Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

4.4.2 Six Features in Reference to Customer, and Item or Product or Product Family

Intended learning outcomes: Present important features and possible values referring to the user and the product or product family. Differentiate between a convergent product structure and a divergent product structure, between continuous demand and discontinuous demand. Explain the product variety concept. Describe unit cost and transportability of an item. Disclose the T analysis within the VAT analysis and its relation to the product variety concept.



Figure 4.4.2.1 shows the first group of features.

Fig. 4.4.2.1        Important features and possible values referring to the user and the product or product family.

The depth of product structure is defined as the number of structure levels within the total supply chain for the product, whether company-internal or transcorporate.

Product structure and structure level are defined in Section 1.2.2. The depth of product structure is dependent on the product. A deep product structure is usually also “wide”: in each structure level, many components are put together. Such complex products usually entail complex planning & control. The depth of product structure is thus also a measure of the complexity of planning & control in the supply chain (see also [Albe95]). This complexity influences planning & control in each of the companies involved in the supply chain. See the feature depth of product structure in the company in Section 4.4.3.

The orientation of product structure indicates whether in one single production process a certain product is manufactured from various components (symbol ▲, convergent product structure), or whether in one single production process various products are made out of a certain component (symbol ▼, divergent product structure).
  • Convergent product structure is often used as a synonym for discrete manufacturing, that is, the production of distinct items such as machines or appliances. It is also called assembly orientation. The triangle pointing up symbolizes a tree (or arborescent) structure, as the product structure, such as that in Figure 1.2.2.2.
  • Divergent product structure is often used as a synonym for by-products arising in continuous production (see Section 4.4.3). In chemical or oil production, which are typical examples from the pro­cess industry, processing of the basic material yields — in one single process — several active substances as well as waste or by-pro­ducts. In the food industry, there are by-products that, through re­cycling, can be used as basic materials in another production process (such as scrap chocolate). The triangle pointing down symbolizes an upside-down, arborescent structure as the product structure. Note that a divergent product structure should not be con­fused with the multiple use of a component in different products.
  • “▲ on ▼”: This is a product with divergent product structure at lower structure levels, and convergent product structure at higher structure levels. The (lower) chemical level of pharma­ceutical products, for example, has a divergent product structure, while the (higher) pharmaceutical level has a convergent structure. Other ex­amples are products made from sheet metals. Many semi­finished goods arise simultaneously from the sheet metal through pressing or laser cutting, and they are then used for various end products.

Determining the values of this feature corresponds exactly to a part of the VAT analysis (the “VA part”):

VAT analysis  determines the general flow of parts and products from raw materials to finished products. A V structure corresponds to the divergent product structure (the letter V has the same shape as the symbol ▼). An A structure corresponds to the convergent product struc­ture (the letter A has the same shape as the symbol ▲). A T structure consists of numerous similar finished products assembled from common assemblies, subassemblies, and parts. See the feature product variety concept below.

A note on “▼ on ▲”: This sometimes symbolizes an end product having many variants and therefore addresses the T structure mentioned above. In the lower structure levels, semifinished items are put together as modules. In assembly, many variants of end products are built from the semifinished goods or subassemblies. This is the case with automobiles. But because final assembly is clearly based on an assembly-oriented, convergent product structure, it should not be represented by the upside-down triangle. It is not the case that several products will arise from a particular semi-processed item. Although the symbol may be used quite commonly for this case, it is used incorrectly. A separate feature for describing the variant structure is the product variety concept. See below.

Frequency of customer demand means the number of times within defined observation time periods that the entirety of the (internal or external) customers demand a product or product family. Demand is 
  • Unique, if it occurs only once within an observation period
  • Discontinuous, lumpy, or highly volatile, if many observation periods with no or very little demand are interrupted by few periods with large, for example, times higher demand, without recognizable regularity
  • Regular, if it can be calculated for every observation period according to a certain formula
  • Continuous or steady, if the demand is about the same in every observation period (e.g., daily)

This feature determines the options for repetitive frequency of the corresponding production and procurement orders. This in turn will determine the basic business methods and procedures for planning & control.

If longer observation periods are chosen, the frequency of customer demand can change, tending toward continuous demand. However, shifts and dips in demand within the observation period in this case will be unknown. For its purposes, planning & control can assume that the total demand occurs at the start of the observation period.

The product variety concept determines the strategy for developing the product and offering it to the customer. Where applicable, there may also be a product variety concept for semifinished goods.

The product variety concept allows the producer to respond to customer requests to varying degrees of variant orientation. The individual values are defined as follows:

  • An individual or standard product is offered to the customer “in isolation,” that is, with no reference to other products in the range. These are “off the rack” products, or “standard menus.” These products have their own complete product structure.
  • Standard product with options: Here, the number of variants is small. A variant can be an additional feature of one and the same basic product. Each variant has its own product structure along with that of the standard product. Many examples are found in the machine industry.
  • Product family: Compare here the definition in Section 4.1.2. In gastronomy, this value of the product variety concept is comparable to combining various appetizers, main dishes, and desserts to form an individual menu. Example industrial products are appliances and tools.
  • Product family with many variants: The potential number of various products that can be produced in a product family can lie in the thousands or even in the millions. Production starts with raw materials or various components, but with an identical process. Variability of the process is achieved by CNC machines or by the workers themselves. Representation of the product structure requires a generic structure to overcome data redundancy problems and to reduce the administrative efforts for defining orders and maintaining the product structure. Product families with many variants are comparable to prêt-à-porter in the fashion industry. Some examples are automobiles, elevators, appliances, and machines with variable specifications, complex furniture, or insurance contracts.
  • Product according to (changing) customer specification: In contrast to the product family, here at least some design work occurs during delivery lead time, according to customer specification. Usually, the product will be similar to a “mother product,” meaning a product that has been delivered before. The product structure and the process plan will be derived and adapted from the “mother version.” This value of the product variety concept is comparable to haute couture, whereby a creation is made to order for the individual customer. Examples can be found in the manufacturing of facilities (plants), such as the building of exteriors or refineries.

A subcategory of this value is the degree of change in customer orders, where product and process structures change after the start of production.

Elaborating the values of the feature product variety concept can be considered to be a more detailed analysis of the T structure within VAT analysis.

T analysis describes the product variety. Qualitatively, the length of the crossbeam of the T stands for the number of product variants.

Figure 4.4.2.2 shows the idea of T analysis.

Fig. 4.4.2.2        T analysis within the VAT analysis and its relation to the product variety concept.

The product variety concept stands in relation to other features. This will be discussed in the next section. As a rule, the complexity of planning & control increases with the number of different products produced. It is not, however, dependent on the number of variants, but rather on the number of product families having differing characteristics. Based on the definition of a product family, it is clear that all of its members can be described by one and the same characteristic. However, planning & control becomes more complicated with an increasing degree of product variety and, of course, with the degree of change in customer orders.

An item’s unit cost is defined as the total cost for producing or purchasing one unit of measure of the item, e.g., one part, one gallon, one pound. It includes labor, material, and overhead cost.
  • high-cost item is an item with a relatively high unit cost compared with the unit cost of a low-cost item.

For many important decisions in logistics and operations management, a very rough classification in low- and high-cost items is sufficient. However, an ABC classification considering sales and projected volume would allow a finer distinction. See Section 11.2.2.

The transportability of an item is actually a statement on the size and weight per unit of measurement. If the item is a service, transportability refers to the object on which the service is carried out.
  • A nontransportable itemis an item with a size or weight that permits no transport. These are items or objects, for example, of a size greater than 50 m3or a weight greater than 200 metric tons. An example here is manufacture or maintenance of large plants.
  • A transportable itemis an item with a size or weight that permits transport using technical aids, such as helicopters, heavy goods vehicles, airplanes, or several people working together.
  • A portable itemis an item with a size or weight that permits transport (over a longer period of time) by means of the strength of one person. These are items or objects, for example, of a size smaller than 0.01 m3 or weighing less than 15 kg per unit. Letters sent out by courier are an example.
  • Digitally transmittable itemsare items that may be transmitted, or transported, using a digital communication protocol. These non­material goodshave a size or weight of zero.

The division of unit costs by the size or weight of the object leads to the concept of value density, that is, product value per kilogram or cubic meter. Digitally transmittable items have a value density approaching infinity. Value density plays a central role in the design of supply chains. See here also Section 4.1.1 and [Senn04]. It is a challenge, for example, if low-cost services are to be provided for nontransportable objects. This is the case with services for plants that have been installed worldwide. In designing the services, the proportion of services that can be transmitted digitally is particularly important.


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Course section 4.4: Subsections and their intended learning outcomes

  • 4.4 Characteristic Features Relevant to Planning & Control in Supply Chains

    Intended learning outcomes: Produce an overview on principle and validity of characteristics in planning & control. Explain six features in reference to customer, and item or product or product family, five features in reference to logistics and production resources, as well as seven features in reference to the production or procurement order. Describe important relationships between characteristic features and features of transcorporate logistics in supply chains.

  • 4.4.1 Principle and Validity of Characteristics in Planning & Control

    Intended learning outcomes: Describe the characteristic in planning & control in a supply chain. Explain the use of the results of the analysis.

  • 4.4.2 Six Features in Reference to Customer, and Item or Product or Product Family

    Intended learning outcomes: Present important features and possible values referring to the user and the product or product family. Differentiate between a convergent product structure and a divergent product structure, between continuous demand and discontinuous demand. Explain the product variety concept. Describe unit cost and transportability of an item. Disclose the T analysis within the VAT analysis and its relation to the product variety concept.

  • 4.4.3 Five Features in Reference to Logistics and Production Resources

    Intended learning outcomes: Present important features and their possible values in reference to logistics and production resources. Differentiate between flexible capability of capacity and quantitatively flexible capacity. Explain the production environment: make-to-stock, assemble-to-order, make-to-order, and engineer-to-order. Describe site production, job shop production, as well as single-item-oriented, high-volume and continuous line production.

  • 4.4.4 Seven Features in Reference to the Production or Procurement Order

    Intended learning outcomes: Present important features and possible values in reference to production or procurement order. Differentiate between order release according to demand, prediction, and consumption. Differentiate between production (or procurement) without, with infrequent, and with frequent order repetition. Identify the features flexibility of the order due date and type of long-term order. Explain the concepts of lot size, lot traceability, and loops in the order structure.

  • 4.4.5 Important Relationships between Characteristic Features

    Intended learning outcomes: Identify links among facility layout, orientation of product structure, and (order) batch size. Disclose Links among the features product variety concept, production environment, and frequency of order repetition. Explain why the features frequency of customer demand and frequency of order repetition do not necessarily need to correspond.

  • 4.4.6 Features of Transcorporate Logistics in Supply Chains

    Intended learning outcomes: Present important features, possible values, and increasing complexity of supply chain collaboration, of supply chain coordination, and of the configuration of the supply chain.