Fisher

Topics: Lead time, Costs, Forecasting Pages: 44 (1668 words) Published: October 21, 2014
Creating the Right Supply Chains for
Your Product
Marshall Fisher
UPS Professor
© 2007 Marshall L. Fisher

Products differ

Product variety

Low

High

Forecast accuracy

High

Low

Product life cycle

Long

Short

Risk of obsolescence

Low

High

Cost of lost sale

Low

High

Functional
© 2007 Marshall L. Fisher

Innovative

And supply strategies differ

Factory focus
Inventory Strategy
Lead-time focus
Supplier selection
Product-design strategy

High utilization

Maintain buffer
capacity

High turns

Significant buffer stocks of
components and FGs

Low cost trumps
short lead-time

Aggressively
shorten lead-time

Low cost
Integral for max
performance at min cost

Physically
efficient

© 2007 Marshall L. Fisher

Speed & flexibility
Modular to enable
postponed differentiation

Market
responsive

So as to minimize total of two types of costs

Raw
Materials


Component

Manufacturer

Retailers

Consumers

Suppliers

Physical Production/Distribution Costs

– Production Costs
– Transportation Costs
– Facility Utilization rates
– Inventory carrying cost on pipeline and cycle stocks


Supply/Demand Mismatch Costs

– Lost revenue and profit margin when supply is less than demand – Product and parts scrapped or sold at a loss when supply exceeds demand
– Inventory carrying cost on safety stocks
© 2007 Marshall L. Fisher

Respond quickly
to unpredictable
demand to
minimize
stockouts,
markdowns, and
obsolete inventory
© 2007 Marshall L. Fisher

Life cycle < 1 year
Gross Margin > 35%
High Product Variety

Functional Products

Innovative Products

Efficient
Supply Chain

Supply predictable
demand efficiently
at lowest cost

Life cycle > 2 years
Gross Margin < 35%
Low Product Variety

match

mismatch

Responsive
Supply Chain

Need to match supply strategy with product type

mismatch

match

Respond quickly
to unpredictable
demand to
minimize
stockouts,
markdowns, and
obsolete inventory
© 2007 Marshall L. Fisher

Life cycle < 1 year
Gross Margin > 35%
High Product Variety

Functional Products

Innovative Products

Efficient
Supply Chain

Supply predictable
demand efficiently
at lowest cost

Life cycle > 2 years
Gross Margin < 35%
Low Product Variety

match

mismatch

Responsive
Supply Chain

Need to match supply strategy with product type

mismatch

match

Three ingredients for matching supply to demand
Product
Availability

Inventory

Accurate
Forecasts

© 2007 Marshall L. Fisher

Responsive
Supply Chain

National Panasonic Bicycle Products

Transport
Bikes
Functional Products
with low margin
Kids Bikes

Sports
Cycles

© 2007 Marshall L. Fisher

Innovative Products
with high margins
but unpredictable
demand

National Bicycle Panasonic Order System (POS)

© 2007 Marshall L. Fisher

© 2007 Marshall L. Fisher

Position the Decouple Point upstream of
variety explosion

© 2007 Marshall L. Fisher

Where to decouple the supply chain for cell tower
components was a key decision for Nokia mobile phones

Parts

Assembly
Plant

Ass
em

ble
to

Region
DC

orde

Country
DC

Company
Buffer

r

Cell tower
installation site

© 2007 Marshall L. Fisher

The answer depended on forecast accuracy

Forecast Error

250%

Innovative

200%
150%
100%
Functional

50%
0%
0%

20%

40%

60%

Country Penetration
© 2007 Marshall L. Fisher

80%

Where to decouple the supply chain for cell tower
components was a key decision for Nokia mobile phones

Parts

Assembly
Plant

Ass
em

ble
to

Region
DC

orde

Country
DC

Company
Buffer

r

Cell tower
installation site

© 2007 Marshall L. Fisher

Where to decouple the supply chain for cell tower
components was a key decision for Nokia mobile phones

Parts

Assembly
Plant

Ass
em...
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