Hp Case Study

Design for Postponement

Jayashankar M. Swaminathan

Kenan-Flagler Business School University of North Carolina Chapel Hill, NC-27599

Hau L. Lee

Graduate School of Business Stanford University Stanford, CA 94305

August, 2001; Revised August 2002, January 2003

To appear as a chapter in the Handbook of OR/MS on Supply Chain Management edited by Graves and de Kok. The work of the first author was supported in part by NSF CAREER Award #0296081.

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1. Introduction In this age of increasing globalization and shortening of product life cycles, companies are faced with the demand for escalating product variety to meet the diverse needs of global customers. Indeed, mass customization has become a business requirement for many high technology companies. However, the provision of product variety comes with a price. With it forecasting becomes more difficult, overhead for product support is higher, inventory control is more difficult, manufacturing complexity increases, and after-sales support is more complex. One solution that innovative companies have

exploited is the power of product and process design, by integrating design with their supply chain operations to gain control of product variety proliferation. Design has always been viewed as a key driver of manufacturing cost. Past research has indicated that as much as 80% of the manufacturing cost of the product is determined by the design of the product or the process in which the product is to be manufactured. Design can also be leveraged to address the problem of mass

customization (Martin et al. 1998). By properly designing the product structure and the manufacturing and supply chain process, one can delay the point in which the final personality of the product is to be configured, thereby increasing the flexibility to handle the changing demand for the multiple products. This approach is termed postponement1. Alderson (1950) appears to be the first who coined this term, and identified it as a...