Wednesday, 17 January 2018

Learning : Right Supply Chain

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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