Tuesday, February 4, 2014

Product Design and Demand Forecasting

The design of products should be easily reproducible in terms of the equipment, materials and skills required to produce it. Product design in addition to being influenced by product design can also influence the design to a great extent. Companies tend to select materials which can be easily procured or manufactured and for which backup materials are easily available. Companies like Nike have more than 500,000 products so when designing new product they should try and use their existing supply chain as much as possible. The companies usually don't go out of the way when they have an already established supply chain.

The article on how IKEA designs it price tag explains a lot about IKEA's pricing aand product design strategies.  IKEA encourages competition amongst its subsidiaries to get the cheapest manufacturing cost. Although it is a great strategy which seems to be working extremely well for IKEA, IKEA should also consider proximity to the distribution centers. This would help in reducing their costs further. The flat design does help them to save a lot. This is a great example of how product design can impact the supply chain and make it more cost effective. Another strategy IKEA follows is that the products are modularized and customers are responsible for assembling them. Thus no additional levels for assembling the products are required in the supply chain. This increase the efficiency of the supply chain.

Demand Forecasting is really important in planning the supply chain of any company. Companies like Amazon.com use several ways to forecast the demand. In addition to using the historical data and data from a variety of other sources, Amazon also use the customers themselves to forecast the demand for the products. They make use of the gift registries maintained by the people. The registries contain useful informatioin for forecasting the demand for particular types of products. For example the registries maintained by newly engaged and expecting parents helps Amazon to forecast demand for similar customers. In addition to this wishlists and pre-ordering are also very helpful in forecasting the demand.

        Question: For companies like Amazon, Ebay, etc. where the demand is highly variable, how do the companies plan their supply chain strategy. After forecasting do they try and plan for the peak demand or an average value?


How Ikea Designs Its Sexy Price Tags (Business 2.0, October 2002) http://karlulrich.pbworks.com/f/IKEA-cost-article.pdf


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