Strategic positioning of the order penetration point
The order penetration point (OPP) defines the stage in the manufacturing value chain, where a particular product is linked to a specific customer order. Different manufacturing environments such as make-to-stock (MTS), assemble-to-order (ATO), make-to-order (MTO) and engineer-to-order all relate to...
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Published in | International journal of production economics Vol. 85; no. 3; pp. 319 - 329 |
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Main Author | |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier B.V
11.09.2003
Elsevier Elsevier Sequoia S.A |
Series | International Journal of Production Economics |
Subjects | |
Online Access | Get full text |
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Abstract | The order penetration point (OPP) defines the stage in the manufacturing value chain, where a particular product is linked to a specific customer order. Different manufacturing environments such as make-to-stock (MTS), assemble-to-order (ATO), make-to-order (MTO) and engineer-to-order all relate to different positions of the OPP. These may be considered as product delivery strategies, having different implications for manufacturing objectives such as customer service, manufacturing efficiency and inventory investment. Furthermore, the OPP may differ between products and over time for a particular manufacturing firm. In this paper, the positioning of the OPP is treated from a strategic perspective. Market, product, and production factors are identified that affect the OPP positioning and the shifting of the OPP upstream or downstream in the manufacturing value chain. The major factors are demand volume and volatility, and the relationship between delivery and production lead times. These factors are included in a model that allows the manufacturing firm to choose the right product delivery strategy. Different manufacturing strategies must be developed for pre-OPP operations (i.e. upstream; forecast-driven) vs. post-OPP operations (i.e. downstream, customer-order-driven), since these two stages are fundamentally different. As a consequence, a manufacturing firm that has an ATO product delivery strategy must differentiate between MTS operations (upstream the OPP) and MTO operations (downstream the OPP). For example, the competitive priorities differ: price for pre-OPP operations but delivery speed and flexibility for post-OPP operations. Therefore, decision categories, such as production planning and control, and performance measurement must be designed accordingly. Guidelines are provided for this strategic choice. |
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AbstractList | The order penetration point (OPP) defines the stage in the manufacturing value chain, where a particular product is linked to a specific customer order. Different manufacturing environments such as make-to-stock (MTS), assemble-to-order (ATO), make-to-order (MTO) and engineer-to-order all relate to different positions of the OPP. These may be considered as product delivery strategies, having different implications for manufacturing objectives such as customer service, manufacturing efficiency and inventory investment. Furthermore, the OPP may differ between products and over time for a particular manufacturing firm. In this paper, the positioning of the OPP is treated from a strategic perspective. Market, product, and production factors are identified that affect the OPP positioning and the shifting of the OPP upstream or downstream in the manufacturing value chain. The major factors are demand volume and volatility, and the relationship between delivery and production lead times. These factors are included in a model that allows the manufacturing firm to choose the right product delivery strategy. Different manufacturing strategies must be developed for pre-OPP operations (i.e. upstream, forecast-driven) vs. post-OPP operations (i.e. downstream, customer-order-driven), since these two stages are fundamentally different. As a consequence, a manufacturing firm that has an ATO product delivery strategy must differentiate between MTS operations (upstream the OPP) and MTO operations (downstream the OPP). For example, the competitive priorities differ: price for pre-OPP operations but delivery speed and flexibility for post-OPP operations. Therefore, decision categories, such as production planning and control, and performance measurement must be designed accordingly. Guidelines are provided for this strategic choice. ⌐ 2003 Elsevier Science B.V. All rights reserved. The order penetration point (OPP) defines the stage in the manufacturing value chain, where a particular produce is linked to specific customer order. Different manufacturing environments such as make-to-stock (MTS), assemble-to-order (ATO), make-to-order (MTO) and engineer-to-order all relate to different positions of the OPP. These may be considered as produce delivery strategies, having different implications for manufacturing objectives such as customer service, manufacturing efficiency and inventory assessment. Furthermore, the OPP may differ between products and over time for a particular manufacturing firm. In this paper, the positioning of the OPP is treated from a strategic perspective. Market, product, and production factors are identified that affect the OPP positioning and the shifting of volatility, and the relationship between delivery and production lead times. These factors are included in a model that allows the manufacturing firm to choose the right product delivery strategy. The order penetration point (OPP) defines the stage in the manufacturing value chain, where a particular product is linked to a specific customer order. Different manufacturing environments such as make-to-stock (MTS), assemble-to-order (ATO), make-to-order (MTO) and engineer-to-order all relate to different positions of the OPP. These may be considered as product delivery strategies, having different implications for manufacturing objectives such as customer service, manufacturing efficiency and inventory investment. Furthermore, the OPP may differ between products and over time for a particular manufacturing firm. In this paper, the positioning of the OPP is treated from a strategic perspective. Market, product, and production factors are identified that affect the OPP positioning and the shifting of the OPP upstream or downstream in the manufacturing value chain. The major factors are demand volume and volatility, and the relationship between delivery and production lead times. These factors are included in a model that allows the manufacturing firm to choose the right product delivery strategy. Different manufacturing strategies must be developed for pre-OPP operations (i.e. upstream; forecast-driven) vs. post-OPP operations (i.e. downstream, customer-order-driven), since these two stages are fundamentally different. As a consequence, a manufacturing firm that has an ATO product delivery strategy must differentiate between MTS operations (upstream the OPP) and MTO operations (downstream the OPP). For example, the competitive priorities differ: price for pre-OPP operations but delivery speed and flexibility for post-OPP operations. Therefore, decision categories, such as production planning and control, and performance measurement must be designed accordingly. Guidelines are provided for this strategic choice. |
Author | Olhager, Jan |
Author_xml | – sequence: 1 givenname: Jan surname: Olhager fullname: Olhager, Jan email: jan.olhager@ipe.liu.se organization: Department of Production Economics, Linköping Institute of Technology, SE-58183 Linköping, Sweden |
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Keywords | Supply chain management Make-to-stock Order penetration point Product delivery strategy Make-to-order Customer order decoupling point Manufacturing strategy |
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References | Olhager, Wikner (BIB18) 1998 Olhager, Östlund (BIB16) 1990; 45 Olhager, Wikner (BIB19) 2000; 11 Van Donk (BIB25) 2001; 69 Mason-Jones, Naylor, Towill (BIB11) 2000; 2 Miltenburg (BIB12) 1995 Leong, Snyder, Ward (BIB10) 1990; 18 Hoekstra, Romme (BIB7) 1992 Pagh, Cooper (BIB21) 1998; 19 Fisher (BIB3) 1997; 75 Lehtonen, J.-M., 1999b. Supply chain development in process industry. Ph.D. Thesis, Acta Polytechnica Scandinavia, Industrial Management and Business Administration Series, No. 4, The Finnish Academy of Technology, Espoo. Olhager, Rudberg, Wikner (BIB20) 2001; 69 Vollmann, Berry, Whybark (BIB26) 1997 Hill (BIB6) 2000 Olhager, West (BIB17) 2002; 22 Van der Vlist, Hoppenbrouwers, Hegge (BIB24) 1997; 53 Sharman (BIB22) 1984; 62 Lehtonen (BIB8) 1999; 81 Olhager (BIB15) 2002; 13 Berry, Hill (BIB1) 1992; 12 Hayes, Wheelwright (BIB5) 1984 Olhager, J., 1994. On the positioning of the customer order decoupling point. Proceedings of the Pacific Conference on Manufacturing, Jakarta, pp. 1093–1100. D’Alessandro, Baveja (BIB2) 2000; 30 Umble, Srikanth (BIB23) 1990 Giesberts, Van der Tang (BIB4) 1992; 3 Olhager (BIB13) 1993; 30–31 Lehtonen (10.1016/S0925-5273(03)00119-1_BIB8) 1999; 81 Pagh (10.1016/S0925-5273(03)00119-1_BIB21) 1998; 19 Olhager (10.1016/S0925-5273(03)00119-1_BIB17) 2002; 22 Hayes (10.1016/S0925-5273(03)00119-1_BIB5) 1984 Giesberts (10.1016/S0925-5273(03)00119-1_BIB4) 1992; 3 Van Donk (10.1016/S0925-5273(03)00119-1_BIB25) 2001; 69 Olhager (10.1016/S0925-5273(03)00119-1_BIB13) 1993; 30–31 Hill (10.1016/S0925-5273(03)00119-1_BIB6) 2000 Olhager (10.1016/S0925-5273(03)00119-1_BIB15) 2002; 13 Hoekstra (10.1016/S0925-5273(03)00119-1_BIB7) 1992 10.1016/S0925-5273(03)00119-1_BIB9 D’Alessandro (10.1016/S0925-5273(03)00119-1_BIB2) 2000; 30 Umble (10.1016/S0925-5273(03)00119-1_BIB23) 1990 Fisher (10.1016/S0925-5273(03)00119-1_BIB3) 1997; 75 Mason-Jones (10.1016/S0925-5273(03)00119-1_BIB11) 2000; 2 Miltenburg (10.1016/S0925-5273(03)00119-1_BIB12) 1995 Van der Vlist (10.1016/S0925-5273(03)00119-1_BIB24) 1997; 53 Olhager (10.1016/S0925-5273(03)00119-1_BIB20) 2001; 69 Sharman (10.1016/S0925-5273(03)00119-1_BIB22) 1984; 62 Berry (10.1016/S0925-5273(03)00119-1_BIB1) 1992; 12 Vollmann (10.1016/S0925-5273(03)00119-1_BIB26) 1997 Leong (10.1016/S0925-5273(03)00119-1_BIB10) 1990; 18 Olhager (10.1016/S0925-5273(03)00119-1_BIB16) 1990; 45 Olhager (10.1016/S0925-5273(03)00119-1_BIB18) 1998 10.1016/S0925-5273(03)00119-1_BIB14 Olhager (10.1016/S0925-5273(03)00119-1_BIB19) 2000; 11 |
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Snippet | The order penetration point (OPP) defines the stage in the manufacturing value chain, where a particular product is linked to a specific customer order.... The order penetration point (OPP) defines the stage in the manufacturing value chain, where a particular produce is linked to specific customer order.... |
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SubjectTerms | Customer order decoupling point Make-to-order Make-to-stock Manufacturing Manufacturing strategy Order penetration point Product delivery strategy Studies Supply chain management Supply chains TECHNOLOGY TEKNIKVETENSKAP |
Title | Strategic positioning of the order penetration point |
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