The Organizational Structure of a Manufacturing Company

Drazen Zigic/iStock/GettyImages

From a layperson's perspective, an organizational diagram for a manufacturing company may seem like an easy read. The president or CEO is at the top, and the workers are at the bottom with various vice presidents, directors, managers and supervisors sprinkled in between. For those deciding on the layout, however, creating a structure is no easy feat, particularly for a company that manufactures products.

The organizational structure needs to ensure that responsibility is given to the right people without causing information bottlenecks, duplicating efforts or wasting resources. Most manufacturers today still use a traditional structure. However, each company can use a combination of five different methods for organizing its resources.

TL;DR (Too Long; Didn't Read)

The organizational structure for a manufacturer is usually unique from other types of companies. Some degree of responsibility and autonomy needs to be given to manufacturing operations, and other business units need to support those operations to keep the plant operating.

The Role of Organizational Structure

The purpose of an organizational structure is to allocate and coordinate the company's resources so that management and employees can work effectively. The structuring or organizing process is accomplished by three primary decisions:

  1. Division of labor: determining job duties and responsibilities
  2. Departmentalization: grouping jobs together
  3. Delegation: assigning authority and responsibilities 

An organizational structure describes the relationships of resources within a company. It begins with people but also includes materials, money and information. A well-designed structure should have defined lines of authority, channels for the flow of information and a means of control. Some relationships are relatively permanent, like the relationship between a line worker and a manager, while others can be changed as needed, like an ad hoc committee.

Organizational Structures in Manufacturing Operations

Manufacturing companies typically use traditional structures for organizing their resources. These almost always involve departmentalization so that similar tasks can be grouped together. Traditional structures are quite rigid, grouping employees by one or more of the following criteria:

  • Function
  • Products
  • Processes
  • Customers
  • Regions

Two other types of business structures are contemporary and team structures. These are more flexible than traditional structures, allowing management to move employees as needed to respond to dynamic working environments. Project-based companies, like software companies and service companies, for example, would often benefit from these more-flexible types of structures.

A Typical Organizational Structure of a Manufacturing Company

A typical manufacturing company department structure would, for the sake of example, consist of three departments: finance, operations and marketing. A vice president would oversee each of these divisions and report to the company president, who is responsible for all three divisions and is normally at the top of a manufacturing company organizational chart.

  1. Finance: Managers of allocations, inventory control, accounting and financial planning all report to the VP of finance.

  2. Operations: Production managers and the director of human resources report to the VP of operations. 

  3. Marketing: The sales manager, director of customer service and distribution manager all report to the VP of marketing. 

Functional Departmentalization

This example uses functional departmentalization, which bases the departments on the primary functions conducted by the company. Functions could include manufacturing, engineering, legal, finance, human resources, sales and marketing.

For example, Ethan Allen Interiors, a furniture manufacturer, uses the functional model. It has five different departments for retail operations, manufacturing and sourcing, logistics, operations and product design.

Product Departmentalization

Product departmentalization divides company resources based on the products being manufactured. This is typically only done within the operations division. For example, an appliance manufacturer could have a production manager for small appliances and another for large appliances.

ITT, a technology manufacturer for the transportation, industrial and oil and gas industries, uses four product divisions:

  1. Industrial Process: includes pumps, valves, and wastewater treatment equipment
  2. Control Technologies: includes motion control and vibration isolation products
  3. Motion Technologies: includes shock absorbers and brake pads
  4. Interconnect Solutions: includes connectors for several different markets

Process Departmentalization

Process departmentalization divides departments based on the work being done. For example, in a furniture manufacturing company, lumber cutting and treatment, furniture assembly and finishing could each be divided into separate departments with managers for each department or a supervisor for each department reporting to the operations manager.

Customer Departmentalization

Customer departmentalization usually involves only the parts of the company that interact with customers rather than where products are manufactured. For example, sales and marketing could be two departments, particularly if the company has a large sales force or a large marketing department.

Marketing could be further divided into different marketing efforts, such as online marketing and retailer relations. Sales departments are often compartmentalized between inside and outside sales forces or between different types of clients, like having a separate manager and staff for key accounts.

Geographic Departmentalization

When a manufacturer has more than one location, it's often advantageous to divide the company by region. How this is done depends on the size of the company and the work being done in each location. At one end of the spectrum, a large manufacturer with independent operations in different countries, like an auto manufacturer, could have separate companies in each country. A smaller company may have a plant manager at each location, each reporting to the VP of operations.

Ford Motor Company, for example, has three global divisions: Americas, Asia-Pacific, Europe, Middle East and Africa. An executive VP is in charge of each of these divisions. These are in addition to the company's functional groups, which operate at a global level.

Combining Business Structures

For exceptionally large manufacturers, it doesn't make much sense to limit the company's organization structure to just one model. For example, Procter & Gamble's "four pillars" refer to four departmentalization models, which it uses at the same time.

  1. First Pillar: Global business units organize the company by its product lines, such as baby products, beauty products, fabric and home care, etc.

  2. Second Pillar: Selling and market operations groups are arranged with the geographical model for North America, Latin America, Asia-Pacific, Europe, China, India, the Middle East and Africa.

  3. Third Pillar: Global business services division also uses a geographic model to support its other business units in areas like accounting, information technology, payroll and facilities management.

  4. Fourth Pillar: Corporate functions, using the functional model, provides the company with resources such as human resources, legal, marketing, research and development and business development.

Choosing an Organizational Structure

If you are just starting out with a small manufacturing plant and a couple dozen employees, a functional structure may be sufficient. However, when the company grows, when more products are added to production facilities and when a second or third plant is needed, the questions surrounding organization become much more complex.

Boston Consulting Group recommends aligning your choices in organizational structure with your company's strategies. This involves asking critical questions such as:

  • Should manufacturing responsibility be centralized, or should decisions be made locally to account for regional differences?

  • How can you best ensure technology standards are implemented across all business units?

  • Should units like engineering, asset management and maintenance be integrated into manufacturing or separated from it?

  • How much responsibility will plant managers have?  

  • How will responsibility be organized below the plant manager? 

Boston Consulting Group has identified a trend across different manufacturing industries toward more centralized decision making and the use of functional organization for units such as production control, engineering, IT, planning and asset management. This typically allows companies to move faster in increasingly global markets while ensuring standards are met across the company regardless of location.