What Is the Right Supply Chain for Your Product? By Marshal
Fisher (HBR March –April 1997)
Learning:
“….a supply chain performs two distinct types of functions:
a physical function and a market mediation function. A
supply chain’s physical function is readily apparent and includes converting
raw materials into parts, components, and eventually finished goods, and
transporting all of them from one point in the supply chain to the next. Less
visible but equally important is market mediation, whose purpose is ensuring
that the variety of products reaching the marketplace matches what consumers
want to buy.”
“Physical costs are the costs of production, transportation,
and inventory storage. Market mediation costs arise when supply exceeds demand
and a product has to be marked down and sold at a loss or when supply falls
short of demand, resulting in lost sales opportunities and dissatisfied
customers.”
“.. suppliers should be chosen for their speed and flexibility,
not for their low cost”.
Matching Supply Chains with the products:
|
Functional
Products
|
Innovative
Products
|
Efficient
Supply Chain
|
Match
|
Mismatch
|
Responsive
Supply Chain
|
Mismatch
|
Match
|
In case of Functional products companies can outsource but
in case of Innovative products it is better to carryout in house manufacturing.
This helps in maintaining tight leash of the demand for Innovative products.
Example given by the author is presented below:
“Compaq, for example, decided to continue producing certain
high-variety, short-life-cycle circuits in-house rather than outsource them to
a low-cost Asian country, because local production gave the company increased
flexibility and shorter lead times. World Company, a leading Japanese apparel
manufacturer, produces its basic styles in low-cost Chinese plants but keeps
production of high-fashion styles in Japan, where the advantage of being able
to respond quickly to emerging fashion trends more than offsets the
disadvantage of high labor costs.”
Classic case of Dealer issue which hampers the link with the
manufacturer and customer is excellently explained by the author in the
following way:
“The dealer told me that he had 2 versions of the car model
on his lot and that if neither matched my ideal specifications, he might be
able to get my choice from another dealer in the Philadelphia area. When I got
home, I checked the phone book and found ten dealers in the area. Assuming each
of them also had 2 versions of the car in stock, I was choosing from a
selection of at most 20 versions of a car that could be made in 20 million. In
other words, the auto distribution channel is a kind of hourglass with the
dealer at the neck. At the top of the glass, plants, which introduce
innovations in color and technology every year, can provide an almost infinite
variety of options. At the bottom, a multitude of customers with diverse tastes
could benefit from that variety but are unable to because of dealers’ practices
at the neck of the glass.”
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