Transcript Agility: How have we progressed and where do you stand?

Towards the Agile Supply Chain
Prof.Dr. Remko I. van Hoek
Cranfield School of Management, UK
Corporate Executive Board,
Washington DC
The Agile Supply Chain = 3WP
1. What is it?
2. Who needs it?
3. Where do you stand?
4. Practices and their achievement.
Sources: Cranfield study agility in the supply chain among 264
companies and
Cranfield study on postponement among 293 companies
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?
Slowdown or breakdown?
•Inventory write off’s,
•Supplier discounts,
•Chips industry: capacity building in peak period and
price cutting in the valley,
•Capacity squeeze or supply chain reconfiguration needed?
Some answers that have not worked sofar
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Information integration as an answer to bullwhip effects
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Supplier partnerships in the light of inventory reductions
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Supply chain integration by all major players?
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End-customer driven?
With changing supply chain requirements….
Lowering import duties
Lowering obsolescence costs
Improving customization of products
Lowering production costs
Speeding up distribution
Improving inventory cycle times
Lowering total logistics costs
Improving delivery reliability
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0,50
1,00
1,50
2,00
Importance
2,50
3,00
3,50
4,00
…and changing management priorities
Proximity of warehouses or factories of foreign suppliers
Proximity of airport that services most destinations on a daily
basis
Availability of vacant and competitively priced sites?
Availability of incentives and tax treaties
Proximity of customers
Availability of local suppliers and manufacturers
T he proximity of low cost suppliers and service companies
Quality of life at locations
T he proximity of qualified suppliers and service
Availability of physical infrastructure
Availability of logistics service providers
Availability of information and communication technology
related services
Availability of qualified labour
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0,50
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Importance
2,50
3,00
3,50
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
Example: Smart Car
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Customer specified car
(on the web or using a
product configurator in
the dealership)
Ordered straight into the
factory 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
Example: Nike
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From 60% delivery
accuracy
With a 6 months
lead time for
Products with a
45 day lifecycle
To a diversified
distribution capability with
> direct delivery of large volumes,
> central replenishments of smaller orders,
> establishment of satellites and
> information integration all around.
The Agile Supply Chain, What is it?
A Vertical company based chains
B Horizontal supply web based structures
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
The Agile Supply Chain, What is it?
Primary
design principle:
Processes
Agile supply
chain
Control
based on
networking
Make and sell
Sense and
respond
What we do
today
Functional/
Geographical/
Product departments
High
Low Customization
Long
Short
Service window
Vertical
command
and control
Contrasting archetypes
“What we do now”
“What could/should we be doing”
Cost driven
Strategy
Manufacturing Organization
efficient
Logistics
Full pallets,
full container
loads, large batches
Push/manufacturing Ops.
out
Select from what is Service
available or wait
Customer driven
Service
effective
No fixed sizes;
“Batches of one”
Pull/customer in
Meet demand instantaneously/
within customer time window
(ever decreasing)
Which requires a lot…..
Impact of
Agile
Manufacture
Waste
Waste
Reduction
Reduction
Standardisation/
Standardisation/
Modularisation
Modularisation
Economies
Economies
of
of Scale
Scale
Set-up
Set-up
Time
Time Reduction
Reduction
Impact of
Agile
Logistics
Vendor
Vendor
Managed
Managed
Inventory
Inventory
Synchronised
Synchronised
operations
operations
Lean
Lean
Production
Production
Flexible
Flexible
Response
Response
Postponed
Postponed
fulfillment
fulfillment
Agile
Agile
Supply
Supply
Agile
Agile
Supply
Supply Chain
Chain
Rapid
Rapid
replenishment
replenishment
Process
Process
Management
Management
Organisational
Organisational
Agility
Agility
Level 1
Principles
Demand
Demand
Driven
Driven
Quick
Quick
Response
Response
Pipeline
Pipeline
Time
Time
Reduction
Reduction
Cross
Cross
Functional
Functional
Teams
Teams
Level 2
Programmes
Level 3
Actions
Visibility
Visibility of
of
Real
Real Demand
Demand
Continuous
Continuous
Replenishment
Replenishment
Programmes
Programmes
…of things not yet achieved
Market
responsiveness
3.26
Process
integration
3.12
Network
integration
3.04
Virtual
integration
2.20
0
5
Who needs it?
Contingency based practical approach to agility;
Pareto Distribution
80%
% of
total
demand
Lean
• Make to forecast
• Low priority in
production schedule
• Manage inventory
centrally
• Seek economies of
scale
20%
Agile
% of products
• Make to order
• High priority in
production schedule
• Utilise quick response and
continuous replenishment
concepts
• Forecast for capacity,
execute to demand
Segmenting production
D
e
m
a
n
d
Surge
Base
Time
C
a
c
I
t
y
u
s
a
g
e
Level production
For base
For surge
Time
Segmenting the plant network
Variety
Innovation
plant, projects
Modular
consortium
Direct distribution
Mass production
Centralized
distribution
Quick response
from inventory
Speed
Supply characteristics
Plan and
Long
lead-time execute
Lean
Hedge and deploy
Hold inventory
Short
JIT
lead-time
React and execute
Agile
Predictable
markets
Unpredictable
markets
Demand characteristics
Performed to order %
of annual sales volume
40
35
30
25
20
15
10
5
0
Packaging/
labelling
Final
manufacturing
Manufacturing
base materials
Purchasing
Design/
engineering
Levels of postponement and customization
The Agile Supply Chain, Where do you stand?
Goal
Market sensitivity
Supply
chain
Process
capabilities integration/
Network
integration/
cooperation
innovativeness
Virtual
integration
EG E does not stand for everything,
From key dimensions to key practice….
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
The Agile Supply Chain, Key Practices
Variance
Prosuming
Reversed
life cycling
Seasonality swapping
The Agile Supply Chain, Key Practices
A) Two season pattern
Demand
variance
Time
B) Two season after swapping
Variance
1 Move peak to before peak low 4 Repeat
2 Peak decreases
3 Safety net
created
Time
The Agile Supply Chain, Key Practices
Need for standardization
Need for agile entrepeneurship
1
2
3
4
Phases of lifecycle
The Agile Supply Chain, Key Practices
Time
Rapid
Upstream Information
replenishment speed
dissemination
The Agile Supply Chain, Key Practices
Flexibility
Supply network
Volumes
Information content
The Agile Supply Chain, 
A)
Multiplant tiering
Variety
Examples:
Plant B
>
National Bicycle
>
Concorde Lighting
Plant A
Volume
The Agile Supply Chain, 
B)
Design for supply chain (E=MC2)
Beyond design for logistics (packaging etc.)
and product modularity
towards:
Modular process,
Service content,
Multimedia support
Example: Smart
The Agile Supply Chain, 
C)
Segmented distribution at Nike
Direct
distribution
from
factory to
customer
warehouse
A
Lean
B&C
Segment
Agile
Indirect distribution through
central warehouse with
combined shipments,
small sized, frequent and
with customized timetable
The Agile Supply Chain, 
D) Information as source of knowledge and supply chain
learning, anticipating “surprising” consumers
So are we for real?
Market responsiveness
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Postponement applications internal only?
Marginal side-lines (15-25% of volume) or a
key feature of volume?
Customization or just adding SKU’s?
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?
Network integration?
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60% of TPL contracts are discontinued < 3 years
Nike has 10 LPL’s 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.
Process integration?
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Are S&OP tables just great lunch opportunities?
Is there just no synergy opportunity between the
83 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.
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
Virtual integration, really virtual?
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ERP systems are typically applied within
organizations only and
Several organizations have multiple ERP’s
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:
“Don’t look at us, we don’t know either.”
Implications: A wake up call
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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)
Don’t stretch existing systems for customization,
it will lead to large scale customer dissatisfaction and
unprofitability
BE READY TO DESTROY AND REBUILD
BEFORE SOMEBODY ELSE WILL DESTROY YOU