Topic 3: Variety Postponement

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Topic 3 Variety Postponement
September 2006
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Agenda for the day 1. Review assignment and
lecture on postponement. 2. Hewlett Packard Case
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Key Ideas/Tools from Yesterday 1. Smart
extrapolation method regression analysis 2.
Accurate Response 3. Managing uncertainty
requires shorter lead times, inventory
buffers and better forecasting.
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The Pyramid of Supply Chain Excellence
Customer Value
Inventory(Hedge Against Uncertainty)
Fast, Flexible Operations (Avoid Uncertainty)
Accurate Forecasts (Reduce Uncertainty)
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Effective postponement requires matching decouple
points with product design.
1. Where do you locate the decouple point in the
supply chain? 2. Can you redesign the product to
match the decouple point?
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Effective Postponement
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Two Alternative Supply Chain Designs
Make-to-Order
Make-to-Stock
RM
Production System
FG
Production System
RM
Advantages Disadvantages
RM raw material part inventories FG
finished good inventories
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Two Alternative Supply Chain Designs
Make-to-Stock
Make-to-Order
RM
Production System
FG
RM
Production System

• Minimizing production and transportation costs
• Finished good inventory availability
• Forecasting
• Product variety
• Product mix stability

• Minimizing supply and demand mismatch costs
• Lead time
• Raw material inventory availability
• Order variability/seasonality/capacity
• Set-up times

Primary Advantage Management Challenges
RM raw material part inventories FG
finished good inventories
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Postponement is a hybrid approach Example
Assemble-to-Order
Decouple Point
WIP
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Component Production
Final Assembly
Sub- assembly
Retailing
Decouple point the point at which the system
changes from make-to-stock to make-to-order

• Customer name attached to order
• Inventory held to reduce lead time

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Locating the decouple point
WIP

• Place decouple point after steps with
• Large scale economies
• Long lead times
• High set-up costs

• Place decouple point before steps with
• Variety fan-out
• High variable cost content

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Examples of Decouple Points
Component Manufacturing
Final Assembly
Sub- Assembly
Distribution
Retail
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Steps to re-design the product.
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Inventory-Service Crisis at HP

• The Crisis Inventory Imbalance
• excess inventory in some product options
• shortages in other product options
• Contributing Causes
• many product options due to geography
• long DC replenishment lead time
• highly uncertain market
• inflexible design difficult to rework one option
  to make it another
• out of control inventory system
• uncoordinated functional interests conflicting
  incentives

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Longer Term Alternatives for HP

• Alternatives
• Air Shipment
• European factory
• Universal model
• Lower product variety
• Forecasting methods
• Shorter review period
• More inventory

• Driver
• Leadtime
• Leadtime
• Variability
• Variability
• Variability
• Review period
• Fill rate

• Effectiveness
• Too expensive
• Volume?
• Design costs
• Lost revenue?
• Too difficult
• Transport costs
• Right trade-off?

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What Happened at HP?

• Deskjet re-designed to be DC-localizable
  (postponement). Implementation in early 1992.
• Millions of dollars saved from inventory
  reduction, service improvement, and freight
  reduction.
• Innovative packaging won patents.
• All Vancouver products now DC-localizable
  (postponement).
• Vancouver as showcase for Design for
  Localization/Postponement -- Best practices
  spreads to other HP divisions.

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HP Printers Distributor Customization
US Distribution
Factory
Before Postponement
Component Assembly
Full Final Assembly
US Distribution
Add LocalMaterials
WIP
Factory
Asian Distribution
Component Assembly
Partial Final Assembly
WIP
Add LocalMaterials
After Postponement
European Distribution
Add LocalMaterials
WIP
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Costs and Benefits of DC Localization

• Stocks of localization materials higher at DCs
• Potential freight reduction
• Investment to install localization capability at
  DCs
• Quality assurance
• Procurement of localization materials
• Value of local manufacturing
• Potential for other products
• Customs and duties implications
• Green effects

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Implementation Issues

• RD resistance
• Product works, why change it?
• DC resistance
• Requires new capabilities and objectives
• Additional costs
• Product redesign
• Increased cost of modular product
• DC efficiency vs. plant efficiency
• Shipping costs

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Lutron Different Views of Mass Customization
Special Products
Manufacture Components
Design
Assemble
Lighting Panels
WIP
Manufacture Components
Assemble
Flourescent Ballasts
FG
Manufacture Components
Rework
Assemble
Standard Products
FG
Manufacture Components
Assemble
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Apple Powerbook User Customization
Put your "personal cool" on your PowerBook 1400
Wood Redwood burl, Corellian Birch burl, Walnut
Brushed aluminium and Brushed copper Leather
black, grey boarskin, yellow, red, burgandy Blue
denim We will have BookCovers for other
PowerBooks in June!
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Benetton Process Reversal
Before Process Reversal
Dye
Spin
Knit Assemble
Weeks
Days
Days
After Process Reversal
Spin
Dye
Knit Assemble
Days
Weeks
Days
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Tomorrow Platform planning
Pizza Postponement Assignment is due.