Functional products are those staples bought by individuals in a broad range of retail outlets. They include things like groceries stores as well as gas stations. In real sense such products do not undergo major changes over time.
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Their demand predictability is far much stable, apart from having life cycles that are long. As a result of these properties, such functional products invite lots of competition which at the end leads to low profit margins. On the other hand, innovative products are those products which have the ability of giving clients extra reasons for buying them.
However innovative products have life cycles that are short as a result of imitation by competitors, apart from having volatile demands. This means that their demand changes from time to time hence demand prediction is very difficult. Those organizations engaged in innovative products experience high profit margins as compared to those engaged in functional products. This is because; there are higher risks when dealing with innovative products than dealing with functional products.
An efficient supply chain for functional products means that the primary objective of the supply chain is to supply efficient and predictable demands at the lowest costs possible. In addition the manufacturing processes should also be aiming at maintaining an average utilization rate that is very high.
Nevertheless, inventory strategies should also have the ability of generating high turns, as well as minimizing inventory in the entire chain. Moreover the lead-time focus should be looking at ways of shortening lead time without increasing the operation costs. Another thing meant by efficient supply chain is selecting suppliers with the aim of reducing costs, as well as improving the product quality. Last but not least, efficient supply chain means having a product design strategy that minimizes costs, but maximizes performance.
On the other hand, having a responsive supply chain for innovative products means; having a quick response to uncertain demands with the aim of minimizing stock-outs, obsolete inventories as well as forced markdowns. It also means having a manufacturing focus that deploys excess buffer capacity to ensure that products are manufactured just before demand is materialized. In addition, it means using inventory strategies that have the ability of providing buffer to excess stocks of either parts or finished products.
Moreover, a responsive supply chain for innovative products means investing so much in factors that may reduce lead times. Nonetheless, the approach of selecting suppliers should aim at increasing speed, improving quality as well flexibility when responding to demand uncertainties. Last but not least, it also means employing modular design in postponing product differentiation for a long period of time, to ensure that it has a longer life cycle.
A personal computer is one product that belongs to the lower left hand cell (box) that is, innovative product that uses responsive supply chain. This is because; computer companies can replace mainframe technologies with personal computers which at the end reduce the lead time, though the process can be expensive, but the main objective is reducing lead time.
In addition, personal computers are very innovative in a manner that they can be sold at a premium price to generate more profits to cover the costs and uncertainties involved in responsive supply chains. Moreover personal computers have been designed in a manner that there are no frequent introduction of new computer offers, few varieties and very high profit margins.