Fisher
Creating the Right Supply Chains for
Your Product
Marshall Fisher
UPS Professor
© 2007 Marshall L. Fisher
Products differ
Product variety
Low
High
Forecast accuracy
High
Low
Product life cycle
Long
Short
Risk of obsolescence
Low
High
Cost of lost sale
Low
High
Functional
© 2007 Marshall L. Fisher
Innovative
And supply strategies differ
Factory focus
Inventory Strategy
Lead-time focus
Supplier selection
Product-design strategy
High utilization
Maintain buffer capacity High turns
Significant buffer stocks of components and FGs
Low cost trumps short lead-time
Aggressively shorten lead-time
Low cost
Integral for max performance at min cost
Physically efficient © 2007 Marshall L. Fisher
Speed & flexibility
Modular to enable postponed differentiation
Market responsive So as to minimize total of two types of costs
Raw
Materials
•
Component
Manufacturer
Retailers
Consumers
Suppliers
Physical Production/Distribution Costs
– Production Costs
– Transportation Costs
– Facility Utilization rates
– Inventory carrying cost on pipeline and cycle stocks
•
Supply/Demand Mismatch Costs
– Lost revenue and profit margin when supply is less than demand
– Product and parts scrapped or sold at a loss when supply exceeds demand – Inventory carrying cost on safety stocks
© 2007 Marshall L. Fisher
Respond quickly to unpredictable demand to minimize stockouts, markdowns, and obsolete inventory
© 2007 Marshall L. Fisher
Life cycle < 1 year
Gross Margin > 35%
High Product Variety
Functional Products
Innovative Products
Efficient
Supply Chain
Supply predictable demand efficiently at lowest cost
Life cycle > 2 years
Gross Margin < 35%
Low Product Variety
match
mismatch
Responsive
Supply Chain
Need to match supply strategy with product type
mismatch
match
Respond quickly
to
Your Product
Marshall Fisher
UPS Professor
© 2007 Marshall L. Fisher
Products differ
Product variety
Low
High
Forecast accuracy
High
Low
Product life cycle
Long
Short
Risk of obsolescence
Low
High
Cost of lost sale
Low
High
Functional
© 2007 Marshall L. Fisher
Innovative
And supply strategies differ
Factory focus
Inventory Strategy
Lead-time focus
Supplier selection
Product-design strategy
High utilization
Maintain buffer capacity High turns
Significant buffer stocks of components and FGs
Low cost trumps short lead-time
Aggressively shorten lead-time
Low cost
Integral for max performance at min cost
Physically efficient © 2007 Marshall L. Fisher
Speed & flexibility
Modular to enable postponed differentiation
Market responsive So as to minimize total of two types of costs
Raw
Materials
•
Component
Manufacturer
Retailers
Consumers
Suppliers
Physical Production/Distribution Costs
– Production Costs
– Transportation Costs
– Facility Utilization rates
– Inventory carrying cost on pipeline and cycle stocks
•
Supply/Demand Mismatch Costs
– Lost revenue and profit margin when supply is less than demand
– Product and parts scrapped or sold at a loss when supply exceeds demand – Inventory carrying cost on safety stocks
© 2007 Marshall L. Fisher
Respond quickly to unpredictable demand to minimize stockouts, markdowns, and obsolete inventory
© 2007 Marshall L. Fisher
Life cycle < 1 year
Gross Margin > 35%
High Product Variety
Functional Products
Innovative Products
Efficient
Supply Chain
Supply predictable demand efficiently at lowest cost
Life cycle > 2 years
Gross Margin < 35%
Low Product Variety
match
mismatch
Responsive
Supply Chain
Need to match supply strategy with product type
mismatch
match
Respond quickly
to