HBR case, Making Supply meet Demand

1.  
Abhishek Pratap Singh
Rojer Choudhary
Saurabh Barwani
Dushyant Singh
Ajay Singh
Sanjay Choudhar y

2.  Evolution of the Integrated Logistics Concept
 What is the Right Supply Chain for Your Product?
 Making Supply Meet Demand in an Uncertain World
 Mass Customization at HP: The power of postponement
 The Power of Virtual Integration: An interview with Dell Computer’s
Michael Dell

3.  

4. Materials Management Physical Distribution Management
•Raw material
•Subassemblies
•Manufactured part
•Racking materials
•Raw material
•Subassemblies
•Manufactured part
•Racking materials
Goods in
Process
Inventory
Finished
Goods
Inventory
Field
Inventory CCuussttoommeerr
Field
Inventory
Business Logistics

5.  Physical distribution
Post-World War 2 business management
“The movement and handling of goods from the point of production
to the point on production to the point of consumption or user”
Business logistics
Emerged during 1980s~1990s as strategy
From raw material through finished goods inventory
Materials Management
All materials employed in the production of the finished product
Inventory control, purchasing, traffic, materials handling, receiving

6.  Pressure on cost reduction
o During the late 1950s~1960s
o Increasing marketing costs, well advanced production technology
o Relatively untouched areas  distribution(10%~30%)
 Data processing technology
o Computer technology became increasingly powerful, less costly
o Automated inventory control
 Customer focus
o Right time in the right quantity
o Particular importance for those companies selling relatively
homogeneous products
 Profit Leverage
o 5% cost reduction  more than 5% revenue increase

7. Vendor Procurement Customer
(30%)
Operations
(30%)
Physical
Distribution
(40%)
Stage 1
Stage 2(Internal Linkage)
Stage 3(External Linkages)

8.  Physical Distribution
o 1950s~1960s
o Focus: to meet customer expectation at lowest possible cost
o Why the integration process started with finished goods
• The Largest single segment on inventory(40%)
• Directly impacts customer service
• Without venturing into production processes
• Low risk, high gain
o Limitation
 Internal Linkages
o Around 1985
o 60%~100% of the firm's total inventory could be better managed
o Elimination of buffer inventories between loops
 External Linkages
o Efficiencies in relationships with vendors, customers, third parties
o EDI, JIT, DRP

9.  Cycles-time-to-market
o Removal of time
o Reducing the design-build-ship cycle
o Process setup elimination
 Supply Chain Management
o Last half of the 1990s~2000s
o Both internal and external units are forged together
o Low-cost and high-value performance to the consumer
o More responsive inventory systems

10. • Bar code scanners
• Electronic inventory
• Bar code scanners
• Electronic inventory
Retailer
Automatically track the flow of goods
Electronically transmit replenishment orders
Fewer stockouts
Automatically track the flow of goods
Electronically transmit replenishment orders
Fewer stockouts
Supplier
Synchronize production schedules to real-time
Synchronize production schedules to real-time
demand data
demand data
Fewer inventory
Fewer inventory

11.  Data error
o 35 leading retailer - 2/3 of SKU(Stock Keeping Unit)
o Reduced the company’s overall profits by 10%
o Phantom stockouts
• Employees routinely put products in the wrong places
• 16% stockouts but the items available
 Why?
o Human nature
o Retailers’ distribution centers
• Wrong quantities for 29% of the SKUs, deviation from actual supplies of
25%
• Items shipped in error that cost less than a certain amount
• Most stores perform audits solely for financial reasons, to measure the
“shrink” of goods that have been lost or pilfered.
• Measure inventory by dollar value, not by item

12. Global competition
Faster product development
Variety of products
Global competition
Faster product development
Variety of products
New Technology
•Point-of-sale scanners
•Electronic data interchange
•Flexible manufacturing
•Automated warehousing
•Rapid logistic
•Point-of-sale scanners
•Electronic data interchange
•Flexible manufacturing
•Automated warehousing
•Rapid logistic
New Concept
•Quick response
•Efficient consumer response
•Accurate response
•Mass customization
•Lean manufacturing
•Agile manufacturing
•Quick response
•Efficient consumer response
•Accurate response
•Mass customization
•Lean manufacturing
•Agile manufacturing
But
•Excess and shortage of products
•Markdowns and stockouts
•ex) U.S. food industry, poor coordination is wasting $30billion
•Excess and shortage of products
•Markdowns and stockouts
•ex) U.S. food industry, poor coordination is wasting $30billion
Why? Lack of framework for deciding

13.  Physical function
o Function
• Converting raw materials into parts, component, finished goods
• Transporting all of them from one point in the supply chain to next
o Cost
• Production, transportation, inventory storage
 Market mediation function
o Function
• matched what consumers want to buy
o Cost
• markdown, stock outs & dissatisfied customer

14.  Supply Chain focus
Type Physically Efficient Process Market-Responsive Process
Primary purpose at lowest possible cost minimize stockouts & markdowns
Manufacturing focus maintain high average utilization deploy excess buffer capacity
Inventory strategy high turns, minimum inventory deploy significant buffer stocks
Lead-time shorten lead time as long as it
doesn’t increase cost
invest aggressively in ways to
reduce lead time
Choosing suppliers cost and quality speed, flexibility, quality
Product-design
maximize performance,
minimize cost
modular design in order to
postpone product differentiation

15.  Problems
o Most companies still treat the world as if it were predictable
o Poor job of incorporating demand uncertainty into their production
planning processes
o Design their planning processes as if that initial forecast truly
represented reality. why?
• it’s complicated to factor multiple demand scenarios into planning
• most companies simply don’t know how to do it
o Frequent introductions of new products have two side effects
• reduce the average lifetime of products
• demand is divided over a growing number of SKUs
• ex) GM Cadillac(Seville and Eldorado) vs. Buicks and Olds mobiles

16.  Accurate response
o Improve forecast
o Redesign planning processes to minimize the impact of inaccurate forecasts
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17.  Obermeyer
o leading suppliers in the US fashion sky apparel market
o newly designed each year
o difficult to predict –weather, fashion, trends, economy
Until the mid-1980s
•design and show samples to retailers in March
•place production orders with suppliers in March ~ April
•receive goods an D/C in September~October
•ship to retail outlets
•design and show samples to retailers in March
•place production orders with suppliers in March ~ April
•receive goods an D/C in September~October
•ship to retail outlets
Sales volume grew
Pressure to reduce
Sales volume grew
Pressure to reduce
More complex supply chain(global)
Increased lead times, markdown, stockout
More complex supply chain(global)
Increased lead times, markdown, stockout

18.  First step: Shorten lead time - Quick response
o Computerized systems – order process time, time to compute
material requirements
o Anticipate what materials it would require
• pre-position in a warehouse
o Air freight to expedite delivery
 Second step: Improving forecast
o Buying committee
• Group of company managers from a range of functional area
 Sales exceed by 200%, less than 15% of the forecast

19.  Risk-based production sequencing
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Demand forecast are most accurate
 market signals

20.  Redesign
o reduced the variety of zippers used (color, length)
o use the same kinds of raw materials

21. orders be fulfilled ever more quickly
highly customized products and services
orders be fulfilled ever more quickly
highly customized products and services
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Organizational-design principles
Organizational-design principles
Product
Process
Supply network
Product
Process
Supply network

22.  Modular Design
o Flexibility, quickly, inexpensively
o Common components, differential components
 Benefits
o Maximize the number of standard components
• assemble those common components earlier stage
• postpone the differential components
o The modules of the product separately, possible at the same time
• shortens the total time required for production
o Easily diagnose production problems, isolate potential quality problems
 Considerations
o Cost of materials < benefits of standardization( lead time, inventory,
stockout)

23.  Modular process
o breaking down into independent sub processes
o flexibility
 Process postponement
o ex) paint store: a broad range of different paints  color pigments
o ex) retail apparel industry: body-measurement process+cut-and-sew process
o specific garment instead of stock in all sizes and colors, eliminating discounts
o relatively low-cost raw fabrics
 Process resequencing
o ex) Benetton: dyeing, knitting  knitting, dyeing
o ex) HP disk driver: inserting printed circuit board, testing disk driver
 standard tests + customized tests
 Process standardization

24.  Redesign network
o Optimum number and location of factories and D/C
 Multi-function warehouse
o perform light manufacturing

25. The dominant model in the PC industry
A Value chain with arms-length transactions from one layer to the next
suppliers manufacturer D/C customer
Dell’s direct model
Eliminated the time and cost of third-party distribution
suppliers manufacturer customer
Virtual integration
Blurring the traditional boundaries and roles in the value chain
suppliers masnuupfpalicetrusrer customer

26.  Fast-cycle segmentation
o The finer the segmentation, the better forecast what customer
needs and when