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Finding the Right Fit

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Finding the Right Fit: Matching Product Development with Supply Chain Design

2/23/15

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Finding the Right Fit: Matching Product Development with Supply Chain Design

Impact of product design on supply chain design

Mass Customiza@on

SCM 450 S09

Closed loop supply chains

Stenger Copyright 2009

2

DEMAND CHARACTERISTICS OF PRODUCTS FUNCTIONAL

INNOVATIVE

Aspects of Demand

Predictable

Unpredictable

Product life cycle

>2 years

3 mos. to 1 yr.

Contribution margin

5% to 20%

20% to 60%

Product variety

low (10 to 20 variants)

high (often in millions of variants) Average margin of error in forecasting at time of production commitment 10%

40% to 100%

Average stockout rate

1% to 2%

10% to 40%

Average forced end of season markdowns as % of full price

0%

10% to 25%

Lead time required for make to order products

6 months to 1 year

1 day to 2 weeks

Adapted from Marshall L. Fisher, “What is the Right Supply Chain for Your Product?” Harvard Business Review,
March-April 1997, p. 107.

SCM 450 F09

Stenger, Copyright 2009

3

EFFICIENT VS RESPONSIVE SUPPLY CHAINS RESPONSIVE

EFFICIENT
Primary purpose

supply predictable demand at low cost

respond quickly to unpredictable demand to minimize stockouts, etc.

Manufacturing focus

high utilization

deploy excess buffer capacity Inventory strategy

high turns, minimize inventory in supply chain

deploy significant buffer stocks of parts or finished goods Lead time focus

shorten lead time as long aggressively reduce lead as it doesn’t increase costs times

Approach to choosing

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