Theodore Levitt in his classic article, "A Production Line Approach to Service" [1], describes the operation of McDonald's Hamburger chain as make-tostock production. By using inventories to meet customer demand, Levitt reports that McDonald's took a page out of production's handbook and designed an efficient process providing timely, cost-effective service to its customers. Other hamburger chains have used a make-to-order process. Wendy's does so, for example, by providing the flexibility of 256 different combinations of hamburger for the customer. This latter approach is more representative of service industry which cannot rely on inventory to satisfy demand. In a "pure" service such as a barbershop, the concept of using inventory to satisfy demand has no meaning. Customer demand can be satisfied only with available capacity.This article suggests that manufacturing strategy can be successfully based on a service approach. A service-based manufacturing strategy reverses Levitt's. Rather than using the more traditional manufacturing strategy that relies on inventories to meet customer demand, we propose a strategy of using available capacity to meet demand. Such a strategy requires the use of a capacity buffer or slack [2], where available capacity exceeds demand. Such an idea may seem strange to many US managers. Indeed, a common theme in many manufacturing plants is to keep capacity, especially labour, busy at all times. In contrast, a service-based manufacturing strategy requires the acceptance of planned idle capacity. As demonstrated by the successful Japanese JIT philosophy, in order to produce only what is needed when needed, the process must have excess capacity [3]. Apparently, Japanese managers have a greater acceptance of idle capacity than their US counterparts.Before describing the results of such a strategy, the need for change will be discussed, the effects of capacity slack proposed, and a major barrier to its implementation described.
The Need for a Change in Manufacturing StrategiesThe current business environment is characterized by rapid change and increased demands from customers. Competitors may now be located on other
A well developed manufacturing strategy is becoming increasingly
important to many manufacturing organizations. A major feature of such a
strategy is the definition of a manufacturing infrastructure that is
consistent with how products and services compete in the selected
market. The managerial accounting system is a key component of this
infrastructure. Reports the results of a survey of 85 manufacturing
companies. Finds that many companies use an accounting system that
appears to be inappropriate. The systems are often ill suited to their
marketplace and inconsistent with an appropriate manufacturing strategy.
Discusses recommendations for change for companies currently developing
a manufacturing strategy.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.