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Product and Process Design. Dr. Ranjan Ghosh Indian Institute of Management Calcutta. The Manufacturing Environment. Rapid Changes New products rapidly introduced Short, unknown product life cycles High Variety of Products Long Production Lead Times

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product and process design

Product and Process Design

Dr. Ranjan Ghosh

Indian Institute of ManagementCalcutta

the manufacturing environment
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
the goals of the manufacturing organization
The Goals of the Manufacturing Organization
  • Responsiveness
  • Competitive pricing
  • Efficiency
  • Customer service

Conflicting Goals

why do these goals conflict
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
design for logistics
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
design for logistics cont d
Design for Logistics (cont’d)
  • Design for Logistics uses product design to address logistics costs
  • Key Concepts of Design for Logistics
    • Economic packaging and transportation
    • Concurrent/Parallel Processing
    • Mass Customization
economic transportation and storage
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
  • 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
concurrent parallel processing
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
traditional manufacturing
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
mass customization
Mass Customization
  • Customization, Predictability and Performance





mass customization12
Mass Customization
  • Predictability of Demand
  • Predictability of Operations
    • Inventory levels
    • Equipment capacity requirements
    • Increase in the number of components and hence in the number of suppliers
mass customization13
Mass Customization
  • How should/do companies implement mass customization without suffering the negative effects of increased product variety and variability?
strategies for managing variety
Strategies for Managing Variety
  • Modularity
  • Standardization
  • Postponement
  • Process Re-sequencing
  • Quick Response
modularity in product and process
Modularity in Productand 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
modularity in product and process16
Modularity in Productand 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 semi-finished product is difficult
modularity in product and process17
Modularity in Productand Process
  • Are modular products always made from modular processes?
modularity in product and process18
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
    • Lubricants are produced by varying the composition and quantity of ingredients.
a framework for mass customization
A Framework for Mass Customization




Non-Modular Modular


product standardization
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 ?
procurement standardization
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
postponement example
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
postponement example23
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
postponement key concepts
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
benetton background
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
benetton supply cycle
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
benetton flexibility
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
it is hard to be flexible when
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

How to be flexible?


benetton old manufacturing process
BenettonOld Manufacturing Process

Sequence of Processes

  • Spin or Purchase Yarn
  • Dye Yarn
  • Finish Yarn
  • Manufacture Garment Parts
  • Join Parts
benetton new manufacturing process
BenettonNew Manufacturing Process

Re-Sequencing of Processes

  • Spin or Purchase Yarn
  • Manufacture Garment Parts
  • Join Parts
  • Dye Garment(This step is postponed)
  • Finish Garment
benetton postponement
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
a new supply chain paradigm
A new Supply Chain Paradigm
  • A shift from a Push System...
    • Production decisions are based on forecast
  • …to a Push-Pull System
from make to stock model
From Make-to-Stock Model….




demand forecast
Demand Forecast
  • The three principles of all forecasting techniques:
    • Forecasts are usually wrong
    • The longer the forecast horizon the worst is the forecast
    • Aggregate forecasts are more accurate
      • The Risk Pooling Concept
push pull boundary
Push-Pull Boundary
  • Point where the Production Process switches from Push to Pull

(or Build-to-Forecast to Build-to-Order); also known as De-Couple Point.

de couple points
De-Couple Points
  • Before Product Variety explodes
  • After long lead time stages
  • After stages with constraint capacity
  • After stages with large setup times or costs.
  • They occur typically between component manufacturing and Sub-assembly,

or between Sub-assembly and Final assembly, or between Final assembly and Distribution,

or between Distribution and Retail.

push pull supply chains



High Uncertainty

Low Uncertainty

Push-Pull Boundary

Push-Pull Supply Chains

The Supply Chain Time Line



a new supply chain paradigm38
A new Supply Chain Paradigm
  • A shift from a Push System...
    • Production decisions are based on forecast
  • …to a Push-Pull System
    • Parts inventory is replenished based on forecasts
    • Assembly is based on accurate customer demand
to assemble to order model
….to Assemble-to-Order Model




business models in the book industry
Business models in the Book Industry
  • From Push Systems...
    • Barnes and Noble
  • ...To Pull Systems
    •, 1996-1999
  • And, finally to Push-Pull Systems
    •, 1999-present
      • 7 warehouses, 3M sq. ft.,
matching supply chain strategies with products

Demand uncertainty











Delivery cost

Unit price


Economies of Scale

Pull Push

Matching Supply Chain Strategies with Products
organizational skills needed
Organizational Skills Needed






High Uncertainty

Short Cycle Times

Service Level


Low Uncertainty

Long Lead Times

Cost Minimization

Resource Allocation