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Delayed Product Differentiation

Delayed Product Differentiation. Increased pressure from market to offer variety Even in national markets, customers are increasingly asking for different designs, functionality, etc

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Delayed Product Differentiation

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  1. Delayed Product Differentiation • Increased pressure from market to offer variety • Even in national markets, customers are increasingly asking for different designs, functionality, etc • Globalization: different markets may have different requirements for the product, due to differences in taste, language, geography, government regulations • Technology • Multiple versions of the same product being sold at the same time • Production technologies are able to offer variety • Result: Product Proliferation • What is the impact on production/logistics costs? • Setup costs • Inventory holding costs • How can you still offer variety without increasing your production /logistics costs?

  2. Delayed Product Differentiation and Push-Pull Boundary • The point of product differentiation is often the push-pull boundary • Delayed product differentiation enables reductions in demand uncertainty • Reduced demand uncertainty enables the use of pull systems which may be cost efficient due to economies of scale Push Strategy Pull Strategy

  3. Tailored Postponement • Do not implement postponement for the portion of demand that is certain • Reductions in processing costs • Implement postponement for only the portion where the demand is uncertain • Reductions in inventory holding/obsolescence costs • Example: Benetton • Option 1: Dye + knit + distribution for a portion of demand • Option 2: Knit + dye + distribution for the rest • Determine the production quantity (dye + knit) in option 1 for each color, determine the production quantity (knit) in option 2

  4. Design For Logistics • Product and process design key cost drivers of product cost • Design for manufacturing used design to decrease manufacturing costs • Major supply chain costs include transportation costs, inventory costs, distribution costs

  5. Design For Logistics • Design for logistics uses product design to address logistics costs • Key concepts of design for logistics • Economic packaging and transportation • Concurrent/parallel processing • Standardization

  6. 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

  7. 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

  8. 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

  9. The Network Printer Example Board Printer Customer (Europe) Stage 1 (Europe) Stage 2 + Integration (Far East) Stage 1 (Europe) Board Printer Stage 2 (Far East) Customer (Europe) Integration (Europe) Plastics, motors, etc.

  10. Supplier Integration in product development • Competitive forces are driving firms to integrate suppliers into product development • Spectrum of Supplier Integration • None • White Box – Informal integration • Grey Box – Formal integration, with collaborative teams • Black Box – Interface requirements are given, product is returned

  11. Supplier Integration • What approach is appropriate? • Determine internal competencies • Determine product development needs • Identify external development and manufacturing needs • If future products have components that require external expertise and can be separated from other components, a black box approach makes sense. • If components cannot be separated, a grey box approach makes sense. • If some expertise can be found in house, a white box approach might make sense.

  12. The “Bookshelf” Approach • Monitor the development of new technologies • Follow suppliers that have developed expertise • When appropriate, integrate these new technologies • This balances the advantages and disadvantages of being on the cutting edge: • No need to gain experience with the technology, because suppliers are doing this for you. • Can introduce the technologies when needed.

  13. Mass Customization • The delivery of a wide variety of customized goods at low cost • The key is modular products and processes, so that customer requests can be met • Companies need to evolve towards “modular companies”, with managers ensuring that modules are compatible. • Needs instant, costless, seamless integration of different modules (components) • Consider National Bicycle • Bikes manufactured based on customer weight, size, selections of model type, color patterns and components • Dell

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