Mass Customisation In Scm

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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

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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)


Orignal

Equipment

Manufacturer

Engineer to Order

Make to

Stock

Customer Order Decoupling Point: Assemble to Order

2nd tier

supplier

1st tier (main)


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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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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