BA 331 Supply Chain Management Exam 2 Study Guide From BookChapter 5Watch This video for Chapter 5 - Mast - Supply Chain Redesign● One of the biggest challenges facing organizations today is the need to respond to ever increasing levels of volatility and demand. For a variety of reasons products and technology life cycles are shortening, competitive pressures force more frequent productchanges and consumers demand greater variety than ever before.○ To meet this challenge, organizations need to focus its efforts upon achieving greater agility such that it can respond in shorter time-frames both in terms of volume change and variety change. ● Agility in the sense of the ability to match supply with demand is not necessarily synonymous with “leanness”. ○ Agility has many dimensions and the concept applies as much to networks as it does to individual companies. The key to agile response is the presence of agile partners upstream and downstream of the local firm. Whilst orgs may have internal processes that are capable of rapid response, their agility will still be constrained if they face long replenishment lead times from suppliers● Leanness in a sense is about doing more with less. It owes its origins to the Toyota Production System (TPS) and its preoccupation with the reduction or elimination of waste (muda). Lean manufacturing is characterized by “level schedules”, i.e., a forward plan to ensure that the use of resources is optimized.○ This was an industrial context represented by the volume manufacture of relatively standard products (low levels of variety) and a focus on achieving efficiencies in the use of resources and in maximizing economies of scale. In this type of situation, i.e. standard products and relatively predictable demand, lean practices work well. ○ However, in market environments where demand is uncertain, the levels of variety are high and consequently volume per stock keeping unit (SKU) is low, then a different response is required. Whilst efficiency is always desirable, in the context of unpredictable demand it may have to take second place to “effectiveness” as the main priority for supply chain management. By effectiveness in this context is meant the ability to respond rapidly to meet the precise needs of an often fragmented marketplace. In other words, rather than the emphasis being on producing standard products for mass markets ahead of demand, the requirement becomes one of producing multiple product variants (often customized) for much smaller market segments in response to known demand. Lean or agile or?● The image below reflects the different contexts in which the lean and agile paradigms might work best.● Agile will probably cost more.● High volume, low variety, lean works best.● Low volume, high variety, agile works best.● In reality, within the same business it is likely that there will be the need for both lean andagile supply chain solutions since some products will have predictable demand whilst forothers, demand will be far more volatile (liable to change).● One way to identify what types of supply chain strategies might work in different circumstances is to position the products in an organization’s portfolio according to their supply and demand characteristics. ○ By supply characteristics is meant the lead time of replenishment. If replenishment lead times are short then a different supply chain strategy can be used than when lead times are long.○ Demand characteristics may be characterized by the predictability of demand. One measure of demand predictability is the variability of demand; by definition demand that does not vary much from one period to another is easier to predict.● The image below suggests four broad generic supply chain strategies dependent upon the combination of supply/demand conditions for each product:● With Lean, lead times are long but demand is predictable. Materials, components, or products can be ordered ahead of demand and manufacturing and transportation facilities can be optimized in terms of cost and asset utilization. ● Conversely, Agile will best fit when demand is unpredictable but lead times are short, enabling “quick response” type solutions - the extreme case being make-to-order (but in very short time frames).● The top right corner has long lead times and demand is unpredictable. Therefore, the first priority should be to seek to reduce lead times since the variability of demand is almost certainly outside of the organization’s control. Lead time reduction would enable the application of agile solutions. However, if lead times cannot be reduced the next option to the supply chain is to seek to create a hybrid lean/agile solution. These hybrid solutions require the supply chain to be de-coupled. De-coupling the supply chain through holding strategic inventory in some generic or unfinished form, with final configuration being completed rapidly once real demand is known. This is the classic postponement strategy. The goal of a hybrid strategy should be to build an agile response upon a lean platform by seeking to follow lean principles up to the de-coupling point and agile practices after that point. Image below shows this:● Example of de-coupling point enabling a lean/agile hybrid strategy is provided by the paint industry. (Example of having customized paint at lowe's.)● To be truly agile a supply chain must possess a number of distinguishing characteristics: ● Firstly, the supply chain is market-sensitive. This means that the supply chain is capable of reading and responding to real demand. Most organizations are forecast driven rather than demand driven.● The use of information technology to share data between buyers and suppliers creates avirtual supply chain. Virtual supply chains are information based rather than inventory based.○ Electronic Data Interchange (EDI) and now the internet have enabled partners in the supply chain to act upon the same data, i.e. real demand, rather than be dependent upon the distorted and noisy picture that emerges when orders are transmitted from one step to another in an extended chain. ● Supply chain partners can only make full use of shared information through process alignment, i.e. collaborative working between buyers and suppliers, joint product development, common systems and shared information.● This idea of the supply chain as a confederation of partners linked together as a
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