Slides 8 Integrating Supply Chain and Development Chain

1. Slides 8Integrating Supply Chain and Development Chain Global Supply Chain Management Integrating Supply Chain and Development Chain

2. 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. Integrating Supply Chain and Development Chain

3. Development and Supply Chain Introduction to Supply Chain Management

4. 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 Integrating Supply Chain and Development Chain

5. Key Supply Chain Characteristics • Demand uncertainty and variability and also • Economies of scale in production and transportation • Lead time, in particular due to globalization Integrating Supply Chain and Development Chain

6. Development Chain Characteristics • 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 Integrating Supply Chain and Development Chain

7. Framework for linking Product Design with Supply Chain Strategy Demand uncertainty & product introduction frequency Relation to product design & supply chain strategy Integrating Supply Chain and Development Chain

8. A. Design for Logistics (DFL) • Product and process design that help to control logistics costs and increase service levels • Economic packaging, transportation and storage • Concurrent and parallel processing • Standardization Integrating Supply Chain and Development Chain

9. 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 Integrating Supply Chain and Development Chain

10. 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 Integrating Supply Chain and Development Chain

11. Packaging • Delay packaging until as late as possible • Repackaging at the cross-docking point is common for many products Integrating Supply Chain and Development Chain

12. 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 Integrating Supply Chain and Development Chain

13. DFL 3: Standardization • 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 Integrating Supply Chain and Development Chain

14. 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 Integrating Supply Chain and Development Chain

15. 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) Integrating Supply Chain and Development Chain

16. 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 Integrating Supply Chain and Development Chain

17. 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 Integrating Supply Chain and Development Chain

18. 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. Integrating Supply Chain and Development Chain

19. 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. Integrating Supply Chain and Development Chain

20. 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. Integrating Supply Chain and Development Chain

21. 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? Integrating Supply Chain and Development Chain

22. 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 Integrating Supply Chain and Development Chain

23. 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 Integrating Supply Chain and Development Chain

24. 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 Integrating Supply Chain and Development Chain

25. 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 Integrating Supply Chain and Development Chain

26. 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 Integrating Supply Chain and Development Chain