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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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