What's Push & Pull Model for your company's SCM Restructuring and How

1. As fo 2009.09.
Lean SCL Approach Differentiation is our pride!
Enterprise now demands New Approaches for Business Innovaion that are dynamically appealing and practically executing.
It is an important part of doing business. Lean Enterprise Consulting can differentiate your company form the competition.
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2. Page 2
Postponement & Delayed Differentiation
Storage media manufacturer found that being able to offer CD/DVD media in many formats, speed, and
packaging options was a competitive advantage. With a low-cost supplier in Taiwan they have
implemented “Postponement Centers” in the U.S. that give them the ability to fulfill demand in a package
to order scenario.
• Significant service
improvements
• 27-point increase in
Better service,
current business
Without
model postponement,
service levels
OTIF goals would
• $Millions in service require very large
penalties eliminated Diskette
Inventory
• Product line turned Value inventories.
profitable
• 5% increase in Current
revenue Diskette
• 20% reduction in Optimized
Postponement
total inventory
investment
Service Level
• Significant reduction Line Item Fill Rate:
71% 98%
in total supply chain On-time In-full Rate: 49%* 91%
cost

3. What Should Your Supply Chain Be? Differentiation is our pride!
• Customer interface
– lead time vs frequency of demand
• Efficiency
– demand volatility vs margin
• New products
– market life vs design time
• Economies of scale
– market size per plant vs transport % of price
• Power position
– importance of supplier to customer vs customer to supplier
• Decoupling point
– market lead time vs production lead time
Focus and Essence! 3

4. The “dilemma of operations planning” Differentiation is our pride!
Focus and Essence! 4

5. The “dilemma of logistics management” Differentiation is our pride!
Level Service Quality
Service Quality
Inventory
Inventory
Focus and Essence! 5

6. Elements of the SCM Concept Differentiation is our pride!
Elements of Upstream SCM Elements of Downstream SCM
• Sourcing strategies • Inventory & warehouse management
• Multivs. Single sourcing • Synchronized production
• Strategic partnerships • Demand Management
• Supplier development • Third party logistics
• Vendor Managed Inventories • Direct distribution
(VMI) • Efficient Consumer Response
• JIT deliveries and supplies • Postponement
• Open Calculations • Continuous Replenishment
• Joint product development • Cross Docking
• Technology Management • POS
Focus and Essence! 6

7. The Demand-Supply Chain Differentiation is our pride!
Order Penetration Point (OPP)
•Determines supplier response, i.e.,
how and when is the product
allocated to the customer
•Determines the economics of the
supplier
Value Offering Point (VOP)
•Defines customer decision
making, i.e., how and when is
customer demand allocated to
the supplier
•Defines the economics of the
customer
Focus and Essence! 7

8. Order Penetration Point (OPP) Differentiation is our pride!
The OPP is the point in the SC at which customer demand is allocated to the product.
Focus and Essence! 8

9. Value Offering Point (VOP) Differentiation is our pride!
The VOP define show and why the customer makes the purchase decision.
Focus and Essence! 9

10. Integrating Demand and Supply Differentiation is our pride!
Focus and Essence! 10

11. Standard vs Special Differentiation is our pride!
Focus and Essence! 11

12. Standard vs Special Differentiation is our pride!
The Products are Different
•Low variability •High variability
•High volume for •Low volume for each
each variant variant
•Low price •High price
•Small size •Bigger size (typical)
•Impulsive purchase/ •Investment
supplement
Focus and Essence! 12

13. Standard vs Special Differentiation is our pride!
Example: BeoDirect
• Value from “Instant
Acquisition”
• Impluse purchase/gifts
• Plug and Play
• Volume Flexibility
• Flow/Kanban
• Quality and Speed
• Automatic Scheduling
• Capacity Leveling
Focus and Essence! 13

14. Standard vs Special Differentiation is our pride!
Example: B1 Configured
• Value from Modification
(mood) and “Instant
Acquisition”
• Volume Flexibility
• Postponement
• Quality and Punctuality
• Forecast Driven
• Capacity Leveling
Focus and Essence! 14

15. Standard vs Special Differentiation is our pride!
Example: Custom
• Value through
customization
• Home installation
• Individualization
• Variant Flexibility
• Postponement
• Quality and Punctuality
• Surpluses Capacity
(quick assembly)
Focus and Essence! 15

16. Standard vs Special Differentiation is our pride!
VOP and OPP – 5 Basic Steps
1. Identify the customer´s demand chains.
(Note that a customer can have a number of different demand chains)
2. Define the potential linkage points for the supplier to the customer
demand chains.
What are the potential VOP´s?
3. Identify your extended supply chains
4. Define the potential linkage points for the customer to the supply
chains.
What are the potential OPPs?
5. Try out the possible configurations and evaluate the cost and benefit
for your self and the customer.
Are there win-win solutions?
Focus and Essence! 16

17. Standard vs Special Differentiation is our pride!
Case: Dell´s Direct Model
Focus and Essence! 17

18. Standard vs Special Differentiation is our pride!
Case: Baxter´s ValueLink
Focus and Essence! 18

19. Standard vs Special Differentiation is our pride!
Before: Transactional business
Transactional business: supplier offers spare parts and maintenance services
as requested by customer
Demand chain
Maintenance Inventory mgmt
Purchasing
planning / maintenance
Local service Regional
Manufacturing
center supply center
Supply chain
• Customer’s VOP located at purchasing, 3 demand types
• Supplier’s performance measured in lead-time, on-time delivery etc.
• Supplier’s OPP typically located at local service center to meet strict
lead-time requirements, large inventories at local level
Focus and Essence! 19

20. Standard vs Special Differentiation is our pride!
Current: Maintenance service agreement
Increased supplier responsibility: customer’s maintenance planning and
operations outsourced to supplier
Demand chain
Maintenance Inventory mgmt
Purchasing
planning / maintenance
Local service Regional
supply center Manufacturing
center
Supply chain
• Customer’s VOP located at maintenance planning: reduces work (less
unplanned production shutdowns, smaller spare part consumption)
and allows customer to take advantage of supplier’s expertise
• Supplier’s changed role. => Supplier’s performance measured in
process uptime
• However, supplier’s OPP has not been moved
Focus and Essence! 20

21. Standard vs Special Differentiation is our pride!
Future: New opportunities to benefit operationally (1/3)
Opportunity to increase supplier’s operational efficiency
Demand chain
Maintenance Inventory mgmt
/ maintenance Purchasing
planning
Local service Regional
supply center Manufacturing
center
Supply chain
• The reduced number of emergencies, earlier access to demand
information and new performance measures provide the supplier
with an opportunity to move the OPP upstream to the regional
supply center or even to manufacturing
• The operational efficiency comes from reduced inventories
Focus and Essence! 21

22. Standard vs Special Differentiation is our pride!
Future: New opportunities to benefit operationally (2/3)
• Moving the OPP is not the only opportunity
• Planning and organizing the customer’s maintenance operations offers an
opportunity to affect demand
– equipment and part standardization increases inventory efficiency and
reduces risk of stocking the wrong product
• Demand information being passed on by the supplier’s own experts improves
quality of demand information
– fewer errors mean reduced hassle for both customer and supplier
• Moving of the VOP brings an opportunity to increase service and operational
efficiency simultaneously
• However, the supplier needs to develop its supply chain management skills to
be able to realize the opportunity
– supplier needs to actively change performance measures
– supplier needs to learn how to utilize earlier, more accurate demand
information
– supplier needs to assess the time-criticality of its equipment and spare
parts and organize warehousing accordingly
– supplier needs to actively promote equipment standardization
Focus and Essence! 22

23. Standard vs Special Differentiation is our pride!
Future: New opportunities to benefit operationally (3/3)
OPPORTUNITY REQUIRED MANAGEMENT ACTIONS BENEFIT
Change
performance
measures Process
Utilise increased optimisation
planning
possibilities
Efficiency
Capture earlier
access to Easier to meet
demand the targets
Moving VOP information
backwards Use demand
information to
Customer
improve planning
Capture better service
accuracy
quality of
demand
information
Less errors
Reduce
SKU’s to be
Use supplier’s
controlled
possibility to
influence to
demand
Focus and Essence! 23

24. Differentiation is our pride!
Focus and Essence! 24

25. Push/Pull View Differentiation is our pride!
• Supply chain processes fall into one of two categories depending on the
timing of their execution relative to customer demand
– Pull: execution is initiated in response to a customer order(reactive)
– Push: execution is initiated in anticipation of customer orders(speculative)
– Push/pull boundary separates push processes from pull processes
Focus and Essence! 25

26. Push/Pull View Differentiation is our pride!
Focus and Essence! 26

27. Definitions from APICS Dictionary, 11th Edition Differentiation is our pride!
• “decoupling points : The locations in the product structure or distribution
network where inventory is placed to create independence between
processes or entities. Selection of decoupling points is a strategic decision
that determines customer lead times and inventory investment. See: control
points.”
• “control points : In the theory of constraints, strategic locations in the
logical product structure … Detailed scheduling instructions are planned,
implemented, and monitored at these locations…”
• “order penetration point : The key variable in a logistics configuration;
the point (in time) at which a product becomes earmarked for a particular
customer. Downstream from this point, the system is driven by customer
orders; upstream processes are driven by forecasts and plans. Syn: principle
of postponement.”
• “postponement : A product design strategy that shifts product
differentiation closer to the consumer by postponing identity changes, such
as assembly or packaging, to the last possible supply chain location.”
Focus and Essence! 27

28. Types of Supply Chain Model(or Production Process) Differentiation is our pride!
“i”
Basic linear production
Example?
Focus and Essence! 28

29. Types of Supply Chain Model(or Production Process) Differentiation is our pride!
“T”
Many simple product or
packaging variations or
distribution points
Low variety of products
Example?
Focus and Essence! 29

30. Types of Supply Chain Model(or Production Process) Differentiation is our pride!
“V”
Many end products
Few raw materials
Example?
Focus and Essence! 30

31. Types of Supply Chain Model(or Production Process) Differentiation is our pride!
“A”
Few end products
Many raw materials
and sub-assemblies
Example?
Focus and Essence! 31

32. Types of Supply Chain Model(or Production Process) Differentiation is our pride!
“X”
Many end products
Many raw materials
and sub-assemblies
Example?
Focus and Essence! 32

33. Types of Supply Chain Model(or Production Process) Differentiation is our pride!
Which One?
Focus and Essence! 33

34. Generic Customer Order Decoupling Points Differentiation is our pride!
Focus and Essence! 34

35. Generic Customer Order Decoupling Points Differentiation is our pride!
Focus and Essence! 35

36. Tradeoffs Differentiation is our pride!
Focus and Essence! 36

37. A familiar example – MTS vs ATO Differentiation is our pride!
Example 1
Focus and Essence! 37

38. A familiar example – MTS vs ATO Differentiation is our pride!
Example 2
Focus and Essence! 38

39. A familiar example – MTS vs ATO Differentiation is our pride!
Example 3
Focus and Essence! 39

40. A familiar example – MTS vs ATO Differentiation is our pride!
Example 4
Camco – Montreal (owned by GE Canada)
Washers, Dryers, and Dishwashers
450 models, $500 million sales
1980’s : 1990’s :
120 day planning horizon, 60 days frozen Make-to-Order project
Growing inventories Kanban project
75% fill rate 95% customer satisfaction
Labor-intensive forecast process 30 families, less detailed forecast
120 day production cycle 3 day order turnaround
12 week supply of elec wires (external 3 day supply of elec wires (external
supply) supply)
2004: still Canada’s #1 appliance maker, and #1 supplier of GE dryers; inventory turns
were about 12 (vs sales), and the company credits their Six Sigma program for reduced
quality costs and enabling other changes
Focus and Essence! 40

41. Baseline CODP model Differentiation is our pride!
Focus and Essence! 41

42. Types of CODP model Differentiation is our pride!
Concurrent CODPs per product or product-market combination
Focus and Essence! 42

43. Types of CODP model Differentiation is our pride!
Multiple CODPs per product component
Focus and Essence! 43

44. Types of CODP model Differentiation is our pride!
Multiple CODPs per level of customer commitment
Focus and Essence! 44

45. Types of CODP model Differentiation is our pride!
Multiple CODPs per interface in the chain network
Focus and Essence! 45

46. Types of CODP model Differentiation is our pride!
Example of a chain network configuration with multiple CODPs in dairy
Focus and Essence! 46

47. Types of CODP model Differentiation is our pride!
Example of a chain network configuration in Parquet Industry
Focus and Essence! 47

48. Types of CODP model Differentiation is our pride!
Example of a chain network configuration in Parquet Industry
Focus and Essence! 48

49. Types of CODP model Differentiation is our pride!
Example of TFT-LCD manufacturing process
Focus and Essence! 49

50. Types of CODP model Differentiation is our pride!
Example of Details in a Control Model with CODP
Focus and Essence! 50

51. Types of CODP model Differentiation is our pride!
The challenge of mass customization for the wood furniture sector in Quebec
(Lihra et al., 2005; Poulin et al., 2006)
Popularizing Varietizing Accessorizing Configuring Tailoring Servicing Adjusting Monitoring
Retailing Component
Distribution Packaging Finishing Assembling Supply Engineering Design
manuf.
Sale-2O
Ship-2O
Pack-2O
Finish-2O
Assembly-2O
Make-2O
Supply-2O
Engineer-2O
Design-2O
Focus and Essence! 51

52. CODP and customer order lead-time in MTS/ATO/MTO Differentiation is our pride!
Focus and Essence! 52

53. Postponement Differentiation is our pride!
Focus and Essence! 53

54. 4 Generic Postponement Strategies Differentiation is our pride!
Focus and Essence! 54

55. 4 Generic Postponement Strategies Differentiation is our pride!
Focus and Essence! 55