Coordinated

Product
and
Supply
Chain
Design
McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

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.

11-2

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

11-3

Key Characteristics of
Development Chain
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

Product

structure

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
11-4

Interaction between the Two Chains

Marshall

Fishers concept :

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.

11-5

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
11-6

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 processing
Standardization

11-7

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
Repackaging at the cross-docking point is
common for many products

11-8

Concurrent and 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
11-9

The Network Printer Example

FIGURE 11-4: Concurrent processing

11-10

Standardization
Recall:

aggregate demand information is more

reliable
We can have better forecasts for a product family
(rather than a specific product or style)
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

11-11

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
11-12

Swaminathans Four Approaches to

Standardization
Part

standardization
Process standardization
Product standardization
Procurement standardization

11-13

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
11-14

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 way
Starts

by making a generic or family product

Differentiate later into a specific end-product
Postponement

or delayed product differentiation

11-15

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 steps

resequenced operations result in the differentiation of
specific items or products are postponed as much as
possible

11-16

Postponement

Point of differentiation

11-17

Benetton
Old Manufacturing Process
Spin or Purchase Yarn
Dye Yarn
Finish Yarn
Manufacture Garment Parts
Join Parts
11-18

Benetton
New Manufacturing Process
Spin or Purchase Yarn
Manufacture Garment Parts
Join Parts
Dye Garment

This step is postponed

Finish Garment
11-19

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 colors

Still use aggregate forecasts to start manufacturing
early
React to customer demand and suggestions
Issues

with postponement

Costs

are 10% higher for manufacturing

New processes had to be developed
New equipment had to be purchased
11-20

Product Standardization
Downward

Substitution

Guide

customers to existing products

Substitute products with higher feature set for
those with lower feature set

11-21

Procurement Standardization
Standardizing

processing equipment and

approches.
Consider a large semiconductor manufacturer
Produces highly customized integrated circuits
Processing equipment that manufactures these
wafers are very expensive with long lead time
and are made to order
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

11-22

Operational Strategies for

Standardization

11-23

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.

11-24

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 chain
Lead

times may be too long

May 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.
11-25

Supplier Integration into

New Product Development
Traditionally

suppliers have been selected after

design of product or components
There are 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.

11-26

The Spectrum 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
Grey box : Formal supplier integration leads to joint
development.
Collaborative teams between buyers and suppliers
engineers
Black box : Supplier takes the main part of design.
Buyer gives the supplier a set of interface requirements
Supplier independently designs and develops the
required component
11-27

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.

11-28

Appropriate Level Depends on the

Situation

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
If

Box

separation is not possible

White

Box

If

buyer has some design expertise but wants to

ensure that supplier can adequately manufacture the
component
11-29

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
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 resources to commit to the supplier
integration process.
11-30

Mass Customization
Evolved

from the two prevailing manufacturing

paradigms of the 20th century
Craft

Mass

production and mass production.

production

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

involves

highly skilled and flexible workers

Often craftsmen
Organic organizations which are flexible and changing
11-31

Absence of Trade-Offs
Have

to decide between these two types

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 customization
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
11-32

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

11-33

Key Attributes
Instantaneous
Modules

and processes must be linked together very

quickly
Allows rapid response to various customer demands.
Costless
Linkages

must add little if any cost to the processes

Allows mass customization to be a low-cost
alternative.
Seamless
Linkages

and individual modules should be invisible to

the customer

Frictionless
Networks

or collections of modules must be formed

with little overhead.
Communication must work instantly
11-34

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

11-35