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Research J. Science and Tech. 9(4): October-December, 2017

597

ISSN 0975-4393 (PRINT)

2349-2988 (ONLINE)

DOI: 10.5958/2349-2988.2017.00101.2

Vol. 09| Issue-04|

October -December | 2017

Available online at

www.anvpublication.org

Research Journal of Science and Technology
Home page www.rjstonline.com

RESEARCH ARTICLE

Operation Strategy in Process Industry

Dr. R.V.S. Prasad
Associate Professor, Department of , P.R.R. and V.S. Govt. College, Vidavaluru,

SPSR Nellore District, A.P., India.

*Corresponding Author E-mail: [email protected]

ABSTRACT:
Fast changes in technology, competition and most importantly customer expectations are creating an

increasingly uncertain atmosphere for business. People tend to get attracted towards short-term gains putting

aside advantages of having long-term strategies. The manufacturing sector is being victimized by this

phenomenon. While it has been recognized that manufacturing holds the key to development, less emphasis has

been given to it. Enhancement of manufacturing practices in the process industry has been always been a lesser

priority. While many solutions can be developed to counter the process industry, it needs comprehensive and

concentrated efforts in designing its strategy to meet competition. This paper discusses the characteristics of

process industry and tries to focus on developing some specific options, which can be useful in confronting

competition.

KEYWORDS: Process Control, Product Control, Operation Strategy, Product Strategy, Procurement,
Distribution, Employee Productivity.

INTRODUCTION:
While there has been significant contribution of the

services sector in the recent past, manufacturing sector

will hold the key for the development of any economy.

The prosperous nations of today owe their success to

their wealth creating sector, of which manufacturing is

a key factor. Yet, the manufacturing sector is facing a

tough competition from the non-manufacturing sector.

Industries are taking the marketing and other

functional activities more seriously than the

manufacturing function. With the changing consumer

needs, the industry, all the time, looks at offering

newer products with latest technology. Meeting the

dynamic customer needs and the emergence of newer

technologies will demand for devising superior

overall-manufacturing capabilities.

The process industry has to address these issues and

design a, somewhat, different operational strategies for

competing, more so in the wake WTO’s prophecy in

favour of intellectual property.

Received on 21.09.2017 Modified on 04.11.2017
Accepted on 11.12.2017 ©A&V Publications All right reserved

Research J. Science and Tech. 2017; 9(4): 597-600.

DOI: 10.5958/2349-2988.2017.00101.2

The competition is multifaceted. On one side it is from

multinationals setting up manufacturing dates “new-

technology” advantages and on the other, is

competition from non-process industry where imports

help counter cost and quality challenges. The process

industry has to look to improve not only the

manufacturing processes but also the entire chain of

activities in the market place.

PROCESS INDUSTRY:
The process industry can be defined in simple terms,

which “…processes bulk material to get finished

products through physical and chemical processes

with a high degree of instrumentation, control and

automation”.

The process industry is capital intensive. The average

investment per employee is as high as three times that

of the non-process industry. The average employee

output ratio is also high. It is twice that of output per

employee in the non-process industry. The average net

value added per emoluments in the non-process

industry. While the net value added per capital

employed, in the process industry, is almost half as

that of non-process sector.

Research J. Science and Tech. 9(4): October-December, 2017

598

Table-1: A comparison of process and non-process industry

based on some important parameters is given in.

Parameter Process Non-Process

Investment/Employee Rs. (x10^6) 3 1

Output/Employee /Rs. (x10^6) 2 1

Output/Capital Employed 0.75 1

Net Value Added/Emoluments 2.2 1

Net Value Added/Capital Employed 0.55 1

Source: Public domain

The typical sub sectors in the process industry are

given below:

 Ferrous and Non-Ferrous Metal Production (Steel,
Aluminium, Copper, etc.)

 Refining and Petrochemicals

 Fertilizers

 Cement, etc.

In the process industry, the manufacturing is

characterized by input of materials of very high

volume of very high volume or weight and the output

is generally or low to very low volumes or weight for

example, steel, air separation, fertilizers, etc. But this

is not so in the case of petrochemicals, refinery, etc.

STRATEGIC OPTIONS:

In an environment of stiff competition, to remain in

business, has become a priority over growth. To

achieve growth, one has to operate with efficiency and

effectiveness. One needs to understand the market

changes and technological developments. The business

planning should be individualistic and primarily based

on company’s internal strengths.

A business plan considers a compilation of different

functional strategies, viz., research and development,

marketing, finance and human resources. For

understanding and developing business plans in the

manufacturing sector, it can be divided into four

segments, viz., Process Industry, FMCG, Capital

Equipment and High-tech Consumer Products.

The broad choice of operation or manufacturing

strategy for these sectors can be considered in the light

of two major parameters: (1) Market Intensity and (2)

Technology Intensity as represented in Figure 1. The

manufacturing tasks are different in these sectors and

hence require specific operational strategies. An

account of different manufacturing strategies is

presented in the following section.

Figure 1: Operation Strategy Matrix

SPECIFIC OPERATION STRATOGY:

Developing broad strategies require considering

market needs and technology applications. Individual

companies can look at developing company specific

strategies, based on their objectives and nature of

business. Some guidelines to develop specific

operational strategy are as follows:

A. Manufacturing Tasks with respect to Product

Strategy

Attainment of manufacturing efficiency could be a

simple choice. One can look at the following as a

means to enhance competitiveness.

Cost of Production:
This could be a strategy for manufacturers in the

Process Industry, which is low market and low

technology intensive. Here cost minimization of

manufacturing process could be put to advantage for

the competition. The process of reduction in the

production cost should be done on a continual basis.

Product Flexibility:
The FMGC sector, which is highly market intensive

and generally low technology focused, could go for

product flexibility. One could look to manufacture

market specific products, as per the changes in the

product preferences and consumer needs.

Volume Flexibility:

Capital Equipment manufacturers, that are highly

technology intensive and have a low market focus,

could plan for volume flexibility for their

manufacturing plan. Attainment of manufacturing

efficiency should be the goal.

Product Performance:
This could be applied as an operations strategy in the

sector which is highly market oriented as well as high

technology intensive as in the case of those producing

High-tech Consumer Products. Here the products are

generally with short life and the time-to-market plays a

key role in success. Focusing of innovation and

product development to enhance product performance

and provide competitive advantage.

B. Manufacturing Policy:

Decisions regarding the manufacturing policy play a

vital role in the success of a unit in the process

industry. The following could be the factors which one

can consider while going for an appropriate

manufacturing policy:

 Location and Scale of Manufacturing:
Proximity to market and raw material, rationalizes

supply costs, while economies of scale bring down

unit cost.

 Choice of Manufacturing Process and
Technology:
Selection of technology/process should take into

Research J. Science and Tech. 9(4): October-December, 2017

599

account its availability, congruity, cost, etc. A proven

technology should be favoured to a new one.

 Span and Degree of Vertical Control:
Degree of control plays an important role in achieving

manufacturing efficiency. With flat management

structures, greater degree of efficiency can be

achieved.

 Use and Role of R and D:
Benefits from research and development could come

when product development and new products are

introduced periodically and quickly. This is more

important in the high technology-oriented

manufacturing industries where the product life-cycle

is short.

 Control of Production System:
Control of production system leads to an increase in

efficiency. It brings down production time, minimizes

wastage and controls cost as well. This process is most

suitable for the process industry.

C. Stages of Strategic Role of Manufacturing:

Investing large amounts in manufacturing, to gain

strategic advantage, cannot be done overnight. It takes

several years and has to pass through different stages

to transform manufacturing weaknesses in to

strengths. The stages are not mutually exclusive and it

is difficult for a company to skip a stage. These stages

can be viewed within two extremes: At one end,

production can offer little contribution to a company’s

market success; at the other, it provides significant

source of competitive advantage. The stages I and II

ask for maintaining status quo, while stages III and IV

look at changing the manufacturing strategy aligned

with business strategy. The four different stages are as

follows:

Stage I – Internally Neutral: Minimize Negative

Impact of Manufacturing:

At this stage, manufacturing is considered incapable of

influencing competitive success. Here, one must look

at minimizing or neutralizing the negative impact of

manufacturing. Manufacturing is kept flexible and

performance is to be monitored through management

control systems.

Stage II – Externally Neutral: Achieve Parity with

Competitors:
Stage II also represents a form of manufacturing

neutrality. The strategy, at this stage, could be to

follow industry practices in matters regarding work

force, equipment, purchases and the timing and scale

of capacity additions. Here one should avoid

introduction of major, discontinuous changes in

product or process. To achieve manufacturing

efficiency, one could go for gaining economies of

scale related to production.

Stage III – Internally Supportive: Provide Credible

Support to the Strategy:

Stage III requires organizations to make

manufacturing actively support and strengthen the

company’s competitive position. Here, manufacturing

should be viewed as internally supportive and its

contribution should be derived from and directed by

overall business strategy.

Stage IV – Externally Supportive: Manufacturing

as a Significant Contributor to the Company

Advantage:

This is the most progressive stage of manufacturing

development and arises when competitive strategy

rests significantly on a company’s manufacturing

capability. Here, efforts could be made to take

advantage of the potentials of new manufacturing

practices and technologies.

It is found, mostly, that companies in the process

industry belong to stage II and some in stage III.

Those in stage II could graduate to stage III to enhance

their competing capabilities.

D. Capacity Utilization:

Capacity utilization plans an important role in

reducing cost of production. Highly capital intensive

units, where capital cost per turnover is high, could

look for increasing the productivity of capital by

increasing capacity utilization. Practice of

uninterrupted production will lead to higher capacity

utilization.

E. Market Penetration:

Companies, which are low market driven and low

technology driven, need to increase market penetration

and cost minimization. It also calls for continuous

uninterrupted production. Mass production will bring

down unit cost and one can gain price advantage.

F. Investments in Technology on a continual Basis:

Innovations are required both in process and product

for companies in the process industry. Process

innovations leads to control of costs and product

innovation/product differentiation helps to cater to

changing market needs. Some innovations in process

technology have been exemplary and are given below.

The net impact of these developments was reduction in

cost of production.

In steel manufacturing development of Basic Oxygen

Furnace (BOF) has been found to be cost

advantageous. Similar effects were observed with

Continuous Casting and Direct Reduction. In the

cement production, dry process technology was

developed in the fertilizer sector low heat rate was

found to be more effective and low pressure

technology was found a suitable choice in air

separation.

Research J. Science and Tech. 9(4): October-December, 2017

600

Some examples of innovations in Product Technology

are given in Table 3. The recent developments in the

innovations in steel production are: (a) production of

coated steel, and (b) production of thin cold rolled

steel. Coated steel is used in the production of white

goods with high aesthetic value. Thin cold rolled steel

has the advantage of high strength with low tonnage.

In cement sector, there have been developments in the

form of (a) Premix; (b) Bulk Distribution; and ©

Small Package.

Table 2:

S.No. Industry Sector Process Technology Innovations

1 Steel B.O.F

Continuous Casting

Direct Reduction

2 Cement Dry Process

3 Air Separation Low Pressure Technology

4 Fertilizer Low Heat Rate

G. Logistic Issues:

a. Procurement and Distribution:
Logistics play an important role in cost rationalization.

In the case of fertilizer production, while this is done

throughout year, the consumption is done, generally,

in a span of 4-6 weeks after monsoon. Looking at

distribution issues could lead to reduction of storage

cost.

Table 3:

S. No. Industry Sector Process Technology Innovations

1 Steel Coated Steel
Thin Cold Rolled Products

2. Cement Premix

Bulk Distribution
Small Package

b. Split Location:

Cement manufacture could look int having multi-

location grinding units, closer to the markets.

c. Dispersed Users:

Similarly, the steel production can be done in bulk as

semi-finished products and then these can be

processed into finished goods in smaller, multi-

location units.

H. Project Management:

Project management plays an important role in

managing cost and time. Unless project time is

controlled, the cost of project goes up as can be

observed from the time-cost graph. Focusing to

completing the project in time can maximize profits.

When the project gets delayed, the payback period

becomes more. This increases the cost of capital

productivity become disadvantageous since the

beginning of the project.

I. Equipment Maintenance:

Equipment maintenance is a critical issue. It involves

the following activities.

 Availability of plant and equipment

 Management of spares

 Maintenance resource productivity

 Total productive maintenance

With the proper maintenance of plant, plant

availability will be for longer duration. This will lead

to reduction in production cost in the concepts of

economics of scale. Management of spares enhances

efficiency and leads to higher productivity. Here, the

role of worker is of greater importance.

Figure 2: Time-Cost Graph

J. Employee Productivity:

Since the output per employee ratio is high in the case

of process industry, to increase employee productivity,

one need to look at workers’ motivation, job design

and worker’s involvement in job design, job rotation

and job enrichment.

CONCLUSION:
The process industry operations are quite different

from typical manufacturing operations. One needs to

look the issues of competition in an individualistic

way and should concentrate on cost reduction more

than that of enhancing uses of technology. Efficient

application of resources will hold the key for such

activities.

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