Designing and Engineering the Supply Chain for Competitive Advantage

Designing and Engineering the Supply Chain for Competitive Advantage

Manufacturing Strategies

Manufacturing strategies determine how products are designed, produced, and delivered to customers. The choice of strategy affects lead times, inventory levels, and the degree of customization possible.

• Engineer to Order (ETO): Production begins only after a customer order is received. Products are custom-designed and materials are purchased after the order is placed. This results in long lead times but allows for high customization.

• Make to Order (MTO): Standard components are used, but manufacturing starts only after receiving a customer order. Lead time is reduced compared to ETO, and inventory is held as raw materials.

• Configure to Order (CTO): Customers can configure products from a set of available features and options. No significant design work is required, resulting in shorter delivery times. CTO shares characteristics with MTO.

• Assemble to Order (ATO): Standard components are inventoried, and assembly is performed after receiving an order. This strategy requires less lead time and inventory is held as standard components.

• Make to Stock (MTS): Products are produced in anticipation of customer demand and held as finished goods. There is little to no customer involvement in design, and lead times are minimized.

Comparison of Manufacturing Strategies

Strategy	Customer Involvement	Inventory Held	Lead Time	Customization
Engineer to Order	High	Raw materials	Longest	Maximum
Make to Order	Medium	Raw materials	Long	High
Configure to Order	Medium	Standard components	Moderate	Moderate
Assemble to Order	Low	Standard components	Short	Limited
Make to Stock	None	Finished goods	Shortest	None

Postponement

Postponement is a supply chain strategy that delays product differentiation as close to the customer as possible. This is often achieved through modular design, which allows for a large number of product variations with minimal inventory.

• Benefits: Reduces the number of different items in the supply chain, lowers inventory costs, and enables faster delivery.

• Example: Watch manufacturers may keep watch faces and bands separate until a customer order specifies the desired combination.

Product Life Cycle

The product life cycle describes the stages a product goes through from introduction to decline. Supply chain strategies must adapt to each stage.

• Introduction: Initial launch, low sales volume, high uncertainty.

• Growth: Rapid increase in demand, transition to mass production.

• Maturity: Demand stabilizes, focus on efficiency and cost control.

• Decline: Demand decreases, product may be phased out.

Product-Driven Supply Chain Types

Supply chains can be classified based on the type of product they support:

• Functional Products: Have stable demand and predictable requirements. Design and production change slowly over time.

• Innovative Products: New or derivative products with uncertain demand. Designed to be adaptable to changing customer requirements.

• Hybrid Products: Complex products with both functional and innovative components. Require a mix of supply chain strategies.

Supply Chain Types

• Lean (Efficient) Supply Chain: Focuses on cost minimization and eliminating waste. Suitable for functional products with stable demand.

• Agile (Responsive) Supply Chain: Emphasizes flexibility and quick response to market changes. Suitable for innovative products.

• Hybrid Supply Chain: Combines lean and agile approaches, often using assemble-to-order strategies and postponement.

Comparison of Efficient and Responsive Supply Chains

Efficient Supply Chains	Responsive Supply Chains
Supply demand at lowest cost	Respond quickly to demand
Maximize performance at minimum product cost	Create modularity to allow postponement
Lower margins, price is key	Higher margins, customization is key
Minimize inventory	Maintain buffer inventory
Select suppliers based on cost and quality	Select suppliers based on speed, reliability, and quality

Supply Chain Objectives and Flows

The main objective of a supply chain is to maximize overall value, defined as the difference between the value of the final product to the customer and the total cost of the supply chain. Supply chains involve flows of products, information, and finances among suppliers, manufacturers, distributors, and customers.

• Push Processes: Initiated in anticipation of customer orders (e.g., production based on forecasts).

• Pull Processes: Initiated by actual customer orders (e.g., manufacturing after an order is received).

Supply Chain Design Decisions

• Strategy/Design: Long-term decisions about supply chain configuration, facility locations, and allocation of resources.

• Planning: Medium-term policies governing operations, inventory, and market supply.

• Operation: Short-term decisions regarding individual customer orders and daily operations.

Supply Chain Drivers

• Facilities: Location, capacity, and role of production and storage sites.

• Inventory: Raw materials, work-in-process, and finished goods held at various stages.

• Transportation: Modes and routes for moving goods between stages.

• Information: Data and systems for coordinating supply chain activities.

• Sourcing: Selection of suppliers and procurement strategies.

• Pricing: Strategies for setting prices to influence demand and supply chain behavior.

Strategic Fit and Competitiveness

Supply chain strategy must align with the firm's competitive strategy. Misalignment can lead to inefficiencies and loss of competitive advantage. All functional strategies (procurement, manufacturing, distribution, etc.) should support the overall business objectives.

Case Example: Dr. Smart’s Supply Chain

Dr. Smart invented a device for house cleaning, facing uncertain demand in large urban markets. Key supply chain decisions include:

• Supplier Selection: Trade-off between low price (with large order requirements) and flexibility (with higher price).

• Development Center Location: Proximity to assembly plant for coordination, or outsourcing to low-cost regions.

• Distribution Center Location: Near major markets for faster delivery, or centralized for cost efficiency.

Additional info: This case illustrates the importance of aligning supply chain decisions with product characteristics and market requirements.