coordinated product and supply chain design

1. 1 Coordinated Product and Supply Chain Design Jerry Banks

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3. 3 CASE: HP Deskjet Printer Study the case (30 minutes) in groups of four Then, answer the following questions: How much uncertainty is present in the demand data? What is the impact of the many different localization options? What is the impact of long lead times in forecasting?

4. 4 CASE: HP Deskjet Printer Answer the following questions: What is the impact of long lead times in setting safety stocks? What is the effect of uncertainty in demand on the many local markets? What is the impact of maintaining cooperation with the various HP divisions?

5. 5 DFM Manufacturing engineering used to be the last stop in the product engineering process On one side were the researchers and designers who developed products that worked On the other side were the manufacturing engineers that had to determine how to manufacture the design inexpensively

6. 6 DFM In the 1980�s, it was finally realized that product and process design were cost drivers That was the beginning of design for manufacturing

7. 7 SCM In the past few years, it has been further recognized that taking logistics and supply chain management concerns into the product and process design could result in even more efficiencies We will discuss ways to accomplish this

8. 8 DFL Design for logistics considers the following Economic packaging and transportation Concurrent and parallel processing Postponement/delayed differentiation

9. 9 Economic packaging and transportation Design products so that they can be efficiently packed and stored Transportation will be cheaper Especially if delivery trucks �cube out� before they �volume out�

10. 10 Ikea World�s largest furniture retailer Swedish company Company owned stores 143 in 22 countries Franchise stores 20 in 13 countries/territories US$9.6 billion in sales

11. 11 Ikea Growth attributed to �reinventing the furniture business� Typically Furniture sales were split between department stores and small locally owned shops Customer placed an order with delivery two months later

12. 12 Ikea Changed the way that furniture stores do business Displays all of its 10,000 products in large warehouse-like spaces in out-of-town locations Accomplished by designing products that can be packed compactly in kits Customers assemble them at home

13. 13 Ikea Kits are easy and cheap to transport Products can be manufactured in a small number of factories Shipped cheaply to stores around the world Firm can sell quality furniture at competitive prices

14. 14 Other reasons to design for compactness Retailers want products that take up less storage space Retailers want products that stack easily Example Garbage cans at Home Depot

15. 15 Rubbermaid Designed Clear Classics food storage containers to fit 14�x14� shelves at Wal-Mart

16. 16 Bulk shipping Complete final packaging at the warehouse or the retailer Bulk products can be shipped more easily

17. 17 Example Hawaiian sugar industry switched to bulk transportation after WWII Shipping a bulk ton of sugar costs US$0.77 Shipping the same weight in bags costs about US$20.00

18. 18 Delay packaging until sale Grains, nuts, cookies, etc. allow consumers to package as much as they want

19. 19 Concurrent and Parallel Processing Modifying the manufacturing process to control logistics costs Steps that were previously performed in sequence can be completed at the same time Lowers manufacturing lead times Lowers inventory costs

20. 20 Parallel Processing Modularity is the key

21. 21 Parallel Processing

22. 22 Postponement Delayed differentiation Aggregate demand information is more accurate than disaggregate data Better information for shoes than a specific style of shoe But, aggregate information is usually not of much use

23. 23 Postponement However, using postponement, aggregate data can be useful Design the product so that decisions can be delayed until after manufacturing is under way Delayed product differentiation

24. 24 Postponement First discussed in 1950 Only since 1990 have logistics researchers been defining and studying the concept Since 1995 many industries have adopted postponement as a strategy

25. 25 PCs are often customized

26. 26 Technology advances have shortened life cycles

27. 27 Five types of postponement Zinn and Bowersox, in their �classic� 1988 paper analyzed five types of postponement Labeling Packaging Assembly Manufacturing Time

28. 28 Labeling What type of firm might be interested in labeling as a postponement type? A firm selling a product under several brand names

29. 29 Packaging What type of firm might be interested in packaging as a postponement type? A firm selling a product under several package sizes

30. 30 Assembly What type of firm might be interested in assembly as a postponement type? A firm selling a product whose cube is greatly reduced if shipped unassembled

31. 31 Manufacturing What type of firm might be interested in manufacturing as a postponement type? A firm selling a product that has high sales fluctuations

32. 32 Time What type of firm might be interested in time as a postponement type? Firms with high value products

33. 33 Delayed product differentiation Techniques Resequencing Commonality Modularity Standardization

34. 34 Resequencing Modifying the order of product manufacturing steps postponing those that differentiate the product as much as possible

35. 35 Benneton Sweater manufacturer Fashions change rapidly Lead time for stores was 7 months Manufacturing process Acquiring yarn, dyeing yarn, finishing yarn, manufacturing garment parts, joining the parts into a sweater Note that dyeing occurs early in the process

36. 36 Benneton Move the dyeing process until after the sweater is completed Then, yarn purchasing and manufacturing plans could be based on aggregate forecasts for product families For a 10% increase in manufacturing cost, even greater benefits were achieved

37. 37 Commonality It may be necessary to redesign product lines or families to achieve commonality in order to implement a postponement strategy

38. 38 AutoMod The commercial version and the student version of the software are the same except that there is a limit on the number of entities in the student version

39. 39 Completion at the DC In some cases, the final manufacturing steps can be completed at the DC instead of at the factory Advantage is that DCs are much closer to the demand than the factories Products can be differentiated closer to the demand Increases the firm�s ability to respond to rapidly changing markets

40. 40 Modularity Differentiation takes place at the retailer after the sale Examples Color printer is a B/W printer with an added color kit Dealer installed options when a car is purchased Running boards and luggage racks on a SUV

41. 41 Standardization Replace a family of products by a standard product Build in possible options Example Laptop power supply can accept 110 or 220 volts So, it can be used in Europe with a plug adapter

42. 42 Concerns about DFL Can the costs be justified? Product and packaging redesign Retooling of assembly lines Added manufacturing capability at DCs

43. 43 Concerns about DFL Can the savings be quantified? Increased flexibility Better customer service Decreased response time

44. 44 Concerns about DFL Inventory costs change Much of the wool in the Benneton example will be held in the form of sweaters Their value is much higher than dyed wool

45. 45 Concerns about DFL Tariffs and duties may be lower for WIP than for final products Completing the process at the DC can lower costs for tariffs and duties

46. 46 Push-pull boundary Push systems Production is based on long-term forecasts Pull systems Production is demand driven Usually reduce supply chain lead times, inventory levels, and system cost

47. 47 Pull systems Not always possible to implement pull system throughout the entire supply chain Lead times may be too long May be necessary to take advantage of economies of scale Prior to product differentiation the system is push based Then, it becomes pull based

48. 48 Push-pull boundary The point of differentiation Benneton Differentiation occurs when the sweater is dyed

49. 49 Case Analysis Inventory problem in the European DC HP faces long delivery lead times of 4 to 5 weeks from its production facility in Vancouver, WA Manufacturing takes about one week in Vancouver

50. 50 Case Analysis HP is concerned about inventory levels and inventory imbalance in Europe Problem is customization for local markets Localization Addition of labeling and documentation in the correct language Customizing the power supply Customization takes place in Vancouver many weeks before the products arrive in Europe

51. 51 Case Analysis Imbalance The European DC often finds that it has too many PCs customized for certain markets, and too few for other markets

52. 52 Case Analysis Causes Significant uncertainty about how to set the correct inventory level The many different localization options make inventory difficult to manage Long lead times lead to difficulty in forecasting and safety stock

53. 53 Case Analysis Causes Uncertainty in the many local markets makes forecasting difficult Maintaining cooperation between the various HP divisions is challenging

54. 54 Case Analysis Cause Significant uncertainty about how to set the correct inventory level Possible solutions Air shipments from Vancouver Build a European factory Hold more inventory at the European DC Improve forecasting capabilities

55. 55 Case Analysis Significant problems with these solutions Air shipments Expensive European factory Volume is too low to justify it More inventory in Europe More inventory just compounds the current inventory problem

56. 56 Case Analysis Significant problems with these solutions Improve forecasts How?

57. 57 Case Analysis Another option Postponement Ship �unlocalized� printers to the European DC Localize them after observing demand

58. 58 Case Analysis How much savings can occur? Compute required safety stock for each of the customized products

59. 59 Case Analysis For Product A For a 98% service level, z = 2.05 Safety Stock = z * STD * SQRT(L) STD = 15.6 Assume L = 5 weeks Safety Stock = 2.05 * 15.6 * SQRT(5) = 71.5 Weeks of Safety Stock = 71.5/9.8 = 7.4

60. 60 Case Analysis For Generic Avg Monthly Demand = 42.3 +�+306.8 = 23108.6 Std Dev Week Dem = SQRT(71.52+�+227.82) Compute Safety Stock and Weeks of Safety Stock as previous Illustrates that aggregate demand has a smaller variance than sum of individual demands

61. 61 Case Analysis Computation of savings Carrying cost = 30% Item value is $400 Savings = .30 x (20640.0-13802.6) x $400 = $820,488

62. 62 Case Analysis Other savings Value of inventory in transit is reduced, thereby reducing insurance Localization materials can be locally sourced reducing costs and meeting �local content� requirements

63. 63 Case Analysis Other costs Product and packaging have to be redesigned so that localization can be delayed

64. 64 Case Analysis HP did implement such a strategy with great success

65. 65 Supplier integration Selection of appropriate suppliers for components of a new product Previously after completion of design

66. 66 Supplier integration Firms can receive benefits from involving suppliers in the design process Reduced material cost Increased materials quality Decline in development time and cost Decline in manufacturing cost

67. 67 Supplier integration To reduce cycle time, focus on core competency Outsource other business requirements

68. 68 Spectrum of supplier integration None White box Grey box Black box

69. 69 Spectrum of supplier integration None Supplier is not involved in design Materials and subassemblies are supplied according to customer specifications and design

70. 70 Spectrum of supplier integration White box Informal Buyer �consults� with the supplier informally when designing products and specifications

71. 71 Spectrum of supplier integration Grey box Formal supplier integration Collaborative teams between buyer and supplier Joint development

72. 72 Spectrum of supplier integration Black box Buyer provides interface requirements to the supplier Supplier independently designs and develops the required component

73. 73 Spectrum of supplier integration Black box may not be the appropriate level Firms must develop that level which is most appropriate to their situation What is best for your firm? How can you decide what is the best level?

74. 74 Spectrum of supplier integration First steps Determine your core competencies Determine current and future new product developments Identify external developments and manufacturing needs

75. 75 Spectrum of supplier integration If future products have components which require expertise that the firm does not possess And, development can be separated from other phases Then, black box approach makes sense

76. 76 Spectrum of supplier integration If separation is not possible Then, grey box

77. 77 Spectrum of supplier integration If the buyer has some design expertise But wants to ensure that the supplier can adequately manufacture the component Then white box may be appropriate

78. 78 Ensure that the relationship is a success Select suppliers and build relationships Align objectives with selected suppliers

79. 79 Requirements of the supplier Capability to participate in the design process Willingness to reach agreements on intellectual property and confidentiality issues Ability to commit sufficient personnel Sufficient resources to commit to the supplier integration process

80. 80 Overall performance improvements achieved through supplier integration Median improvements reported from survey of 124 responding companies (MSU, 1997) Purchased material cost 15% Purchased material quality 20% Development time 20%

81. 81 Overall performance improvements achieved through supplier integration Development cost 15.0% Functionality/Features/Technology 10.0% Product Manufacturing Cost 10%

82. 82 Mass customization Evolved from two concepts Craft production Mass production

83. 83 Mass customization Craft production Highly skilled and flexible workers Highly differentiated goods Organic organizations Trained through apprenticeships and experience Very difficult to control quality Mass production Efficient production of a large quantity of goods Mechanistic firms Management places a high priority on automating and measuring tasks

84. 84 Mass customization Involves the delivery of a wide variety of customized goods or services quickly and efficiently at low cost Captures advantages of both mass production and craft production

85. 85 Dell Computer Dell Computer became a dominant player in the PC industry by mass customization Dell never builds a computer until the order has been placed This allows for customers to specify unique requirements Their website is a large source of orders

86. 86 Dell Computer The order-taking system interfaces with their supply chain control system Insures that inventory is at the proper level so that the order can be built to customer requirements Dell stores very little inventory Dell�s suppliers are close to the assembly locations

87. 87 Dell Computer Dell orders parts on a just-in-time basis Dell provides exactly what the customer wants very quickly Dell minimizes parts obsolescence in a rapidly changing industry

88. 88 Dell Computer Doing the right things Driven by advanced information systems Takes many orders over the web Manages inventory Strategic partnerships have been established with key suppliers to ensure that new computers and networking devices are compatible Uses the concept of postponement to achieve mass customization

89. 89 Dell Computer �Dell aims to dominate consumer market with new focus,� AJC, 26 Dec�01 Dell launched an aggressive price war with its new pre-configured SmartStep at $599

90. 90 Dell Computer It is straying beyond some of its much-lauded core philosophies From JIT made-to-order machines to pre-configured machines Cautiously dipping its toe into retailing Placed kiosks in shopping malls in Nashville and Dallas for taking orders�no inventory Testing to see if the concept works

91. 91 The flexible factory Shift from mass production to flexible plants that make each product to order Small runs of high-margin products Timken Co. is a master at this game Timken is a US$3.9 billion/year maker of industrial bearings

92. 92 The flexible factory Timken committed US$150 million to build a sophisticated factory that can manufacture small batches of goods without refitting machine tools between runs Central to this flexibility is a growing library of digital 3D models of components Shop floor associates pull up the digital designs, tweak them, and get the CNC instructions into the networked machines in 15 to 30 minutes Took four hours previously

93. 93 Doing it right Needed Highly skilled and autonomous workers, processes, and modular units, so that managers can coordinate and reconfigure these modules to meet specific customer requests and demands

94. 94 Doing it right Needed Each module must continually strive to upgrade its capabilities A module�s success depends on how effectively, quickly, and efficiently it completes its task, and how good it is at expanding its capabilities

95. 95 Doing it right Management�s success Depends on how effectively it can develop, maintain, and creatively combine the links between modules in different ways to meet different customer�s requests Depends on the creation of a work environment that encourages the development of a variety of different modules

96. 96 Key attributes Instantaneous Modules and processes must be linked together very quickly This allows for rapid response to various customer demands

97. 97 Key attributes Costless The linkages must add little if any cost to the process This allows mass customization to be a low cost alternative

98. 98 Doing it right Seamless The linkages and individual modules should be invisible to the customer So customer service doesn�t suffer

99. 99 Doing it right Frictionless Networks or collections of modules must be formed with little overhead Communication must work instantly Without taking time for team building which is so necessary in many environments

100. 100 �A mass market of one,� BW, 12/2/02 In 1997, M&M Mars began selling customized M&M candies Any color combination desired But, the minimum order was 4o pounds Chocolate lovers wanted smaller portions So, they began selling 8 ounce and 5 pound bags at three times the regular price Sales are doubling every year

101. 101 �A mass market of one,� BW, 12/2/02 Lots of items are being tailored to individual needs A mass market of oneThe web makes it possible �Have it your way�

102. 102 �A mass market of one,� BW, 12/2/02 P&G Lets shoppers design cosmetics at www.reflect.com Rockwell Collins lets fighter pilots tailor their goggles Finding customers is the easy part Retooling the factory to handle it is hard

103. 103 �A mass market of one,� BW, 12/2/02 Many flops General Mills launched www.mycereal.com at US$7/box But customers found that the taste was far short of their descriptions P&G offered designer coffee at US$10 per bag But customers couldn�t define their own tastes

104. 104 �A mass market of one,� BW, 12/2/02 Successes are emerging Clothing , golf clubs, hockey sticks Branches Hockey Lets customers pick from 26 options Length of stick, blade pattern, etc. Orders go into a digital cutting systems Results in 5 days Premium charge is 39% Revenues up 25% in the past year

105. 105 �A mass market of one,� BW, 12/2/02 Successes are emerging Clothing , golf clubs, hockey sticks Lands End Introduced customized chinos and jeans sold online Now represent 40% of sales of those items Off the rack for US$35 Customized for US$54

106. 106 �A mass market of one,� BW, 12/2/02 Customized loans online Many hidden advantages A mother lode of data provided by applicants

107. 107 End