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Published: May 23, 2005

 
 

Are You Modular or Integral? Be Sure Your Supply Chain Knows

To illustrate the importance of aligning product and supply chain architecture, consider three companies renowned for their mastery of supplier relationships: Toyota, Dell, and Nokia. These three companies benefit from a well-matched fit between supply chain and product architectures. Toyota cars, known for their reliability and flawless performance, have an integral supply chain and product design. Dell’s renowned modular designs match its standardized multiple-vendor supply chain. Nokia employs a deliberately designed hybrid approach, with a modular semiconductor and software core, highly integrated components for the rest, and a complementary supply chain design.

Toyota products epitomize integral architecture. The company’s product development philosophy stresses the importance of cross-functional coordination for the development of most vehicle subsystems. Through close attention to the interplay among automotive subsystems, Toyota has achieved highly responsive acceleration and braking; well-designed climate control, acoustics, and other driver comfort features; efficient use of space; and pleasing interiors.

The architecture of Toyota’s supply chain parallels its product architecture. Toyota has historically maintained extremely friendly ties with its suppliers, in some cases taking a financial stake in them. As part of this relationship, many of Toyota’s key suppliers are situated near the automaker’s engineering and development operations in Toyota City, midway between Tokyo and Osaka. And with this geographic, social, and cultural proximity among Toyota and its suppliers, there is continuous bidirectional feedback on vehicle and subsystem design. One important example of this cozy partnership: Toyota engineers spend a great deal of time working at supplier sites to ensure that subsystems and components deliver the high level of integrality that the Japanese automaker demands for its vehicles.

Toyota’s product and supply chain architectures are complementary and mutually reinforcing. The integral product architecture requires a tightly bound, integral supply chain, which, in turn, represents a significant factor in the ongoing development and production of Toyota’s vehicles.

Dell Inc., the No. 1 personal computer maker, sits at the other end of the architecture spectrum. A Dell PC is an extremely modular product, assembled primarily from off-the-shelf components connected by standard interfaces. Dell built its name as the maker of customer-designed machines, because its modular system architecture can accept a wide range of combinations of monitors, memory chips, hard drives, processors, CD/DVD players, input devices, and numerous other options. But Dell will rarely, if ever, venture into technology development in a way that would require simultaneous, interrelated innovation in multiple subsystems.

Dell’s supply chain, like its PCs, is made up of a series of interchangeable parts. Because Dell’s products are modular, its suppliers are not typically indispensable — except for Intel and Microsoft, which provide the two integrally designed components, the microprocessor and the operating system. Numerous companies supply each of the other components for Dell’s PCs, and Dell (like other PC makers) frequently pressures suppliers to improve cost, quality, and technology with the implicit threat of replacing any company that falls behind the curve. Dell’s suppliers can be located thousands of miles apart because the design and development of components requires little direct coordination or interaction.

The alignment of Dell’s production and supply chain architectures is critical to the company’s ability to build products to order and, simultaneously, use pricing decisions (at a component level) to manage supply and demand balances in the supply chain.

A more complex example of the value of architectural alignment can be seen in Nokia’s Mobile Phones group. The product architecture of a mobile phone is somewhat integral. Partly because of size and power constraints, a mobile phone is designed as a very tightly integrated package of electronic and radio frequency components. Customers cannot mix and match features like memory, display size, processors, and keypads as they may with a personal computer. Nokia has thus maintained close, long-term relationships with key suppliers, exhibiting a high degree of mutual interdependence for such components as memory chipsets, LCDs, and antennas.

 
 
 
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Resources

  1. Bill Jackson and Conrad Winkler, “Building the Advantaged Supply Network,” s+b, Fall 2004; Click here. 
  2. Tim Laseter and Keith Oliver, “When Will Supply Chain Management Grow Up?” s+b, Fall 2003; Click here. 
  3. Gail Edmondson and Kathleen Kerwin, “DaimlerChrysler Stalled,” Business Week, Number 3851, September 29, 2003; Click here. 
  4. Charles H. Fine, Roger Vardan, Robert Pethick, and Jamal El-Hout, “Rapid-Response Capability in Value-Chain Design,” MIT Sloan Management Review, Winter 2002; Click here. 
  5. Jeffrey H. Dyer, Collaborative Advantage: Winning Through Extended Enterprise Supplier Networks (Oxford University Press, 2000)
  6. Charles H. Fine, Clockspeed: Winning Industry Control in the Age of Temporary Advantage (Perseus Books, 1998)