Production Strategies (Definition and How to Create One)
Updated November 10, 2022
Companies that want to be competitive in the marketplace create a production strategy to develop a plan of action. These plans allow them to establish short- and long-term goals that inform every aspect of production. When searching for jobs within manufacturing industries, understanding the importance of this type of strategy may help advance your career. In this article, we examine what a production strategy is, discuss how it can benefit the production team, explore the different types of production strategies, and provide a guide to creating your own.
What are production strategies?
Production strategies are long-term plans for the production of goods and services. They aim to achieve a central goal or objective established by a company's management team. A production strategy functions as a guide for the production department by determining the type of technology to use, the level of investment for production, the production schedule, and what kind of training the production staff may require.
Why are production strategies important?
When companies develop a production strategy, they establish a high level of preparation that informs future decisions. This strategy can help minimize risks and increase work output. Here are some reasons why production strategies are essential:
A comprehensive production strategy encourages the management team to take the time to define and decide what the company's primary goal is. This decision helps management determine the sub-goals and what actions are necessary to accomplish them. With this clarity in place, the production team can understand the objective and the scope of the project and work together more efficiently.
Production strategies help large and small businesses determine what the priorities are in production. For example, a small company with limited resources, whether capital or personnel, can allocate them more effectively when guided by a strategy. As a result, production costs can stay low, team members can receive the support they require, and team leads understand how to prioritize functions or tasks to maintain productivity.
Every project encounters challenges, and how a team overcomes them can determine the project's outcome. When developing a production strategy, it's helpful to consider risks that may arise throughout the production cycle. Having a clear production strategy as a reference point nurtures adaptability within the team and helps them make strategic decisions, even when the unexpected occurs.
Types of production strategies
A production strategy depends on the industry, size of the company, and goals of the business. It's beneficial to understand the various types of strategies, as they can help you make more informed decisions about how to proceed with a project. Here are six types of production strategies:
Assemble-to-order (ATO) is a production strategy where companies produce products on a customer-order basis, storing their inventory as assembly-ready components. This means that companies possess the necessary parts of these goods and only proceed to assemble these items when they receive orders. Companies that employ this strategy avoid stocking large quantities of products, which can help reduce inventory costs.
Because production depends on the number of ordered items, businesses can typically mass-produce these items according to a buyer's specifications. This can give these companies a market advantage, as they can meet demand and provide goods or services to their clients more quickly.
2. Level production
Level production focuses on producing the same number of units per product at a consistent rate regardless of market demand. This strategy lowers production costs and minimizes the risk of carrying obsolete goods. Industries with limited production capabilities and cyclical needs typically use this type of production strategy. With a level production strategy, companies can keep stocking inventory during non-peak seasons while being ready to ship at a higher volume when demand increases.
For example, the fast-food industry uses a level production strategy. Companies in this industry typically function in a high-demand and low-margin scenario for the products they sell. The level production strategy ensures production consistently meets demand.
3. Chase strategy
The chase strategy is when a company's production matches the demand set forth by the market. This process is a lean production strategy, because inventory costs stay low, and the production schedule functions on an order basis, which minimizes the risk of having unsold products. It also promotes the efficient use of manufacturing resources and ensures a company's production capacity remains flexible to adjust to market demands. The chase strategy is helpful for businesses with limited resources and those that manufacture products for niche markets.
For example, companies that produce Halloween items typically use the chase strategy. Demand for these types of products has a set timeframe. This awareness of when demand increases can help the production department adjust its manufacturing processes.
Companies use the make-to-stock strategy when they base their production on a product with a predictable demand in the market. This production strategy is one of the most common ones and expands to various industries, such as consumable goods, clothing, agriculture, and technology. For example, businesses that produce baby products such as diapers and pacifiers follow the make-to-stock strategy.
The make-to-order (MTO) strategy relies on receiving orders to manufacture products. This production method prevents businesses from creating a dependence on market demand and helps them simplify inventory control. MTO is typically present in companies that offer customization of their products, such as those producing computer hardware, industrial equipment, and automobile components.
The engineer-to-order (ETO) strategy is similar to MTO in that the manufacturing of products relies on first receiving orders. The main distinction between these two strategies is that, unlike MTO, ETO involves the design or engineering of an ordered product. Companies that use this strategy may only carry an inventory of standard components, like chemicals and steel.
How to create a production strategy
A production strategy is an essential tool for companies to achieve their goals and gain a competitive advantage in their particular market. By formulating a plan of action that informs every decision and function, production costs remain low, and profitability may increase. Here are five steps to creating a production strategy:
1. Set goals
The first step in creating a production strategy is to identify the company's long-term goal. This task is typically the responsibility of the management team. After defining the primary goal, you start building the steps that lead to it by establishing measurable or actionable sub-goals. These sub-goals can range from bi-weekly to monthly achievements.
2. Recruit a consultant
Whether existing or new, companies can benefit from recruiting a consultant to advise in the development of a production strategy. If you have an interest in consulting, it helps to demonstrate your expertise in a particular market or industry. Understanding production-related IT solutions, maintenance, and production finance can be a great asset. This knowledge can position you as the ideal candidate to provide the necessary insight to advance the company's competitive value.
3. Perform an internal analysis
A production strategy relies on a company's internal structure and identifying areas of improvement. These improvements can occur in various ways, such as reducing energy consumption costs or updating equipment to produce higher-quality products. In some cases, gaining more comprehensive research data about your particular market can benefit your production strategy. The purpose of an internal analysis is to acquire an overview of the entire production process and make informed decisions that can help you focus your efforts more efficiently to achieve your goals.
Related: What is Quantitative Analysis?
4. Engage in strategy development
After defining your long-term goal and acquiring an analysis of the production process, the next step is to develop your production strategy. This step involves a detailed outline of every task, function, or change you want to implement to fulfil each sub-goal toward your central long-term goal. Specificity is essential, because specificity helps establish focus, informs priorities, and identifies the most efficient allocation of resources.
5. Create a visualization
The final step is to use the production strategy outline to create a visual representation of it. Consider using a Gantt chart, a concept map, slideshow software or customer relationships management software. They can help you create a visual presentation to show your entire production team. Consider setting up a meeting to communicate every component of your production strategy. These meetings can help assess how well the team understands the plan and open discussions that may lead to adjustments to the project to maximize efficiency.
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