Product and Process Design

1. Product and Process Design Dr. Ranjan Ghosh Indian Institute of ManagementCalcutta

2. 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

3. The Goals of the Manufacturing Organization • Responsiveness • Competitive pricing • Efficiency • Customer service Conflicting Goals

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. Mass Customization • Customization, Predictability and Performance Mass Customization Performance Predictability

12. 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

13. Mass Customization • How should/do companies implement mass customization without suffering the negative effects of increased product variety and variability?

14. Strategies for Managing Variety • Modularity • Standardization • Postponement • Process Re-sequencing • Quick Response

15. Modularity in Productand 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

16. Modularity in Productand 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

17. Modularity in Productand Process • Are modular products always made from modular processes?

18. 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.

19. A Framework for Mass Customization Modular Product Non-Modular Non-Modular Modular Processes

20. 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 ?

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. BenettonOld Manufacturing Process Sequence of Processes • Spin or Purchase Yarn • Dye Yarn • Finish Yarn • Manufacture Garment Parts • Join Parts

30. BenettonNew Manufacturing Process Re-Sequencing of Processes • Spin or Purchase Yarn • Manufacture Garment Parts • Join Parts • Dye Garment(This step is postponed) • Finish Garment

31. 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

32. A new Supply Chain Paradigm • A shift from a Push System... • Production decisions are based on forecast • …to a Push-Pull System

33. From Make-to-Stock Model…. Suppliers Configuration Assembly

34. 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

35. 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.

36. 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.

37. PUSH STRATEGY PULL STRATEGY High Uncertainty Low Uncertainty Push-Pull Boundary Push-Pull Supply Chains The Supply Chain Time Line Customers Suppliers

38. 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

39. ….to Assemble-to-Order Model Suppliers Configuration Assembly

40. 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.,

41. Demand uncertainty (C.V.) Pull Push H L I Computer II IV III Delivery cost Unit price L H Economies of Scale Pull Push Matching Supply Chain Strategies with Products

42. Locating the Push-Pull Boundary

43. Organizational Skills Needed Raw Material Customers Push Pull High Uncertainty Short Cycle Times Service Level Responsiveness Low Uncertainty Long Lead Times Cost Minimization Resource Allocation