Abhishek Pratap SinghRojer ChoudharySaurabh BarwaniDushyant Singh

Ajay SinghSanjay Choudhary

Evolution of the Integrated Logistics Concept

What is the Right Supply Chain for Your Product?

Making Supply Meet Demand in an Uncertain World

Mass Customization at HP: The power of postponement

The Power of Virtual Integration: An interview with Dell Computer’s Michael Dell

•Raw material•Subassemblies•Manufactured part•Racking materials

•Raw material•Subassemblies•Manufactured part•Racking materials

Goods inProcess

Inventory

FinishedGoods

Inventory

Field Inventory

Field Inventory CustomerCustomer

Materials Management Physical Distribution Management

Business Logistics

Physical distribution Post-World War 2 business management “The movement and handling of goods from the point of production

to the point on production to the point of consumption or user”

Business logistics Emerged during 1980s~1990s as strategy

From raw material through finished goods inventory

Materials Management All materials employed in the production of the finished product

Inventory control, purchasing, traffic, materials handling, receiving

Pressure on cost reductiono During the late 1950s~1960so Increasing marketing costs, well advanced production technologyo Relatively untouched areas distribution(10%~30%)

Data processing technologyo Computer technology became increasingly powerful, less costlyo Automated inventory control

Customer focuso Right time in the right quantityo Particular importance for those companies selling relatively

homogeneous products Profit Leverage

o 5% cost reduction more than 5% revenue increase

CustomerVendor Procurement(30%)

Operations(30%)

Physical Distribution

(40%)

Stage 1

Stage 2(Internal Linkage)

Stage 3(External Linkages)

Physical Distributiono 1950s~1960so Focus: to meet customer expectation at lowest possible costo Why the integration process started with finished goods

• The Largest single segment on inventory(40%)• Directly impacts customer service• Without venturing into production processes • Low risk, high gain

o Limitation Internal Linkages

o Around 1985o 60%~100% of the firm's total inventory could be better managedo Elimination of buffer inventories between loops

External Linkageso Efficiencies in relationships with vendors, customers, third partieso EDI, JIT, DRP

Cycles-time-to-marketo Removal of time o Reducing the design-build-ship cycleo Process setup elimination

Supply Chain Managemento Last half of the 1990s~2000so Both internal and external units are forged together o Low-cost and high-value performance to the consumero More responsive inventory systems

• Bar code scanners • Electronic inventory

• Bar code scanners • Electronic inventory

Automatically track the flow of goodsElectronically transmit replenishment ordersFewer stockouts

Automatically track the flow of goodsElectronically transmit replenishment ordersFewer stockouts

Synchronize production schedules to real-

time demand dataFewer inventory

Synchronize production schedules to real-

time demand dataFewer inventory

Supplier

Retailer

Data erroro 35 leading retailer - 2/3 of SKU(Stock Keeping Unit)o Reduced the company’s overall profits by 10%o Phantom stockouts

• Employees routinely put products in the wrong places• 16% stockouts but the items available

Why?o Human natureo Retailers’ distribution centers

• Wrong quantities for 29% of the SKUs, deviation from actual supplies of 25%

• Items shipped in error that cost less than a certain amount• Most stores perform audits solely for financial reasons, to

measure the “shrink” of goods that have been lost or pilfered. • Measure inventory by dollar value, not by item

•Point-of-sale scanners•Electronic data interchange•Flexible manufacturing•Automated warehousing•Rapid logistic

•Point-of-sale scanners•Electronic data interchange•Flexible manufacturing•Automated warehousing•Rapid logistic

•Quick response•Efficient consumer response•Accurate response•Mass customization•Lean manufacturing•Agile manufacturing

•Quick response•Efficient consumer response•Accurate response•Mass customization•Lean manufacturing•Agile manufacturing

New Concept

Global competitionFaster product development Variety of products

Global competitionFaster product development Variety of products

•Excess and shortage of products•Markdowns and stockouts•ex) U.S. food industry, poor coordination is wasting $30billion

•Excess and shortage of products•Markdowns and stockouts•ex) U.S. food industry, poor coordination is wasting $30billion

But

Lack of framework for decidingWhy?

New Technology

Physical functiono Function

• Converting raw materials into parts, component, finished goods

• Transporting all of them from one point in the supply chain to next

o Cost• Production, transportation, inventory storage

Market mediation functiono Function

• matched what consumers want to buyo Cost

• markdown, stock outs & dissatisfied customer

Supply Chain focus

Type Physically Efficient Process Market-Responsive Process

Primary purpose at lowest possible cost minimize stockouts & markdowns

Manufacturing focus maintain high average utilization deploy excess buffer capacity

Inventory strategy high turns, minimum inventory deploy significant buffer stocks

Lead-timeshorten lead time as long as it doesn’t increase cost

invest aggressively in ways to reduce lead time

Choosing suppliers cost and quality speed, flexibility, quality

Product-design maximize performance,

minimize costmodular design in order to postpone product differentiation

Problemso Most companies still treat the world as if it were predictableo Poor job of incorporating demand uncertainty into their

production planning processeso Design their planning processes as if that initial forecast truly

represented reality. why?• it’s complicated to factor multiple demand scenarios into planning• most companies simply don’t know how to do it

o Frequent introductions of new products have two side effects• reduce the average lifetime of products• demand is divided over a growing number of SKUs• ex) GM Cadillac(Seville and Eldorado) vs. Buicks and Olds mobiles

Accurate responseo Improve forecasto Redesign planning processes to minimize the impact of inaccurate

forecasts

costs per unit of stockouts and markdowns, missed opportunity costcosts per unit of stockouts and markdowns, missed opportunity cost

unpredictableunpredictable postpone decisions, early in the selling seasonpostpone decisions, early in the selling season

predictable wellpredictable well make in advancemake in advance

Obermeyero leading suppliers in the US fashion sky apparel marketo newly designed each yearo difficult to predict –weather, fashion, trends, economy

•design and show samples to retailers in March•place production orders with suppliers in March ~ April•receive goods an D/C in September~October•ship to retail outlets

•design and show samples to retailers in March•place production orders with suppliers in March ~ April•receive goods an D/C in September~October•ship to retail outlets

Sales volume grewPressure to reduce

Sales volume grewPressure to reduce

More complex supply chain(global)Increased lead times, markdown, stockout

More complex supply chain(global)Increased lead times, markdown, stockout

Until the mid-1980s

First step: Shorten lead time - Quick responseo Computerized systems – order process time, time to

compute material requirementso Anticipate what materials it would require

• pre-position in a warehouseo Air freight to expedite delivery

Second step: Improving forecasto Buying committee

• Group of company managers from a range of functional area

Sales exceed by 200%, less than 15% of the forecast

Risk-based production sequencing

non reactive capacitynon reactive capacity

reactive capacityreactive capacity

Demand forecast are most accurate

market signals

Redesigno reduced the variety of zippers used (color, length)o use the same kinds of raw materials

orders be fulfilled ever more quickly

highly customized products and services

orders be fulfilled ever more quickly

highly customized products and services

Postponing the task of differentiating a productPostponing the task of differentiating a product

Organizational-design principlesProduct

Process

Supply network

Organizational-design principlesProduct

Process

Supply network

Modular Designo Flexibility, quickly, inexpensivelyo Common components, differential components

Benefitso Maximize the number of standard components

• assemble those common components earlier stage• postpone the differential components

o The modules of the product separately, possible at the same time

• shortens the total time required for productiono Easily diagnose production problems, isolate potential quality

problems

Considerationso Cost of materials < benefits of standardization( lead time,

inventory, stockout)

Modular processo breaking down into independent sub processeso flexibility

Process postponemento ex) paint store: a broad range of different paints color pigmentso ex) retail apparel industry: body-measurement process+cut-and-sew

processo specific garment instead of stock in all sizes and colors, eliminating

discountso relatively low-cost raw fabrics

Process resequencingo ex) Benetton: dyeing, knitting knitting, dyeingo ex) HP disk driver: inserting printed circuit board, testing disk driver

standard tests + customized tests Process standardization

Redesign networko Optimum number and location of factories and D/C

Multi-function warehouseo perform light manufacturing

suppliers manufacturer D/C customer

A Value chain with arms-length transactions from one layer to the next

The dominant model in the PC industry

suppliers manufacturer customer

Eliminated the time and cost of third-party distributionDell’s direct model

Blurring the traditional boundaries and roles in the value chainVirtual integration

supplierssuppliers manufacturer customer

Fast-cycle segmentationo The finer the segmentation, the better forecast what

customer needs and when