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Coordinated Product And Supply Chain Design

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  • 1. Coordinated Product and Supply Chain Design
  • 2. 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, and
      • The 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 effect
    • Economies of scale in production and transportation
    • Lead time, in particular due to globalization
  • 4.
    • 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
    • Product structure
      • 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
    Key Characteristics of Development Chain
  • 5. Interaction between Two Chains
      • Functional products characterized by:
        • slow technology clock speed, low product variety, and typically low profit margins
      • Innovative 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 strategy
    • Development chain has to deal with the differing level of demand uncertainty
  • 7. Framework for Matching Product Design and Supply Chain Strategies The impact of demand uncertainty and product introduction frequency on product design and supply chain strategy
  • 8. Physically Efficient vs. Market-Responsive Physically Efficient Process Market-Responsive Process Primary purpose Supply predictable demand efficiently at the lowest possible cost Respond quickly to unpredictable demand to minimize stockouts, forced markdowns, and obsolete inventory Manufacturing focus Maintain high average utilization rate Deploy excess buffer capacity for flexibility Inventory strategy Generate high turns & lower inventory cost Deploy significant buffer stock of all stock items Lead-time focus Shorten lead time at low cost Invest in ways to reduce lead time Approach to choosing suppliers Select primarily for cost and quality Select primarily for speed, flexibility, and quality Product-design strategy Maximize performance at minimum product cost Use modular design to postpone product differentiation
  • 9. Efficiency-Responsiveness Framework of Supply Chain Functional Product Innovative Products Efficient Supply Chain Responsive Supply Chain Match Mismatch Mismatch Match
  • 10. Design for Logistics (DFL)
    • Product and process design that help to control logistics costs and increase service levels
      • Economic packaging and transportation
      • Concurrent and parallel processing
      • Standardization
  • 11. Economic Transportation & Storage
    • Design products so that they can be efficiently packed & stored
    • Design packaging so that products can be consolidated at cross docking points
    • Design products to efficiently utilize retail space
    • Cheaper to transport:
        • redesign for less storage space, stack easily, ship in bulk
  • 12. Concurrent/Parallel Processing
    • Achieved by redesigning products so that several manufacturing steps can take place in parallel
    • Objective is to minimize lead times
    • Modularity/Decoupling is key to implementation
    • Enables different inventory levels for different parts
  • 13. Delayed Differentiation / Postponement
      • Aggregate demand information is more accurate than disaggregate data:
        • Re-sequencing: modify the order of product manufacturing steps
        • Commonality,
        • Modularity,
        • Standardization
  • 14. Modularity in Product & Process
    • Modular Product:
      • Can be made by appropriately combining the different modules
      • It entails providing customers a number of options for each module
    • Modular Process:
      • Each product undergo a discrete set of operations making it possible to store inventory in semi-finished form
      • Products differ from each other in terms of the subset of operations that are performed on them
    Modular products are not always made from modular processes
  • 15.
    • 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
    Standardization
  • 16. Swaminathan’s Four Approaches to Standardization
    • Part standardization
    • Process standardization
    • Product standardization
    • Procurement standardization
  • 17. Part Standardization
    • Common parts used across many products.
    • Common parts reduce:
      • inventories due to risk pooling
      • costs due to economies of scale
    • Excessive part commonality can reduce product differentiation
    • May be necessary to redesign product lines or families to achieve commonality
  • 18. Process Standardization
    • Standardize as much of the process as possible for different products
    • Customizing the products as late as possible
      • Starts by making a generic or family product
  • 19. CASE: Benetton Background
    • A world leader in knitwear
    • Massive volume, many stores
    • Logistics
      • Large, flexible production network
      • Many independent subcontractors
      • Subcontractors responsible for product movement
    • Retailers
      • Many, small stores with limited storage
  • 20. CASE: Benetton Supply Cycle
    • Primary collection in stores in January
    • Final designs in March of previous year
    • Store owners place firm orders through July
    • Production starts in July based on first 10% of orders
    • August - December stores adjust orders (colors)
    • 80%-90% of items in store for January sales
    • Mini collection based on customer requests designed in January for Spring sales
    • To refill hot selling items
      • Late orders as items sell out
      • Delivery promised in less than five weeks
  • 21. CASE: Benetton Flexibility
    • Business goals
      • Increase sales of fashion items
      • Continue to expand sales network
      • Minimize costs
    • Flexibility important in achieving these goals
      • Hard to predict what items, colors, etc. will sell
      • Customers make requests once items are in stores
      • Small stores may need frequent replenishments
  • 22. CASE: It Is Hard to Be Flexible When...
    • Lead times are long
    • Retailers are committed to purchasing early orders
    • Purchasing plans for raw materials are based upon extrapolating from 10% of the orders
  • 23. CASE: Benetton Old Manufacturing Process Spin or Purchase Yarn Dye Yarn Finish Yarn Manufacture Garment Parts Join Parts
  • 24. CASE: Benetton New Manufacturing Process Spin or Purchase Yarn Manufacture Garment Parts Join Parts Dye Garment Finish Garment This step is postponed
  • 25. CASE: Benetton Postponement
    • Why the change?
      • The change enables Benetton to start manufacturing just before color choices are made
    • What does the change result in?
      • Delayed forecasts of specific colors
      • Still use aggregate forecasts to start manufacturing early
      • React to customer demand and suggestions
    • Issues with postponement
      • Costs are 10% higher for manufacturing
      • New processes had to be developed
      • New equipment had to be purchased
  • 26. Product Standardization
    • Downward Substitution
      • Produce only a subset of products (because producing each one incurs high setup cost)
      • Guide customers to existing products
      • Substitute products with higher feature set for those with lower feature set
      • Which products to offer, how much to keep, how to optimally substitute ?
  • 27. Procurement Standardization
    • Consider a large semiconductor manufacturer
      • The wafer fabrication facility produces highly customized integrated circuits
      • Processing equipment that manufactures these wafers are very expensive with long lead time and are made to order
      • Although there is a degree of variety at the final product level, each wafer has to undergo a common set of operations
      • The firm reduces risk of investing in the wrong equipment by pooling demand across a variety of products
  • 28. Operational Strategies for Standardization Process Nonmodular Modular Product Modular Parts standardization Process standardization Nonmodular Product standardization Procurement standardization
  • 29. Selecting Standardization Strategy
    • Process & Product are modular  process standardization : will help to maximize effective forecast accuracy and minimize inventory costs.
    • Product is modular, but Process is not  part standardization: it is not possible to delay differentiation.
    • Process is modular but Product is not  procurement standization : may decrease equipment expenses .
    • Neither Process nor Product is modular  product standardization
  • 30. Important Considerations
    • Changes suggested in the strategies may be too expensive to implement
      • Redesign related costs should be incurred at the beginning of the product life cycle
      • Benefits cannot be quantified in many cases:
        • increased flexibility, more efficient customer service, decreased market response times
  • 31.
    • Re-sequencing causes:
      • level of inventory in many cases to go down
      • per unit value of inventory being held will be higher
    • Tariffs and duties are lower for semi-finished or non-configured goods than for final products
      • Completing the manufacturing process in a local distribution center may help to lower costs associated with tariffs and duties.
    Important Considerations
  • 32. Mass Customization
    • Evolved from the two prevailing manufacturing paradigms of the 20th century
      • Craft production and mass production.
    • Mass production
      • 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
      • involves highly skilled and flexible workers
      • Often craftsmen
      • Organic organizations which are flexible and changing
  • 33. Absence of Trade-Offs
    • Two types meant inherent trade-offs
      • Low-cost, low-variety strategy may be appropriate for some products
      • For others, 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
      • 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
  • 34. Making Mass Customization Work
    • Highly skilled and autonomous workers, processes, and modular units
    • Managers can coordinate and reconfigure these modules to meet specific customer requests and demands
  • 35. Key Attributes: Mass Customization
    • Instantaneous
      • Modules & processes must be linked together very quickly
      • Allows rapid response to various customer demands .
    • Costless
      • Linkages must add little if any cost to the processes
      • Allows mass customization to be a low-cost alternative .
    • Seamless
      • Linkages and individual modules should be invisible to the customer
    • Frictionless
      • Collections of modules must be formed with little overhead.
      • Communication must work instantly
  • 36. 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.
  • 37. 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
      • 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 resources to commit to the supplier integration process.
  • 38. THANKYOU