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Challenges & Opportunities for Operation Managers in case of Mass Customization in Supply Chain Management
Satendra Katoch Suvigya Singh Shalini Piyush Neeraj D Mohapatra
Satendra Katoch – (68)
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Plan Customization Mass Customization Supply Chain Supply Chain Management Issues of Mass customization in Supply Chains Challenges of Mass customization in S Chains Opportunities - How they do it - Examples Summary
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Customization Provisioning as per individual requirement e.g
Delivery: Fedex:Less-Than-Truck-Load Freight business
No waiting for consolidating container loads shipments.
Manufacturing Process: shift from so-called "offset" printing to digital or "on demand" printing.
Manufacturing Location: Place configuration facilities close to market for mass customization.
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Customization - Types
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• Modular Customization (Modules are "building blocks." )• Automobiles: engines, transmissions, chassis, tyre/wheel options.• PCs : mother boards, power supplies, plug-in ICs, disk drives.
•Adjustable Customization (Configurable )• Adjustments are a reversible, e.g mechanical or electrical adjustments by the factory
•Dimensional Customization (permanent cutting-to-fit)
•Infinite dimensional customization: • Tailoring of clothing, grinding eyeglasses, mixing of paints etc
• Discrete dimensional customization:• Hole punching, & soldering selected electronic components onto a printed circuit board
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Mass Customization
“Mass production of individually customized goods and services” to large number of different customers.
Apply to low price items (watches) & to high price items (corporate jet,)
Can increase customer satisfaction, sales and profits Designs to allow rapid and easy customization
Mass customization
The key is postponing the differentiation of product / service for a specific customer until the latest possible point in the supply-chain NW
This process combines benefits of.... (low unit costs of) mass production processes with (flexibility of) individual customization .
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Manufacturing Paradigm Shifts
1900 2000
CraftCraft
Sum of AllManufacturingtypes
1980s
Mass Production
Mass ProductionOptions ++
Mass Customisation
1910
Different philosophies for manufacturing
mass-mass-customized, customized, low-volume, low-volume,
high-mixhigh-mix
mass-mass-produced, produced,
high-volume, high-volume, low-mixlow-mix
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Mass Customization
Principle 1: A product should have independent modules which could be easily assembled into different forms of the product inexpensively.
Principle 2: A process should have independent modules to support different distribution networks.
Principle 3: A Supply NW should have 2 capabilities: Supply basic product / service Take individual customers orders deliver customized G/S
Examples - Mass Customization
Dell PC “build-to-order" model dominance in the PC direct-purchase industry
Clothing company customized clothing trend heat-pressed text & images on a apparel Customized photo products like Blankets, Tapestry,
Towels etc.
Tourism industry offering packaged holiday alternatives 10
Customer Order Decoupling Point: Make to Stock
2nd tier
supplier
1st tier (main)
supplierDistributor Retailer
Orignal
Equipment
Manufacturer
Make to Stock
Push
Customer Order Decoupling Point: Engineer to Order
2nd tier
supplier
1st tier (main)
supplierDistributor Retailer
Orignal
Equipment
Manufacturer
Engineer to Order
Make to
Stock
Customer Order Decoupling Point: Assemble to Order
2nd tier
supplier
1st tier (main)
supplierDistributor Retailer
Orignal
Equipment
Manufacturer
Assemble to order
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What is a Supply-Chain?
“Supply-chain” describes how organizations are linked together
Suppliers –- Manufacturers –- Distributors -- Customers
Services Suppliers Service Support
Operations Local Service
Providers Customers
Supply Networks
Inputs Transformation Localization Output
Manufacturing Suppliers Manufacturing Distribution Customers
Supply chain A complex business enterprise system, where the
key is to co-ordinate : Information material flows plant operations logistics.
Synchronization among multiple autonomous business entities - members of supply chain.
B2B, and B2C models for goods and service transactions.
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Suvigya Singh –
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Supply-Chain Management
A total systems approach to managing the entire flow of information, materials, and services from
Raw-material suppliers
Factories to the end customer
Warehouses
Supply Chain Management
To build products on-demand, mass customizers must build parts on-demand from materials that are always available.
This will require a spontaneous supply chain. The first steps in supply chain management are: Supply Chain Simplification
Standardize, automatic resupply, & rationalise product line
Standardization Reduce variety of parts and raw materials
Automatic, spontaneous resupply kanban, "min-max" or breadtruck (free-stock).
Spontaneous build-to-order of parts Relationships with suppliers to build parts in any quantity on-demand.
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Measures of Supply-Chain Performance
“Inventory Turnover”
Where distribution inventory in, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time
valueinventory aggregate Average
sold goods ofCost turnoverInventory valueinventory aggregate Average
sold goods ofCost turnoverInventory
weeks52 sold goods ofCost
valueinventory aggregate Averagesupply of Weeks
weeks52
sold goods ofCost
valueinventory aggregate Averagesupply of Weeks
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Supply-Chain Performance Measurement
Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million.
This company normally has an inventory turnover ratio of 10.
What is this year’s Inventory Turnover ratio?
What does it mean?
Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million.
This company normally has an inventory turnover ratio of 10.
What is this year’s Inventory Turnover ratio?
What does it mean?
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valueinventory aggregate Average
sold goods ofCost turnoverInventory
valueinventory aggregate Average
sold goods ofCost turnoverInventory
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A B CCOGS 160,000,000$ Avg Inventory 35,000,000$ Turnover 4.57
=B1/B2
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Key Issues - Mass customization Operations
product configuration adapt to customers needs.
Advantages mass production high product variety.
Approaches Product platforms Delayed Product Differentiation
(Approaches not mutually exclusive)
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Platform engineering:
Different models used by multiple brands within a group of companies
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Recent paradigm shift: Design for Logistics (DFL) product & process designed to: control logistics costs and increase service levels
economic packaging & transportation concurrent & parallel processing postponement & delayed differentiation
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Furniture: traditionally furniture sales through small stores---long lead-times for customers
Modular Furniture: warehouse-like stores, 1000s of products by effective “kit” design
Assemble at home Easy to transport and easy to store
Economic Packaging & Transportation
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Concurrent and Parallel Processing
EuropeMotherBoard
CPU Customers (Europe)
Customers (Europe)
MotherBoard
CPU
Casing/Housing
Asia
Europe
Asia
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Postponement of operations
One or more differentiating operations are postponed till a later stage, prolonging the initial phase which precedes the point of differentiation
In HP case product differentiation may be delayed by shipping generic printers from the plant to Distribution Centres and by adding the differentiating accessories at the very end of the distribution process
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Postponement preferred when
aggregate demand information is less variable
better forecasts for a product family
how to make use of aggregate data?
Point of differentiation
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Delayed Product Differentiation
Example: Dell & HP Standardize components & subassemblies Defer differentiation of products late in the
manufacturing process.
e.g.Need Different HP printers for different markets. Solution Produce standard printers. Add Power
supply, documentation just before delivery to customer (differentiation). Instead of using 2 versions of power supply unit (110 or 220 volts) use a universal power supply (switchable). [HP ↓total cost by 5 % annually ]
Shalini – ( )
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Modular Design:
Manufacturing of dishwashers in variety of colors End-products are differentiated from each other in
terms of the metal frames (assembled in “integration and shipping” stage)
Painted metal frame replaced by uniform metal frame and a light plastic colored frame
Assembly of plastic frame can be postponed until the end of the distribution
Hence, original frame is modularized
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Modular DesignModular Design
Current: Integral Designs
New: Modular Design
e.g. Chrysler 300C, Dodge Magnum, Dodge Charger
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Personal Computer Design Modular architecture
Modular components: Motherboard, power supply, disk drives, memory, mouse keyboard, display, printer, etc.
Standard interfaces to allow modules to work together. Examples: AGP, PCI, USB, serial port, parallel port.
Dell PCs can be individually configured for each customer .
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Dell PCs
PC have modular design that can be configured for each customer. Configuration done as late as possible.
Module examples: video card, hard drive, DVD burner, memory, USB connection
Large variety of end-products are possible: for example if there are 10 modules that are used in a design each with 6 alternatives then there are 610 possible configurations.
Problem then is to have all modules available so that they can be assembled to customer order very quickly.
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Re-sequencing:
modifying the order of product manufacturing steps so that the operations resulting in differentiation of specific items are delayed as much as possible
Benetton examplevery rapid change in customer preferencedyeing of garment delayed until after sweater is completed improved forecasts, lower surplus inventories, increased
market share
Benetton’s innovation:postponement of differentiation
Making wool Wool dyingDistributor Retailerknitting
Benetton’s innovation: Postponement of differentiation
Making wool Wool dyingDistributor RetailerKnitting
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Pros & Cons Product Differentiation
By delayed product differentiation it is possible to get the benefits of shortened lead times (better forecasts, lower inventories)
For many processes resequencing and modularization is not possible
May be very expensive to redesign the process
Benefits are difficult to quantify
Piyush – ()
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Challenges - HP Case:
Long lead times, high inventory levels, skewed inventory
Cause (high inventory of printers localized for one market, low inventory for another market)
Significant uncertainty on how to set safety stockToo many localization optionsUncertainty in local markets
Some optionsAir shipmentA factory in EuropeImprove forecasting practices (how?)
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Proposed Solutions
Switch to air shipments of printer from Vancouver Prohibitively expensive
Build a new European factory Volume not sufficient to justify
Hold more inventory at European Distribution Centre Inventory is already a problem
Improve forecasting How?
Process standardization or postponement
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HP DeskJet Printer Supply ChainHP DeskJet Printer Supply Chain
US DC
Europe DC
Far East DC
Customer
Customer
Customer
Vancouver Plant
Suppliers
HP
* DC = Distribution Centre
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HP management considered postponement option Ship “unlocalized” printers to European DC and localize
them after observing the local demand Localization involved
Assembling appropriate power supply modulePackaging it with printer and printed material
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Dell and Mass Production
The modules (e.g.video card) are produced using mass production techniques
Modules shipped to location near manufacturing plant
Assembled to make computer after order is received
Has advantages of mass production but with the ability for mass customization
Dell’s innovation: assemble to internet order
Chips ComponentsComputers
Dell’s score Market
Low price Extreme fast delivery Customization Increased Market share
Supply chain Negative cash to cash cycle time Less pie eaters, more pie Higher fulfillment cost Zero inventory Full supplier and LSP integration, on planning, scheduling & execution
level
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Dell Manufacturing
Every PC is specifically configured to a customer’s order (bar coded)
Facility has no warehouse space and no inventory other than work in process.
Components arrive from suppliers just in time for manufacturing
Manufacturing is synchronized to avoid storing parts or finished systems.
Teams build systems from start to finish. There is no finished goods inventory: as soon as a PC is
finished it is taken out of the factory.
Neeraj – ( )
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Dell Operation
Rely on IT to control activities and achieve a high degree of coordination with suppliers.
“It is not, ‘Every two weeks deliver 5,000 to this warehouse, and we’ll put them on the shelf and then we’ll take them off the shelf.’
It is, ‘Tomorrow morning we need 8,562, and deliver them to door number Ten at 7 A.M” Michael Dell
Implications for suppliers……
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Implications for Suppliers Suppliers are Data linked Locate very near to Dell
Most within 20 minutes of Dell Sony monitors shipped separately from Mexico to customer
Ability to handle a wide variety of loads (“sprint capacity”) Suppliers representative on Dell design team Reduced No of suppliers: from 204 in 1992 to 47 in 1997. Aim to increase inventory “velocity”
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Indirect Sales
Module Manufacturers
PC Manufacturer
CustomersDistributor/
Retailer
Orders
Products
Forecast
Products
Orders
Modules
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Direct Sales
Module Manufacturers
PC Manufacturer
CustomersOrders
Products
Orders
Modules
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Advantages of Direct PC Sales Lower costs
Distributor and retail can add 10-13% to cost
Manufacturer has better knowledge of customers Can reduce inventory
Dell has 5 days of inventory
Faster response “If I’ve got 11 days of inventory and my competitor has 80, and
Intel comes out with a new … chip, that means I’m going to get to market 69 days sooner” Michael Dell
Lower obsolescence and depreciation
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Disadvantages of Direct Sales
Customers may prefer a local store. Local service & assistance possible with indirect sales Implications : need to maintain excellent reliability and
excellent customer service.
D Mohapatra
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The Bullwhip Effect O
rde r
Q
uan
tity
Time
Retailer’s Orders
Ord
er
Qu
anti
ty
Time
Wholesaler’s Orders
Ord
er
Qu
anti
ty
Time
Manufacturer’s Orders
The magnification of variability in orders in the supply-chainThe magnification of variability in orders in the supply-chain
A lot of retailers each with little variability in their orders….
A lot of retailers each with little variability in their orders….
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to even greater variability for a single manufacturer.
…can lead to even greater variability for a single manufacturer.
TRADITIONALPC LOGISTICS
COMPONENT MAKERS
PC ASSEMBLERS(IBM, COMPAQ)
OEM’S
DISTRIBUTORS
RETAILERS
ALL END-USERS
(arms-length, multiple handoffs)
DELL’S DIRECTBUSINESS MODEL
COMPONENT MAKERS
DELL DELL.COM
CORPORATEEND-USERS
INDIVIDUALEND-USERS
(direct marketing, supplier and customer partnerships)
Opportunities
New Paradigms in Procurement
Ford engineers are not allowed to discuss price with suppliers.Price negotiation is the sole responsibility of Purchasing.
CEOfinance
purchasing purchasing
traditional (Ford)
product development
purchasing
DELL
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Outsourcing
The act of moving a firm’s
internal activities
decision responsibility to outside providers
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Value Density
The value of an item to its unit weight
Important measure when deciding
where items should be stocked geographically How to ship them
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New Supply Chain Concepts
Align the supply chain with process side uncertainties (focus on the supply side)
A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies
Types of Supply Chains Efficient Risk-Hedging Responsive Agile
SCM & Technology
Be in chains that are winners on the end user market.
Target Supply chain
Use state of the art competitive weapons
Think strategically, pie growing, not pie sharing
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Electronic Commerce and E-Ops
Electronic commerce is “the use of computer applications communicated over networks to allow buyers and sellers to complete a transaction or part of a transaction”
E-Ops refers to the application of the Internet and its attendant technologies to the field of operations management
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The Context of E-Ops
Business Model
“How to make money?”
Operations
“How to manage production of the product or service?”
Information System Architecture
“Set of tools used to support processes.”
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Business Web Models
B-Web Model
Example
Marketplace
Ebay
Aggregator
E-Trade
Alliance
AOL
Value Chain
Dell Computers
Distributive Network
UPS
B01.2314 -- Operations -- Prof. Juran75
A Make-to-Order Fulfillment Process
Customers
ProductCompany
Factory
Step II: Build Plan
Orders sent
System provides information
Step I: Retailer
Factory updates customer
Step III: Logistics
Order fulfillment flows
Customer/Product info. flows
Suppliers
Develop Products
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Other E-Ops Applications
Order Fulfillment in Businesses Project Management Product and Process Design Purchasing Manufacturing Processes
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Other E-Ops Applications (Continued)
Inventory Management Services Quality Management Forecasting Operations Scheduling Reengineering and Consulting
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Summary
Mass Customization Supply-Chain Management Measuring Supply-Chain Performance Postponement operations Challenges Delayed Product Differentiation Bullwhip Effect Outsourcing Opportunities Value Density Mass Customization E-commerce and E-Ops
Thank You
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