Transcript Chapter 11. Coordinated Product and Supply Chain Design

Chapter 11
Coordinated Product
and Supply Chain
Design
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
11.1 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.

11-2
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

11-3
Key Characteristics of
Development Chain

Technology clock speed


Make/Buy decisions


Speed by which technology changes in a particular
industry
Decisions on what to make internally and what to buy
from outside suppliers
Product 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

11-4
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.
11-5
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

11-6
Framework for Matching Product
Design and Supply Chain Strategies
FIGURE 11-3: The impact of demand uncertainty and product
introduction frequency on product design and supply chain strategy
11-7
11.2 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
11-8
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

11-9
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
11-10
Modularity in Product and
Process

Modular Product:



Can be made by appropriately combining the different
modules
It entails providing customers a number of options for
each module
Modular Process:


Each product undergo a discrete set of operations
making it possible to store inventory in semi-finished
form
Products differ from each other in terms of the subset
of operations that are performed on them
11-11
Modularity in Product and
Process
Semiconductor wafer fabrication is
modular since chip produced depends on
the unique set of operations performed
 Oil refining is not modular since it is
continuous and inventory storage of semifinished product is difficult
 Modular products are not always made
from modular processes


Bio-tech and pharmaceutical industries
11-12
Swaminathan’s Four Approaches to
Standardization
Part standardization
 Process standardization
 Product standardization
 Procurement standardization

11-13
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

11-14
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 or delayed product
differentiation
11-15
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
Example: United colors of Benetton
11-16
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 ?

11-17
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
11-18
Operational Strategies for
Standardization
Process
Nonmodular
Modular
Modular
Parts standardization
Process standardization
Nonmodular
Product standardization
Procurement standardization
Product
11-19
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.
11-20
Important Considerations
Strategies designed to deal with demand
uncertainty and/or inaccurate forecasts
 Changes suggested in the strategies may
be too expensive to implement

Redesign related costs should be incurred at
the beginning of the product life cycle
 Benefits cannot be quantified in many cases:

 increased
flexibility, more efficient customer
service, decreased market response times
11-21
Important Considerations

Resequencing causes:



level of inventory in many cases to go down
per unit value of inventory being held will be higher
Tariffs and duties are lower for semi-finished or
non-configured goods than for final products

Completing the manufacturing process in a local
distribution center may help to lower costs associated
with tariffs and duties.
11-22
Push-Pull Boundary

Pull-based systems typically lead to:



Not always practical to implement a pull-based
system throughout the entire supply chain



reduction in supply chain lead times, inventory levels,
and system costs
making it easier to manage system resources
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.
11-23
11.3 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.
11-24
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.

11-25
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.
11-26
11.4 Mass Customization

Evolved from the two prevailing manufacturing
paradigms of the 20th century


Mass production




Craft production and 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
11-27
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

11-28
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

11-29