Emeritus Professor Martin Christopher Cranfield School of Management

Cranfield University Cranfield

Bedford MK43 0AL United Kingdom

Tel : 44 (0)1234 751122 Fax : 44 (0)1234 721225

E-mail : m.g.christopher@cranfield.ac.uk www.martin-christopher.info

Developing Agile Supply Chain

Strategies for a Turbulent World

Picture source: http://1ms.net/turbulent-waters-108045.html

Agenda

• The new competitive environment

• Complexity and volatility have changed the

rules of the game

• From ‘forecast-driven’ to ‘demand-driven’

• A route map to agility

• The search for structural flexibility

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New competitive realities

• Input costs are rising but …

• New sources of low cost competition mean that the

pressure on price will continue and …

• Continued concentration of markets means that

bigger, more powerful customers will demand more

from their suppliers whilst …

• Conventional marketing strategies

have less effect in a time-sensitive,

on-demand world

Picture source: http://www.etftrends.com/2009/09/finra-raises-margin-requirements-leveraged-inverse-etfs/

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Commodity Price Index

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Volatility Index

Anticipated Sources of Volatility

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Demand Volatility

Volatility of Market

Prices of our Outputs

Volatility of Prices of our Inputs: Raw Materials, Resources (including

Energy)

Exchange Rate Volatility

Current Year Next 2 Years_

18%

22%

15%

16%

29%

30%

15%

12%

Source: The Hackett Group 2012, Key Issues Study

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The rise of demand-driven supply chains

• Because markets have become more turbulent they have become harder to predict.

• As a result there is a growing requirement to move from being forecast-driven to being demand and event-driven.

• This implies a higher level of responsiveness and agility across the supply chain.

Picture source: http://www.thebcg.com

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The impact of complexity

• Much of the cost in today’s supply chains is

there because of the continuing increase in

their complexity.

• Complexity is also a major barrier to agility and

responsiveness.

Picture source: http://massively.joystiq.com/2008/12/01/the-negative-impact-of-complexity-on-mmos-and-virtual-worlds/

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Complexity impedes agility

• One of the biggest barriers to improving

agility in the supply chain is complexity.

• Complexity is also one of the major

drivers of cost in the end-to-end supply

chain.

• Supply chain managers must become

‘complexity Masters’ if the goal is to

enhance agility at less cost.

Picture source: http://newfoundnation.wordpress.com/2010/06/10/facing-obstacles-is-necessary-in-community-development/

• Substitute information for inventory

• Work smarter, not harder (eliminate or reduce non-value adding activities)

• Partner with suppliers to reduce in-bound lead-times

• Seek to reduce complexity (not necessarily variety)

• Postpone final configuration/assembly of products

• Manage processes not just functions

• Utilise appropriate performance metrics, e.g. end-to-end pipeline time

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Seven steps to agility

Picture source: http://janedundee.com/big-changes-small-steps-2/

Conventional supply chain design

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Picture source: http://www.ticsales.com.au/what_we_do.asp

• Based on conditions of relative stability

• Designed to optimise production flows

• Often based on ‘lean’ thinking

• Network optimisation based on cost rather than responsiveness

What is structural flexibility?

Structural flexibility implies a willingness to invest in solutions that maximise responsiveness rather than minimise cost.

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Picture source: http://www.inhabitat.com/wp-content/uploads/twirlingtower1.jpg

In conditions of increased supply and demand uncertainty the ability to rapidly adopt or re-configure the supply chain becomes critical.

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Structural vs Dynamic Flexibility

Dynamic flexibility is a reflection of the agility of the supply chain, particularly its ability to respond rapidly to variations in volume and mix.

Structural flexibility is the ability of the supply chain to adapt to fundamental change, e.g. if the ‘centre of gravity’ of the supply chain changes, can the system change?

Picture source: http://cameronbland.wordpress.com/2012/04/13/cinema-vs-dvd/

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Moving from dynamic to structural flexibility

Efficient Supply Chain

Adaptable Supply Chain

Traditional Supply Chain

Dynamic Flexibility

Structural Flexibility

Low

Low

High

High

Variable lead-times or flexible capacity

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Source: Aronsson, 2000

Capacity Capacity

Fixed Capacity

Fix

ed

Lead

-tim

e

Lead-time Lead-time

Flexible Capacity

Variable Lead Time

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Gaining structural flexibility

• Investigate ‘local-for-local’ alternative to global sourcing and centralised manufacturing

• Focus on the ‘economies of scope’ rather than the ‘economies of scale’

• Create ‘bandwidth’ through asset sharing, e.g. capacity and inventory

• Adopt a ‘real options’ approach to supply chain decision making

Picture source: http://www.inhabitat.com/wp-content/uploads/twirlingtower1.jpg

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Thank you

For further information…

Dr Martin Christopher

Emeritus Professor of Marketing and Logistics

Cranfield School of Management

Cranfield Bedford

MK43 0AC

United Kingdom

E-mail: m.g.christopher@cranfield.ac.uk

Web: www.martin-christopher.info