Managing product variety in international supply chains
In today's business environment, firms increasingly think in the context of a supply chain rather than a single factory and operate globally rather than in a single nation. At the same time, we have also witnessed increasing breadth in product ranges and accelerating rates of new product introduction in the marketplace. While there are potentially strong interrelationships between product variety and international supply chain management, the issues have been addressed separately in the research literature. Owing to this shortfall, this study investigates the issue of product variety in the context of international supply networks. More specifically, the study seeks to gain insights on different types of co-ordination and configuration of international supply network and to more deeply understand the impact of, and the interrelationships between, product variety, supply lead-time and demand uncertainty on the performance of an international supply chain. Empirical and simulation studies have been conducted to fulfil the above objectives. The empirical study involves eleven manufacturing companies in Indonesia, belonging to both Multinational Corporations (MNC) and contract manufacturers, and one company in the UK operating internationally that owns manufacturing units as well as contracting out. The empirical study generated findings on configuration structures, co-ordination policies, and product variety impact and management. Based on their configuration and coordination strategies, MNC supply networks involved in the empirical study can be classified as supply networks that have regional autonomous subsidiaries, regional clusters of subsidiaries and purely global supply network. Contract manufacturers' configurations may change from one selling period to another. More co-ordination efforts are found to be necessary in MNC supply networks compared to contract manufacturer supply networks. Although companies face different challenges with respect to product variety and uncertainties in demand and supply, the evidence shows that product variety principally affects the procurement of materials, as various products require different materials and parts. Product variety also affects production due to the need to conduct set-up activities. To obtain a deeper understanding of the impacts of product variety, supply lead time and demand uncertainty on supply chain performance, a simulation study has been conducted. A simulation model was developed based on the insights obtained from the empirical study. The model represents a three-stage MNC supply network producing consumer goods in discrete manufacturing processes. Product variety is represented in the model by the use of different types of material required at different stages of the production process. An extensive set of simulation experiments concentrated on flow time and inventory performance. Results from the simulation experiments show that increases in product variety extend the average flow time due to the need to conduct set-up activities. The impact of product variety on flow time depends on the severity of set-up and the stage at which variety occurs in the production processes. Variety occurring early in the production process and generating long set-up times has a more pernicious impact on average flow time compared to variety occurring later and requiring shorter set-ups. Supply and demand uncertainty may affect the supply chain performance as it may delay the manufacturing processes. When supply lead-time is subject to uncertainty, materials may not be available at the right time for production. Similarly, demand uncertainty may lead to a situation where the available materials may not be adequate to meet the production requirements. The simulation results show that producing high variety when material delivery time is subject to uncertainty has a damaging impact on the two supply chain performance metrics - flow time and inventory level. The supply chain performance worsens with increasing level of supply uncertainty. Producing high variety when either aggregate-level or product-level demand is subject to uncertainty results in a higher level of inventory and longer average flow time. The worst performance in terms of average flow time and average inventory is evident when the supply chain produces maximum variety and both supply and demand are subject to uncertainty. The simulation study provides a guide to the magnitude of the impact in each case. Findings from the empirical and simulation study are synthesised into a framework for understanding and managing product variety in international supply chains. The framework can be used to understand interrelationships between key factors in managing product variety in international supply networks and to identify potential strategies to mitigate the negative impact of those factors on performance.