Towards the Agile Supply Chain

1
Towards the Agile Supply Chain

• Prof.Dr. Remko I. van Hoek
• Cranfield School of Management, UK
• Corporate Executive Board, Washington DC

2
The Agile Supply Chain 3W?P
1. What is it? 2. Who needs it? 3. Where do you
stand? 4. Practices and their achievement. Sourc
es Cranfield study agility in the supply chain
among 264 companies and Cranfield study on
postponement among 293 companies
3
911 Alarm call for traditional supply chains

• What has happened to your forecast?
• What about zero inventory policies and JIT?
• What about global sourcing and supplier relations?

4
Slowdown or breakdown?

• Inventory write offs,
• Supplier discounts,
• Chips industry capacity building in peak period
  and price cutting in the valley,
• Capacity squeeze or supply chain reconfiguration
  needed?

5
Some answers that have not worked sofar
gt Information integration as an answer to
bullwhip effects gt Supplier partnerships in the
light of inventory reductions gt Supply chain
integration by all major players? gt End-customer
driven?
6
With changing supply chain requirements.
7
and changing management priorities
8
the Agile Supply Chain is commonly targeted
From supply chains of one to supply chain for
one Gaining competitive edge in volatile
markets through rapid responsive in and rapid
reconfigurability of the supply chain
9
Example Smart Car

• Customer specified car(on the web or using a
  product configurator in the dealership)
• Ordered straight into thefactory where
• Suppliers are co-located
• Making modules to order
• Based upon shared order information and co-design
• Assembling the car in 4.5 hours and
• Delivering to the customer in 2/3 weeks

10
Example Nike

• From 60 delivery accuracy
• With a 6 months lead time for
• Products with a 45 day lifecycle
• To a diversified distribution capability with
  gt direct delivery of large volumes, gt central
  replenishments of smaller orders,gt establishment
  of satellites andgt information integration all
  around.

11
The Agile Supply Chain, What is it?
B Horizontal supply web based structures
A Vertical company based chains
Parts Modules Manufacturing Distribution
IBM Compaq
Toshiba N
From single company to multicompany entry, From
physical to physical and information flow, From
focal company to consumer centric, From rigid
integration to dynamic and temporal integration
Source Based on Fine, 1998
12
The Agile Supply Chain, What is it?
Primary
Control based on networking
design principle
Processes
Agile supply
chain
Make and sell
Sense and respond
What we do today

Functional/
Geographical/
Vertical command and control
Product departments
High
Customization
Low
Long
Short
Service window
13
Contrasting archetypes
What we do now What could/should we be
doing Cost driven Customer
driven Manufacturing Service
efficient effective Full pallets,
No fixed sizes full container
Batches of one loads, large batches Push/manufac
turing Pull/customer in out Select from
what is Meet demand instantaneously/
available or wait within
customer time window (ever
decreasing)
Strategy
Organization
Logistics
Ops.
Service
14
Which requires a lot..
15
of things not yet achieved
Market responsiveness Process integration Networ
k integration Virtual integration
3.26
3.12
3.04
2.20
0 5
16
Who needs it?
Contingency based practical approach to agility
Pareto Distribution
17
Segmenting production
C a c I t y u s a g e
D e m a n d
Level production
Surge
For base
Base
For surge
Time
Time
18
Segmenting the plant network
Variety
Innovation plant, projects
Modular consortium Direct distribution
Mass production Centralized distribution
Quick response from inventory
Speed
19
Supply characteristics
Plan and execute
Hedge and deploy
Long
lead-time
Hold inventory
Lean
Short
JIT
React and execute
lead-time
Agile
Demand characteristics
Predictable

Unpredictable
markets
markets
20
Levels of postponement and customization
21
The Agile Supply Chain, Where do you stand?
Goal Supply chain capa- bilities
Market sensitivity
Process Network integration/ integration/ in
novativeness cooperation
Virtual integration
EG E does not stand for everything, From key
dimensions to key practice.
22
The Agile Supply Chain, Practices
Variance
Time
Preliminary level adjust existing organization
Advanced level integrate and reconfigure flow
of goods
Volumes
Far reaching level involve knowledge and
information
23
The Agile Supply Chain, Key Practices
Variance
Prosuming Reversed life cycling
Seasonality swapping
24
The Agile Supply Chain, Key Practices
A) Two season pattern
Demand variance
Time
B) Two season after swapping
1 Move peak to before peak low
2 Peak decreases
4 Repeat
Variance
3 Safety net created
Time
25
The Agile Supply Chain, Key Practices
Need for standardization
Need for agile entrepeneurship
1 2 3
4
Phases of lifecycle
26
The Agile Supply Chain, Key Practices
Time
Rapid Upstream Information repleni
shment speed dissemination
27
The Agile Supply Chain, Key Practices
Flexibility
Supply network
Volumes
Information content
28
The Agile Supply Chain, ?
A) Multiplant tiering
Variety
Examples gt National Bicycle gt Concorde
Lighting
Plant B
Plant A
Volume
29
The Agile Supply Chain, ?
B) Design for supply chain (EMC2) Beyond design
for logistics (packaging etc.) and product
modularity towards Modular process, Service
content, Multimedia support Example Smart
30
The Agile Supply Chain, ?
C) Segmented distribution at Nike
Indirect distribution through central warehouse
with combined shipments, small sized, frequent
and with customized timetable
Direct distribution from factory
to customer warehouse
A B C Segment
Lean Agile
31
The Agile Supply Chain, ?
D) Information as source of knowledge and supply
chain learning, anticipating surprising
consumers
32
So are we for real?
Market responsiveness

• Postponement applications internal only?
• Marginal side-lines (15-25 of volume) or akey
  feature of volume?
• Customization or just adding SKUs?
• The only thing we know about forecasts is that
  they are wrong?
• 10 forecasts for one market (by function,
  business unit and player)?
• Sales and competitive gaming?
• Deterministic planning systems?

33
Network integration?

• 60 of TPL contracts are discontinued lt 3 years
• Nike has 10 LPLs in Europe?
• Zero inventory is a waste of time
• Do we use open books or dual books?
• Target costing or cost squeezing?
• Example
• A car manufacturer established supplier
  partnerships (co-location, JIT, on
• sequence delivery within 1.5 hours after ordering
  of specific parts) but did
• not provide suppliers with mid-long term
  forecasts and 3 year contracts.
• As a result suppliers did not invest and hired a
  TPL warehouse where they
• stored enormous amounts of parts to deliver to
  order.

34
Process integration?

• Are SOP tables just great lunch opportunities?
• Is there just no synergy opportunity between
  the83 supply chains within our organization?
• Do we now call logistics supply chain?
• Do we still draw supply chains as linear
  sequences of(internal) functions (the Porter
  curse)
• Example
• In car manufacturing, assembly processes have
  been lowered to about 9
• hours thanks to leaning, time compression and
  FMS. After fast cycle
• assembly however, the typical car is stored in
  the factory lot, a DC or at the
• dealership for several months.

35
Virtual integration?
Integration scores in information space
Sales gaming and data aggregation
Focal player
Demand filters upstream no signal 2 tiers up
Nike 178 Internal legacy systems
36
Virtual integration, really virtual?

• ERP systems are typically applied within
  organizations only and
• Several organizations have multiple ERPs
• Dual systems in the supply chain with manual
  interfaces?
• Do you get charged for POS data too?
• Does every player has to have his own exchange?
• And participate in several exchanges to spread
  risks?
• Example
• When a lead supplier asked a manufacturer about
  demand filters and poor visibility of demand the
  manufacturer responded
• Dont look at us, we dont know either.

37
Implications A wake up call

• The economic slowdown was a painful awakening
  for the proclaimed leaders
• Information availability is not the answer
• All strings are off forget about what you grew
  up with(EOQ, Batching, Volume Discounting,
  EOScale)
• Dont stretch existing systems for customization,
  it will lead to large scale customer
  dissatisfaction andunprofitability
• BE READY TO DESTROY AND REBUILD BEFORE SOMEBODY
  ELSE WILL DESTROY YOU