1. Coordinated Product and Supply Chain Design
Chapter 11
Coordinated Product and Supply Chain Design

2. 11.1 A 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.

3. 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

4. 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

5. Interaction between the Two Chains
Fisher’s concept of Innovative and Functional Products
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.

6. What Is the Appropriate Supply Chain Strategy and Product Design Strategy for Each Product Type?
Each requires a different supply chain strategy
Development chain has to deal with the differing level of demand uncertainty

7. Framework for Matching Product Design and Supply Chain Strategies
FIGURE 11-3: The impact of demand uncertainty and product introduction frequency on product design and supply chain strategy

8. 11.2 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

9. 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

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)
How to make use of aggregate data ?
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. 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

12. Modularity in Product and Process
Semiconductor wafer fabrication is modular since chip produced depends on the unique set of operations performed
Oil refining is not modular since it is continuous and inventory storage of semi-finished product is difficult
Modular products are not always made from modular processes
Bio-tech and pharmaceutical industries

13. Swaminathan’s Four Approaches to Standardization
Part standardization
Process standardization
Product standardization
Procurement standardization

14. 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

15. 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

16. 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
Example: United colors of Benetton

17. Product Standardization
Downward Substitution
Produce only a subset of products (because producing each one incurs high setup cost)
Guide customers to existing products
Substitute products with higher feature set for those with lower feature set
Which products to offer, how much to keep, how to optimally substitute ?

18. Procurement Standardization
Consider a large semiconductor manufacturer
The wafer fabrication facility produces highly customized integrated circuits
Processing equipment that manufactures these wafers are very expensive with long lead time and are made to order
Although there is a degree of variety at the final product level, 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

19. Operational Strategies for Standardization
Process
Nonmodular
Modular
Product
Parts standardization
Process standardization
Product standardization
Procurement standardization

20. 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.

21. Important Considerations
Strategies designed to deal with demand uncertainty and/or inaccurate forecasts
Changes suggested in the strategies may be too expensive to implement
Redesign related costs should be incurred at the beginning of the product life cycle
Benefits cannot be quantified in many cases:
increased flexibility, more efficient customer service, decreased market response times

22. Important Considerations
Resequencing causes:
level of inventory in many cases to go down
per unit value of inventory being held will be higher
Tariffs and duties are lower for semi-finished or non-configured goods than for final products
Completing the manufacturing process in a local distribution center may help to lower costs associated with tariffs and duties.

23. 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.

24. 11.3 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.

25. 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.

26. 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.

27. 11.4 Mass Customization
Evolved from the two prevailing manufacturing paradigms of the 20th century
Craft production and mass production.
Mass 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

28. 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

29. 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