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 / Spring 2006 / Issue 42(originally published by Booz & Company)


Yossi Sheffi: The Thought Leader Interview

But it isn’t just parts that should be designed to be interchangeable. Intel has a practice that they call CopyExact. You walk into one Intel plant, say in Israel, and then into a second Intel plant, say in Malaysia, and you get a feeling of déjà vu. The two plants are eerily identical. They are even positioned the same way relative to the sun. This practice did not start as a resilience strategy. In the early days, engineers couldn’t figure out why sometimes they got great yields and sometimes the yields were low. So once they got it right, they started copying things exactly. But the benefits went beyond getting the manufacturing process down right. During the last severe acute respiratory syndrome [SARS] outbreak in 2004, for example, Intel was able to move production around with little trouble. Because all fabrication plants are identical, they can manufacture everything everywhere.

Another example that’s close to everybody’s heart is Southwest Airlines. It uses only 737s. When Boeing came up with a glass cockpit that was all digital, Southwest executives took one look and said, “We’ll use it. But you boys go back and reprogram the glass cockpit to look just like the old steam gauges, because we want every pilot to walk into every cockpit and be able to fly it.” Fungibility is vital with staff, just as it is with parts. This is an important principle in supply chain design: If you avoid the need for specific people or parts for specific purposes, you create flexibility.

S+B: How else do you build in flexibility?
Another important principle is “Delay the decision”: put off customizing the product and keep it in a semifinished state as long as you can. Hewlett-Packard makes printers for Europe in Singapore and Vancouver. Invariably, in the past, they found themselves stuck with too many Slovak printers and not enough Danish printers. So several years ago they changed their supply chain to make “vanilla” printers with all the internal workings — which don’t change from market to market — but without the power supply, plug, decals, and instruction manuals. They send everything in its vanilla state to a distribution center in Holland, and once they get an order, they slap on all the appropriate decals, plugs, et cetera, in the distribution center. The packaging was even redesigned with a side panel so HP can perform the country-customization operation without opening the box. They claim millions of dollars of savings based on this.

All that means is that if there’s a disruption downstream, you won’t suffer as much. Let’s suppose there is a strike in France. That’s not a low-probability event, obviously. But while nobody’s buying printers in Paris, HP won’t get stuck with mountains of French printers. Those printers will go to Denmark or England. Maybe they will even run a sale somewhere else. But they can do it, because they haven’t yet made the printers French.

Dell is the ultimate example of postponement with their build-to-order supply chain and manufacturing design. Their suppliers hold on to the parts for Dell computers until an order comes in. Only then does Dell pull the parts in, build the computer, and ship it to the customer — all within a few days. Why is this important? In 1999, there was an earthquake in Taiwan that knocked out about 40 percent of the world’s chip supply. At the same time, both Dell and Apple were coming out with new models. Most people don’t realize that Apple also makes computers to order — it does not build a computer until it has an order for it — but its operation differs from Dell’s in one crucial aspect. To gauge demand for the model they were introducing that year, Apple published the specifications on their Web site and started taking customer orders — a quarter of a million orders by the time they started manufacturing and shipping the computer. A week after they started shipping it, the earthquake hit. Now, Apple had about 250,000 orders on hand for a specific configuration at a specific price, which it could not fulfill. So it tried several things, including sending its customers less-powerful computers. That backfired, erupting all over the media, and they had to take many of the computers back. Many of the orders evaporated.

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