Delayed Product Differentiation

1
Delayed Product Differentiation

• Increased pressure from market to offer variety
• Even in national markets, customers are
  increasingly asking for different designs,
  functionality, etc
• Globalization different markets may have
  different requirements for the product, due to
  differences in taste, language, geography,
  government regulations
• Technology
• Multiple versions of the same product being sold
  at the same time
• Production technologies are able to offer variety
• Result Product Proliferation
• What is the impact on production/logistics costs?
• Setup costs
• Inventory holding costs
• How can you still offer variety without
  increasing your production /logistics costs?

2
Delayed Product Differentiation and Push-Pull
Boundary

• The point of product differentiation is often the
  push-pull boundary
• Delayed product differentiation enables
  reductions in demand uncertainty
• Reduced demand uncertainty enables the use of
  pull systems which may be cost efficient due to
  economies of scale

Push Strategy
Pull Strategy
3
Tailored Postponement

• Do not implement postponement for the portion of
  demand that is certain
• Reductions in processing costs
• Implement postponement for only the portion where
  the demand is uncertain
• Reductions in inventory holding/obsolescence
  costs
• Example Benetton
• Option 1 Dye knit distribution for a
  portion of demand
• Option 2 Knit dye distribution for the
  rest
• Determine the production quantity (dye knit) in
  option 1 for each color, determine the production
  quantity (knit) in option 2

4
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

5
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
• Standardization

6
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

7
Examples

• Ikea
• Worlds 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

8
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

9
The Network Printer Example
Board
Printer
Customer (Europe)
Stage 1 (Europe)
Stage 2 Integration (Far East)
Stage 1 (Europe)
Board
Printer
Stage 2 (Far East)
Customer (Europe)
Integration (Europe)
Plastics, motors, etc.
10
Supplier Integration in product development

• Competitive forces are driving firms to integrate
  suppliers into product development
• Spectrum of Supplier Integration
• None
• White Box Informal integration
• Grey Box Formal integration, with collaborative
  teams
• Black Box Interface requirements are given,
  product is returned

11
Supplier Integration

• What approach is appropriate?
• Determine internal competencies
• Determine product development needs
• Identify external development and manufacturing
  needs
• If future products have components that require
  external expertise and can be separated from
  other components, a black box approach makes
  sense.
• If components cannot be separated, a grey box
  approach makes sense.
• If some expertise can be found in house, a white
  box approach might make sense.

12
The Bookshelf Approach

• Monitor the development of new technologies
• Follow suppliers that have developed expertise
• When appropriate, integrate these new
  technologies
• This balances the advantages and disadvantages of
  being on the cutting edge
• No need to gain experience with the technology,
  because suppliers are doing this for you.
• Can introduce the technologies when needed.

13
Mass Customization

• The delivery of a wide variety of customized
  goods at low cost
• The key is modular products and processes, so
  that customer requests can be met
• Companies need to evolve towards modular
  companies, with managers ensuring that modules
  are compatible.
• Needs instant, costless, seamless integration of
  different modules (components)
• Consider National Bicycle
• Bikes manufactured based on customer weight,
  size, selections of model type, color patterns
  and components
• Dell