Download Design for Logistics - Xavier Institute of Management Bhubaneswar

Product and Process Design
Dr. Ranjan Ghosh
Indian Institute of Management
Calcutta
The Manufacturing Environment
• Rapid Changes
– New products rapidly introduced
– Short, unknown product life cycles
• High Variety of Products
• Long Production Lead Times
• Increasing storage and transportation
costs
• Difficult to forecast demand
The Goals of the
Manufacturing Organization
•
•
•
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Responsiveness
Competitive pricing
Efficiency
Customer service
Conflicting Goals
Why Do These Goals Conflict?
• Forces for keeping low inventory
– inventory expensive
– low salvage values
• Forces for keeping high inventory
– long lead times
– customer service is important
– demand is hard to predict
– reduction in transportation quantity
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
Design for Logistics (cont’d)
• Design for Logistics uses product design
to address logistics costs
• Key Concepts of Design for Logistics
– Economic packaging and transportation
– Concurrent/Parallel Processing
– Mass Customization
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
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
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
Traditional Manufacturing
• Set schedules as early as possible
• Use large lot sizes to make efficient use of
equipment and minimize costs
• Large centralized facilities take advantage
of economies of scale
Mass Customization
• Customization, Predictability and
Performance
Mass
Customization
Performance
Predictability
Mass Customization
• Predictability of Demand
• Predictability of Operations
– Inventory levels
– Equipment capacity requirements
– Increase in the number of components and
hence in the number of suppliers
Mass Customization
• How should/do companies implement
mass customization without suffering the
negative effects of increased product
variety and variability?
Strategies for Managing Variety
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•
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Modularity
Standardization
Postponement
Process Re-sequencing
Quick Response
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
Modularity in Product
and Process
• Semiconductor wafer fabrication is
modular since the type of chip produced
depends on the unique set of operations
performed
• Oil refining is not modular since it is
continuous and inventory storage of semifinished product is difficult
Modularity in Product
and Process
• Are modular products always made from
modular processes?
Modularity in Product
and Process
• Modular products are not always made
from modular processes
– Bio-tech and pharmaceutical industries make
modular products but use non-modular
processes; many products are made by
varying the mix of a small number of
ingredients
– Lubricants are produced by varying the
composition and quantity of ingredients.
A Framework for
Mass Customization
Modular
Part
Standardization
Process
Standardization
Product
Standardization
Procurement
Standardization
Product
Non-Modular
Non-Modular
Modular
Processes
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 ?
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
Postponement Example
• Demand for black t-shirts
– 50% probability 100
– 50% probability 200
• Same for white t-shirts
• Production alternatives
Produce 150 of each color ahead of time
Produce 300 which can be dyed after demand
is observed
Postponement: Example
First Alternative
– 25% probability -- short 50 of each
– 25% probability -- extra 50 of each
– 50% probability -- short 50 of one, extra 50 of
the other
Second Alternative
– 25% probability -- short 50 of each
– 25% probability -- extra 50 of each
– 50% probability -- no shortage or extra
Postponement: Key Concepts
• Delay differentiation of products in the
same family as late as possible
• Enables the use of aggregate forecasts
• Enables the delay of detailed forecasts
• Reduces scrapped or obsolete inventory,
increases customer service
• May require new processes or product
design with associated costs
Benetton: Background
• A world leader in knitwear
• Massive volume, many stores
• Logistics
– Large, flexible production network
– Many independent subcontractors
– Subcontractors responsible for product
movement
• Retailers
– Many, small stores with limited storage
Benetton: Supply Cycle
• Primary collection in stores in January
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Final designs in March of previous year
Store owners place firm orders through July
Production starts in July based on first 10% of orders
August - December stores adjust orders (colors)
80%-90% of items in store for January sales
• Mini collection based on customer requests
designed in January for Spring sales
• To refill hot selling items
– Late orders as items sell out
– Delivery promised in less than five weeks
Benetton: Flexibility
• Business goals
– Increase sales of fashion items
– Continue to expand sales network
– Minimize costs
• Flexibility important in achieving these goals
– Hard to predict what items, colors, etc. will sell
– Customers make requests once items are in stores
– Small stores may need frequent replenishments
It is hard to be Flexible when
• Lead times are long
• Retailers are committed to purchasing early
orders
• Purchasing plans for raw materials are based
upon extrapolating from 10% of the orders
How to be flexible?
Postponement
Benetton
Old Manufacturing Process
Sequence of Processes
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Spin or Purchase Yarn
Dye Yarn
Finish Yarn
Manufacture Garment Parts
Join Parts
Benetton
New Manufacturing Process
Re-Sequencing of Processes
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•
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Spin or Purchase Yarn
Manufacture Garment Parts
Join Parts
Dye Garment (This step is postponed)
Finish Garment
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
A new Supply Chain Paradigm
• A shift from a Push System...
– Production decisions are based on
forecast
• …to a Push-Pull System
From Make-to-Stock Model….
Suppliers
Assembly
Configuration
Demand Forecast
• The three principles of all forecasting
techniques:
– Forecasts are usually wrong
– The longer the forecast horizon the worst
is the forecast
– Aggregate forecasts are more accurate
• The Risk Pooling Concept
Push-Pull Boundary
• Point where the Production Process
switches from Push to Pull
(or Build-to-Forecast to Build-to-Order);
also known as De-Couple Point.
De-Couple Points
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Before Product Variety explodes
After long lead time stages
After stages with constraint capacity
After stages with large setup times or costs.
They occur typically between component
manufacturing and Sub-assembly,
or between Sub-assembly and Final assembly,
or between Final assembly and Distribution,
or between Distribution and Retail.
Push-Pull Supply Chains
The Supply Chain Time Line
Customers
Suppliers
PUSH STRATEGY
Low Uncertainty
PULL STRATEGY
High Uncertainty
Push-Pull Boundary
A new Supply Chain Paradigm
• A shift from a Push System...
– Production decisions are based on
forecast
• …to a Push-Pull System
– Parts inventory is replenished based on
forecasts
– Assembly is based on accurate customer
demand
….to Assemble-to-Order Model
Suppliers
Assembly
Configuration
Business models in the Book
Industry
• From Push Systems...
– Barnes and Noble
• ...To Pull Systems
– Amazon.com, 1996-1999
• And, finally to Push-Pull Systems
– Amazon.com, 1999-present
• 7 warehouses, 3M sq. ft.,
Matching Supply Chain
Strategies with Products
Demand
uncertainty
(C.V.)
Pull
H
I
II
Computer
IV
Push
III
Delivery cost
Unit price
L
L
Pull
H
Push
Economies of
Scale
Locating the Push-Pull
Boundary
Organizational Skills Needed
Raw
Material
Customers
Push
Pull
Low Uncertainty
High Uncertainty
Long Lead Times
Short Cycle Times
Cost Minimization
Service Level
Resource Allocation
Responsiveness