LESSON 2: Strategic Capacity Planning for ● Related questions:

Products and Services ○ How much will it cost?

○ What are the potential benefits and
Learning Objective: Chapter 5 risks?
○ Are there sustainability issues?
You should be able to:
○ Should capacity be changed all at
1. LO 5.1 Name the three key questions once, or through several smaller
in capacity planning changes
2. LO 5.2 Explain the importance of
○ Can the supply chain handle the
capacity planning
necessary changes?
3. LO 5.3 Describe ways of defining and
measuring capacity
Capacity Decisions Are Strategic
4. LO 5.4 Name several determinants of
effective capacity
● Capacity decisions
5. LO 5.5 Discuss factors to consider
when deciding whether to operate 1. Impact the ability of the
in-house or outsource organization to meet future
6. LO 5.6 Discuss the major demands
considerations related to developing 2. Affect operating costs
capacity alternatives 3. Are a major determinant of
7. LO 5.7 Describe the steps that are initial cost
used to resolve constraint issues
4. Often involve long-term
8. LO 5.8 Briefly describe approaches
commitment of resources
that are useful for evaluating capacity
alternatives 5. Can affect competitiveness
6. Affect the ease of management
Capacity Planning 7. Have become more important
and complex due to
● Capacity globalization
○ The upper limit or ceiling on the 8. Need to be planned for in
load that an operating unit can advance due to their
handle consumption of financial and
○ Capacity needs include other resources
■ Equipment
Defining and Measuring Capacity
■ Space
■ Employee skills ● Measure capacity in units that do not
require updating
Strategic Capacity Planning ○ Why is measuring capacity in
● Goal dollars problematic?
○ To achieve a match between the ● Two useful definitions of capacity
long-term supply capabilities of an
○ Design capacity
organization and the predicted
level of long-term demand ■ The maximum output rate or
service capacity an
■ Overcapacity operating
operation, process, or facility
costs that are too high
is designed for
■ Undercapacity strained
○ Effective capacity
resources and possible loss
of customers ■ Design capacity minus
allowances such as personal
Capacity Planning Questions time and maintenance

● Key questions: Measuring System Effectiveness

○ What kind of capacity is needed?
● Actual output
○ How much is needed to match
○ The rate of output actually
demand?
achieved
○ When is it needed?
 ○ It cannot exceed effective capacity ● Capacity cushion
● Efficiency ○ Extra capacity used to offset
demand uncertainty
○ Capacity cushion = 100% -
utilization
● Utilization ○ Capacity cushion strategy
■ Organizations that have
greater demand uncertainty
typically have greater
capacity cushion
Example – Efficiency and Utilization ■ Organizations that have
standard products and
services generally have
● Design Capacity = 50 trucks per day smaller capacity cushion
● Effective Capacity = 40 trucks per day
● Actual Output = 36 trucks per day
Steps in Capacity Planning

1. Estimate future capacity

requirements
Determinants of Effective Capacity
2. Evaluate existing capacity and
facilities; identify gaps
● Facilities
● Product and service factors 3. Identify alternatives for meeting
● Process factors requirements
● Human factors
● Policy factors 4. Conduct financial analyses
● Operational factors
● Supply chain factors 5. Assess key qualitative issues
● External factors
6. Select the best alternative for the
Strategy Formulation long term

7. Implement alternative chosen

● Strategies are typically based on
assumptions and predictions about: 8. Monitor results
○ Long-term demand patterns
○ Technological change Forecasting Capacity Requirements
○ Competitor behavior
● Long-term considerations relate to overall
Capacity Strategies level of capacity requirements
○ Require forecasting demand over a
● Leading time horizon and converting those
○ Build capacity in anticipation of needs into capacity requirements
future demand increases
● Short-term considerations relate to
● Following probable variations in capacity
○ Build capacity when demand requirements
exceeds current capacity ○ Less concerned with cycles and
trends than with seasonal
● Tracking variations and other variations from
○ Similar to the following strategy, but average
adds capacity in relatively small
increments to keep pace with Calculating Processing Requirements
increasing demand
● Calculating processing requirements
Capacity Cushion requires reasonably accurate demand
forecasts, standard processing times,
 and available work time ○ Prepare to deal with capacity
“chunks”
○ Attempt to smooth capacity
requirements
○ Identify the optimal operating level
Service Capacity Planning ○ Choose a strategy if expansion is
involved
● Service capacity planning can present a
number of challenges related to: Bottleneck Operation
○ The need to be near customers
■ Convenience ● An operation in a sequence of
○ The inability to store services operations whose capacity is lower
than that of the other operations
■ Cannot store services for
consumption later
○ The degree of demand volatility
■ Volume and timing of
demand
■ Time required to service
individual customers

Demand Management Strategies

● Strategies used to offset capacity

limitations and that are intended to
achieve a closer match between supply
and demand
○ Pricing
○ Promotions Economies and Diseconomies of Scale
○ Discounts
○ Other tactics to shift demand from ● Economies of scale
peak periods into slow periods ○ If output rate is less than the
optimal level, increasing the output
In-House or Outsource? rate results in decreasing average
per unit costs
● Once capacity requirements are
determined, the organization must decide ● Diseconomies of scale
whether to produce a good or service ○ If the output rate is more than the
itself or outsource optimal level, increasing the output
rate results in increasing average
● Factors to consider: per unit costs
○ Available capacity
○ Expertise Economies of Scale
○ Quality considerations
● Economies of scale
○ The nature of demand
○ If output rate is less than the
○ Cost optimal level, increasing the output
○ Risks rate results in decreasing average
per unit costs
Developing Capacity Alternatives ○ Reasons for economies of scale:
■ Fixed costs are spread over
● Things that can be done to enhance
a larger number of units
capacity management:
■ Construction costs increase
○ Design flexibility into systems
at a decreasing rate as
○ Take stage of life cycle into account facility size increases
○ Take a “big-picture” approach to ■ Processing costs decrease
capacity changes
 due to standardization constraint
■
4. Explore and evaluate ways to
overcome the constraint
Diseconomies of Scale
5. Repeat the process until the constraint
● Diseconomies of scale levels are at acceptable levels
○ If the output rate is more than the
optimal level, increasing the output Evaluating Alternatives
rate results in increasing average
per unit costs ● Alternatives should be evaluated from
varying perspectives
○ Reasons for diseconomies of scale
○ Economic
■ Distribution costs increase
due to traffic congestion and ■ Is it economically feasible?
shipping from a centralized ■ How much will it cost?
facility rather than multiple ■ How soon can we have it?
smaller facilities
■ What will operating and
■ Complexity increases costs maintenance costs be?
■ Inflexibility can be an issue ■ What will its useful life be?
■ Additional levels of ■ Will it be compatible with
bureaucracy present personnel and
present operations?
Facility Size and Optimal Operating Level
○ Non-economic
Minimum cost & optimal operating rate are ■ Public opinion
functions of size of production unit. ■
● Techniques for Evaluating Alternatives
○ Cost-volume analysis
○ Financial analysis
○ Decision theory
○ Waiting-line analysis
○ Simulation

Cost-Volume Analysis
Constraint Management
● Cost-volume analysis
● Constraint ○ Focuses on the relationship
○ Something that limits the between cost, revenue, and
performance of a process or volume of output
system in achieving its goals ■ Fixed Costs (FC)
○ Categories ● Tend to remain constant
■ Market regardless of output
volume
■ Resource
■ Variable Costs (VC)
■ Material
● Vary directly with
■ Financial
volume of output
■ Knowledge or competency
● VC = Quantity(Q) x
■ Policy variable cost per unit (v)
■ Total Cost
Resolving Constraint Issues
● TC = FC + VC
1. Identify the most pressing constraint ■ Total Revenue (TR)
2. Change the operation to achieve ● TR = revenue per unit
maximum benefit, given the constraint (R) x Q

3. Make sure other portions of the

process are supportive of the
Break-Even Point (BEP)
 is the possible occurrence of
● BEP multiple break-even quantities
○ The volume of output at which total
cost and total revenue are equal Cost-Volume Analysis Assumptions
○ Profit (P) = TR – TC = R x Q – (FC
● Cost-volume analysis is a viable tool
+v x Q)
for comparing capacity alternatives if
○ = Q(R – v) – FC
certain assumptions are satisfied
○ One product is involved
○ Everything produced can be sold
○ The variable cost per unit is the
same regardless of volume
Cost-Volume Relationships
○ Fixed costs do not change with
volume changes, or they are step
changes
○ The revenue per unit is the same
regardless of volume
○ Revenue per unit exceeds variable
cost per unit

Financial Analysis

● Cash flow
○ The difference between cash
received from sales and other
sources, and cash outflow for labor,
material, overhead, and taxes
● Present value
○ The sum, in current value, of all
future cash flow of an investment
proposal

Operations Strategy

● Capacity planning impacts all areas of

the organization
○ It determines the conditions under
which operations will have to
function
○ Flexibility allows an organization to
be agile
■ It reduces the organization’s
dependence on forecast
accuracy and reliability
Cost-Volume Relationships (cont.)
■ Many organizations utilize
capacity cushions to achieve
flexibility
○ Bottleneck management is one
way by which organizations can
enhance their effective capacities
○ Capacity expansion strategies are
● Capacity alternatives may involve step important organizational
costs, which are costs that increase considerations
stepwise as potential volume increases ■ Expand-early strategy
○ The implication of such a situation ■ Wait-and-see strategy
 ○ Capacity contraction is sometimes ● Middle: locate near suppliers or
necessary markets
■ Capacity disposal strategies ● Beginning: locate near the source of
become important under raw materials
these ● Web-based retail organizations are
■ conditions
effectively location independent
_______________________________
Supply Chain Considerations
Supply chain management must address
LESSON 3: LOCATION PLANNING AND
supply chain configuration:
ANALYSIS
● Number and location of suppliers,
production facilities, warehouses and
The Need for Location Decisions
distribution centers
Location decisions arise for a variety of
● Centralized vs. decentralized
reasons:
distribution
● Addition of new facilities
● The importance of such decisions is
● As part of a marketing strategy to
underscored by their reflection of the
expand markets
basic strategy for accessing customer
● Growth in demand that cannot be
markets
satisfied by expanding existing
facilities
Location: Options
● Depletion of basic inputs requires
Existing companies generally have four
relocation
options available in location planning:
● Shift in markets
1. Expand an existing facility
● Cost of doing business at a particular
2. Add new locations while retaining
location makes relocation attractive
existing facilities
3. Shut down one location and move to
Location Decisions: Strategically Important
another
Location decisions:
4. Do nothing
● Are closely tied to an organization’s
strategies
Global Location: Facilitating Factors
● Low-cost
Two key factors have contributed to the
● Convenience to attract market share
attractiveness of globalization:
● Effect capacity and flexibility
● Trade agreements such as North
● Represent a long-term commitment of
American Free Trade Agreement
resources
(NAFTA)
● Effect investment requirements,
● General Agreement on Tariffs and
operating costs, revenues, and
Trade (GATT)
operations
● U.S.-China Trade Relations Act
● Impact competitive advantage
● EU and WTO efforts to facilitate trade
● Importance to supply chain
● Technology Advances in
communication and information
Location Decisions: Objectives
technology
Location decisions are based on:
● Profit potential or cost and customer
Global Location: Benefits
service
A wide range of benefits have accrued to
● Finding a number of acceptable
organizations that have globalized operations:
locations from which to choose
● Markets
● Position in the supply chain
● Cost savings
● End: accessibility, consumer
● Legal and regulatory
demographics, traffic patterns, and
● Financial
local customs are important
● Other
 Location: Identifying a Country
Global Location: Disadvantages
There are a number of disadvantages that
may arise when locating globally: Location: Identifying a Region
● Transportation costs Primary regional factors:
● Security costs ● Location of raw materials
● Unskilled labor ● Necessity
● Import restrictions ● Perishability
● Criticism for locating out-of-country ● Transportation costs
● Location of markets
Global Location: Risks ● As part of a profit-oriented company’s
Organizations locating globally should be competitive strategy
aware of potential risk factors related to: ● So not-for-profits can meet the needs
● Political instability and unrest of their service users
● Terrorism ● Distribution costs and perishability
● Economic instability ● Labor factors
● Legal regulation ● Cost of labor
● Ethical considerations ● Availability of suitably skilled workers
● Cultural differences ● Wage rates in the area
● Labor productivity
Managing Global Operations ● Attitudes toward work
Managerial implications for global operations: ● Whether unions pose a serious
● Language and cultural differences potential problem
● Risk of miscommunication ● Other factors
● Development of trust ● Climate and taxes may play an
● Different management styles important role in location decisions
● Corruption and bribery
● Increased travel (and related) costs Location: Identifying a Community
● Challenges associated with managing Many communities actively attempt to attract
far-flung operations new businesses they perceive to be a good fit
● Level of technology and resistance to for the community
technological change Businesses also actively seek attractive
● Domestic personnel may resist communities based on such factors such as:
locating, even temporarily ● Quality of life
● Services
Location Decision: General Procedure ● Attitudes
Steps:
1. Decide on the criteria to use for
evaluating location alternatives
2. Identify important factors, such as
location of markets or raw materials
3. Develop location alternatives
● Identify the country or countries for
location
● Identify the general region for location
● Identify a small number of community
alternatives
● Identify the site alternatives among the
community alternatives ● Taxes
4. Evaluate the alternatives and make a ● Environmental regulations
decision ● Utilities
● Development support
Location: Identifying a Site
Primary site location considerations are:
● Land
● Transportation
● Zoning
● Other restrictions

Multiple Plant Manufacturing Strategies

● Organizing operations
● Product plant strategy Entire products
or product lines are produced in
separate plants, and each plant
Facilities
usually supplies the entire domestic
● The sequence of the supply chain
market
begins with basic suppliers and
● Market area plant strategy Plants are
extends all the way to the final
designated to serve a particular
customer
geographic segment of the market
○ Warehouses
Plants produce most, if not all, of a
○ Factories
company’s products
○ Processing centers
○ Distribution centers
Process plant strategy Different plants focus
○ Retail outlets
on different aspects of a process
○ Offices
● Automobile manufacturers – engine
plant, body stamping plant, etc.
Functions and Activities
● Coordination across the system
● Supply chain functions and activities
becomes a significant issue
○ Forecasting
● General-purpose plant strategy
○ Purchasing
● Plants are flexible and capable of
○ Inventory management
handling a range of products
○ Information management
○ Quality assurance
_______________________________
○ Scheduling
○ Production and delivery
LESSON 5: Supply Chain Management
○ Customer service

Supply Chain
Supply Chain Management (SCM)
● The sequence of organizations — their
● The strategic coordination of business
facilities, functions, and activities —
functions within a business
that are involved in producing and
organization and throughout its supply
delivering a product or service
chain for the purpose of integrating
supply and demand management
Logistics
● The part of a supply chain involved
SCM Managers
with the forward and reverse flow of
● People at various levels of the
goods, services, cash, and information
organization who are responsible for
managing supply and demand both
Typical Supply Chains
within and across business
organizations
● Involved with planning and
coordinating activities
○ Sourcing and procurement of
materials and services
 ○ Transformation activities ○ The ability of the organization
○ Logistics to focus on its core strengths
○ Permits the conversion of
Key Aspects of SCM some fixed costs to variable
● The goal of SCM is to match supply to costs
demand as effectively and efficiently ○ It can free up capital to
as possible address other needs
● Key issues: ○ Some risks can be shifted to
1. Determining appropriate levels the supplier
of outsourcing ○ The ability to take advantage
2. Managing procurement of a supplier's expertise
3. Managing suppliers ○ Makes it easier to expand
4. Managing customer outside of the home country
relationships ● Risks
5. Being able to quickly identify ○ Inflexibility due to longer lead
problems and respond to them times
○ Increased transportation costs
Flow Management ○ Language and cultural
● Three types of flow management differences
○ Product and service flow ○ Loss of jobs
■ Involves movement of ○ Loss of control
goods and services ○ Lower productivity
from suppliers to ○ Loss of business knowledge
customers as well as ○ Knowledge transfer and
handling customer intellectual property concerns
service needs and ○ Increased effort required to
product returns manage the supply chain
● Information flow
○ Involves sharing forecasts and Supply Chain Risks
sales data, transmitting ● Supply chain disruption
orders, tracking shipments, ○ Natural disasters
and updating order status ○ Supplier problems
● Financial flow ● Quality issues
○ Involves credit terms, ○ Another form of disruption that
payments, and consignment may disrupt supplies and lead
and title ownership to product recalls, liability
arrangements claims, and negative publicity
● Loss of control of sensitive information
Trends in SCM ○ If suppliers divulge sensitive
● Trends affecting supply chain design information to competitors, it
and management: can weaken a firm's
○ Measuring supply chain ROI competitive position
○ "Greening" the supply chain
○ Re-evaluating outsourcing Risk Management
○ Integrating IT ● Involves identifying risks, assessing
○ Adopting lean principles their likelihood of occurring and their
○ Managing risks potential impact and then developing
strategies for addressing those risks
Benefits & Risks of Outsourcing ○ Strategies for addressing risk
● Benefits include:
○ Lower prices may result from ■ Risk avoidance
lower labor costs ■ Risk reduction
 ■ Risk sharing ○ Choose suppliers that have a
● Key elements of successful risk reputation for good ethical
management include: behavior
○ Know your suppliers ○ Incorporate compliance with
○ Provide supply chain visibility labor standards in supplier
○ Develop event-response contracts
capability ○ Address any ethical problems
that arise swiftly
Global Supply Chains
● Global Supply Chains Small Business Corners
○ Product design often uses ● Three small business SCM concerns:
inputs from around the world 1. Inventory management
○ Some manufacturing and ■ Carry extra inventory
service activities are as a way to avoid
outsourced to countries shortages due to
where labor and/or materials supply chain
costs are lower interruption
○ Products are sold globally ■ Have backups for
● Complexities delivery from
○ Language and cultural suppliers and to
differences customers
○ Currency fluctuations 2. Reducing risks
○ Political instability ■ Use only reliable
○ Increasing transportation suppliers
costs and lead times ■ Determine which
○ Increased need for trust suppliers are critical
amongst supply chain and get to know them
partners and any challenges
they have
SCM Ethical Issues ■ Measure supplier
● Examples: performance
○ Bribing government or ■ Recognize warning
company officials to secure signs of supplier
permits or favorable status issues
○ “Exporting smokestacks” to ■ Have plans in place to
developing countries manage supply chain
○ Claiming a “green” supply problems
chain when the level of 3. International trade
“green” is only minimal ■ Work with someone
○ Ignoring health, safety, and who has expertise to
environmental standards help oversee foreign
○ Violating basic worker rights suppliers
○ Mislabeling the country of ■ Set expectations for
origin demand and timing
○ Selling products abroad that ■ Do not rely on a single
are banned at home supplier
● Dealing with ethical issues: ■ Build goodwill to help
○ Develop an ethical supply in negotiations and
chain code of behavior resolving any problem
○ Monitor supply chain activities that arise
■ Consider using
domestic suppliers if
 the risks of working ○ Collaborating
with foreign suppliers ● Operational
are prohibitive ○ Scheduling
○ Receiving
Management Responsibilities ○ Transforming
● Aspects of management responsibility: ○ Order fulfilling
○ Legal ○ Managing inventory
■ Being knowledgeable ○ Shipping
about laws and ○ Information sharing
regulations of the ○ Controlling
countries where
supply chains exist Procurement
■ Obeying laws and ● The purchasing department is
operating to conform responsible for obtaining the materials,
to regulations parts, and supplies and services
○ Economic needed to produce a product or
■ Supplying products provide a service.
and services to meet ● The goal of procurement
demand as efficiently ○ Develop and implement
as purchasing plans for products
■ possible and services that support
operations strategies
○ Ethical Purchasing Interfaces
■ Conducting business
in ways that are
consistent with the
moral standards of
society

Management Responsibility: Strategic

● Certain strategic responsibilities have
a major impact on the success of both
supply chain management and the
business itself: Duties of Purchasing
○ Supply chain strategy ● Identifying sources of supply
alignment ● Negotiating contracts
○ Network configuration ● Maintaining a database of suppliers
○ Information technology ● Obtaining goods and services
○ Products and services ● Managing suppliers
○ Capacity planning
○ Strategic partnerships The Purchasing Cycle
○ Distribution strategy ● The main steps:
○ Uncertainty and risk reduction 1. Purchasing receives the
requisition
Management Responsibility: 2. Purchasing selects a supplier
Tactical and Operational 3. Purchasing places the order
● Tactical with a vendor
○ Forecasting 4. Monitoring orders
○ Sourcing 5. Receiving orders
○ Operations planning
○ Managing inventory Supplier Management
○ Transportation planning ● Choosing suppliers
 ● Supplier audits ● Example:
● Supplier certification ○ When a supplier agrees to
● Supplier relationship management hold inventory for a customer
● Supplier partnerships in return for a long-term
○ CPFR (collaborative planning, commitment
forecasting, and ■ The customer’s
replenishment) inventory holding cost
○ Strategic partnering is reduced and the
supplier is relieved of
Vendor Analysis, Supplier Audits, the costs that would
and Supplier Certification be needed to
● Vendor analysis continually find new
○ Evaluating the sources of customers
supply in terms of price,
quality, reputation, and service Contrasting Supplier Relationships
● Supplier audit
○ A means of keeping current
on suppliers’ production (or
service) capabilities, quality
and delivery problems and
resolutions, and performance
on other criteria Logistics
● Supplier certification ● Logistics
○ Involves a detailed ○ Refers to the movement of
examination of a supplier’s materials, services, cash, and
policies and capabilities information in a supply chain
○ The process verifies the ■ Movements within a
supplier meets or exceeds the facility
requirements of a buyer ■ Incoming shipments
■ Outgoing shipments
Supplier Relationship Management
● Type of relationship is often governed Movement Within a Facility
by the duration of the trading
relationship
○ Short-term
■ Oftentimes involves
competitive bidding
■ Minimal interaction
○ Medium-term
■ Often involves an
ongoing relationship
○ Long-term
■ Often involves greater
cooperation that Incoming and Outgoing Shipments
evolves into a ● Traffic management
partnership Overseeing the shipment of incoming and
outgoing goods
Strategic Partnering ○ Handles schedules and
● Two or more business organizations decisions on shipping method
that have complementary products or and times, taking into account:
services join so that each may realize ■ Costs of shipping
a strategic benefit alternatives
 ■ Government ○ The process of transporting
regulations returned items
■ Needs of the ● Products are returned to companies or
organization third party handlers for a variety of
■ Shipping delays or reasons and in a variety of conditions
disruptions ○ Elements of return
management
Tracking Goods: RFID ■ Gatekeeping
Radio frequency identification (RFID) - Screening returned
● A technology that uses radio waves to goods to prevent
identify objects, such as goods in incorrect acceptance
supply chains of goods
○ Similar to barcodes but ■ Avoidance
■ Are able to convey - Finding ways to
much more minimize the number
information of items that are
■ Do not require returned
line-of-sight for
reading Creating an Effective Supply Chain
■ Do not need to be ● It begins with strategic sourcing
read one at a time ○ Analyzing the procurement
○ Has the ability to: process to lower costs by
■ Increase supply chain reducing waste and
visibility non-value-added activities,
■ Improve inventory increase profits, reduce risks,
management and improve supplier
■ Improve quality performance
control ○ There must be
■ Enhance relationships ■ Trust
with suppliers and ■ Effective
customers communication
■ Information velocity
3-PL ■ Supply chain visibility
● Third-party logistics (3-PL) ■ Event management
○ The outsourcing of logistics capability
management ■ Performance metrics
○ Includes
■ Warehousing and Challenges
distribution ● Barriers to integration of organizations
○ Potential benefits include ● Getting top management on board
taking advantage of: ● Dealing with trade-offs
■ The specialists’ ● Small businesses
knowledge ● Variability and uncertainty
■ Their well-developed ● Response time
information system
■ Their ability to obtain Trade-Offs
more favorable 1. Lot-size-inventory trade-off
shipping rates ● Large lot sizes yield benefits
in terms of quantity discounts
Managing Returns and lower annual setup costs,
● Reverse logistics but it increases the amount of
safety stock (and inventory
 carrying costs) carried by chain by cutting out
suppliers one or more
intermediaries
2. Inventory-transportation cost trade-off
● Suppliers prefer to ship full
truckloads instead of partial
loads to spread shipping costs
over as many units as
possible. This leads to greater
holding costs for customers
● Cross-docking
○ A technique whereby
goods arriving at a
warehouse from a
supplier are unloaded
from the suppliers
truck and loaded onto
outbound truck,
thereby avoiding
warehouse storage

3. Lead time-transportation costs

trade-off
● Suppliers like to ship in full
loads, but waiting for sufficient
orders and/or production to
achieve a full load may
increase lead time

4. Product variety-inventory trade-off

● Greater product variety
usually means smaller lot
sizes and higher setup costs,
as well as higher
transportation and inventory
management costs
● Delayed differentiation
○ Production of
standard components
and subassemblies
which are held until
late in the process to
add differentiating
features

5. Cost-customer service trade-off

● Producing and shipping in
large lots reduces costs, but
increases lead time
● Disintermediation
○ Reducing one or more
steps in a supply