Integrating Supply Chain and Development Chain
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Slides 8Slides 8Integrating Supply Chain Integrating Supply Chain and Development Chainand Development Chain
Global Supply Chain Management
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 (design), make/buy decisions, earlier supplier involvement, strategic partnering, supplier footprint and supply contracts.
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Key Question What is the appropriate “Supply Chain
Strategy” and “Product Design Strategy” for each product type?
Each product requires a different supply chain strategy
Each product requires a different development chain strategy
The two are intertwined
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Key Supply Chain Characteristics
Demand uncertainty and variability
and also Economies of scale in production
and transportation Lead time, in particular due to
globalization
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Product structure (modular/integral)– Level of modularity or integrality in a product– Modular product
• assembled from a variety of modules• each module may have several options• Bulk of manufacturing can be completed before the
selection of modules and assembly into the final product takes place
and also: Technology clock speed
– Speed by which technology changes in a particular industry
Make/Buy decisions– Decisions on what to make internally and what to
buy from outside suppliers
Development Chain Characteristics
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Framework for linking Product Design with Supply Chain Strategy
Demand uncertainty & product introduction frequencyRelation to product design & supply chain strategy
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A. Design for Logistics (DFL)
Product and process design that help to control logistics costs and increase service levels
1. Economic packaging, transportation and storage
2. Concurrent and parallel processing
3. Standardization
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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
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Examples
Ikea – World’s largest furniture retailer– Large stores, centralized manufacturing,
compactly and efficiently packed products
Rubbermaid– Clear Classic food containers - designed to
fit 14x14” Wal-Mart shelves
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Packaging
Delay packaging until as late as possible Repackaging at the cross-docking point
is common for many products
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DFL 2: Concurrent Processing Objective is to minimize lead times Achieved by redesigning products so that
several manufacturing steps can take place in parallel (concurrent)
Modularity / decoupling is key to implementation
Enables different inventory levels for different parts
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Aggregated demand information is more reliable (risk pooling: product, location, time)
We can have better forecasts for a product family rather than for a specific product/style
How to make use of aggregate data ? Approach: design the product and organize the
manufacturing processes so that decisions about which specific product is being manufactured (the differentiation) can be delayed until manufacturing is underway
DFL 3: Standardization
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Part Standardization Many common parts used across very different
end designs/products (e.g. Toyota). Common parts reduce:
– inventories due to risk pooling – costs due to economies of scale
It is less risky to keep stock of these parts Warning: excessive part commonality can reduce
ability for product differentiation Warning: it may be necessary to redesign
product lines or families to achieve commonality
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Process Standardization Standardize as much of the process as possible
for different products (flexible production lines) Customize the products as late as possible Decisions about specific product to be
manufactured is delayed until after manufacturing is under way– Starts by making a generic or family product– Differentiate later into a specific end-product
This strategy is also known as Postponement or Delayed Differentiation
An option for Modular products (not Integral)Slide 15Integrating Supply Chain and Development Chain
Delayed Differentiation May be necessary to redesign products specifically
for delayed differentiation May be necessary to re-sequence the manufacturing
process to take advantage of process standardization Re-sequencing operations
– Modifies order of product manufacturing steps (but can involve assembly, distribution: IKEA)
– can have as result that the differentiation of specific items or products is postponed as much as possible, which helps reduce risks with respect to lead time and uncertainty of demand
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Important Considerations Aforementioned changes suggested in strategies may
be too expensive to implement– Costs related to redesign should be incurred at the
beginning of the product life cycle– Benefits often cannot be quantified
• increased flexibility, more efficient customer service, decreased market response times
Through re-sequencing not only can we address lead time and demand uncertainty:– level of inventory usually to go down– per unit value of inventory will be higher
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Push-Pull Boundary Pull-based systems typically lead to:
– reduction in inventory levels, in system costs and in lead time (the latter for non-standard products only !)
– making it easier to manage system resources Not always practical to implement a pull-based
system throughout the entire supply chain– Lead times may be too long– It may be necessary (costs) to maintain economies of
scale in production, storage or transportation. Standardization strategies (parts and processes)
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. Slide 18Integrating Supply Chain and Development Chain
B. 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 costs– an increase in purchased material quality– a decline in development time and cost – an increase in final product technology levels.
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Spectrum of Supplier Integration None
– Supplier is not involved in design. Later the materials/half-products to be 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
– Used when buyer has some design expertise but wants to ensure that supplier can adequately manufacture the component
Grey box– Formal supplier integration. Collaborative teams between buyer’s
and supplier’s engineers. Joint development– Used when separation is not possible.
Black box– Buyer gives the supplier a set of interface requirements. Supplier
independently designs and develops the required component.– 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.
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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 process– Willingness to participate in the design process and
ability to reach agreements on intellectual property and confidentiality issues
– Ability to commit sufficient personnel and time to the process, co-locating personnel if appropriate
– Sufficient suppliers resources to commit to the supplier integration process.
– Commitment and trust can be built up? Slide 21Integrating Supply Chain and Development Chain
C. Mass Customization Evolved from two prevailing manufacturing
paradigms– Craft production and mass production.
Mass production (associated with push)– efficient production of a large quantity of a small
variety of goods– high priority on automating and measuring tasks– mechanistic organizations with rigid controls
Craft production (associated with pull)– involves highly skilled and flexible workers often
craftsmen – organic organizations which are flexible and changing
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Absence of Trade-Offs We used to work as follows:
– Low-cost, low-variety strategy may be appropriate for some products
– For other products, 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 customization (advanced push-pull)– delivery of a wide variety of customized goods or
services quickly and efficiently at low cost– captures many of the advantages of both the mass
production and craft production systems – not appropriate for all products– gives firms important competitive advantages– helps to drive new business models
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Mass Customization:Making it Work
Highly skilled and autonomous workers, modular processes in modular units
Managers can coordinate and reconfigure these modules to meet specific customer requests and demands
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Mass Customization and SCM Many of the advanced SCM approaches and
techniques are essential if mass customization is to be successfully implemented
IT which is critical for effective SCM, is also critical for coordinating different modules
Concepts like strategic partnerships and supplier integration are essential for the success of mass customization.
Postponement (delayed differentiation) can play a key role in implementing mass customization
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Summary Design for logistics concepts
– Efficient packaging, transportation and storage
– Certain manufacturing steps can be completed in parallel
– Standardization of parts and processes Integrating suppliers into the product
design and development process Advanced supply chain management
facilitating mass customization
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