Coordinated Product
Designing & Managing The Supply Chain
Chapter 9
Jay Kang
[email protected]
CASE: HP - DeskJet Printer Supply Chain
 Introduction
 Hewlett-Packard was founded in 1939 with
headquarters in Palo Alto, California
 Hewlett-Packard introduced the DeskJet Printer in
1988 and it had become one of HP’s most successful
products.
 Inventory growth has tracked sales growth closely
 European branches state that inventory levels needed
to be raised even further to maintain satisfactory
product availability
CASE: HP - DeskJet Printer Supply Chain
 Meet customer needs with less inventory
 Find the best way to satisfy customer needs in terms
of product availability while minimizing inventory
 Arrange an agreement among the various parties that
they had the right level of inventory
 European Distribution Center shows a dip in product
availability level, but loads of DeskJets had been
shipped to Europe in the past months and European
DC was telling Vancouver that is had run out of space
its products
CASE: HP - DeskJet Printer Supply Chain
 The Retail Printer Market
 In 1990, worldwide sales of personal printers were 17
million units, amounting to $10 billion
 Sales fueled as customers discovered the superior
quality of the Ink Jet printers
 More and more sales through superstores such as
Kmart and Price Club
 The Vancouver division and its quest for zero
inventory
 Established in 1979 to consolidated personal printer
activities from four divisions to the Vancouver site
 Vancouver introduces kanban process and converts
the factory to stockless production just-in-time
CASE: HP - DeskJet Printer Supply Chain
 The DeskJet Supply Chain
 Manufacturing done by Vancouver, two key stages:
• Printed circuit board assembly and test (PCAT)
• Final assembly and test (FAT)
 “Localization” is the process of meeting the required
customization of the printer to meet language and
power supply requirements of the local countries
 Total factory cycle time though the PCAT and FAT
stages was about a week
• Transportation time to the US was a day
• Transportation time to Europe and Asia was four to five
weeks
CASE: HP - DeskJet Printer Supply Chain
 The Distribution Process
 DeskJet printers are a high-volume product and the
major performance measures for a typical DC
included line item fill rate (LIFR) and order fill rate
(OFR).
 DC had four simple, straight-line process steps:
• Receive (complete) products from various suppliers
and stock them
• Pick the various products needed to fill a customer
order
• Shrink-wrap the complete order and label it
• Ship the order by the appropriate carrier
Design For Logistics
 Concept of product and process design to help
control logistics cost and increase customer service
levels
 Economic packaging and transportation
 Concurrent and parallel processing
 Standardization
Economic packaging and transportation
 Design products efficiently packed and stored to
produce the minimal amount of space allocation
 Products that can be stored more compactly can be
transported less expensively
 Retailer favor products that take less storage space and
stack easily
 Advantages of Superior Packaging
 Reduces inventory cost by decreasing the handling cost
 Space per product (rent per product) decreases
 Revenue per square foot can increase
Concurrent and Parallel Processing
 Modifying the product design and manufacturing
process
 Reduce lead time
 Lower inventory cost through better forecasting
 Reduce safety stock requirements
 Decoupling: A key concept for keeping the
manufacturing process parallel
 Able to design different inventory strategies for the various
decoupled components
 Higher inventory level can be held for signal component
Standardization
 Effective use of aggregated demand information to
yield better forecast outcome:
 Delay decision for specific product manufacturing until the
purchase decision has been made
 Decision based on aggregated level, insuring a more
accurate aggregated forecast
 Professor Swaminathan’s standardization framework
 A Modular Product: Product assembled from various modules
such that for each module there are a number of options
 A Modular Process: A process of discrete operations so that
inventory can be stored in partially manufactured forms between
operations
Standardization
 Swaminathan identifies four different approaches to
standardization:
 Part Standardization: Uses of common parts across multiple
product lines
 Process Standardization: Standardizing as much of the
process as possible for different products and then customizing
the products as late as possible
• In some cases resequencing and commonality allows the final
manufacturing steps to be completed at the distribution center
 Product Standardization: A large variety of products may be
offered, but only a few kept in inventory
• Downward substitution: An order is filled by a product that offers a
superset of the feature required by a customer
 Procurement Standardization: Involves standardizing process
equipment and approaches, even when the product itself is no
standardized
Selecting a Standardization Stragety
 The firm’s success rate of standardization is based
on its ability to modularize its product and
processes
 Important Considerations
 The various strategies are designed to deal with inaccurate
forecasts and product variety
 It may not be possible or cost effective to implement these
strategies in the context of a particular product or a specific
supply chain
• Value of these types of changes is higher at the start of the
product life cycle
• Customizing the products as late as possible, the per unit cost
of inventory will rise
• Some cases, semifinished products pay lower tariffs
The Push-Pull Boundary
 In push-based system, the production decisions are
based on long-term forecasts, while the pull-based
supply chains, production is demand driven
 Pull-based system typically lead to reduction in
supply chain lead time, inventory levels and
system cost, and easier to manage system
resources
 Push-pull boundary: the point where the system
changes from push-based system to a pull-based
system
• Example) Sweaters remain uncolored and are dyed to
meet customer demand
Case Analysis
 The lead time is around four to five weeks from its
product ion facility in Vancouver to Europe
 HP is concerned with high inventory levels and
inventory imbalance in European Distribution center
 Localization is done in Vancouver many weeks before the
products arrive in Europe
 European DC often find that it has too much inventory of printers
customized for certain markets, and not enough inventory of
printers customized for others
 To address this for the long term the following
solutions were proposed:




Switch to air shipments of printers from Vancouver
Build a European factory
Hold more inventory at the European DC
Improve forecasting practices
Case Analysis
 An alternative option is Process Standardization
(postponement)
 Ship “unlocalized” printers to the European DC and localizing
them after observing local demand
 Calculate required safety stock for each of the
customized products
 Lead time is five weeks
 Require a 98 percent service level
 HP needs over three-and-a-half weeks of safety
stock on hand
 European DC only keeps safety stock of generic
printers, customizing the printers as demand is
realized
The Spectrum of Supplier Integration
 Develop the notion that a spectrum of supplier
integration is used and that there is no single
“appropriate level” of supplier integration
 None: The supplier is not involved in design. Material and
subassemblies are supplied according to customer specification
and design
 White Box: This level of integration is informal. The buyers
“consults” with the supplier informally when designing products
and specifications, although there is no formal collaboration
 Grey Box: This represents formal supplier integration.
Collaborative teams are formed between the buyer's and the
supplier’s engineers, and joint development occurs
 Black Box: The buyer gives the supplier at set of interface
requirements and the suppliers independently design and
develops the required components
Keys to Effective Supplier Integration
 To achieve an effective supplier integration, hard
work has to be undertaken for the relationship to be
a success
 Select suppliers and build relationships with them
 Align objective with selected suppliers
What is Mass Customization
 Mass customization has evolved from two prevailing
manufacturing paradigms
 Craft Production: Highly skilled and flexible workers, who
governed by personal or procession standards, and motivated by
the desire to create unique and interesting products or services
 Mass Production: Efficient production of large quantity of a
small variety of goods
 Mass customization captures many of the
advantages of both the mass production and craft
production
 Delivery of a wide variety of customized goods or service quickly
and efficiently at lost cost
Making Mass Customization Work
 The key to making mass customization work is
highly skilled and autonomous workers, processes,
and modular units
 A module’s success depends on how effectively, quickly and
efficiently it completes its task and how good it is at expanding
its capabilities
 Managers determine these link between modules “fit together”
harmoniously in different links between modules to meet
customer requests
Making Mass Customization Work
 There are several key attributes that a system within
a company that links different modules must
possess
 Instantaneousness
 Costless
 Seamless
 Frictionless
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Inventory Management and Risk Pooling (1)