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What is the right supply chain for your product?, Innovative…
What is the right supply chain for your product?
Physically Efficent
vs
Market-Respinsive Supply Chain
Innovative (Unpredictable Demand)
Functional
vs
Innovative Products: Differences in Demand
ASPECTS OF DEMAND
Product life cycle
3 months to 1 year
Contribution margin
20% to 60%
Product variely
HIGH (often millions of variants per category)
Average margin of error in the forecast of the time production is commited
40% to 100%
Average stockout rate
10% to 40%
Average forced end-of-season mardown as percentage of full price
10% to 25%
Lead time required ofr made-to-order products
1 day to 2 weeks
Functional (Predictable Demand)
Product life cycle
More than 2 years
Contribution margin
5% to 20%
Product variely
LOW (10 to 20 variants per category)
Average margin of error in the forecast of the time production is commited
10%
Average stockout rate
1% to 2%
Average forced end-of-season mardown as percentage of full price
0%
Lead time required ofr made-to-order products
6 months to 1 year
Physcally Efficent Process
Approach to choosing suppliers
Select primarily
for
cost and quality
Primary purpose
Supply predictable demand efficently
at
The lowest possible cost
Manufacturing focus
Mantain high average utilization rate
Inventory Strategy
Generate high turns
throughout the chain
minimize inventory
Lead-time focus
Shorten lead time
as long as
it doesn't increase cost
Product-design strategy
Maximize performance
minimize cost
Market-Responsive Process
Primary purpose
Respond quickly
to
unpredictable demand
in order to
minimize stockouts
forced markdowns
obsolete inventory
Manufacturing focus
Deploy excess buffer capacity
Inventory strategy
Deploy significant buffer stocks
of
parts or finished goods
Lead-time focus
Invest aggressively
in ways to
Reduce lead time
Approach to choosing suppliers
Select primarily
for
Speed
Flexibility
Quality
Product-design strategy
Use modular design
in order to
postpone product differetiation
for as long as posiblie
