www.supplychainebusiness.com/archives/10.00.Variability -
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Published on: 10/1/2000
Last Visited: 3/30/2002
The key to keeping pace with change is supply-chain agility, says Martin Christopher, professor of marketing and logistics at England's Cranfield School of Management.With roots in flexible manufacturing systems, the idea of agility calls for companies to react to the peaks and valleys of demand, along with changes in product configuration, as fast as possible.In the process, says Christopher, time becomes a competitive weapon.
An agile organization promotes the free flow of product data among trading partners, resulting in the so-called virtual supply chain, wherein inventory is at least partly replaced by information.Retail-industry programs such as Efficient Consumer Response (ECR) and Collaborative Planning, Forecasting and Replenishment (CPFR) have helped to speed point-of-sale data up the chain to manufacturers and their suppliers.Supply-chain partners can collaborate on short-term sales and promotions, which might otherwise be plagued by hazy guesses as to how much product is going to sell.
Agile supply chains rely more on actual demand than on forecasting.
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Christopher cites San Jose, Calif.- based Cisco Systems Inc. as a company that shares information with its suppliers immediately upon receiving an order.Agile supply chains seek to operate less on the basis of forecasting and more on actual demand.In a perfect world, where information was instantly available and organizations designed for maximum efficiency, companies wouldn't need long-term demand forecasts for finished product at all.But such a scenario is far from becoming a reality, if it ever will.Customer tastes are far too fickle for that.
Instead, forecasting can be used to determine the rough number of needed goods, with "live" purchasing data filling in the details.
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"You forecast capacity," explains Christopher, "but you execute against demand."
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But Christopher says the need for agility rules out the use of a single, long-term supplier for any given product or component.Companies must be able to draw on a portfolio of vendors to meet immediate needs.And even those entities must be subject to continual review.Old- line organizations can be hobbled by partners whose competence hasn't been questioned for years.
Nor is exclusivity a desired goal in the modern-day supply chain.That notion went out the window with the advent of contract manufacturers, any one of whom might be turning out product for sworn rivals.
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Christopher says partners must collaborate on product development, information systems, and long-term strategy.In theory, they will create the kind of supply chain that can compete as a unit, not with other manufacturers, distributors or retailers, but with other supply chains.The popularity of outsourcing, as well as the growth of global commerce, demands that approach, he says.
Lean or Agile?To some extent, the push for supply-chain agility represents a shift in managerial thinking.The last decade has seen a focus - some call it an obsession - with leanness.Companies have become fixated on driving out every last scrap of waste, with a particular emphasis on inventory.But at some point, that mission threatens to collide with the need for agility.If a manufacturer's inventories are stripped to the barest minimum, how can it respond quickly when sales of a given item unexpectedly surge?
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The lean approach makes sense where demand is predictable, product variety low and volumes high, says Christopher.Where the opposite is true, companies may run into trouble.The automotive industry in the western hemisphere, for example, is marked by unpredictability, high variety and low volumes at the individual SKU level.Yet automakers have touted leanness as a key business goal.
It could be necessary to back away from the lean model in order to achieve a measure of agility, Christopher says.Manufacturers might have to turn out product in smaller batches and resort to more changeovers.
"The flexibility gained more than pays for that," says Christopher.U.S. Steel built a series of "mini-mills" that were more expensive to maintain than the big integrated mills, yet better able to respond to the market.The total supply-chain cost was less.
Still, companies would be wrong to venture toward extremes.Frequently the solution will lie in a mix of leanness and agility.Zara competes head-to-head with fashion giants such as Benetton and The Gap through its ability to react quickly to new trends.
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