Constantly new challenges for manufacturing companies

Manufacturing companies all over the world are struggling to meet challenges, such as globalization, outsourcing and ever-increasing customer demands. In a new dissertation from the School of Engineering, Fredrik Tiedemann sheds light over some of the challenges facing demand-driven manufacturing companies in relation to managing their supply chains.

Fredrik Tiedemann has studied for-profit demand-driven manufacturing companies and their supply chain operations, with a focus on manufacturing companies whose orders are customer-driven.

“Such companies manufacture their products based on actual customer orders. At least part of their production, handling of material and information is initiated by actual customer orders, which means that they are able to adapt their offerings based on these orders,” says Fredrik Tiedemann.

According to Fredrik Tiedemann, some of the most interesting insights from his research are related to three major challenges that the demand-driven manufacturing companies face and to how they can meet these challenges.

Conflicting strategies

The first challenge concerns conflicting customer demands, which may require a combination of different demand-driven supply chain operations management strategies.

‘’For instance, a company’s market may include different kinds of demands, and consequently require different strategies. In one part of the market, customers may require a great extent of customization, while in another part of the market, it may be possible to make products to stock and design a leaner and more cost-efficient flow. Since the strategies for these two parts of the market are in conflict, it may be necessary to apply a third strategy, namely segmentation,’’ explains Fredrik Tiedemann.

By segmenting the market based on product and type of demand, the company can design different supply chains for each segment – offering customized products demanded by some segments, and standardised and less expensive products that are in demand by others.

Constantly changing business conditions

The second challenge is that business conditions and markets are continuously changing. Since supply chains are open systems, they impact and are impacted by their environments as well as entities outside it.

“For example, new competitors enter markets and change them, and new technology is introduced giving the possibility to change the way a product is produced or what products can be offered. And when a product is introduced it might be necessary to have a responsive supply chain that can be ramped up if the demand goes up. Therefore, managers should employ a dynamic approach to supply chain design,” says Fredrik Tiedemann.

The supply chain impacts on profitability

How the supply chain is designed and operated will have implications for the company’s profitability. Therefore, managers need to understand what the relation between supply chain operations and financial performance looks like.

“In this context, supply chain operations managers have a strategic role as to how they design the supply chain and the different lead times that come with this design. In my research, I have studied how strategic lead-times impact the financial performance in terms of return-on-investment (ROI),” says Fredrik Tiedemann.

Research will help achieve better supply chain design

According to Fredrik Tiedemann, the research will contribute with knowledge on what the implications of a change to a strategic lead-time in the supply chain will have in terms of revenue, cost and investment.

“My results show the need to design the supply chain based on the type of product to be produced and the demands from the customers that the company is trying to meet. In addition, it indicates that the design of a supply chain may need to be updated over time, that is, the supply chain cannot be static if what manufacturers and the market they supply is constantly changing,” says Fredrik Tidemann.

In addition, the design of the supply chain also has an impact on the company's profitability. All of these results, which can be linked back to the three above challenges, are relevant for supply chain operations managers within customer-driven manufacturing companies.

“These results can increase their understanding of what the five different demand-driven supply chain operations management strategies mean, what they are good at and how they can be used in combination to design their supply chain to achieve supply chain fit (a fit between supply chain, product and market demand),’’ says Fredrik Tiedemann.

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