Coordinated Product And Supply Chain DesignPresentation Transcript
Coordinated Product and Supply Chain Design
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.
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
Technology clock speed
Speed by which technology changes in a particular industry
Decisions on what to make internally and what to buy from outside suppliers
Level of modularity or integrality in a 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
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.
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
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
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
Efficiency-Responsiveness Framework of Supply Chain Functional Product Innovative Products Efficient Supply Chain Responsive Supply Chain Match Mismatch Mismatch Match
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
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
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
Delayed Differentiation / Postponement
Aggregate demand information is more accurate than disaggregate data:
Re-sequencing: modify the order of product manufacturing steps
Modularity in Product & Process
Can be made by appropriately combining the different modules
It entails providing customers a number of options for each module
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
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
Swaminathan’s Four Approaches to 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
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
CASE: Benetton Background
A world leader in knitwear
Massive volume, many stores
Large, flexible production network
Many independent subcontractors
Subcontractors responsible for product movement
Many, small stores with limited storage
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
CASE: Benetton Flexibility
Increase sales of fashion items
Continue to expand sales network
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
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
CASE: Benetton Old Manufacturing Process Spin or Purchase Yarn Dye Yarn Finish Yarn Manufacture Garment Parts Join Parts
CASE: Benetton New Manufacturing Process Spin or Purchase Yarn Manufacture Garment Parts Join Parts Dye Garment Finish Garment This step is postponed
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
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 ?
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
Operational Strategies for Standardization Process Nonmodular Modular Product Modular Parts standardization Process standardization Nonmodular Product standardization Procurement standardization
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
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
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.
Evolved from the two prevailing manufacturing paradigms of the 20th century
Craft production and 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
involves highly skilled and flexible workers
Organic organizations which are flexible and changing
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
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
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
Key Attributes: Mass Customization
Modules & processes must be linked together very quickly
Allows rapid response to various customer demands .
Linkages must add little if any cost to the processes
Allows mass customization to be a low-cost alternative .
Linkages and individual modules should be invisible to the customer
Collections of modules must be formed with little overhead.
Communication must work instantly
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.
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.
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.