1. Slides 8 Integrating Supply Chain and Development Chain
Global Supply Chain Management
Integrating Supply Chain and Development Chain

2. Integrating Supply Chain and Development Chain
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, and
The development chain which focuses on new product introduction and involves product architecture (design), make/buy decisions, earlier supplier involvement, strategic partnering, supplier footprint and supply contracts.
Integrating Supply Chain and Development Chain

3. Development and Supply Chain
Introduction to Supply Chain Management

4. Integrating Supply Chain and Development Chain
Key Question
What is the appropriate “Supply Chain Strategy” and “Product Design Strategy” for each product type?
Each product requires a different supply chain strategy
Each product requires a different development chain strategy
The two are intertwined
Integrating Supply Chain and Development Chain

5. Key Supply Chain Characteristics
Demand uncertainty and variability
and also
Economies of scale in production and transportation
Lead time, in particular due to globalization
Integrating Supply Chain and Development Chain

6. Development Chain Characteristics
Product structure (modular/integral)
Level of modularity or integrality in a product
Modular product
assembled from a variety of modules
each module may have several options
Bulk of manufacturing can be completed before the selection of modules and assembly into the final product takes place
and also:
Technology clock speed
Speed by which technology changes in a particular industry
Make/Buy decisions
Decisions on what to make internally and what to buy from outside suppliers
Integrating Supply Chain and Development Chain

7. Framework for linking Product Design with Supply Chain Strategy
Demand uncertainty & product introduction frequency
Relation to product design & supply chain strategy
Integrating Supply Chain and Development Chain

8. A. Design for Logistics (DFL)
Product and process design that help to control logistics costs and increase service levels
Economic packaging, transportation and storage
Concurrent and parallel processing
Standardization
Integrating Supply Chain and Development Chain

9. Transportation and Storage
Design products so that they can be efficiently packed and stored
Design packaging so that products can be consolidated at cross docking points
Design products to efficiently utilize retail space
Integrating Supply Chain and Development Chain

10. Integrating Supply Chain and Development Chain
Examples
Ikea
World’s largest furniture retailer
Large stores, centralized manufacturing, compactly and efficiently packed products
Rubbermaid
Clear Classic food containers - designed to fit 14x14” Wal-Mart shelves
Integrating Supply Chain and Development Chain

11. Integrating Supply Chain and Development Chain
Packaging
Delay packaging until as late as possible
Repackaging at the cross-docking point is common for many products
Integrating Supply Chain and Development Chain

12. DFL 2: Concurrent Processing
Objective is to minimize lead times
Achieved by redesigning products so that several manufacturing steps can take place in parallel (concurrent)
Modularity / decoupling is key to implementation
Enables different inventory levels for different parts
Integrating Supply Chain and Development Chain

13. Integrating Supply Chain and Development Chain
DFL 3: Standardization
Aggregated demand information is more reliable (risk pooling: product, location, time)
We can have better forecasts for a product family rather than for a specific product/style
How to make use of aggregate data ?
Approach: design the product and organize the manufacturing processes so that decisions about which specific product is being manufactured (the differentiation) can be delayed until manufacturing is underway
Integrating Supply Chain and Development Chain

14. Integrating Supply Chain and Development Chain
Part Standardization
Many common parts used across very different end designs/products (e.g. Toyota).
Common parts reduce:
inventories due to risk pooling
costs due to economies of scale
It is less risky to keep stock of these parts
Warning: excessive part commonality can reduce ability for product differentiation
Warning: it may be necessary to redesign product lines or families to achieve commonality
Integrating Supply Chain and Development Chain

15. Process Standardization
Standardize as much of the process as possible for different products (flexible production lines)
Customize the products as late as possible
Decisions about specific product to be manufactured is delayed until after manufacturing is under way
Starts by making a generic or family product
Differentiate later into a specific end-product
This strategy is also known as Postponement or Delayed Differentiation
An option for Modular products (not Integral)
Integrating Supply Chain and Development Chain

16. Delayed Differentiation
May be necessary to redesign products specifically for delayed differentiation
May be necessary to re-sequence the manufacturing process to take advantage of process standardization
Re-sequencing operations
Modifies order of product manufacturing steps (but can involve assembly, distribution: IKEA)
can have as result that the differentiation of specific items or products is postponed as much as possible, which helps reduce risks with respect to lead time and uncertainty of demand
Integrating Supply Chain and Development Chain

17. Important Considerations
Aforementioned changes suggested in strategies may be too expensive to implement
Costs related to redesign should be incurred at the beginning of the product life cycle
Benefits often cannot be quantified
increased flexibility, more efficient customer service, decreased market response times
Through re-sequencing not only can we address lead time and demand uncertainty:
level of inventory usually to go down
per unit value of inventory will be higher
Integrating Supply Chain and Development Chain

18. Integrating Supply Chain and Development Chain
Push-Pull Boundary
Pull-based systems typically lead to:
reduction in inventory levels, in system costs and in lead time (the latter for non-standard products only !)
making it easier to manage system resources
Not always practical to implement a pull-based system throughout the entire supply chain
Lead times may be too long
It may be necessary (costs) to maintain economies of scale in production, storage or transportation.
Standardization strategies (parts and processes) can combine push and pull systems
Portion of the supply chain prior to product differentiation is typically a push-based supply chain
Portion of the supply chain starting from the time of differentiation is a pull-based supply chain.
Integrating Supply Chain and Development Chain

19. B. Supplier Integration into New Product Development
Traditionally suppliers have been selected after design of product or components
However, firms often realize tremendous benefits from involving suppliers in the design process.
Benefits include:
a decline in purchased material costs
an increase in purchased material quality
a decline in development time and cost
an increase in final product technology levels.
Integrating Supply Chain and Development Chain

20. Spectrum of Supplier Integration
None
Supplier is not involved in design. Later the materials/half-products to be supplied as per customer specifications/design
White box
Informal level of integration. Buyer “consults” with the supplier informally when designing products and specifications. No formal collaboration
Used when buyer has some design expertise but wants to ensure that supplier can adequately manufacture the component
Grey box
Formal supplier integration. Collaborative teams between buyer’s and supplier’s engineers. Joint development
Used when separation is not possible.
Black box
Buyer gives the supplier a set of interface requirements. Supplier independently designs and develops the required component.
If 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.
Integrating Supply Chain and Development Chain

21. Keys to Supplier Integration
Making the relationship a success:
Select suppliers and build relationships with them
Align objectives with selected suppliers
Which suppliers can be integrated?
Capability to participate in the design process
Willingness to participate in the design process and ability to reach agreements on intellectual property and confidentiality issues
Ability to commit sufficient personnel and time to the process, co-locating personnel if appropriate
Sufficient suppliers resources to commit to the supplier integration process.
Commitment and trust can be built up?
Integrating Supply Chain and Development Chain

22. Integrating Supply Chain and Development Chain
C. Mass Customization
Evolved from two prevailing manufacturing paradigms
Craft production and mass production.
Mass production (associated with push)
efficient production of a large quantity of a small variety of goods
high priority on automating and measuring tasks
mechanistic organizations with rigid controls
Craft production (associated with pull)
involves highly skilled and flexible workers often craftsmen
organic organizations which are flexible and changing
Integrating Supply Chain and Development Chain

23. Integrating Supply Chain and Development Chain
Absence of Trade-Offs
We used to work as follows:
Low-cost, low-variety strategy may be appropriate for some products
For other products, a higher-cost, higher-variety, more adaptable strategy was more effective
Development of mass customization implies it is not always necessary to make this trade-off
Mass customization (advanced push-pull)
delivery of a wide variety of customized goods or services quickly and efficiently at low cost
captures many of the advantages of both the mass production and craft production systems
not appropriate for all products
gives firms important competitive advantages
helps to drive new business models
Integrating Supply Chain and Development Chain

24. Mass Customization: Making it Work
Highly skilled and autonomous workers, modular processes in modular units
Managers can coordinate and reconfigure these modules to meet specific customer requests and demands
Integrating Supply Chain and Development Chain

25. Mass Customization and SCM
Many of the advanced SCM approaches and techniques are essential if mass customization is to be successfully implemented
IT which is critical for effective SCM, is also critical for coordinating different modules
Concepts like strategic partnerships and supplier integration are essential for the success of mass customization.
Postponement (delayed differentiation) can play a key role in implementing mass customization
Integrating Supply Chain and Development Chain

26. Integrating Supply Chain and Development Chain
Summary
Design for logistics concepts
Efficient packaging, transportation and storage
Certain manufacturing steps can be completed in parallel
Standardization of parts and processes
Integrating suppliers into the product design and development process
Advanced supply chain management facilitating mass customization
Integrating Supply Chain and Development Chain