Design for Logistics

Chap 08 王仁宏 助理教授

國立中正大學企業管理學系

©Copyright 2001 製商整合科技中心

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

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

• Design for Logistics uses product design to address logistics costs

• Key Concepts of Design for Logistics– Economic packaging and transportation– Concurrent/Parallel Processing– Postponement

Economic Transportation, Storage, and Transportation

• Design products so that they can be efficiently packed and stored

• Packed more compactly

• Design products to efficiently utilize retail space

• Design packaging so that products can be consolidated at cross docking points

Examples

• Ikea – World’s largest furniture retailer– 131 stores in 21 countries– Large stores, centralized manufacturing, com

pactly and efficiently packed products

• Rubbermaid– Clear Classic food containers - designed to fit

14x14” Wal-Mart shelves

Concurrent / Parallel Processing

• Objective is to minimize manufacturing 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

The Network Printer Example

Stage 1(Europe) Stage 2

Integration (Far East)

Customer(Europe)

Board Printer

Stage 1(Europe)

Integration (Europe)

Customer(Europe)

Board

Printer

Plastics, motors, etc.

Stage 2(Far East)

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

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

Postponement

• Manufacturing process starts by making a generic or family product which is later differentiated into a specific end product.

• Concepts of implementing delayed differentiation:– resequencing– commonality– modularity– standardization

Resequencing: BenettonOld Manufacturing Process

Spin or Purchase Yarn

Dye Yarn

Finish Yarn

Manufacture Garment Parts

Join Parts

Resequencing: BenettonNew Manufacturing Process

Spin or Purchase Yarn

Manufacture Garment Parts

Join Parts

Dye Garment

Finish Garment

This step is postponed

Benetton Postponement

• Why the change?– The change enables Benetton to start manufacturing before colo

r 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

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

Resequencing: HP Disk DrivesManufacturing Process Redesig

n• HP’s disk drive division supplied several

customers

Customer 1

Customer 2

Customer 3

PCB Insertion

tests

Customer 1

Customer 2

Customer 3

PCB Insertion

tests

CouponInsertion

common tests

PCB insertion postponed

Results

• Successful implementation

• Millions saved

• Service levels increased

• Packaging won awards

• Best practice spread to other HP divisions

Postponement Considerations

• Tradeoff increased product cost with decreased inventory

• Need to decide where to postpone - the push-pull boundary

• Position in product lifecycle is factor in postponement strategies

• Inventory value may increase• Consider tariffs and duties

Dealing With This Conflict

•

• Two Examples– Benetton - Italian clothing manufacturer– Hewlett Packard - Printer Division

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 timeProduce 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

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

Hewlett-Packard: LaserJets

• LaserJets are manufactured in Japan• Previously, the printers had two different pow

er supplies (110, 220 volts)• Differentiation had to happen immediately• An improved design enables a single power s

upply to work for both voltages.• 5% Cost Savings

HP DeskJet Case: Background

• High volume, high speed manufacturing in Vancouver• Many different models, all completed in Vancouver• Three distribution centers

– North American– Asian– European

• Manufacturing time one week• Transportation lead times:

– Europe: 4-5 weeks– US

• At distribution centers, simple standardized process

HP DeskJet Case: Analysis

• Problems– High inventory levels– Inventory imbalance in Europe

• Causes– Uncertainty about correct inventory levels– Many geographic options (localization)– Long lead times– Uncertain market– Difficulty at getting divisions to work together

• What are HP’s options?

HP DeskJet Case: Options

• Short Term– Rationalize safety stock

• Long Term– Air shipment– European factory– More inventory– Better forecasting– DC localization

Safety Stock Rationalization:Example Europe AB

• Recall: Safety Stock = z STD * LT

Mean Weekly Demand 3656 Monthly / 4.33Std. Dev 2703 Monthly/(4.33).5

Lead Time 5

Std. Dev of DemandPeriod

6044 2703*(5).5

Safety Factor 1.9 98% serviceSafety Stock 11483 1.9*6044

Evaluating Alternatives

• Air Shipment -- Expensive

• European Factory -- Not sufficient volume

• Better Forecasting -- How?

• More Inventory -- More problems

• DC Localization -- What will savings be?

Evaluating DC Localization

• In DC localization, risk pooling can be used to reduce total inventory while maintaining service levels

• To evaluate inventory, compare total safety stock held if individual localized units are held in inventory or if generic units are held

• Other costs must also be evaluated

Evaluating DC Localization

AVG STD SafetyStock

Weeksof SS

A 42 32 66 6.75

AA 420 204 416 4.25

AB 15830 5625 11,484 3.11

AQ 2301 1169 2395 4.48

AU 4208 2205 4517 4.62

AY 307 103 211 2.96

Total 23109 19089 3.55

Generic 23109 6244 12792 2.38

DC Localization

• Safety Stock Reduction– Current 19,089 units (3.55 weeks)– With localization 12,792 units (2.4 weeks)

• Other benefits– Lower value of transit inventory– Freight reductions– Local presence of “manufacturing”– Customs implications– Local procurement of localization materials

• But there are costs– Product redesign– DC modifications

Implementation

• R&D Support– “The product is working, so why bother?”

• DC Support– “Not our core competency”

• New packaging

• Capital investment

Supplier Integration into New Product Development

• Benefits from involving suppliers in the design process:– decline in purchased material costs– increase in purchased material quality– decline in development time and cost– decline in manufacturing cost– increase in final product technology

The Spectrum of Supplier Integration

• None• Whit Box: informal integration• Grey Box: formal integration, collaborative

teams are formed, joint development• Black Box: the buyer gives the supplier a set

or interface requirements and the supplier independently designs and develops the required component

Selecting Supplier :

• Manufacturing capacity• Response time• Capability to participate in the design process• Willingness to participate in the design

process• Ability to commit sufficient personnel and time

to the process• Sufficient resources to commit to the supplier

integration process

Mass Customization

• Skilled and autonomous workers• processes• modular units• Dynamic network:

– instantaneousness– costless– seamless– frictionless

Memo