1. Functional Versus Innovative Products
Mature product
Low product variety
Predictable demand
Established product categories
Low margins
Low forecasting error
INNOVATIVE
Early life cycle stage
High product variety
Unpredictable demand, e.g., fashions
New product categories
High margins
High forecasting error

2. Efficient Versus Market-Responsive Supply Chains
Serve different functions
Efficient movement (F)
Market mediation (I)
Meet different criteria
Asset management (F)
Flexibility (I)

3. Market Mediation Costs
Total Cost = Physical costs (production + transportation + inventory) + market mediation costs (stock-outs + markdowns)
Market mediation costs generally are negligible for functional products. Just create a schedule and freeze it or if competition is minimal, let customers wait
Market mediation costs can be very high for (truly) innovative products, but they might be worth it if profits are high enough.
Still, if market mediation costs can be reduced, profits can be even higher. Market mediation costs can be reduced by enhanced responsiveness.

4. Enhancing Responsiveness
Reduce excessive and unnecessary variety
Buffer inventory of parts
Use leading indicators
Use common parts and postpone differentiation
Cut lead-times with lean manufacturing

5. Matching Supply Chains with Products
Functional Products Innovative Products
Efficient Supply Chain
Match
Mismatch
Responsive Supply Chain
Match
Mismatch

6. Campbell Soup Continuous replenishment
Retailers inform Campbell via EDI every morning of their demand and inventory levels, then Campbell replenishes within agreed upper and lower inventory limits
Retailer’s inventories dropped by 50%
Campbell could forecast demand more accurately
No price promotions allowed
Campbell’s costs dropped and retailers sales rose (“win-win”)

7. Mass Customization National Bicycle
Found a profitable high margin segment: sports bikes
Customers can choose from two million options
Reliable two week delivery
Requires three times more labor than mass production
Lutron Electronics
High modularization of components
Software programming of lighting features
Flexible manufacturing

8. Sport Obermeyer
Speculative production capacity vs reactive production capacity
Commit to half of production early in season via “Early Write”
Shorten lead-time (express mail for information, not products)
Risk-based production sequencing (what to make early or late in the season
“Accurate Response” - Forecast accuracy related to low variance among estimators
Cost of overproduction and underproduction was cut in half and increased profits by 60%