Transcript No Slide Title

Topic 3: Variety Postponement
September 2006
Agenda for the day:
1. Review assignment and lecture on postponement.
2. Hewlett Packard Case
Key Ideas/Tools from Yesterday
1. Smart extrapolation method: regression analysis
2. Accurate Response
3. Managing uncertainty requires shorter lead times,
inventory buffers and better forecasting.
The Pyramid of Supply Chain Excellence
Customer Value
Inventory
(Hedge Against
Uncertainty)
Accurate Forecasts
(Reduce Uncertainty)
Fast, Flexible
Operations (Avoid
Uncertainty)
Effective postponement requires matching decouple
points with product design.
1. Where do you locate the decouple point in the supply chain?
2. Can you redesign the product to match the decouple point?
Effective Postponement
Two Alternative Supply Chain Designs
Make-to-Order
RM
Advantages:
Disadvantages:
RM = raw material
& part inventories
FG = finished good
inventories
Production
System
Make-to-Stock
RM
Production
System
FG
Two Alternative Supply Chain Designs
Make-to-Stock
Make-to-Order
RM
Primary Advantage:
Production
System
• Minimizing supply and demand
mismatch costs
Management Challenges: - Lead time
- Raw material inventory
availability
- Order
variability/seasonality/capacity
RM = raw material
& part inventories
FG = finished good
inventories
- Set-up times
RM
Production
System
FG
• Minimizing production and
transportation costs
- Finished good inventory
availability
- Forecasting
- Product variety
- Product mix stability
Postponement is a hybrid approach
Example: Assemble-to-Order
WIP
Decouple Point
?
?
?
1
Component
Production
2
?
3
Subassembly
4
Final
Assembly
Decouple point: the point at which the system changes from
make-to-stock to make-to-order
• Customer name attached to order
• Inventory held to reduce lead time
5
Retailing
Locating the decouple point
WIP
• Place decouple point
after steps with:
• Place decouple point
before steps with:
– Large scale
economies
– Long lead times
– High set-up costs
– Variety fan-out
– High variable cost
content
Examples of Decouple Points
Component
Manufacturing
SubAssembly
Final
Assembly
Distribution
Retail
Steps to re-design the product.
1.
Isolate the variable functions/features of the product in one (or a few)
physical components.
2.
Minimize the variable cost of the differentiating components of the product.
30%
N=10 variants of product
25%
Reduction in
Total Inventory
20%
(includes
pipeline, cycle,
and safety
inventories)
15%
N=8
N=6
N=4
10%
N=2
5%
0
-5%
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Cost of Differentiating Components as Fraction of Total
Assumptions: Fill rate = 0.98
Review period = 1 week
Order lead time = 6 weeks
Coefficient of variation of demand = 1.0
3. Ensure that production/supply-chain precedence requirements allow the
differentiating elements of the product to be added last.
Inventory-Service Crisis at HP
• The Crisis: Inventory Imbalance
– excess inventory in some product options
– shortages in other product options
• Contributing Causes
– many product options due to geography
– long DC replenishment lead time
– highly uncertain market
– inflexible design: difficult to rework one option to make
it another
– out of control inventory system
– uncoordinated functional interests; conflicting
incentives
Longer Term Alternatives for HP
Alternatives:
• Air Shipment
• European factory
• Universal model
• Lower product variety
• Forecasting methods
• Shorter review period
• More inventory
Driver:
• Leadtime
• Leadtime
• Variability
• Variability
• Variability
• Review period
• Fill rate
Effectiveness:
• Too expensive
• Volume?
• Design costs
• Lost revenue?
• Too difficult
• Transport costs
• Right trade-off?
What Happened at HP?
• Deskjet re-designed to be DC-localizable
(postponement). Implementation in early 1992.
• Millions of dollars saved from inventory
reduction, service improvement, and freight
reduction.
• Innovative packaging won patents.
• All Vancouver products now DC-localizable
(postponement).
• Vancouver as showcase for “Design for
Localization/Postponement” -- Best practices
spreads to other HP divisions.
HP Printers: Distributor Customization
US Distribution
Factory
Before Postponement
Asian Distribution
Component
Assembly
Full Final
Assembly
European Distribution
US Distribution
WIP
Add Local
Materials
Factory
Asian Distribution
After Postponement
Component
Assembly
Partial Final
Assembly
WIP
Add Local
Materials
European Distribution
WIP
Add Local
Materials
Costs and Benefits of DC Localization
•
•
•
•
•
•
•
•
•
Stocks of localization materials higher at DCs
Potential freight reduction
Investment to install localization capability at DCs
Quality assurance
Procurement of localization materials
Value of local “manufacturing”
Potential for other products
Customs and duties implications
Green effects
Implementation Issues
• R&D resistance
– Product works, why change it?
• DC resistance
– Requires new capabilities and objectives
• Additional costs
–
–
–
–
Product redesign
Increased cost of modular product
DC efficiency vs. plant efficiency
Shipping costs
Lutron: Different Views of Mass Customization
Special Products
Manufacture
Components
Design
Assemble
Lighting Panels
Manufacture
Components
Flourescent Ballasts
Manufacture
Components
WIP
FG
Assemble
Standard Products
Manufacture
Components
Assemble
Rework
FG
Assemble
Apple Powerbook: User Customization
Put your "personal cool" on your PowerBook 1400 Wood: Redwood burl,
Corellian Birch burl, Walnut Brushed aluminium and Brushed copper
Leather: black, grey boarskin, yellow, red, burgandy Blue denim
We will have BookCovers for other PowerBooks in June!
Benetton: Process Reversal
Before Process Reversal
Spin
Days
Dye
Days
Knit &
Assemble
Weeks
After Process Reversal
Spin
Days
Knit &
Assemble
Dye
Weeks
Days
Tomorrow: Platform planning
Pizza Postponement Assignment is due.