The Project deals with the possible solutions to Supply Chain Management Practices of the Display vertical of Applied Materials. In this report, the framework and methodologies for mass customization for efficient production and cost optimization have been discussed. The main objective of this report is capturing the innovative Supply Chain practices in Manufacturing Industry, identify key challenges involved in the implementation and integration of the Modern Supply Chain Practices and also suggest overcoming the gaps in the present practices involved. Finally, Supply Chain of the future is visional with the improvements in cost & value delivered and a new paradigm in the Supply Chain in the Manufacturing Industry.
Acknowledgement: I would like to acknowledge and thank my Advisor, Dr. S. Aya Erdoџan, for guiding me in putting the final project together.Table of ContentsAbstract 2Acknowledgement: 3Table of Figures: 5Introduction 6Flows in Supply Chain 8Methodology: 10Problem Statement 14Data Collection: 17Theoretical Foundation 19Proposal of implementation framework for MC: 34Conclusion: 45List of Abbreviations 47References: 48Table of Figures:Figure 1:Supply Chain Structure 7Figure 2:Flows in Supply Chain 9Figure 3:Methodology 10Figure 4:Mass customization generic model 13Figure 5:Modularity Variations 21Figure 6:Form postponement and modularization 23Figure 7:Different position of COPD 26Figure 8: The trade-off between efficiency and flexibility 27Figure 9: The Le-agile supply chain 30Figure 10: Production planning using push/pull systems 33Figure 11: Component reduction 36Figure 12: Bottleneck supplier in product configuration 37Figure 13: Comparison of hard and soft customization configurations 41Figure 14: Drivers for Mass Customization implementation 45Figure 15: Implementation assessment framework for mass customization 46Figure 16: Competitive parameter focus 48Figure 17: Supply chain for soft mass customization 51Figure 18: Supply chain for hard mass customization 53IntroductionToday’s businesses need to view their supply chains as a means of transforming the everyday transactions into extensions of their overall corporate strategy, especially in launching new products.
In a highly competitive 21st century, managing an efficient launch of a new product is one of the most critical skills that determines the growth or fall of a mid-market organization. A successful new product introduction (NPI) can be a very lucrative and value-creating initiative, but oftentimes, a lack of planning and communication can doom even the most innovative product. Thus, the supply chain management has the power to determine customer satisfaction by anticipating demand and executing a strategy to fulfill that demand.In the NPD process, supply chain performance has a critical role in driving the investment of capital into production and distribution processes. It also determines the critical path for launch dates of the products.The last decade has seen a vast increase in customer choice ” but the next wave is about customization. Mass customization describes the concept of producing single-batch, customized products at the same cost and speed of traditional volume manufacturing methods. While mass customization promises huge gains in efficiency and customer satisfaction, it also presents new challenges for product brands. Many functions including sales, marketing, research and development (R&D), legal and regulatory, quality, program management and executive management play a critical role in making NPD a success. Companies should be better equipped to improve the business success of launched products using a methodological approach to close NPD performance gaps and execute strategic initiatives for supply chain and other involved functions Figure 1: Supply Chain StructureWorldwide, best-in-class companies have invested in enabling infrastructure and technology to realize their supply chain vision into a reality. These include integrated supply chain cost models for decisive inventory management, technology for handling supply chain throughput and information systems capable of fostering visibility across organizational boundaries. It is the network right from Supply Chain Strategy, Planning Enterprise Applications to Logistics. It also includes Asset Management, Procurement of materials and Product Lifecycle Management.In order to minimize cost and satisfy customer requirements, the main aim of a company following Supply Chain Practices (Gupta, 2003) is the efficient integration of vendors, factories, warehouses and stores so that a product is produced and distributed in the right quantity at the right time to the right location.An effective supply chain strategy is apt for the manufacturers and their component manufacturers so as to meet changing consumer demands. The benefits of integrating effective supply chain are:1. Reduced Uncertainty for buyers in material cost, quality, lead time and decreased administrative costs.2. Reduced uncertainty for suppliers in market, understanding the customer needs, decreased switching costs, product specification and improved asset utilization.3. Reduced uncertainty for both in convergent goals and expectations, Reduced opportunism, Increased communication, Shared risk and rewards4. Cost savings in Ordering, Achieving economies of scale, Production, Transportation5. Enhanced responsiveness from Joint product and process development, faster time to market, Improved cycle time.Flows in Supply ChainSupply chain management can be defined as a systematic flow of materials, goods, and related information among suppliers, companies, retailers, and consumers. As shown in the figure, Material flow includes a smooth flow of an item from the producer to the consumer, Information/data flow comprises the request for quotation, purchase order, monthly schedules, engineering change requests, quality complaints and reports on supplier performance from customer side to the supplier and money flow is from the consumer to the producer if claims are correct. Figure 2: Flows in Supply ChainStrategic SCM consists of developing smarter ways to choose, buy from and sell to your business partners. Key SCM Concepts include the things such as Raw Material, Components, Manufacturers, Retailers and Consumers.Each interface in the Supply Chain represents:1. Movement of Goods2. Information Flow3. Transfer of Title4. Flow of MoneyMethodology:Mass customization strategies have the potential of being one of the major catalysts to achieve Manufacturing Visions identified by the manufacturing community at large (National Research Council 1998). The key technologies to nurture in this endeavor are: ” Adaptable, and integrated equipment, processes, and systems that can be readily reconfigured, ” Manufacturing processes that minimize waste, ” System synthesis, modeling, and simulation for all manufacturing operations, ” Technologies to convert information into knowledge for effective decision making, ” Software for intelligent collaboration systems, and ” New educational and training methods that enable the rapid assimilation of knowledge. Hence, in the next part the problem statement is described along with the challenges facing the industry and attempts been made to address the challenges. This well-known quote from Henry Ford concerning Fords notorious Model T, portrays how the production systems from the beginning of industrialization through much of the twentieth century looked like. Mass production was born, and prioritized low cost production in order to reduce prices, to eventually initiate and stimulate mass consumption. Ford simply made cars available to people regardless of their social class, at a time when the car was considered a luxury toy for the upper class. Furthermore, mass production improved the consumption capacity altogether for the working class, by offering cheaper products that became universal consumer goods, shared by the elite and the working class between.Manufacturing industries was characterized by efficient production through highly centralized and hierarchical decision making, specialized assembly lines, fast moving resources and goods, and taking advantage of economies of scale (Best, 1990 and Boyer et al. 1993/1997). Although mass production made what was considered luxury goods available to any social class, quality was a recurring concern for especially the American manufacturing systems. Over time, manufacturing systems would develop and evolve, and particularly the Japanese automotive industry with Toyota as the frontrunner, was capable of producing quality vehicles at remarkably lower cost than their American predecessors. To be concise, they adapted the Fordist model by having a more flexible and skilled workforce, and offering them life-long employment in order to increase their motivation. By continuously improving production processes, combined with close relationships to their suppliers, they were able derive enormous cost advantages through just-in-time deliveries. This provided the possibility to avoid large amounts of inventory and investing in storage facilities (Dohse et al, 1985). Over time, mass production systems have progressively become highly advanced and exceptionally efficient.Problem StatementAs mentioned in the preceding paragraphs, implementing MC is not an undisputed success, due to both internal and external challenges. When companies go from mass production to mass customization they are obliged to make changes in their supply chain and their production. They will experience challenges in terms of a less efficient supply chain, inventory and sourcing changes, enhanced production planning and many more. Companies will furthermore be introduced to new strategies such as postponement and modularity, and be able to handle an increased level of information that needs to be managed, as the customers become integrated in the process of designing the products. There are numerous challenges, and as Kumar et al (2007) mentioned, there is a shortage of decision making tools for implementation of mass customization. There are furthermore a shortage on how to decide the proper level of customization (Da Silveira et al, 2001), which are closely linked to the implementation process. It is of great importance to note that companies in some instances will be better off by not implementing mass customization.The desired outcome is to provide an overview and assessment of the different factors that need consideration when implementing mass customization, to help make an eventual implementation more effortless and economically successful. This knowledge will furthermore be used to establish a conceptual framework, which will serve as a decision making tool that can guide companies to create their own unique mass customization business model.It is important to assess how well a mass customization strategy will fit a company. The company should use it to evaluate the necessary changes and adjustments before implementation and not during implementation. After the framework has been thoroughly applied and undergone, the company can make a much more reliable and qualified decision, of whether a mass customization strategy will be an economically sustainable business model. The company can moreover better map and elucidate the changes, and additionally the scope of these changes, to establish an idea of the internal and external readiness of a mass customization project. Data Collection:When attempting to solve a scientific problem the best possible way, a theoretical foundation (literature review) is essential as Andersen (2006) points out: A thorough and systematic literature review is crucial to get a good result. A literature review can give valuable information about existing theories, the experiences from others in regards to studies, thoughts etc. (Translated from Andersen, 2006, pp. 93)This thesis will therefore start out by reviewing the relevant literature that already exist on the topic of mass customization to establish a solid theoretical foundation, and additionally review supplementary theory in general that can serve to lay a good foundation for the construction of our model and analysis.Primary DataDue to the nature of the problem statement, relevant companies are not easily accessible as there by nature are far less companies which exercise a mass customization strategy. There have consequently not been retrieved any sort of primary data, though this does not necessarily mean that the problem statement cannot be answered in a satisfying way.When writing a theoretical thesis, the analysis will habitually be based on existing literature and therefore circumvent the need of primary data collection (Rudestam & Newton, 1992).Practical methodIn order to get material for the theoretical foundation, it is the online database affiliated with the CBS library, which has been the primary source to acquire academic articles. Books for theory or methodology have likewise been acquired in the CBS library.The empirical data has been acquired through various internet sources. Case studies from academic journals have been obtained from the online CBS database, whereas other journalist articles etc. have been found on several websites.Theoretical FoundationMass Customization: Mass customization is defined as a system that uses information technology, flexible processes, and organizational structures to deliver a wide range of products and services that meet specific needs of individual customers, at a cost near that of mass-produced items (DaSilveira et al, 2001, pp. 2).As mass customization includes customer co-design, the production will often be based on modularization and/or postponement. Thus there can certainly be many design options, but these will however usually be capped at a finite number (Kumar, 2007). As we will later learn in the literature review, modularization and postponement are key strategies to make mass customization work.There are several potential advantages of mass customization, where the most obvious one is that many customers finds it appealing that they can design their own product which can translate into higher customer loyalty. Companies can therefore charge a higher price, and perhaps increase their market share compared to competitors who has not deployed mass customization (Berman, 2002). Berman (2002) also suggest other advantages such as increased efficiency due to lower inventory cost, and a more effective use of retail, factory and warehouse space. This is related to the fact that that mass customization responds to actual orders where at least some part of the product will be produced after sales, whereas standardized products are manufactured before the actual sale, and relies on sometimes inaccurate forecasts.There are several different levels of mass customization according to Da Silveira et al(2001) which are shown below. Some of these levels go beyond modularization and postponement, and in some instances the number of possible design solutions will not be capped at a finite number.The lowest level (2) is simply the usage of the product after the product has been delivered. Then there is a level (3) of customization where the product itself is not customized, but where it for instance has different labels or packaging depending on the customer or market segment. This is called segmented standardization where there basically is a cosmetic intervention. Coca Cola could be an example where the labels or bottles differ according to the different markets. It is not customization where the customer actually co-designs the product, but rather the company that customize their product to the specific market segment.Another level (4-5) is achieved by adding custom work to the product. This can best be described by using Ikea as an example, where the customer buys a standard closet, but can add the interior like shelves and such to their own liking. The next level (6) of customization is where standard components, i.e. modules, are assembled after the customer’s desire based on a list of options. Level 4-6 is called customized standardization or configuration and is the core of mass customization. There are many examples of this, Nike allows customers to choose the color of any part of the shoe, what surface you intend to use it on, and also have your name and number on it. The total number of possible combinations (and therefore different shoes) amount to millions, by choosing a random shoe at nikeid.nike.com. This is offered at a manageable price increase. The highest level (7) of mass customization refers to designs that are tailored to the wish of the customer after a predefined model. This is called tailored customization, and could for instance be a tailor made suit or golf clubs. To use golf equipment as an example,Golfsmith not only let their customers chose components (modules) like grips etc, similar to Nike, but will precisely tailor the length or the angle of the club according to the height, arm length, hand size and so forth of the customer . Source: Da Silveira et al (2001), pp. 3The following sections elucidate the strategies that are used within mass customization, explaining their role and impact in making mass customization a sustainable business strategy.