1. Designing & Managing The Supply Chain
Coordinated Product
Designing & Managing The Supply Chain
Chapter 9
Jay Kang

2. CASE: HP - DeskJet Printer Supply Chain
Introduction
Hewlett-Packard was founded in 1939 with headquarters in Palo Alto, California
Hewlett-Packard introduced the DeskJet Printer in 1988 and it had become one of HP’s most successful products.
Inventory growth has tracked sales growth closely
European branches state that inventory levels needed to be raised even further to maintain satisfactory product availability

3. CASE: HP - DeskJet Printer Supply Chain
Meet customer needs with less inventory
Find the best way to satisfy customer needs in terms of product availability while minimizing inventory
Arrange an agreement among the various parties that they had the right level of inventory
European Distribution Center shows a dip in product availability level, but loads of DeskJets had been shipped to Europe in the past months and European DC was telling Vancouver that is had run out of space its products

4. CASE: HP - DeskJet Printer Supply Chain
The Retail Printer Market
In 1990, worldwide sales of personal printers were 17 million units, amounting to $10 billion
Sales fueled as customers discovered the superior quality of the Ink Jet printers
More and more sales through superstores such as Kmart and Price Club
The Vancouver division and its quest for zero inventory
Established in 1979 to consolidated personal printer activities from four divisions to the Vancouver site
Vancouver introduces kanban process and converts the factory to stockless production just-in-time

5. CASE: HP - DeskJet Printer Supply Chain
The DeskJet Supply Chain
Manufacturing done by Vancouver, two key stages:
Printed circuit board assembly and test (PCAT)
Final assembly and test (FAT)
“Localization” is the process of meeting the required customization of the printer to meet language and power supply requirements of the local countries
Total factory cycle time though the PCAT and FAT stages was about a week
Transportation time to the US was a day
Transportation time to Europe and Asia was four to five weeks
PCAT involves the assembly and testing of electronic components such as ASICs(application-specific integrated circuits), ROM (read-only memory), and raw printed circuit boards to make logic boards and printer head driver boards for the printers
FAT involved the assembly of other subassemblies such as motors, cables, keypads, plastic chassis and skins, gears and the printed circuit assemblies from PCAT to produce a working printer, to the final testing of the printer.

6. CASE: HP - DeskJet Printer Supply Chain
The Distribution Process
DeskJet printers are a high-volume product and the major performance measures for a typical DC included line item fill rate (LIFR) and order fill rate (OFR).
DC had four simple, straight-line process steps:
Receive (complete) products from various suppliers and stock them
Pick the various products needed to fill a customer order
Shrink-wrap the complete order and label it
Ship the order by the appropriate carrier
LIFR was calculated as the total number of customer order line items filled on time divided by the total number of customer line item attempted
OFR was a similar measure, but was based on orders complete, where an order contains multiple line items
Clarify DCs role as warehouses or integration

7. Design For Logistics
Concept of product and process design to help control logistics cost and increase customer service levels
Economic packaging and transportation
Concurrent and parallel processing
Standardization

8. Economic packaging and transportation
Design products efficiently packed and stored to produce the minimal amount of space allocation
Products that can be stored more compactly can be transported less expensively
Retailer favor products that take less storage space and stack easily
Advantages of Superior Packaging
Reduces inventory cost by decreasing the handling cost
Space per product (rent per product) decreases
Revenue per square foot can increase

9. Concurrent and Parallel Processing
Modifying the product design and manufacturing process
Reduce lead time
Lower inventory cost through better forecasting
Reduce safety stock requirements
Decoupling: A key concept for keeping the manufacturing process parallel
Able to design different inventory strategies for the various decoupled components
Higher inventory level can be held for signal component

10. Standardization
Effective use of aggregated demand information to yield better forecast outcome:
Delay decision for specific product manufacturing until the purchase decision has been made
Decision based on aggregated level, insuring a more accurate aggregated forecast
Professor Swaminathan’s standardization framework
A Modular Product: Product assembled from various modules such that for each module there are a number of options
A Modular Process: A process of discrete operations so that inventory can be stored in partially manufactured forms between operations

11. Standardization
Swaminathan identifies four different approaches to standardization:
Part Standardization: Uses of common parts across multiple product lines
Process Standardization: Standardizing as much of the process as possible for different products and then customizing the products as late as possible
In some cases resequencing and commonality allows the final manufacturing steps to be completed at the distribution center
Product Standardization: A large variety of products may be offered, but only a few kept in inventory
Downward substitution: An order is filled by a product that offers a superset of the feature required by a customer
Procurement Standardization: Involves standardizing process equipment and approaches, even when the product itself is no standardized

12. Selecting a Standardization Stragety
The firm’s success rate of standardization is based on its ability to modularize its product and processes
Important Considerations
The various strategies are designed to deal with inaccurate forecasts and product variety
It may not be possible or cost effective to implement these strategies in the context of a particular product or a specific supply chain
Value of these types of changes is higher at the start of the product life cycle
Customizing the products as late as possible, the per unit cost of inventory will rise
Some cases, semifinished products pay lower tariffs
Process and products are modular, process standardization will help to maximize effective forecast accuracy and minimize inventory cost
A modular product, without a modular process, it is not possible to delay differentiation. However, part standardization is likely to be effective
A modular process, without a modular product, procurement standardization may decrease equipment expenses
If neither the process nor product is modular, some benefits may still result from focusing on product standardization

13. The Push-Pull Boundary
In push-based system, the production decisions are based on long-term forecasts, while the pull-based supply chains, production is demand driven
Pull-based system typically lead to reduction in supply chain lead time, inventory levels and system cost, and easier to manage system resources
Push-pull boundary: the point where the system changes from push-based system to a pull-based system
Example) Sweaters remain uncolored and are dyed to meet customer demand

14. Case Analysis
The lead time is around four to five weeks from its product ion facility in Vancouver to Europe
HP is concerned with high inventory levels and inventory imbalance in European Distribution center
Localization is done in Vancouver many weeks before the products arrive in Europe
European DC often find that it has too much inventory of printers customized for certain markets, and not enough inventory of printers customized for others
To address this for the long term the following solutions were proposed:
Switch to air shipments of printers from Vancouver
Build a European factory
Hold more inventory at the European DC
Improve forecasting practices
Switch to air shipments of printers from Vancouver:
Air shipment are prohibitively expensive in this competitive, low-margin business
Build a European factory
European volumes not sufficient to justify building a new factory
Hold more inventory at the European DC
Inventory is already a problem; more would only magnify the problem
Improve forecasting practices
It is unclear how to improve forecast

15. Case Analysis
An alternative option is Process Standardization (postponement)
Ship “unlocalized” printers to the European DC and localizing them after observing local demand
Calculate required safety stock for each of the customized products
Lead time is five weeks
Require a 98 percent service level
HP needs over three-and-a-half weeks of safety stock on hand
European DC only keeps safety stock of generic printers, customizing the printers as demand is realized
Aggregated demand has a much smaller standard deviation than individual demand

16. The Spectrum of Supplier Integration
Develop the notion that a spectrum of supplier integration is used and that there is no single “appropriate level” of supplier integration
None: The supplier is not involved in design. Material and subassemblies are supplied according to customer specification and design
White Box: This level of integration is informal. The buyers “consults” with the supplier informally when designing products and specifications, although there is no formal collaboration
Grey Box: This represents formal supplier integration. Collaborative teams are formed between the buyer's and the supplier’s engineers, and joint development occurs
Black Box: The buyer gives the supplier at set of interface requirements and the suppliers independently design and develops the required components

17. Keys to Effective Supplier Integration
To achieve an effective supplier integration, hard work has to be undertaken for the relationship to be a success
Select suppliers and build relationships with them
Align objective with selected suppliers

18. What is Mass Customization
Mass customization has evolved from two prevailing manufacturing paradigms
Craft Production: Highly skilled and flexible workers, who governed by personal or procession standards, and motivated by the desire to create unique and interesting products or services
Mass Production: Efficient production of large quantity of a small variety of goods
Mass customization captures many of the advantages of both the mass production and craft production
Delivery of a wide variety of customized goods or service quickly and efficiently at lost cost

19. Making Mass Customization Work
The key to making mass customization work is highly skilled and autonomous workers, processes, and modular units
A module’s success depends on how effectively, quickly and efficiently it completes its task and how good it is at expanding its capabilities
Managers determine these link between modules “fit together” harmoniously in different links between modules to meet customer requests

20. Making Mass Customization Work
There are several key attributes that a system within a company that links different modules must possess
Instantaneousness
Costless
Seamless
Frictionless