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Manufacturing

Automated automobile assembly line in Durban, South Africa. © CHARLES O’REAR/CORBIS

consequence, competition in this segment is fierce—and competing firm that only guarantees service only within
so is the failure rate. twenty-four hours.
Quality can be divided into two categories: product Delivery reliability relates to a firm’s ability to supply
quality and process quality. The level of a product’s qual- the product or service on or before a promised delivery
ity will vary with the market segment to which it is aimed due date. The focus during the 1980s and 1990s on
because the goal in establishing the proper level of prod- reducing inventory stocks in order to reduce cost has
uct quality is to meet the requirements of the customer. made delivery reliability an increasingly important crite-
Overdesigned products with too high a level of quality rion in evaluating alternative vendors.
will be viewed as prohibitively expensive. Underdesigned A company’s ability to respond to increases and
products, on the other hand, will result in losing cus- decreases in demand is another important factor in its
tomers to products that cost a little more but are perceived ability to compete. It is well known that a company with
as offering greater benefits. increasing demand can do little wrong. When demand is
Process quality is critical since it relates directly to the strong and increasing, costs are continuously reduced
reliability of the product. Regardless of the product, cus- because of economies of scale, and investments in new
tomers want products without defects. Thus, the goal of technologies can be easily justified. Scaling back when
process quality is to produce error-free products. Adher- demand decreases may require many difficult decisions
ence to product specifications is essential to ensure the regarding laying off employees and related reductions in
reliability of the product as defined by its intended use. assets. The ability to deal effectively with dynamic market
A company’s ability to deliver more quickly than its demand over the long term is an essential element of man-
competitors may be critical. Take, for example, a company ufacturing strategy.
that offers a repair service for computer-networking Flexibility, from a strategic perspective, refers to a
equipment. A company that can offer on-site repair company’s ability to offer a wide variety of products to its
within one or two hours has a significant advantage over a customers. In the 1990s companies began to adjust their

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 485