Postponement How to respond to demands for –Customized products –Rapid delivery –Competitive prices in the face of short product lifecycles.

The Issues To provide rapid delivery need to have –capacity to make to order quickly or –inventory of finished goods Capacity means high capital costs Inventory is expensive because customization means many skus.

Example Auto manufacturers could cut 2 weeks out of delivery time by building many small assembly plants with capacity to meet regional demand. Why don’t they do this? Positioning inventory of finished vehicles closer to the customers. What are the consequences of this?

Other dangers from Inventory Extends time to market –Guess what products customers will want –Poor forecasts of demand volumes –Slower to bring new technologies to market –Obsolescence

The Third Way Modular design with postponement –Modular design reduces the cost of customization –Postponement delays the investment in customization

Consequences Aggregate forecasts for majority of product Detailed forecasts are restricted to customization modules Investment in customization is delayed so component forecasts are short Customization capacity needs are reduced -- limited to adding customization modules not building the entire product

Opportunities Move customization closer to customer –What are the tradeoffs?

Apple imac 5 Colors. Built to forecast. –Indigo –Ruby –Sage –Graphite –Snow

Compaq Special panels user can apply to change color of the computer at home

Milliken Carpet Before –Dozen Bases –Several Gun Bars –Change overs from Base to Base –Change overs from Gun Bar to Gun Bar –Down time on expensive printer

Milliken Carpet After –1 (or 2) bases –1 gun bar –Changeover from one product to next requires seconds –No down time

What’s Involved Product Design Manufacturing Process Supply chain design

Modular Design Standardize Components Identify and postpone non-standard ones Simultaneous assembly of different modules reduces critical path Localize problems and re-design efforts

Power Supply Option 1: More expensive supply that can convert voltage Example: HP LaserJet –Manufactured in Japan and shipped to the world. –Change to a versatile power supply saved 5% on cost to manufacture, stock and deliver

Power Supply Option 2: More specialized supplies that cannot convert voltage installed late. Example: HP Deskjet –Made in Singapore –Designed with country specific external power supply –Shipped to Stuttgart where power supply is purchased and added adds manuals and packing material

Consequences Higher manufacturing costs Bottom line: 25% lower manufacturing, shipping and inventory costs. Where did the savings come from?

Trade-offs Increased cost of materials and perhaps manufacturing Savings in inventory depend on: –Variability and uncertainty in demand –lead time to markets and from suppliers –life cycle –...

Conflicting Objectives Marketing: every possible product option R & D: most functionality at lowest cost Manufacturing: Few products and stable volumes Resolution should be system wide view

Example Generic Deskjet for Mac and PC rather than two models –What were the arguments

Manuals and Information Printer manuals can be printed in several languages Software versions make this even simpler Pharmaceutical products require country- specific labels: –dosing info and warnings must be in local language –country specific information –what to do?

Home Depot Paint Mix and Add the Colors to Order What are the benefits and costs?

Re-sequencing Traditional Clothing manufacture –Dye the yarn –Knit with the dyed yarn Benetton –Knit with grey yarn –Dye the sweaters Trade-offs?

Standardization HP Disk drives –Add customer-specific driver boards –Test (time consuming) Revised process to –Test drive –Insert customer-specific boards –Test board Trade-offs?