Production strategy - a long-term program of actions adopted by the company related to the creation of products, their introduction to the market and implementation. The object of the strategy is the company itself, as well as product management. The subject is managerial, technical, organizational relations. The development of the production strategy should proceed in accordance with the general strategy of the company. It should also meet the principles of the company, its goals and objectives both in the short, medium and long term development.
Concept of strategy
There are many meanings of this term. In management, a strategy is a certain model of actions that is designed to analyze and achieve specific goals of a company. The strategy includes consistent decision making, which are used for various areas of the company.
In most cases, it is selected for a sufficiently long period of time, is included in various programs and practical actions of the company, and in the process of their implementation, the strategy is implemented. Any strategy requires a lot of time, resources and labor, therefore it is seldom that any company can afford to change it often, perhaps only slightly adjust it.
Production strategy concept
In management, there are different types of company strategies. The production strategy is considered to be the program adopted for the long term ahead, which determines the actions of the company to create, market and sell products. Strategic actions can be taken in the following areas of the company:
- improvement of the organization of production;
- improvement of production infrastructure;
- manufacturing control;
- product quality control;
- capacity control;
- organization of favorable relationships with company counterparts: suppliers and other partners;
- use of production personnel.
In management, a strategy is finding a balance between the volume of products manufactured by a company and the involved production capacities of the workforce. It is important to consider such points as:
- the necessary level of labor resources for stable production;
- sufficient qualification of a labor resource;
- the necessary technical level for a continuous production process;
- the availability of opportunities for the modernization of production equipment;
- creation of conditions and the possibility of emergency reconfiguration of equipment, in the case of probable changes in the timing and volume of production orders.
Full Demand Strategy
The production strategy of the enterprise exists in several alternative options.
With a strategy to fully satisfy consumer demand, the company seeks to produce the quantity of products that is required on the market. At the same time, with minimal stocks of products in warehouses, quite high production costs are observed due to possible fluctuations in output.
The advantage of the strategy is the ability to keep the stock of material and production resources at a minimum level.
Production of goods depending on the average level of demand
Adhering to this strategy, the company produces an average volume of products. When the demand drops, the manufactured product goes into stock, as soon as the demand for the product increases, it is satisfied at the expense of those accumulations that were made earlier.
The advantage of this type of strategic model is that production is involved on an ongoing basis, additional funds are not spent on changing the volume of manufactured products. The company also does not have to hold additional resources to increase the level of productivity in order to be able to satisfy the needs of all customers at peak demand. The strategy also has drawbacks, namely, the accumulation of excess stocks of materials in periods when demand is balancing on the lower border.
Production of goods at a lower level of demand
The company, adhering to this production strategy, launches on the market that volume of products that corresponds to the minimum fixed level of demand. The lack of demand is covered by goods produced by competing companies. This strategy is also called the pessimist strategy.
The company may also subcontract, which will produce an additional volume of products to meet consumer demand. The advantage is the fact that the company, without producing surplus products, as a whole does not lose the number of customers. And also in periods of low demand, it does not have an excess of stock balances. The disadvantage is the increased cost of production through subcontracting. Since the cost of the additional volume will be higher, which means that the profit is less than if the company itself produced the necessary volume of goods.
An example is a company for growing cut flowers. During the year, the volume of output fluctuates approximately at the same level with small surges, but once a year there is a period of increased demand - March 8. In order not to have surplus production of products with a short lifespan during the year, the company has small production capacities, which are not enough during the holiday period. To do this, in February, a subcontractor is engaged to fulfill the necessary volume of holiday orders. Thanks to the involvement of a subcontractor, the company fully fulfills the increased volume of orders from its own customers, who also make purchases during the year, but in other volumes.
Production Placement Strategy
In most cases, this strategy is used in large companies that have developed cooperation within the company. When developing a production strategy, an enterprise should consider the following factors:
- what transportation costs are necessary if there is remoteness of branches;
- how skilled is the workforce;
- whether economic benefits offered by the management of the region where the company is located are available;
- the availability of sources of raw materials, semi-finished products and materials.
Production Organization Strategy
The concept of the organization’s strategy is that the company puts a focus on the consumer. This is determined by the following distinctive features:
- indicators such as the volume of products, product quality, assortment and delivery time by the company are set depending on the forecasts made of the needs of customers for future periods;
- goods are delivered to points of sale at the right time and in the right quantity.
Production Strategy Programs
A program called production synchronization is aimed at determining the set of actions necessary to organize a system that can quickly respond to changes in consumer demand. For this, it is necessary to establish the simultaneous receipt of all the necessary components and synchronous production and installation.
The program involves the implementation of the following strategic decisions:
- it is necessary to identify methods to achieve synchronization of each individual stage of production;
- creating rules for the proper organization of synchronous production;
- creation of alternative methods for implementing the program.
The program for managing material flows is interconnected work that forms an integrated system of managing material flows. To implement strategic decisions on the implementation of the program it is necessary:
- justify the methods of the production logistics system ;
- to develop end-to-end systems for managing material flows, including both the procurement stage and the production itself, and marketing of products.
The program to increase production flexibility on the organizational side involves the integrity of actions that establish and connect organizational, economic and technical solutions aimed at the formation of flexible production. To implement the program it is necessary:
- identification of methods for increasing organizational flexibility;
- analysis and development of a methodological approach to the formation of flexible production.