Selecting the Right Supply Chain Strategy!

Rajesh PIPLANI, Ph.D.

Office: N3-02C-84
Tel: (65) 6790 5601
Email: mrpiplani@ntu.edu.sg
Homepage: //www3.ntu.edu.sg/home/mrpiplani
A Tale of Two Companies
Amazon.com
q Incorporated in1994;
q First online bookstore
opened in 1995;
q Now it’s biggest retailer
online.
q Sales revenue in 2007
was 14.835B US$.
Webvan.com
q Founded in 1999;
q Set out to create a full
service online retailer that
sells groceries and other
items;
q Bankrupt in 2001;
q 1.2B US$ investment lost.
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Question:

What is the right supply chain for your product?

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Functional vs. Innovative Products

Functional Innovative
Product clock-speed (rate of
Slow Fast
innovation) rate of improving
Demand Characteristics Predictable Unpredictable
Profit Margin Low High
Product Variety Low High
Average forecast error at the
Low High
time production is committed
Average stockout rate Low High
Fashion items, high
Diapers, soup,
Examples tech products (cell-
tyres, etc.
phones), etc.
Ref: Marshall Fisher

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Efficient vs. Responsive Supply Chains

Efficient Responsive
Respond quickly to unpredictable
Supply predictable demand
Objective demand to minimize stockouts, forced
efficiently at the lowest cost
markdowns, and obsolete inventory
Maintain high average utilization
Production Deploy excess buffer capacity
rate
Generate high turns and Deploy significant buffer stocks of
Inventory
minimize inventory in the chain parts or finished products
Shorten lead time as long as it Invest aggressively in ways to reduce
Lead time
doesn’t increase cost lead time
Supplier Select primarily for cost and Select primarily for speed, flexibility,
selection quality and quality
Product Maximize performance and Use modular design in order to
design minimize cost postpone product differentiation
Ref: Marshall Fisher

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Matching Products with Supply Chain

Ref: Marshall Fisher

Think: Why mismatch?

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What is the right supply chain for your product?

q What would happen if we used a responsive supply

chain for functional products?
q Or an efficient supply chain for innovative products?

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Push or Pull?

Make to stock
Order (based on forecast)

Products

Manufacturer Retailer Consumers

Order (based on demand)

Products
pull
Manufacturer Retailer Consumers

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Push vs. Pull
efficient supply chain responsive supply chain

Differentiator Push Model Pull Model

Maximise utilisation of High levels of customer service through

Objective resources, raw materials or flexibility and responsiveness and to
infrastructure at least cost. meet uncertain customer demand.

Operate strict processes in Operate in response to customer

Supply chain anticipation of demand. demand.
Emphasize forecast. Emphasize lean principles.

Lead time Long. Short.

Production Long production runs. Short and flexible production runs.

Typically high. Typically low.

Inventory Push product as close to Pull the product through the chain,
customer as possible. based on customer demand.

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Push-Pull Boundary

customer order decoupling point

PUSH PULL
pull

Design Source Produce Distribute Sell

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Customer Order Decoupling Point (CODP)

Ideal is to keep this lead time

as short as possible

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 Think: What kind of industry product use
which type of supply chain

Purely push

e.g. keep at central

fast moving consumer warehouse, only e.g. different e.g. computer e.g. specific e.g.
goods. e.g. shampoo distribute when there region have product. Boeing Ref: Yarn
at first design also
is an order because different
requirements. normally dont have. e.g.
demand is unknown.
left side
e.g. spare part,
ship
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space shuttle, cruise
phamarceutical
Modular vs. Integral Products

e.g. computer, assemble all the

q Modular product modules such as RAM, harddisk, ...

§ Made by combining different components

§ Components are independent of each other
§ Components are interchangeable
§ Standard interfaces are used
§ Customer preference determines the product configuration.

q Integral product e.g. smartphone, camera

§ Made up from components whose functionalities are tightly

coupled.
§ Unique components
§ Designed as a system by a top-down approach.
§ Evaluated on system instead of component performance
§ Components perform multiple functions.

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Modular Designs vs. Integral Designs
Benefits of Modular Designs
Task Specialization
Platform flexibility
Increased number of product variants
Economies of scale in component
production
Cost savings in inventory and logistics
Easy maintenance
Incremental improvements, e.g.
upgrade, add-on and adaptations
Independent and concurrent product
development; easy for outsourcing
Benefits of Integral Designs
Interactive learning
High levels of performance through
proprietary technologies
Systemic innovations
Superior access to information
Protection of innovation from imitation
Craftsmanship
Higher entry barriers for component
suppliers
Ref: Mikkola
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Matching SC Strategy with Products

Demand so this should use push

or pull or push-pull?
Uncertainty
§Pull
§H
I II high demand uncertainty:
require different size,
§Computer §Furniture shape, colour...

IV III
§Books & CDs §Grocery

§L
§Push
Economy of
Scale
§H
§L

§Pull §Push

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Product Lifecycle and Supply Chain Strategy

when product reach mature,

Product: High Margin need to change the supply chain
Revenues
strategy to efficient
Demand: Unpredictable
Mature

Decline

Growth

because more competitors. it

is not innovative anymore

Product: Low Margin

Demand: Predictable
Introduction

Ref: Marshall L. Fisher Time

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Reading List

q Required Reading:
§ Chapter 6 of David Simchi-Levi, etc. “Designing and Managing
the Supply Chain”.

q Recommended reading:
§ Marshall Fisher, “What is the right supply chain for your
product?”, HBR, 1997. (Url under Course
Documents/Reference Material?

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Questions?