Lecture 4 - Of + MFM + Mass Customization at Hewlett Packard - The Power of Postponement

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Next step – What have you found?

The Supply Chain Management ProcessesSu

pply

Cha

in M

anag

emen

t Pro

cess

es

LogisticsMarketing

Finance

Tier 2Supplier

Consumer/End user

Manufacturer

Information Flow

Purchasing

Production

Tier 1Supplier Customer

R&D

PRODUCT FLOW

CUSTOMER RELATIONSHIP MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS MANAGEMENT

ORDER FULFILLMENT

DEMAND MANAGEMENT

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 106.

CUSTOMER SERVICE MANAGEMENT

SUPPLIER RELATIONSHIP MANAGEMENT

MANUFACTURING FLOW MANAGEMENT

What is Order Fulfillment?

It is not just about filling orders!

Order fulfillment is about designing a process and a network that permits a firm to

meet customer requests while minimizing the delivered cost

Why Is It Important?• It sets the stage for providing good customer

service. i.e. without it, you have no hope.

• It can have a significant impact on the bottom-line through:– Increased sales– Reduced inventories– Reduced logistics costs– Reduced order-to-cash cycle– Reduced lead-time

Order Fulfillment

Review Marketing Strategy, Supply Chain Structure & Customer Service Goals

Define Requirements for Order Fulfillment

Evaluate Logistics Network

Define Plan for Order Fulfillment

Develop Framework of Metrics

Strategic Sub-Processes

Customer Relationship Management

Customer Service Management

Demand Management

Manufacturing Flow Management

Supplier Relationship Management

Product Development & Commercialization

Returns Management

Processes Interfaces

Communicate and Generate Order

Enter Order

Process Order

Handle Documentation

Fill Order

Deliver Order

Perform Post Delivery & Measure Performance

Operational Sub-processes


The Strategic Order Fulfillment Process



Demand Management




Returns Management

Strategic Sub-Processes ActivitiesProcess Interfaces Review firm’s strategies Understand customer requirements Determine capabilities of the supply chain Determine the order fulfillment budget

Review order-to-cash cycle and supply capabilities Define lead-time and customer service requirements for each

customer segment Define operational requirements Evaluate core competencies

Determine if current network can support the requirements within the financial constraints.

Determine• which plants produce which products• warehouse, plant and supplier locations• transportation modes

Determine how to fill the orders of the various customer segments.

Make decisions about payment terms, order sizes, and packing requirements.

Determine allocation rules. Determine how operational steps will be executed. Assess the role of technology.

Review Marketing Strategy, Supply Chain Structure & Customer Service Goals

Define Requirements for Order Fulfillment

Evaluate Logistics Network

Define Plan for Order Fulfillment


Link order fulfillment performance to EVA Determine appropriate metrics and set goals


The Operational Order Fulfillment Process



Demand Management




Returns Management

Operational Sub-Processes ActivitiesProcess Interfaces

Generate order Transmit order

Receive order Enter order Edit order

Check credit Check inventory Plan order flow and transportation

Receive and post payment Record bad debt expense Measure process performance

Acknowledge order Prepare bill of lading, picking instructions and

packing slips Generate invoice

Pick merchandise Pack merchandise Stage for loading Prepare load confirmation

Prepare shipping documents Transmit delivery confirmation Audit and pay freight bill

Communicate and Generate Order

Enter Order

Process Order

Handle Documentation

Fill Order

Deliver Order

Perform Post Delivery & Measure Performance

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p.115.

Conclusions

• Order fulfillment is about designing a process and a network that permits a firm to meet customer requests while minimizing the cost.

• While the operational process is carried out primarily by the logistics function, it is critical that other key functions are involved in the strategic process.

• It is critical for a firm to determine the role of technology that is appropriate.

• It can have significant impacts on the profitability of the firm and its customers and suppliers.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.

ExerciseMake groups of 2-3 persons.

Discuss the strategic and operational sub-processes in the order fulfillment process and the belonging activities:

– What is The Order fulfillment process?– What are the purpose of the different sub-processes and what

are the activities behind?– What are the process interfaces with the other GSCF processes

and why are they connected?

Use 15 min. for the discussions.

The Supply Chain Management ProcessesSu

pply

Cha

in M

anag

emen

t Pro

cess

es

LogisticsMarketing

Finance

Tier 2Supplier

Consumer/End user

Manufacturer

Information Flow

Purchasing

Production

Tier 1Supplier Customer

R&D

PRODUCT FLOW

CUSTOMER RELATIONSHIP MANAGEMENT

SUPPLIER RELATIONSHIP MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS MANAGEMENT

ORDER FULFILLMENT

DEMAND MANAGEMENT


MANUFACTURING FLOW MANAGEMENT

CCUSTOMER SERVICE MANAGEMENT


• Manufacturing Flow Management – includes all activities necessary to obtain, implement, and manage manufacturing flexibility and to pull the products through the plants.

• Manufacturing flexibility is the ability to manage manufacturing resources and uncertainty to meet various customer requests at the lowest possible cost.



Strategic Sub-Processes Processes Interfaces Operational Sub-processes

Review Manufacturing, Sourcing, Marketing, and Logistics Strategies

Determine Degree of ManufacturingFlexibility Requirement

Determine Push/Pull Boundaries

Identify ManufacturingConstraints and Determine Capabilities


Determine Routing and Velocity through Manufacturing

Manufacturing & Material Planning

Execute Capacityand Demand Plans

Measure Performance



Demand Management

Order Fulfillment


Returns Management



Influences on Manufacturing Flexibility• Product characteristics

– Differentiation vs. standardization– Product complexity– Profit margins

• Customer Demand characteristics– Demand volumes and fluctuation– Tolerance for out-of-stocks– Tolerance for waiting

• Lead time– Manufacturing process time– Suppliers’ lead times– Customer delivery lead time

© Supply Chain Management Institute.

The Strategic Manufacturing Flow Management Process

Strategic Sub-Processes ActivitiesProcess Interfaces

Establish preparedness for future market changes Forecast expertise needed Forecast/study laws and regulations

Document capabilities Determine stock quantities and location Develop disposal/disposition requirements Develop contingency plans Develop supplier development strategy Develop acceptance criteria Develop communications mechanisms - to other processes supporting requirements - to “order acceptance” guidelines

Determine customer tolerance time Establish quality policy and controls Define minimum batch size and cycle time Plan capacity growth Establish make vs. buy decisions

Review customer service goals Determine inventory/stocking points Evaluate postponement opportunities

Review Manufacturing, Sourcing, Marketing, and Logistics Strategies

Determine Degree of ManufacturingFlexibility Requirement

Determine Push/PullBoundaries

Identify ManufacturingConstraints and Determine Capabilities



Demand Management

Order Fulfillment


Returns Management



Develop measurement framework Establish communication and feedback loops


Generic Manufacturing Strategies

Ship to Stock

Make to Stock

Assemble to Order

Make to Order

Buy to Order

Demand Volatility

ProductVariety

High

High

Low

Low

Degree of Manufacturing Flexibility


Types of Organizational Flexibility

Source: Adapted from Duclos, Leslie K., Robert J. Vokurka and Rhonda R. Lummus, “A Conceptual Model of Supply Chain Flexibility,” Industrial Management & Data Systems, Vol. 103, NO. 6 (2003), pp. 446-456; and Zhang, Qingyu. Mark A. Vonderembse and Jeen-Su Lim, “Manufacturing Flexibility: Defining and Analyzing Relationships among Competence, Capability and Customer Satisfaction,” Journal of Operations Management, Vol. 21, No. 2 (2003), pp. 173-191.

Type of Flexibility Definition

Manufacturing OperationsThe ability of the organization to manage production resources and uncertainty to meet various customer requirements.

MarketThe ability to mass-customize and build close relationships with customers, including designing new products and modifying existing ones.

SupplyThe ability to reconfigure the supply chain (geographically) as sources of supply and customers change.

Information Systems The ability to align information systems with changing customer demands.


The Operational Manufacturing Flow Management Process

Operational Sub-Processes

Generate: - Detailed capacity planning - Time-phased requirements (MRP)

ActivitiesProcess Interfaces

Translate Demand Management outputinto resource and production planning

Review aggregate production plan Integrate capacity of managed manufacturing

facilities Develop master production schedule (MPS)

Manage inventories - Raw materials, subcomponents, and packaging - Work in process - Finished goods Control production activity (shop floor management)

Examine and report quality levels of manufactured product

Identify root causes of quality issues Measure process performance

Determine Routing and Velocity through Manufacturing

Manufacturing & Material Planning

Execute Capacityand Demand Plans

Measure Performance



Demand Management

Order Fulfillment


Returns Management


© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 139

Conclusions• Manufacturing flow management involves more

than the production function and final assembly.

• Manufacturing flow management acts in support of overall strategy, supply chain strategy, and customer service objectives.

• Determining and implementing the “right” degree of manufacturing flexibility is key.

• Measurement must focus on contribution to overall success.


ExerciseMake groups of 2-3 persons.

Discuss the strategic and operational sub-processes in figure 7-2 and the belonging activities:

– What is the manufacturing flow management process?– What are the purpose of the different sub-processes and what

are the activities behind?– What are the process interfaces with the other GSCF processes

and why are they connected?

Use 15 min. for the discussions.

Exercise – “Mass customization at Hewlett-Packard”

1. What benefits can be achieved by using mass customization?2. What is the key to succeed with mass customization?3. What are the building blocks for an effective mass customization

program?4. Find a company that is using modular product design? The company

must not have been covered before in class (the answer is not in the article)

5. The use of standardized components may increase the material cost, what do we need to consider before implementing standardized components?

6. What are the 3 principles to secure effective mass customization?7. How does the approach in the article match with lean thinking?

Lecture 4 - Of + MFM + Mass Customization at Hewlett Packard - The Power of Postponement

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