Many large companies have for a long time been very successful in their industries by combining leading edge R&D and marketing with strong internal manufacturing capabilities. An alternative model is now getting increased attention, where R&D and marketing is conducted internally and manufacturing performed by outsourcing partners. This development is partly due to divergent views on the strategic role of manufacturing capabilities: expendable commodities that can be purchased from a low-cost provider versus resources essential for sustaining long-term competitive advantage. Although assessments of the strategic role of manufacturing capabilities have been performed previously, recent supply chain trends such as globalisation and fragmentation mean that they may no longer be relevant. The purpose of the thesis is to assess the strategic role of manufacturing capabilities for a product-owning firm, by focusing on what impact its internal manufacturing capabilities have on the effectiveness of the supply chain.

Two methods have been used for the research: survey and case study. The survey is representative for the entire Swedish manufacturing sector, whereas the case studies are to some extent industry- or company-specific. Two companies were researched: one in the telecom equipment sector, the other a supplier to multiple sectors, including the telecom equipment sector. The results of the research have been presented in five scientific articles that are also found in the appendices.

The thesis argues that in order to evaluate the strategic role of manufacturing capabilities, it is important to look at how they contribute to the focal firm’s competitive priorities. When the technology is new, the competitive priority tends to be innovation, and the role of manufacturing capabilities is to facilitate more efficient NPD. When products mature, low cost becomes the dominant competitive priority, and the role of manufacturing capabilities is to facilitate a high operational efficiency of the supply chain. Although the potential role of manufacturing capabilities is dependent on the firms’ competitive priorities, just possessing manufacturing capabilities will not automatically translate into high performance. Instead, the performance outcome is dependent on both the level of manufacturing capabilities and, even more importantly, how they are leveraged through the integration of customers, suppliers and the product development department.

This thesis contributes to the discourse on the role of manufacturing in two ways. First, the thesis investigates how competitive priorities impact the role of manufacturing capabilities in the supply chain. Second, this thesis explores how manufacturing capabilities influence the efficiency of integration. The main theoretical contribution is to develop and test the concept of manufacturing absorptive capacity within the context of manufacturing capabilities’ role in the supply chain. The thesis concludes that manufacturing capabilities are almost inevitably seen as strategic because they help firms integrate external sources more efficiently, thereby achieving performance improvement in terms of both operational efficiency and efficient product development. When the performance improvement corresponds with the prevailing competitive priority, the supply chain can be said to be effective. Manufacturing capabilities can thus act as a catalyst for effective supply chain management.