Right Supply Chain for you

What is the Right Supply Chain for your Product

Classification of product (Based on Demand Pattern)

1. Functional Product – Supply chain suitable is Efficient SCM / Physical Function of SC

2. Innovative Product – Supply Chain suitable is Responsive SCM / Market Media function of SC

	Functional Product	Innovative Product
Definition	It satisfies basic needs of customers which do not change much over time	Uses innovation in products which gives additional reason to customer to buy the product
Example	Washing Powder like Surf	Starbucks Coffee, Apple Products
Characteristic	Demand is predictable & stable	Demand is unpredictable due to newness of product
	Low margin available on sale of product	High Margin available on sale of product
	In case product does not sell well on introduction, the loss is still minimum due to lost cost of manufacturing, predictable demand and long product life cycle	In case product does not sell on introduction, the notional loss is very high due to huge difference between manufacturing cost and selling cost of product.
	High competition among producers due to surety of selling of goods	Low competition among producers
	Long life cycle as demand is stable	Short life cycle as innovation is easily copied by competitors

Example for Innovative product (in the article) – Century product, manufacturer of car seat, is manufacturing children car seat in different colors and crash proof (shock absorbers).

Demand under-estimation – Controversial design of IBM think pad key-board (Red dot mouse in the middle of key board) prompted company to manufacture less though the product was a hit in the market.

Supply Chain functions –

1. Physical function

2. Market Media Function

	Physical Function	Market Media Function
Function	- Converting raw materials into finished goods - Transportation of goods	- Variety of products should reach the market - Products reaching the market should be what consumer wants
Flow of information	Within supply chain	Within supply chain and from market to supply chain
Supply Vs Demand	Supply = Demand (Approx)	Supply >> or << Demand
Costs included	1. Manufacturing cost 2. Transportation cost 3. Inventory storage cost	- Loss due to cost price < selling price when product goes obsolete (like apparels out of fashion) or when supply >>> Demand - Notional loss due to lost sales opportunity when Demand >>> Supply. Notional loss is high in case of Apple products where cost of manufacturing <<< Selling price of products

How a supplier should be chosen – For their speed and flexibility in the supply chain and not just for their low cost (as most functional products are tending towards innovational product to increase margins).

Principle governing inventory – Inventory is calculated not based on cost, but where it should be placed in the supply chain to cater the demand and change in demand.

Why many companies find it hard to distinguish between functional and innovative product – Because both can be same physical product. Example – In category of coffee, Nescafe (coffee from vending machine) Vs Starbucks coffee.

The above leads to inventory built up or loss of sales due to inventory shortage; company blames it on head of supply chain rather than looking at the fact that product is now innovative and not functional.

Characteristics of Supply chain –

Characteristic of Supply Chain	How it is measured
Physical Efficiency	Plant Capacity Utilization
	Inventory turns
Responsiveness	Product availability

Steps to reduce the uncertainty in supply chain of Innovative products –

1. Accept uncertainty exists

2. Reduce uncertainty by

a. Sharing data / purchase habits / exit interview results with all partners of supply chain

b. Use same components in different products (Postponement technique for manufacturing)

3. Avoid uncertainty by

a. Reducing lead time – Manufacture as and when demand comes (Dell direct method of manufacturing)

4. Hedge against the remaining residual inventory