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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.

Slide 2Integrating Supply Chain and Development Chain

Introduction to Supply Chain Management Slide 3

Development and Supply Chain

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


Key Supply Chain Characteristics

Demand uncertainty and variability

and also Economies of scale in production

and transportation Lead time, in particular due to

globalization


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


Framework for linking Product Design with Supply Chain Strategy

Demand uncertainty & product introduction frequencyRelation to product design & supply chain strategy


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


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– Large stores, centralized manufacturing,

compactly and efficiently packed products

Rubbermaid– Clear Classic food containers - designed to

fit 14x14” Wal-Mart shelves


Packaging

Delay packaging until as late as possible Repackaging at the cross-docking point

is common for many products


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


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


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


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


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


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.


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.


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


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


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


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


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
