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Supply Chain

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  1. Supply Chain John Vande Vate Spring, 2007 1

  2. Make-to-X • Make-to-Order • Make-to-Forecast • Make-to-Stock 2

  3. Managing Variability • Three Levers: • Inventory • Capacity • Time Which levers are MTO, MTF, MTS using? 3

  4. Which Levers • Make-to-Order • Capacity! • Time: If we can convince the customer to wait… • Inventory 4

  5. Pros-Cons • MTO: • Pros: • Little or no finished goods inventory • Customization can be competitive advantage • Cons: • Manufacturing subject to high demand variability • Lead-time can be competitive disadvantage • MTF • Pros: • Helps smooth capacity requirements • Can respond to (foreseen) changes in demand • Product availability • Cons • Only as good as the forecast • No real limit on inventory • MTS • Pros: • Minor smoothing of capacity requirements • Product availability • Definite capacity on inventory • Cons: • Manufacturing still subject to demand variability • Inventory 5

  6. Make-to-X • Make-to-Order: • When: • The product cannot be inventoried • The product is highly customized • Prices are declining • Customers will wait or the process is quick • Make-to-Forecast: • When: • Customers won’t wait or the process is too long • Capacity is constrained • Product is perishable • Make-to-Stock: • When: • Commodities with little differentiation • Capital intensive manufacturing 6

  7. The Point • Make to Order is not a superior strategy • It is a superior strategy for some markets • It • Supports highly customized products • Eliminates finished goods inventories • Reduces reliance on forecasting 7

  8. Mixed Strategies • MTS/F up to a point • MTO from this point on • Typically this point where product differentiates • The Question: When in the process to assign the customer? • The trade-off • Later means shorter lead times • Later means process has undergone more differentiating steps… 8

  9. Digression: Push-Pull • This point is often called the “Push-Pull Boundary” • Confusion about what is Push, what is Pull • Hopp, Spearman paper attempt to resolve • Thought provoking. Not definitive 9

  10. Postponement • Delaying the point of differentiation and with it, the transition to Make-to-Order, until later in the process • Examples: • HP Printers in Europe • Milliken Carpet Tiles • Philips Bulk Packaging • BMW Paint Shop • Cell Phone Mfg. • … 10

  11. Bulk Packaging • Delayed customer specific packaging • Don’t have to forecast sales by customer • Shortens order-to-delivery window • Allows efficiency in in-bound transportation 11

  12. HP Imaging & Printing • Delaying product differentiation to local market 12

  13. IPS Product Platforms e-enabled appliance digital multi-function - volume business - standard configurations - low product complexity color LaserJet/ fast color ink network printer basic office printing toner cartridge - value business - customized configurations - high complexity

  14. Competing with Dell • The BTO advantage • Low FG inventory • Customizable product • Quick delivery • Short cash-to-cash cycle • Purchase components at last minute • The BTO dis-advantage • High manufacturing costs – Can’t move desktops to China • High delivery costs • Hard to consolidate last mile 14

  15. OrderFulfillment Mfg Planning Procurement Logistics CustomerSegment Product Set Business PC & Workstation Consumer Consumer PC PSG Portables & Handhelds Monitors & Options Supplies Personal Printing IPG Shared Printing SMB Product/Service Generation Direct / Indirect GTM Digital Imaging Commercial Printing Business Critical Servers Industry Standard Servers ESG Network Storage Solutions Solutions (ESG / HPS) Consulting & Integration Sol.. Enterprise Managed Services Solutions Customer Support Solutions HPS HP Adaptive Supply Chain Strategy No Touch Low Touch Value Add High Value & Solutions Services 15

  16. Dell’s Strategy • Bulky differentiated products, e.g., desktops and servers • Build to order in the US • High value density differentiated products, e.g., lap tops • Build to order in China and airfreight • Undifferentiated products • Make the supplier hold the inventory 16

  17. HP Postponement: Impact on product flows Mfg, localization distribution Mfg localization,distribution

  18. 18

  19. Localization Slot Localization(Manuals; Cables) • Packaging Packaging lines(Bulk Pack etc.) • Integration Assembly and test(Formatters etc.) Evolution of Postponement

  20. Postponement Benefits Inventory Flexibility (Demand signals) Freight efficiency (Bulk shipping) Cost reductions (Local procurement) Speed (Time-to-market) Legal (Tax & duties, Export regulations) Measures Service Level Total Supply Chain cost

  21. BMW Example • Positioning the Boundary in BTO 21

  22. Production sequence set throughout manufacturing Re-sort Re-sort Start customer order Body Shop Paintshop Assembly BMW-Production System ‘frozen horizon’ ‘Lateorder assignment’ Assort Start customer order Component Control Body Shop Paintshop Assembly The BMW Production System

  23. Order assignment not until assembly start Production Control Systems for Body/ Surface/ Assembly Component Control ... Sequence stability 100% Body Shop Paintshop Planning Start of Assembly Painted car bodies are handled as supply parts 23

  24. Milliken • The Millitron • Computer-controlled micro jets inject dye with surgical precision deep into the face of the carpet. • 400 micro-jets per square inch • Can blend colors on carpet • As carpet passes through the Millitron, entire designs can be changed without as much as a pause. 24

  25. 25

  26. Printed Carpet Tile 26

  27. Opportunity From Catastrophe 27

  28. The Fire • Tuesday, January 31, 1995 destroyed Milliken & Company's Live Oak/Milstar Complex and Carpet Service Center. • A 600,000 sq ft carpet manufacturing, warehousing, cutting and distribution facility. • Total loss over $400 million. 28

  29. Opportunity From Catastrophe 29

  30. Reconstruction 30

  31. Before the Fire • Several base tiles feed • Several “gun bars” or color schemes • Frequent and long changeovers • Push to base tiles, Pull to customer orders • Push-Pull interface before the millitron 31

  32. After the Fire • One base tile • One or two gun bars • Nearly no changeovers • Millitron is the push-pull interface 32

  33. Discussion • The relationship between postponement & inventory pooling • Manufacturing operations spread across the supply chain • Blurring of the distinctions between distribution and manufacturing • Emerging competition between contract manufacturers and logistics service providers • Lean is production accomplished with minimal “buffering” costs • Remember the three buffers: Inventory, time, capacity 33