How to design your supply chain channel (A)

Deciding on the number of channels in the supply chain is not easy. They must be carefully matched to market requirements and, as we have already seen, there are many factors that influence the selection of the most appropriate network layout.  At the extreme, one would provide a unique network solution for each product in each market; this would however be extremely expensive, unmanageable, and inefficient. The other extreme would force all products to all markets down the same or similar channel. The compromise lies somewhere between these two extremes. The question is how to decide.

Examples of brands and products in the Lead-time-customization construct with typical examples like Adidas, Levi’s, Lego, and Volkswagen. These nine segments can be used be translated into typical supply chain structures.

Practical approach
We can use two dimensions that dominate this choice. The level of customization and the order lead-time. Lead-time puts a strain on the distance between the location where customization takes place and the customer in need of the product. For example,if we look at Standardized commodity products, segment 1 we see that these are usually fast moving products, available in only a limited assortment.

Typical segment products are micro-waves, LCD’s, ovens, and so on. Above, an example is presented of in this case Boretti. Components are produced globally (build to order) and then centrally distributed. A second category, closely related, is the segment of standardized specialty products, available in a broad range of editions to customers .Although, there is a little bit more time pressure. Examples of this type of products are mobile phones, shoes (Nike, Adidas, Puma), leisure wear (Levi’s, Diesel, Tommy Hilfiger). A third category, is a range of customized products based on standardized components. This category is referred to as segmented customized products and illustrated below using the Adidas with their standardized specialty products.

The components are highly standardized but can be combined, added, removed to the customer’s wishes. Typical examples are Dell’s laptops, Volkswagens, kitchens, and Scania’s trucks. SuitSupply went one step further in their customization.  This concept, introduced by Fokke de Jong in the year 2000, is a typical example of segmented customization. You can walk in the store and get all measured up, and while you are waiting your suit is sewn, fitted and ready for use.

However, Adidas went one stpe further in customizing their product and introduced Mi Adidas enabling their customers to individualize their own Adidas (see the example of the Segment 8 channel of Mi Adidas below). THis is the final category, the segment of individualized products. Instead of standardizing products, the production process is standardized. Custom made suits, software, components, are typical examples (see figure above). A nice example of individual orders is the concept of Design by me Lego. Lego introduced a virtual 3-D environment for their customers, in which they can build whatever they want and whatever Lego building blocks they want. Once they are done designing and building (virtually) they can order the Lego blocks they used and they are delivered by Express.

We use this methodology to segment a product portfolio and find those archetypical supply chains we then use to design the logistics network using LogicNet XE Plus. In our next contribution we will illustrate this next crucial step.

 

This post is also available in: Dutch

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