Transcript Inventory - 國立臺灣海洋大學網路發展協會

Design for Supply
Chain Management
Phil Simchi-Levi
Kaminsky
David
[email protected]
Philip Kaminsky
Edith Simchi-Levi
The Manufacturing
Environment

Rapid Changes
– New products rapidly introduced
– Short, unknown product life cycles
High Variety of Products
 Long Production Lead Times
 Increasing storage and transportation costs
 Difficult to forecast demand

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The Goals of the
Manufacturing Organization
Responsiveness
 Competitive pricing
 Efficiency
 Customer service

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Why Do These Goals
Conflict?

Forces for keeping low inventory
– inventory expensive
– low salvage values

Forces for keeping high inventory
– long lead times
– customer service is important
– demand is hard to predict
– reduction in transportation quantity
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Design For Logistics
Product and process design key cost drivers
of product cost
 Design for Manufacturing used design to
decrease manufacturing costs
 Major supply chain costs include
transportation costs, inventory costs,
distribution costs

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Design For Logistics
Design for Logistics uses product design to
address logistics costs
 Key Concepts of Design for Logistics

– Economic packaging and transportation
– Concurrent/Parallel Processing
– Standardization
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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

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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” Wal-Mart shelves
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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

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The Network Printer
Example
Board
Stage 1
(Europe)
Stage 1
(Europe)
Printer
Customer
(Europe)
Stage 2 +
Integration (Far East)
Board
Printer
Stage 2
(Far East)
Customer
(Europe)
Integration (Europe)
Plastics,
motors, etc.
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Standardization
Shortening lead times is not always possible
 How else can inventory levels be reduced
and forecast accuracy improved?
 Standardization of products and processes

– Product commonality
– Process commonality
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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
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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 semifinished product is difficult

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Modularity in Product and
Process

Are modular products always made from
modular processes?
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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
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Types of Standardization

Part Standardization
– Common parts are used across many processes
– Product redesign might be necessary

Process Standardization
– Standardizing as much of the process as possible,
making a generic or family product
– Delaying differentiation
– Called “Delayed differentiation”, “Postponement”
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Postponement: Example

Demand for black t-shirts
– 50% probability 100
– 50% probability 200
Same for white t-shirts
 Production alternatives

Produce 150 of each color ahead of time
Produce 300 which can be dyed after demand
is observed
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Postponement: Example

First Alternative
– 25% probability -- short 50 of each
– 25% probability -- extra 50 of each
– 50% probability -- short 50 of one, extra 50 of the other

Second Alternative
– 25% probability -- short 50 of each
– 25% probability -- extra 50 of each
– 50% probability -- no shortage or extra
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Postponement: Key
Concepts
Delay differentiation of products in the same
family as late as possible
 Enables the use of aggregate forecasts
 Enables the delay of detailed forecasts
 Reduces scrapped or obsolete inventory,
increases customer service
 May require new processes or product
design with associated costs

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Postponement
Considerations
Tradeoff increased product cost with
decreased inventory
 Need to decide where to postpone - the
push-pull boundary
 Position in product lifecycle is factor in
postponement strategies
 Inventory value may increase
 Consider tariffs and duties

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Hewlett-Packard:
LaserJets
LaserJets are manufactured in Japan
 Previously, the printers had two different
power supplies (110, 220 volts)
 Differentiation had to happen immediately
 An improved design enables a single power
supply to work for both voltages.
 5% Cost Savings

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Hewlett-Packard Disk Drives
Manufacturing Process Redesign

HP’s disk drive division supplied several
customers
PCB
Insertion
tests
Customer 1
Customer 2
Customer 3
Coupon
Insertion
PCB insertion postponed
PCB
Insertion
common tests
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tests
Customer 1
Customer 2
Customer 3
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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
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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
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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
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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

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Benetton
Old Manufacturing Process
Spin or Purchase Yarn
Dye Yarn
Finish Yarn
Manufacture Garment Parts
Join Parts
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Benetton
New Manufacturing Process
Spin or Purchase Yarn
Manufacture Garment Parts
Join Parts
Dye Garment
This step is postponed
Finish Garment
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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
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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
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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 ?
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A Framework for
Standardization
Modular
Maximize component
commonality across
products
Delay customization as
late as possible
Non-Modular
Carry a limited
number of products in
inventory
Non-Modular
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Leverage equipment and part
commonality across products
Modular
© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
HP DeskJet Case:
Background



High volume, high speed manufacturing in Vancouver
Many different models, all completed in Vancouver
Three distribution centers
– North American
– Asian
– European


Manufacturing time one week
Transportation lead times:
– Europe: 4-5 weeks
– US

At distribution centers, simple standardized process
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HP DeskJet Case:
Analysis

Problems
– High inventory levels
– Inventory imbalance in Europe

Causes
–
–
–
–
–

Uncertainty about correct inventory levels
Many geographic options (localization)
Long lead times
Uncertain market
Difficulty at getting divisions to work together
What are HP’s options?
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HP DeskJet Case:
Options

Short Term
– Rationalize safety stock

Long Term
– Air shipment
– European factory
– More inventory
– Better forecasting
– DC localization
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Safety Stock Rationalization:
Example Europe AB

Recall: Safety Stock = z  STD * LT
McGraw-Hill/Irwin
Mean Weekly Demand
Std. Dev
3656
2703
Monthly / 4.33
Monthly/(4.33).5
Lead Time
5
Std. Dev of Demand
Period
Safety Factor
Safety Stock
6044
2703*(5).5
1.9
11483
98% service
1.9*6044
© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
Evaluating Alternatives

Air Shipment
– Expensive

European Factory
– Not sufficient volume

Better Forecasting
– How?

More Inventory
– More problems

DC Localization
– What will savings be?
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Evaluating DC
Localization
In DC localization, risk pooling can be used
to reduce total inventory while maintaining
service levels
 To evaluate inventory, compare total safety
stock held if individual localized units are
held in inventory or if generic units are held
 Other costs must also be evaluated

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Evaluating DC
Localization
A
AA
AB
AQ
AU
AY
AVG
STD
42
420
15830
2301
4208
307
Total
23109
Generic 23109
McGraw-Hill/Irwin
32
204
5625
1169
2205
103
Safety
Stock
66
416
11,484
2395
4517
211
Weeks
of SS
6.75
4.25
3.11
4.48
4.62
2.96
6244
19089
12792
3.55
2.38
© 2003 Simchi-Levi, Kaminsky, Simchi-Levi
DC Localization

Safety Stock Reduction
– Current 19,089 units (3.55 weeks)
– With localization 12,792 units (2.4 weeks)

Other benefits
–
–
–
–
–

Lower value of transit inventory
Freight reductions
Local presence of “manufacturing”
Customs implications
Local procurement of localization materials
But there are costs
– Product redesign
– DC modifications
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Implementation

R&D Support
– “The product is working, so why bother?”

DC Support
– “Not our core competency”
New packaging
 Capital investment

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Results
Successful implementation
 Millions saved
 Service levels increased
 Packaging won awards
 Best practice spread to other HP divisions

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Supplier Integration
Competitive forces are driving firms to
integrate suppliers into product development
 Spectrum of Supplier Integration

– None
– White Box – Informal integration
– Grey Box – Formal integration, with
collaborative teams
– Black Box – Interface requirements are given,
product is returned
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Supplier Integration

What approach is appropriate?
– Determine internal competencies
– Determine product development needs
– Identify external development and manufacturing needs



If future products have components that require external
expertise and can be separated from other components, a
black box approach makes sense.
If components cannot be separated, a grey box approach
makes sense.
If some expertise can be found in house, a white box
approach might make sense.
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The “Bookshelf” Approach




Monitor the development of new technologies
Follow suppliers that have developed expertise
When appropriate, integrate these new
technologies
This balances the advantages and disadvantages
of being on the cutting edge:
– No need to gain experience with the technology,
because suppliers are doing this for you.
– Can introduce the technologies when needed.
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Mass Customization
The delivery of a wide variety of customized
goods at low cost
 The key is modular products and processes,
so that customer requests can be met
 According to Pine, companies need to
evolve towards “modular companies”, with
managers ensuring that modules are
compatible.
 Consider National Bicycle

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Mass Customization and
Supply Chain Management
An advanced supply chain is essential
 This is particularly true when “modules”
extend beyond a single company.
 Consider

– Postponement for regional customization
– The value of strategic partnerships and supplier
integration
– Dell
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