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At a Glance
  • In a manufacturing network, development and transference of innovative trends and best practices is as significant as determining the type of product to manufacture, where and how.
  • There are four types of factories that makeup a manufacturing network. Isolated factories have least sharing of knowledge, receiver factories mainly have input of innovation, hosting network factories and active network factories have high level of knowledge sharing and training capacity.
  • Organizational survival and growth depend on a balance portfolio of all categories of factories.
  • In terms of location, network factories can be situated at anywhere, but isolated and receiver plants have better survival rate in low-wage countries.

In order to develop a manufacturing system, it is essential to plan and manage innovative and technical knowledge. Simply identifying the target product, location of the production unit and developing logistic framework is insufficient.

In periods of economic depression, a significant number of companies close their doors or at least reduce their operative processes to reduce operational expense swiftly. The instinct to survive is practical and even justified for some organizations. However, management’s choice to open, close or move factories, should not be over-shadowed by concern for current operational cost. Rather, they should incorporate long-term strategical aspects, especially the part of distinct factories in developing and distributing innovation across production system.

The success of a global manufacturing organization depends greatly in the capability of the company to use its knowledge base in sharing operational innovation and optimization practices, so that the result is a groundbreaking product and service. When organizations take series of decisions without incorporating the role of factory units in the wider knowledge network, they usually abandon their long-term novelty goals for near-term financial gains. A profound comprehension of how factories interrelates to generate and distribute knowledge can aid upper level management to inspire innovative practices by managing factories’ portfolio as well as optimize productivity by aptly employing production resources. Recently, it has been observed that the significance of dynamic contribution of management in knowledge generation is growing for individual plants. Managers who generate and distribute knowledge enthusiastically provide their organizations with strategical edge and consistency.

Classification of Factories in a Network

In order to understand the involvement of innovation and knowledge in manufacturing frameworks worldwide, an extensive study was conducted among global organizations. In the first stage, factories owned by these organization globally were examined. There were detailed interviews conducted with the corporate executives and factory managerial staff. There was a reassessment of the same factories a decade later to identify ways in which the network has grown. At the end of the first stage of the study, factories were categorized based on their part in sharing knowledge with factories and head office. Explicit knowledge such as operation process, product innovation, managerial efficiency, etc. and implicit knowledge such as communication and cooperation amongst plants’ managers were examined. Four types of factories were classified.

Isolated factories: These types of factories get limited innovation from other units in the network and distribute even lesser innovative ideas. Manufacturing teams do not conduct or get many visits from managers of other plants and the communication is limited. However, lots of such factories are quite productive. Usually, they depend on their own skill and capability to enhance their production processes and develop best practices.

Receiver factories: These factories receive numerous innovations from other plants as well as the headquarters. But these factories do not distribute innovative knowledge. Many of the receiver factories lack efficiency and greatly rely on peripheral assistance. Some of these are satellite factories managed by neighboring plants while others need outside help in incorporating technological changes in their operation. In short, these types of factories require assistance from corporate management and development teams as well as other plants.

Hosting network factories: In the network, these plants maintain a concrete relationship, high level of communication and an active transference of innovation with other units. There are recurrent visits from managers from other factories and the headquarters. A significant number of these factories are epitome of distinction and often serve as training base for other employees.

Active network factories: These factories exhibit a higher level of communicative ability and greater transference of innovation than hosting network plants. The employees of such type of plants are most likely to visit other units (as compared to any other category in the network). Such factories are usually observed to share their best practices and technical data with other less productive plants.

Inference for Senior Management

An important question is how executive and management teams can employ information on the four classifications of factories in the network to manage them. The study conducted provide dual point of views.

Well-Balance Portfolio

The study highlights the significance of maintaining a balanced portfolio of plants and proposes the methods of achieving it. For instance, for an organization to survive, hosting network factories are key as the innovation offered by them is a principal contributor to enhanced manufacturing and product processes. However, these types of plants are large and can generate diseconomies of scale. When these are in the vicinity of cooperate headquarters, they might not be able incorporate emerging trends promptly.

When such scenarios arise, organizations mostly depend on active network plants to adopt and share new innovations. Active network factories are located near to centers of innovation for said reason. The downside is that this category of factories operates on higher cost. The managers must spend good chunk of their time traveling. The operational hours are often interrupted by visits and training and development is a time-consuming process. It is, therefore, necessary for these plants to have additional skill and capability to accommodate their parts as creators and transferrers of innovation.

Logically, it is unwise to let such inadequacies to be present in every factory in the network. Organizations must balance active network plants with low-cost and highly productive isolated factories. According to the study conducted, isolated plants can regulate the total production cost of the network as well as provide tactical advantage. In fact, these units can help organizations establish their presence in global market. The performance of isolated units in a new market can be easily duplicated while trends, knowledge and innovation can be adopted, providing an organization quick entrée. Due to low cost and smaller scale, isolated factories can be repositioned easily. Likewise, receiver factories perform similar role in manufacturing network, especially when dealing with quickly evolving technologies.

Geographical Preference

The geographic location of factories is an essential consideration for managers when contemplating maximization of production. The main trick is to determine the best location to serve as source knowledge and innovation.

However, the geographical preference for factories’ location changes for isolated and receiver plants in one aspect. These units can be setup anywhere, but the continual maintenance is relatively cost-effective in low-wage countries then high laboring cost countries.

Dynamic Prospective

As an organization’s strategic course and value changes, it is evident that its network of plants will also modify. Product networks can be greatly active. In the study conducted, the overall number of plants owned by the subject organizations increased globally, while some original ones were closed.

Consideration of Benefits

In order to ascertain the factors involved in closing of previous factories and opening of new units, primary benefits of a certain location to the manufacturing network should be understood. It was observed that nearness to markets was more important that closeness to suppliers, labor or skill. Surprisingly, labor expense was less significant to most of the new factories.

During recent times, it has been observed that the role of active network units has augmented, and isolated plants has diminished. This implies that factories, in the current environment, are considered as a contributor of knowledge for their network, hence an asset for their organization. The types of factories that closed in past decades mainly comprised of isolated or receiver plants. Furthermore, it was also seen that several isolated and receiver plants evolved into network factories.

A good proportion of factory managers accept the significance of networking and distribution of best practices and knowledge using tools such as audits, managerial meetings, working groups, databases, etc. Such attitude is inspired by a well-defined strategy by the organization and is instances is considered essential for survival.

In short, the organizations included in the study were found to maintain their competitive edge by abandoning the units which did not increased their knowledge base and directed a major portion of the manufacturing network to the generation of knowledge and innovation.

Enhanced Strategic Competitiveness

Cmpanies must direct their effort on the generation and distribution of knowledge but that doesn’t imply that they should abandon the isolated and receiver plants in totality. The manufacturing network requires flexibility and wider perspective and all four categories of factories are essential to it.

Additionally, the managerial staff of isolated and receiver plants should divert efforts to improving the chances of their survival, especially in high labor cost countries. They must develop and preserve relations with other network plants. Innovation is not enough for survival. They must be inclined to sharing knowledge with other network factories.

Plant managers should not be exclusively responsible for maintaining the operation of any manufacturing network. Senior management at corporate head office should also control the development of the network. Their involvement should not be limited to the type of product to manufacture and where, but they should also actively participate in development and transference of knowledge and innovation. Structuring, enabling, nurturing and managing relationships and interactions between factories in a network may be integral to survival and competitiveness.