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Chapter 1 Business Considerations

Module 1: Supply Chain Design
 Topic 1: Market, Financial and Product Research
Section B: and Modeling
Design the Supply Chain
 Topic 2: Collaboration with Supply Chain Partners

Chapter 1
Business Considerations

APICS Certified Supply Chain Professional™ (CSCP)

Learning System

Version 4.1, 2018 Edition

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Confidential and Proprietary
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Marketing Strategy
Section B:
Design the Supply Chain  Mass Marketing
“ the strategy of sending the same message to all
potential customers”
Chapter 1:
Business Considerations
 Niche Marketing
“used to design messages to be especially appealing
Topic 1: Market, Financial to one or more market segments”
and Product Research and
Modeling
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Market Research and Demand Creation 4 Ps: Product (Service)

Product

Market Research Demand Creation  Was: products identical to all Promotion Price

• Finding markets
– Does anyone care?
• Analyzing markets
– Who, where, when, why,
what, how many?
• Refining product design
– Strategic price.
– Include features with
positive contribution margin.
• From latent to actual demand
• Educating customers
– Product/brand awareness
takes a long time.
– Use feedback to modify
approach/budget.
• Educating SC partners
– Persons who design, build
transport, or sell product.
customers; item generated need.
Placement
 Is: dynamic; customer need is basis.
 Designed to be customizable for segments.
 Customer care is an implied or explicit product.
 Customized design, manufacture, promotion,
distribution, sales methods, and customer care
training.

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4 Ps: Price 4 Ps: Placement

Product Product

 Strategic decision based on Promotion Price  How product/service gets to Promotion Price

competition, perceived value, and customer.

brand identity. Placement Placement

 Traditionally one-way communication;

 Commodity price based on competition. now back-forth flow.
 Differentiated market can base price on R&D,  Contact channel strategy:
marketing costs, or value to customer. − Means to increase profitability.
 Customer-driven differentiates products/price by − Interactive contact channels (call centers, live
segment. dialogue, websites, chat rooms).
− Is itself a product; different segments get different
 Finds optimal balance of profit vs. attractive price to options.
customers.
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4 Ps: Promotion Product Life Cycle

Product

Promotion Price
“The stages of new product goes through the beginning to end i.e. the
Placement
stages that a product passes through from introduction to through growth”
Segmentation of promotions.
Creation of brand • Development
image (name, logo
and image). • Introduction
Customer-
• Loyalty from driven Cost-effective • Growth
product to promotional customization of
provider. activities • Maturity
advertising materials.
• Trust they will be • Decline
taken care of.
• Single failure
can undo. Research and analysis: study
buyer motivation and behaviors.

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Requirements for Success

Section B:
Design the Supply Chain
 Add Value  Enhance Strategic
Growth
 Improve Market Access
Chapter 1:
Business Considerations  Share Insights and
 Strengthen Operations
Learning
 Add Technological
Topic 2: Collaboration with  Increase Financial
Strength
Supply Chain Partners Strength

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Barriers to Collaboration Levels of Communication

Level/Type of Degree of Length of

 Suboptimization  Technology barriers Communication Collaboration Relationship

Transactional with Each partner has access Generally medium term

 Misaligned incentives  Power-based information sharing to single data source.
Shared processes Partners collaborate in Longer term
relationships and partnership specific processes and
 Working with competitors share knowledge.
 Underestimated benefits Linked competitive Partners function as a Long term, possibly
 Weak partner bottlenecks vision and strategic virtual entity, even decades
alliance collaborating on strategy.
 Culture conflicts Mergers/acquisitions Complete integration (in Long term (if successful)
(backward and theory).
forward integration)

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Levels of Collaborative Intensity Strategic Impact vs. Supply Chain Difficulty

Supplier Product/ High

Direct/Core

Difficulty (Supply Risk)

factors service factors Bottleneck
Competency
Cost Strategic
Intensity of Materials
importance
collaboration
Materials
Quality should take into
Complexity
Delivery account supplier
Supply
reliability Number of
suppliers
chain requirements plus Commodity Leveragable
difficulties product/service
Precision
requirements. Materials Materials
Uncertainty Low
Flexibility
Low High
Strategic Importance (Profit Impact)

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Features and Benefits of Collaboration

Module 1: Supply Chain Design
Features Benefits

• Joint development of shared • Lower costs

processes
• Improved quality Section B:
• Open sharing of information and Design the Supply Chain
knowledge • Better customer service
• Joint development of metrics • Reduced inventories
• Open two-way communications • Rapid project results
• Networkwide visibility • Reduced cycle times and lead Chapter 2
times
• Clear roles and responsibilities Supply Chain Design
• More effective working
• Joint problem solving relationships
• Commitment to the relationship • Enhanced commitment

APICS Certified Supply Chain Professional™ (CSCP)

Learning System

Version 4.1, 2018 Edition

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Confidential and Proprietary
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Chapter 2 Topic Review

Section B:
 Topic 1: Supply Chain Design and Configuration Design the Supply Chain

 Topic 2: Fulfillment Strategies Considering Market

Chapter 2:
Requirement
Supply Chain Design
 Topic 3: Product Design for New Products or
Requirements
Topic 1: Supply Chain
 Topic 4: Supply Chain Network Optimization Design and Configuration

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Supply Chain Design Considerations Supply Chain Design Considerations

 Network configuration  Information technology

− Number, location, and capacity of warehouses
− Location of plants and production levels for each
product
− Transportation between all facilities (plant to
warehouse, warehouse to retailer)
 Inventory location and levels
− Stock inventory to optimal level
− Establish transportation links
− Which data should be transferred and analyzed?
− How will data be used to effectively manage the
supply chain?
− How will it support needs of the infrastructure,
Internet, and e-commerce?
 Decision support systems (DSS)
− Used to help identify the best solutions for a breadth
of supply chain challenges

 Product design

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Information System Architecture Organizational Architecture and IS Architecture

Organizational Architecture IS Architecture

Information Architecture
should align Organizational Strategy Information Strategy
system with of the Enterprise SC Enterprise SC
architecture organization
Information Content Definition Information Policies/Controls

1) Organizational functions Content Business modeling Policies/controls Communications

Information Database, Networks,
2) Communication of coordination requirements Infrastructure Design Software, Configuration
3) Data modeling needs Design Process modeling Enterprise SC
4) Management and control structures Information Action Plan,
Infrastructure Change Schedule, Prioritization
Enterprise SC Enterprise SC

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Supply Chain Design Considerations

Section B:
Design the Supply Chain
• Balancing efficiency with
responsiveness • Support organizational
• Network configuration strategy
Chapter 2:
• Inventory location and • Support supply chain
strategy Supply Chain Design
levels
• Product design • Accurately reflect
organization’s
• Information technology
capabilities Topic 2: Fulfillment
• Support systems
Strategies Considering
Market Requirement
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Balancing Efficiency with Responsiveness Attributes of Efficient vs. Responsive SC

Efficient Responsive Efficiency-focused SC Attribute Response-focused SC

Supply Chain Supply Chain
Low Demand uncertainty High
• Least-cost • Ability to be flexible in
manufacturing/supply response to changing Low Forecasting errors High
chain demand
Little Adaptation to changes in market structure Much
• Relatively stable • More volatile demand
demand • Uncertain forecasts Long Product life cycle Short
• Reasonably accurate • Make-to-order or
Other efficiency-focused features: Other response-focused features:
forecasts assemble-to-order • Infrequent product introductions • Real-time customer/purchase data
strategy • Limited product variety • Many warehouses near customers
• Make-to-stock strategy
• Third-party transit for fast product
delivery

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Fit Supply Chain Type to Product

Section B:
Design the Supply Chain
Efficient SC Responsive SC

High Make-to-stock Assemble-to-

products order products Chapter 2:
Supply Chain Design
Volume

Make-to-stock Make-to-order
Low products products
Topic 3: Product Design for

Low
Demand High New Products or
Uncertainty
Requirements
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Impact of Product Design Choices Traditional Over-the-Wall vs. Collaborative Design

On manufacture and On sale, service,

On supply assembly On logistics use, returns, etc. Over-the-wall design Collaborative design
What raw How many How difficult How easy or How reliable, • Marketing sends customer • Design team initially includes
materials? components? to make? hard and how easy to use, easy requirements to engineering. engineers, other departments,
costly to to service, easy
How to How hard to How costly— • Engineering creates a full- and possibly SC partners.
transport and to recycle or
source assemble— machines, • Design team considers issues
materials? and when? labor, etc.?
warehouse? reuse? featured design.
that will arise from raw material
• Purchasing notes unaffordable
to final stage of product life
Reverse product flow (reverse logistics) parts; production objects to
cycle, approximating cost
expensive modifications. differences among alternatives.
S3 S2 S1 Plant C1 C2 C3
• Each sends designs back. • Given approval by all functions
Flow of materials, components, products • Logistics finally gets design, but and partners, purchasing and
SC/packaging too costly. production start detailed design.

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Design Methods Design for Logistics

Strategy Definition Benefits/Tradeoffs

Broad-based
Standardization methods Simplification Design for Supply chain and product Benefits
Concurrent engineering logistics designed simultaneously.
Component commonality ↓ cost = ↑ profit margins.
Design for SC
Minimize transportation Warehouses store more goods,
DFMA
Universality DFL and storage costs: reducing capacity pressures.
Design for service efficient packaging for
DFX Master carton for restocking.
fast loading/unloading
and higher density of Retailers can sell from pallet.
Customization Quality Sustainability items per pallet. Tradeoffs
Modular design Design for environment Minimize manufacture Slow-moving goods not wanted in
Design for quality Design for reverse and assembly time. larger quantities.
Mass customization
logistics Maximize Standard box sizes may conflict.
QFD
Postponement Design for remanufacture standardization. Cube out vs. weigh out balance.

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Standardization: Component Commonality Standardization: Universality

Strategy Definition Benefits/Tradeoffs

Strategy Definition Benefits/Tradeoffs
Component Replace similar parts with a Benefits
commonality single part. Universality Design one product for Benefits
Lower cost for bulk purchase multiple markets; can Increased sales volume.
Replace multiple bolt of identical parts. (also called combine with modularity
standardiza- Reduced cost of design,
sizes with one size. Production streamlining. (one base product with
manufacturing compared to
Simpler, cheaper storage. tion) modules to adapt to market-specific products.
Modular design. markets).
“One size fits all” and Tradeoffs
Tradeoffs “unisex” clothing. Potential loss of sales in each
Cost of product modifications. particular market.
Restaurant quality
Loss of design flexibility. Loss of customer loyalty.
kitchen appliances for
Possible reduction in quality.
home use.

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Modular Design
Strategy Definition
Modularization Design identical
components for use in all
products in a family.
RAM modules for
computers.
Modular bookshelves.
Á la carte menu.
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Simplification: DFMA
Strategy Definition
Design for Involves manufacturing
manufacture function in initial stages.
and assembly Materials for ease of
(DFMA) production and function.
Component tolerances.
(a further
Fewer parts.
development
of concurrent Less part handling.
engineering) Concurrent/parallel steps.
Assembly obvious and easy.
Simplify assembly steps.
Design in easy testing.
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Simplification: Concurrent Engineering
Benefits/Tradeoffs
Benefits
Lower design cost for product
Strategy Definition Benefits/Tradeoffs
family.
Concurrent Engineers and other Benefits
Production streamlining.
engineering stakeholders contribute. Design collaboration.
Expanded customer base. (CE) Shorten/simplify Parallel rather than sequential.
More efficient logistics.
design. Virtual design meetings.
Tradeoffs
Higher cost per product (lower
for family).
Possible reduction of fit,
finish.
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Simplification: Design for Service
Benefits/Tradeoffs
Benefits Strategy Definition Benefits/Tradeoffs
Less confusion, complexity, Design for Simplification to improve Benefits
variability, production delays,
service after-sale service. Lower total cost of ownership.
setup times, and training.
Serviceability/maintainability Extends to logistics
Enforced by standards/policies.
affects customer satisfaction. (replacement parts source of
Uses standardization for parts. profitability).
Faster replacement of filters,
Helps lean, modular design, and etc., lowers lifetime cost. Tradeoffs
mass customization. Conflict with other design goals.
Software automates DFMA.
Tradeoffs
Could be at odds with customer
desires if features are omitted.
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Quality
Strategy Definition
Design for Quality measures show if
quality design meets target market
needs, performance,
aesthetics, and cost.
Goals for exceptional
quality.
Quality Eliminate gap between what
function customer wants and what
product is capable of giving.
deployment
(QFD) Design, operations, and
support philosophy.
Compares against
competitor features.
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Customization: Postponement
Strategy Definition
Postponement Shifts product
differentiation closer to
consumer by postponing
assembly or packaging to
last possible SC location.
Example of push-pull
strategy
Production starts based
on aggregate forecasts.
Differentiation based on
actual demand signals.
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Customization: Mass Customization
Benefits/Tradeoffs Strategy Definition Benefits/Tradeoffs
Benefits Mass Delay final assembly of Benefits
Fewer defects = less waste, customization components into final Economies of scale.
satisfied customers. products to increase ability
Can compete on quality. (also called More efficient, expert workers
to customize to customer
doing assembly.
Tradeoffs delayed specifications (assumes
differentiation) modularity). Increased sales volume (more
Initial expense/benefits hidden. markets or segments).
HP’s assembly of Reduced inventory costs.
Benefits printers at distributor,
Improves customer service. Tradeoffs
not factory.
Shows interactions between Investment costs for new
product features for prioritization equipment, training, quality.
when some conflict.
Possible friction with
Tradeoffs distributors over added tasks.
Complex methodology.
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Sustainability
Benefits/Tradeoffs Strategy Definition Benefits/Tradeoffs
Benefits Design for the Consider health, safety, Benefits
Countermeasure for bullwhip environment and environment during Fits SC emphasis on total life
effect. (DFE) design and development. cycle.
Less in-transit inventory, Provision for reuse or Better reputation and goodwill.
insurance, and handling costs recycling. Less liability and legal costs.
and more cash flow.
Reduced energy Marketable environmental
Locally needed materials can consumption. friendliness.
be locally sourced.
Avoidance or mitigated Tradeoffs
Tradeoffs danger of hazmat.
Process, equipment, product, Increased manufacturing costs
and packaging redesign costs.
Use of lighter and higher sales price.
components and less Reduced safety or longevity
May increase costs if there are material. from less weight/preservatives.
few product varieties.
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Sustainability Discussion Question

Which of the following design strategies offers

Strategy Definition Benefits/Tradeoffs streamlined production and lower purchasing
Design for Design to efficiently handle Benefits costs, with a possible tradeoff between reduced
Loyalty from ease of process.
reverse returns, repairs, replace-
Lower cost of returns.
design flexibility and lower quality?
logistics ment, or recycling.
Package to reduce common Feedback for designs.
user errors/frustrations. Tradeoffs a) Mass customization
Box for shipping + return. Underestimate complexity.
b) Universality
Design for Allowing components to be Benefits c) Integral design
remanufacture reused in other products. Low materials and resource cost.
Associated with green Cost savings for consumer.
d) Component commonality
manufacturing.
Environmental law conformance.
Caterpillar’s customer-driven
replacement of heavy Tradeoffs Answer: d
equipment parts. Cash tied up in inventory longer.

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Stages of SCM Evolution

Section B:
Design the Supply Chain

Chapter 2:
1: 2: 3: 4:
Multiple Semi- Integrated Extended
Supply Chain Design dysfunction functional enterprise enterprise
enterprise

Topic 4: Supply Chain

Network Optimization

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Stages of Supply Network Technology Supply Network Optimization Strategy

Optimization
1. Determine goals and desired end state of
Stage 2: Semi-
SC.
1: Multiple 3: Integrated 4: Extended
Functional 2. Create cross-functional/cross-business
Capability Dysfunction Enterprise Enterprise Enterprise
teams.
Internet Static Web sites Online catalogs Intranets across E-commerce
all functions 3. Organize SC’s operational processes and
Integration None; no Batch Internal process SC networks; process IT’s mission.
teamwork integration; teams integration
4. Design in change management and
SC planning Little information Informal; no Formal/global; Integrated global planning;
exchange initiative enhanced logistics SC vs. SC. competition
training with stringent timetables.
coordination
Basic MRP
5. Create conceptual model.
Production MRP II MRP—ERP Externally integrated ERP
scheduling
Integration with Fax/phone EDI; seek low EDI with all large VMI, online RFQ 6. Establish technical infrastructure.
suppliers price suppliers
Customer Research Local inventory ATP CTP
delivery

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Role of Nucleus Firm/Cross-Functional Teams

Nucleus firm
Potential partners
Collaboration meetings
Partners
Teams Technology audits
Executive team
Technical foundations
Technology team
Pilots
Inventory team Delivery team
Buying team Making team Selling team

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