Quest

Gateway to Logistics Excellence

uarterly Feb-Apr 2010

Supply Chain
Megatrends
2010-11

Knowledge Partner
 global Supply chain M
Shift from Customer Service to Relationship Management 10
While traditional customer service focuses on achieving internal operating standards, a truly rela-
tionship-driven supply chain focuses on establishing customer success...

Forecast to Endcast 12
Management often lets forecasting bumble along unsupported in the hope everything will come
out all right in the end....

Experience to Transition Strategy 14

Firms increasingly confront the need to reinvent processes that are performing adequately when as-
sessed historically, but in fact....

Experience to Transition Strategy 16

While departments may remain the preferred method of managing work, the reality is that
process-oriented, self-directed....

Collaborative Approach 18
The notion of focused collaborative arrangements, coupled with true cradle to grave accountability,
is revolutionizing the way that....

Vertical to Virtual Integration 20

Virtually integrating operations with material and service suppliers to form a seamless flow of in-
ternal and external work overcomes the financial barriers....

Trust the expertise 41

Melvis Furtado
3PL is a two-way traffic where the firms have to be a good listener and always
evaluate what best their partner can do and what constraints he has. 3PL provides
Service not just ....

Supply Chain Opti-Simulation Unwired 44

Tolga Yanasik
Simulation is often regarded as the proper means for supporting deci-
sion making on supply chain design. Owing to its inherent modeling flex-
ibility, simulation is often regarded as the proper means for....

CONT
Mega Trends 2010-2011
22 Absolute to Relative Value
The notion of relative value is to grow a larger share of the profitable revenue available in a
business arrangement by a willingness to perform a broader range....

24 Information Hoarding to Sharing

Given the right information-enabling technology and leadership, decision-makers can become per-
formance managers....

26 Training to Knowledge-Based Learning

Implementing knowledge-based learning to effectively train employees is becoming critical.....

28 Reinventing Managerial Accounting to Value-Based Management

Value management is appropriately viewed as the implementation of financial sophistication. The
key is to identify and support activities that create value as contrasted to....

30 Supply Chain design and analytics

Changing scenario of Supply Chain is forcing companies to redesign their supply chain model to keep
pace with the market....

“Approach RTC while cutting cost” 50

Thibault Quiviger
Redesign To Cost (RTC), a very efficient Cost Cutting Approach consisting of
reveiwing the very detailed design and specifications of the product, can save 15-
35 % of your total cost.....

Back to Old Nightmares : Mastering Time

Yan Lehunchec
54
This new paradigm is shifting the center of the industrial organization from the
plant to the management of supplies and dispatch....

Corollary of Supply Chain Analytics 58

Unnikrishnan
Some companies, whose Supply Chain excellence has been recognized, have been
investing in Supply Chain analytical team for years

TENTS
Questuarterly Feb-Apr 2010
Editorial Head
Apresh C Mishra
apresh@log4scm.com
editor@log4scm.com
+91 99105 16905
Intellect Head
Rajeev R Mishra
rajeev@log4scm.com
intellect@log4scm.com
+91 99711 74574
Marketing and Operations
Head
Shatrunkay Singh
shatrunjay@log4scm.com
marketing@log4scm.com
Communications Partner
Renaissance PR
Knowledge Partner
Enetek S.A.R.L.
Disclaimer
All the information in this
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with due care. However nei-
ther Uvaach Media nor its
any partner guarantee for the
appropriateness of the infor-
mation. Kindly check prop-
erly before acting according
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provided here. All the matters
contained here are under the
intellectual property right of
Uvaach Media that prohibits
the user from copying or re-
producing the matter in any
form without the prior writ-
ten permission of Uvaach
Media.
Editorial
Let’s hope
for the best
F or the last couple of years Supply Chain has matured so have its
complexities. Considered often as a soft skill, Supply Chain manage-
ment, on the contrary, is an engineering activity, as much as manu-
facturing or IT development. This activity requires not only extensive
training and skilled people to be carried out efficiently but also trust among
the different partners in the chain. That’s the most difficult aspect of Supply
Chain management: partners need to trust each others, to share data or
even invest in common systems. This trust issue is often the foot trap which
blocks, for instance, the development of 3rd PL. 3rd PL need to invest in
heavy IT system interconnected with their customer’s systems to provide
up to date services but contracts are challenged every 2 years. This is far
shorter than the breakeven point, impeding the development of long and
fruitful relationship between 3rd PL and orders givers.
There are several aspects of supply chain interaction that have been iden-
tified in supply chain trends over the last few decades. The mega-trends re-
flect fundamental paradigm shifts exhibited by leading firms as they
transform their supply chain capabilities to accommodate the long-term
transition from an industrial to an Scientific Technology driven society.
These mega-trends imply substantial change in logistics practices between
supply chain partners as they struggle to establish efficient, effective, and
relevant product/service solutions for end-customers. The mega-trends
discussed in this paper identify some critical dimensions of change relevant
to supply chain value creation.
Well, we have tried to create an enabling environment for the supply chain
sector so as to equip supply chain strategists with the changing market
trends which could affect them in future. Moreover supply chain is con-
sidered secondary focus. We hope Log4scm Quest will create value addition
in bringing supply chain in centre stage in companies’ strategic business
planning.
We would be glad to hear from you
Happy reading!!
apresh@log4sm.com, editor@log4scm.com
+91 99105 168905
Feb-April 2010 Log4scm Quest 05
 Cover Story

Global Supply Chain

Mega Trends
2010-2011

06 Log4scm Quest Feb-April 2010

T
raditionally, supply chains
created value through
low price and broad
product assortment. Today, how-
ever, supply chain managers are
learning how to accommodate
customers who demand greater
control of the buying process,
have the financial ability to make
choices, and are willing to utilize
a variety of ways to pur-
chase goods and services
to satisfy their
lifestyle re-
quirements. Unfor-
tunately, as firms struggle to
implement best practices to solve
today's problems, the environ-
ment in and around the firm is
changing. If a firm does not have
the capability and inclination to
change, it may find itself in the
position of doing things ex-
tremely well that no one values.
The goal of integrated supply
chain is to enhance end-customer
value, Understanding that end- retail store, a natural delay occurs
in the transmittal of the signal
customers will increasingly define
value in the context of a technol-
ogy driven competitive environ-
ment is critical to supply chain
success. There are several aspect
of supply chain interaction that
has been identified in sup-
ply chain
trends
over
t h e
last few
decade.
The mega-
trends reflect
fundamental par-
adigm shifts exhibited
by leading firms as they trans-
form their supply chain capabili-
ties to accommodate the
long-term transition from an in-
dustrial to an Scientific Technol-
ogy driven society. These
mega-trends imply substantial
change in logistics practices be-
tween supply chain partners as
they struggle to establish effi-
cient, effective, and relevant
product/service solutions for
end-customers. The mega-trends
discussed in this paper identify
some critical dimensions of
change relevant to supply chain
value creation.
Once a product is scanned at a
that triggers a re-
plenishment
event to
t a k e
place.
D e l ay s
occur for a
number of
reasons, and the
longer the delay, the
greater the uncertainty up-
stream supply chain partners
experience. That uncertainty
translates into those partners tak-
ing measures to guard against
stock outages, in the form of
larger safety stocks. As that de-
mand signal, and its delay, moves
further away from its source, the
larger the amplitude, or uncer-
tainty becomes. That uncertainty
impacts planning cycles, and their
lead times, within and between
the supply chain partners. In this
way, distance and time become
more and more critical to build-
ing an effective and efficient sup-
ply chain.
In addition, there are com-
pounding factors that occur due
to the nature of that initial de-
mand signal the supply chain re-
ceives. The circumstances that
cause a consumer to walk into a
specific store and purchase a par-
ticular SKU are of interest in un-
derstanding supply chains. It
could just be the normal weekly
shopping run, which results in a
Feb-April 2010 Log4scm Quest 07
 Cover Story
demand signal that is relatively easy
to predict and manage. Problems
arise when product promotions take
place. The consumer might have
made a purchase because of a
coupon event, a store ad placed in a
The location local paper, or via an in-store event.
These events can cause disruptions
and amount of in the supply chain, and far too fre-
inventories and quently are mis-communicated to
production the supply chain partners.
capability plays a
New product initiatives are an-
direct impact on
other form of disruption in the sup-
the ability to ply chain. A new initiative,perhaps a
respond to these new product, or variation on an ex-
isting product, requires decisions on
types of supply pre-launch production timing, and
chain demand
pre-building and staging inventory
creating events,
to meet anticipated demand for the
further leading to products. The location and amount
improving our of inventories and production capa-
bility plays a direct impact on the
understanding of ability to respond to these types of
how physical supply chain demand-creating
location and work events, further leading to improving
processes are our understanding of how physical
inherently linked location and work processes are in-
herently linked in efficient supply
in efficient supply chain design. And while these prob-
chain design. lems exist in scale in the different
parts of the World, they are further
exacerbated when dealing with in-
ternational trade.
The ENETEK Analytics group
was asked to develop a traditional
distribution network design model,
utilizing mathematical optimization
methods, to suggest a potential lay-
out of warehousing required to
meet this need. To accomplish this,
work processes and policies would tions here below :
need to be substantially changed.
How successfully those changes
years investment plan. It must de-
08 Log4scm Quest Feb-April 2010
were managed, and how effective
the resulting processes were in
achieving the objectives, was par-
tially dependent on where and how
inventory was physically deployed in
the network. This led us to support
the development of a dynamic sim-
ulation model to adequately repre-
sent the processing of a supply
chain’s work processes and operat-
ing policies against the supply
chain’s primary driver: demand. This
leads to an important point: If a
supply chain’s designing incorpo-
rates not only questions as to Where
and how many stacks of inventory?,
but also of work process like inven-
tory deployment, replenishment
policies, operating policies, the two
issues are inherently linked and must
be solved together.
As we investigated different oper-
ating policies within the warehouse
structure proposed by the optimiza-
tion models, we found that in cer-
tain instances that we would not be
able to achieve the service levels we
had intended. This learning from
the simulation modeling fed back
into the optimization model, in
terms of new constraints required
to determine a feasible warehousing
structure. That, in turn, created a
new scenario to test within the sim-
ulation environment. In the course
of the work, we realized that an eas-
ier process to move back and forth
between the two technologies would
be useful.
Let’s consider the different situa-
A steel maker is designing its 5
cide where to invest, which pro- 2. Where to locate the dif- EOM will decide if it must be
duction line to revamp, which ferent Distribution Centers built on stock or on demand, im-
production capacity to squeeze (DCs) plying very different industrial or-
down across 27 plants in Europe.
3. How much stock will be ganization scheme : demand
Its product portfolio is made of
16,000 different products and necessary to guarantee 95% serv- forecast, supplier contracting,
many of them are processed on ice level to every customer with a production allocation, capacity
different production lines in dif- delivery lead time of X days (X to management… Then, once de-
optimize) cided which car to build on stock
ferent countries. The team in
versus on demand, the OEM
charge of this process is also con- 4. Out of the total stock, must decide through which DC
cerned by the effect of different
how much will be safety stock sending this car in order to guar-
price policies contemplated for
that is to say dead stock. antee that it will reach the cus-
the different product and how
this could modify their invest- These questions must be con- tomer in less than X days after
ment plan. sidered as a single problem which this customer passed his order. It
A car maker is willing to re en- must be handled by the OEM. Or is easy to understand that both
gineer its distribution chain in its 3rd PL suppliers. Indeed, since the distribution and the produc-
Europe to build a competitive ad- more and more 3PLs tend to tion are intrinsically linked when
vantage against its competitors in manage the distribution network, deciding which marketing offer
a context of over production they should propose added value about delivery lead time to de-
over capacities, long delivery lead solutions to the OEM by study- sign. Let alone considering the
times and over stock scattered in ing in depth these questions with product mix which is per se a
the different European countries. their customers. Nonetheless, as challenge.
The difficulty for this EOM can it is easy to understand, these
A port authority is willing to
be summarized by the following questions, which at first sight
different questions: build a new container terminal. It
seem to be pure distribution is-
must decide about the new lay-
1. Which product must be sues, go very deep in the OEM
out of the terminal, the number
built on demand, which must be organization and its production
of cranes, the size of the parking
built on stock strategy. For each car model, the
lot for the waiting trucks, the
number and location of weigh
since more and more 3PLs tend to man- bridges and, most important, the
age the distribution network, they number and lay-out of the cus-
should propose added value solutions toms gate it must start negotiate
to the OEM by studying in depth these with the government.
questions with their customers.
In this article, we will consider
Nonetheless, as it is easy to understand,
the scientific approach which can
these questions, which at first sight be implemented to answer these
seem to be pure distribution issues, go technical questions and beyond,
very deep in the OEM organization and explain the tools and methodolo-
its production gies and Mega Trends

Feb-April 2010 Log4scm Quest 09

 Cover Story

Megatrend-1
Shift from Customer Service to Relationship Management

Relationship
does matter
While traditional customer service focuses on achieving internal
operating standards, a truly relationship-driven supply chain
focuses on establishing customer success. For many customers,
such operating features as cycle time compression, exact point in
time delivery performance and perfect order-to-delivery may be
the prime drivers of supplier acceptability.

C
ustomer Focus and Supe-
rior Service should be a
major objective for every
manufacturing company in order
to either achieve or maintain mar-
ketplace leadership. Customer rel-
evancy will increasingly become
the key strategic commitment of
leading corporations. While tradi-
tional customer service focuses on
achieving internal operating stan-
dards, a truly relationship-driven
supply chain focuses on establish-
ing customer success. For many
customers, such operating features
as cycle time compression, exact
point in time delivery performance
10 Log4scm Quest Feb-April 2010
and perfect order-to-delivery may
be the prime drivers of supplier
acceptability. In contrast, other
customers may not be willing to
shoulder the cost of day-to-day
six-sigma logistics support. Their
preference may be for a high level
of average logistical support forti-
fied by immaculate logistical recov-
ery when and where needed.
Supply chains designed to
achieve unique customer value
propositions have the potential to
turn commodities into value-added
solutions. Given an understanding
of what drives end-customer pur-
chase behavior, a supply chain firm's resources relative to the matching service capabilities with
based on relationships has the needs and desires of select indi- changing customer expectations,
greatest potential to result in vidual customers. Then the firm providers can stay ahead of com-
unique logistical solutions that are can deploy its resources and ca- petition.
simultaneously effective, efficient pabilities to perform customer-
Second, firms seeking to en-
and relevant. This implies that valued activities and services that
hance customer relationships
firms will likely participate in competitors cannot match at all
must develop operating systems
multiple supply chains to support or at a reasonable cost.
capable of quickly reacting to
different customers.
There are two shifts that must change rather than depending
Although most firms have not take place for firms to evolve upon anticipatory deployment of
achieved the desired level of along this continuum. First, firms inventory to handle planned re-
closeness with customers, it is the seeking to develop strong cus- quirements. This is facilitated by
most advanced of the mega tomer relationships should recog- gathering and exchanging infor-
trends. We assess the current av- nize that all customers do not mation throughout the supply
erage achievement to be 5-6 on have the same service expecta- chain as contrasted to guessing
the ten-point scale. Leading firms tions and do not necessarily want what may happen. The focus
increasingly recognize that suc- or deserve the same overall level must be on efficient and effective
cess hinges on establishing inti- of service. They must, therefore, accommodation of unique cus-
mate relationships with key identify core customers best tomer requests as well as on the
customers. Intimate relationships suited to be their business clients ability to react to unexpected op-
enable firms to generate unique and then meet or exceed expecta- erational circumstances.
and profitable product/service tions by providing unique value-
These capabilities enable firms
offerings for their preferred cus- added services. These services
to capitalize on uncertainty to en-
tomers. This, of course, is in di- may include assignment of spe-
hance customer satisfaction.
rect contrast to principles of cific focus teams to identify, de-
Some approaches that facilitate
mass marketing, and it is certainly sign, implement, and refine
flexibility include providing front-
cost prohibitive to all but the specialized and synchronized of-
line employees with the authority
most narrowly defined market ferings. Additionally, firms must
to approve special customer re-
niche firms. Managers seeking to develop the ability to satisfy not
quests, automatically accommo-
achieve this level of intimacy with only existing needs but also those
dating stock outs through
customers must assess their that may emerge. By continuously
multiple service locations, and
implementing preplanned solu-
Although most firms have not achieved the tions. Another critical enabler of
desired level of closeness with customers, flexibility is routinization and
simplification of fundamental
it is the most advanced of the mega trends. work to minimize effort ex-
We assess the current average achievement pended on handling day-to-day
details and free resources to deal
to be 5-6 on the ten-point scale. Leading with unexpected events. Judicious
firms increasingly recognize that success employment of form and time
postponement also contributes to
hinges on establishing intimate relation- a firm's ability to respond to un-
ships with key customers. known or unplanned circum-
stances.

Feb-April 2010 Log4scm Quest 11

 Cover Story

Megatrend-2
Forecast to Endcast

Predicting the
unpredictable
Management often lets forecasting bumble along unsupported in the
hope everything will come out all right in the end. This approach can
only contribute to repeating cycles of poor performance.

I ts difficult to forecast our

business, it’s too unpre-
dictable. The fact is, when in-
ventory exists at any level in
anticipation of customer orders, it
is the result of a forecast. Some-
one, somewhere in the organiza-
tion has made predictions that
have activated capacity, consumed
cash and driven the customer serv-
ice level. Also, it’s a good bet that
the someone who’s forecasting is
doing it without the right tools,
without proper training, and with
little or no information to support
the process. Yet, the forecast drives
material planning, production
scheduling, inventory levels, and
customer service (among other
things). Managers know this, in
their hearts, but for some un-
known reason they insist that “we
can’t forecast this business”. The
result is that management often
lets forecasting bumble along un-
supported in the hope everything
will come out all right in the end.
This approach can only contribute
to repeating cycles of poor per-
formance.
Experience demonstrates that
the consequence of bad forecast-
ing is a significant and unfavorable
impact on overall business per-

12 Log4scm Quest Feb-April 2010

formance. To make matters the test could be the differing an- service objectives are the actual
worse, a form of denial sets in swers various managers will give results being realized.
and the real costs of poor fore- the same questions. This, of
• Short-term forecast devi-
casting are consistently underes- course, opens up an entire area
timated and often overlooked. for discussion (spirited discussion ations are monitored and ad-
When “bad numbers” drive ma- in many cases) which should be justed and long-term forecast
terial planning and production the beginning of swift problem accuracy is continuously improv-
schedules, the inevitable results resolution. ing.
are longer cycle times, higher • Inventory record accuracy
Answer “Yes” or “No” to each
overhead activity costs, erratic is maintained at 98+%.
of the following:
production schedule perform-
ance, excessive inventory, lower • Order fill rates meet man- • Excess safety stock
throughput, and lots of dissatis- agement’s specific and measured buffers are not pyramidally main-
fied customers – eventually hav- customer service strategy. tained at various inventory levels
ing a negative impact on sales. to compensate for “bad num-
• Delivery lead-times are at bers”.
The cost of bad forecasting is
least competitive and predictable.
enormous. Forecasting deserves • Excess and obsolete in-
increased recognition of that im- • All functions agree on ventories are measured and are
portance and must become one which products are stocked and less than 1% of total inventory.
of the most critical management which are made to order.
functions. As such, improving the What to do further?
• The mix and investment For those who do not score well
forecasting process deserves the
small investment required to in inventory are a shared respon- on the Self-Diagnostics test
achieve incredible returns on that sibility between Sales and Manu- above, appropriate action is defi-
facturing. nitely required.
investment.
First, management must for-
The Self-Diagnostics Checklist • Appropriate mathemati- mally recognize sales forecasting
cal and statistical calculations are as a vital business control point.
The following ten point check- used instead of “rules of thumb”
list is a simple self-diagnostic to establish desired mix and lev- Second, this recognition should
which can help companies envi- els. be followed by a thorough evalu-
ation of the current forecasting
sion what performance could be. process. Third, where needed, an
Another enlightening aspect from • Management’s inventory action plan for improvement
investment plan and customer should be launched without delay.
The good news is getting a fore-
Forecasting deserves increased recogni- casting process in place is not as
tion of that importance and must difficult as many people think;
statistical forecasting tools are
become one of the most critical readily available and the proce-
management functions. As such, dural requirements are modest. If
you have to forecast, then the
improving the forecasting process only proper course is do it with
deserves the small investment required the right tools, techniques, infor-
mation and properly trained staff.
to achieve incredible returns on that Then, and only then, will you be
able to say “we can forecast our
investment. business.”

Feb-April 2010 Log4scm Quest 13

 Invited

“Approach
Mr.Thibault, an Ex-Army
Officer from the French
Army and Prior to setting his
company in 2004, worked
RTC while
cutting cost”
primarily in Arcelor (now
Arcelor-Mittal) and he
worked in various capacities
from Quality Division and
then went on to Supply Chain
and Network Design, and
later on for different indus-
tries, from heavy industry Redesign To Cost (RTC), a very efficient Cost
companies –Steel & Mining, Cutting Approach consisting of reveiwing the
Oil & Gas to Retail busi-
nesses, specializing in re engi- very detailed design and specifications of the
neering their Distribution
Networks, Investment Plan-
product, can save 15-35 % of your total cost.
ning and Production Alloca- Mr. Thibault Quiviger shares his ideas how
tion and also developing
Quality Model Builder based
to go for it with Log4scm.
on Machine Learning Algo-
rithms and then Supply Chain
Modeller for the European
How to cut cost? ranging respectively in 3-5%, 2-10%
industry.
and 15-35% of the total cost.
There are basically 3 ways to cut
He founded his own firm and
expanded his company ex- costs: transfer the problem to Let’s see what more Mr. Thibault
pertise to Operations Simula- your supplier and get better says in an exclussive interview with
tion and Operation
prices, be more efficient in your Log4scm.
Excellence with 2 new Re-
gional offices in India and Supply Chain –stock reduction,
What is RTC?
Turkey. In early 2009, he has new distribution networks, bet-
been appointed Associate Redesign To Cost is a very ef-
Professor at the Technical ter use of assets, minimize losses
University of Compiègne, (time, material) and a 3rd one not ficient Cost Cutting Approach
France for Industrial Network explored often, review your product consisting of reviewing the very
Design for the Mechanical
Engineering Department. offer through a Redesign To Cost ap- detailed design and specifica-
proach (RTC). These 3 different ap- tions of the products to relax
You can reach to him at
proaches bring in general savings the too constraining ones and in
thibault.quiviger@enetek.eu

50 Log4scm Quest Feb-April 2010

optimizing the product range functionalities not valued by the (so easy to draw complex but
offer. customers. And because design costly to produce shapes with
Engineers like complexity, they CAD software today), tolerances
How can RTC be compared to
will tend to propose complex de- (too narrow tolerances = very
other Cost Reduction Ap-
proaches? signs or complex manufacturing high production costs) or func-
processes, regardless of their tionalities not valued by the cus-
Indeed, our experience in Eu- cost. Most engineers prefer de- tomers or by the targeted
rope has shown that 85% of the signing their own system than re customer segment (is a camera
product cost is frozen during the using an existing system proved necessary on any cell phone?).
design phase. The so efficient and reliable or produced in such Reviewing specifications and sec-
popular lean approahces,6 sigmas quantities that its unit cost will be ondary functions on products
and network design projects act- always much smaller than any lead to an average savings of 30%
ing only on less than 15% of the new system designed from on the unit prices while guaran-
product cost. Indeed, during the scratch. teeing the same level of customer
design phase, the focus is much satisfaction.
more centered on fulfilling spe- Which are the potential costs
cific marketing requirement than to be cut? But beyond the product specifi-
optimizing the total cost (sourc- cations,
Sources of cost easy to cut are
ing + manufacturing + distribu- plethoric: choice of materials What could be the effects of
tion). Marketing requirements are (plastic vs steel, steel grade, thick- Product Range on RTC ?
often too stringent, asking for ness), the shape of the product
It is necessary to consider the
product range to optimize the
Outsourcing is a viable option / solution to trade-off between product diver-
most companies. Why do companies out- sity aimed at satisfying the identi-
source has various reasons. Some increase fied distinct customer clusters
shareholder value, reduce costs, business and the induced
transformation, improve operations, over- production/sourcing complexity
in the Supply Chain.
come lack of internal capabilities, keep up
with competitors, gain competitive advan- For instance, a car maker real-
tage, improve capabilities, increase sales, im- ized that its AC system power was
30% higher compared to its
prove service, reduce inventory, increase
peers. Aligning specs led to a 25%
inventory velocity and turns, mitigate capital
cost reduction on the AC system.
investment, improve cash flow, turn fixed A payment terminal producer re-
costs into variable costs and other benefits, duced the resolution of its printer
both tangible and intangible. head from 8 dots/mm to 4

Feb-April 2010 Log4scm Quest 51

 Invited
dots/mm, reducing cost of the is every day more common in the
equipment by 21%. A small car industries which understood the
The first problem
maker replaced its in house devel- risks of over customization. The
of over cus- oped breaking system and re used right balance is in between: defining
tomization is the system of a competitor: cost re- the right number of “generic” plat-
often found in duction of 48%. For sure, all these form enabling economies of scale
many industries action require intensive analysis of and differentiating enough the
in their infancy the specifications, of the suppliers product features to fit the market
stage, the “plat- offer and potential sourcing diver- needs at the cheapest cost for every
form” strategy sification while meeting customer customer segment identified.
needs (and not design engineer
pushed too far is Could you elaborate it with an
pride)
every day more example?
common in the Do Marketing Heads need to
For example, proposing an inte-
Optimize Product Diversity?
industries which grated camera for the low range cell
understood the Marketing teams tend to define phones in India has been rejected
risks of over cus- distinct specifications for the differ- by Nokia because most people
tomization. The ent customer clusters and customer would not pay for it, too expensive
needs they have identified. Tempta- while it has been generalized in Eu-
right balance is rope to achieve economies of scale
tion is high then to customize each
in between: pushing costs down cost enough to
and every product for every cus-
defining the right tomer. But mass customization is
propose it for every European cus-
number of tomer.
extremely complex and often ex-
“generic” plat- tremely costly. Basically, customers A harness makers split its single
form enabling prefer a full option car than a car harness offer between high and
economies of with the limited options they could middle range customer to build
them with cheaper components for
scale and differ- afford! This reality can lead engi-
the middle range: savings achieved
entiating enough neers to the opposite direction, over
= 21%...
simplifying the product offer
the product fea- These examples show that the
aligned on the most demanding
tures to fit the product range optimization requires
customer needs, generalizing every
market needs at a systematic and quantified pros
option for every customer. Leading and cons approach to achieve the
the cheapest cost to expensive production costs. If best trade-off between cheapest
for every cus- the first problem of over cus- cost and Supply Chain complexity
tomer segment tomization is often found in many management costs.
identified. industries in their infancy stage, the Send your comments to:
“platform” strategy pushed too far review@log4scm.com

52 Log4scm Quest Feb-April 2010

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