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McGraw-Hill/IrwinCopyright

?

2008

by

The

McGraw-Hill

Companies,

Inc.

All

rights

reserved.Chapter

11Coordinated

Productand

SupplyChainDesign11.1

A

General

Framework11-2Two

distinct

chains

in

organizations:The

supply

chain

which

focuses

on

theflowof

physical

products

from

suppliers

throughmanufacturing

and

distribution

all

the

way

toretail

outlets

and

customers,andThe

development

chain

which

focuses

onnew

product

introduction

and

involves

productarchitecture,

make/buy

decisions,

earliersupplier

involvement,

strategic

partnering,supplier

footprint

and

supply

contracts.Key

Characteristics

of

Supply

Chain11-3Demand

uncertainty

and

variability,

inparticular,

the

bullwhip

effectEconomies

of

scale

in

productionandtransportationLead

time,

in

particular

due

toglobalizationTechnology

clock

speedSpeed

by

which

technology

changes

in

a

particularindustryMake/Buy

decisionsDecisions

on

what

to

make

internally

and

what

to

buyfrom

outside

suppliersProduct

structureLevel

of

modularity

or

integrality

in

a

productModular

productassembled

from

a

variety

of

moduleseach

module

may

have

severaloptionsBulk

of

manufacturing

can

be

completed

before

theselection

of

modules

and

assembly

into

the

finalproduct

takes

place11-4Key

Characteristics

ofDevelopment

ChainInteraction

between

the

TwoChains11-5Fisher’s

concept

of

InnovativeandFunctional

ProductsFunctional

products

characterized

by:slow

technology

clock

speed,

low

product

variety,and

typically

low

profit

marginsInnovative

products

characterized

by:fast

technology

clock

speed

and

short

product

lifecycle,

high

product

variety,

and

relatively

highmargins.What

Is

the

Appropriate

Supply11-6Chain

Strategy

and

ProductDesign

Strategy

for

Each

ProductType?Each

requires

a

different

supply

chainstrategyDevelopment

chain

has

to

deal

with

thediffering

level

of

demand

uncertaintyFramework

for

MatchingProductDesign

and

Supply

Chain

StrategiesFIGURE

11-3:

The

impact

of

demand

uncertainty

and

productintroduction

frequency

on

product

design

and

supply

chain

strategy11-711.2

Design

for

Logistics

(DFL)11-8Product

and

process

design

that

help

tocontrol

logistics

costs

and

increase

servicelevelsEconomic

packaging

and

transportationConcurrent

and

parallel

processingStandardizationEconomic

Transportation

andStorage11-9Design

products

so

that

they

can

beefficiently

packed

and

storedDesign

packaging

so

that

products

can

beconsolidated

at

cross

docking

pointsDesign

products

to

efficiently

utilize

retailspaceExamples11-10IkeaWorld’s

largest

furniture

retailer131

stores

in

21

countriesLarge

stores,

centralized

manufacturing,compactly

and

efficiently

packed

productsRubbermaidClear

Classic

food

containers

-

designed

to

fit14x14”

Wal-Mart

shelvesFinal

Packaging11-11Delay

until

as

late

as

possibleRepackaging

at

the

cross-docking

pointiscommon

for

many

productsConcurrent/Parallel

Processing11-12Objective

is

to

minimize

lead

timesAchieved

by

redesigning

products

so

thatseveral

manufacturing

steps

can

takeplace

in

parallelModularity/Decoupling

is

keytoimplementationEnables

different

inventory

levels

fordifferent

partsThe

Network

Printer

ExampleFIGURE

11-4:

Concurrent

processing11-13Traditional

Manufacturing11-14Set

schedules

as

early

aspossibleUse

large

lot

sizes

to

make

efficient

use

ofequipment

and

minimize

costsLarge

centralized

facilities

take

advantageof

economies

of

scaleRecall:

aggregate

demand

information

is

morereliableWe

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

manufacturingprocesses

so

that

decisions

about

which

specificproduct

is

being

manufactured

(differentiation)

canbe

delayed

until

after

manufacturing

is

underway11-15StandardizationModularity

in

Product

andProcess11-16Modular

Product:Can

be

made

by

appropriately

combining

the

differentmodulesIt

entails

providing

customers

a

number

of

optionsforeach

moduleModular

Process:Each

product

undergo

a

discrete

set

of

operationsmaking

it

possible

to

store

inventory

in

semi-finishedformProducts

differ

from

each

other

in

terms

of

the

subsetof

operations

that

are

performed

on

themModularity

in

Product

andProcess11-17Semiconductor

wafer

fabrication

ismodular

since

the

type

of

chip

produceddepends

on

the

unique

set

of

operationsperformedOil

refining

is

not

modular

since

it

iscontinuous

and

inventory

storage

of

semi-finished

product

is

difficultModularity

in

Product

andProcess11-18Modular

products

are

not

alwaysmadefrom

modular

processesBio-tech

and

pharmaceutical

industries

makemodular

products

but

usenon-modularprocesses;

many

products

are

made

byvarying

the

mix

of

a

small

number

ofingredientsSwaminathan’s

Four

ApproachestoStandardization11-19Part

standardizationProcessstandardizationProduct

standardizationProcurement

standardizationPart

Standardization11-20Common

parts

used

across

many

products.Common

parts

reduce:inventories

due

to

risk

poolingcosts

due

to

economies

of

scaleExcessive

part

commonality

canreduceproduct

differentiationMay

be

necessary

to

redesign

productlines

or

families

to

achieve

commonalityProcessStandardization11-21Standardize

as

much

of

the

process

as

possiblefor

different

productsCustomizing

the

products

as

late

as

possibleDecisions

about

specific

product

tobemanufactured

is

delayed

until

aftermanufacturing

is

underwayStarts

by

making

a

generic

or

family

productDifferentiate

later

into

a

specific

end-productPostponement

or

delayed

productdifferentiationDelayed

Differentiation11-22May

be

necessary

to

redesign

productsspecifically

for

delayed

differentiationMay

be

necessary

to

resequence

themanufacturing

process

to

take

advantage

ofprocess

standardizationResequencingmodify

the

order

of

product

manufacturing

stepsresequenced

operations

result

in

the

differentiationofspecific

items

or

products

are

postponed

as

much

aspossiblePoint

of

differentiation11-23PostponementBenetton

Background11-24A

world

leader

in

knitwearMassive

volume,

many

storesLogisticsLarge,

flexible

production

networkMany

independent

subcontractorsSubcontractors

responsible

for

product

movementRetailersMany,

small

stores

with

limited

storageBenetton

Supply

Cycle11-25Primary

collection

in

stores

in

JanuaryFinal

designs

in

March

of

previousyearStore

owners

place

firm

orders

through

JulyProduction

starts

in

July

based

on

first

10%

of

ordersAugust

-

December

stores

adjust

orders

(colors)80%-90%

of

items

in

store

for

JanuarysalesMini

collection

based

on

customer

requestsdesigned

in

January

for

Spring

salesTo

refill

hot

sellingitemsLate

orders

as

items

sell

outDelivery

promised

in

less

than

five

weeksBenetton

Flexibility11-26Business

goalsIncrease

sales

of

fashion

itemsContinue

to

expand

sales

networkMinimize

costsFlexibility

important

in

achieving

these

goalsHard

to

predict

what

items,

colors,

etc.

will

sellCustomers

make

requests

once

items

are

in

storesSmall

stores

may

need

frequentreplenishmentsIt

Is

Hard

to

Be

Flexible

When...11-27Lead

times

arelongRetailers

are

committed

to

purchasingearly

ordersPurchasing

plans

for

raw

materialsarebased

upon

extrapolating

from

10%

of

theordersBenettonOld

Manufacturing

ProcessSpin

or

Purchase

YarnDye

YarnFinish

YarnManufacture

Garment

PartsJoin

Parts11-28BenettonNew

Manufacturing

ProcessSpin

or

Purchase

YarnManufacture

Garment

PartsJoin

PartsDye

GarmentFinish

GarmentThis

step

is

postponed11-29Benetton

Postponement11-30Why

the

change?The

change

enables

Benetton

to

start

manufacturingbefore

color

choices

are

madeWhat

does

the

change

result

in?Delayed

forecasts

of

specific

colorsStill

use

aggregate

forecasts

to

start

manufacturingearlyReact

to

customer

demand

and

suggestionsIssues

with

postponementCosts

are

10%

higher

for

manufacturingNew

processes

had

to

be

developedNew

equipment

had

to

be

purchasedProduct

Standardization11-31Downward

SubstitutionProduce

only

a

subset

of

products

(becauseproducing

each

one

incurs

high

setup

cost)Guide

customers

to

existing

productsSubstitute

products

with

higher

feature

set

forthose

with

lower

featuresetWhich

products

to

offer,

how

much

to

keep,how

to

optimally

substitute

?Procurement

Standardization11-32Consider

a

large

semiconductor

manufacturerThe

wafer

fabrication

facility

produces

highlycustomized

integrated

circuitsProcessing

equipment

that

manufactures

these

wafers

are

very

expensive

with

long

lead

time

and

aremade

to

orderAlthough

there

is

a

degree

of

variety

at

the

finalproduct

level,

each

wafer

has

to

undergo

a

commonset

of

operations

The

firm

reduces

risk

of

investing

in

the

wrongequipment

by

pooling

demand

across

a

variety

ofproductsOperational

Strategies

forStandardization11-33ProcessModularProduct

NonmodularNonmodular

ModularParts

standardization Process

standardizationProcurementProductstandardization

standardizationSelecting

the

StandardizationStrategy11-34If

process

and

product

are

modular,

processstandardization

will

help

to

maximize

effective

forecastaccuracy

and

minimize

inventory

costs.If

the

product

is

modular,

but

the

process

is

not,

it

is

notpossible

to

delay

differentiation.

However,

partstandardization

is

likely

to

be

effective.If

the

process

is

modular

but

the

product

is

not,procurement

standardization

may

decrease

equipmentexpenses.If

neither

the

process

nor

the

product

is

modular,

somebenefits

may

still

result

from

focusing

on

productstandardization.Important

Considerations11-35Strategies

designed

to

deal

with

demanduncertainty

and/or

inaccurate

forecastsChanges

suggested

in

the

strategies

maybe

too

expensive

to

implementRedesign

related

costs

should

be

incurred

atthe

beginning

of

the

product

life

cycleBenefits

cannot

be

quantified

in

many

cases:increased

flexibility,

more

efficient

customerservice,

decreased

market

response

timesResequencing

causes:level

of

inventory

in

many

cases

to

go

downper

unit

value

of

inventory

being

held

will

be

higherTariffs

and

duties

are

lower

for

semi-finishedornon-configured

goods

than

for

final

productsCompleting

the

manufacturing

process

in

a

localdistribution

center

may

help

to

lower

costs

associatedwith

tariffs

and

duties.11-36Important

ConsiderationsPush-Pull

Boundary11-37Pull-based

systems

typically

lead

to:reduction

in

supply

chain

lead

times,

inventory

levels,and

system

costsmaking

it

easier

to

manage

systemresourcesNot

always

practical

to

implement

a

pull-basedsystem

throughout

the

entire

supply

chainLead

times

may

be

too

longMay

be

necessary

to

have

economies

of

scale

inproduction

or

transportation.Standardization

strategies

can

combine

pushand

pull

systemsPortion

of

the

supply

chain

prior

to

productdifferentiation

is

typically

a

push-based

supply

chainPortion

of

the

supply

chain

starting

from

the

time

ofdifferentiation

is

a

pull-based

supply

chain.Long

lead

times,

high

inventory

levels,

imbalance

ofinventoryLocalization

(labeling

and

manuals,

power

supply,

plug)One

cause

of

imbalance

(too

much

inventory

for

printerslocalized

for

one

market,

too

little

inventory

for

anothermarket)Significant

uncertainty

on

how

to

set

safety

stockToo

many

localization

optionsUncertainty

in

local

marketsSome

optionsAir

shipmentA

factory

in

EuropeImprove

forecasting

practices

(how?)11-38Back

to

the

HP

CaseHP

management

considered

postponement

as

an

optionShip

“unlocalized”

printers

to

European

DC

and

localizethem

after

observing

the

local

demandAt

98%

service

level,

safety

stock

dropped

from

3.8weeks

supply

to

2.6

weeks

supply

on

theaverageAnnual

savings

around

$800,000Value

of

inventory

in

transit

(and

hence

insurancecosts)

goes

downSome

of

the

localization

material

can

be

locallysourced

(cheaper)European

DC

had

to

be

modified

to

facilitatelocalization.

Printer

needed

to

be

redesigned.All

Vancouver

products

now

DC-localizable(postponement). One

of

the

best

of

suchpractices.11-39Back

to

the

HP

Case11.3

Supplier

Integration

into

NewProduct

Development11-40Traditionally

suppliers

have

been

selected

afterdesign

of

product

or

componentsHowever,

firms

often

realize

tremendous

benefitsfrom

involving

suppliers

in

the

design

process.Benefits

include:a

decline

in

purchased

material

costsan

increase

in

purchased

material

qualitya

decline

in

development

time

andcostan

increase

in

final

product

technology

levels.The

Spectrum

of

Supplier

Integration11-41No

single

“appropriate

level”

of

supplierintegrationNoneSupplier

is

not

involved

in

design.Materials/subassemblies

supplied

as

per

customerspecifications/designWhite

boxInformal

level

of

integrationBuyer

“consults”

with

the

supplier

informally

when

designingproducts

and

specificationsNo

formal

collaborationGrey

boxFormal

supplier

integrationCollaborative

teams

between

buyer’s

and

supplier’s

engineersJoint

developmentBlackboxBuyer

gives

the

supplier

a

set

of

interface

requirementsSupplier

independently

designs

and

develops

the

requiredcomponentAppropriate

Level

Depends

on

theSituation11-42Process

Steps

to

follow:Determine

internal

core

competencies.Determine

current

and

future

new

productdevelopments.Identify

external

development

andmanufacturing

needs.BlackBoxIf

future

products

have

components

that

requireexpertise

that

the

firm

does

not

possess,anddevelopment

of

these

components

can

be

separatedfrom

other

phases

of

product

development,

thentakingGrey

BoxIf

separation

is

notpossibleWhiteBoxIf

buyer

has

some

design

expertise

but

wants

toensure

that

supplier

can

adequately

manufacture

thecomponent11-43Appropriate

Level

Depends

on

theSituationKeys

to

Supplier

Integration11-44Making

the

relationship

a

success:Select

suppliers

and

build

relationships

withthemAlign

objectives

with

selected

suppliersWhich

suppliers

can

beintegrated?Capability

to

participate

in

the

design

processWillingness

to

participate

in

the

design

processAbility

to

reach

agreements

on

intellectual

propertyand

confidentiality

issues.Ability

to

commit

sufficient

personnel

and

time

to

theprocess.Co-locating

personnel

if

appropriateSufficient

resources

to

commit

to

the

supplierintegration

process.11.4

MassCustomization11-45Evolved

from

the

two

prevailing

manufacturingparadigms

of

the

20th

centuryCraft

production

and

mass

production.Mass

productionefficient

production

of

a

large

quantity

of

a

smallvariety

ofgoodsHigh

priority

on

automating

and

measuring

tasksMechanistic

organizations

with

rigid

controlsCraft

productioninvolves

highly

skilled

and

flexible

workersOften

craftsmenOrganic

organizations

which

are

flexible

and

changingAbsence

ofTrade-Offs11-46Two

types

meant

inherenttrade-offsLow-cost,

low-variety

strategy

may

be

appropriate

forsome

productsFor

others,

ahigher-cost,higher-variety,

moreadaptable

strategy

was

more

effectiveDevelopment

of

mass

customization

implies

itisnot

always

necessary

to

make

thi

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