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Efficiency
Responsiveness
Competitive Pricing
Customer service
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.
Make/Buy Decisions
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
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Examples
Ikea
Worlds largest furniture retailer
220 stores in 33 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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Final Packaging
Delay final packaging as late as possible.
Repackaging at the cross-docking point is
common for many products.
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Concurrent Processing
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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.
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3. Standardization
Standardization enables risk pooling across
products, leading to lower inventories, and
allows firms to use the information
contained in the aggregate forecasts more
effectively.
J. Swaminathan suggests that product
modularity and process modularity are the
key drivers for the standardization strategy.
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Modular Process:
Each product undergoes 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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Part standardization
Process standardization
Product standardization
Procurement standardization
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Part Standardization
Common parts used across many products.
Common parts reduce:
inventories due to risk pooling
costs due to economies of scale
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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 as long as manufacturing is under way.
Starts by making a generic or family product
Differentiate later into a specific end-product
Delayed Differentiation
May be necessary to redesign products specifically
for delayed differentiation.
May be necessary to re-sequence the manufacturing
process to take advantage of process standardization.
Resequencing
Modify the order of product manufacturing steps.
Re-sequenced operations result in differentiation of specific
items or products as late as possible .
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Postponement
Point of differentiation
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Benetton
Old Manufacturing Process
Spin or Purchase Yarn
Dye Yarn
Finish Yarn
Manufacture Garment Parts
Join Parts
Benetton
New Manufacturing Process
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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. E.g. Chip, Car
rental agencies, hotels.
Which products to offer, how much to keep,
how to optimally substitute ?
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Procurement Standardization
Consider a large semiconductor manufacturer
The wafer fabrication facility produces highly
customized integrated circuits (ASICs).
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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Modular
Maximize component
commonality across products
Delay customization as
late as possible
Non-Modular
Carry a limited number of
products in inventory
Non-Modular
Modular
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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
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Important Considerations
Impact of Resequencing :
level of inventory in many cases may go down
per unit value of inventory being held will be higher
Tariffs and duties are lower for semi-finished or nonconfigured goods than for final products.
Completing the manufacturing process in a local
distribution center may help to lower costs associated with
tariffs and duties.
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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.
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Postponement: Example
Demand for black t-shirts
50% probability 100
50% probability 200
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Postponement: Example
First Alternative
25% (0.5x0.5) probability -- short 50 of each
25% (0.5x0.5) probability -- extra 50 of each
50% probability -- short 50 of one, extra 50 of
the other
Second Alternative
25% (0.5x0.5) probability -- short 50 of each
25% (0.5x0.5) probability -- extra 50 of each
50% probability -- no shortage or extra
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White box
Informal level of integration
Buyer consults with the supplier informally when designing products
and specifications.
No formal collaboration.
Grey box
Formal supplier integration
Collaborative teams between buyers and suppliers engineers
Joint development
Black box
Buyer gives the supplier a set of interface requirements
Supplier independently designs and develops the required component
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Grey Box
If future products have components that require expertise
that the firm does not possess, and development of these
components can not be separated from other phases of
product development.
Black Box
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.
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Mass Customization
Evolved from the two prevailing manufacturing
paradigms of the 20th century
Craft Production and Mass Production.
Craft production
involves highly skilled and flexible workers.
Often craftsmen.
Organic organizations which are flexible and changing.
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.
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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.
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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.
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