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(Before)_slides_for_class_9 - Copyright Blake Johnson...

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Unformatted text preview: Copyright Blake Johnson Allocating costs and benefits of pooling Pooling requires participation and support of multiple entities, each of which will focus on its own goals – Toyota Prius launch: Toyota and dealers agreed on plan – Cadillac Florida: • Small and large dealers both benefited, but smaller dealers benefited more • Large dealers shut the program down Today’s examples: – Similar challenges within companies and how to overcome them Key course message: – Performance metrics that incorporate uncertainty are essential to organizational buy-in for initiatives to manage uncertainty Copyright Blake Johnson Sport Obermeyer example Allocate capacity sequentially based on relative predictability of demand by product line – Build standardized products first: • Demand uncertainty low • Storage costs reasonable – Leave capacity just before (and during) selling season available to build fashion products in response to actual demand • Delay production until better information available Problem: – Under traditional organizational metrics, fashion product line gets all the benefits, and standard product line bears the costs • Fashion products gets high level of short lead time capacity • Standard products get large inventories over extended period, due to advance production • Both pay same accounting-based capacity and production costs – Wrong metrics drive the wrong behavior: • Poor performance on key metrics standard product line may shrink or fail • Under-allocation of costs Fashion product line may over-extend • Over-allocation of costs Standard product line manager may seek to outsource production • More… Solution? Copyright Blake Johnson Sourcing and allocation of common materials HP: – Some components (e.g. memory) are used in many diverse products • High end servers through low end PCs and printers – Pool demand across products to increase purchasing scale and reduce uncertainty of demand • Reduce supply cost Allocation questions: – How much flex to buy? • Are each of the business units likely to agree? Why or why not? • How would you decide? – Who pays for the flex? Who gets it? • What issues do you see? – How would you design and execute the program? 4 Suppliers Procurement Supply chain Business unit # 1 Business unit # 2 Partners Product # 1 Product # 2 Product # 1 Product # 2 Firm commitment Flex agreement Guaranteed supply commitment Firm commitment Flex agreement Guaranteed supply commitment Firm commitment Flex agreement Guaranteed supply commitment Firm commitment Flex agreement Guaranteed supply...
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This note was uploaded on 06/16/2010 for the course MS&E 369 taught by Professor Blakejohnson during the Spring '08 term at Stanford.

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(Before)_slides_for_class_9 - Copyright Blake Johnson...

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