Push & pull v1.0-c

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As fo 2009.09.

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Page 2Postponement & Delayed Differentiation

Storage media manufacturer found that being able to offer CD/DVD media in many formats, speed, and packaging options was a competitive advantage. With a low-cost supplier in Taiwan they have implemented “Postponement Centers” in the U.S. that give them the ability to fulfill demand in a package to order scenario.

Inventory Value

Service Level

Optimized Postponement

Current Diskette

71% 98%Line Item Fill Rate:

On-time In-full Rate: 91%49%*

Better service, current business

model

Without postponement, OTIF goals would require very large Diskette inventories.

• Significant service improvements

• 27-point increase in service levels

• $Millions in service penalties eliminated

• Product line turned profitable

• 5% increase in revenue

• 20% reduction in total inventory investment

• Significant reduction in total supply chain cost

Differentiation is our pride!

Focus and Essence! 3

• Customer interface – lead time vs frequency of demand

• Efficiency – demand volatility vs margin

• New products – market life vs design time

• Economies of scale – market size per plant vs transport % of price

• Power position – importance of supplier to customer vs customer to supplier

• Decoupling point– market lead time vs production lead time

What Should Your Supply Chain Be?



The “dilemma of operations planning”



The “dilemma of logistics management”

Inventory

Inventory

Level Service Quality

Service Quality



Elements of the SCM Concept

Elements of Upstream SCM

• Sourcing strategies • Multivs. Single sourcing• Strategic partnerships• Supplier development• Vendor Managed Inventories

(VMI)• JIT deliveries and supplies• Open Calculations• Joint product development• Technology Management

Elements of Downstream SCM

• Inventory & warehouse management• Synchronized production• Demand Management• Third party logistics• Direct distribution• Efficient Consumer Response• Postponement• Continuous Replenishment• Cross Docking• POS



The Demand-Supply Chain

Value Offering Point (VOP)•Defines customer decision making, i.e., how and when is customer demand allocated to the supplier

•Defines the economics of the customer

Order Penetration Point (OPP)•Determines supplier response, i.e., how and when is the product allocated to the customer

•Determines the economics of the supplier



Order Penetration Point (OPP)

The OPP is the point in the SC at which customer demand is allocated to the product.



Value Offering Point (VOP)

The VOP define show and why the customer makes the purchase decision.



Integrating Demand and Supply



Standard vs Special



Standard vs Special

The Products are Different

•Low variability•High volume for each variant

•Low price•Small size•Impulsive purchase/ supplement

•High variability•Low volume for each variant

•High price•Bigger size (typical)•Investment



Standard vs Special

Example: BeoDirect

• Value from “Instant Acquisition”

• Impluse purchase/gifts• Plug and Play

• Volume Flexibility• Flow/Kanban• Quality and Speed• Automatic Scheduling• Capacity Leveling



Standard vs Special

Example: B1 Configured

• Value from Modification (mood) and “Instant Acquisition”

• Volume Flexibility• Postponement• Quality and Punctuality• Forecast Driven• Capacity Leveling



Standard vs Special

Example: Custom

• Value through customization

• Home installation• Individualization

• Variant Flexibility• Postponement• Quality and Punctuality• Surpluses Capacity (quick assembly)



Standard vs Special

VOP and OPP – 5 Basic Steps

1. Identify the customer´s demand chains.

(Note that a customer can have a number of different demand chains)

2. Define the potential linkage points for the supplier to the customer demand chains.

What are the potential VOP´s?

3. Identify your extended supply chains

4. Define the potential linkage points for the customer to the supply chains.

What are the potential OPPs?

5. Try out the possible configurations and evaluate the cost and benefit for your self and the customer.

Are there win-win solutions?



Standard vs Special

Case: Dell´s Direct Model



Standard vs Special

Case: Baxter´s ValueLink



Standard vs Special

Before: Transactional business

Transactional business: supplier offers spare parts and maintenance services as requested by customer

Maintenance planning

Inventory mgmt / maintenance

Purchasing

Local service center

Manufacturing Regional supply center

Demand chain

Supply chain

• Customer’s VOP located at purchasing, 3 demand types• Supplier’s performance measured in lead-time, on-time delivery etc.• Supplier’s OPP typically located at local service center to meet strict

lead-time requirements, large inventories at local level



Standard vs Special

Current: Maintenance service agreement

Increased supplier responsibility: customer’s maintenance planning and operations outsourced to supplier

• Customer’s VOP located at maintenance planning: reduces work (less unplanned production shutdowns, smaller spare part consumption) and allows customer to take advantage of supplier’s expertise

• Supplier’s changed role. => Supplier’s performance measured in process uptime

• However, supplier’s OPP has not been moved


Inventory mgmt / maintenance

Purchasing

Local service center Manufacturing

Regional supply center

Demand chain

Supply chain



Standard vs Special

Future: New opportunities to benefit operationally (1/3)

Opportunity to increase supplier’s operational efficiency

• The reduced number of emergencies, earlier access to demand information and new performance measures provide the supplier with an opportunity to move the OPP upstream to the regional supply center or even to manufacturing

• The operational efficiency comes from reduced inventories


Inventory mgmt / maintenance Purchasing

Local service center Manufacturing

Regional supply center

Demand chain

Supply chain



Standard vs Special


• Moving the OPP is not the only opportunity• Planning and organizing the customer’s maintenance operations offers an

opportunity to affect demand– equipment and part standardization increases inventory efficiency and

reduces risk of stocking the wrong product• Demand information being passed on by the supplier’s own experts improves

quality of demand information– fewer errors mean reduced hassle for both customer and supplier

• Moving of the VOP brings an opportunity to increase service and operational efficiency simultaneously

• However, the supplier needs to develop its supply chain management skills to be able to realize the opportunity

– supplier needs to actively change performance measures– supplier needs to learn how to utilize earlier, more accurate demand

information– supplier needs to assess the time-criticality of its equipment and spare

parts and organize warehousing accordingly– supplier needs to actively promote equipment standardization



Process optimisation

Moving VOP backwards

Efficiency

Customer service

Less errors

Easier to meet the targets

Changeperformance measures

ReduceSKU’s to becontrolled

Capture betterquality ofdemandinformation

Capture earlieraccess to demand information

Use supplier’spossibility toinfluence todemand

Use demandinformation toimprove planningaccuracy

Utilise increasedplanningpossibilities

REQUIRED MANAGEMENT ACTIONS BENEFITOPPORTUNITY

Standard vs Special






• Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand

– Pull: execution is initiated in response to a customer order(reactive)– Push: execution is initiated in anticipation of customer orders(speculative)– Push/pull boundary separates push processes from pull processes

Push/Pull View



Push/Pull View



• “decoupling points : The locations in the product structure or distribution network where inventory is placed to create independence between processes or entities. Selection of decoupling points is a strategic decision that determines customer lead times and inventory investment. See: control points.”

• “control points : In the theory of constraints, strategic locations in the logical product structure … Detailed scheduling instructions are planned, implemented, and monitored at these locations…”

• “order penetration point : The key variable in a logistics configuration; the point (in time) at which a product becomes earmarked for a particular customer. Downstream from this point, the system is driven by customer orders; upstream processes are driven by forecasts and plans. Syn: principle of postponement.”

• “postponement : A product design strategy that shifts product differentiation closer to the consumer by postponing identity changes, such as assembly or packaging, to the last possible supply chain location.”

Definitions from APICS Dictionary, 11th Edition



Types of Supply Chain Model(or Production Process)

“i”

Basic linear production

Example?




“T”

Many simple product orpackaging variations ordistribution points

Example?

Low variety of products




“V”

Many end products

Example?

Few raw materials




“A”

Few end products

Example?

Many raw materialsand sub-assemblies




“X”

Many end products

Example?

Many raw materialsand sub-assemblies




Which One?



Generic Customer Order Decoupling Points



Generic Customer Order Decoupling Points



Tradeoffs



A familiar example – MTS vs ATO

Example 1




Example 2




Example 3


Focus and Essence!

1980’s : 1990’s :

120 day planning horizon, 60 days frozen Make-to-Order project

Growing inventories Kanban project

75% fill rate 95% customer satisfaction

Labor-intensive forecast process 30 families, less detailed forecast

120 day production cycle 3 day order turnaround

12 week supply of elec wires (externalsupply)

3 day supply of elec wires (externalsupply)

40


Example 4

Camco – Montreal (owned by GE Canada)Washers, Dryers, and Dishwashers450 models, $500 million sales

2004: still Canada’s #1 appliance maker, and #1 supplier of GE dryers; inventory turnswere about 12 (vs sales), and the company credits their Six Sigma program for reducedquality costs and enabling other changes



Baseline CODP model



Types of CODP model

Concurrent CODPs per product or product-market combination



Types of CODP model

Multiple CODPs per product component



Types of CODP model

Multiple CODPs per level of customer commitment



Types of CODP model

Multiple CODPs per interface in the chain network



Types of CODP model

Example of a chain network configuration with multiple CODPs in dairy



Types of CODP model

Example of a chain network configuration in Parquet Industry



Types of CODP model

Example of a chain network configuration in Parquet Industry



Types of CODP model

Example of TFT-LCD manufacturing process



Types of CODP model

Example of Details in a Control Model with CODP



Types of CODP model

The challenge of mass customization for the wood furniture sector in Quebec (Lihra et al., 2005; Poulin et al., 2006)

Retailing Distribution Packaging Finishing Componentmanuf.Assembling Supply

Sale-2O

Ship-2O

Pack-2O

Finish-2O

Assembly-2O

Make-2O

Supply-2O

Popularizing

Engineering Design

Engineer-2O

Design-2O

Configuring MonitoringAdjustingServicingTailoringAccessorizingVarietizing



CODP and customer order lead-time in MTS/ATO/MTO



Postponement



4 Generic Postponement Strategies



4 Generic Postponement Strategies