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