Supply and demand production challenges with new products

Supply chain performance depends on the matching of product features with supply chain features. When a new product hits the market, the existing supply chain that is optimal for a given set of product lines will not stay optimal. Thus, a new product introduction will require a supply chain logistic network redesign.

A new product introduction leads to a potential risk of reduced service performance due to ‘discontinuity’. In supply chain, a discontinuity is the introduction of a change in the product range of a firm, such as a new product or a new product line.

This reduction could be measured against difficulties in reaching service level targets and master production schedule accuracy. The master production schedule suffers from very intense and short term production schedule variations and purchased materials unavailability.

So when a new product is introduced, how can supply chains re-align supply and demand? There is a two-step methodology to mitigate the negative effects on performance and improve the alignment between supply and demand production. Step one is to find the risky products. Marketing managers with product developers need to jointly analyze the identification of unexpected demand growth scenarios and main risk areas in terms of volumes and demand peaks in order to find the risky products.

In this way, supply chains can identify a list of products that can present managerial problems. The second step is matching product features with supply chain features. Product developers and supply chain managers must work together to develop an action plan to either concurrently change the product structure or change the supply chain itself to match the requested demand with the supply for the risky products. Some possible actions that help align a product feature with the supply chain are:

1. Modification of bill of material for risky products.
2. Setting of specific strategic safety stocks on critical components.
3. Manufacturing flow simplifications.
4. Alternative sources for parts.

By implementing the above actions, supply chain managers can use the Tracking Ratio (TKR) metric during the introduction phase to measure the rate between the variety manufactured and customer orders. The TKR is calculated as follow: TKR_i =MC_i/DC_{i [1]} Where i is working week, MC is count of different manufactured items in week i, and DC is count of different demanded items in week i. Once the customer’s orders are aligned with manufactured parts, the supply chain and new product can align, and the firm can expect to reach its performance target during the early stage of new product lifecycle.

[1] International Journal of Engineering, Science and Technology, Vol.2, No.9, 2010.