Designing Supply Chains Towards Theory Development

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Int. J. Production Economics 100 (2006) 223–238

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Designing supply chains: Towards theory development

Mark A. Vonderembsea,�, Mohit Uppalb, Samuel H. Huangc, John P. Dismukesd

aCollege of Business Administration, The University of Toledo, 2801 West Bancroft St., Toledo, OH 43606, USAbCorporate Material Management Department, American Axle and Manufacturing, Detroit, MI USA

cCollege of Engineering, The University of Cincinnati, Cincinnati, OH, USAdCenter for Manufacturing Value Chain Science, The University of Toledo, Toledo, OH, USA

Received 1 March 2002; accepted 1 November 2004

Available online 9 February 2005

Abstract

This paper describes a typology for designing supply chains that work in harmony to design, produce, and deliver

products with different characteristics and customer expectations. This research discusses supply chain types that are

necessary for success across three types of products: standard, innovative, and hybrid. It develops a framework for

categorizing the supply chain types according to product characteristics and stage of the product life cycle. The key

success factor for a product change as the product moves through its life cycle, and this may require different supply

chain characteristics and capabilities. The paper blends literature and theory development with cases study research to

create the typology and develop a set of research questions for further investigation.

r 2005 Elsevier B.V. All rights reserved.

Keywords: Agile manufacturing; Lean manufacturing; Supply chain management; Supplier selection

1. Introduction

With uncertainty in customer expectation,quantum leaps in technology and high-speedInternet links, business transcends local andnational boundaries. In this environment, organi-zations face sophisticated customers who demandincreasing product variety, lower cost, better

e front matter r 2005 Elsevier B.V. All rights reserve

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quality, and faster response. To compete success-fully, organizations are embracing supply chainmanagement (SCM) because it focuses on actionsalong the entire value chain (Bechtel and Jayaram,1997; Childerhouse et al., 2002; Tan, 2001;Vonderembse, 2002). The supply chain perspectiveis predicated on the fact that competition isshifting from firm versus firm to supply chainversus supply chain, and SCM is the approachto designing, organizing, and executing theseactivities.SCM integrates suppliers, manufacturers, dis-

tributors, and customers through the use of

d.

www.elsevier.com/locate/dsw

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M.A. Vonderembse et al. / Int. J. Production Economics 100 (2006) 223–238224

information technology to meet customer expecta-tions efficiently and effectively (Ansari, 1990;Childerhouse and Towill, 2002; Choi and Hong,2002; Huang et al., 2003; Quinn, 1997; Rich andHines, 1997; Thomas and Griffin, 1996). As aresult, groups of companies can respond quicklyand in a unified manner with high-quality,differentiated products demanded by fastidiousfinal consumers while achieving system-wide ad-vantages in cost, time, and quality (Carter, 1996;Christopher, 1992; Davis, 1993; Hewitt, 1994;Mabert and Venkataramanan, 1998; Persson andOlhager, 2002; Vonderembse 2002).

As competition shifts from a company orienta-tion to a supply chain orientation, SCM is toutedas a strategy of choice for successful competitors(Quinn, 1997; Rich and Hines, 1997). Forexample, in the automotive industry, competitionis among DaimlerChrysler, Ford, Toyota, etc.and the supply chains that enable each of themto deliver finished product to the final cus-tomer. The development, design, production,marketing, and delivery of new cars is a teameffort that begins with extracting raw materialsfrom the earth, continues through design, fab-rication, and assembly, and ends with fit andfinish in the dealer’s show room. When a customerbuys a car, the customer chooses the output ofthe entire supply chain and pays all the partici-pants. To be successful, automotive companiesmust develop an approach to design, organize,and execute supply chain activities from itsroots in basic materials such as extracting ironore, sand, and crude oil to the dealer network. Thisdoes not mean ownership or even direct con-trol, but it does imply mechanisms that in-fluence decision-making and impact system-wideperformance.

Questions remain about how supply chainsfunction and how deeply supply chain conceptsare ingrained in manufacturing organizations.Recently, researchers are investigating the factorsneeded to design and build effective supply chains(Childerhouse et al., 2002; Cooper and Ellram,1993; Mabert and Venkataramanan, 1998; Nar-asimhan and Jayaram, 1998; Pagh and Cooper,1998; Persson and Olhager, 2002; Walker et al.,1999, 2000). This research discusses strategies and

methodologies for designing supply chains thatmeet specific customer expectations. Supply chaindesign should be, in part, a function of the productcharacteristics and expectations of the final custo-mer (Calantone et al., 2002; Fisher, 1997; Reinerand Trcka, 2004; Singhal and Singhal, 2002). Theresearch examines three types of products: stan-dard, innovative, and hybrid, and it describessupply chain characteristics that are essential forsuccess. Other product types may exist, but thisstudy is limited to these three.Standard products have stable demand, and

their design characteristics and production re-quirements change slowly over time. As a resultof this stability, customer contact tends to beperiodic rather than continuous (Mason-Jones etal., 2000). Commodities like staples or fastenersare standard products that require straightforwardsupply chains with few participants. More inter-esting examples of standard products would besmall appliances or hand tools like toasters orsaber saws because they tend to have severalsuppliers providing important components. Theseproducts are usually in the latter part of thegrowth segment of their product life cycle orbeyond.Innovative products are new or derivative

products that are aimed at new customers andmarkets and are designed to be adaptable tochanging customer requirements. These productsrequire close and continuous customer contact,have uncertain demand, and their product designsmay be unstable (Fisher, 1997; Mason-Jones et al.,2000). Innovative products are usually in theintroduction and growth stages of the product lifecycle. Emerging communication technology is anexample. Innovative products can also be deriva-tive or differentiated products that re-ignites thegrowth potential of a product in the mature phaseof the product life cycle. New computer chips andsoftware upgrades are examples.Hybrid products are complex products that

have several to many components, which may bea mixture of standard and innovative products.Automobile or other assembled products areexamples. These products are usually majorpurchases that are made periodically by customersafter careful consideration and investigation.

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Hybrid products may be at any stage of theproduct life cycle.

The goal of this research is to provide insights toorganizations that are designing supply chains tomanufacture discrete parts. The research definesthe product characteristics of standard, innova-tive, and hybrid products. Through case studies, itprovides a framework for understanding lean,agile, and hybrid supply chains, and it relates theadoption of these supply chains to the character-istics of the products and the needs of thecustomers.

2. Supply chain types

This research is grounded in the literature onlean and agile supply chains, see Table 1. Itattempts to understand and integrate these para-digms to create a classification scheme that can berelated to different product types.

Ganeshan and Harrison (1995) deal with basicsissues in SCM including a definition, strategic andoperating issues, and four key decision areas: (1)location, (2) production, (3) inventory, and (4)transportation (distribution). They provide abrief literature review of supply chain mode-ling approaches, namely, network designmethods, rough-cut methods, and simulationbased methods.

Beamon (1998) focuses on supply chain designand analysis. The author provides a literaturereview on multi-stage supply chain modeling,which consists of four categories: deterministic,stochastic, economic, and simulation models. Shealso focuses on supply chain performance mea-sures that are qualitative and quantitative as wellas decision variables that impact supply chainmodeling such as production and distributionscheduling, inventory levels, number of stages(echelons), distribution centers, plant productassignment, buyer/supplier relationships, productdifferentiation, and number of products held ininventory. The author lays groundwork for futureresearch in the following areas: (1) evaluating anddeveloping supply chain performance measures,(2) developing models and procedures to relatevariables to the performance measures, (3) con-

sidering issues relating to supply chain modeling,and (4) classifying supply chain systems to allowdevelopment of rules-of-thumb or general techni-ques to aid in the design and analysis of supplychains.Nolan (1999) defines five characteristics that

help managers to reap the full benefits of the SCMapproach. These involve achievable implementa-tion phases, senior level involvement, collabora-tion, business process and organizational design,and effective performance measures. He concludesthat these five steps help in the effective imple-mentation of a SCM system. This is a generalclassification of SCM systems and strategiesorganizations should adopt to be successful.Ragatz et al. (1996) examine issues related to

lean and agile supply chains as they examine theintegration of suppliers with product development.According to these authors, organizations areintegrating their suppliers by involving them inproduct design and in some cases making themresponsible for the design of components andsystems that decrease product development time.The paper analyzes relationships between custo-mer and supplier as well as the most and leastsuccessful supplier integration efforts. In relatedwork, Dowlatshahi (1996) focuses on the earlyinvolvement of logistics in product design. Hispaper explores areas where early collaboration andinterfaces between logistics and design activitiescould result in significant improvements formanufacturing enterprises.Hoffman and Mehra (1996) examine the rela-

tionship between concurrent engineering and riskmanagement. Their research concludes that con-current engineering reduces risk because uncer-tainty decreases as everyone shares the sameknowledge, speaks the same language, and worksin a team environment. Overall costs declinesubstantially because a team approach is adoptedduring product development, which results inbetter planning, faster response to unanticipatedchanges from suppliers, and fewer changes late inthe product development process when changesare more expensive.Gunasekaran (1999a, b) focuses solely on the

agile manufacturing paradigm. His paper providesa conceptual model of an agile manufacturing

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Table 1

Literature review

Author(s) Areas researched and contributions made Supports

Supply chains Lean supply

chains

Agile supply

chains

Ganeshan and Harrison

(1995)

Focused on the basics of SCM involving its

definitions and strategies.

|

Took into account 4 major decision areas: (1)

location, (2) production, (3) inventory, (4)

transportation.

Provided a literature review on SC modeling

approaches, namely, network design, rough cut

and simulation based methods.

Beamon (1998) Focused on SC design and analysis. |Provided a literature review on multi-stage SC

modeling.

Focused on SC performance measures.

Nolan (1999) Defines 5 key characteristics in order to benefit

from SCM systems, namely, implementation

phases, senior level involvement, business

process reengineering, collaboration and

effective performance measures.

|

Ragatz et al. (1996) Focused on the integration of suppliers in new

product development.

|

Dowlatshahi (1996) Developed and tested a model to study the early

collaboration and interface of logistics and

design activities.

| |

Model results in significant achievements for

manufacturing enterprises.

Hoffman and Mehra

(1996)

Studied the relationship between concurrent

engineering and risk management.

|

Resulted in substantial decrease in costs during

the product development stages.

Led to fewer efforts to responsiveness later in the

product life cycle.

Gunasekaran (1999a, b) Provided a conceptual model on AMSs. |Reviewed the available literature on agile

manufacturing.

Yusuf et al. (1999) Provided information into the drivers, concepts

and attributes of agile manufacturing.

|

Provided tools and techniques required for a

successful AMS, e.g., virtual organizations,

quick response manufacturing, time-based

competition, etc.

Sharifi and Zhang (1999) Focused on an AMS and developed a conceptual

model for achieving agility.

| |

Assumed that a LSC is a subset of an ASC.

Naylor et al. (1999) Proposed the usage of the lean and agile concept

with the aid of a decoupling point.

| |

Model highlights how the decoupling point

satisfies different manufacturing types.


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system (AMS) along four key dimensions: strat-egy, technology, systems, and people. He reviewsthe available literature on agile manufacturing andthe technologies that are essential to the adoptionof AMS. His later research contributions (Yusufet al., 1999) provide information into the drivers,concepts, and attributes of agile manufacturing.They provide information on the design andimplementation of AMS, highlighting the varioustools and techniques that are imperative to thesuccess of AMS. These include concepts such asvirtual enterprise, computerized manufacturingcontrol system, architecture for the developmentof manufacturing control systems, quick responsemanufacturing, time-based competition, rapidmodeling capabilities, and object oriented model-ing and programming. Their research focusestightly on the design and implementation ofAMS and not on its impact and usage in thesupply chain. It also overlooks the possibleintegration of a lean and agile supply chain aswell as a design based on product characteristics.It works on the premises that agile manufacturingis the only viable solution to supply chain design.

Sharifi and Zhang (1999) also focus on the AMSand develop a conceptual model for achievingagility, with a pre-supposition that a lean chain is asubset of an agile chain. While it acknowledges arelationship between lean and agile supply chains,it overlooks the possible integration of the twochains and the benefits that can be derived from it.

These research studies, although informative, donot fully describe the supply chain alternatives. Amodel developed by Naylor et al. (1999) proposesthe combined use of a lean and agile supply chain.These studies lay a foundation for developing thehybrid supply chain (HSC). The HSC uses avariety of approaches including concepts fromlean and agile supply chain literature as well astraditional purchasing practices to meet the needsof the final customer.

Through case studies, this research expands thealternatives and provides a framework for under-standing the relationships among them. It arguesthat supply chain type is to a large extent afunction of product characteristics and customerexpectations (Fisher, 1997). With a rapidly chan-ging business environment, organizations require a

supply chain model that deals with strategic andcustomer issues in addition to operating con-straints. The product is the soul of the supplychain; there is no justification for adopting aparticular supply chain type unless it conforms tothe needs of the product and its customers. Thefollowing sections provide an overview of lean,agile and hybrid supply chains, which are de-scribed in detail in Table 2.

2.1. Lean supply chain

A lean supply chain (LSC) employs continuousimprovement efforts that focus on eliminatingwaste or non-value steps along the chain. It issupported by efforts to achieve internal manufac-turing efficiencies and setup time reduction, whichenable the economic production of small quanti-ties and enhance cost reduction, profitability, andmanufacturing flexibility to some degree. Theshort setup times provide internal flexibility, buta LSC may lack external responsiveness tocustomer demands, which can require flexibilityin product design, planning and scheduling, anddistribution in addition to manufacturing (Booth,1996).As the rate of market change increases, the LSC

approach has evolved into ‘‘multiple niche com-petition,’’ which is the production of any volume,even a single unit, combined with the ability tosatisfy multiple market segments (Booth, 1996).Organizations recognize that along with the addedvariety and responsiveness squeeze, they mustremain adaptable to future changes. Customerrequirements are continuously evolving and pro-duct life cycles are growing shorter, therefore,along with being lean, supply chains must respondto the market. As a result, successful organizationsmove from concept to cash flow in a fraction of thetime.

2.2. Agile supply chain

The agile supply chain (ASC) paradigm relatesto the interface between companies and markets,an external perspective on flexibility. Successfulimplementation involves responding to rapidlychanging and continually fragmenting global

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Table 2

Differentiation between lean, agile and hybrid supply chains

Category Lean supply chain Agile supply chain Hybrid supply chain

Definition A LSC employs continuous

improvement to focus on the

elimination of waste or non-

value added steps in the supply

chain. It is supported by the

reduction of setup times to allow

for the economic production of

small quantities; thereby

achieving cost reduction,

flexibility and internal

responsiveness. It does not have

the ability to mass customize

and be adaptable easily to future

market requirements.

Agility relates to the interface

between a company and the

market. ASCs profit by

responding to rapidly changing,

continually fragmenting global

markets by being dynamic and

context-specific, aggressively

changing, and growth oriented.

They are driven by customer

designed products and services.

A HSC generally involves

‘‘assemble to order’’ products where

demand can be accurately

forecasted. The supply chain helps

to achieve some degree of

customization by postponing

product differentiation until final

assembly. Lean or ASCs are utilized

for component production. The

agile part of the chain establishes an

interface to understand and satisfy

customer requirements by being

responsive and innovative.

Purpose Focus on cost reduction and

flexibility for already available

products. Employs a continuous

improvement process to focus

on the elimination of waste or

non-value added activities

across the chain. Primarily aims

at cost cutting, flexibility and

incremental improvements in

products.

Understands customer

requirements by interfacing with

customers and market and being

adaptable to future changes.

Aims to produce in any volume

and deliver to a wide variety of

market niches simultaneously.

Provides customized products at

short lead times (responsiveness)

by reducing the cost of

variation.

Employ lean production methods

manufacturing. Interfaces with the

market to understand customer

requirements. Achieve a degree of

customization by postponing

product differentiation until final

assembly and adding innovative

components to the existing

products.

Approach to

manufacturing

Advocates lean manufacturing

techniques.

Advocates agile manufacturing

techniques, which is an

extension of lean

manufacturing.

Employs lean and agile

manufacturing techniques.

Integration Integrate manufacturing,

purchasing, quality and

suppliers.

Integrates marketing,

engineering, distribution and

information systems.

Similar to the LSC at component

level and follows an ASC at product

level.

Production planning Works on confirmed orders and

reliable forecasts.

Has the ability to respond

quickly to varying customer

needs (mass customization).

Works on confirmed orders and

reliable forecasts with some ability

to achieve some produce variety.

Length of product

life cycle

Standard products have

relatively long life cycle times

(42 years).

Innovative products have short

life cycle times (3 months–1

year).

Involved the production of

‘‘assemble to order’’ products,

which stay in the maturity phase of

the life cycle for a long time.

Alliances May participate in traditional

alliances such as partnerships

and joint ventures at the

operating level.

Exploits a dynamic type of

alliance known as a ‘‘virtual

organization’’ that work on

product design.

Along with traditional operating

alliances, HSCs may utilize strategic

alliances to respond to changing

consumer requirements.

Markets Serve only the current market

segments.

Acquire new competencies,

develop new product lines, and

open up new markets.

Respond to customer requirements

with innovative features in existing

products. This enables the

organization to capture a larger

segment of that product market.


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Table 2 (continued )

Category Lean supply chain Agile supply chain Hybrid supply chain

Organizational

structure

Uses a static organizational

structure with few levels in the

hierarchy.

Create virtual organizations by

creating alliances with partners

that vary with different product

offerings that change frequently.

Maintain an organization similar to

a LSC. May create temporal

relationships with partners to

implement innovative features.

Approach to

choosing suppliers

Supplier attributes involve low

cost and high quality.

Supplier attributes involve

speed, flexibility, and quality.

Supplier attributes involve low cost

and high quality, along with the

capability for speed and flexibility,

as and when required.

Demand patterns Demand can be accurately

forecasted and average margin

of forecasting error tends to be

low, roughly 10%.

Demand are unpredictable with

forecasting errors exceeding

50%.

Similar to the LSC. The average

product demand can be accurately

forecasted. Component level

forecasting may involve larger

errors.

Inventory strategy Generates high turns and

minimizes inventory throughout

the chain.

Make in response to customer

demand.

Postpone product differentiation

and minimize functional

components inventory.

Lead time focus Shorten lead-time as long as it

does not increase cost.

Invest aggressively in ways to

reduce lead times.

Similar to the LSC at component

level (shorten lead-time but not at

the expense of cost). At product

level, to accommodate customer

requirements.

Manufacturing focus Maintain high average

utilization rate.

Deploy excess buffer capacity to

ensure that raw material/

components are available to

manufacture the innovative

products according to market

requirements.

Combination of lean and ASC

depending on comp.

Product design

strategy

Maximize performance and

minimize cost.

Design products to meet

individual customer needs.

Use modular design in order to

postpone product differentiation for

as long as possible.

Human resources Empowered individuals working

in teams in their functional

departments.

Involves decentralized decision-

making. Empowered individuals

working in cross-functional

teams, which may be across

company borders too.

Empowered individuals working in

teams in their functional

departments.


markets by being dynamic, context-specific,growth-oriented, flexible across the organization,and driven by customer. An ASC focuses onresponding to unpredictable market changes andcapitalizing on them through fast delivery andlead-time flexibility. It deploys new technologies,methods, tools, and techniques to solve unex-pected problems. It utilizes information systemsand technologies as well as electronic data inter-

change capabilities to move information faster andmake better decisions. It places more emphasis onorganizational issues and people (knowledgesystems and empowered employees), so decision-making can be pushed down the organization. It isa systemic approach that integrates the business,enhances innovations across the company, andforms virtual organizations (VOs) and productionentities based on customer needs.

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2.3. Hybrid supply chain

In addition to lean and ASCs, this researchproposes the existence of an intermediate chainknown as the HSC. A HSC generally involves‘‘assemble to order’’ products whose demand canbe forecasted with a relative accuracy. The chainhelps to achieve mass customization by postpon-ing product differentiation until final assembly.The lean or agile supply chain techniques areutilized for component production with differentcharacteristics. For example, air bags would mostlikely be produced with a LSC while engineelectronics might require the innovation found inan ASC. In addition, the agility is needed toestablish a company–market interface to under-stand and satisfy customer requirements by beingresponsive, adaptable, and innovative.

3. Identify product types

Understanding the characteristics of the productis essential to design a supply chain that meetscustomer expectations (Vonderembse, 2002). Thissection describes three product types (standard,innovative, and hybrid), relates these producttypes to the product life cycle, and discusses thefactors that are critical for designing effectivesupply chains.

3.1. Standard product

The market for standard products tends to bestable, and demand can be forecasted accurately.Standard products tend to have long life cycleswhere designs change incrementally. This ensureswell-defined and predictable processes for productdesign and manufacturing. Manufacturer may findit useful to establish a long-term relationship withits suppliers for high quality materials, just-in-timedelivery, and quantity discounts. With predictabledemand patterns and consistent processes, costminimization can be pursued very effectively,especially in the mature phase of the product lifecycle. The characteristics of the LSC fit the needsof the standard product well.

3.2. Innovative product

Innovative products are new products thatrequire sophisticated design and/or manufacturingcapabilities. They are significantly different fromcurrent products, and they often represent abreakthrough in product concept and design. Theyoften satisfy emerging customer needs and in somecases needs that customers have yet to articulate.They usually command a premium price, whichhas the potential to increase profits. Innovativeproducts generally have a shorter product life cyclethan standard products. Once introduced andfound to be successful, competitors quickly emu-late innovative products because they commandpremium prices. As demand grows and competi-tors emerge, innovative product can becomestandard product where cost and quality aredominate characteristics. This forces the originalmanufacturer to constantly interact with custo-mers to generate new ideas that drive a steadystream of new and improved product types.

3.3. Hybrid product

The hybrid product is a complex product thatincludes a mix of standard and innovative compo-nents. To respond, LSC and ASC are combined toprovide the components needed in final assembly.The link with the final consumer of the hybridproducts is based on the concept of agility. Hybridproducts tend to have a long product life cyclewith a certain degree of improvement or innova-tion offered periodically. These innovations mostfrequently occur at the module or componentlevel. For example, in automobiles, fuel injectorshave replaced carburetors to increase fuel effi-ciency, and air bags have supplemented seat beltsto improve safety. A critical decision for themanufacturer is often what to produce inside thecompany and what to buy from suppliers.

4. Case studies in supply chain design

To better understand the relationships betweenthe three supply chain types (lean, agile, andhybrid) and the different product types (standard,

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innovative, and hybrid), case studies of firmsproducing discrete parts were conducted. Blackand Decker Inc. produces small appliances andhand tools, and it employs a LSC that manufac-turers standard products to meet quality, cost, anddelivery requirements. IBM works with Hitachi tocreate a strategic business alliance that acceleratesthe development and delivery of advanced storagetechnologies to meet rapidly changing customerneeds. DamilerChrysler makes a complex productthat requires a supply chain with differentattributes and elements, a HSC.

4.1. Black and Decker’s lean supply chain

Black and Decker Inc. produces a variety ofsmall appliances and hand tools for use in thehome. Success in that market is predicated onmanufacturing standard products that have highquality and low cost and a moderate amount ofvariety. Designs for these appliances and toolschange slowly and demand for these products canbe characterized as slow and steady growth. Underthese circumstances, a LSC effectively meets theneeds of Black and Decker. A LSC focuses onoperating issues as it attempts to eliminate non-value added operations. LSC partners support thereduction of setup times to enable the economicproduction of small quantities. This enables thesupply chain to keep inventory costs low, achievemanufacturing cost reductions, and enable manu-facturing operations to switch quickly amongproducts, which provides a degree of responsive-ness to customer needs. Customization of indivi-dual products to satisfy specific requirements isnot necessary because a standard product meetsthe needs of most customers at an affordable price.

As an example, consider the 3/8-inch, variablespeed, reversing drill, which is one of Black andDecker’s most popular products. The tool is soldprimarily to homeowners who use it infrequentlyto hang a shelf or repair a table. The majorcomponents of the drill, whether produced byinternal or external suppliers, can be divided intothree major groups. The electric motor and otherelectronic components provide the power, thegearing transforms the power to the drill bit, andthe housing supports and encases the motor and

the gears. There are other items including fastenersthat are also purchased, but these items arestandard and can be provided by many suppliers.Each major component in the drill is also a

standard product. To create a successful supplychain, component suppliers must adopt leanmanufacturing and its continuous improvementphilosophy. These suppliers must achieve aninteresting combination of flexibility and costreduction. Flexibility is needed because there areseveral different models of drills as well as otherhand tools and appliances that require similarcomponents. Cost reduction is also essentialbecause products, like drills, are produced bymany competitors and customers are price sensi-tive. Cost reductions can be achieved whensuppliers purchase large volumes of basic materialssuch as steel for the gear manufacturer or copperfor the electric motor producer. They are alsoachieved by streamlining the flow of materials andinformation through the supply chain to drive outinventory and non-value added steps. Becausedrills have low profit margins, maintaining highsales and production volumes is critical for profit-ability for all members in the supply chain.Changes in product design are incremental and

often focus on small improvements in performanceor cost reductions. Substantial improvements inproduct performance are not generally available.For example, most drills today have a keyless chuckso that bits can be quickly changed without searchingfor a tool to remove the bit. This redesign wasaccomplished easily and quickly. In another case,parts of the housing are now made of plastic ratherthan steel because the plastic is lighter and cheaper.As a result, Black and Decker can with relative

ease switch from one supplier of electric motors toanother, which is a significant motivator forsuppliers to seek continuous improvements inboth component part cost and quality. To theextent that Black and Decker and its supplierachieve this, they will maintain and expand theirshare of the market.

4.2. IBM’s agile supply chain

IBM operates in the highly competitive infor-mation technology arena where response to

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rapidly changing and continually fragmentedglobal markets is essential. This requires IBM tomove beyond operating partnerships that cutmanufacturing costs and reduce manufacturingtime, like Black and Decker, to an environmentthat create strategic partnerships that work jointlyon research and development, product conceptua-lization, product development, and distribution aswell as operations. Under these circumstances, anASC creates dynamic and context-specific partner-ships with various companies in order to meetspecific customer needs. An ASC, learns andassimilates requirements by interfacing with cus-tomers and markets, and it adapts to changingexpectations quickly and with minimal disruption.It provides customized products at short leadtimes by reducing the cost of variation.

IBM pursued a strategic business alliance withHITACHI that is designed to accelerate thedevelopment and delivery of advanced storagetechnologies and products to meet diverse custo-mer expectations. This merger combines technicalleadership with global economies of scale indesigning and manufacturing disk storage. Var-ious hard disk drive operations were reorganizedinto a new standalone joint venture that integratedresearch, development, and manufacturing. It alsoallowed the organizations to coordinate relatedsales and marketing teams. In the storage area,IBM has also collaborated with Tree Data to caterto individual customer requirements in a timelymanner. This collaboration helps IBM concentrateon storage networking products for mid-sizedcustomers. With the flexibility that this partnershipbrings, IBM can design and develop storagesystems that meet the needs of various marketsegments easily and quickly.

IBM is collaborating with UPS to manageIBM’s distribution network, which covers Asia,Europe, and North America. The partnership wascreated because UPS has the skills and ability tomove products easily, quickly, and efficiently. UPScan help IBM to coordinate and integrate thesupply and distribution networks that link suppli-ers to manufacturers and manufacturers to custo-mers. These efforts expand collaboration amongthe four logistic centers in Singapore, Taiwan, theNetherlands, and the US and 22 just-in-time

suppliers and other vendor managed inventorylocations. This has increased the real time visibilitythroughout the supply chain for IBM, whichimproves the management of inventory and short-ens product turnaround time. In addition, UPSholds licenses in Europe and Asia that allow ‘‘self-reporting’’ of duties and taxes owed after ship-ment, which reduces paperwork and createsseamless operations in the supply chain. Theimportant benefits achieved through this colla-boration are shorter cycle times from manufac-turers to customers, doubling inventory turns, andflexibility in expedited service and rush deliveries.In the LSC, operating costs and efficiency as

well as quality and reliability are essential. In theASC, the dimensions of competition move beyondthese elements to include innovation, speed, andflexibility. Quality and reliability are still critical inthe ASC, but operating cost and efficiency, whilestill important, are diminished in stature ascustomers demand new, innovative, and applica-tion-specific solutions.

4.3. DaimlerChrysler’s hybrid supply chain

DaimlerChrysler requires a supply chain withdifferent characteristics and capabilities. Becausevehicles are complex, with hundreds or eventhousands of components of varying cost andsophistication, the firm cannot use a one-size-fits-all approach when developing supplier relation-ships. The company faces circumstances that aresimilar to other automotive manufacturers.For DiamlerChrysler, some components have

high product and/or process technology, are undergoing rapid technological change, and add sig-nificant value to the vehicle in the eyes of theconsumer. Global positioning and informationsystems for navigation are examples. This type ofcomponent, which has many points in commonwith innovative products, may require Daimler-Chrysler to use ASC and to develop a strategicpartnership with the supplier in order to workjointly on product design and development.For other components, product technology is

well established but the components themselvesare high cost, bulky, and subject to variation.These products also contribute significantly to

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factor that impact the customer decision topurchase or repurchases such as comfort, safety,appearance, or reliability. For example, vehicleseats consume a lot of space, and they come in avariety of styles and colors. Without carefulmanagement and coordination between suppliersand manufacturers, production, inventory, andmaterial handling costs can spiral out of control.In this case, DaimlerChrysler attempts to createoperating partnerships that improve overall supplychain performance.

Some components are basic commodities thatcustomers do not see or appreciate but they areessential to the vehicle’s performance. Thesehidden items, like hose couplings and wireconnectors, are not points of differentiation forthe customer, and they are not valued bycustomers in the traditional sense. Customers onlynotice them when they fail. These items arepurchased based on quality, cost, reliable, andon-time delivery.

This wide range of components presents Daim-lerChrysler with fundamentally different SCMissues. Following are three examples that illustratehow the company handles these alternatives.

4.3.1. Strategic partnership with Dana Corporation

Dana designs and manufactures drive traincomponents for cars and trucks, which are keycomponents for delivering engine performance tothe wheels, improving operating efficiency, andenhancing comfort. Many vehicles, especially lighttrucks and sport utility vehicles have more thanone gearing options so platform design andflexibility in manufacturing are also important.Drive train components interact significantly withengine and body design, and they are beginning touse computer chip to improve efficiency. Tooptimize vehicle performance, DaimlerChrysler,Dana Corporation, and other first-tier supplierswork together on design teams to address im-portant design issues and make critical trade-offs.Changes in weight, engine displacement, or trac-tion requirements can impact design decisions forDana. In addition, Dana’s manufacturing opera-tions are designed to achieve high quality, keepcosts low, and cope with variability in demand forthe components. DaimlerChrysler defines metrics

to assess supplier performance, sets target levelsfor these metrics, measures outcomes, and workswith suppliers to improve performance.

4.3.2. Operating partnership with Modine

Manufacturing

Modine Manufacturing supplies cooling mod-ules to DaimlerChrysler’s new facility that assem-bles the Jeep Liberty. A cooling module includes aradiator, fan, condenser for the air conditioner, oilcooler, wiring, supporting frame, and hose con-nections. The modules are assembled by Modineand delivered to DaimlerChrysler’s final assemblyplant ready for installation. To keep inventory andmaterial handling costs low, DaimlerChryslerinsists that Modine deliver the cooling moduleswithin 4 hours of the order and in the sequenceneeded at the assembly line. To do this, Daimler-Chrysler sends an electronic signal to the ModinePlant every time a vehicle begins the trip down theassembly line (every 72 seconds). When Modinegets the signal, it assembles the module frommaterials fabricated at other facilities, or it pullsthe module from a modest 2-day inventory. Themodules are loaded on shipping racks in the orderneeded at final assembly and delivered within4 hours. Upon arrival, the rack is taken directly tothe assembly line where the modules are takenfrom the rack and placed in the vehicle. This ismuch better than the traditional approach, whichwould require DaimlerChrysler to stage theproduct, check the order, determine what wasneeded immediately, and place what was notneeded in inventory. Modules placed in inventorywould be picked from inventory eventually andtaken to the assembly line. DaimlerChrysler paysonly for modules that are in vehicles that drive offthe assembly line. This new approach eliminatesunneeded paperwork and clerical activity, and itgreatly reduces inventory and material handlingcosts. To help Modine and its supplies determinetheir inventory needs, DaimlerChrysler provides a5-day rolling schedule for production that is notfixed but is usually very accurate.

4.3.3. Commodity purchasing: Threaded fasteners

DaimlerChrysler also purchases many differentthreaded fasteners for the final assembly process.

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The size, shape, and strengths of these fastenersare highly standardized. There are few if anysignificant design decisions. These fasteners aresimple and take little storage space, so closecoordination of production, shipping, and deliveryof the fasteners is of limited importance. Theprimary elements in the purchasing decision arequality, price, and reliable delivery. Strategic andoperating partnerships add little value. E-purchas-ing practices and competitive bidding can be usedto streamline paperwork and coordinate delivery.The Internet has become an effective means forpurchasing these commodities because it elimi-nates transactions that increase cost but add littleif any value.

5. Supply chains design and the product life cycle

This section describes the product life cycle anddiscusses a set of observations that relates producttype and supply chain type. Table 3 summarizesthe supply chain classification based on producttype and product life cycle.

5.1. Product life cycle

The product life cycle illustrates unit sales for aproduct category over time. It is divided into fourdiscrete stages: introduction, growth, maturity,and decline. The shape of the sales curve reflectsthe notion that a product’s sales begin slowlyduring the introductory stage, then grow rapidly

Table 3

Supply chain classification based on product type and product life cy

Product Type

Product Life Cycle

Standard

Introduction

Growth

Agile SuppChain

Maturity

Decline

Lean Supply Chain Hybrid / Le

Supply Cha

Innovative

often reaching a peak relatively early in aproduct’s life. During the saturation or maturityphase, demand may grow slowly for a long periodof time before it begins to decreases. Accompany-ing this change in real growth are changes incompetitive conditions, strategies, and perfor-mance. The life cycle can be viewed as a series ofinterrelated propositions dealing with systematicchanges in the marketplace.The introduction stage involves the satisfaction

of either a new or an existing need. A new needtends to involve the introduction of an incremen-tally innovative product, whereas an existing needoften involves a standard product. If the product isnew, generally the competition comes from differ-ent products. For example, the primary competi-tion for the first e-mail service came from the USPostal Service and the telephone. New productsmay have defects, but these are dealt with asquickly as possible in order to prevent the pre-mature death of the product. The growth stageinvolves the product’s market acceptance and anincrease in the organization’s market share.Demand begins to accelerate and the size of thetotal market expands rapidly. In the maturationstage, competition increases with other organiza-tions trying to emulate the generic product withlow cost products. Demand is often determined bythe replacement or wearing out of the product andnew family-formation rate. Products enter thedecline stage as they lose consumer appeal andsales drift downward, such as the decline ofbuggy whips as automobile sales grew. Product

cle

Hybrid

ly

an in

Hybrid Supply Chain

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obsolescence causes sales to decline, and newproducts (innovations) replace existing products.

5.2. Relating supply chains and product type

LSC focus on reducing lead-time, increasingefficiency, expanding manufacturing flexibility,and cutting cost. As illustrated in the Black andDecker case, a LSC approach attempts to build alevel schedule across the supply chain, and it usespull production to respond to customer demand.While striving for these goals, the LSC focuses onincremental improvements (kaizen). It tries toimprove the product and the associated processes,by balancing the supply chain.

The long product life cycle of standard productprovides a stable design over many years. Being alow cost item, globally manufactured, with highlypredictable demand patterns, profitability can beachieved by minimizing cost and employing a levelschedule over the entire supply chain and over allthe products life cycle stages (Mason-Jones et al.,2000). This justifies the usage of a LSC forstandard products. In addition to providing costminimization, the LSC is efficient and flexible,and it brings about incremental improvements,permitting firms to constantly improve the qualityof their products and keep their customerssatisfied.

Observation 1. To have the highest internalperformance and customer satisfaction, StandardProducts should be designed and produced byLean Supply Chains through all stages of theProduct Life Cycle.

In order for innovative products to succeed,they should be producible in any volume, as percustomer requirements. The first two stages of theproduct life cycle, introduction and growth, arethe testing grounds to ensure that organizationsare achieving customization and market adapt-ability. For this, one of the strategic tools providedby ASC is a virtual organization (VO). VOintegrate complementary resources existing in anumber of cooperating companies to produce thatparticular innovative product(s) as long as it iseconomically justifiable to do so. This dynamicalliance provides access to a wide range of world

class competences, enabling organizations to over-come the customization/responsiveness squeeze.This supports the usage of an ASC for the first twostages in the life of an innovative product. Byproviding concurrency of operations among themembers of the VO, the agile company can rapidlydeliver its innovative products in small quantities,as per customer requirements.

Observation 2a. To have the highest internalperformance and customer satisfaction, InnovativeProducts should be designed and produced byAgile Supply Chains in the Introduction andGrowth stages of the Product Life Cycle.

Once the product has been firmly established, ittransitions into the third stage of its life cycle,maturity. By this stage, the innovative productbegins to take on the characteristics of a standardproduct. Price competition becomes very impor-tant. Production becomes more routine and ispart of the organizations daily schedule, whichalready follows the LSC concept. In order tomaximize their profits, organizations still needto deal with their customers and provide themnot only the support that they need, but alsointroduce new, improved versions of the existingproduct, thus maintaining their customer base.From the maturity level onwards, organizationmay employ LSC to meet the needs of thisproduct.Consider a personal computer (PC) as an

example of an innovative product. The growth ofPC occurred at staggering rates. In the early 1980s,there was a waiting list for PC. Today, thesecommodities are designed and built to customerspecification in a very short time and delivered toyour home in a few days. Speed of delivery, cost,and features drives the purchasing decision.Success goes to the company that can wring themost cost out of the supply chain. Once theseproducts move into the maturity phase of their lifecycle, the required manufacturing expertise can betransferred to organizations that have LSCs. Atthe same time, interaction with customers enablesorganizations to provide superior after salesservice and upgrades for those models. Thisensures adaptability.

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Observation 2b. To have the highest internalperformance and customer satisfaction, InnovativeProducts should be designed and produced byLean Supply Chains in the Maturity and Declinestages of the Product Life Cycle.

Hybrid products, which are complex, require theorganization to bring together a set of supplierswith a wide range of capabilities (Choi and Hong,2002). As illustrated by the DaimlerChrysler case,this implies innovative and standard products aswell as strategic partnerships. While it may be truethat hybrid products that are near the end of theirlife cycle may use fewer innovation componentsthan a product that is at the beginning, there isalways the opportunity to introduce innovationinto the hybrid product. As a result, hybridproducts require HSC throughout their productlife cycles.

Observation 3. To have the highest internalperformance and customer satisfaction, HybridProducts should be designed and produced byHybrid Supply Chains throughout the ProductLife Cycle.

6. Conclusion

Based on the literature review, theory develop-ment, and case studies, this research providesinsights for discrete part manufacturing firms thatdesign, implement, and participate in supplychains. It defines the characteristics for standard,innovative, and hybrid products, and it provides aframework for understanding lean and agilesupply chains. LSCs employ continuous improve-ment efforts and focus on the elimination of non-value added steps across the supply chain. ASCsrespond to rapidly changing, continually frag-menting global markets by being dynamic, con-text-specific, growth-oriented, and customerfocused. HSCs combine the capabilities of leanand agile supply chains to create a supply networkthat meets the needs of complex products.

Standard products, which tend to be simpleproducts with limited amounts of differentiation,should be produced by LSCs, which focus onsimplicity, cost reduction, quality and limited

amounts of flexibility. Black and Decker Inc.demonstrates how this focus has made themsuccessful in the hand tool and appliance business.In this environment, LSC partners employ manu-facturing practices that enable the economicproduction of small quantities. Small batchproduction allows manufacturers to keep inven-tory costs low, achieve manufacturing cost reduc-tions, and meet customer demands for a variety ofproducts.Early in their product life cycle, innovative

products, which may employ new and complextechnology, require ASC. As the product entersthe maturity and decline phases of the product lifecycle, a LSC could be more appropriate. IBMillustrates this transformation. As markets beginto grow and customers demand rapid changeand high levels of innovation, strategic partner-ships among supply chain members are essentialto create the knowledge rich environment neededto support these efforts. There are needs forinnovative ideas and products in mass datastorage and retrieval systems for business andInternet applications. On the other hand, forsignificant parts of the data storage market,specifically the PC segment, disk storage hasbecome a standard product with a competitiveenvironment that is similar to any commodity.As the market and customer expectations shifts,the supply chain should transitions from leanto agile.Hybrid products, which are complex, have

many components and participating companiesin the supply chain. Some components may becommodities while others may be new andinnovative. The DaimlerChrysler case illustratesthat for complex products a variety of supplierrelationships may be needed. Some parts have asignificant technological component that addsvalue to the vehicle in the eyes of the consumer,such as global positioning and information sys-tems for navigation. For other parts, producttechnology is well established but the componentsthemselves are high cost, bulky, and subject tovariation. Other components are basic commod-ities that customers do not see or appreciate butthey are essential to the vehicle’s safety andperformance. This wide range of components

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presents DaimlerChrysler with fundamentally dif-ferent SCM issues.

Future research could involve refining theobservations described in this paper through aseries of case studies involving organizations fromother industries. Once these ideas have beentransformed into a research framework, datacould be collected and the framework andhypotheses could be tested.

Acknowledgments

Ge Wang of Hydro Automotive StructuresNorth America Inc. provided insights into theore-tical issues related to supply chain design, Mei Caoof The University of Toledo assisted in rewritingthe paper and developing the references, andHarshal Keskar of The University of Cincinnatideveloped background information for the IBMcase.

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