Mass Customisation In Scm


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Challenges & opportunities for managers for mass custiomisation in supply chains

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Mass Customisation In Scm

  1. 1. Challenges & Opportunities for Operation Managers in case of Mass Customization in Supply Chain Management Satendra Katoch Suvigya Singh Shalini Piyush Neeraj D Mohapatra
  2. 2. <ul><li>Satendra Katoch – (68) </li></ul>
  3. 3. Plan <ul><li>Customization </li></ul><ul><li>Mass Customization </li></ul><ul><li>Supply Chain </li></ul><ul><li>Supply Chain Management </li></ul><ul><li>Issues of Mass customization in Supply Chains </li></ul><ul><li>Challenges of Mass customization in S Chains </li></ul><ul><li>Opportunities - How they do it - Examples </li></ul><ul><li>Summary </li></ul>
  4. 4. Customization <ul><li>Provisioning as per individual requirement e.g </li></ul><ul><ul><li>Delivery : Fedex: Less-Than-Truck-Load Freight business </li></ul></ul><ul><ul><li>No waiting for consolidating container loads shipments. </li></ul></ul><ul><ul><li>Manufacturing Process : shift from so-called &quot;offset&quot; printing to digital or &quot;on demand&quot; printing. </li></ul></ul><ul><ul><li>Manufacturing Location : Place configuration facilities close to market for mass customization. </li></ul></ul>
  5. 5. Customization - Types <ul><li>Modular Customization (Modules are &quot;building blocks.&quot; ) </li></ul><ul><ul><li>Automobiles : engines, transmissions, chassis, tyre/wheel options. </li></ul></ul><ul><ul><li>PCs : mother boards, power supplies, plug-in ICs, disk drives. </li></ul></ul><ul><li>Adjustable Customization (Configurable ) </li></ul><ul><ul><li>Adjustments are a reversible , e.g mechanical or electrical adjustments by the factory </li></ul></ul><ul><ul><li>Dimensional Customization ( permanent cutting-to-fit) </li></ul></ul><ul><ul><li>Infinite dimensional customization: </li></ul></ul><ul><ul><ul><li>T ailoring of clothing, grinding eyeglasses, mixing of paints etc </li></ul></ul></ul><ul><ul><li>Discrete dimensional customization: </li></ul></ul><ul><ul><ul><li>Hole punching, & soldering selected electronic components onto a printed circuit board </li></ul></ul></ul>
  6. 6. Mass Customization <ul><li>“ Mass production of individually customized goods and services” to large number of different customers. </li></ul><ul><li>Apply to low price items (watches) & to high price items (corporate jet,) </li></ul><ul><li>Can increase customer satisfaction, sales and profits </li></ul><ul><li>Designs to allow rapid and easy customization </li></ul>
  7. 7. Mass customization <ul><li>The key is postponing the differentiation of product / service for a specific customer until the latest possible point in the supply-chain NW </li></ul><ul><li>This process combines benefits of.... </li></ul><ul><ul><li>(low unit costs of) mass production processes with </li></ul></ul><ul><ul><li>(flexibility of) individual customization . </li></ul></ul>
  8. 8. 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
  9. 9. Mass Customization <ul><li>Principle 1 : A product should have independent modules which could be easily assembled into different forms of the product inexpensively. </li></ul><ul><li>Principle 2 : A process should have i ndependent modules to support different distribution networks. </li></ul><ul><li>Principle 3: A Supply NW should have 2 capabilities: </li></ul><ul><ul><li>Supply basic product / service </li></ul></ul><ul><ul><li>Take individual customers orders  deliver customized G/S </li></ul></ul>
  10. 10. Examples - M ass Customization <ul><li>Dell PC  “build-to-order&quot; model  dominance in the PC direct-purchase industry </li></ul><ul><li>Clothing company  customized clothing trend </li></ul><ul><ul><li>heat-pressed text & images on a apparel </li></ul></ul><ul><ul><li>Customized photo products like Blankets, Tapestry, Towels etc. </li></ul></ul><ul><li>Tourism industry  offering packaged holiday alternatives </li></ul>
  11. 11. Customer Order Decoupling Point: Make to Stock Make to Stock Push 2nd tier supplier 1st tier (main) supplier Distributor Retailer Orignal Equipment Manufacturer
  12. 12. Customer Order Decoupling Point: Engineer to Order Engineer to Order 2nd tier supplier 1st tier (main) supplier Distributor Retailer Orignal Equipment Manufacturer
  13. 13. 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
  14. 14. What is a Supply-Chain? <ul><li>“ Supply-chain” describes how organizations are linked together </li></ul><ul><li>Suppliers –- Manufacturers –- Distributors -- Customers </li></ul>
  15. 15. Supply chain <ul><li>A complex business enterprise system, where the key is to co-ordinate : </li></ul><ul><ul><li>Information </li></ul></ul><ul><ul><li>material flows </li></ul></ul><ul><ul><li>plant operations </li></ul></ul><ul><ul><li>logistics. </li></ul></ul><ul><li>Synchronization among multiple autonomous business entities - members of supply chain. </li></ul><ul><li>B2B, and B2C models for goods and service transactions. </li></ul>
  16. 16. <ul><li>Suvigya Singh – </li></ul>
  17. 17. Supply-Chain Management <ul><li>A total systems approach to managing the entire flow of information, materials, and services from </li></ul><ul><li>Raw-material suppliers </li></ul><ul><li>Factories to the end customer </li></ul><ul><li>Warehouses </li></ul>
  18. 18. Supply Chain Management <ul><li>To build products on-demand , mass customizers must build parts on-demand from materials that are always available. </li></ul><ul><li>This will require a spontaneous supply chain . The first steps in supply chain management are: </li></ul><ul><ul><li>Supply Chain Simplification </li></ul></ul><ul><ul><ul><li>Standardize, automatic resupply, & rationalise product line </li></ul></ul></ul><ul><ul><li>Standardization </li></ul></ul><ul><ul><ul><li>Reduce variety of parts and raw materials </li></ul></ul></ul><ul><ul><li>Automatic, spontaneous resupply </li></ul></ul><ul><ul><ul><li>kanban, &quot;min-max&quot; or breadtruck (free-stock). </li></ul></ul></ul><ul><ul><li>Spontaneous build-to-order of parts </li></ul></ul><ul><ul><ul><li>Relationships with suppliers to build parts in any quantity on-demand. </li></ul></ul></ul>
  19. 19. Measures of Supply-Chain Performance <ul><li>“ Inventory Turnover” </li></ul><ul><li>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 </li></ul>
  20. 20. Supply-Chain Performance Measurement <ul><li>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 . </li></ul><ul><li>This company normally has an inventory turnover ratio of 10. </li></ul><ul><li>What is this year’s Inventory Turnover ratio? </li></ul><ul><li>What does it mean? </li></ul>
  21. 21.
  22. 22. Key Issues - Mass customization <ul><li>Operations </li></ul><ul><ul><li>product configuration </li></ul></ul><ul><ul><li>adapt to customers needs. </li></ul></ul><ul><li>Advantages </li></ul><ul><ul><li>mass production </li></ul></ul><ul><ul><li>high product variety . </li></ul></ul><ul><li>Approaches </li></ul><ul><ul><li>Product platforms </li></ul></ul><ul><ul><li>Delayed Product Differentiation </li></ul></ul><ul><li>(Approaches not mutually exclusive) </li></ul>
  23. 23. Platform engineering: Different models used by multiple brands within a group of companies
  24. 24. <ul><li>Recent paradigm shift: Design for Logistics (DFL) product & process designed to: </li></ul><ul><ul><li>control logistics costs and </li></ul></ul><ul><ul><li>increase service levels </li></ul></ul><ul><ul><ul><li>economic packaging & transportation </li></ul></ul></ul><ul><ul><ul><li>concurrent & parallel processing </li></ul></ul></ul><ul><ul><ul><li>postponement & delayed differentiation </li></ul></ul></ul>
  25. 25. <ul><ul><li>Furniture : traditionally furniture sales through small stores---long lead-times for customers </li></ul></ul><ul><ul><li>Modular Furniture : warehouse-like stores, 1000s of products by effective “kit” design </li></ul></ul><ul><ul><ul><li>Assemble at home </li></ul></ul></ul><ul><ul><ul><li>Easy to transport and easy to store </li></ul></ul></ul>Economic Packaging & Transportation
  26. 26. <ul><li>Concurrent and Parallel Processing </li></ul>Europe Mother Board CPU Customers (Europe) Customers (Europe) Mother Board CPU Casing/ Housing Asia Europe Asia
  27. 27. <ul><li>Postponement of operations </li></ul><ul><ul><li>One or more differentiating operations are postponed till a later stage, prolonging the initial phase which precedes the point of differentiation </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  28. 28. <ul><li>Postponement preferred when </li></ul><ul><ul><li>aggregate demand information is less variable </li></ul></ul><ul><ul><li>better forecasts for a product family </li></ul></ul><ul><ul><li>how to make use of aggregate data? </li></ul></ul>Point of differentiation
  29. 29. Delayed Product Differentiation <ul><li>Example: Dell & HP </li></ul><ul><li>Standardize components & subassemblies </li></ul><ul><li>Defer differentiation of products late in the manufacturing process. </li></ul><ul><ul><li>e.g.Need  Different HP printers for different markets. </li></ul></ul><ul><ul><li>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 ] </li></ul></ul>
  30. 30. <ul><li>Shalini – ( ) </li></ul>
  31. 31. <ul><li>Modular Design : </li></ul><ul><ul><li>Manufacturing of dishwashers in variety of colors </li></ul></ul><ul><ul><li>End-products are differentiated from each other in terms of the metal frames (assembled in “integration and shipping” stage) </li></ul></ul><ul><ul><li>Painted metal frame replaced by uniform metal frame and a light plastic colored frame </li></ul></ul><ul><ul><li>Assembly of plastic frame can be postponed until the end of the distribution </li></ul></ul><ul><ul><li>Hence, original frame is modularized </li></ul></ul>
  32. 32. Modular Design e.g. Chrysler 300C, Dodge Magnum, Dodge Charger Current : Integral Designs New : Modular Design
  33. 33. Personal Computer Design <ul><li>Modular architecture </li></ul><ul><ul><li>Modular components : Motherboard, power supply, disk drives, memory, mouse keyboard, display, printer, etc. </li></ul></ul><ul><ul><li>Standard interfaces to allow modules to work together. Examples: AGP, PCI, USB, serial port, parallel port. </li></ul></ul><ul><li>Dell PCs can be individually configured for each customer . </li></ul>
  34. 34. Dell PCs <ul><li>PC have modular design that can be configured for each customer. Configuration done as late as possible . </li></ul><ul><li>Module examples : video card, hard drive, DVD burner, memory, USB connection </li></ul><ul><li>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 . </li></ul><ul><li>Problem then is to have all modules available so that they can be assembled to customer order very quickly . </li></ul>
  35. 35.
  36. 36. <ul><li>Re-sequencing : </li></ul><ul><ul><li>modifying the order of product manufacturing steps so that the operations resulting in differentiation of specific items are delayed as much as possible </li></ul></ul><ul><ul><li>Benetton example </li></ul></ul><ul><ul><ul><li>very rapid change in customer preference </li></ul></ul></ul><ul><ul><ul><li>dyeing of garment delayed until after sweater is completed </li></ul></ul></ul><ul><ul><ul><li>improved forecasts, lower surplus inventories, increased market share </li></ul></ul></ul>
  37. 37. Benetton’s innovation: postponement of differentiation Making wool Wool dying Distributor Retailer knitting
  38. 38. Benetton’s innovation: Postponement of differentiation Making wool Wool dying Distributor Retailer Knitting
  39. 39. Pros & Cons Product Differentiation <ul><li>By delayed product differentiation it is possible to get the benefits of shortened lead times (better forecasts, lower inventories) </li></ul><ul><li>For many processes resequencing and modularization is not possible </li></ul><ul><li>May be very expensive to redesign the process </li></ul><ul><li>Benefits are difficult to quantify </li></ul>
  40. 40. <ul><li>Piyush – () </li></ul>
  41. 41. <ul><li>Challenges - HP Case : </li></ul><ul><ul><li>Long lead times, high inventory levels, skewed inventory </li></ul></ul><ul><ul><li>Cause  (high inventory of printers localized for one market, low inventory for another market) </li></ul></ul><ul><ul><ul><li>Significant uncertainty on how to set safety stock </li></ul></ul></ul><ul><ul><ul><li>Too many localization options </li></ul></ul></ul><ul><ul><ul><li>Uncertainty in local markets </li></ul></ul></ul><ul><ul><li>Some options </li></ul></ul><ul><ul><ul><li>Air shipment </li></ul></ul></ul><ul><ul><ul><li>A factory in Europe </li></ul></ul></ul><ul><ul><ul><li>Improve forecasting practices (how?) </li></ul></ul></ul>
  42. 42. Proposed Solutions <ul><li>Switch to air shipments of printer from Vancouver </li></ul><ul><ul><li>Prohibitively expensive </li></ul></ul><ul><li>Build a new European factory </li></ul><ul><ul><li>Volume not sufficient to justify </li></ul></ul><ul><li>Hold more inventory at European Distribution Centre </li></ul><ul><ul><li>Inventory is already a problem </li></ul></ul><ul><li>Improve forecasting </li></ul><ul><ul><li>How? </li></ul></ul><ul><li>Process standardization or postponement </li></ul>
  43. 43. HP DeskJet Printer Supply Chain US DC Europe DC Far East DC Customer Customer Customer Vancouver Plant Suppliers HP * DC = Distribution Centre
  44. 44. <ul><ul><li>HP management considered postponement option </li></ul></ul><ul><ul><li>Ship “unlocalized” printers to European DC and localize them after observing the local demand </li></ul></ul><ul><ul><li>Localization involved </li></ul></ul><ul><ul><ul><li>Assembling appropriate power supply module </li></ul></ul></ul><ul><ul><ul><li>Packaging it with printer and printed material </li></ul></ul></ul>
  45. 45. Dell and Mass Production <ul><li>The modules ( card) are produced using mass production techniques </li></ul><ul><li>Modules shipped to location near manufacturing plant </li></ul><ul><li>Assembled to make computer after order is received </li></ul><ul><li>Has advantages of mass production but with the ability for mass customization </li></ul>
  46. 46. Dell’s innovation: assemble to internet order Chips Components Computers
  47. 50. Dell’s score <ul><li>Market </li></ul><ul><ul><li>Low price </li></ul></ul><ul><ul><li>Extreme fast delivery </li></ul></ul><ul><ul><li>Customization </li></ul></ul><ul><ul><li>Increased Market share </li></ul></ul><ul><li>Supply chain </li></ul><ul><ul><li>Negative cash to cash cycle time </li></ul></ul><ul><ul><li>Less pie eaters, more pie </li></ul></ul><ul><ul><li>Higher fulfillment cost </li></ul></ul><ul><ul><li>Zero inventory </li></ul></ul><ul><ul><li>Full supplier and LSP integration, on planning, scheduling & execution level </li></ul></ul>
  48. 51. Dell Manufacturing <ul><li>Every PC is specifically configured to a customer’s order (bar coded) </li></ul><ul><li>Facility has no warehouse space and no inventory other than work in process . </li></ul><ul><li>Components arrive from suppliers just in time for manufacturing </li></ul><ul><li>Manufacturing is synchronized to avoid storing parts or finished systems. </li></ul><ul><li>Teams build systems from start to finish . </li></ul><ul><li>There is no finished goods inventory : as soon as a PC is finished it is taken out of the factory. </li></ul>
  49. 52. <ul><li>Neeraj – ( ) </li></ul>
  50. 53.
  51. 54.
  52. 55.
  53. 56.
  54. 57. Dell Operation <ul><li>Rely on IT to control activities and achieve a high degree of coordination with suppliers. </li></ul><ul><li>“ 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.’ </li></ul><ul><li>It is, ‘ Tomorrow morning we need 8,562, and deliver them to door number Ten at 7 A.M ” Michael Dell </li></ul><ul><li>Implications for suppliers…… </li></ul>
  55. 58. Implications for Suppliers <ul><li>Suppliers are Data linked </li></ul><ul><li>Locate very near to Dell </li></ul><ul><ul><li>Most within 20 minutes of Dell </li></ul></ul><ul><ul><li>Sony monitors shipped separately from Mexico to customer </li></ul></ul><ul><li>Ability to handle a wide variety of loads (“sprint capacity”) </li></ul><ul><li>Suppliers representative on Dell design team </li></ul><ul><li>Reduced No of suppliers: from 204 in 1992 to 47 in 1997. </li></ul><ul><li>Aim to increase inventory “velocity” </li></ul>
  56. 59. Indirect Sales Module Manufacturers PC Manufacturer Customers Distributor/ Retailer Orders Products Forecast Products Orders Modules
  57. 60. Direct Sales Module Manufacturers PC Manufacturer Customers Orders Products Orders Modules
  58. 61. Advantages of Direct PC Sales <ul><li>Lower costs </li></ul><ul><ul><li>Distributor and retail can add 10-13% to cost </li></ul></ul><ul><li>Manufacturer has better knowledge of customers </li></ul><ul><li>Can reduce inventory </li></ul><ul><ul><li>Dell has 5 days of inventory </li></ul></ul><ul><li>Faster response </li></ul><ul><ul><li>“ 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 </li></ul></ul><ul><li>Lower obsolescence and depreciation </li></ul>
  59. 62. Disadvantages of Direct Sales <ul><li>Customers may prefer a local store. </li></ul><ul><li>Local service & assistance possible with indirect sales </li></ul><ul><li>Implications : need to maintain excellent reliability and excellent customer service . </li></ul>
  60. 63. <ul><li>D Mohapatra </li></ul>
  61. 64. 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 .
  63. 66. Opportunities
  64. 67. 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
  65. 68. Outsourcing <ul><li>The act of moving a firm’s </li></ul><ul><ul><li>internal activities </li></ul></ul><ul><ul><li>decision responsibility to outside providers </li></ul></ul>
  66. 69. Value Density <ul><li>The value of an item to its unit weight </li></ul><ul><li>Important measure when deciding </li></ul><ul><ul><li>where items should be stocked geographically </li></ul></ul><ul><ul><li>How to ship them </li></ul></ul>
  67. 70. New Supply Chain Concepts <ul><li>Align the supply chain with process side uncertainties (focus on the supply side) </li></ul><ul><li>A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies </li></ul><ul><li>Types of Supply Chains </li></ul><ul><ul><li>Efficient </li></ul></ul><ul><ul><li>Risk-Hedging </li></ul></ul><ul><ul><li>Responsive </li></ul></ul><ul><ul><li>Agile </li></ul></ul>
  68. 71. SCM & Technology <ul><li>Be in chains that are winners on the end user market. </li></ul><ul><li>Target Supply chain </li></ul><ul><li>Use state of the art competitive weapons </li></ul><ul><li>Think strategically, pie growing, not pie sharing </li></ul>
  69. 72. Electronic Commerce and E-Ops <ul><li>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” </li></ul><ul><li>E-Ops refers to the application of the Internet and its attendant technologies to the field of operations management </li></ul>
  70. 73. 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.”
  71. 74. Business Web Models B-Web Model Example Marketplace Ebay Aggregator E-Trade Alliance AOL Value Chain Dell Computers Distributive Network UPS
  72. 75. 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
  73. 76. Other E-Ops Applications <ul><li>Order Fulfillment in Businesses </li></ul><ul><li>Project Management </li></ul><ul><li>Product and Process Design </li></ul><ul><li>Purchasing </li></ul><ul><li>Manufacturing Processes </li></ul>
  74. 77. Other E-Ops Applications (Continued) <ul><li>Inventory Management </li></ul><ul><li>Services </li></ul><ul><li>Quality Management </li></ul><ul><li>Forecasting </li></ul><ul><li>Operations Scheduling </li></ul><ul><li>Reengineering and Consulting </li></ul>
  75. 78. <ul><li>Mass Customization </li></ul><ul><li>Supply-Chain Management </li></ul><ul><li>Measuring Supply-Chain Performance </li></ul><ul><li>Postponement operations Challenges </li></ul><ul><li>Delayed Product Differentiation </li></ul><ul><li>Bullwhip Effect </li></ul><ul><li>Outsourcing Opportunities </li></ul><ul><li>Value Density </li></ul><ul><li>Mass Customization </li></ul><ul><li>E-commerce and E-Ops </li></ul>Summary
  76. 79. Thank You