Presentation on theme: "Coordinated Product and Supply Chain Design"— Presentation transcript:
1 Coordinated Product and Supply Chain Design Chapter 11Coordinated Product and Supply Chain Design
2 11.1 A General Framework Two distinct chains in organizations: The supply chain which focuses on the flow of physical products from suppliers through manufacturing and distribution all the way to retail outlets and customers, andThe development chain which focuses on new product introduction and involves product architecture, make/buy decisions, earlier supplier involvement, strategic partnering, supplier footprint and supply contracts.
3 Key Characteristics of Supply Chain Demand uncertainty and variability, in particular, the bullwhip effectEconomies of scale in production and transportationLead time, in particular due to globalization
4 Key Characteristics of Development Chain Technology clock speedSpeed by which technology changes in a particular industryMake/Buy decisionsDecisions on what to make internally and what to buy from outside suppliersProduct structureLevel of modularity or integrality in a productModular productassembled from a variety of moduleseach module may have several optionsBulk of manufacturing can be completed before the selection of modules and assembly into the final product takes place
5 Interaction between the Two Chains Fisher’s concept of Innovative and Functional ProductsFunctional products characterized by:slow technology clock speed, low product variety, and typically low profit marginsInnovative products characterized by:fast technology clock speed and short product life cycle, high product variety, and relatively high margins.
6 What Is the Appropriate Supply Chain Strategy and Product Design Strategy for Each Product Type? Each requires a different supply chain strategyDevelopment chain has to deal with the differing level of demand uncertainty
7 Framework for Matching Product Design and Supply Chain Strategies FIGURE 11-3: The impact of demand uncertainty and product introduction frequency on product design and supply chain strategy
8 11.2 Design for Logistics (DFL) Product and process design that help to control logistics costs and increase service levelsEconomic packaging and transportationConcurrent and parallel processingStandardization
9 Economic Transportation and Storage Design products so that they can be efficiently packed and storedDesign packaging so that products can be consolidated at cross docking pointsDesign products to efficiently utilize retail space
10 Examples Ikea Rubbermaid World’s largest furniture retailer 131 stores in 21 countriesLarge stores, centralized manufacturing, compactly and efficiently packed productsRubbermaidClear Classic food containers - designed to fit 14x14” Wal-Mart shelves
11 Final Packaging Delay until as late as possible Repackaging at the cross-docking point is common for many products
12 Concurrent/Parallel Processing Objective is to minimize lead timesAchieved by redesigning products so that several manufacturing steps can take place in parallelModularity/Decoupling is key to implementationEnables different inventory levels for different parts
13 The Network Printer Example FIGURE 11-4: Concurrent processing
14 Traditional Manufacturing Set schedules as early as possibleUse large lot sizes to make efficient use of equipment and minimize costsLarge centralized facilities take advantage of economies of scale
15 Standardization Recall: aggregate demand information is more reliable We can have better forecasts for a product family (rather than a specific product or style)How to make use of aggregate data ?Designing the product and manufacturing processes so that decisions about which specific product is being manufactured (differentiation) can be delayed until after manufacturing is under way
16 Modularity in Product and Process Modular Product:Can be made by appropriately combining the different modulesIt entails providing customers a number of options for each moduleModular Process:Each product undergo a discrete set of operations making it possible to store inventory in semi-finished formProducts differ from each other in terms of the subset of operations that are performed on them
17 Modularity in Product and Process Semiconductor wafer fabrication is modular since the type of chip produced depends on the unique set of operations performedOil refining is not modular since it is continuous and inventory storage of semi-finished product is difficult
18 Modularity in Product and Process Modular products are not always made from modular processesBio-tech and pharmaceutical industries make modular products but use non-modular processes; many products are made by varying the mix of a small number of ingredients
19 Swaminathan’s Four Approaches to Standardization Part standardizationProcess standardizationProduct standardizationProcurement standardization
20 Part Standardization Common parts used across many products. Common parts reduce:inventories due to risk poolingcosts due to economies of scaleExcessive part commonality can reduce product differentiationMay be necessary to redesign product lines or families to achieve commonality
21 Process Standardization Standardize as much of the process as possible for different productsCustomizing the products as late as possibleDecisions about specific product to be manufactured is delayed until after manufacturing is under wayStarts by making a generic or family productDifferentiate later into a specific end-productPostponement or delayed product differentiation
22 Delayed Differentiation May be necessary to redesign products specifically for delayed differentiationMay be necessary to resequence the manufacturing process to take advantage of process standardizationResequencingmodify the order of product manufacturing stepsresequenced operations result in the differentiation of specific items or products are postponed as much as possible
24 Benetton Background A world leader in knitwear Massive volume, many storesLogisticsLarge, flexible production networkMany independent subcontractorsSubcontractors responsible for product movementRetailersMany, small stores with limited storage
25 Benetton Supply Cycle Primary collection in stores in January Final designs in March of previous yearStore owners place firm orders through JulyProduction starts in July based on first 10% of ordersAugust - December stores adjust orders (colors)80%-90% of items in store for January salesMini collection based on customer requests designed in January for Spring salesTo refill hot selling itemsLate orders as items sell outDelivery promised in less than five weeks
26 Benetton Flexibility Business goals Increase sales of fashion itemsContinue to expand sales networkMinimize costsFlexibility important in achieving these goalsHard to predict what items, colors, etc. will sellCustomers make requests once items are in storesSmall stores may need frequent replenishments
27 It Is Hard to Be Flexible When... Lead times are longRetailers are committed to purchasing early ordersPurchasing plans for raw materials are based upon extrapolating from 10% of the orders
28 Benetton Old Manufacturing Process Spin or Purchase YarnDye YarnFinish YarnManufacture Garment PartsJoin Parts
29 Benetton New Manufacturing Process Spin or Purchase YarnManufacture Garment PartsJoin PartsDye GarmentThis step is postponedFinish Garment
30 Benetton Postponement Why the change?The change enables Benetton to start manufacturing before color choices are madeWhat does the change result in?Delayed forecasts of specific colorsStill use aggregate forecasts to start manufacturing earlyReact to customer demand and suggestionsIssues with postponementCosts are 10% higher for manufacturingNew processes had to be developedNew equipment had to be purchased
31 Product Standardization Downward SubstitutionProduce only a subset of products (because producing each one incurs high setup cost)Guide customers to existing productsSubstitute products with higher feature set for those with lower feature setWhich products to offer, how much to keep, how to optimally substitute ?
32 Procurement Standardization Consider a large semiconductor manufacturerThe wafer fabrication facility produces highly customized integrated circuitsProcessing equipment that manufactures these wafers are very expensive with long lead time and are made to orderAlthough there is a degree of variety at the final product level, each wafer has to undergo a common set of operationsThe firm reduces risk of investing in the wrong equipment by pooling demand across a variety of products
33 Operational Strategies for Standardization ProcessNonmodularModularProductParts standardizationProcess standardizationProduct standardizationProcurement standardization
34 Selecting the Standardization Strategy If process and product are modular, process standardization will help to maximize effective forecast accuracy and minimize inventory costs.If the product is modular, but the process is not, it is not possible to delay differentiation. However, part standardization is likely to be effective.If the process is modular but the product is not, procurement standardization may decrease equipment expenses.If neither the process nor the product is modular, some benefits may still result from focusing on product standardization.
35 Important Considerations Strategies designed to deal with demand uncertainty and/or inaccurate forecastsChanges suggested in the strategies may be too expensive to implementRedesign related costs should be incurred at the beginning of the product life cycleBenefits cannot be quantified in many cases:increased flexibility, more efficient customer service, decreased market response times
36 Important Considerations Resequencing causes:level of inventory in many cases to go downper unit value of inventory being held will be higherTariffs and duties are lower for semi-finished or non-configured goods than for final productsCompleting the manufacturing process in a local distribution center may help to lower costs associated with tariffs and duties.
37 Push-Pull Boundary Pull-based systems typically lead to: reduction in supply chain lead times, inventory levels, and system costsmaking it easier to manage system resourcesNot always practical to implement a pull-based system throughout the entire supply chainLead times may be too longMay be necessary to have economies of scale in production or transportation.Standardization strategies can combine push and pull systemsPortion of the supply chain prior to product differentiation is typically a push-based supply chainPortion of the supply chain starting from the time of differentiation is a pull-based supply chain.
38 Back to the HP CaseLong lead times, high inventory levels, imbalance of inventoryLocalization (labeling and manuals, power supply, plug)One cause of imbalance (too much inventory for printers localized for one market, too little inventory for another market)Significant uncertainty on how to set safety stockToo many localization optionsUncertainty in local marketsSome optionsAir shipmentA factory in EuropeImprove forecasting practices (how?)
39 Back to the HP Case HP management considered postponement as an option Ship “unlocalized” printers to European DC and localize them after observing the local demandAt 98% service level, safety stock dropped from 3.8 weeks supply to 2.6 weeks supply on the averageAnnual savings around $800,000Value of inventory in transit (and hence insurance costs) goes downSome of the localization material can be locally sourced (cheaper)European DC had to be modified to facilitate localization. Printer needed to be redesigned.All Vancouver products now DC-localizable (postponement). One of the best of such practices.
40 11.3 Supplier Integration into New Product Development Traditionally suppliers have been selected after design of product or componentsHowever, firms often realize tremendous benefits from involving suppliers in the design process.Benefits include:a decline in purchased material costsan increase in purchased material qualitya decline in development time and costan increase in final product technology levels.
41 The Spectrum of Supplier Integration No single “appropriate level” of supplier integrationNoneSupplier is not involved in design.Materials/subassemblies supplied as per customer specifications/designWhite boxInformal level of integrationBuyer “consults” with the supplier informally when designing products and specificationsNo formal collaborationGrey boxFormal supplier integrationCollaborative teams between buyer’s and supplier’s engineersJoint developmentBlack boxBuyer gives the supplier a set of interface requirementsSupplier independently designs and develops the required component
42 Appropriate Level Depends on the Situation Process Steps to follow:Determine internal core competencies.Determine current and future new product developments.Identify external development and manufacturing needs.
43 Appropriate Level Depends on the Situation Black BoxIf future products have components that require expertise that the firm does not possess, and development of these components can be separated from other phases of product development, then takingGrey BoxIf separation is not possibleWhite BoxIf buyer has some design expertise but wants to ensure that supplier can adequately manufacture the component
44 Keys to Supplier Integration Making the relationship a success:Select suppliers and build relationships with themAlign objectives with selected suppliersWhich suppliers can be integrated?Capability to participate in the design processWillingness to participate in the design processAbility to reach agreements on intellectual property and confidentiality issues.Ability to commit sufficient personnel and time to the process.Co-locating personnel if appropriateSufficient resources to commit to the supplier integration process.
45 11.4 Mass CustomizationEvolved from the two prevailing manufacturing paradigms of the 20th centuryCraft production and mass production.Mass productionefficient production of a large quantity of a small variety of goodsHigh priority on automating and measuring tasksMechanistic organizations with rigid controlsCraft productioninvolves highly skilled and flexible workersOften craftsmenOrganic organizations which are flexible and changing
46 Absence of Trade-Offs Two types meant inherent trade-offs Low-cost, low-variety strategy may be appropriate for some productsFor others, a higher-cost, higher-variety, more adaptable strategy was more effectiveDevelopment of mass customization implies it is not always necessary to make this trade-offMass customizationdelivery of a wide variety of customized goods or services quickly and efficiently at low costcaptures many of the advantages of both the mass production and craft production systemsnot appropriate for all productsgives firms important competitive advantageshelps to drive new business models
47 Making Mass Customization Work Highly skilled and autonomous workers, processes, and modular unitsManagers can coordinate and reconfigure these modules to meet specific customer requests and demands
48 Key Attributes Instantaneous Costless Seamless Frictionless Modules and processes must be linked together very quicklyAllows rapid response to various customer demands.CostlessLinkages must add little if any cost to the processesAllows mass customization to be a low-cost alternative.SeamlessLinkages and individual modules should be invisible to the customerFrictionlessNetworks or collections of modules must be formed with little overhead.Communication must work instantly
49 Mass Customization and SCM Many of the advanced SCM approaches and techniques essential if mass customization is to be successfully implementedIT critical for effective SCM is also critical for coordinating different modulesConcepts like strategic partnerships and supplier integration essential for the success of mass customization.Postponement can play a key role in implementing mass customization
50 SUMMARY Design for logistics concepts Efficient packaging and storageCertain manufacturing steps can be completed in parallelStandardizationIntegrating suppliers into the product design and development processAdvanced supply chain management facilitating mass customization