1 Supply Chain John Vande Vate Spring, 2007. 2 Make-to-X Make-to-Order Make-to-Forecast Make-to-Stock.

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Slide 11 Supply Chain John Vande Vate Spring, 2007 Slide 2 2 Make-to-X Make-to-Order Make-to-Forecast Make-to-Stock Slide 3 3 Managing Variability Three Levers: Inventory Capacity Time Which levers are MTO, MTF, MTS using? Slide 4 4 Which Levers Make-to-Order Capacity! Time: If we can convince the customer to wait Inventory Slide 5 5 Pros-Cons MTO: Pros: Little or no finished goods inventory Customization can be competitive advantage Cons: Manufacturing subject to high demand variability Lead-time can be competitive disadvantage MTF Pros: Helps smooth capacity requirements Can respond to (foreseen) changes in demand Product availability Cons Only as good as the forecast No real limit on inventory MTS Pros: Minor smoothing of capacity requirements Product availability Definite capacity on inventory Cons: Manufacturing still subject to demand variability Inventory Slide 6 6 Make-to-X Make-to-Order: When: The product cannot be inventoried The product is highly customized Prices are declining Customers will wait or the process is quick Make-to-Forecast: When: Customers wont wait or the process is too long Capacity is constrained Product is perishable Make-to-Stock: When: Commodities with little differentiation Capital intensive manufacturing Slide 7 7 The Point Make to Order is not a superior strategy It is a superior strategy for some markets It Supports highly customized products Eliminates finished goods inventories Reduces reliance on forecasting Slide 8 8 Mixed Strategies MTS/F up to a point MTO from this point on Typically this point where product differentiates The Question: When in the process to assign the customer? The trade-off Later means shorter lead times Later means process has undergone more differentiating steps Slide 9 9 Digression: Push-Pull This point is often called the Push-Pull Boundary Confusion about what is Push, what is Pull Hopp, Spearman paper attempt to resolve Thought provoking. Not definitive Slide 10 10 Postponement Delaying the point of differentiation and with it, the transition to Make-to-Order, until later in the process Examples: HP Printers in Europe Milliken Carpet Tiles Philips Bulk Packaging BMW Paint Shop Cell Phone Mfg. Slide 11 11 Bulk Packaging Delayed customer specific packaging Dont have to forecast sales by customer Shortens order-to-delivery window Allows efficiency in in-bound transportation Slide 12 12 HP Imaging & Printing Delaying product differentiation to local market Slide 13 IPS Product Platforms network printer digital multi-function e-enabled appliance basic office printing color LaserJet/ fast color ink toner cartridge - volume business - standard configurations - low product complexity - value business - customized configurations - high complexity Slide 14 14 Competing with Dell The BTO advantage Low FG inventory Customizable product Quick delivery Short cash-to-cash cycle Purchase components at last minute The BTO dis-advantage High manufacturing costs Cant move desktops to China High delivery costs Hard to consolidate last mile Slide 15 15 HP Adaptive Supply Chain Strategy Mfg Planning Order Fulfillment Logistics Procurement Services High Value & Solutions Value Add Low Touch No Touch Industry Standard Servers Commercial Printing Digital Imaging Shared Printing Personal Printing Supplies Portables & Handhelds Business PC & Workstation Consumer PC Monitors & Options Network Storage Solutions Business Critical Servers ESG IPG PSG Product Set Managed Services Solutions Customer Support Solutions Consulting & Integration Sol.. HPS Solutions (ESG / HPS) Product/Service Generation Customer Segment Consumer Enterprise Direct / Indirect GTM SMB Slide 16 16 Dells Strategy Bulky differentiated products, e.g., desktops and servers Build to order in the US High value density differentiated products, e.g., lap tops Build to order in China and airfreight Undifferentiated products Make the supplier hold the inventory Slide 17 HP Postponement: Impact on product flows Mfg, localization distribution Mfg localization, distribution Slide 18 18 Slide 19 Evolution of Postponement Localization Slot Localization(Manuals; Cables) Packaging Packaging lines(Bulk Pack etc.) Integration Assembly and test(Formatters etc.) Slide 20 Postponement Benefits Inventory Flexibility (Demand signals) Freight efficiency (Bulk shipping) Cost reductions (Local procurement) Speed (Time-to-market) Legal (Tax & duties, Export regulations) Measures Service Level Total Supply Chain cost Slide 21 21 BMW Example Positioning the Boundary in BTO Slide 22 Production sequence set throughout manufacturing Body ShopAssemblyPaintshop Start customer order Re-sort BMW-Production System Assembly Start customer order Late order assignment The BMW Production System Body ShopPaintshop Assort Component Control frozen horizon Slide 23 23 Production Control Systems for Body/ Surface/ Assembly Body Shop... Start of Assembly Sequence stability 100% Paintshop Component Control Planning Order assignment not until assembly start Painted car bodies are handled as supply parts Slide 24 24 Milliken The Millitron Computer-controlled micro jets inject dye with surgical precision deep into the face of the carpet. 400 micro-jets per square inch Can blend colors on carpet As carpet passes through the Millitron, entire designs can be changed without as much as a pause. Slide 25 25 Slide 26 26 Printed Carpet Tile Slide 27 27 Opportunity From Catastrophe Slide 28 28 The Fire Tuesday, January 31, 1995 destroyed Milliken & Company's Live Oak/Milstar Complex and Carpet Service Center. A 600,000 sq ft carpet manufacturing, warehousing, cutting and distribution facility. Total loss over $400 million. Slide 29 29 Opportunity From Catastrophe Slide 30 30 Reconstruction Slide 31 31 Before the Fire Several base tiles feed Several gun bars or color schemes Frequent and long changeovers Push to base tiles, Pull to customer orders Push-Pull interface before the millitron Slide 32 32 After the Fire One base tile One or two gun bars Nearly no changeovers Millitron is the push-pull interface Slide 33 33 Discussion The relationship between postponement & inventory pooling Manufacturing operations spread across the supply chain Blurring of the distinctions between distribution and manufacturing Emerging competition between contract manufacturers and logistics service providers Lean is production accomplished with minimal buffering costs Remember the three buffers: Inventory, time, capacity

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