Coordinated Product and Process Design
Class 12: 4/13/10
A GENERAL FRAMEWORK
Two distinct chains in organizations: The supply chain which focuses on the flow of
physical products from suppliers through manufacturing and distribution all the way to retail outlets and customers, and
The development chain which focuses on new product introduction and involves product architecture, make/buy decisions, earlier supplier involvement, strategic partnering, supplier footprint and supply contracts.
KEY CHARACTERISTICS OF SUPPLY CHAIN Demand uncertainty and variability, in
particular, the bullwhip effect Economies of scale in production and
transportation Lead time, in particular due to globalization
Technology clock speedSpeed by which technology changes in a
particular industryMake/Buy decisions
Decisions on what to make internally and what to buy from outside suppliers
Product structureLevel of modularity or integrality in a productModular product
assembled from a variety of moduleseach module may have several optionsBulk of manufacturing can be completed before
the selection of modules and assembly into the final product takes place
KEY CHARACTERISTICS OF DEVELOPMENT CHAIN
INTERACTION BETWEEN THE TWO CHAINS
Fisher’s concept of Innovative and Functional Products Functional products characterized by:
slow technology clock speed, low product variety, and typically low profit margins
Innovative products characterized by: fast technology clock speed and short product life cycle, high
product variety, and relatively high margins.
WHAT IS THE APPROPRIATE SUPPLY CHAIN STRATEGY AND PRODUCT DESIGN STRATEGY FOR EACH PRODUCT TYPE?
Each requires a different supply chain strategy Development chain has to deal with the
differing level of demand uncertainty
FRAMEWORK FOR MATCHING PRODUCT DESIGN AND SUPPLY CHAIN STRATEGIES
The impact of demand uncertainty and product introduction frequency on product design and supply chain strategy
DESIGN FOR LOGISTICS (DFL) Product and process design that help to control
logistics costs and increase service levels
Economic packaging and transportation
Concurrent and parallel processingStandardization
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
EXAMPLES 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
FINAL PACKAGING
Delay until as late as possible Repackaging at the cross-docking point is
common for many products
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
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
Recall: aggregate demand information is more reliable
We can have better forecasts for a product family (rather than a specific product or style)
How to make use of aggregate data ? Designing the product and manufacturing
processes so that decisions about which specific product is being manufactured (differentiation) can be delayed until after manufacturing is under way
STANDARDIZATION
MODULARITY IN PRODUCT AND 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 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 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
SWAMINATHAN’S FOUR APPROACHES TO STANDARDIZATION Part standardization Process standardization Product standardization Procurement standardization
PART STANDARDIZATION
Common parts used across many products. Common parts reduce:
inventories due to risk pooling costs due to economies of scale
Excessive part commonality can reduce product differentiation
May be necessary to redesign product lines or families to achieve commonality
PROCESS STANDARDIZATION Standardize as much of the process as
possible for different products Customizing the products as late as
possible Decisions about specific product to be
manufactured is delayed until after manufacturing is under wayStarts by making a generic or family product Differentiate later into a specific end-product
Postponement or delayed product differentiation
DELAYED DIFFERENTIATION
May be necessary to redesign products specifically for delayed differentiation
May be necessary to resequence the manufacturing process to take advantage of process standardization
Resequencing modify the order of product manufacturing
stepsresequenced operations result in the
differentiation of specific items or products are postponed as much as possible
Point of differentiation
POSTPONEMENT
BENETTON BACKGROUND
A world leader in knitwear Massive volume, many stores Logistics
Large, flexible production networkMany independent subcontractorsSubcontractors responsible for product
movement Retailers
Many, small stores with limited storage
BENETTON SUPPLY CYCLE Primary collection in stores in January
Final designs in March of previous yearStore owners place firm orders through July Production starts in July based on first 10% of
ordersAugust - 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 itemsLate orders as items sell outDelivery promised in less than five weeks
BENETTON FLEXIBILITY
Business goals Increase sales of fashion itemsContinue to expand sales networkMinimize costs
Flexibility important in achieving these goalsHard to predict what items, colors, etc. will sellCustomers make requests once items are in
storesSmall stores may need frequent replenishments
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
BENETTONOLD MANUFACTURING PROCESS
Spin or Purchase Yarn
Dye Yarn
Finish Yarn
Manufacture Garment Parts
Join Parts
BENETTONNEW MANUFACTURING PROCESS
Spin or Purchase Yarn
Manufacture Garment Parts
Join Parts
Dye Garment
Finish Garment
This step is postponed
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 colorsStill use aggregate forecasts to start
manufacturing earlyReact to customer demand and suggestions
Issues with postponementCosts are 10% higher for manufacturingNew processes had to be developedNew equipment had to be purchased
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
Consider a large semiconductor manufacturerThe wafer fabrication facility produces highly
customized integrated circuitsProcessing 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
OPERATIONAL STRATEGIES FOR STANDARDIZATION
Process
Nonmodular Modular
Product
Modular Parts standardization Process standardization
Nonmodular Product standardization Procurement standardization
SELECTING THE STANDARDIZATION STRATEGY If process and product are modular, process
standardization will help to maximize effective forecast accuracy and minimize inventory costs.
If the product is modular, but the process is not, it is not possible to delay differentiation. However, part standardization is likely to be effective.
If the process is modular but the product is not, procurement standardization may decrease equipment expenses.
If neither the process nor the product is modular, some benefits may still result from focusing on product standardization.
PUSH-PULL BOUNDARY Pull-based systems typically lead to:
reduction in supply chain lead times, inventory levels, and system costs
making it easier to manage system resources Not always practical to implement a pull-
based system throughout the entire supply chainLead times may be too longMay be necessary to have economies of scale
in production or transportation. Standardization strategies can combine
push and pull systems Portion of the supply chain prior to product
differentiation is typically a push-based supply chain
Portion of the supply chain starting from the time of differentiation is a pull-based supply chain.
SUPPLIER INTEGRATION INTO NEW PRODUCT DEVELOPMENT Traditionally suppliers have been
selected after design of product or components
However, firms often realize tremendous benefits from involving suppliers in the design process.
Benefits include:a decline in purchased material costsan increase in purchased material qualitya decline in development time and cost an increase in final product technology levels.
THE SPECTRUM OF SUPPLIER INTEGRATION
No single “appropriate level” of supplier integration None
Supplier is not involved in design. Materials/subassemblies supplied as per customer
specifications/design White box
Informal level of integration Buyer “consults” with the supplier informally when
designing products and specifications No formal collaboration
Grey box Formal supplier integration Collaborative teams between buyer’s and supplier’s
engineers Joint development
Black box Buyer gives the supplier a set of interface requirements Supplier independently designs and develops the required
component
APPROPRIATE LEVEL DEPENDS ON THE SITUATION Process Steps to follow:
Determine internal core competencies. Determine current and future new product
developments. Identify external development and
manufacturing needs.
Black Box If future products have components that
require expertise that the firm does not possess, and development of these components can be separated from other phases of product development, then taking
Grey Box If separation is not possible
White Box If buyer has some design expertise but wants
to ensure that supplier can adequately manufacture the component
APPROPRIATE LEVEL DEPENDS ON THE SITUATION
KEYS TO SUPPLIER INTEGRATION Making the relationship a success:
Select suppliers and build relationships with them
Align objectives with selected suppliers Which suppliers can be integrated?
Capability to participate in the design processWillingness to participate in the design processAbility to reach agreements on intellectual
property and confidentiality issues. Ability to commit sufficient personnel and time
to the process. Co-locating personnel if appropriateSufficient resources to commit to the supplier
integration process.
MASS CUSTOMIZATION Evolved from the two prevailing
manufacturing paradigms of the 20th centuryCraft production and mass production.
Mass productionefficient production of a large quantity of a small
variety of goodsHigh priority on automating and measuring tasksMechanistic organizations with rigid controls
Craft production involves highly skilled and flexible workersOften craftsmen Organic organizations which are flexible and
changing
ABSENCE OF TRADE-OFFS Two types meant inherent trade-offs
Low-cost, low-variety strategy may be appropriate for some products
For others, a higher-cost, higher-variety, more adaptable strategy was more effective
Development of mass customization implies it is not always necessary to make this trade-off
Mass customizationdelivery of a wide variety of customized goods
or services quickly and efficiently at low costcaptures many of the advantages of both the
mass production and craft production systems not appropriate for all productsgives firms important competitive advantageshelps to drive new business models
MAKING MASS CUSTOMIZATION WORK
Highly skilled and autonomous workers, processes, and modular units
Managers can coordinate and reconfigure these modules to meet specific customer requests and demands
KEY ATTRIBUTES Instantaneous
Modules and processes must be linked together very quickly
Allows rapid response to various customer demands.
CostlessLinkages must add little if any cost to the
processesAllows mass customization to be a low-cost
alternative. Seamless
Linkages and individual modules should be invisible to the customer
FrictionlessNetworks or collections of modules must be
formed with little overhead. Communication must work instantly
MASS CUSTOMIZATION AND SCM Many of the advanced SCM approaches
and techniques essential if mass customization is to be successfully implemented
IT critical for effective SCM is also critical for coordinating different modules
Concepts like strategic partnerships and supplier integration essential for the success of mass customization.
Postponement can play a key role in implementing mass customization
SUMMARY Design for logistics concepts
Efficient packaging and storage Certain manufacturing steps can be completed in
parallel Standardization
Integrating suppliers into the product design and development process
Advanced supply chain management facilitating mass customization