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Towards the Agile Supply Chain Prof.Dr. Remko I. van Hoek Cranfield School of Management, UK Corporate Executive Board, Washington DC.

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Presentation on theme: "Towards the Agile Supply Chain Prof.Dr. Remko I. van Hoek Cranfield School of Management, UK Corporate Executive Board, Washington DC."— Presentation transcript:

1 Towards the Agile Supply Chain Prof.Dr. Remko I. van Hoek Cranfield School of Management, UK Corporate Executive Board, Washington DC

2 The Agile Supply Chain = 3W  P 1. What is it? 2. Who needs it? 3. Where do you stand? 4. Practices and their achievement. Sources: Cranfield study agility in the supply chain among 264 companies and Cranfield study on postponement among 293 companies

3 What has happened to your forecast? What about zero inventory policies and JIT? What about global sourcing and supplier relations? 911 Alarm call for traditional supply chains

4 Slowdown or breakdown? Inventory write off’s, Supplier discounts, Chips industry: capacity building in peak period and price cutting in the valley, Capacity squeeze or supply chain reconfiguration needed?

5 Some answers that have not worked sofar >Information integration as an answer to bullwhip effects >Supplier partnerships in the light of inventory reductions >Supply chain integration by all major players? >End-customer driven?

6 With changing supply chain requirements….

7 …and changing management priorities

8 the Agile Supply Chain is commonly targeted “From supply chains of one to supply chain for one” Gaining competitive edge in volatile markets through rapid responsive in and rapid reconfigurability of the supply chain

9 Example: Smart Car l Customer specified car (on the web or using a product configurator in the dealership) l Ordered straight into the factory where l Suppliers are co-located l Making modules to order l Based upon shared order information and co-design l Assembling the car in 4.5 hours and l Delivering to the customer in 2/3 weeks

10 Example: Nike l From 60% delivery accuracy l With a 6 months lead time for l Products with a 45 day lifecycle l To a diversified distribution capability with >direct delivery of large volumes, >central replenishments of smaller orders, >establishment of satellites and >information integration all around.

11 The Agile Supply Chain, What is it? IBM Compaq Toshiba N Parts Modules Manufacturing Distribution B Horizontal supply web based structuresA Vertical company based chains Source: Based on Fine, 1998 From single company to multicompany entry, From physical to physical and information flow, From focal company to consumer centric, From rigid integration to dynamic and temporal integration

12 The Agile Supply Chain, What is it? Primary design principle: Processes Functional/ Geographical/ Product departments Make and sell Sense and respond Agile supply chain What we do today Control based on networking Vertical command and control CustomizationLow High Service window LongShort

13 Contrasting archetypes “What we do now” “What could/should we be doing” Cost driven Customer driven Manufacturing Service efficient effective Full pallets, No fixed sizes; full container “Batches of one” loads, large batches Push/manufacturing Pull/customer in out Select from what is Meet demand instantaneously/ available or wait within customer time window (ever decreasing) Strategy Organization Logistics Ops. Service

14 Which requires a lot…..

15 …of things not yet achieved 0505 Market responsiveness Process integration Network integration Virtual integration 3.26 3.12 3.04 2.20

16 Who needs it? Contingency based practical approach to agility; Pareto Distribution

17 Segmenting production Base Surge Time DemandDemand CacItyusageCacItyusage Level production For surge For base

18 Segmenting the plant network Variety Speed Innovation plant, projects Mass production Centralized distribution Modular consortium Direct distribution Quick response from inventory

19 Demand characteristics Supply characteristics Long lead-time Short lead-time Predictable Unpredictable markets JIT Plan and execute Lean React and execute Agile Hedge and deploy Hold inventory

20 Levels of postponement and customization

21 Market sensitivity ProcessNetworkintegration/ innovativenesscooperation Virtual integration Goal Supply chain capa- bilities The Agile Supply Chain, Where do you stand? EG E does not stand for everything, From key dimensions to key practice….

22 The Agile Supply Chain, Practices Preliminary level; adjust existing organization Advanced level; integrate and reconfigure flow of goods Far reaching level; involve knowledge and information Variance Time Volumes

23 The Agile Supply Chain, Key Practices Variance Seasonality swapping Prosuming Reversed life cycling

24 Time Demand variance A) Two season pattern B) Two season after swapping Time Variance 1 Move peak to before peak low 2 Peak decreases 3 Safety net created 4 Repeat The Agile Supply Chain, Key Practices

25 Phases of lifecycle Need for agile entrepeneurship Need for standardization 1 2 3 4

26 The Agile Supply Chain, Key Practices Time Rapid Upstream Information replenishment speed dissemination

27 The Agile Supply Chain, Key Practices Volumes Flexibility Supply network Information content

28  The Agile Supply Chain,  A)Multiplant tiering Volume Variety Plant A Plant B Examples: >National Bicycle >Concorde Lighting

29  The Agile Supply Chain,  B)Design for supply chain (E=MC 2 ) Beyond design for logistics (packaging etc.) and product modularity towards: Modular process, Service content, Multimedia support Example: Smart

30  The Agile Supply Chain,  C)Segmented distribution at Nike LeanAgile A B & C Segment Direct distribution from factory to customer warehouse Indirect distribution through central warehouse with combined shipments, small sized, frequent and with customized timetable

31  The Agile Supply Chain,  D)Information as source of knowledge and supply chain learning, anticipating “surprising” consumers

32 So are we for real? l Postponement applications internal only? l Marginal side-lines (15-25% of volume) or a key feature of volume? l Customization or just adding SKU’s? l The only thing we know about forecasts is that they are wrong? l 10 forecasts for one market (by function, business unit and player)? l Sales and competitive gaming? l Deterministic planning systems? Market responsiveness

33 l 60% of TPL contracts are discontinued < 3 years l Nike has 10 LPL’s in Europe? l Zero inventory is a waste of time l Do we use open books or dual books? l Target costing or cost squeezing? Example: A car manufacturer established supplier partnerships (co-location, JIT, on sequence delivery within 1.5 hours after ordering of specific parts) but did not provide suppliers with mid-long term forecasts and +3 year contracts. As a result suppliers did not invest and hired a TPL warehouse where they stored enormous amounts of parts to deliver to order. Network integration?

34 Process integration? l Are S&OP tables just great lunch opportunities? l Is there just no synergy opportunity between the 83 supply chains within our organization? l Do we now call logistics supply chain? l Do we still draw supply chains as linear sequences of (internal) functions (the Porter curse) Example: In car manufacturing, assembly processes have been lowered to about 9 hours thanks to leaning, time compression and FMS. After fast cycle assembly however, the typical car is stored in the factory lot, a DC or at the dealership for several months.

35 Virtual integration? Focal player Integration scores in information space: Nike: 178 Internal legacy systems Demand filters upstream; no signal 2 tiers up Sales gaming and data aggregation

36 Virtual integration, really virtual? l ERP systems are typically applied within organizations only and l Several organizations have multiple ERP’s l Dual systems in the supply chain with manual interfaces? l Do you get charged for POS data too? l Does every player has to have his own exchange? l And participate in several exchanges to spread risks? Example: When a lead supplier asked a manufacturer about demand filters and poor visibility of demand the manufacturer responded: “Don’t look at us, we don’t know either.”

37 Implications: A wake up call l The economic slowdown was a painful awakening for the proclaimed leaders l Information availability is not the answer l All strings are off: forget about what you grew up with (EOQ, Batching, Volume Discounting, EOScale) l Don’t stretch existing systems for customization, it will lead to large scale customer dissatisfaction and unprofitability l BE READY TO DESTROY AND REBUILD BEFORE SOMEBODY ELSE WILL DESTROY YOU

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