Consumer product supply chain strategies: how much flexibility is ideal?
Daryl Pereira 270002AW8D firstname.lastname@example.org | | Tags:  impact09 supplychain
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In this presentation, David Simchi-Levi of the ILOG Supply Chain product line talked about how to reduce cost, free-up cash and improve service in the supply chain.
Flexibility and the Manufacturing Network
How can you adjust your supply chain strategy to achieve maximum flexibility?
David starts by talking about the simple case where each plant only delivers one product (base case). Simple from a supply chain design perspective, but there is a big downside in that the product will be produced far from the consumer.
Another scenario is where every plant can build every product (full flexibility). Under this model you can build the product closest to the customer, however this is generally very expensive from a manufacturing perspective.
There is a middle ground of partial inflexibility where each plant produces two or more products. David spends some time looking at these scenarios, looking to fulfill these needs:
If you just focus on reducing manufacturing costs, then the transportation costs will escalate. So there is obviously a trade-off. Once these costs are graphed it's obvious to see that although there are minimal gains as the plant gets more flexible, most gains are made from moving from a 1-product plant to a 2-product plant (refered to as 2 flexibility).
So can we conclude here? Not quite: you also need to take into account the impact of changes in demand volume (service levels).
Using the base case you rapidly run into problems where as demand shrinks for one product, the plant will lose productivity and be underutilized. Once you have more flexibility in the system, if a plant is being underutilized for one product, manufacturing can switch to another product.
Again, the greatest service levels are achieved with the 2-flexibility.