Transcript Production and Operations Management: Manufacturing and Services

Coordinated Product and Process
Design
Class 12: 4/13/10
A GENERAL FRAMEWORK

Two distinct chains in organizations:
The supply chain which focuses on the flow of physical
products from suppliers through manufacturing and
distribution all the way to retail outlets and customers, and
 The development chain which focuses on new product
introduction and involves product architecture, make/buy
decisions, earlier supplier involvement, strategic
partnering, supplier footprint and supply contracts.

KEY CHARACTERISTICS OF SUPPLY
CHAIN
Demand uncertainty and variability, in particular,
the bullwhip effect
 Economies of scale in production and transportation
 Lead time, in particular due to globalization

KEY CHARACTERISTICS OF
DEVELOPMENT CHAIN
 Technology

Speed by which technology changes in a particular
industry
 Make/Buy

decisions
Decisions on what to make internally and what to
buy from outside suppliers
 Product


clock speed
structure
Level of modularity or integrality in a product
Modular product
assembled from a variety of modules
 each module may have several options
 Bulk of manufacturing can be completed before the
selection of modules and assembly into the final
product takes place

INTERACTION BETWEEN THE TWO CHAINS

Fisher’s concept of Innovative and Functional Products

Functional products characterized by:


slow technology clock speed, low product variety, and typically low
profit margins
Innovative products characterized by:

fast technology clock speed and short product life cycle, high
product variety, and relatively high margins.
WHAT IS THE APPROPRIATE SUPPLY
CHAIN STRATEGY AND PRODUCT
DESIGN STRATEGY FOR EACH PRODUCT
TYPE?
Each requires a different supply chain strategy
 Development chain has to deal with the differing
level of demand uncertainty

FRAMEWORK FOR MATCHING PRODUCT
DESIGN AND SUPPLY CHAIN STRATEGIES
The impact of demand uncertainty and product introduction
frequency on product design and supply chain strategy
DESIGN FOR LOGISTICS (DFL)

Product and process design that help to control
logistics costs and increase service levels
 Economic
packaging and
transportation
 Concurrent and parallel processing
 Standardization
ECONOMIC TRANSPORTATION AND
STORAGE
Design products so that they can be efficiently
packed and stored
 Design packaging so that products can be
consolidated at cross docking points
 Design products to efficiently utilize retail space

EXAMPLES

Ikea
World’s largest furniture retailer
 131 stores in 21 countries
 Large stores, centralized manufacturing, compactly and
efficiently packed products


Rubbermaid

Clear Classic food containers - designed to fit 14x14” WalMart shelves
FINAL PACKAGING
Delay until as late as possible
 Repackaging at the cross-docking point is common for
many products

CONCURRENT/PARALLEL PROCESSING
Objective is to minimize lead times
 Achieved by redesigning products so that several
manufacturing steps can take place in parallel
 Modularity/Decoupling is key to implementation
 Enables different inventory levels for different parts

TRADITIONAL MANUFACTURING
Set schedules as early as possible
 Use large lot sizes to make efficient use of equipment
and minimize costs
 Large centralized facilities take advantage of
economies of scale

STANDARDIZATION
 Recall:
aggregate demand information is more
reliable
 We 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 manufacturing
processes so that decisions about which specific
product is being manufactured (differentiation)
can be delayed until after manufacturing is
under way
MODULARITY IN PRODUCT AND PROCESS
 Modular


Can be made by appropriately combining the
different modules
It entails providing customers a number of options
for each module
 Modular


Product:
Process:
Each product undergo a discrete set of operations
making it possible to store inventory in semifinished form
Products differ from each other in terms of the
subset of operations that are performed on them
MODULARITY IN PRODUCT AND PROCESS
Semiconductor wafer fabrication is modular since
the type of chip produced depends on the unique
set of operations performed
 Oil refining is not modular since it is continuous
and inventory storage of semi-finished product is
difficult

MODULARITY IN PRODUCT AND PROCESS

Modular products are not always made from
modular processes

Bio-tech and pharmaceutical industries make
modular products but use non-modular processes;
many products are made by varying the mix of a
small number of ingredients
SWAMINATHAN’S FOUR
APPROACHES TO STANDARDIZATION
Part standardization
 Process standardization
 Product standardization
 Procurement standardization

PART STANDARDIZATION
Common parts used across many products.
 Common parts reduce:

inventories due to risk pooling
 costs due to economies of scale

Excessive part commonality can reduce product
differentiation
 May be necessary to redesign product lines or families
to achieve commonality

PROCESS STANDARDIZATION
 Standardize
as much of the process as possible
for different products
 Customizing the products as late as possible
 Decisions about specific product to be
manufactured is delayed until after
manufacturing is under way


Starts by making a generic or family product
Differentiate later into a specific end-product
 Postponement
differentiation
or delayed product
DELAYED DIFFERENTIATION
 May
be necessary to redesign products
specifically for delayed differentiation
 May be necessary to resequence the
manufacturing process to take advantage of
process standardization
 Resequencing


modify the order of product manufacturing steps
resequenced operations result in the differentiation
of specific items or products are postponed as much
as possible
POSTPONEMENT
Point of differentiation
BENETTON BACKGROUND
A
world leader in knitwear
 Massive volume, many stores
 Logistics



Large, flexible production network
Many independent subcontractors
Subcontractors responsible for product movement
 Retailers

Many, small stores with limited storage
BENETTON SUPPLY CYCLE
 Primary





collection in stores in January
Final designs in March of previous year
Store owners place firm orders through July
Production starts in July based on first 10% of
orders
August - December stores adjust orders (colors)
80%-90% of items in store for January sales
 Mini
collection based on customer requests
designed in January for Spring sales
 To refill hot selling items


Late orders as items sell out
Delivery promised in less than five weeks
BENETTON FLEXIBILITY
 Business



goals
Increase sales of fashion items
Continue to expand sales network
Minimize costs
 Flexibility



important in achieving these goals
Hard to predict what items, colors, etc. will sell
Customers make requests once items are in stores
Small stores may need frequent replenishments
IT IS HARD TO BE FLEXIBLE WHEN...
Lead times are long
 Retailers are committed to purchasing early orders
 Purchasing plans for raw materials are based upon
extrapolating from 10% of the orders

BENETTON
OLD MANUFACTURING PROCESS
Spin or Purchase Yarn
Dye Yarn
Finish Yarn
Manufacture Garment Parts
Join Parts
BENETTON
NEW MANUFACTURING PROCESS
Spin or Purchase Yarn
Manufacture Garment Parts
Join Parts
Dye Garment
Finish Garment
This step is postponed
BENETTON POSTPONEMENT
 Why

the change?
The change enables Benetton to start
manufacturing before color choices are made
 What



does the change result in?
Delayed forecasts of specific colors
Still use aggregate forecasts to start manufacturing
early
React to customer demand and suggestions
 Issues



with postponement
Costs are 10% higher for manufacturing
New processes had to be developed
New equipment had to be purchased
PRODUCT STANDARDIZATION

Downward Substitution
Produce only a subset of products (because producing each
one incurs high setup cost)
 Guide customers to existing products
 Substitute products with higher feature set for those with
lower feature set
 Which products to offer, how much to keep, how to
optimally substitute ?

PROCUREMENT STANDARDIZATION
 Consider




a large semiconductor manufacturer
The wafer fabrication facility produces highly
customized integrated circuits
Processing equipment that manufactures these
wafers are very expensive with long lead time and
are made to order
Although there is a degree of variety at the final
product level, each wafer has to undergo a common
set of operations
The firm reduces risk of investing in the wrong
equipment by pooling demand across a variety of
products
OPERATIONAL STRATEGIES FOR
STANDARDIZATION
Process
Nonmodular
Modular
Modular
Parts standardization
Process standardization
Nonmodular
Product standardization
Procurement standardization
Product
SELECTING THE STANDARDIZATION
STRATEGY
If process and product are modular, process
standardization will help to maximize effective
forecast accuracy and minimize inventory costs.
 If the product is modular, but the process is not, it is
not possible to delay differentiation. However, part
standardization is likely to be effective.
 If the process is modular but the product is not,
procurement standardization may decrease equipment
expenses.
 If neither the process nor the product is modular, some
benefits may still result from focusing on product
standardization.

PUSH-PULL BOUNDARY
 Pull-based
systems typically lead to:
reduction in supply chain lead times, inventory
levels, and system costs
 making it easier to manage system resources

 Not
always practical to implement a pullbased system throughout the entire supply
chain


Lead times may be too long
May be necessary to have economies of scale in
production or transportation.
 Standardization
strategies can combine push
and pull systems


Portion of the supply chain prior to product
differentiation is typically a push-based supply
chain
Portion of the supply chain starting from the time
of differentiation is a pull-based supply chain.
SUPPLIER INTEGRATION INTO NEW
PRODUCT DEVELOPMENT
 Traditionally
suppliers have been selected
after design of product or components
 However, firms often realize tremendous
benefits from involving suppliers in the
design process.
 Benefits include:




a decline in purchased material costs
an increase in purchased material quality
a decline in development time and cost
an increase in final product technology levels.
THE SPECTRUM OF SUPPLIER INTEGRATION
No single “appropriate level” of supplier integration
 None




White box




Informal level of integration
Buyer “consults” with the supplier informally when designing
products and specifications
No formal collaboration
Grey box




Supplier is not involved in design.
Materials/subassemblies supplied as per customer
specifications/design
Formal supplier integration
Collaborative teams between buyer’s and supplier’s engineers
Joint development
Black box


Buyer gives the supplier a set of interface requirements
Supplier independently designs and develops the required
component
APPROPRIATE LEVEL DEPENDS ON
THE SITUATION

Process Steps to follow:
Determine internal core competencies.
 Determine current and future new product
developments.
 Identify external development and manufacturing
needs.

APPROPRIATE LEVEL DEPENDS ON THE
SITUATION
 Black

If future products have components that require
expertise that the firm does not possess, and
development of these components can be separated
from other phases of product development, then
taking
 Grey

Box
If separation is not possible
 White

Box
Box
If buyer has some design expertise but wants to
ensure that supplier can adequately manufacture
the component
KEYS TO SUPPLIER INTEGRATION
 Making


the relationship a success:
Select suppliers and build relationships with them
Align objectives with selected suppliers
 Which
suppliers can be integrated?
Capability to participate in the design process
 Willingness to participate in the design process
 Ability to reach agreements on intellectual property
and confidentiality issues.
 Ability to commit sufficient personnel and time to
the process.
 Co-locating personnel if appropriate
 Sufficient resources to commit to the supplier
integration process.

MASS CUSTOMIZATION
 Evolved
from the two prevailing
manufacturing paradigms of the 20th century

Craft production and mass production.
 Mass
production
efficient production of a large quantity of a small
variety of goods
 High priority on automating and measuring tasks
 Mechanistic organizations with rigid controls

 Craft



production
involves highly skilled and flexible workers
Often craftsmen
Organic organizations which are flexible and
changing
ABSENCE OF TRADE-OFFS
 Two


types meant inherent trade-offs
Low-cost, low-variety strategy may be appropriate
for some products
For others, a higher-cost, higher-variety, more
adaptable strategy was more effective
 Development
of mass customization implies it
is not always necessary to make this trade-off
 Mass customization





delivery of a wide variety of customized goods or
services quickly and efficiently at low cost
captures many of the advantages of both the mass
production and craft production systems
not appropriate for all products
gives firms important competitive advantages
helps to drive new business models
MAKING MASS CUSTOMIZATION WORK
Highly skilled and autonomous workers,
processes, and modular units
 Managers can coordinate and reconfigure these
modules to meet specific customer requests and
demands

KEY ATTRIBUTES
 Instantaneous


Modules and processes must be linked together very
quickly
Allows rapid response to various customer demands.
 Costless


Linkages must add little if any cost to the processes
Allows mass customization to be a low-cost
alternative.
 Seamless

Linkages and individual modules should be invisible
to the customer
 Frictionless


Networks or collections of modules must be formed
with little overhead.
Communication must work instantly
MASS CUSTOMIZATION AND SCM
 Many
of the advanced SCM approaches and
techniques essential if mass customization is
to be successfully implemented
 IT critical for effective SCM is also critical for
coordinating different modules
 Concepts like strategic partnerships and
supplier integration essential for the success of
mass customization.
 Postponement can play a key role in
implementing mass customization
SUMMARY

Design for logistics concepts
Efficient packaging and storage
 Certain manufacturing steps can be completed in parallel
 Standardization

Integrating suppliers into the product design and
development process
 Advanced supply chain management facilitating mass
customization
