and sour-
cing), which most affected the order winning
outputs (performance and innovativeness), had
higher levels of capability at Honda.
2.7. Trade-offs
Trade-offs are a part of each manufacturing
strategy object. An important trade-off in the
competitive analysis object is the level at which
outputs will be provided. Will an output be market
qualifying or order winning? Products may qualify
for consideration by customers in one way but win
orders in a different way. Trade-offs in the
production systems object follow from the techno-
logical nature of production systems. Consider, for
example, job shop and equipment-paced line flow
production systems. The job shop is more flexible
but the equipment-paced line flow production
system has a faster pace of production. Trade-offs
also exist in the manufacturing levers and the
manufacturing capability objects. Decisions made
in these objects are affected by decisions made
previously in the objects, by decisions made about
317
the market qualifying and order winning outputs,
by the production system in use, and so on.
Boyer and Lewis (2002) categorize trade-off
research into rigid, cumulative, and integrative
models. In the first category, a trade-off is ‘‘the
need for plants to prioritize their strategic objectives
and devote resources to improving those capabil-
ities. For example y plants must make choices
between achieving low costs or high flexibility’’
(p. 11). In this category a trade-off is a choice
between mutually exclusive alternatives. Hence
trade-offs in this category are called rigid. In the
cumulative category the alternatives in a trade-off
are not mutually exclusive. ‘‘Plants improve along
all four dimensions y (by) developing capabilities
that reinforce one another. y (For example,)
advanced manufacturing technology—flexible man-
ufacturing systems, computer-integrated manufac-
turing, and other programmable automation—helps
develop multiple capabilities simultaneously’’
(p. 11). The ‘sand cone’ model of Ferdows and
De Meyer (1990) is an example of a cumulative
trade-off model. ‘‘Plants should build capabilities
sequentially, first seeking high quality, then depend-
able delivery, followed by low costs and flexibility.
Each successive capability becomes the primary
focus once minimum levels of the preceding
capabilities have been achieved’’ (Boyer and Lewis,
2002, p. 11). The integrative trade-off category
believes that some elements of the rigid trade-off
model and some elements of the integrative trade-
off model are present in an FWF. This is the view
taken in this paper. Trade-offs are technological
boundaries that are always present. But the
boundaries can be moved within limits. Boundaries
‘move out’ when, for example, improvements and
new technology raise manufacturing capability.
Boundaries ‘move in’ when, for example, the
alignment between manufacturing and marketing
deteriorates. There are limits to how far the
boundaries can be moved. For example, raising
the level of capability of a job shop production
system to a world-class level of capability by making
improvements and adding technology will not
produce the same level of cost as an equipment-
paced line flow production system with a world-
class level of capability. Da Silveira and Slack
(2001) found the same view of trade-offs among
managers at five companies in the UK and Brazil.
‘‘Trade-offs are not the problematic issue for
practicing managers that they are for academics. y
(They are) an easily understood concept, which
 ARTICLE IN PRESS
318 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
describes the operational compromises routinely
made by managers. y (T)rade-offs are seen as
focusing attention on the areas of an operation most
in need of improvement. y (S)ome trade-offs are
more clearly governed by identifiable resource and
capability constraints than others’’ (p. 962).
3. Applying the new model for manufacturing
strategy in an FWF
Pun (2004) reports that many manufacturing
strategy frameworks are possible and no single
framework is best for all companies. Safsten and
Winroth (2002) examined the effectiveness of a
framework similar to Fig. 1 for small- and medium-
sized manufacturing companies. Based on their work
at two Swedish companies they report that the
framework is useful. In this section we illustrate the
use of the new model (i.e. Fig. 1) for manufacturing
strategy in an FWF by studying the strategic activities
of two multi-national manufacturing companies:
Groupe Dutailier and Rheem Manufacturing.
3.1. Groupe Dutailier
Dutailier was founded in 1976 in a small town
near Montreal, Canada. For the next 12 years it
manufactured living room and bedroom furniture
and rocking chairs. In 1988 Dutailier dropped its
living room and bedroom furniture in order to focus
on one particular type of rocking chair called a
glider rocker. It concentrated all of its R&D
activities on developing glider rocker products for
selected target markets. The decision to focus was
the start of a journey that made Dutailier a leader in
glider rocker products for North America and
Europe. The company is now North America’s
largest manufacturer of glider rockers and offers
one of the largest selections of glider rocker
products. There are more than 45 different styles,
70 fabrics, and 15 finishes, all organized into three
product collections.
Dutailier began in 1976 with 40 employees in one
factory. In 1991 there were 550 employees in four
factories. Today the company, which is still family
owned, employs more than 780 employees in seven
factories in Canada, the United States, and Eng-
land. Dutailier’s factories are organized into FWFs.
The FWFs use job shop, batch flow, and operator-
paced line flow production systems. Other mass
production systems (i.e. equipment-paced line flow
and continuous flow) and lean production systems
(i.e. JIT and FMS) are not used because they are
technologically unable to manufacture upholstered
wood furniture products. Dutailier does use some
just-in-time practices (e.g. setup time reduction and
quality control) but it does not use the JIT
production system.
Fig. 5 describes the manufacturing activities at
each factory. The first facility in Fig. 5 is the
company’s lead factory at Saint-Pie. (‘Lead’ refers
to the strategic reason for a factory. Ferdows (1997)
describes six strategic reasons for a factory and six
corresponding factory types: lead, contributor,
source, server, outpost, and off-shore. See also
Miltenburg (2005).) The Saint-Pie factory has three
FWFs. One FWF is a job shop production system
that is used for new product introductions and for
product and process innovations. Innovativeness
and flexibility are the most important manufactur-
ing outputs. The factory also has an FWF with a
batch flow production system that produces low-
volume, high-end products. Performance and in-
novativeness are important for the high-end pro-
ducts. The third FWF is an operator-paced line flow
production system that produces higher-volume
products. These products are in the mature stage
of their product life cycles and so cost and delivery
are important.
The next facility is at Saint-Elie de Caxton. This is
the company’s contributor factory for ottoman
products. It is a small facility and has one FWF
with an operator-paced line flow production system
that produces high-volume products. Cost and
delivery are the important manufacturing outputs.
Fig. 5 gives similar information for Dutailier’s other
facilities. Fig. 6 transfers some of the information
from Fig. 5 to the FWF strategy worksheet. Notice
that the same production systems are used in several
FWFs. This allows the company to develop and
follow standard practices, employ common im-
provement programs, and share information in the
FWFs that use the same production system, and,
consequently, increase the levels of manufacturing
capability to above average and adult. The syner-
gistic combination of the best production system
and high level of capability produces the highest
possible levels of manufacturing outputs.
Finally, notice in Fig. 5 that the first six facilities are
focused on the production of glider rocker products.
However the last facility, at Sainte-Anne-de-
la-Perade, produces an entirely different product
family—high-quality, wood bedroom furniture for
babies, children, and teens. This facility was
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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323 319

Facility (1) Details Focus FWFs Important Manufacturing Outputs

Saint-Pie
(head office and original
facility -- lead factory)
Head Office R&D, Sales, Customer Service & After
… 80 people Sales, Marketing, Production Planning,
Purchasing, Computing, Technical
Services, Credit, Finance & Accounting,
Factory Quality, Human Resources
… 110,000 sf, 220 Focused on production of middle- to
people high-end wood glider products
1. Job shop for new products
2. Batch flow for low volume, high-
end products
3. Operator-paced line for medium
volume, middle-end products
Innovativeness, flexibility
Performance, innovativeness
Delivery, cost

Saint-Elie de Caxton
(acquisition in 1990 of Les
Artisants du Bois Caxton,
Inc.)
Joliette
(acquisition in 1988 of Les
Freres Pelletier Canada,
Inc.)
Saint-Hyacinthe
(new factory established in
1997)
18,500 sf, 60 people Focused on production of ottoman 4. Operator-paced line for high Delivery, cost
products volume products
48,000 sf, 100 people Focused on production of high volume 5. Operator-paced line high volume Delivery, cost
wood glider products for large U.S. and products
Canadian chain stores
85,000 sf, 100 people Focused on production of ‘high 6. Batch flow for low volume Performance, innovativeness
performance’ products (i.e. products products
made of metal, wood, leather that glide, Performance, quality
swivel, recline) 7. Operator-paced line for medium
volume products

Martinsville, Virginia
(acquisition in 1990 of
Regent Industries)
Perivale, England
(new facility established in
1993)
53,000 sf, 60 people Focused on upholstered products and 8. Operator-paced line for high Delivery, cost
chair cushions for other facilities. volume products
European Sales
… 30 people
Warehouse/factory Assemble components imported from 9. Batch flow Flexibility, delivery
… 18,800 sf, 30 people North America

Sainte-Anne-de-la-Perade 60,000 sf, 100 people Focused on production of wood bedroom 10. Batch flow for low volume Flexibility, quality
(acquisition in 2003 of furniture products
E.G. Furniture) 11. Operator-paced line for medium Cost, quality
volume products

1. The information in Facility, Details, and Focus is from the company website (www.dutailier.ca).

Fig. 5. Manufacturing facilities at Dutailier.

acquired in 2003 and marks Dutailier’s decision to sidiary that manufactured swimming pool heaters)—
diversify its product line. This reverses the decision generated an annual revenue of $725 million. In
the company made 25 years earlier to focus on 1988 Paloma Industries of Nagoya, Japan, a family-
glider rockers. The decision in 2003 to diversify is owned company and the world’s largest producer of
not unreasonable so long as the new product lines gas appliances, purchased Rheem for $850 million.
are produced in separate FWFs. It would be Today the Paloma Group of Companies employs
inappropriate to produce these new products in 10,400 people.
FWFs that are focused on glider rocker products. In 2002 Rheem began a major initiative to
This would cause problems for the specialized improve the performance of its sagging Air Con-
production systems, reduce the level of manufactur- ditioning Division. The division’s market share had
ing capability, and lower the levels of the manu- dropped to 11% from a high of 16% in the mid-
facturing outputs. 1980s. One reason for the decline was an old
product line that was in need of redesign. Rheem
3.2. Rheem manufacturing installed a new management team and started
programs to improve cost, quality, and customer
In 1927 Richard and Donald Rheem of California service.
formed the Rheem Manufacturing Company. By
1936 the company was manufacturing water heaters 3.2.1. Events in Australia
and distributing them coast-to-coast in the United In 2002 Rheem re-acquired its Australian manu-
States. In 1939 Rheem opened its first foreign facturing operations. These operations, which em-
factory near Sydney, Australia, and 8 years later it ployed 1400 people and generated $150 million in
opened a second foreign factory in Hamilton, annual revenue, included water heater businesses in
Canada, to serve the Canadian market. Rheem Australia and New Zealand, a solar water heater
began manufacturing warm air furnaces in 1947 and company, and a joint-venture business in China.
central air conditioning systems in 1965. In 1973
Rheem sold its manufacturing operations in Aus- 3.2.2. Events in Canada
tralia. In 1986 Rheem’s three divisions—Water In 1989 the United States and Canada signed a
Heaters, Air Conditioning, and Rayback (a sub- free trade agreement to eliminate import and export
 ARTICLE IN PRESS
320 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323

Fig. 6. Manufacturing strategy at Dutailier’s FWFs.

duties, relax foreign investment restrictions, and
ease business travel between the two countries. This
reduced the need for a Canadian factory whose sole
purpose was to serve the Canadian market. How-
ever, rather than close the Canadian factory, Rheem
decided to focus the factory’s production. In 1993
production was focused on 40-gallon (181 liter)
water heaters. All other products were transferred
to the Water Heater Division factory in Montgom-
ery, Alabama (USA). The Canadian factory, though
small, was strategically important. Water heater
products sold in Canada were slightly different from
products sold in the United States, large Canadian
commercial customers wanted the reliability of a
local manufacturer, and transportation costs from
the factory in Alabama to customers in Canada
were high. So the batch flow production system in
the Canadian factory was changed to an operator-
paced line flow production system. Manufacturing
equipment was upgraded and the number of employ-
ees was reduced from 255 to 150. (The Montgomery
factory had more than 1000 employees.)
In 1994 Mexico joined the free trade agreement
between the United States and Canada. (The new
agreement was called the North American Free
Trade Agreement or NAFTA.) Several years later
the Water Heater Division opened a new factory in
Nuevo Laredo, Mexico, to take advantage of that
country’s low labor costs. It quickly became
apparent that the cost of production in the large
Mexican factory was so low that, even with the high
cost of transportation from Mexico to Canada, it
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J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
was significantly more profitable to produce in
Mexico and ship to Canada than to produce in
Canada. At about the same time new government
policies in Canada aimed at deregulating business
and increasing trade reduced the importance of the
large Canadian commercial customers. So by the
late 1990s there was no longer any need to have a
factory in Canada.
The Canadian factory used an operator-paced
line flow production system to produce a medium
volume of 40-gallon water heaters (Fig. 7). Even
with an adult level of manufacturing capability, this
production system was not able to provide the order
winning levels of cost and quality and the market
qualifying level of delivery required in the very
competitive marketplace for water heaters. The
Canadian factory needed to change its production
system to an equipment-paced line flow production
system with a high level of capability. But this
production system required new, expensive manu-
facturing equipment, a much higher production
volume, and time to raise the level of manufacturing
capability. When the Water Heater Division, head-
quartered in Montgomery, Alabama, decided not to
make this investment, or assign this production
volume, and or let the Canadian factory raise its
capabilities, the factory’s fate was sealed. In 2005
Rheem announced its intention to move its Canadian
production to Mexico, and in 2006 it closed the
60-year-old Canadian factory.
4. Summary
The manufacturing strategy framework for an
FWF consists of five objects: production systems,
manufacturing outputs, manufacturing levers, man-
ufacturing capability, and competitive analysis, and
the linkages between these objects. An FWF uses
one production system to produce most or all
products in a product family and provide six
manufacturing outputs: cost, quality, delivery,
performance, flexibility, and innovativeness. No
FWF is able to provide all outputs at the best
possible levels. So it is important to determine which
outputs are most important to customers. These are
the market–qualifying and order–winning outputs.
There are seven production systems: job shop, batch
flow, operator-paced line flow, equipment-paced
line flow, continuous flow, just-in-time, and flexible
manufacturing systems. Each produces a unique
mix of products and volumes, and provides a unique
combination of manufacturing outputs.
321
A production system consists of six subsystems
called manufacturing levers. They are human
resources, organization structure and controls,
production planning and control, sourcing, process
technology, and facilities. Adjustments to manufac-
turing levers must consider the linkages between
manufacturing levers and the linkages between
strategy objects. For example, each adjustment
must be appropriate for the production system in
use and must help the production system provide
the manufacturing outputs at required levels. The
levels at which the manufacturing outputs are
provided depend on the production system in use
and its level of manufacturing capability. A
production system’s level of capability is the sum
of the levels of capability of each subsystem or lever.
Manufacturing capability is measured on a contin-
uous scale from 1.0 to 4.0: 1.0 is an infant level of
capability; 2.0 is an industry average level; 3.0 is an
adult level; and 4.0 is a world-class level.
Competitive analysis identifies the manufacturing
outputs that customers desire. It requires informa-
tion on the FWF’s products, competitors’ products,
customer requirements, and the current production
system. Outcomes from the competitive analysis are
the market qualifying and order winning manufac-
turing outputs for the product family, and the
production system that can provide these outputs
and can be put into practice by the FWF. Fig. 1
arranges the five manufacturing strategy objects
for an FWF into a manufacturing strategy frame-
work. We illustrate the use of these objects and
framework by studying the strategic activities of
Groupe Dutailier Inc. and Rheem Manufacturing
Company.
We can also use the five objects and manufactur-
ing strategy framework to formulate a manufactur-
ing strategy for an FWF. First we determine the
FWF’s current manufacturing state by examining
its production system, its manufacturing capability,
and its manufacturing outputs. Second we deter-
mine the FWF’s desired future manufacturing state
by using the competitive analysis object. Finally we
use the manufacturing levers object to determine the
changes that are required to move the FWF from its
current manufacturing state to its desired future
manufacturing state. Safsten and Winroth (2002)
studied this process at some small- and medium-size
manufacturing companies.
This paper is descriptive and exploratory.
A manufacturing strategy framework for an FWF
is presented and its use is illustrated. The strategy
 ARTICLE IN PRESS
322 J. Miltenburg / Int. J. Production Economics 113 (2008) 307–323
Fig. 7. Manufacturing strategy in Rheem’s Canadian factory.
objects and the framework they comprise are not
analyzed empirically. This work is left for future
research. There are other areas where more research
can be done. More detailed descriptions can be
developed for each manufacturing strategy object.
New objects can be developed. Other frameworks
can be developed, and relationships between differ-
ent frameworks can be studied.
Acknowledgments
This research was supported by Grant A5474
from the Natural Sciences and Engineering Re-
search Council of Canada. I also thank the editor
and the referees for their comments on earlier
versions of this paper.
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