Mass Customisation In Scm

Challenges & Opportunities for Operation Managers in case of Mass Customization in Supply Chain Management Satendra Katoch Suvigya Singh Shalini Piyush Neeraj D Mohapatra

Satendra Katoch – (68)

Plan
Customization
Mass Customization
Supply Chain
Supply Chain Management
Issues of Mass customization in Supply Chains
Challenges of Mass customization in S Chains
Opportunities - How they do it - Examples
Summary

Customization
Provisioning as per individual requirement e.g
Delivery : Fedex: Less-Than-Truck-Load Freight business
No waiting for consolidating container loads shipments.
Manufacturing Process : shift from so-called "offset" printing to digital or "on demand" printing.
Manufacturing Location : Place configuration facilities close to market for mass customization.

Customization - Types
Modular Customization (Modules are "building blocks." )
Automobiles : engines, transmissions, chassis, tyre/wheel options.
PCs : mother boards, power supplies, plug-in ICs, disk drives.
Adjustable Customization (Configurable )
Adjustments are a reversible , e.g mechanical or electrical adjustments by the factory
Dimensional Customization ( permanent cutting-to-fit)
Infinite dimensional customization:
T ailoring of clothing, grinding eyeglasses, mixing of paints etc
Discrete dimensional customization:
Hole punching, & soldering selected electronic components onto a printed circuit board

Mass Customization
“ Mass production of individually customized goods and services” to large number of different customers.
Apply to low price items (watches) & to high price items (corporate jet,)
Can increase customer satisfaction, sales and profits
Designs to allow rapid and easy customization

Mass customization
The key is postponing the differentiation of product / service for a specific customer until the latest possible point in the supply-chain NW
This process combines benefits of....
(low unit costs of) mass production processes with
(flexibility of) individual customization .

Manufacturing Paradigm Shifts 1900 2000 Craft Sum of All Manufacturing types 1980s Mass Production Mass Production Options ++ Mass Customisation 1910 Different philosophies for manufacturing mass-customized, low-volume, high-mix mass-produced, high-volume, low-mix

Mass Customization
Principle 1 : A product should have independent modules which could be easily assembled into different forms of the product inexpensively.
Principle 2 : A process should have i ndependent modules to support different distribution networks.
Principle 3: A Supply NW should have 2 capabilities:
Supply basic product / service
Take individual customers orders  deliver customized G/S

Examples - M ass Customization
Dell PC  “build-to-order" model  dominance in the PC direct-purchase industry
Clothing company  customized clothing trend
heat-pressed text & images on a apparel
Customized photo products like Blankets, Tapestry, Towels etc.
Tourism industry  offering packaged holiday alternatives

Customer Order Decoupling Point: Make to Stock Make to Stock Push 2nd tier supplier 1st tier (main) supplier Distributor Retailer Orignal Equipment Manufacturer

Customer Order Decoupling Point: Engineer to Order Engineer to Order 2nd tier supplier 1st tier (main) supplier Distributor Retailer Orignal Equipment Manufacturer

Make to Stock Customer Order Decoupling Point: Assemble to Order Assemble to order 2nd tier supplier 1st tier (main) supplier Distributor Retailer Orignal Equipment Manufacturer

What is a Supply-Chain?
“ Supply-chain” describes how organizations are linked together
Suppliers –- Manufacturers –- Distributors -- Customers

Supply chain
A complex business enterprise system, where the key is to co-ordinate :
Information
material flows
plant operations
logistics.
Synchronization among multiple autonomous business entities - members of supply chain.
B2B, and B2C models for goods and service transactions.

Suvigya Singh –

Supply-Chain Management
A total systems approach to managing the entire flow of information, materials, and services from
Raw-material suppliers
Factories to the end customer
Warehouses

Supply Chain Management
To build products on-demand , mass customizers must build parts on-demand from materials that are always available.
This will require a spontaneous supply chain . The first steps in supply chain management are:
Supply Chain Simplification
Standardize, automatic resupply, & rationalise product line
Standardization
Reduce variety of parts and raw materials
Automatic, spontaneous resupply
kanban, "min-max" or breadtruck (free-stock).
Spontaneous build-to-order of parts
Relationships with suppliers to build parts in any quantity on-demand.

Measures of Supply-Chain Performance
“ Inventory Turnover”
Where distribution inventory in, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time

Supply-Chain Performance Measurement
Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million .
This company normally has an inventory turnover ratio of 10.
What is this year’s Inventory Turnover ratio?
What does it mean?

Key Issues - Mass customization
Operations
product configuration
adapt to customers needs.
Advantages
mass production
high product variety .
Approaches
Product platforms
Delayed Product Differentiation
(Approaches not mutually exclusive)

Platform engineering: Different models used by multiple brands within a group of companies

Recent paradigm shift: Design for Logistics (DFL) product & process designed to:
control logistics costs and
increase service levels
economic packaging & transportation
concurrent & parallel processing
postponement & delayed differentiation

Furniture : traditionally furniture sales through small stores---long lead-times for customers
Modular Furniture : warehouse-like stores, 1000s of products by effective “kit” design
Assemble at home
Easy to transport and easy to store
Economic Packaging & Transportation

Concurrent and Parallel Processing
Europe Mother Board CPU Customers (Europe) Customers (Europe) Mother Board CPU Casing/ Housing Asia Europe Asia

Postponement of operations
One or more differentiating operations are postponed till a later stage, prolonging the initial phase which precedes the point of differentiation
In HP case product differentiation may be delayed by ship ping generic printers from the plant to Distribution Centres and by adding the differentiating accessories at the very end of the distribution process

Postponement preferred when
aggregate demand information is less variable
better forecasts for a product family
how to make use of aggregate data?
Point of differentiation

Example: Dell & HP
Standardize components & subassemblies
Defer differentiation of products late in the manufacturing process.
e.g.Need  Different HP printers for different markets.
Solution  Produce standard printers. Add Power supply, documentation just before delivery to customer (differentiation). Instead of using 2 versions of power supply unit (110 or 220 volts) use a universal power supply (switchable) . [HP ↓total cost by 5 % annually ]

Shalini – ( )

Modular Design :
Manufacturing of dishwashers in variety of colors
End-products are differentiated from each other in terms of the metal frames (assembled in “integration and shipping” stage)
Painted metal frame replaced by uniform metal frame and a light plastic colored frame
Assembly of plastic frame can be postponed until the end of the distribution
Hence, original frame is modularized

Modular Design e.g. Chrysler 300C, Dodge Magnum, Dodge Charger Current : Integral Designs New : Modular Design

Personal Computer Design
Modular architecture
Modular components : Motherboard, power supply, disk drives, memory, mouse keyboard, display, printer, etc.
Standard interfaces to allow modules to work together. Examples: AGP, PCI, USB, serial port, parallel port.
Dell PCs can be individually configured for each customer .

Dell PCs
PC have modular design that can be configured for each customer. Configuration done as late as possible .
Module examples : video card, hard drive, DVD burner, memory, USB connection
Large variety of end-products are possible : for example if there are 10 modules that are used in a design each with 6 alternatives then there are 6 10 possible configurations .
Problem then is to have all modules available so that they can be assembled to customer order very quickly .

Re-sequencing :
modifying the order of product manufacturing steps so that the operations resulting in differentiation of specific items are delayed as much as possible
Benetton example
very rapid change in customer preference
dyeing of garment delayed until after sweater is completed
improved forecasts, lower surplus inventories, increased market share

Benetton’s innovation: postponement of differentiation Making wool Wool dying Distributor Retailer knitting

Benetton’s innovation: Postponement of differentiation Making wool Wool dying Distributor Retailer Knitting

Pros & Cons Product Differentiation
By delayed product differentiation it is possible to get the benefits of shortened lead times (better forecasts, lower inventories)
For many processes resequencing and modularization is not possible
May be very expensive to redesign the process
Benefits are difficult to quantify

Piyush – ()

Challenges - HP Case :
Long lead times, high inventory levels, skewed inventory
Cause  (high inventory of printers localized for one market, low inventory for another market)
Significant uncertainty on how to set safety stock
Too many localization options
Uncertainty in local markets
Some options
Air shipment
A factory in Europe
Improve forecasting practices (how?)

Proposed Solutions
Switch to air shipments of printer from Vancouver
Prohibitively expensive
Build a new European factory
Volume not sufficient to justify
Hold more inventory at European Distribution Centre
Inventory is already a problem
Improve forecasting
How?
Process standardization or postponement

HP DeskJet Printer Supply Chain US DC Europe DC Far East DC Customer Customer Customer Vancouver Plant Suppliers HP * DC = Distribution Centre

HP management considered postponement option
Ship “unlocalized” printers to European DC and localize them after observing the local demand
Localization involved
Assembling appropriate power supply module
Packaging it with printer and printed material

Dell and Mass Production
The modules (e.g.video card) are produced using mass production techniques
Modules shipped to location near manufacturing plant
Assembled to make computer after order is received
Has advantages of mass production but with the ability for mass customization

Dell’s innovation: assemble to internet order Chips Components Computers

Dell’s score
Market
Low price
Extreme fast delivery
Customization
Increased Market share
Supply chain
Negative cash to cash cycle time
Less pie eaters, more pie
Higher fulfillment cost
Zero inventory
Full supplier and LSP integration, on planning, scheduling & execution level

Dell Manufacturing
Every PC is specifically configured to a customer’s order (bar coded)
Facility has no warehouse space and no inventory other than work in process .
Components arrive from suppliers just in time for manufacturing
Manufacturing is synchronized to avoid storing parts or finished systems.
Teams build systems from start to finish .
There is no finished goods inventory : as soon as a PC is finished it is taken out of the factory.

Neeraj – ( )

Dell Operation
Rely on IT to control activities and achieve a high degree of coordination with suppliers.
“ It is not, ‘Every two weeks deliver 5,000 to this warehouse, and we’ll put them on the shelf and then we’ll take them off the shelf.’
It is, ‘ Tomorrow morning we need 8,562, and deliver them to door number Ten at 7 A.M ” Michael Dell
Implications for suppliers……

Implications for Suppliers
Suppliers are Data linked
Locate very near to Dell
Most within 20 minutes of Dell
Sony monitors shipped separately from Mexico to customer
Ability to handle a wide variety of loads (“sprint capacity”)
Suppliers representative on Dell design team
Reduced No of suppliers: from 204 in 1992 to 47 in 1997.
Aim to increase inventory “velocity”

Indirect Sales Module Manufacturers PC Manufacturer Customers Distributor/ Retailer Orders Products Forecast Products Orders Modules

Direct Sales Module Manufacturers PC Manufacturer Customers Orders Products Orders Modules

Advantages of Direct PC Sales
Lower costs
Distributor and retail can add 10-13% to cost
Manufacturer has better knowledge of customers
Can reduce inventory
Dell has 5 days of inventory
Faster response
“ If I’ve got 11 days of inventory and my competitor has 80 , and Intel comes out with a new … chip , that means I’m going to get to market 69 days sooner ” Michael Dell
Lower obsolescence and depreciation

Disadvantages of Direct Sales
Customers may prefer a local store.
Local service & assistance possible with indirect sales
Implications : need to maintain excellent reliability and excellent customer service .

D Mohapatra

The Bullwhip Effect Order Quantity Time Retailer’s Orders Order Quantity Time Wholesaler’s Orders Order Quantity Time Manufacturer’s Orders The magnification of variability in orders in the supply-chain A lot of retailers each with little variability in their orders…. … can lead to greater variability for a fewer number of wholesalers, and… … can lead to even greater variability for a single manufacturer .

TRADITIONAL PC LOGISTICS COMPONENT MAKERS PC ASSEMBLERS (IBM, COMPAQ) OEM’S DISTRIBUTORS RETAILERS ALL END-USERS (arms-length, multiple handoffs) DELL’S DIRECT BUSINESS MODEL COMPONENT MAKERS DELL DELL.COM CORPORATE END-USERS INDIVIDUAL END-USERS (direct marketing, supplier and customer partnerships)

Opportunities

New Paradigms in Procurement Ford engineers are not allowed to discuss price with suppliers. Price negotiation is the sole responsibility of Purchasing. CEO finance purchasing purchasing traditional (Ford) product development purchasing DELL

Outsourcing
The act of moving a firm’s
internal activities
decision responsibility to outside providers

Value Density
The value of an item to its unit weight
Important measure when deciding
where items should be stocked geographically
How to ship them

New Supply Chain Concepts
Align the supply chain with process side uncertainties (focus on the supply side)
A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies
Types of Supply Chains
Efficient
Risk-Hedging
Responsive
Agile

SCM & Technology
Be in chains that are winners on the end user market.
Target Supply chain
Use state of the art competitive weapons
Think strategically, pie growing, not pie sharing

Electronic Commerce and E-Ops
Electronic commerce is “the use of computer applications communicated over networks to allow buyers and sellers to complete a transaction or part of a transaction”
E-Ops refers to the application of the Internet and its attendant technologies to the field of operations management

The Context of E-Ops Business Model “ How to make money?” Operations “ How to manage production of the product or service?” Information System Architecture “ Set of tools used to support processes.”

Business Web Models B-Web Model Example Marketplace Ebay Aggregator E-Trade Alliance AOL Value Chain Dell Computers Distributive Network UPS

A Make-to-Order Fulfillment Process B01.2314 -- Operations -- Prof. Juran Customers Product Company Factory Step II: Build Plan Orders sent System provides information Step I: Retailer Factory updates customer Step III: Logistics Order fulfillment flows Customer/Product info. flows Suppliers Develop Products

Other E-Ops Applications
Order Fulfillment in Businesses
Project Management
Product and Process Design
Purchasing
Manufacturing Processes

Other E-Ops Applications (Continued)
Inventory Management
Services
Quality Management
Forecasting
Operations Scheduling
Reengineering and Consulting

Mass Customization
Supply-Chain Management
Measuring Supply-Chain Performance
Postponement operations Challenges
Bullwhip Effect
Outsourcing Opportunities
Value Density
Mass Customization
E-commerce and E-Ops
Summary

Thank You

Mass Customisation In Scm

by s2katoch on Dec 17, 2008

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