E733 Quiz 2

• Your chain is efficient if • It's responsive if you

you satisfy predictable demand efficiently at the lowest possible cost, turn over inventory frequently, and select suppliers based on cost and quality. invest aggressively in reducing lead time for delivery; use standard components for different product versions; and choose suppliers for their speed, flexibility, and quality.

flexibility in the Toyota production system focuses on the ability of the production line to respond to change in the following areas

Demand volume and mix, Variable processing times, Equipment breakdown, and Unexpected product rework.

T/F Small levels of cross-training achieve most of the benefits of full-skill cross-training.

T

T/F: The characteristics of and decisions made in the development chain will affect the supply chain. Similarly, the characteristics of the supply chain must affect product design strategy and hence the development chain.

T

___ degrades the performance of the supply chain while ___ improves its performance.

Variability flexibility

To achieve the maximum line throughput,

balance the production line by achieving the same worker utilization

___ is part of the development chain

Product Design

o The uncertain market reaction to innovation increases

the risk of shortages or excess supplies.

Box II of Supply Chain Strategy Matrix

High Economy of Scale - Push Strat High demand Uncertainty - Pull Strat Delivery Cost - High Furniture

Box III of Supply Chain Strategy Matrix

High Economy of Scale - Push Strat Low demand Uncertainty - Push Strat Delivery Cost - High Grocery

The ___ the degree of Flexibility, the ___ expensive it is to achieve it

Higher More

Economies of scale Importance Push Vs Pull

If important then Push strat Non important Pull

A ___ chain is preferred when designing the manufacturing network for flexibility

Long

Box I of Supply Chain Strategy Matrix

Low Economy of Scale - Pull Strat High demand Uncertainty - Pull Strat Delivery Cost - Low PC's

Managers should focus on what costs for innovative products

Market Mediation

Chain

a group of products and plants that are all connected directly or indirectly. Long chains perform better than many short chains because they pool more plants and products and thus deal with uncertainty more effectively than short chains.

Process Standarization is also known as

as postponement or delayed product differentiation.

cost minimization is achieved by

better utilizing resources such as production and distribution capacities while minimizing inventory, transportation, and production costs.

Functional vs. Innovative Products

chapter, where functional products are associated with slow product innovation speed, predictable demand, and low profit margins. Examples include diapers, soup, milk, and tires. On the other hand, innovative products—such as fashion items, cosmetics, or high-tech products—are associated with fast product-innovation speed, unpredictable demand, and high profit margins.

part standardization,

common parts are used across many products. Common parts reduce the level of demand uncertainty and hence part inventories due to risk pooling

No flexibility

each plant is responsible for one product family, and hence lot sizes are large and there are no, or very few, set-ups. As a result, this system design reduces manufacturing costs. But, since each plant is focused on one product family, plants typically are far from market demand, which increases transportation costs.

2-flexibility design

has each plant produce exactly two product families. • Such a design increases manufacturing costs but decreases transportation costs relative to the costs associated with a dedicated, or no flexibility strategy.

___ demand uncertainty leads to a preference for managing the supply chain based on realized demand— a ____ strategy. Alternatively, ___ demand uncertainty leads to an interest in managing the supply chain based on a long-term forecast— a ___strategy.

higher pull Smaller push

o Process standardization

involves standardizing as much of the process as possible for different products and then customizing the products as late as possible. In this case, products and manufacturing processes are designed so that decisions about which specific product is manufactured—differentiation—can be delayed until after manufacturing is under way. The manufacturing process starts by making a generic or family product that is later differentiated into a specific end product.

customer value

is defined as the way that customers view the company's offerings—from product innovation through price all the way to experience and relationships.

n-flexibility strategy

is one where each plant is capable of producing n product families. • The higher the value of n, the higher the degree of flexibility, and with this come different manufacturing and transportation trade-offs. • Lower degrees of flexibility tend to reduce manufacturing costs but increase transportation costs, while higher degrees of flexibility reduce transportation costs at the expense of manufacturing costs.

• The predictable demand of functional products makes ___ easy because a nearly perfect match between supply and demand can be achieve

market mediation

You can correct Mismatch through several means:

o Change your product. making many innovative product lines functional by reducing the number of product variations and simplifying pricing. o Change your supply chain. Make your chain more efficient for functional products, or more responsive for innovative products.

low work-in-process inventory (waste) implies

that there is no fat that masks production line problems. • This allows immediate sensing of bottlenecks, line errors, defects, and other manufacturing problems and fosters problem-solving capabilities (people and teamwork).

bullwhip effect

variability of orders received from retailers is typically much higher than variability in customer demand, and this increase in variability propagates upstream in the supply chain. • This is the so-called bullwhip effect (see appendix A). This increase in variability leads to o Excessive inventories due to the need for large safety stocks, o Larger and more variable production batches, o Unacceptable service levels, and o Product obsolescence. • Specifically, the bullwhip effect leads to inefficient resource utilization because planning and managing are difficult.

Postponement is a good example of which strategy

Push-Pull

physical function

A supply chain's physical function is readily apparent and includes con- verting raw materials into parts, components, and eventually finished goods, and transport- ing all of them from one point in the supply chain to the next.

Box A of Chain Characteristic Matrix

Box A represents products that are characterized by predictable demand and slow product introduction frequency • The framework suggests that these products should focus on a push strategy, supply chain efficiency, and high inventory turns. Product modularity is less important.

Box B of Chain Characteristic Matrix

Box B represents products with fast innovation speed and highly unpredictable demand. Here the focus is on flexibility and responsiveness, on pull strategy, and on modular product architecture. Thus, products in this category require a supply chain that values responsiveness over cost.

Box D of Chain Characteristic Matrix

Box D represents products with slow innovation speed but high demand uncertainty. These are the products and industries where a combination of push and pull is essential. Similarly to box B, these are also situations where lead time reduction, if possible, is important. • Similarly to box B, these are also situations where lead time reduction, if possible, is important. • In this case, the push-pull implementation depends on the characteristics of the specific industry. o For instance, chemical products are characterized by a complex production process with multiple recipes (this corresponds to a bill of material in discrete manufacturing) and long lead times, so here push-pull is implemented by positioning buffer inventory in key manufacturing stages. o This is not the case for high-end furniture manufacturing companies where assembly is to order (pull) and distribution is based on a fixed schedule (push).

___ degrades production-line performance.

Variability

key characteristics of the supply chain include the following:

Demand uncertainty and variability, Economies of scale in production and transportation, and Lead time, particularly because of globalization.

o How does a company in the upper righthand cell overcome its schizophrenia?

Either by moving to the left on the matrix and making its products functional or by moving down the matrix and making its supply chain responsive. The correct direction depends on whether the product is sufficiently innovative to generate enough additional profit to cover the cost of making the supply chain responsive • A sure sign that a company needs to move to the left is if it has a product line characterized by frequent introductions of new offerings, great variety, and low profit margins. • In other cases when a company has an unresponsive supply chain for innovative products, the right solution is to make some of the products functional and to create a responsive supply chain for the remaining innovative products. The automobile industry is a good example.

Box C of Chain Characteristic Matrix

Finally, box C represents products with fast innovation speed and low demand uncertainty. • These innovative products (such as PCs, cell phones, and printers) are sold through retail chains. • This is a unique case, where the supply chain strategy is push (focusing on cost reduction), but product design strategy is focused on modular product architecture to achieve flexibility in response to changes in technology. o This is appropriate, since high product introduction frequency does not necessarily imply that all product modules are obsolete but rather that new technology will replace some of the existing modules. o Thus, a modular architecture is required. • Push is appropriate since demand uncertainty is low and the focus is on efficiency or cost reduction.

Functional vs. Innovative Products Ch. 9

Functional products are characterized by slow innovation speed, low product variety, and typically low profit margins. Examples include grocery products such as soup, beer, tires, and office equipment. Innovative products are characterized by fast technology clock-speed, short product life cycle, high product variety, and relatively high margins. Examples include cell phones, personal computers, printers, fashion items and cosmetics.

____ require the line to produce larger lot sizes to take advantage of economies of scale and thus lead to higher inventory levels. This reduces the time available for other products on the same line and prevents the line from switching frequently from one product to another.

High set-up times

Push vs. Pull Strategy

In a push strategy, the focus is on having predictable demand, leveraging high economies of scale, and achieving cost efficiencies. In a pull supply chain, the focus is on reacting to unpredictable demand, dealing with low economies of scale, and achieving flexibility and responsiveness.

o The Push-Pull Supply Chain

In a push-pull strategy, some stages of the supply chain, typically the initial stages, are operated in a push-based manner while the remaining stages employ a pull-based strategy.

Full flexibility

In this case, each plant is responsible for many product families, hence lot sizes are small and there are many set-ups which increase manufacturing costs. However, market demand can be served from the closest plant, and therefore this system design significantly reduces transportation costs.

o Continuous Replenishment.

In this strategy, suppliers receive point-of-sale (POS) data and use these data to prepare shipments at previously agreed-on intervals to maintain specific levels of inventory. Thus, since customer demand drives production and distribution decisions in this supply chain, this strategy is a pull strategy at the production and distribution stages and push at the retail outlets.

key characteristics of the Development Chain include the following:

Innovation speed • The speed by which technology changes in a particular industry. • This affects product design and hence the development chain. Make/buy decisions • Decisions regarding what to make internally and what to buy from outside suppliers. • These decisions are determined, in part, based on internal (development chain) capabilities and (supply chain) capacities. Product structure • The level of modularity or integrality of a product.

Assemble to order vs Build to Order

One way to distinguish between the two is that an assemble-to-order is similar to a build-to-order strategy except that it has a lot size of one and so does not benefit from economies of scale. Build-to-order, on the other hand, takes advantage of economies of scale by "building" lot sizes.

Physical and Market Mediation Costs

Physical costs are the costs of production, transportation, and inventory storage. Market mediation costs arise when supply exceeds demand and a product has to be marked down and sold at a loss or when supply falls short of demand, resulting in lost sales opportunities and dissatisfied customers.

o How can flexibility be achieved in an environment with low inventory, high utilization of resources, and continuous focus on waste reduction?

Reduce or completely eliminate set-up times and costs, Design U-shaped production lines, and Invest in worker cross-training

Demand for generic vs specific end product

Since demand for the generic product is an aggregation of demand for all its corresponding end products, forecasts are more accurate, and inventory levels are reduced. In contrast, customer demand for a specific end product typically has a high level of uncertainty, and product differentiation occurs only in response to individual demand. Thus, the portion of the supply chain starting from the time of differentiation is pull-based.

o Flexibility

The ability to respond to change without increasing operational and supply chain costs and with little or no delay in response time. • In this definition, change refers to change in demand volume and mix, commodity prices, labor costs, exchange rates, technology, equipment availability, market conditions, or the production and logistics environment.

The appropriate supply chain strategy for functional vs Innovative products

The appropriate supply chain strategy for functional products is push, where the focus is on efficiency, cost reduction, and supply chain planning. The appropriate supply chain strategy for innovative products is pull because of high profit margins, fast technology clock speed, and unpredictable demand. Indeed, here the focus is on responsiveness—time, service level, and order fulfillment.

sales and operation planning (S&OP).

This is a business process that continuously balances supply and demand. It is cross-functional—integrating sales, marketing, new product launch, manufacturing, and distribution into a single plan, typically at an aggregated volume level, such as product family. The process involves monthly (or quarterly) meetings where demand forecasts and supply capacity constraints are compared and feasible execution plans are identified. Most companies use some demand planning software and spreadsheet analysis of data collected from various enterprise resource planning, customer relationship management, and manufacturing systems.

two main types of process variability:

With machine variability, different machines (or stations) on the same line require different processing times for the same piece flowing between the machines With job variability, different jobs take different lengths of time on the same machine.

Modular Vs Integral Chain

, high product introduction frequency (fast innovation speed) suggests a focus on modular product architecture. o Developing a modular product architecture requires significantly more time than an integral product, is more difficult to accomplish, is more expensive, and can negatively affect quality and performance. This allows the independent development of product subcomponents. The final selection of features and product differentiation are postponed as much as possible—sometimes until demand is realized. Such an architecture also allows reusing various components (such as PC monitors) when the technology of others (such as CPU) have changed so that they need to be replaced. o An integral product architecture is recommended when product introduction frequency is low (for slow innovation speed). Such a design is typically simpler, easier to implement, and often less expensive.

Effects on Supply Chain Strategy

Economies of scale and demand Uncertainty Lead Times and Demand Uncertainty Flexibility and committed response times

Strategy for Functional vs Innovative

Efficient n this case, you need an Efficient Supply Chain—which minimizes production, transportation, and storage costs Responsive Fast and flexible, it helps you manage uncertainty through strategies such as cutting lead times and establishing inventory or excess capacity buffers.

• If you're using an ___ supply chain to sell ___ products, or a ___supply chain to sell ___products, you've got a mismatch

Efficient; Innovative Responsive; Functional

the importance and role that flexibility plays

Eliminate waste. • Eliminate all forms of waste including in material, inventory, energy, transportation, defects, time, and cost. Emphasize continuous improvement. • Constant emphasis is placed on reducing set-ups, improving quality, modifying product design, and adjusting processes. Invest in people and teamwork. • The manufacturing environment is designed to empower employees to make decisions (such as stopping the production line when a problem is identified), foster problem-solving capability, motivate employees to suggest process improvements, and provide flexibility through worker cross-training.

T/F A small investment in flexibility will not reduce total supply chain costs.

F it does

Push-Based Supply Chain

In a push-based supply chain, production and distribution decisions are based on long-term forecasts. • Typically, the manufacturer bases its demand forecasts on orders received from the retailer's warehouses. • A push-based supply chain therefore is slow to react to the changing marketplace, which can lead to o An inability to meet changing demand patterns, and o The obsolescence of supply chain inventory as demand for certain products disappears. In addition, variability of orders received from retailers is typically much higher than variability in customer demand

o Postponement

In postponement, the firm designs the product and the manufacturing process so that decisions about which specific product should be manufactured can be delayed as long as possible. The manufacturing process starts by producing a generic or family product, which is differentiated to a specific end product when demand is revealed. • The portion of the supply chain prior to product differentiation is typically operated using a push-based strategy. In other words, the generic product is built and transported based on a long-term (aggregate) forecast.

Box IV of Supply Chain Strategy Matrix

Low Economy of Scale - Pull Strat Low demand Uncertainty - Push Strat Delivery Cost - Low Books and CD's

o One of the most effective tools for achieving flexibility is

Product Design

Build to stock vs assemble to order vs Build to order

Push Pull Pull o Thus, in a build-to-stock strategy, production is completed typically before customer orders are realized, and in assemble-to-order and build-to-order strategies, production happens after the customer order is received.

ability to respond to change

implies that even in the face of a disruption the firm should be able to match supply and demand to avoid hurting customer experience. Similarly, everything else being equal, implementing flexibility should help the firm reduce long-run operational costs or improve response time or both

o The Pull-Based Supply Chain

n a pull-based supply chain, production and distribution are demand driven so that they are coordinated with true customer demand rather than forecast demand. In a pure pull system, the firm does not hold any inventory and responds only to specific orders. This is enabled by fast information-flow mechanisms that transfer information about customer demand, e.g., point-of-sale (POS) data, to the various supply chain participants.

U-shaped production line

o In a U-shaped production line, machines or processes are arranged around a U-shaped line in the order in which production operations are performed.8 Workers are trained to perform multiple tasks or processes, and the layout (figure 8.1), facilitates information sharing between workers and increases flexibility. This design allows workers to see the various operations and motivates collaboration among workers so that they can adjust production rates and solve problems. o

Box B vs C in Chain Characteristics Matrix

o To summarize, the need to respond to changes in demand and technology (box B) or just a change in technology (box C) require flexibility and hence a modular product architecture.

short product life cycles increase the risk of ___ and ___

obsolescence the cost of excess supplies.

n a flexible supply chain, companies move from a static sourcing strategy to a dynamic one by

optimizing production sourcing decisions, taking into account changes in demand, supply, various costs, and business constraints.

___are the best people to propose process improvements, thus continuously enhancing performance and product quality.

production line workers • Workers, not inspectors, are responsible for the quality of their work at each stage of the production process (empowering people).

The development chain and the supply chain intersect at the

production point

Typical U-shaped lines operate in a ___mode

pull . Raw materials enter the line only when a finished product is pulled from the line, and the line stops when there is a problem anywhere on the floor. This motivates problem-solving capabilities since the entire unit is responsible for the production line. It also ensures a low level of work-in-process inventory, which in return implies that problems are detected and solved rather quickly.

The push portion and the pull portion of the supply chain interact only at the

push-pull boundary.

Resequencing

refers to modifying the order of product manufacturing steps so that the operations that result in the differentiation of specific items or products are postponed as much as possible.

Functional

satisfies basic, unchanging needs and has a long life cycle, low margins, and stable demand. (Think paper towels or light bulbs.)

High profit margins and the importance of early sales in establishing market share for new products increase the cost of

shortages

Risk Pooling,

• a strategy driven by following statistical principle: o Aggregate forecasts are always more accurate than individual forecasts. By the same token, demand for a component is an aggregation of demand for all finished products that use this component. Since aggregate forecasts are more accurate, uncertainty in component demand is much smaller than uncertainty in finished goods demand, and this leads to safety stock reduction.

development chain

the collection of activities and processes that are associated with the introduction of a new product. It includes the product design phase, the associated capabilities and knowledge that need to be developed internally, sourcing decisions, and production plans. Specifically, the development chain includes decisions about product architecture, make or buy decisions (what to make internally and what to buy from outside suppliers), supplier selection, early supplier involvement, and strategic partnerships.

Inventory Positioning

the most difficult supply chains to manage are those associated with box D, where lead times are long and demand is not predictable. Inventory is critical in this type of environment, which requires positioning inventory strategically in the supply chain. Different stages of the supply chain are managed in different ways, depending, among other things, on economies of scale. The stages that keep inventory are managed based on push, and others are managed based on pull.

supply chain time line

the time that elapses between procurement of raw material (the beginning of the time line) and the delivery of an order to the customer (the end of the time line).

Why and when are pull-based systems are often difficult to implement

when lead times are so long that it is impractical to react to demand information. Also, in pull-based systems, it is frequently more difficult to take advantage of economies of scale in manufacturing and transportation since planning is not done far ahead to take advantage of this capability.

Full-skill cross-training

where each worker can perform all processes—is difficult to achieve and manage and may not be required.

market mediation

whose purpose is ensuring that the variety of products reaching the marketplace matches what consumers want to buy.

o One important feature in U-shaped lines is

worker cross-training— the number and type of tasks that workers should be able to complete in the line.

Cross-training, properly implemented, equalizes .

worker utilization

Pull systems are intuitively attractive since they lead to

• Decreased lead times, which are achieved by better anticipating incoming orders from the retailers, • Decreased inventory at retailers' warehouses since inventory levels at these facilities increase with lead times, • Decreased variability in the system and, in particular, variability faced by manufacturers due to lead time reduction, and • Decreased inventory at the manufacturer due to the reduction in variability. Thus, in a pull-based supply chain, we typically see a significant reduction in system inventory level, an enhanced ability to manage resources, and a reduction in system costs when compared with the equivalent push-based

push-pull boundary

• The interface between the push-based stages and the pull-based stages The push-pull boundary is located somewhere along the time line and indicates the point in time when the firm switches from managing the supply chain using one strategy (typically a push strategy) to managing it using a different strategy (typically a pull strategy). This is the point along the supply chain time line where there is a need to coordinate the two supply chain strategies, typically through buffer inventory. o Thus, the interface between the push portion of the supply chain and the pull portion of the supply chain is forecast demand. This forecast, which is based on historical data obtained from the pull portion, is used to drive the supply chain planning process and determines the buffer inventory.