Week 11 SUPPLY CHAIN MANAGEMENT COORDINATE PRODUCT AND SUPPLY CHAIN

DESIGN
Learning Objectives
- To understand the basics of supply chain and development chain
- To know the framework for matching product design and supply chain strategies
- To learn the concept of standardization and mass customization

General Framework for value Delivery

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.

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

Key Characteristics of Development Chain

Technology clock speed
- 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 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

Interaction between the two chains

Fishers 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.

What is the appropriate supply chain strategy and product design strategy for each
product type?
- Each requires a different supply chain strategy
 - Both supply chain strategy and product design strategy has to deal with the differing
level of demand uncertainty

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

Design for Logistics

Product and process design that help to control logistics costs and increase service levels
- Economic packaging and transportation
- Concurrent and parallel processing
- Standardization

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

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

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

The Network Printer Example

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

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

Swaminathans Four Approaches to Standardization

Part standardization
Process standardization
Product standardization
Procurement standardization

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

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

Selecting a Standardization strategy

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.

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

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

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.

Appropriate Level Depends on The Situation

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, then taking

Grey Box
- If separation is not possible

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

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.

Mass Customization
- Mass customization involves the delivery of a wide variety of customized goods or
services quickly and efficiently at low cost.
- The key to mass customization is highly skilled and autonomous workers, processes,
modular units, and effective information systems so that managers can coordinate
and reconfigure these modules to meet specific requirements of the customers.
- Advanced supply chain management approaches and techniques are essential.

SUMMARY

Design for logistics concepts

- Efficient packaging and storage
- Certain manufacturing steps can be completed in parallel
- Standardization

Advanced supply chain management facilitating mass customization