The Agile Supply Chains

One of the biggest challenges facing organizations today is the need to respond to ever-increasing volatility. For a variety of reasons, product and technology lifecycles are shortening, competitive pressures force more frequent product changes and consumers demand greater variety than ever before. To meet this challenge the organization needs to achieve greater agility such that it can respond in shorter time-frames both in terms of volume change and variety change. In other words, it needs to be able to quickly adjust output to match market demand and switch rapidly from one variant to another. Moreover, organizations of interacting elements (supply-chains are one example) can become Agile and increase their responsiveness if they can accommodate a variety of different kinds of change adequately. The paragraphs that follow describe some of the solid strategic requirements for the types of change that need to be accommodated.

Demand Management

As more and more organizations focus on improving the quality and customer responsiveness of their operations, attention tends to increasingly fall upon their supply chain. Demand uncertainty in supply chains can be addressed by faster response times. A basic product supply chain can afford longer lead times and batch manufacturing of large lot sizes to meet the demand. A supply chain that produces fashion or mass customization products must respond quickly and be more agile. Most supply chains are moving in the direction to support a more rapid changing of demand by the consumer or customer.

Flexibility

Critical issues in today's markets that define economically successful enterprises and contribute to increasingly dynamic supply chain environments are flexibility with respect to volume, type and grade of products, transition time and cost, predictability of production, reproducibility of transitions and tight quality control.

Postponement

Demanding customers and volatile markets are a common practice in many industries and more and more companies are now forced to consider postponement in their supply chain. Postponement centers around delaying activities in the supply chain until customer orders are received, rather than performing them in anticipation of future customer orders or performing them with a focus on customization and cost efficiency. Postponement contributes to agile capabilities through:

-the customization of products and services (customized and localized assembly, etc.)

-the use of customer order information throughout the supply chain (supply chain operations linked to the customer order, etc.)

-the cross functional efforts involved in assembling products in the distribution channel (linking manufacturing and distribution, potentially even product design through the redesign of products around modularity and commonality)

-the critical role of supplier networks in postponement, given the need for availability of generic modules and parts before customized assembly, etc.

At Rover for instance, the funnel design for CB40 production could well provide the necessity level of customer choice without prejudicing the economies of the vehicle.

Pareto curve approach

According to Pareto, The 80/20 Rule means that in anything a few (20 percent) are vital and many (80 percent) are trivial. By applying this principle to products and customers as for considering that 20% of products can meet 80% of the total demand and 20% of sales are relative to 80% of total sales, many companies were able to succeed by focusing on partnership with few main customers and striking the right fit between market demand and product range.

Partnerships with suppliers

Strategic alliances and partnerships are important for a successful agile supply chain. They encourage firms to focus their attention on the entire supply chain and reduce the number of suppliers they deal with. Many companies have developed preferred vendor (supplier) programs, as well as core carriers, to ensure that a quality product is received where and when it is needed.

A successful strategic alliance/partnership has the following characteristics: Extreme trust -Win/win relationship - Team building - Common goals - Cooperation (willingness to assist, better negotiations, less money driven).

Two examples can be drawn from M&S and Rover cases:

-In 1998, the relationship between M&S and its suppliers was made a role model for British industry. M&S itself acknowledged that its achievements owed much to long-standing partnerships with its leading suppliers.

-Land Rover progressively reduced its supplier base from 2000 to below 1000 in the decade before CB40 and reduced it further to just 146 afterwards. Joint technology reviews and joined problem resolution with suppliers as part of Rover's strategy helped in maintaining a number of qualified providers.

Virtual Integration

As the power of the marketplace shifts to the customer, more pressure is placed on the manufacturer to deliver a wider variety of products, of higher quality and in a shorter lead time, than ever before. The Internet gives each buyer a world of options to choose from. Suppliers must work harder and smarter than ever to survive and succeed. In today's interconnected world, responding to customer demand nearly always involves not only the manufacturer of the product itself, but also a whole chain of suppliers and their service providers. The activities of this supply chain are orchestrated, using Internet technologies for communication, through Supply Chain Management and collaborative planning applications that are coming into more widespread use. A Virtual Factory enables distributed facilities to perform in concert as if they were a single plant. It is made up of an infrastructure and a set of applications, within a connected supply chain, that allows production schedules, product data (configuration, process definitions), plant data and status information to be synchronized and made available throughout the chain. Land Rover Company for example has used a CB40 development approach based on a sophisticated information technology infrastructure, including networked CAD/CAM facilities and virtual reality modelling. This was really the main revolution thing that Rover has experienced.

Cross-docking

Cross-docking means to take a finished good from the manufacturing plant and deliver it directly to the customer with little or no handling in between. Cross-docking reduces handling and storage of inventory; the step of filling a warehouse with inventory before shipping it out is virtually eliminated.

For instance, in Wal-Mart's cross-docking system, products are delivered to Wal-Mart's warehouses on a continual basis where they are sorted, repackaged, and distributed to stores without sitting in inventory. Goods "cross" from one loading dock to another in forty-eight hours or less. This system allows Wal-Mart to purchase full truckloads of goods while avoiding the inventory and handling costs; the process reduces its costs of sales to 2 to 3 percent less than the industry average. Wal-Mart then passes these cost savings on to its customers as lower prices. Low prices enable them to forgo frequent discount promotions, which stabilizes prices. This makes sales more predictable, thus reducing stock outs and the need for excess inventory.

Conclusion

--------------

Agile is the essence of supply chain management. Adaptive, move-quickly is necessary for an effective SC. Each order must be handled differently. Each customer has its own set of instructions and requirements to satisfy its SC. The logistics director must be a maestro in managing an agile SC with its scope and breadth. The pressure for SCs to be agile will continue. Information technology and collaboration are also vital to agility success. Time demands, inventory pressures, cost and service requirements and continuing global supply chain complexity demand it.