Product and Process Design

Dr. Ranjan Ghosh

Indian Institute of Management
Calcutta
The Manufacturing Environment
• Rapid Changes
– New products rapidly introduced
– Short, unknown product life cycles
• High Variety of Products
• Long Production Lead Times
• Increasing storage and transportation costs
• Difficult to forecast demand
 The Goals of the
Manufacturing Organization
• Responsiveness
• Competitive pricing
• Efficiency
• Customer service

Conflicting Goals
 Why Do These Goals Conflict?
• Forces for keeping low inventory
– inventory expensive
– low salvage values
• Forces for keeping high inventory
– long lead times
– customer service is important
– demand is hard to predict
– reduction in transportation quantity
 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 (cont’d)
• Design for Logistics uses product design
to address logistics costs
• Key Concepts of Design for Logistics
– Economic packaging and transportation
– Concurrent/Parallel Processing
– Mass Customization
 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
 Traditional Manufacturing
• Set schedules as early as possible
• Use large lot sizes to make efficient use of
equipment and minimize costs
• Large centralized facilities take advantage
of economies of scale
 Mass Customization
• Customization, Predictability and
Performance

Mass
Customization
Performance

Predictability
 Mass Customization
• Predictability of Demand
• Predictability of Operations
– Inventory levels
– Equipment capacity requirements
– Increase in the number of components and
hence in the number of suppliers
 Mass Customization
• How should/do companies implement
mass customization without suffering the
negative effects of increased product
variety and variability?
 Strategies for Managing Variety

• Modularity
• Standardization
• Postponement
• Process Re-sequencing
• Quick Response
 Modularity in Product
and Process
• Modular Product:
– Can be made by appropriately combining the different
modules
– It entails providing customers a number of options for
each module
• Modular Process:
– Each product undergo a discrete set of operations
making it possible to store inventory in semi-finished
form
– Products differ from each other in terms of the subset of
operations that are performed on them
 Modularity in Product
and Process
• Semiconductor wafer fabrication is
modular since the type of chip produced
depends on the unique set of operations
performed
• Oil refining is not modular since it is
continuous and inventory storage of semi-
finished product is difficult
 Modularity in Product
and Process

• Are modular products always made from

modular processes?
 Modularity in Product
and Process
• Modular products are not always made from
modular processes
– Bio-tech and pharmaceutical industries make
modular products but use non-modular
processes; many products are made by varying
the mix of a small number of ingredients
– Lubricants are produced by varying the
composition and quantity of ingredients.
 A Framework for
Mass Customization
Part Process
Modular
Standardization Standardization
Product
Product Procurement
Non-Modular Standardization Standardization

Non-Modular
Modular

Processes
 Product Standardization
• Downward Substitution
– Produce only a subset of products (because
producing each one incurs high setup cost)
– Guide customers to existing products
– Substitute products with higher feature set for those
with lower feature set
– Which products to offer, how much to keep, how to
optimally substitute ?
 Procurement Standardization
• Consider a large semiconductor manufacturer
– The wafer fabrication facility produces highly customized
integrated circuits
– Processing equipment that manufactures these wafers
are very expensive with long lead time and are made to
order
– Although there is a degree of variety at the final product
level, each wafer has to undergo a common set of
operations
– The firm reduces risk of investing in the wrong
equipment by pooling demand across a variety of
products
 Postponement Example
• Demand for black t-shirts
– 50% probability 100
– 50% probability 200
• Same for white t-shirts
• Production alternatives
Produce 150 of each color ahead of time
Produce 300 which can be dyed after demand is
observed
 Postponement: Example
First Alternative
– 25% probability -- short 50 of each
– 25% probability -- extra 50 of each
– 50% probability -- short 50 of one, extra 50 of the
other
Second Alternative
– 25% probability -- short 50 of each
– 25% probability -- extra 50 of each
– 50% probability -- no shortage or extra
 Postponement: Key Concepts
• Delay differentiation of products in the same
family as late as possible
• Enables the use of aggregate forecasts
• Enables the delay of detailed forecasts
• Reduces scrapped or obsolete inventory,
increases customer service
• May require new processes or product design
with associated costs
 Benetton: Background
• A world leader in knitwear
• Massive volume, many stores
• Logistics
– Large, flexible production network
– Many independent subcontractors
– Subcontractors responsible for product movement
• Retailers
– Many, small stores with limited storage
 Benetton: Supply Cycle
• Primary collection in stores in January
– Final designs in March of previous year
– Store owners place firm orders through July
– Production starts in July based on first 10% of orders
– August - December stores adjust orders (colors)
– 80%-90% of items in store for January sales
• Mini collection based on customer requests
designed in January for Spring sales
• To refill hot selling items
– Late orders as items sell out
– Delivery promised in less than five weeks
 Benetton: Flexibility
• Business goals
– Increase sales of fashion items
– Continue to expand sales network
– Minimize costs
• Flexibility important in achieving these goals
– Hard to predict what items, colors, etc. will sell
– Customers make requests once items are in stores
– Small stores may need frequent replenishments
 It is hard to be Flexible when
• Lead times are long
• Retailers are committed to purchasing early orders
• Purchasing plans for raw materials are based upon
extrapolating from 10% of the orders

How to be flexible?
Postponement
 Benetton
Old Manufacturing Process
Sequence of Processes

• Spin or Purchase Yarn

• Dye Yarn
• Finish Yarn
• Manufacture Garment Parts
• Join Parts
 Benetton
New Manufacturing Process
Re-Sequencing of Processes

• Spin or Purchase Yarn

• Manufacture Garment Parts
• Join Parts
• Dye Garment (This step is postponed)
• Finish Garment
 Benetton: Postponement
• Why the change?
– The change enables Benetton to start manufacturing
before color choices are made
• What does the change result in?
– Delayed forecasts of specific colors
– Still use aggregate forecasts to start manufacturing early
– React to customer demand and suggestions
• Issues with postponement
– Costs are 10% higher for manufacturing
– New processes had to be developed
– New equipment had to be purchased
 A new Supply Chain Paradigm
• A shift from a Push System...
– Production decisions are based on
forecast
• …to a Push-Pull System
From Make-to-Stock Model….

Suppliers Assembly Configuration

 Demand Forecast

• The three principles of all forecasting

techniques:

– Forecasts are usually wrong

– The longer the forecast horizon the worst is
the forecast
– Aggregate forecasts are more accurate
• The Risk Pooling Concept
 Push-Pull Boundary

• Point where the Production Process

switches from Push to Pull
(or Build-to-Forecast to Build-to-Order);
also known as De-Couple Point.
 De-Couple Points
• Before Product Variety explodes
• After long lead time stages
• After stages with constraint capacity
• After stages with large setup times or costs.
• They occur typically between component
manufacturing and Sub-assembly,
or between Sub-assembly and Final assembly,
or between Final assembly and Distribution,
or between Distribution and Retail.
 Push-Pull Supply Chains

The Supply Chain Time Line

Customers
Suppliers

PUSH STRATEGY PULL STRATEGY

Low Uncertainty High Uncertainty

Push-Pull Boundary
 A new Supply Chain Paradigm
• A shift from a Push System...
– Production decisions are based on forecast
• …to a Push-Pull System
– Parts inventory is replenished based on
forecasts
– Assembly is based on accurate customer
demand
….to Assemble-to-Order Model

Suppliers Assembly Configuration

 Business models in the Book
Industry
• From Push Systems...
– Barnes and Noble
• ...To Pull Systems
– Amazon.com, 1996-1999
• And, finally to Push-Pull Systems
– Amazon.com, 1999-present
• 7 warehouses, 3M sq. ft.,
 Matching Supply Chain
Strategies with Products
Demand
uncertainty
(C.V.)

Pull H

I II
Computer

IV III
Delivery cost
Unit price
Push L

L H Economies of
Scale
Pull Push
Locating the Push-Pull
Boundary
 Organizational Skills Needed

Raw
Material Customers
Push Pull

Low Uncertainty High Uncertainty

Long Lead Times Short Cycle Times

Cost Minimization Service Level

Resource Allocation Responsiveness