The agile supply chain: Marketplace if the 21 century are often characterised by proliferation(??????????) of products and services, shorter product life-cycle and increased rates of product innovation. There it is not enough today to simply response at the right time in different customers’ needs of such marketplace. The main aim of logistics today is to ensure that it is the right product that is delivered in the right place at the right time. And different tools of agile supply chain are really suitable in such situation because they help to increase speed capabilities in the SC.
Moreover it is important to admit that in such market environment is impossible to use lean principles because these principles can be applied only for the markets with stable and predictable demand. But in situation where demand is unpredictable and customers requirement for variety is high the elimination of waste becomes a lower priority that the need to respond rapidly to a turbulent marketplace. 4 concepts of agile SC: There are some characteristics of agile supply chain: 1) Customer responsive – it means that SC can understand and satisfy end-customer needs.
It means that SC becomes demand-driven not forecast-driven. One of the best way of being demand-driven is to use information technologies to get data on demand direct from the point-of-sale and quickly response to it. (Zara and H&M). 2) Network-based – SC should be viewed as a network of partners who have a common goal to collaborate together in order to respond end-customer needs. 3) Process integration – it means viewing the network as a system of business processes. And integration of these processes creates power and synergy for the network.
Such processes that are not support create penalties in terms of time, costs and quality for the whole network. 4) Virtual – the use of information technology to share data between buyers and suppliers creates virtual SC. Such SC is more information-based rather that inventory-based. Electronic data interchange (EDI) and the Internet have enable partners in the SC to act upon the same data about demand. (????? ex. P205 ? ?????. ) When we should use lean and when agile SC and when both: In order to understand when we should use lean and when agile it would be better to compare different attributes of both of them.
Mason-Jones et. al. (1999) developed a comparison between agile and lean SC. 1) Lean SC is oriented on more commoditise product when agile SC in focused on fashion goods. 2) For lean SC predictable demand is important but if demand is unpredictable the elimination of waste becomes a lower priority and agile principles should be used 3) Lean SC is oriented on low product variety with long life-cycle meanwhile agile SC works with high variety of products with short life-cycle. 4) In terms of customer drivers lean SC oriented on cost but agile SC on availability. ) Lean SC focus on eliminating waste but agile SC customers and market. 6) Lean SC oriented on work standardization when agile SC focus on operator self-management to maximize autonomy. 7) The main aim of lean SC is productivity increase and costs reduction but agile SC is oriented on customer satisfaction. But there is no reason why we should use only lean or only agile SC approach. Many SCs can adopt a ‘lean’ principles for its upstream operations and then ‘agile’ principles for downstream.
It helps to create high-productivity and low-cost at the beginning and responsive processes to allow high levels of customization thereafter. Such combination of lean and agile is called ‘leagility’. (??????) Low High Low High Volume Variety / Variability “Lean” works best in high volume, low variety and predictable environments. “Agility” is needed in less predictable environments where the demand for variety is high. Demand/Supply characteristics determine supply chain strategy Predictable Unpredictable Long Lead-time Demand Characteristics Supply Characteristics Short Lead-time
There are some key points that should be realized in order to make SC more responsive: 1) Market sensitivity. This point includes the idea of being close to the market, be more sensitive to the customers’ demand and react on it as soon as possible. But in order to achieve market sensitivity company should realize several activities: * Company should identify and monitor market and competitor trends(????) * Should looking for market opportunities * Use postponement system in order to decrease the probability of producing wrong goods. * Monitor sales and be always ready to respond Use short trial runs in order to monitor the reaction of potential customers on new products 2) Network based supply – it means that company should have access to wide supplier network * company should provide quite a wide range of products * moreover company required new suppliers for new products that is why access to wide supplier base is vital 3) Virtual and process integration. It requires easy access to shared information that can be achieved by * Sharing information across the SC * Using electronic data interchange * Using real time demand information system Supplier shares demand information Characteristics of Agile organization Basing on information described above it is possible to highlight the characteristics of agile organization: 1) Agile organization is basically demand driven rather than forecast driven 2) Substitute information for inventory 3) Agile company should manage processes not only functions 4) Leverage the capabilities of their network partners 5) Employ time-based key performance indicators 6) Postpone the deployment of inventory 7) For the agile organization acceleration as important as speed.
Supply chain relations Every company in the world, if it is not fully integrated, always has its own suppliers and customers and building strong and confidential SC relationships is a very complex process. There are a lot of reasons why SC relations can be failed: * Overly optimistic * Poor communications * Lack of shared benefits * Slow payback results * Lack of financial commitment * Misunderstood operating principles * Cultural mismatches * Lack of relationship experience. According to Sako(1992), there are several types of SC relations based upon the degree of inter-firm collaboration.
A ‘spectrum’ of possible supply relations can be distinguished, ranging from: 1) arm’s length: detailed contact specifies the responsibilities of both [arties including terms and conditions. To: 2) obligational: individual contracts are still in evidence, but embedded within a broader relationship of mutual trust. But because of growing interdependence among supply chain partners obligational behaviour becomes more in evidence. Moreover level of adaptation increases in order to achieve long-term relations. The development of Sako view is that the different options can be viewed in the form continuum.
This can range from arm’s length, where the relationship is conducted through the marketplace with the price as its foundation, to vertical integration, where the relationship is cemented through ownership. Arms-length Partnership Strategic Alliance Joint Venture Vertical Integration This figure shows a continuum of relationship options. But a firm may not have the same type of relationship with all of its customers and suppliers trying to find the best one to each of them. It is possible to call all firms who are involve in a supply network as partners and their collaboration – partnership.
There are several types of partnership that can be identified: It is for the company to decide what type of partnership should be chosen for the particular partnership: short-term or long term. In order to develop good strategic partnership companies should evaluate the added value that partnership may bring. Strong cooperative partnership should be based on such characteristics: * the sharing of information (especially about demand and supply) * trust and openness * coordination and planning * mutual benefits and sharing risks a recognition of mutual interdependence * shared goals * compatibility of corporate philosophies. * Better supply chain management can benefit their bottom line, too many of them are leery about pursing modernization and efficiency fully. However, the value exists for companies who wish to make the changes necessary to achieve it. Some companies that have pursued supply chain modernization and upgrades have been able to lower costs and boost profits by tens or hundreds of millions of dollars. One way to achieve this increased value is the compression strategy.
Compression allows the processes between the buyers and vendors to be streamlined. There are a number of ways this can be accomplished, and the businesses involved must do their research to determine which are most effective for their needs. Two of the possibilities are: allowing assemblers to be responsible for maintaining the inventory so distributors only focus on making sales, and the second is eliminating the distributor channel altogether so that the assembler would be responsible for putting together the product and for making the sales.
In addition to compression strategies, there are other steps to securing productive supply chain management (SCM). First, the business must determine the strategy it wishes to use as the SCM’s guiding force. Once the company determines this, the company needs to decide which supply chain configuration will work best for it. There is a wide array of possible configurations available, so the company must again do its research. Following those decisions, the companies must also begin to forge supplier relationships.
Because the supply chain is only as strong as those relationships that bind the vendors, buyers, and other participants together, this step is crucial. Viewing these other companies and suppliers as partners in the success of the supply chain is important and should be a top priority within the buying organization. Once all of these components are in place, the business needs to take the next step and choose the proper technology architecture to make the supply chain work well. Some large businesses opt for the full implementation of an ERP system, which can effectively automate and coordinate many of the supply chain elements.
The Internet is an important productivity tool that should also be incorporated fully into the supply chain because it streamlines many of the processes involved in procurement. Effective supply chain management solves many of the problems encountered by businesses today. First, the vendors involved in the chain will actually have a clearer idea of what the buyer needs and can then adequately provide for these needs. Slow response times and delays in project start dates also become less frequent because the automated supply chain helps shave the time off of the order placement and fulfillment process.
Furthermore, Internet-enabled supply chains generally result in lower costs for all parties involved because when secure relationships are established and when the supply and demand for products is in alignment, the total prices paid by organizations are generally much lower. Lean supply chain Before talking about lean supply chain it is important to identify the term ‘lean’. Lean means a series of activities or solutions to eliminate waste, reduce non-value added operations and improve value added.
By eliminating waste lean helps to shorten the time-line between the customer order and the product shipment. This time line is usually called lead-time. It is possible to define lead-time from two perspectives: customer and supplier: For customer: Lead-time is the elapsed time from order to delivery For supplier: Lead-time is the time it takes to convert an order into cash Value-added time activities as well as cost-added time activates can be found in each part of logistic pipeline from raw materials stock to customers delivery.
And Logistic pipeline management is oriented on removing the blockages that occur in the pipeline and which lead to inventory build-ups and lengthened response time. There are several sources of non-value added time that can be identified: * Extended set-up * Change-over times * Bottlenecks * Excessive inventory * Sequential order processing * Inadequate pipeline visibility If company does not try to prevent or avoid this sources of non-value added time it may face with such activities in its operation that usually called waste.
There are seven types of waste in the SC that can be indentified: 1) Overproduction. This type of waste means that there were made or delivered too much or too early or too late. Instead of making everything ‘just-in-time’ 2) Waiting. Such type of waste takes place when time is not being used effectively. 3) Waste of transporting. This type of waste means that goods or parts of goods are moved around (e. g. from one process to the next one) without adding value. 4) Inappropriate processing. This type of waste links with extra operations, such as rework, reprocessing and so on. ) Unnecessary inventory. Inventory is a sign that flow has been disrupted, and that there are inherent problems in the process. 6) Unnecessary motion. Movement of people that does not add value. 7) Defects. It means work that contains errors, rework and mistakes. The “Lean supply chain” identifies all types of waste in the value stream chain and seeks to eliminate them Tools how identify waste: By mapping processed through the SC it is possible to sort value-adding and non-value-adding activities (transport, store, inspect and delay).
Lean thinking invites us to analyze business processes to establish the baseline of value-adding process and to identify the incidence of these seven wastes. The aim is to get parts and data to flow through business processes evenly and in harmony. The more detailed analysis prompted by the concept of seven wastes encourages a greater analysis and understanding of process and their relationships than is made by SC mapping. This analysis should first start with key business processes such as the supply pipeline.
Working back from the customer, a business should consider the following processes: -order to replenishment -order to production -product development In each of these processes, the application of lean thinking involves examining the process, quantifying waste within it, identifying root causes of the waste, and developing and implementing solutions. Examining the process involves mapping it using a variety of methods such as flow charting, depending on the nature of the process. Performance is quantified by taking measures of lead time and value-adding time often reveal the main incidences of waste.
Having identified waste, lean thinking applies the problem-solving tools associated with total quality control (TQC) to identify root causes and develop solutions. In order to avoid these types of waste company should company should follow 5 lean principles: 1. Specify what creates value from the customer perspective 2. Identify all steps across the whole value stream 3. Make those actions that create value flow – eliminate the root causes of waste 4. Only to the pace of customer demand – create pull where flow is difficult 5. Strive for perfection by continually removing successive layers of waste
There are different tools that help to eliminate or minimize waste: * Continuous Flow: Producing and moving one item at a time * Cycle Time: How often a part or product is completed by a process, including wait time * Jidoka: Immediately stop work when an abnormal condition has occurred * Just-in-Time (JIT) Production: makes and delivers just what is needed, just when it is needed, and just in the amount needed * Kaizen: Continuous improvement to create more value with less waste * Kanban: signaling device (sign) for items in a pull system According to Harrison et. at. 2008) Just-in-time (JIT): is a broad philosophy of management that seeks to eliminate waste and improve quality in all business processes. The practical idea of this principle is that a process should operate when a customer signals a need for more parts from that process. When process is operated in JIT was, goods are produces and delivered just-in-time to be sold. This principles cascades upstream through the SC with subassemblies produced and delivered JIT to be assembled,, parts fabricated and delivered JIT to be built into subassemblies, and materials bought and delivered JIT to be made into fabricated parts.
This system can be described by the diagram that compares traditional approach and JIT approach. Traditional approach JIT approach stage A orders deliveries orders deliveries buffer inventory stage B buffer inventory stage C stage A stage C stage B JIT approach characterized by lower capacity utilization in comparison with traditional approach but helps to keep lower level of inventory and reduce inventory costs because company focus on producing only when heeded. More over delivering smaller quantities more often can reduce inventory levels. ??? ??? ??????). Value stream mapping is a lean manufacturing technique used to analyze the flow of materials and information currently required to bring a product or service to a consumer. ‘Value stream’ mapping focuses on value-adding activities. It distinguishes between value-adding and non-value-adding activities. It is similar to process mapping but different in four ways: * It uses a broader range of information than most process maps. * It often has a wider scope, frequently spanning the whole supply chain. It can be used to identify where to focus future improvement activities. * Provides a common language for improvement * Shows linkage between information and material flows. There are several advantages for the company to use value stream mapping: * Visualize the whole process * See the sources of waste * Provides a common language for improvement * Makes decisions about flow apparent * Ties together lean techniques * Forms the basis of an improvement plan * Shows linkage between information and material flows