Chapter 11 Coordinated Product and Supply Chain Design

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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.

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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

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Key Characteristics of Development Chain

Technology
Speed

clock 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
Level

structure

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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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

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Interaction between the Two Chains

Fishers

concept of Innovative and Functional Products

Functional
slow

products characterized by:

technology clock speed, low product variety, and typically low profit margins

Innovative
fast

products characterized by:

technology clock speed and short product life cycle, high product variety, and relatively high margins.

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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
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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

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Economic Packaging and Transportation

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
Worlds

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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11-11

11-12

Final Packaging
Delay

until as late as possible Repackaging at the cross-docking point is common for many products

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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

FIGURE 11-4: Concurrent processing

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Push-Pull Boundary
Pull-based
reduction

systems typically lead to:

in supply chain lead times, inventory levels, and system costs making it easier to manage system resources
Not

always practical to implement a pull-based 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
Portion

strategies can combine push and pull systems

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.
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Back to the HP Case

Long

lead times, high inventory levels, imbalance of inventory Localization (labeling and manuals, power supply, plug) One cause of imbalance (too much inventory for printers localized for one market, too little inventory for another market) Significant uncertainty on how to set safety stock Too many localization options Uncertainty in local markets Some options Air shipment A factory in Europe Improve forecasting practices (how?)
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Back to the HP Case

HP

management considered postponement as an option Ship unlocalized printers to European DC and localize them after observing the local demand At 98% service level, safety stock dropped from 3.8 weeks supply to 2.6 weeks supply on the average Annual savings around $800,000 Value of inventory in transit (and hence insurance costs) goes down Some of the localization material can be locally sourced (cheaper) European DC had to be modified to facilitate localization. Printer needed to be redesigned. All Vancouver products now DC-localizable (postponement). One of the best of such practices.
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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.
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The Spectrum of Supplier Integration

No single appropriate level of supplier integration None

Supplier is not involved in design. Materials/subassemblies supplied as per customer specifications/design Informal level of integration Buyer consults with the supplier informally when designing products and specifications No formal collaboration Formal supplier integration Collaborative teams between buyers and suppliers engineers Joint development Buyer gives the supplier a set of interface requirements Supplier independently designs and develops the required component

White box

Grey box

Black box

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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.

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 Black
If

Appropriate Level Depends on the Situation

Box
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
If

Box Box

separation is not possible

White
If

buyer has some design expertise but wants to ensure that supplier can adequately manufacture the component

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Keys to Supplier Integration

Making
Select

the relationship a success:

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.
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11.4 Mass Customization

Evolved
Craft

from the two prevailing manufacturing paradigms of the 20th century

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
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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
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
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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

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Key Attributes
Instantaneous
Modules

quickly Allows rapid response to various customer demands.

Costless
Linkages

and processes must be linked together very

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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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

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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

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