Delayed Product Differentiation

Increased pressure from market to offer variety
 Even in national markets, customers are increasingly asking for different
designs, functionality, etc
 Globalization: different markets may have different requirements for the
product, due to differences in taste, language, geography, government
regulations

Technology
 Multiple versions of the same product being sold at the same time
 Production technologies are able to offer variety


Result: Product Proliferation
What is the impact on production/logistics costs?
 Setup costs
 Inventory holding costs

How can you still offer variety without increasing your production /logistics
costs?
Delayed Product Differentiation and
Push-Pull Boundary
 The point of product differentiation is often the push-pull boundary
 Delayed product differentiation enables reductions in demand
uncertainty
 Reduced demand uncertainty enables the use of pull systems which
may be cost efficient due to economies of scale
Push Strategy
Pull Strategy
Tailored Postponement
 Do not implement postponement for the portion of
demand that is certain
 Reductions in processing costs
 Implement postponement for only the portion where
the demand is uncertain
 Reductions in inventory holding/obsolescence costs
 Example: Benetton
 Option 1: Dye + knit + distribution for a portion of demand
 Option 2: Knit + dye + distribution for the rest
 Determine the production quantity (dye + knit) in option 1 for
each color, determine the production quantity (knit) in option 2
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
 Design for logistics uses product design to
address logistics costs
 Key concepts of design for logistics
 Economic packaging and transportation
 Concurrent/parallel processing
 Standardization
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
The Network Printer Example
Board
Stage 1
(Europe)
Stage 1
(Europe)
Printer
Customer
(Europe)
Stage 2 +
Integration (Far East)
Board
Printer
Stage 2
(Far East)
Customer
(Europe)
Integration (Europe)
Plastics,
motors, etc.
Supplier Integration in product
development
 Competitive forces are driving firms to integrate
suppliers into product development
 Spectrum of Supplier Integration
 None
 White Box – Informal integration
 Grey Box – Formal integration, with collaborative
teams
 Black Box – Interface requirements are given,
product is returned
Supplier Integration
 What approach is appropriate?
 Determine internal competencies
 Determine product development needs
 Identify external development and manufacturing needs
 If future products have components that require external expertise
and can be separated from other components, a black box
approach makes sense.
 If components cannot be separated, a grey box approach makes
sense.
 If some expertise can be found in house, a white box approach
might make sense.
The “Bookshelf” Approach




Monitor the development of new technologies
Follow suppliers that have developed expertise
When appropriate, integrate these new technologies
This balances the advantages and disadvantages of
being on the cutting edge:
 No need to gain experience with the technology, because
suppliers are doing this for you.
 Can introduce the technologies when needed.
Mass Customization
 The delivery of a wide variety of customized goods at low cost
 The key is modular products and processes, so that customer
requests can be met
 Companies need to evolve towards “modular companies”, with
managers ensuring that modules are compatible.
 Needs instant, costless, seamless integration of different modules
(components)
 Consider National Bicycle
 Bikes manufactured based on customer weight, size, selections of
model type, color patterns and components
 Dell