agile supply chain

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Agile Supply Chain


  • 1. Agile Supply Chain Archil Nasrashvili

2. First Point: Existent Environment Globalization Of Competition Customer Bargaining Power Increase Demand For Innovative Product Features More Product Varieties Better Performance And Quality At A Best In Class And Greater Speed - Consumers Expect Fulfilment Of Demand Almost Instantly At A Competitive Price 3. Second Point: Demand and Product Varieties Predictable Demand Versus Unpredictable Functional Versus Innovative Products Predictable: Example: Staples Satisfy Basic Needs And Have A Predictable Demand With A Long Lifecycle And Low Profit Margin Product Life Cycle More Than 2 Years The Margin Of Error For Forecasting For Functional Products Is In The 10 Per Cent Range Rivals: Many Unpredictable: Innovative Products: Like State Of The Art MP4 Players Or Fashion Clothes Having A Short Life Cycle Short Lead Time With Higher Profit Margins But With Very Unpredictable Demand Product Life Cycle From 3 Months To 1 Year The Margin Of Error For Forecasting Varies From 40 To 100 Per Cent Rivals: Few 4. Third Point: Types of S.Chs In Their Pure Form Three Models Of Supply Chain Can Be Identified Being Traditional, Lean And Agile Traditional Known For: Protection Of Market, Aims For Leadership Forecast Driven Higher Emphasis On Customer Service Than Cost Inventory Held To Buffer Fluctuations In Demand And Lead Times Lean Characteristics: Integration Upstream With Suppliers Integration Downstream With Customers High Emphasis On Efficiency Aims For Minimum Stock Holding Agile Known For: Flexibility And Speed In Coping With Innovative Products And Unpredictable Demand, Achieving Responsiveness Advantage Although Many Supply Chains Will Be A Hybrid Of Models 5. Agile Supply Chain Fits Unpredictable Demand / Innovative Products Traditional Forecast Driven Lengthy Supply Line Has Become Untenable For Consumer Products Innovative Products Need An Agile Supply Chain While Predictable Demand Products Need Traditional Or Lean Value Chains To Minimize The Cost As Much As Possible To Withstand Bigger Competition We Know That Not Too Many Companies Have Power To Operate In Innovative Product Business And Thus They Place Themselves With Functional Products, And Thus The Competition Is Bigger, Followed By The Bigger Need For Efficiency Lean! 6. Agile Supply Chain Connection To Business Strategy Lean Supply Chain Should Be Applied Upstream The CODP, While An Agile Supply Chain Would Be More Suitable For Downstream Operations The Distinction Between Lean And Agile Has Been Tested Empirically Concerning Drivers And Performance Outcomes: They Found That Lean Is Associated With A Cost Leadership Strategy And Cost Performance, While Agile Is Associated With A Differentiation Strategy And Flexibility Performance 7. The Characteristics Of An Agile Supply Chain: 1.Flexibility (Flexibility = Changes In Demand For Both Volume And Variety) Short Lead Times Fast Replenishment Of Goods Reduced Complexity Of Products For Mass Customization Reduced Complexity In Process By Standardization Organizational Flexibility Via Multiskilling And Seamless Working Practices 8. The Characteristics Of An Agile Supply Chain: 2.Market Sensitivity Demand Planning Based On Actual Customer Orders Instead Of Traditional Forecasting Methods In Addition: Efficient Consumer Response (ECR) & Customer Relationship Management (CRM) Usage Loyalty Cards And Store Cards Are Some Of The Means The Scheduling Of Operations Based On Backward Scheduling Approach 9. The Characteristics Of An Agile Supply Chain: 3.Virtual Network The Use Of Internet And Information Technology For The Real-time Sharing Of Data Between: Customers Buyers Suppliers Planners Manufacturers Distributors In A Virtual Network. The Visibility Of Demand And Collaborative Planning, Forecasting And Replenishment (And This Way You Avoid The Bullwhip Effect As Well) 10. The Characteristics Of An Agile Supply Chain: 4.Postponement 1. Basic, Standardized Components And Procedures For Different Products Are Always Ready (Stocked, Buffered) 2. The Final Assembly Or Customization Does Not Take Place Until The Final Customer Or Market Requirements Are Known 3. When There Is An Order, You Start Manufacturing The Standardized Components Into The Customized Finished Goods (There is a Note) 11. Explanation: Base For Postponement Method Idea Two Ideas Behind Postponement: 1.Demand Projections For A Product Group Are Generally More Accurate Than Projections For Individual Products. Example: Total Demand For LCD TVs Vs Individual TV Of A Specific Brand 2.The Accuracy Of Forecast Demand Decreases With An Increase In The Time Horizon. (Examples are in the Notes) 12. The Characteristics Of An Agile Supply Chain: 5.Picking Some Lean Principles A Pure Lean Strategy Can Be Applied Up To The De-coupling Point And Then An Agile Strategy Can Be Applied Beyond That Point So The Same Basic Parts Can Be Leaned And The Customization Parts Need Agile Approach. It Should Be Possible To Achieve Volume-oriented Economies Of Scale Up To The De- coupling Point. (Note) 13. Term Definition: De-Coupling Point Decoupling: The Separation Of Previously Linked Systems So That They May Operate Independently The Decoupling Point Is A Standard Term Given To The Position In The Material Pipeline Where The Product Flow Changes From Push To Pull Before The Point Where The Materials (The Inputs Into The Products, The Parts) Are Not Needed For Non Business Customers 14. 4 Rules For Achieving Agility The Agile Supply Chain Is Achieved, According To The Author, By Adopting Four Rules: 1. Accept That Uncertainty Is Inherent In Innovative Products, 2. Reduce Uncertainty By Finding Data That Can Support Better Forecasting 3. Avoid Uncertainty By Cutting Lead Times, Increasing Flexibility In Order To Produce To Order Or Move Manufacturing Closer To Demand And 4. Hedge Against Uncertainty With Buffer Inventory And Excess Capacity 15. Achieving Agility In Production (Some Ideas) The Agile Supply Chain Is Achieved By Buffer Capacity And Buffer Stocks (Note) Cellular Manufacturing Layout of The Factory Is Recommended Usage of ERP System is Almost a Must (Enterprise-wide integration of functions) Cross functional teams Decentralized decision making (At Operational Level) Learning Organization Principles Suppliers Should Be Agile Enabled as Well 16. Agility Objectives 4 Pivotal Objectives Of Agile Manufacturing As Part Of An Agile Supply Chain 1. Customer Enrichment Ahead Of Competitors 2. Achieving Mass Customization At The Cost Of Mass Production 3. Mastering Change And Uncertainty Through Routinely Adaptable Structures And 4. Leveraging The Impact Of People Across Enterprises Through Information Technology 17. Case Example: Zara: 1. Market Sensitivity: Cross-functional Team Comprising Of: 1. Fashion 2. Commercial And 3. Retail Specialists Try To Plan The Supply Based On Identification Of International Fashion Trends Of Target Customers Via Visits To: 1. Relevant Fashion Shows 2. Stores 3. University Campuses 4. Cafes 5. Clubs And 6. Events Appropriate For The Life Style Of Young 7. Along With Regular Inflow Of Sales Data From Companys Stores Around The World 18. Case Example: Zara: 2. Decoupling Point & Postponement Principle: Base materials: Approximately 40 per cent of broadest but least transient garments are purchased as finished products from the low cost centers of the Far East They postpone manufacturing before they agree on the trend Decoupling point materials: The remaining 60 per cent are produced by quick response in Zaras-automated factories in Spain and a network of small contractors 19. Case Example: Zara: 3. Flexibility Flexibility: The operations with a higher economy of scale (e.g. cutting, dying, labelling and packaging) are conducted in-house to enhance cost efficiency = Lean Principle! Other manufacturing activities including the labor intensive finishing operations are accomplished by a network of 300 specialist subcontractors = Agility Principle! These subcontractors work exclusively for Zaras parent company, Inditex SA. They receive necessary training and technological, financial and logistical support as if they are subsidiaries of Zara


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