How To Focus Manufacturing to Survive Market Flux

Dimitrios Matsoulis


The following is a summary of the INSEAD Knowledge article titled "How Focused Factories Deal with Disruption" by Luk Van Wassanhove.

A smart corporation is one that wants to coordinate every aspect of its operation. The factory floor shouldn't be seen as a simple execution stage, but on par with marketing and what goals the company wants to achieve with its products and services.

Globalization and super fast developments in technology mean change is the only constant for the modern factory. Unexpected competition can come from any region of the world and any market player, large or small. Although practice is necessary to reach a point of total efficiency, it seems that managers have again recently started to lose their manufacturing focus in an endless chase of agility and the quest to fulfill every market need.

As an illustration of why focus is important and how focused factories can evolve to meet changing market needs, Wassanhove describes one of Hewlett-Packard’s factories which produced computer servers in Germany between roughly 1990-2005.  This plant, called the Herrenberg factory, was able to succeed through two major industry changes by keeping a clear and consistent focus. 

How HP's Herrenberg Factory Survived Its New Competitors

This particular facility managed to stay competitive through focused production during three distinct market phases and two major market intersection points. Before the tech innovations of the 1990s, the server market was made up of ample R&D spending, high vertical integration and comfortable profit margins. But all of this changed dramatically for HP when Compaq and Dell showed up, and there was a drop in profit margins because consumers were given more server options to choose from.

HP then switched to a mass-production mode, with less vertical integration and outsourcing of server components, and an emphasis on higher efficiency and lowering costs. Technological engineers were reduced and the workforce was trained and used more flexibly to meet fluctuating demand.

Then, the 2000s saw yet another monumental shift in the market when consumer demands started getting more and more complex. Tackling this required a highly efficient and extremely flexible factory. Outsourcing of lower value components again played a crucial role in keeping activities focused on the shop floor, and this allowed HP to free up technologists so that they could come up with product solutions to fit the market's nebulous demands. The workforce was retrained to adapt to the new paradigm, and assigned its best employees to decision oriented positions.

Although not every industry is going to experience the situation described above in its exact form, all industries will generally reach a similar market flux where one innovates successfully by keeping the factory and decision makers focused. The commodity and flexibility intersection points are applicable to every manufacturer. It's a time of limiting the dispersal of resources and concentrating on company strengths to become more efficient and survive new competitive threats.

Putting "The Focused Factory" To Use

If we wanted to take this model and look for how to apply it to our own volume and cost-efficiency emergencies, we should look for:

1. Accurate market and sales forecasting in order to identify the intersection points at which manufacturing must change its alignment towards a different model.

2. Adaptation of order quantities to mass or mass/flexible production with the necessary data support and after the necessary manufacturing model changes have been implemented.

3. Adaptive HR and workforce management practices that involve good preparation well before changes are introduced and comprehensive training for new operating conditions.

The latter point is probably the most important, as no transition is possible without including the people that give life to a plant.  If the Herrenberg plant was moved to a cheap Asian destination, HP would have stayed away from the important European server market and could possibly be unable to implement the important solutions phase.

In the end, proven here is what's proven in all aspects of life: keeping things focused and simple is a proven way to ride through major disruptions.