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Coordinated Product
Designing & Managing The Supply Chain
Chapter 9
Jay Kang
CASE: HP - DeskJet Printer Supply Chain
Introduction Hewlett-Packard was founded in 1939 with
headquarters in Palo Alto, California Hewlett-Packard introduced the DeskJet Printer in
1988 and it had become one of HP’s most successful products.
Inventory growth has tracked sales growth closely European branches state that inventory levels needed
to be raised even further to maintain satisfactory product availability
CASE: HP - DeskJet Printer Supply Chain
Meet customer needs with less inventory Find the best way to satisfy customer needs in terms
of product availability while minimizing inventory Arrange an agreement among the various parties that
they had the right level of inventory European Distribution Center shows a dip in product
availability level, but loads of DeskJets had been shipped to Europe in the past months and European DC was telling Vancouver that is had run out of space its products
CASE: HP - DeskJet Printer Supply Chain
The Retail Printer Market In 1990, worldwide sales of personal printers were 17
million units, amounting to $10 billion Sales fueled as customers discovered the superior
quality of the Ink Jet printers More and more sales through superstores such as
Kmart and Price Club
The Vancouver division and its quest for zero inventory Established in 1979 to consolidated personal printer
activities from four divisions to the Vancouver site Vancouver introduces kanban process and converts the
factory to stockless production just-in-time
CASE: HP - DeskJet Printer Supply Chain
The DeskJet Supply Chain Manufacturing done by Vancouver, two key stages:
• Printed circuit board assembly and test (PCAT)
• Final assembly and test (FAT) “Localization” is the process of meeting the required
customization of the printer to meet language and power supply requirements of the local countries
Total factory cycle time though the PCAT and FAT stages was about a week
• Transportation time to the US was a day
• Transportation time to Europe and Asia was four to five weeks
CASE: HP - DeskJet Printer Supply Chain
The Distribution Process DeskJet printers are a high-volume product and the
major performance measures for a typical DC included line item fill rate (LIFR) and order fill rate (OFR).
DC had four simple, straight-line process steps:• Receive (complete) products from various suppliers
and stock them
• Pick the various products needed to fill a customer order
• Shrink-wrap the complete order and label it
• Ship the order by the appropriate carrier
Design For Logistics
Concept of product and process design to help control logistics cost and increase customer service levels Economic packaging and transportation Concurrent and parallel processing Standardization
Economic packaging and transportation
Design products efficiently packed and stored to produce the minimal amount of space allocation Products that can be stored more compactly can be
transported less expensively Retailer favor products that take less storage space and
stack easily
Advantages of Superior Packaging Reduces inventory cost by decreasing the handling cost Space per product (rent per product) decreases Revenue per square foot can increase
Concurrent and Parallel Processing
Modifying the product design and manufacturing process Reduce lead time Lower inventory cost through better forecasting Reduce safety stock requirements
Decoupling: A key concept for keeping the manufacturing process parallel Able to design different inventory strategies for the various
decoupled components Higher inventory level can be held for signal component
Standardization
Effective use of aggregated demand information to yield better forecast outcome: Delay decision for specific product manufacturing until the
purchase decision has been made Decision based on aggregated level, insuring a more
accurate aggregated forecast
Professor Swaminathan’s standardization framework A Modular Product: Product assembled from various modules
such that for each module there are a number of options A Modular Process: A process of discrete operations so that
inventory can be stored in partially manufactured forms between operations
Standardization
Swaminathan identifies four different approaches to standardization: Part Standardization: Uses of common parts across multiple
product lines Process Standardization: Standardizing as much of the process
as possible for different products and then customizing the products as late as possible
• In some cases resequencing and commonality allows the final manufacturing steps to be completed at the distribution center
Product Standardization: A large variety of products may be offered, but only a few kept in inventory
• Downward substitution: An order is filled by a product that offers a superset of the feature required by a customer
Procurement Standardization: Involves standardizing process equipment and approaches, even when the product itself is no standardized
Selecting a Standardization Stragety
The firm’s success rate of standardization is based on its ability to modularize its product and processes
Important Considerations The various strategies are designed to deal with inaccurate
forecasts and product variety It may not be possible or cost effective to implement these
strategies in the context of a particular product or a specific supply chain
• Value of these types of changes is higher at the start of the product life cycle
• Customizing the products as late as possible, the per unit cost of inventory will rise
• Some cases, semifinished products pay lower tariffs
The Push-Pull Boundary
In push-based system, the production decisions are based on long-term forecasts, while the pull-based supply chains, production is demand driven Pull-based system typically lead to reduction in
supply chain lead time, inventory levels and system cost, and easier to manage system resources
Push-pull boundary: the point where the system changes from push-based system to a pull-based system
• Example) Sweaters remain uncolored and are dyed to meet customer demand
Case Analysis
The lead time is around four to five weeks from its product ion facility in Vancouver to Europe
HP is concerned with high inventory levels and inventory imbalance in European Distribution center Localization is done in Vancouver many weeks before the products
arrive in Europe European DC often find that it has too much inventory of printers
customized for certain markets, and not enough inventory of printers customized for others
To address this for the long term the following solutions were proposed: Switch to air shipments of printers from Vancouver Build a European factory Hold more inventory at the European DC Improve forecasting practices
Case Analysis
An alternative option is Process Standardization (postponement) Ship “unlocalized” printers to the European DC and localizing them
after observing local demand
Calculate required safety stock for each of the customized products Lead time is five weeks Require a 98 percent service level
HP needs over three-and-a-half weeks of safety stock on hand
European DC only keeps safety stock of generic printers, customizing the printers as demand is realized
The Spectrum of Supplier Integration
Develop the notion that a spectrum of supplier integration is used and that there is no single “appropriate level” of supplier integration None: The supplier is not involved in design. Material and
subassemblies are supplied according to customer specification and design
White Box: This level of integration is informal. The buyers “consults” with the supplier informally when designing products and specifications, although there is no formal collaboration
Grey Box: This represents formal supplier integration. Collaborative teams are formed between the buyer's and the supplier’s engineers, and joint development occurs
Black Box: The buyer gives the supplier at set of interface requirements and the suppliers independently design and develops the required components
Keys to Effective Supplier Integration
To achieve an effective supplier integration, hard work has to be undertaken for the relationship to be a success Select suppliers and build relationships with them Align objective with selected suppliers
What is Mass Customization
Mass customization has evolved from two prevailing manufacturing paradigms Craft Production: Highly skilled and flexible workers, who
governed by personal or procession standards, and motivated by the desire to create unique and interesting products or services
Mass Production: Efficient production of large quantity of a small variety of goods
Mass customization captures many of the advantages of both the mass production and craft production Delivery of a wide variety of customized goods or service quickly
and efficiently at lost cost
Making Mass Customization Work
The key to making mass customization work is highly skilled and autonomous workers, processes, and modular units A module’s success depends on how effectively, quickly and
efficiently it completes its task and how good it is at expanding its capabilities
Managers determine these link between modules “fit together” harmoniously in different links between modules to meet customer requests
Making Mass Customization Work
There are several key attributes that a system within a company that links different modules must possess Instantaneousness Costless Seamless Frictionless
