Designing the right supply chain for your product is key. The root cause of the problems plaguing many supply chains is a mismatch between the type of product and the type of supply chain.
First step in designing an effective supply chain strategy is therefore to consider the nature of the demand for the products one’s company supplies most especially in the area of the product life cycle, demand predictability, product variety and market standards for lead times and services.
CATEGORIES OF PROD UCTS
Products can be categorized on the basis of their demand patterns; they fall into one of two categories namely: Functional Product and Innovative Product.
Functional Products: These include the staples that people buy in a wide range of retail outlets such as grocery stores and gas stations.
FEATURES OF FUCTIONAL PRODUCTS: It satisfies basic need, unchanging needs, long life cycle, low margin, and stable demand. To avoid low margins, many companies introduce innovations in fashion or technology to give customers an additional reason to buy their offerings. Fashion apparel and personal computers are obvious examples but we also see successful product innovation where we least expect it. For instance, in the traditionally functionally category of food, companies such as Cadbury, Cowbel companies have tried to gain an edge with designer flavors and innovate concepts.
FEATURES OF INNOVATIVE PRODUCTS: It has great variety, a short life cycle, high profit margin and volatile demand.
A Century Products, a leading manufacturer of children’s car seats, is another company that brought innovation to a functional product. Until the early 1990s, Century sold its seats as a functional items. Then it introduced a wide variety of brightly colored fabrics and designed a new seat that would move in a crash to absorb energy and protect the child sitting in it. That can be regarded as smart move. The design was so innovative that the seat could not be sold until government product safety standards mandating that car seat not move in a crash had been changed.
However, innovation can enable a company to achieve higher profit margins; the very newness of innovative products makes demand for them unpredictable. In addition, their life cycle is short- usually just a few months- because as imitators erode the competitive advantage that innovative products enjoy, companies are forced to introduce a steady stream of newer innovations. The short life cycles and the great variety typical of these products further increase unpredictability.
PRODUCT CATEGORIZATION AND SUPPLY CHAIN
The category of your product will determine your choice of supply chain. Once you have determined whether your product is functional or innovative, the next is to choose the type of supply chain you want to use either EFFICIENT or RESPONSIVE supply chain.
-Efficient Supply Chain: Chain is said to be efficient if you satisfy predictable demand efficiently at the lowest possible cost, turn over inventory frequently and select suppliers based on cost and quality.
-Responsive Supply Chain: It is said to be responsive if you invest aggressively in reducing the lead time for delivery; use standard components for different product versions and choose suppliers for their speed, flexibility and quality.
All you need to do is to design the right supply chain for your product and your profit will soar. For example, by building responsiveness into its chain, innovative Skiwear Company, Sport Obermeyer reduced its over- and- under production costs by half- boosting profit 60%.