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Int. J. Production Economics 100 (2006) 223238 www.elsevier.com/locate/ijpe

Designing supply chains: Towards theory development

Mark A. Vonderembsea,, Mohit Uppalb, Samuel H. Huangc, John P. Dismukesd
a

College of Business Administration, The University of Toledo, 2801 West Bancroft St., Toledo, OH 43606, USA b Corporate Material Management Department, American Axle and Manufacturing, Detroit, MI USA c College of Engineering, The University of Cincinnati, Cincinnati, OH, USA d Center for Manufacturing Value Chain Science, The University of Toledo, Toledo, OH, USA Received 1 March 2002; accepted 1 November 2004 Available online 9 February 2005

Abstract This paper describes a typology for designing supply chains that work in harmony to design, produce, and deliver products with different characteristics and customer expectations. This research discusses supply chain types that are necessary for success across three types of products: standard, innovative, and hybrid. It develops a framework for categorizing the supply chain types according to product characteristics and stage of the product life cycle. The key success factor for a product change as the product moves through its life cycle, and this may require different supply chain characteristics and capabilities. The paper blends literature and theory development with cases study research to create the typology and develop a set of research questions for further investigation. r 2005 Elsevier B.V. All rights reserved.
Keywords: Agile manufacturing; Lean manufacturing; Supply chain management; Supplier selection

1. Introduction With uncertainty in customer expectation, quantum leaps in technology and high-speed Internet links, business transcends local and national boundaries. In this environment, organizations face sophisticated customers who demand increasing product variety, lower cost, better
Corresponding author. Tel.: +1 419 530 4319; fax: +1 419 530 7744. E-mail address: Mark.Vonderembse@utoledo.edu (M.A. Vonderembse).

quality, and faster response. To compete successfully, organizations are embracing supply chain management (SCM) because it focuses on actions along the entire value chain (Bechtel and Jayaram, 1997; Childerhouse et al., 2002; Tan, 2001; Vonderembse, 2002). The supply chain perspective is predicated on the fact that competition is shifting from rm versus rm to supply chain versus supply chain, and SCM is the approach to designing, organizing, and executing these activities. SCM integrates suppliers, manufacturers, distributors, and customers through the use of

0925-5273/$ - see front matter r 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.ijpe.2004.11.014

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information technology to meet customer expectations efciently and effectively (Ansari, 1990; Childerhouse and Towill, 2002; Choi and Hong, 2002; Huang et al., 2003; Quinn, 1997; Rich and Hines, 1997; Thomas and Grifn, 1996). As a result, groups of companies can respond quickly and in a unied manner with high-quality, differentiated products demanded by fastidious nal consumers while achieving system-wide advantages in cost, time, and quality (Carter, 1996; Christopher, 1992; Davis, 1993; Hewitt, 1994; Mabert and Venkataramanan, 1998; Persson and Olhager, 2002; Vonderembse 2002). As competition shifts from a company orientation to a supply chain orientation, SCM is touted as a strategy of choice for successful competitors (Quinn, 1997; Rich and Hines, 1997). For example, in the automotive industry, competition is among DaimlerChrysler, Ford, Toyota, etc. and the supply chains that enable each of them to deliver nished product to the nal customer. The development, design, production, marketing, and delivery of new cars is a team effort that begins with extracting raw materials from the earth, continues through design, fabrication, and assembly, and ends with t and nish in the dealers show room. When a customer buys a car, the customer chooses the output of the entire supply chain and pays all the participants. To be successful, automotive companies must develop an approach to design, organize, and execute supply chain activities from its roots in basic materials such as extracting iron ore, sand, and crude oil to the dealer network. This does not mean ownership or even direct control, but it does imply mechanisms that inuence decision-making and impact system-wide performance. Questions remain about how supply chains function and how deeply supply chain concepts are ingrained in manufacturing organizations. Recently, researchers are investigating the factors needed to design and build effective supply chains (Childerhouse et al., 2002; Cooper and Ellram, 1993; Mabert and Venkataramanan, 1998; Narasimhan and Jayaram, 1998; Pagh and Cooper, 1998; Persson and Olhager, 2002; Walker et al., 1999, 2000). This research discusses strategies and

methodologies for designing supply chains that meet specic customer expectations. Supply chain design should be, in part, a function of the product characteristics and expectations of the nal customer (Calantone et al., 2002; Fisher, 1997; Reiner and Trcka, 2004; Singhal and Singhal, 2002). The research examines three types of products: standard, innovative, and hybrid, and it describes supply chain characteristics that are essential for success. Other product types may exist, but this study is limited to these three. Standard products have stable demand, and their design characteristics and production requirements change slowly over time. As a result of this stability, customer contact tends to be periodic rather than continuous (Mason-Jones et al., 2000). Commodities like staples or fasteners are standard products that require straightforward supply chains with few participants. More interesting examples of standard products would be small appliances or hand tools like toasters or saber saws because they tend to have several suppliers providing important components. These products are usually in the latter part of the growth segment of their product life cycle or beyond. Innovative products are new or derivative products that are aimed at new customers and markets and are designed to be adaptable to changing customer requirements. These products require close and continuous customer contact, have uncertain demand, and their product designs may be unstable (Fisher, 1997; Mason-Jones et al., 2000). Innovative products are usually in the introduction and growth stages of the product life cycle. Emerging communication technology is an example. Innovative products can also be derivative or differentiated products that re-ignites the growth potential of a product in the mature phase of the product life cycle. New computer chips and software upgrades are examples. Hybrid products are complex products that have several to many components, which may be a mixture of standard and innovative products. Automobile or other assembled products are examples. These products are usually major purchases that are made periodically by customers after careful consideration and investigation.

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Hybrid products may be at any stage of the product life cycle. The goal of this research is to provide insights to organizations that are designing supply chains to manufacture discrete parts. The research denes the product characteristics of standard, innovative, and hybrid products. Through case studies, it provides a framework for understanding lean, agile, and hybrid supply chains, and it relates the adoption of these supply chains to the characteristics of the products and the needs of the customers.

2. Supply chain types This research is grounded in the literature on lean and agile supply chains, see Table 1. It attempts to understand and integrate these paradigms to create a classication scheme that can be related to different product types. Ganeshan and Harrison (1995) deal with basics issues in SCM including a denition, strategic and operating issues, and four key decision areas: (1) location, (2) production, (3) inventory, and (4) transportation (distribution). They provide a brief literature review of supply chain modeling approaches, namely, network design methods, rough-cut methods, and simulation based methods. Beamon (1998) focuses on supply chain design and analysis. The author provides a literature review on multi-stage supply chain modeling, which consists of four categories: deterministic, stochastic, economic, and simulation models. She also focuses on supply chain performance measures that are qualitative and quantitative as well as decision variables that impact supply chain modeling such as production and distribution scheduling, inventory levels, number of stages (echelons), distribution centers, plant product assignment, buyer/supplier relationships, product differentiation, and number of products held in inventory. The author lays groundwork for future research in the following areas: (1) evaluating and developing supply chain performance measures, (2) developing models and procedures to relate variables to the performance measures, (3) con-

sidering issues relating to supply chain modeling, and (4) classifying supply chain systems to allow development of rules-of-thumb or general techniques to aid in the design and analysis of supply chains. Nolan (1999) denes ve characteristics that help managers to reap the full benets of the SCM approach. These involve achievable implementation phases, senior level involvement, collaboration, business process and organizational design, and effective performance measures. He concludes that these ve steps help in the effective implementation of a SCM system. This is a general classication of SCM systems and strategies organizations should adopt to be successful. Ragatz et al. (1996) examine issues related to lean and agile supply chains as they examine the integration of suppliers with product development. According to these authors, organizations are integrating their suppliers by involving them in product design and in some cases making them responsible for the design of components and systems that decrease product development time. The paper analyzes relationships between customer and supplier as well as the most and least successful supplier integration efforts. In related work, Dowlatshahi (1996) focuses on the early involvement of logistics in product design. His paper explores areas where early collaboration and interfaces between logistics and design activities could result in signicant improvements for manufacturing enterprises. Hoffman and Mehra (1996) examine the relationship between concurrent engineering and risk management. Their research concludes that concurrent engineering reduces risk because uncertainty decreases as everyone shares the same knowledge, speaks the same language, and works in a team environment. Overall costs decline substantially because a team approach is adopted during product development, which results in better planning, faster response to unanticipated changes from suppliers, and fewer changes late in the product development process when changes are more expensive. Gunasekaran (1999a, b) focuses solely on the agile manufacturing paradigm. His paper provides a conceptual model of an agile manufacturing

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226 Table 1 Literature review Author(s) Areas researched and contributions made Supports Supply chains | Lean supply chains Agile supply chains M.A. Vonderembse et al. / Int. J. Production Economics 100 (2006) 223238

Ganeshan and Harrison (1995)

Beamon (1998)

Nolan (1999)

Ragatz et al. (1996) Dowlatshahi (1996)

Hoffman and Mehra (1996)

Gunasekaran (1999a, b)

Yusuf et al. (1999)

Shari and Zhang (1999)

Naylor et al. (1999)

Focused on the basics of SCM involving its denitions and strategies. Took into account 4 major decision areas: (1) location, (2) production, (3) inventory, (4) transportation. Provided a literature review on SC modeling approaches, namely, network design, rough cut and simulation based methods. Focused on SC design and analysis. Provided a literature review on multi-stage SC modeling. Focused on SC performance measures. Denes 5 key characteristics in order to benet from SCM systems, namely, implementation phases, senior level involvement, business process reengineering, collaboration and effective performance measures. Focused on the integration of suppliers in new product development. Developed and tested a model to study the early collaboration and interface of logistics and design activities. Model results in signicant achievements for manufacturing enterprises. Studied the relationship between concurrent engineering and risk management. Resulted in substantial decrease in costs during the product development stages. Led to fewer efforts to responsiveness later in the product life cycle. Provided a conceptual model on AMSs. Reviewed the available literature on agile manufacturing. Provided information into the drivers, concepts and attributes of agile manufacturing. Provided tools and techniques required for a successful AMS, e.g., virtual organizations, quick response manufacturing, time-based competition, etc. Focused on an AMS and developed a conceptual model for achieving agility. Assumed that a LSC is a subset of an ASC. Proposed the usage of the lean and agile concept with the aid of a decoupling point. Model highlights how the decoupling point satises different manufacturing types.

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system (AMS) along four key dimensions: strategy, technology, systems, and people. He reviews the available literature on agile manufacturing and the technologies that are essential to the adoption of AMS. His later research contributions (Yusuf et al., 1999) provide information into the drivers, concepts, and attributes of agile manufacturing. They provide information on the design and implementation of AMS, highlighting the various tools and techniques that are imperative to the success of AMS. These include concepts such as virtual enterprise, computerized manufacturing control system, architecture for the development of manufacturing control systems, quick response manufacturing, time-based competition, rapid modeling capabilities, and object oriented modeling and programming. Their research focuses tightly on the design and implementation of AMS and not on its impact and usage in the supply chain. It also overlooks the possible integration of a lean and agile supply chain as well as a design based on product characteristics. It works on the premises that agile manufacturing is the only viable solution to supply chain design. Shari and Zhang (1999) also focus on the AMS and develop a conceptual model for achieving agility, with a pre-supposition that a lean chain is a subset of an agile chain. While it acknowledges a relationship between lean and agile supply chains, it overlooks the possible integration of the two chains and the benets that can be derived from it. These research studies, although informative, do not fully describe the supply chain alternatives. A model developed by Naylor et al. (1999) proposes the combined use of a lean and agile supply chain. These studies lay a foundation for developing the hybrid supply chain (HSC). The HSC uses a variety of approaches including concepts from lean and agile supply chain literature as well as traditional purchasing practices to meet the needs of the nal customer. Through case studies, this research expands the alternatives and provides a framework for understanding the relationships among them. It argues that supply chain type is to a large extent a function of product characteristics and customer expectations (Fisher, 1997). With a rapidly changing business environment, organizations require a

supply chain model that deals with strategic and customer issues in addition to operating constraints. The product is the soul of the supply chain; there is no justication for adopting a particular supply chain type unless it conforms to the needs of the product and its customers. The following sections provide an overview of lean, agile and hybrid supply chains, which are described in detail in Table 2. 2.1. Lean supply chain A lean supply chain (LSC) employs continuous improvement efforts that focus on eliminating waste or non-value steps along the chain. It is supported by efforts to achieve internal manufacturing efciencies and setup time reduction, which enable the economic production of small quantities and enhance cost reduction, protability, and manufacturing exibility to some degree. The short setup times provide internal exibility, but a LSC may lack external responsiveness to customer demands, which can require exibility in product design, planning and scheduling, and distribution in addition to manufacturing (Booth, 1996). As the rate of market change increases, the LSC approach has evolved into multiple niche competition, which is the production of any volume, even a single unit, combined with the ability to satisfy multiple market segments (Booth, 1996). Organizations recognize that along with the added variety and responsiveness squeeze, they must remain adaptable to future changes. Customer requirements are continuously evolving and product life cycles are growing shorter, therefore, along with being lean, supply chains must respond to the market. As a result, successful organizations move from concept to cash ow in a fraction of the time. 2.2. Agile supply chain The agile supply chain (ASC) paradigm relates to the interface between companies and markets, an external perspective on exibility. Successful implementation involves responding to rapidly changing and continually fragmenting global

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Table 2 Differentiation between lean, agile and hybrid supply chains Category Denition Lean supply chain A LSC employs continuous improvement to focus on the elimination of waste or nonvalue added steps in the supply chain. It is supported by the reduction of setup times to allow for the economic production of small quantities; thereby achieving cost reduction, exibility and internal responsiveness. It does not have the ability to mass customize and be adaptable easily to future market requirements. Focus on cost reduction and exibility for already available products. Employs a continuous improvement process to focus on the elimination of waste or non-value added activities across the chain. Primarily aims at cost cutting, exibility and incremental improvements in products. Advocates lean manufacturing techniques. Agile supply chain Agility relates to the interface between a company and the market. ASCs prot by responding to rapidly changing, continually fragmenting global markets by being dynamic and context-specic, aggressively changing, and growth oriented. They are driven by customer designed products and services. Hybrid supply chain A HSC generally involves assemble to order products where demand can be accurately forecasted. The supply chain helps to achieve some degree of customization by postponing product differentiation until nal assembly. Lean or ASCs are utilized for component production. The agile part of the chain establishes an interface to understand and satisfy customer requirements by being responsive and innovative. Employ lean production methods manufacturing. Interfaces with the market to understand customer requirements. Achieve a degree of customization by postponing product differentiation until nal assembly and adding innovative components to the existing products.

Purpose

Understands customer requirements by interfacing with customers and market and being adaptable to future changes. Aims to produce in any volume and deliver to a wide variety of market niches simultaneously. Provides customized products at short lead times (responsiveness) by reducing the cost of variation. Advocates agile manufacturing techniques, which is an extension of lean manufacturing. Integrates marketing, engineering, distribution and information systems. Has the ability to respond quickly to varying customer needs (mass customization). Innovative products have short life cycle times (3 months1 year). Exploits a dynamic type of alliance known as a virtual organization that work on product design. Acquire new competencies, develop new product lines, and open up new markets.

Approach to manufacturing

Employs lean and agile manufacturing techniques.

Integration

Integrate manufacturing, purchasing, quality and suppliers. Works on conrmed orders and reliable forecasts. Standard products have relatively long life cycle times (42 years). May participate in traditional alliances such as partnerships and joint ventures at the operating level. Serve only the current market segments.

Similar to the LSC at component level and follows an ASC at product level. Works on conrmed orders and reliable forecasts with some ability to achieve some produce variety. Involved the production of assemble to order products, which stay in the maturity phase of the life cycle for a long time. Along with traditional operating alliances, HSCs may utilize strategic alliances to respond to changing consumer requirements. Respond to customer requirements with innovative features in existing products. This enables the organization to capture a larger segment of that product market.

Production planning

Length of product life cycle

Alliances

Markets

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M.A. Vonderembse et al. / Int. J. Production Economics 100 (2006) 223238 Table 2 (continued ) Category Organizational structure Lean supply chain Uses a static organizational structure with few levels in the hierarchy. Supplier attributes involve low cost and high quality. Agile supply chain Create virtual organizations by creating alliances with partners that vary with different product offerings that change frequently. Supplier attributes involve speed, exibility, and quality. Hybrid supply chain Maintain an organization similar to a LSC. May create temporal relationships with partners to implement innovative features. Supplier attributes involve low cost and high quality, along with the capability for speed and exibility, as and when required. Similar to the LSC. The average product demand can be accurately forecasted. Component level forecasting may involve larger errors. Postpone product differentiation and minimize functional components inventory. Similar to the LSC at component level (shorten lead-time but not at the expense of cost). At product level, to accommodate customer requirements. Combination of lean and ASC depending on comp. 229

Approach to choosing suppliers

Demand patterns

Demand can be accurately forecasted and average margin of forecasting error tends to be low, roughly 10%. Generates high turns and minimizes inventory throughout the chain. Shorten lead-time as long as it does not increase cost.

Demand are unpredictable with forecasting errors exceeding 50%.

Inventory strategy

Make in response to customer demand. Invest aggressively in ways to reduce lead times.

Lead time focus

Manufacturing focus

Maintain high average utilization rate.

Deploy excess buffer capacity to ensure that raw material/ components are available to manufacture the innovative products according to market requirements. Design products to meet individual customer needs. Involves decentralized decisionmaking. Empowered individuals working in cross-functional teams, which may be across company borders too.

Product design strategy Human resources

Maximize performance and minimize cost. Empowered individuals working in teams in their functional departments.

Use modular design in order to postpone product differentiation for as long as possible. Empowered individuals working in teams in their functional departments.

markets by being dynamic, context-specic, growth-oriented, exible across the organization, and driven by customer. An ASC focuses on responding to unpredictable market changes and capitalizing on them through fast delivery and lead-time exibility. It deploys new technologies, methods, tools, and techniques to solve unexpected problems. It utilizes information systems and technologies as well as electronic data inter-

change capabilities to move information faster and make better decisions. It places more emphasis on organizational issues and people (knowledge systems and empowered employees), so decisionmaking can be pushed down the organization. It is a systemic approach that integrates the business, enhances innovations across the company, and forms virtual organizations (VOs) and production entities based on customer needs.

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2.3. Hybrid supply chain In addition to lean and ASCs, this research proposes the existence of an intermediate chain known as the HSC. A HSC generally involves assemble to order products whose demand can be forecasted with a relative accuracy. The chain helps to achieve mass customization by postponing product differentiation until nal assembly. The lean or agile supply chain techniques are utilized for component production with different characteristics. For example, air bags would most likely be produced with a LSC while engine electronics might require the innovation found in an ASC. In addition, the agility is needed to establish a companymarket interface to understand and satisfy customer requirements by being responsive, adaptable, and innovative.

3.2. Innovative product Innovative products are new products that require sophisticated design and/or manufacturing capabilities. They are signicantly different from current products, and they often represent a breakthrough in product concept and design. They often satisfy emerging customer needs and in some cases needs that customers have yet to articulate. They usually command a premium price, which has the potential to increase prots. Innovative products generally have a shorter product life cycle than standard products. Once introduced and found to be successful, competitors quickly emulate innovative products because they command premium prices. As demand grows and competitors emerge, innovative product can become standard product where cost and quality are dominate characteristics. This forces the original manufacturer to constantly interact with customers to generate new ideas that drive a steady stream of new and improved product types. 3.3. Hybrid product The hybrid product is a complex product that includes a mix of standard and innovative components. To respond, LSC and ASC are combined to provide the components needed in nal assembly. The link with the nal consumer of the hybrid products is based on the concept of agility. Hybrid products tend to have a long product life cycle with a certain degree of improvement or innovation offered periodically. These innovations most frequently occur at the module or component level. For example, in automobiles, fuel injectors have replaced carburetors to increase fuel efciency, and air bags have supplemented seat belts to improve safety. A critical decision for the manufacturer is often what to produce inside the company and what to buy from suppliers.

3. Identify product types Understanding the characteristics of the product is essential to design a supply chain that meets customer expectations (Vonderembse, 2002). This section describes three product types (standard, innovative, and hybrid), relates these product types to the product life cycle, and discusses the factors that are critical for designing effective supply chains. 3.1. Standard product The market for standard products tends to be stable, and demand can be forecasted accurately. Standard products tend to have long life cycles where designs change incrementally. This ensures well-dened and predictable processes for product design and manufacturing. Manufacturer may nd it useful to establish a long-term relationship with its suppliers for high quality materials, just-in-time delivery, and quantity discounts. With predictable demand patterns and consistent processes, cost minimization can be pursued very effectively, especially in the mature phase of the product life cycle. The characteristics of the LSC t the needs of the standard product well.

4. Case studies in supply chain design To better understand the relationships between the three supply chain types (lean, agile, and hybrid) and the different product types (standard,

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innovative, and hybrid), case studies of rms producing discrete parts were conducted. Black and Decker Inc. produces small appliances and hand tools, and it employs a LSC that manufacturers standard products to meet quality, cost, and delivery requirements. IBM works with Hitachi to create a strategic business alliance that accelerates the development and delivery of advanced storage technologies to meet rapidly changing customer needs. DamilerChrysler makes a complex product that requires a supply chain with different attributes and elements, a HSC. 4.1. Black and Deckers lean supply chain Black and Decker Inc. produces a variety of small appliances and hand tools for use in the home. Success in that market is predicated on manufacturing standard products that have high quality and low cost and a moderate amount of variety. Designs for these appliances and tools change slowly and demand for these products can be characterized as slow and steady growth. Under these circumstances, a LSC effectively meets the needs of Black and Decker. A LSC focuses on operating issues as it attempts to eliminate nonvalue added operations. LSC partners support the reduction of setup times to enable the economic production of small quantities. This enables the supply chain to keep inventory costs low, achieve manufacturing cost reductions, and enable manufacturing operations to switch quickly among products, which provides a degree of responsiveness to customer needs. Customization of individual products to satisfy specic requirements is not necessary because a standard product meets the needs of most customers at an affordable price. As an example, consider the 3/8-inch, variable speed, reversing drill, which is one of Black and Deckers most popular products. The tool is sold primarily to homeowners who use it infrequently to hang a shelf or repair a table. The major components of the drill, whether produced by internal or external suppliers, can be divided into three major groups. The electric motor and other electronic components provide the power, the gearing transforms the power to the drill bit, and the housing supports and encases the motor and

the gears. There are other items including fasteners that are also purchased, but these items are standard and can be provided by many suppliers. Each major component in the drill is also a standard product. To create a successful supply chain, component suppliers must adopt lean manufacturing and its continuous improvement philosophy. These suppliers must achieve an interesting combination of exibility and cost reduction. Flexibility is needed because there are several different models of drills as well as other hand tools and appliances that require similar components. Cost reduction is also essential because products, like drills, are produced by many competitors and customers are price sensitive. Cost reductions can be achieved when suppliers purchase large volumes of basic materials such as steel for the gear manufacturer or copper for the electric motor producer. They are also achieved by streamlining the ow of materials and information through the supply chain to drive out inventory and non-value added steps. Because drills have low prot margins, maintaining high sales and production volumes is critical for protability for all members in the supply chain. Changes in product design are incremental and often focus on small improvements in performance or cost reductions. Substantial improvements in product performance are not generally available. For example, most drills today have a keyless chuck so that bits can be quickly changed without searching for a tool to remove the bit. This redesign was accomplished easily and quickly. In another case, parts of the housing are now made of plastic rather than steel because the plastic is lighter and cheaper. As a result, Black and Decker can with relative ease switch from one supplier of electric motors to another, which is a signicant motivator for suppliers to seek continuous improvements in both component part cost and quality. To the extent that Black and Decker and its supplier achieve this, they will maintain and expand their share of the market. 4.2. IBMs agile supply chain IBM operates in the highly competitive information technology arena where response to

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rapidly changing and continually fragmented global markets is essential. This requires IBM to move beyond operating partnerships that cut manufacturing costs and reduce manufacturing time, like Black and Decker, to an environment that create strategic partnerships that work jointly on research and development, product conceptualization, product development, and distribution as well as operations. Under these circumstances, an ASC creates dynamic and context-specic partnerships with various companies in order to meet specic customer needs. An ASC, learns and assimilates requirements by interfacing with customers and markets, and it adapts to changing expectations quickly and with minimal disruption. It provides customized products at short lead times by reducing the cost of variation. IBM pursued a strategic business alliance with HITACHI that is designed to accelerate the development and delivery of advanced storage technologies and products to meet diverse customer expectations. This merger combines technical leadership with global economies of scale in designing and manufacturing disk storage. Various hard disk drive operations were reorganized into a new standalone joint venture that integrated research, development, and manufacturing. It also allowed the organizations to coordinate related sales and marketing teams. In the storage area, IBM has also collaborated with Tree Data to cater to individual customer requirements in a timely manner. This collaboration helps IBM concentrate on storage networking products for mid-sized customers. With the exibility that this partnership brings, IBM can design and develop storage systems that meet the needs of various market segments easily and quickly. IBM is collaborating with UPS to manage IBMs distribution network, which covers Asia, Europe, and North America. The partnership was created because UPS has the skills and ability to move products easily, quickly, and efciently. UPS can help IBM to coordinate and integrate the supply and distribution networks that link suppliers to manufacturers and manufacturers to customers. These efforts expand collaboration among the four logistic centers in Singapore, Taiwan, the Netherlands, and the US and 22 just-in-time

suppliers and other vendor managed inventory locations. This has increased the real time visibility throughout the supply chain for IBM, which improves the management of inventory and shortens product turnaround time. In addition, UPS holds licenses in Europe and Asia that allow selfreporting of duties and taxes owed after shipment, which reduces paperwork and creates seamless operations in the supply chain. The important benets achieved through this collaboration are shorter cycle times from manufacturers to customers, doubling inventory turns, and exibility in expedited service and rush deliveries. In the LSC, operating costs and efciency as well as quality and reliability are essential. In the ASC, the dimensions of competition move beyond these elements to include innovation, speed, and exibility. Quality and reliability are still critical in the ASC, but operating cost and efciency, while still important, are diminished in stature as customers demand new, innovative, and application-specic solutions. 4.3. DaimlerChryslers hybrid supply chain DaimlerChrysler requires a supply chain with different characteristics and capabilities. Because vehicles are complex, with hundreds or even thousands of components of varying cost and sophistication, the rm cannot use a one-size-tsall approach when developing supplier relationships. The company faces circumstances that are similar to other automotive manufacturers. For DiamlerChrysler, some components have high product and/or process technology, are under going rapid technological change, and add signicant value to the vehicle in the eyes of the consumer. Global positioning and information systems for navigation are examples. This type of component, which has many points in common with innovative products, may require DaimlerChrysler to use ASC and to develop a strategic partnership with the supplier in order to work jointly on product design and development. For other components, product technology is well established but the components themselves are high cost, bulky, and subject to variation. These products also contribute signicantly to

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factor that impact the customer decision to purchase or repurchases such as comfort, safety, appearance, or reliability. For example, vehicle seats consume a lot of space, and they come in a variety of styles and colors. Without careful management and coordination between suppliers and manufacturers, production, inventory, and material handling costs can spiral out of control. In this case, DaimlerChrysler attempts to create operating partnerships that improve overall supply chain performance. Some components are basic commodities that customers do not see or appreciate but they are essential to the vehicles performance. These hidden items, like hose couplings and wire connectors, are not points of differentiation for the customer, and they are not valued by customers in the traditional sense. Customers only notice them when they fail. These items are purchased based on quality, cost, reliable, and on-time delivery. This wide range of components presents DaimlerChrysler with fundamentally different SCM issues. Following are three examples that illustrate how the company handles these alternatives. 4.3.1. Strategic partnership with Dana Corporation Dana designs and manufactures drive train components for cars and trucks, which are key components for delivering engine performance to the wheels, improving operating efciency, and enhancing comfort. Many vehicles, especially light trucks and sport utility vehicles have more than one gearing options so platform design and exibility in manufacturing are also important. Drive train components interact signicantly with engine and body design, and they are beginning to use computer chip to improve efciency. To optimize vehicle performance, DaimlerChrysler, Dana Corporation, and other rst-tier suppliers work together on design teams to address important design issues and make critical trade-offs. Changes in weight, engine displacement, or traction requirements can impact design decisions for Dana. In addition, Danas manufacturing operations are designed to achieve high quality, keep costs low, and cope with variability in demand for the components. DaimlerChrysler denes metrics

to assess supplier performance, sets target levels for these metrics, measures outcomes, and works with suppliers to improve performance. 4.3.2. Operating partnership with Modine Manufacturing Modine Manufacturing supplies cooling modules to DaimlerChryslers new facility that assembles the Jeep Liberty. A cooling module includes a radiator, fan, condenser for the air conditioner, oil cooler, wiring, supporting frame, and hose connections. The modules are assembled by Modine and delivered to DaimlerChryslers nal assembly plant ready for installation. To keep inventory and material handling costs low, DaimlerChrysler insists that Modine deliver the cooling modules within 4 hours of the order and in the sequence needed at the assembly line. To do this, DaimlerChrysler sends an electronic signal to the Modine Plant every time a vehicle begins the trip down the assembly line (every 72 seconds). When Modine gets the signal, it assembles the module from materials fabricated at other facilities, or it pulls the module from a modest 2-day inventory. The modules are loaded on shipping racks in the order needed at nal assembly and delivered within 4 hours. Upon arrival, the rack is taken directly to the assembly line where the modules are taken from the rack and placed in the vehicle. This is much better than the traditional approach, which would require DaimlerChrysler to stage the product, check the order, determine what was needed immediately, and place what was not needed in inventory. Modules placed in inventory would be picked from inventory eventually and taken to the assembly line. DaimlerChrysler pays only for modules that are in vehicles that drive off the assembly line. This new approach eliminates unneeded paperwork and clerical activity, and it greatly reduces inventory and material handling costs. To help Modine and its supplies determine their inventory needs, DaimlerChrysler provides a 5-day rolling schedule for production that is not xed but is usually very accurate. 4.3.3. Commodity purchasing: Threaded fasteners DaimlerChrysler also purchases many different threaded fasteners for the nal assembly process.

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The size, shape, and strengths of these fasteners are highly standardized. There are few if any signicant design decisions. These fasteners are simple and take little storage space, so close coordination of production, shipping, and delivery of the fasteners is of limited importance. The primary elements in the purchasing decision are quality, price, and reliable delivery. Strategic and operating partnerships add little value. E-purchasing practices and competitive bidding can be used to streamline paperwork and coordinate delivery. The Internet has become an effective means for purchasing these commodities because it eliminates transactions that increase cost but add little if any value.

5. Supply chains design and the product life cycle This section describes the product life cycle and discusses a set of observations that relates product type and supply chain type. Table 3 summarizes the supply chain classication based on product type and product life cycle. 5.1. Product life cycle The product life cycle illustrates unit sales for a product category over time. It is divided into four discrete stages: introduction, growth, maturity, and decline. The shape of the sales curve reects the notion that a products sales begin slowly during the introductory stage, then grow rapidly

often reaching a peak relatively early in a products life. During the saturation or maturity phase, demand may grow slowly for a long period of time before it begins to decreases. Accompanying this change in real growth are changes in competitive conditions, strategies, and performance. The life cycle can be viewed as a series of interrelated propositions dealing with systematic changes in the marketplace. The introduction stage involves the satisfaction of either a new or an existing need. A new need tends to involve the introduction of an incrementally innovative product, whereas an existing need often involves a standard product. If the product is new, generally the competition comes from different products. For example, the primary competition for the rst e-mail service came from the US Postal Service and the telephone. New products may have defects, but these are dealt with as quickly as possible in order to prevent the premature death of the product. The growth stage involves the products market acceptance and an increase in the organizations market share. Demand begins to accelerate and the size of the total market expands rapidly. In the maturation stage, competition increases with other organizations trying to emulate the generic product with low cost products. Demand is often determined by the replacement or wearing out of the product and new family-formation rate. Products enter the decline stage as they lose consumer appeal and sales drift downward, such as the decline of buggy whips as automobile sales grew. Product

Table 3 Supply chain classication based on product type and product life cycle

Product Type Standard Product Life Cycle Introduction Growth Maturity Decline Lean Supply Chain Agile Supply Chain Hybrid / Lean Supply Chain Hybrid Supply Chain Innovative Hybrid

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obsolescence causes sales to decline, and new products (innovations) replace existing products. 5.2. Relating supply chains and product type LSC focus on reducing lead-time, increasing efciency, expanding manufacturing exibility, and cutting cost. As illustrated in the Black and Decker case, a LSC approach attempts to build a level schedule across the supply chain, and it uses pull production to respond to customer demand. While striving for these goals, the LSC focuses on incremental improvements (kaizen). It tries to improve the product and the associated processes, by balancing the supply chain. The long product life cycle of standard product provides a stable design over many years. Being a low cost item, globally manufactured, with highly predictable demand patterns, protability can be achieved by minimizing cost and employing a level schedule over the entire supply chain and over all the products life cycle stages (Mason-Jones et al., 2000). This justies the usage of a LSC for standard products. In addition to providing cost minimization, the LSC is efcient and exible, and it brings about incremental improvements, permitting rms to constantly improve the quality of their products and keep their customers satised. Observation 1. To have the highest internal performance and customer satisfaction, Standard Products should be designed and produced by Lean Supply Chains through all stages of the Product Life Cycle. In order for innovative products to succeed, they should be producible in any volume, as per customer requirements. The rst two stages of the product life cycle, introduction and growth, are the testing grounds to ensure that organizations are achieving customization and market adaptability. For this, one of the strategic tools provided by ASC is a virtual organization (VO). VO integrate complementary resources existing in a number of cooperating companies to produce that particular innovative product(s) as long as it is economically justiable to do so. This dynamic alliance provides access to a wide range of world

class competences, enabling organizations to overcome the customization/responsiveness squeeze. This supports the usage of an ASC for the rst two stages in the life of an innovative product. By providing concurrency of operations among the members of the VO, the agile company can rapidly deliver its innovative products in small quantities, as per customer requirements. Observation 2a. To have the highest internal performance and customer satisfaction, Innovative Products should be designed and produced by Agile Supply Chains in the Introduction and Growth stages of the Product Life Cycle. Once the product has been rmly established, it transitions into the third stage of its life cycle, maturity. By this stage, the innovative product begins to take on the characteristics of a standard product. Price competition becomes very important. Production becomes more routine and is part of the organizations daily schedule, which already follows the LSC concept. In order to maximize their prots, organizations still need to deal with their customers and provide them not only the support that they need, but also introduce new, improved versions of the existing product, thus maintaining their customer base. From the maturity level onwards, organization may employ LSC to meet the needs of this product. Consider a personal computer (PC) as an example of an innovative product. The growth of PC occurred at staggering rates. In the early 1980s, there was a waiting list for PC. Today, these commodities are designed and built to customer specication in a very short time and delivered to your home in a few days. Speed of delivery, cost, and features drives the purchasing decision. Success goes to the company that can wring the most cost out of the supply chain. Once these products move into the maturity phase of their life cycle, the required manufacturing expertise can be transferred to organizations that have LSCs. At the same time, interaction with customers enables organizations to provide superior after sales service and upgrades for those models. This ensures adaptability.

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Observation 2b. To have the highest internal performance and customer satisfaction, Innovative Products should be designed and produced by Lean Supply Chains in the Maturity and Decline stages of the Product Life Cycle. Hybrid products, which are complex, require the organization to bring together a set of suppliers with a wide range of capabilities (Choi and Hong, 2002). As illustrated by the DaimlerChrysler case, this implies innovative and standard products as well as strategic partnerships. While it may be true that hybrid products that are near the end of their life cycle may use fewer innovation components than a product that is at the beginning, there is always the opportunity to introduce innovation into the hybrid product. As a result, hybrid products require HSC throughout their product life cycles. Observation 3. To have the highest internal performance and customer satisfaction, Hybrid Products should be designed and produced by Hybrid Supply Chains throughout the Product Life Cycle.

6. Conclusion Based on the literature review, theory development, and case studies, this research provides insights for discrete part manufacturing rms that design, implement, and participate in supply chains. It denes the characteristics for standard, innovative, and hybrid products, and it provides a framework for understanding lean and agile supply chains. LSCs employ continuous improvement efforts and focus on the elimination of nonvalue added steps across the supply chain. ASCs respond to rapidly changing, continually fragmenting global markets by being dynamic, context-specic, growth-oriented, and customer focused. HSCs combine the capabilities of lean and agile supply chains to create a supply network that meets the needs of complex products. Standard products, which tend to be simple products with limited amounts of differentiation, should be produced by LSCs, which focus on simplicity, cost reduction, quality and limited

amounts of exibility. Black and Decker Inc. demonstrates how this focus has made them successful in the hand tool and appliance business. In this environment, LSC partners employ manufacturing practices that enable the economic production of small quantities. Small batch production allows manufacturers to keep inventory costs low, achieve manufacturing cost reductions, and meet customer demands for a variety of products. Early in their product life cycle, innovative products, which may employ new and complex technology, require ASC. As the product enters the maturity and decline phases of the product life cycle, a LSC could be more appropriate. IBM illustrates this transformation. As markets begin to grow and customers demand rapid change and high levels of innovation, strategic partnerships among supply chain members are essential to create the knowledge rich environment needed to support these efforts. There are needs for innovative ideas and products in mass data storage and retrieval systems for business and Internet applications. On the other hand, for signicant parts of the data storage market, specically the PC segment, disk storage has become a standard product with a competitive environment that is similar to any commodity. As the market and customer expectations shifts, the supply chain should transitions from lean to agile. Hybrid products, which are complex, have many components and participating companies in the supply chain. Some components may be commodities while others may be new and innovative. The DaimlerChrysler case illustrates that for complex products a variety of supplier relationships may be needed. Some parts have a signicant technological component that adds value to the vehicle in the eyes of the consumer, such as global positioning and information systems for navigation. For other parts, product technology is well established but the components themselves are high cost, bulky, and subject to variation. Other components are basic commodities that customers do not see or appreciate but they are essential to the vehicles safety and performance. This wide range of components

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presents DaimlerChrysler with fundamentally different SCM issues. Future research could involve rening the observations described in this paper through a series of case studies involving organizations from other industries. Once these ideas have been transformed into a research framework, data could be collected and the framework and hypotheses could be tested.

Acknowledgments Ge Wang of Hydro Automotive Structures North America Inc. provided insights into theoretical issues related to supply chain design, Mei Cao of The University of Toledo assisted in rewriting the paper and developing the references, and Harshal Keskar of The University of Cincinnati developed background information for the IBM case. References
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