Supply Chain John Vande Vate Spring 2007 1

Supply Chain John Vande Vate Spring, 2007 1

Make-to-X • Make-to-Order • Make-to-Forecast • Make-to-Stock 2

Managing Variability • Three Levers: – Inventory – Capacity – Time Which levers are MTO, MTF, MTS using? 3

Which Levers • Make-to-Order – Capacity! – Time: If we can convince the customer to wait… – Inventory 4

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 5

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 won’t wait or the process is too long • Capacity is constrained • Product is perishable • Make-to-Stock: – When: • Commodities with little differentiation • Capital intensive manufacturing 6

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 7

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… 8

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 9

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. … 10

Bulk Packaging • • Delayed customer specific packaging Don’t have to forecast sales by customer Shortens order-to-delivery window Allows efficiency in in-bound transportation 11

HP Imaging & Printing • Delaying product differentiation to local market 12

IPS Product Platforms e-enabled appliance digital multi-function - volume business - standard configurations - low product complexity color Laser. Jet/ fast color ink network printer basic office printing toner cartridge - value business - customized configurations - high complexity 13

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 – Can’t move desktops to China – High delivery costs • Hard to consolidate last mile 14

s lfi der llm en t Fu Or ic st gi fg M ur em en Lo Product Set Pr oc Pl an ni ng t HP Adaptive Supply Chain Strategy Customer Segment Portables & Handhelds Monitors & Options Supplies IPG Personal Printing Shared Printing Digital Imaging Commercial Printing ESG Business Critical Servers Industry Standard Servers Network Storage Solutions HPS Solutions (ESG / HPS) Consulting & Integration Sol. . Managed Services Solutions Customer Support Solutions No Touch Low Touch Value Add High Value & Solutions Services Consumer Direct / Indirect GTM Consumer PC Product/Service Generation PSG Business PC & Workstation SMB Enterprise 15

Dell’s 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 16

HP Postponement: Impact on product flows Mfg, localization distribution Mfg localization, distribution 17

18

Evolution of Postponement I. Localization II. Slot Localization(Manuals; Cables) II. Packaging lines(Bulk Pack etc. ) III. Integration Assembly and test(Formatters etc. ) 19

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 20

BMW Example • Positioning the Boundary in BTO 21

The BMW Production System Production sequence set throughout manufacturing Re-sort Start customer order Body Shop Paintshop Assembly BMW-Production System ‘frozen horizon’ Component Control Body Shop Paintshop Assort ‘Late order assignment’ Start customer order Assembly

Production Control Systems for Body/ Surface/ Assembly Component Control . . . Order assignment not until assembly start Sequence stability 100% Body Shop Planning Paintshop Start of Assembly Painted car bodies are handled as supply parts

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. 24

25

Printed Carpet Tile 26

Opportunity From Catastrophe 27

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. 28

Opportunity From Catastrophe 29

Reconstruction 30

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 31

After the Fire • • One base tile One or two gun bars Nearly no changeovers Millitron is the push-pull interface 32

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 33