Supply Chain Design

Today's topic: Supply Chain Design
Articles for discussion:
Avon Gets Its' (Supply Chain) Makeover: Shoshanan Cohen
Aligning Supply Chain Strategies With Product Uncertainty: Hau L Lee
Mass Customization at Hewlett-Packard; The Power of Postponement: Feitzinger
Making Supply Meet Demand in an Uncertain World: Marshall L. Fisher

The global business environment is filled with opportunity; however, it is also fraught with risk. Expanding product variety, short product life cycles, faster product development, and global competition threaten to decrease corporate revenues. Corporations that fail to adapt to these changes in the market environment will quickly be left behind. Therefore, implementation of effective supply chain management is critical for organizations to maintain and improve a corporation’s competitive edge. Efficient management of supply chain complexity is a task that requires intense effort and planning. In order to maximize supply chain effectiveness, managers must be masters in the field of information gathering, evaluation, and transmission.
These three skills culminate in the ability to understand and reduce market uncertainty. Serious stumbling blocks to supply chains are: the ever present uncertainty involving consumer demand, the inconsistency of suppliers, and individual product uncertainty. Therefore, managers need to be aware of the demand characteristics of the products they specialize in. This knowledge will allow managers to effectively reduce uncertainty. Managers should ask themselves: Are the products offered by the corporation functional or innovative products? Are supply characteristics stable or evolving? Where is the product in the overall product-life cycle? These questions are incredibly significant because they provide reference for managers to implement appropriate supply chain strategies.
Managers need to have a system in place to gather demand information from the market. Innovations in Information Technology are transforming the gathering of market information. With the internet, companies in a supply chain can be connected in real time with information and knowledge shared continuously; new products and services can be designed to fit special market segments; and new supply chain structures can be developed to serve customers in a more direct manner. In addition to the internet, information sharing and tight coordination with suppliers and customers will increase control of supply chain efficiency. Corporations can implement synchronized planning with suppliers; engage in joint replenishment programs; and involve suppliers in early design collaboration. These methods give managers more information upon which to base strategic decisions.
For example, Avon, in its’ corporate restructuring, learned that decentralized business models did not provide the needed information from the market. Therefore, Avon implemented centralized and regionalized planning groups in order to gain real-time demand information. In another example, Black & Decker lost tens of millions of dollars one year because they were unable to predict pertinent demand information. They were unable to meet “exacting market requirements with their traditional planning methods;” therefore, top managers have attempted to make plans fast and flexible so that the company can respond to rapid changes in market preferences. These corporations have learned that, in order to be successful, they must obtain all pertinent information, analyze it, and transmit goals and plans throughout the company.
Given the significance of information flow and synthesis, companies also try to reduce uncertainty through forecasting. Perhaps the best example of effective forecasting is Sport Obermeyer. Sport Obermeyer has implemented a strategy known as accurate response to reduce uncertainty in forecasted demand. Accurate response relies on finding out what forecasters can and cannot forecast well. Managers learn those products for which demand is relatively predictable or unpredictable (functional/innovative products). Armed with this information, they are able to make the supply chain more flexible so that managers can postpone decisions about their most unpredictable items until they have some market signals, such as early-season sales results, to help correctly match supply with demand. They also employ risk-based production sequencing, which allows them to be as responsive to the market as possible in the areas where the payoffs are the greatest. Sport Obermeyer exemplifies a key message of these readings. They have learned that extreme effort in information gathering and forecasting can result in supply chain maximization and sustainability.
Another key concept can be examined through Sport Obermeyer’s accurate response system. This system is structured to take into account missed sales opportunities; as well as, reduce them through a process of shortening lead times by standardization of products. Standardization and mass customization of products can lead to greater supply chain efficiency. Mass customization effectively requires postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply chain. Hewlett-Packard is perhaps the greatest example of how postponement, as per design of the supply chain, can revolutionize business strategy. HP has declared that this strategy of postponement has given them “unparalleled flexibility and responsiveness to customers’ demands.”
This flexibility comes directly from an integration of the designs of their products; the processes used to make and deliver those products; and the configuration of the entire supply chain network. Products are standardized according to a modular product design, thereby allowing independent modules to be assembled into different forms of the product easily and inexpensively. Additionally, by postponing final assembly to distribution centers, HP has allowed for quicker response to customer demands. Not only do the distribution centers customize the product, they also purchase the materials that differentiate it. This thereby cuts transportation costs and decreases lead time. HP has gained great benefits from postponing the assembly of their universal power supply. The process of standardization and postponement can also be seen in other industries. Avon has standardized their basic bottles, and postponed the addition of multi-language labels until demand is forecast at each distribution facility. Paint products and garment manufacturing are also maximizing supply chain efficiency through the process of postponement. By so doing, they also “save on transportation and duty costs and greatly increase return on assets.”
The last key theme, which encompasses all the articles, can be summarized as “seeing the end from the beginning”. It was only when Avon stepped back and looked at the supply chain as an “end-to-end process” that the true benefits became clear. In order for managers to see the end from the beginning, collaboration is critical. Avon felt collaboration was so important that they removed 45 of their top tier employees from their regular jobs in order to increase collaboration. These people were placed in “design workshops” wherein the knowledge of everyone in the company could be used to improve supply chain design. Involving employees from the loading dock provided wonderful innovation about packaging and the logistics of loading Avon products. Without this type of inter-corporation collaboration, corporations will miss out of incredible opportunities to improve.
Hewlett-Packard also implemented a similar strategy of inter-corporation collaboration. Representatives from Marketing, R&D, Manufacturing and Distribution, Finance, and Management are required to meet together and discuss supply chain maintenance. As a result, each sector has full knowledge of the needs and capabilities of other sectors within the corporation. This level of communication is not only critical within the corporation; it must also extend to suppliers. Obermeyer Sport stated that, “ensuring access to the right supplies requires extensive discussions with suppliers to find a way to meet both parties’ needs.” Communication and collaboration will streamline the supply chain to reduce production and distribution lead times.
In conclusion, corporations must accurately forecast, efficiently collaborate, and effectively communicate information across the breadth of the supply chain. As a result, corporations can reduce both market uncertainty and streamline supply chain efficiency. Moreover, corporations that exert the effort to align goals and information across the “end-to-end” supply chain will satisfy their customers’ needs and increase their profit margins.