Now, look at another coordination mechanism. Supply chain patterns can use. You recall the concept of mass customization. >> We said that when we discussed this process strategy, and I said this is volume, and this is customization. [BLANK_AUDIO] High, high and in general we say that this is sort of physio a coalition, right? [BLANK_AUDIO] In other words there is a sort of trade up relationship between volume and customization. What is the mass customization? Mass customization is a little bit counterintuitive in the sense that we can place mass customization here. [BLANK_AUDIO] So it is outside this feasible region, and it seems like it's not easy to achieve this one, that's obvious. [BLANK_AUDIO] But once the firm can achieve this position, it'll enjoy premium profit. It'll enjoy pretty high level of competitive advantaging. And the question is, how can you achieve this one? How can we achieve, how can we move outside this feasible region, and how can we achieve a mass customization? [BLANK_AUDIO] One way to achieve mass customization, is to adopt postponement, the concept of postponement. It's delaying the product differentiation point, or product differentiating point. And it contains commonality among different products, as many as possible. And then when we have enough information about the [UNKNOWN], then we differentiate the product. And this is called Channel Capability. I want to make a distinction between channel capability and individual capability. [BLANK_AUDIO] Individual capability is something a single company develops and improves, or achieves unilaterally without the help from other supply chain partners, other supply chain companies. [BLANK_AUDIO] On the other hand, in contrast, channel capabilities is something you cannot have in your directory. You have to work with your supply chain partners, you have to work with your supply chain, you know, entities, who share the same supply chain. You have to work with them, in order to have channel capability. And I would just say that this one, this one you cannot have through individual capability. You must have channel capability. So project coordination must be there in order to achieve mass customization. So postponement has such capability. And postponement itself must be supported by supply chain capability. And there are some costs and benefit, and then I will explain more about this modularity principle. And now, look at this you know, the principle of postponement more clearly, by looking at the picture. [BLANK_AUDIO] Well, and think about on an automobile company. I'm not sure whether, in reality, you know, how realistic it is to use this well you know, car maker as example. But, you know, for the sake of a clear explanation, let's say that you know, there is a car maker, which is capable of applying this postponement concept. Now, let's think about the beginning of our production cycle. Beginning of production cycle, and then beginning of sales. [BLANK_AUDIO] Usually, more traditional or conventional way of making these things, is we have really short period of time for common platform or commonality. But after this short period of time, usually the form has to differentiate each product. So that, that this is called the product differentiation point, right? Product differentiation point. [BLANK_AUDIO] Product differentiation point. After that point, you can see, you can identify those different types of cars. Let's say we have three different types, type A, type B, type C, and compact car, passenger Sedan, SUV. Record that as Early Differentiation. Early product differentiation approach, okay? Priority differentiation, only product differentiation. And now, let's think about the possibility that we can delay, we can delay or postpone. We can postpone or delay this product differentiation point to the date stage of this whole production cycle. In other words why don't I delay this product differentiation point to the later stage of this production cycle? And therefore, I have much longer period for common [INAUDIBLE] common you know, commonality. And then almost toward the end of the [UNKNOWN] start, I have three different types of products Compact car, Sedan and SUV. Why do I want to do this? Why do I want to to do this? Why do I want to use this postponement? Or why do I want to delay this product differentiation point to the data stage? Here, I want to remind you about this information quality. You said that information quality is a function of two things, the distance, distance of distance between information source and decision point, okay? [BLANK_AUDIO] So, if we have higher information quality and it becomes much easier for us to plan and actually we can you know, have better chance. We can have better chance to achieve this efficiency driven value and [UNKNOWN] value at the same time. And now, let's think about this information quality. Obviously, this is information source. Information source is here, and if we want to differentiate the product, then this is our, this is our decision point. All right? This is our decision point. [BLANK_AUDIO] That means that our distance, our distance between information source and decision point, if we use only differentiation, the distance is quite long. That means that our, very long, you know, distance, distance between information source and decision point. That obviously involves our information quality goes down, that means that our uncertainty goes up and that means that our inventory will go up as well. Or, we will just say, Mismatch. Mismatch will increase by significant. [BLANK_AUDIO] Mismatch between demand and supply. When the other individual look a this postponed product differentiation strategy, and now we have a much shorter distance. Shorter distance between information source and decision point, okay? Information source and decision point. And therefore, our information quality improves compared with this more traditional, early product differentiation point. And if that is the case, then somehow, by delaying this product differentiation point. By delaying product differentiation point, what we can do is we increase our information quality, and therefore somehow we reduce our uncertainty, and that means that mismatch. [BLANK_AUDIO] Mismatch between supply and demand will go down. And that eventually we believe that our ability to achieve mass customization, mass customization increases significantly. That's the kind of causal link. Why do we want to use, postponement? I want to give you an example. Let's say the forecasting, our forecasting for our uncertainty is expressed like this, this is only product differentiation. On the other end, this one is let's say, postponed, or delayed product differentiation. And let me say, let me give you an example. It's kind of a introspect. So actual demand is like this. Product type A, B, C. A, B, C. Actual demand is 200, 300, 500 but, if we tried to differentiate early, then our forecasting, this is our information. This is our information, this is our forecasting. [BLANK_AUDIO] At that early product differentiation point, if that is the case. And now, if we postpone the differentiation, if we postpone the product differentiation point, our information, you know, quality improves and our forecast accuracy improves as well. And therefore, we were able to have this forecasting. And then what is the mismatch? [BLANK_AUDIO] If we had different shaded products early, the mismatch would have been 600. On the other hand, if we had delayed, if we had postponed the product differentiation point, our mismatch would be 140. This is significant, right? Almost a 70 to 80% deduction. [BLANK_AUDIO] Almost 70 to 80% deduction of our mismatch, by delaying the product differentiation point. And if we can achieve this much benefit, then it's good for us to use postponement. And again, postponement implies channel capability. The supplier and partners most work together. So now we can see the valuable postponment. But the question is, is it easy to achieve this postponement? Not at all, not at all, right? If it's easy, then everybody can use this postponement. But that's not easy. Because if I delay my decision regarding this product differentiation point, then somehow, if I do nothing during this common [UNKNOWN] period, then at this point, even if I know exactly how many of, for each of this product. For each of this, you know, type, product type, how many units we'll be demanding. If I know that, that's, that can be used [INAUDIBLE] because I don't have enough time to respond. I don't, I don't have enough time to manufacture things according to that product mix competition. That means that, even if I delay this product differentiation point, I gotta do something throughout this common platform period. I have to do things, right? What should I do if I do not know exactly what products I will make? So, again, during this period, I have to make some common parts and common elements of all these products. That means that if I want to utilize this postponement, I have to dedefine my product. [BLANK_AUDIO] And I have to find out commonality among all this products. And it is well known that some modularity concept becomes very important. For instance, now, I have to define my car, compact car, as consist of five modules. Let's say module A, B, C, D, E. And now I redefine my Sedan, as modules of A,B,C,F,G. An SUV is, consists of the modules A, B, C, H, I. So what, what, what, this is a big point here. The big point here is that I identify the common parts, right? I identify the common parts. A, B, C. [BLANK_AUDIO] And therefore I probably want to produce A, B, C modules here, and then once I have clear idea about this product mix uncertainty, then I can start make D, E and F, G and H, I. Then, in the end I can just assemble all this modules to make different types of cars. So modularity becomes very important to concept in implementing postponement. In this case, it's just a, not only the product modularity, and almost the process modularity must be taken into account. Remember, we talked about two different types of uncertainty. One is aggregate data, aggregate data uncertainty, and product of mixed level, mixed level uncertainty. And when we talk about mismatch between supply and demand, we want to focus on this product of mixed uncertainty, all right? And that, that's the most serious cause for this mismatch between supply and demand. For instance, when you look at this early differentiation, postpone differentiation. The total number aggregate to the regiment, aggregate supply is always 1,000. And aggregated demand is again 1,000. So it seems like a supply total. Total supply and total demand, roughly balanced. The thing is that this product mixed level, product mixed level uncertainties are still high and that's why it is useful for us to use postponement. So, postponement basically is very useful when we [UNKNOWN] it. This mismatch between supply and demand due to product makes uncertainty. Again, VMI and postponements are some of the strategy tools to supply chain partners can utilize to corporate this uncertainty. Especially for the postponement case, it deals with the product mix level uncertainty more specifically. [BLANK_AUDIO] I want you to understand the relationship between this whole you know, the key construct, the key concept. Information quality and uncertainty, and inventory, and there are certain, you know, problems. Three very serious consequences, due to having too much inventory, and that will cause lots of problems in supply chain management. Actually in performance of any business and any company. So how to deal with this uncertainty in the most effective way? That is always the number one question a supply chain manager must ask. And then eventually, we want to cope with all this uncertainty and we want to get aboard this you know, this special product mix uncertainty through coordination. Information sharing, communication, and so on and so forth. And remember that the coordination has big benefit, and at the same time it may cause us some cost. So whenever we have to decide the most appropriate coordination mechanism, we have to look at this cost and benefit at the same time. What are the coordination mechanisms? Well, it depends on the specific situation special cases, where the suppliers and partners interact with each other. So sometimes it will help you to get this bargaining power issues, and sometimes we have to look at this you know, proprietary knowledge [INAUDIBLE] issues. Whatever you do, you know, think about all of this complicated and complex factors together, and their causal-effect relationships. Then you will be able to find the most appropriate coordination mechanism, that works best for your own, you know, supply chain and supply chain management. [BLANK_AUDIO]
