So, you’ve decided to emulate Dell’s success and are in the process of modifying your company’s production packages and assembly drawing within your push strategies. You know that to be successful means to standardize those packages as much as possible, while still being able to offer a custom-made, finished product. If your company succeeds, it will be able to streamline its manufacturing, reduce inventory counts & skews, all the while reducing its product to market lead times. It can be done. However, it requires your company define its push strategies in such a way as to streamline production & assembly outlines and drive customer requirements.
Operating in Demand-Driven Industries
Dell’s success relies upon their ability to pre-manufacture and assemble a portion of their product before receiving a customer order. Once they receive that order, they then finish assembling their product. This supply chain strategy affords Dell the opportunity to reduce their product to market lead times, while still being able to deliver a customized product. When you stop and look at how they do this, it really is pretty straightforward. However, as is often the case in business, the theory is easy, but the application itself is something else entirely!
To make this approach work requires a commitment on your part to streamline your product & assembly packages. Doing this will allow your company to pre-assemble or pre-manufacture most of your product offering in anticipation of a customer order. In addition, streamlining these production packages will reduce your inventory skews, thereby increasing your purchasing power with higher volumes and lowering inventory holding costs.
The above outline is from the post: Reducing Product Cycle Times with Standard Parts (the post includes five steps that can be used to standardize production packages)
Standardizing Product Lines in Push Strategies:
Consider the outline above. It’s an example of how a production package can be broken down into standard sub-assembly parts, while still affording the manufacturer the opportunity to make a custom made finished product. There are a total of eight sub-assembly parts, five of which are deemed to be standard. The remaining three sub-assembly parts would be classified as “custom”. The manufacturer would retain inventory of these standard parts. Upon receipt of a customer order, they would then only be required to manufacture the remaining three custom assemblies. This would allow them to meet the customer’s unique requirements with a shorter product to market lead time.
There are several direct benefits of adopting a “Push” strategy. First, the company reduces its product’s lead time. Two, they are able to reduce purchasing costs on materials and parts by increasing their purchasing power along the five standard sub-assemblies. Three, they reduce their inventory skews and counts – which ultimately reduces the incidence of inventory obsolescence and damage. Four, they reduce their inventory financing because fewer sub-assembly parts would run the risk of becoming retained over extended periods. Finally, they increase market share by reducing lead times and providing a unique product to their customers.
- Product lead times are shortened.
- Purchasing costs on parts & materials are reduced through higher volume and economies of scale.
- Reduces inventory counts & skews by streamlining sub-assembly components.
- Inventory financing costs are reduced
- Company increases market share with shorter product to market lead times
The above video and picture are from the post: Emulating Dell: Outlining a Small Manufacturer’s Push-Pull Strategies
The Role of Marketing & Sales in Your Push Strategy
None of this is possible if your company’s marketing & sales aren’t actively driving the market’s, and your customers’ requirements. Granted, the focus is on standardizing production packages and still being able to provide a custom-made, finished good. However, your marketing & sales team must be able to promote that capability within the realms of your manufacturing lead times. This means that those sub-assembly parts that fall under the “customized” portion, must allow for a relatively quick turn time. Your sales can’t make promises your company can’t deliver upon and your marketing can’t be promoting something your product can’t provide.
When you look at companies that emulate Dell’s Push-Pull strategy, they typically offer customized products while driving those customized options. In essence, they actively promote those options through an aggressive marketing and sales campaign. In turn, customers are more likely to choose those options that are promoted through the company's marketing efforts.
For smaller manufacturers, this can be done by using contractual supply agreements that lock in a given customer option. However, even if your company lacks the ability to adopt these types of agreements with its customer base, you should still see a dramatic improvement in your product lead times. Dell’s system works because it empowers companies to reduce turn times, while still offering a custom-made product.
To read about an article where I was interviewed about Push-Pull strategies, please go to: The Institute for Supply Management, ISM, Calls Upon Drive-Your-Success
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