UNIT V- AGILE SUPPLY CHAIN
Learning Objectives:
1. Understand the characteristics of agile supply chains.
2. Analyze the principles and adaptability of the Agile Supply Chain framework in dynamic
environments
3. Evaluate strategies for improving responsiveness in supply chains.
4. Create internal strategies that support agile supply chains.
Pre-Test
Brainstorming
Objective: To assess students' prior knowledge and understanding of supply chain concepts,
particularly those related to lean and agile principles.
Instructions:
1. Read the provided excerpts.
2. Individually or in small groups, brainstorm and discuss the following:
o Key differences between lean and agile supply chains.
▪ Consider factors like:
▪ Product characteristics: (e.g., commodity vs. fashion)
▪ Market demand: (e.g., predictable vs. volatile)
▪ Customer drivers: (e.g., cost vs. availability)
▪ Focus: (e.g., efficiency vs. responsiveness)
o What are the key challenges in implementing an agile supply chain?
▪ Think about:
▪ Organizational culture and mindset.
▪ Technological requirements.
▪ Building and maintaining strong supplier relationships.
▪ Measuring and improving agility.
o How can companies achieve greater agility in their supply chains?
▪ Discuss potential strategies, such as:
▪ Postponement.
▪ Order decoupling points.
▪ Developing strong information systems.
▪ Building a flexible and adaptable workforce.
o What are the potential benefits and drawbacks of an agile supply chain approach?
Expected Outcomes:
• Students should be able to identify key distinctions between lean and agile principles.
• They should be able to articulate the challenges and opportunities associated with implementing an
agile supply chain.
• Students should demonstrate critical thinking skills by analyzing the provided information and
formulating their own insights.
The Need for Agility
- the lean system was developed from a forecasting-based volume production industrial sector where
the market differentiator is reliability and cost
- today a large part of our global market is variety dominated and the differentiator is speed and
responsiveness. Hence, lean probably is not a cure-all approach after all
- supply chains are driven by the end-consumers in the dynamic market places. The need for supply
chain agility ultimately comes from the consumer
- the customer behaviors could be driven by uncertainties caused possibly by world oil prices,
terrorism-related demand change or by the impact of new technological advancement
- unpredictability is not so much the result of one customer ad hoc behavior; it is combined effect of
an uncertain world rippling up and down the supply chain
- the longer the supply chain the more complexity and increased risk of the bullwhip effect
- the dominant buying behavior of customers in an agile supply chain operated environment is that
of demanding a quick response
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Agile Supply Chain Concept
- puts constant emphasis on efficient processes and empowered employees
- focus in an agile supply chain is on being fast and also on being smart in how you aligning with the
increasingly demanding customers
- agility is a supply chain-wide capability that embraces organizational structures, value chain
configurations, information systems, logistics processes and in particular mindset and culture
- key characteristic is flexibility, which should be interpreted from two side of the supply chain
- from the inside of the supply chain, such flexibility means configurations and structures are not fixed
- from outside, i.e. from market and consumer perspective, the supply chain must deliver timely
products and services; and deliver them at the beginning of the usually short profit widows; often to
be innovative and to be the market leader
Agile Supply Chain
- a sophisticated set of processes that enables businesses to channel resources more
efficiently, enhance inventory management, and increase productivity
- allows companies to better control the production of goods and materials for customer demand and
prioritize resources for significant orders
- adapted to streamline and control manufacturing and distribution, and manage inventory
- practical approach to managing supply networks and developing flexible capabilities to satisfy the
fast-changing customer demand
- about moving and transforming a supply chain that is structured around the focal company and its
product categories to the one that is centered on end-consumers and their requirement.
- capabilities are created and measured from the ‘outside-in’ as opposed to pushing product offerings
into the market - the ‘inside out’
- the strategic focus is a relentless pursuit of customer value in every part of its fabric
- the operational planning is focused on the capabilities for responsiveness and constantly in
anticipation of unpredictable sudden changes in demand
- such capability building and customer attention cannot be achieved without a cost
Lean vs. Agile Supply Chain Variety and Volume Observation
Lean vs. Agile Supply Chain Supply and Demand Characteristics Observations
Comparison of lean supply with agile supply
- developed by Mason-Jones et al. (1999 by observing a whole host of supply chain attributes
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Distinguishing Attributes Lean Supply Agile Supply
Typical products Commodities Fashion goods
Market place demand Predictable Volatile
Product variety Low High
Product life cycle Long Short
Customer drivers Cost Availability
Profit margin Low High
Dominant cost Physical cost Marketability cost
Stock-out penalties Long-term contractual Immediate and volatile
Purchasing policy Buy materials Assign capacity
Information enrichment Highly desirable Obligatory
Forecasting mechanism Algorithmic consultative
Agile Supply Chain Framework
- Proposed by Professor Alan Harrison of Cranfield University (Harrison, 1999), which was perhaps
the earliest theoretical attempt to the framework
Key Components of Agile Supply Chain
1. Virtual Integration
- allows information to move quickly amongst relevant departments, regardless of the physical
distance between them
- as the demand from the market or end consumers increases, that demand information is collected,
analyzed, and transmitted through collaborative planning that includes all departments within the
organization who have the capacity to fulfill that demand
- characterized by informal and flexible and dynamic relationships between the divisional units and
different sectors of the supply chain
- does not centrally control the supply chain operations, but rather it supports and facilitates larger or
overall supply chain initiatives from which many parts of the supply chain can and should benefit
- provides senior management with a method for supporting and steering direction on the most
important direction
- as the structure and processes have been kept minimum in the virtual integration, and individual unit
involvement remains fully empowered, the supply chain becomes more agile and responsive
- using Information Technology to share data between buyers and suppliers is, in effect, the creation of
a virtual supply chain
- a virtual supply chain is information based rather than inventory based
2. Market Sensitivity
- the supply chain can read and respond to real demand
- the Efficient Consumer Response (ECR) and use of Information Technology to capture data directly
from demand and from point-of-sales are now transforming the skills of the organizations to listen
the voice of the market and respond directly to it
- the supply chain’s internal measures, whatever it may be, are sourced directly from and linked closely
with the external market that the supply chain is operated in
Implications of Market Sensitivity
1. internal performance measure
- every measure must be immediately or ultimately linked to the consumers in the market place
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- linking internal customers and external customers all to the ultimate end-consumers
2. quick responsiveness
- how quick can a supply chain respond to the market change is a primary measure for the agility of the
supply chain
- largely dependent on how closely the supply chain is able to sense the sudden changes of the market
behavior
3. Process Integration
- integration of a process is composed of: the collaborative work between buyers and suppliers,
partnership in the development of products, common systems, and information sharing
- becoming increasingly prevalent in companies focused on managing their core competences and
outsourcing all other activities
- greater dependence on suppliers and alliances with partners becomes inevitable and, therefore, a
new style of relationship is essential
- there can be no limits and a spirit of trust (true agreements) and commitment prevail
- comes joint strategy determination, buyer-supplier teams, information transparency and accounting
- require higher level of integration between internal operational processes, such as sales, forecasting,
production planning, sourcing, and delivery
- when sales operation sensed any change of market trends it will trigger a chain reaction of responsive
or corrective changes through many other operations in the supply chain
- how fast the supply chain can react to the market change is dependent on the speed of changes in
many other internal processes
How to Achieve Process Integration
1. forecast by market not by business units
2. set out to create the capability of coordinating the three prime sectors source-make-deliver
3. managers must link forecasting to improvement goals
4. Network-based
- organizations that can better structure, coordinate and manage relationships with partners and form
networks committed to serving consumers through a better, closer and more agile relationship with
their consumers will perform better
- in the current global market, the route to sustain competitive advantage lies in the ability to leverage
the strengths and competencies of network partners to achieve greater responsiveness to market
demands
- dynamic network is preferred by the agile supply chain
- the ties between suppliers and buyers, and amongst the suppliers themselves, are much looser than
that of a stable network
- the ties between suppliers and buyers, and amongst the suppliers themselves, are much looser
- short term contracts or virtual relations are more often the cases
- market forces rather than formalized structures are the means by which the parties are bonded
together
- relies on more sophisticated information systems with high level of information disclosure between
the parties, whereby instant switch of connection can be easily established if required by the sudden
change of market
Competing in Responsiveness
- market place to test the agile supply chain is presumed to be volatile and fast-changing in nature
- top measure for the fitness of a supply chain is responsiveness
- typically, high responsiveness cannot be achieved for minimal cost
- there is always an incremental cost associated with servicing the changing demand
- those who need urgent service will pay a premium
- if the customer’s demand is not urgent, they perhaps can wait or chose the alternative cheaper version
which is often offered by lean supply chains
- agile supply chains can respond rapidly and with high priority in unpredictable supply and demand
conditions
How to Create the Structured Supply Chain Responsiveness?
Postponement or Delayed Configuration
- strategy used in the supply chain to delay the final customization or assembly of products until
closer to the time of consumer purchase
- not just an operational trick, it requires the supply chain to configure in a particular way which may
or may not be so obvious at the first sight
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- the goal is to increase flexibility and responsiveness in the supply chain while reducing the overall
costs associated with storing and managing finished goods
- allows companies to adapt quickly to changes in customer demand, market conditions, or product
specifications
Order Decoupling Point
- determines how far the customer orders will enter into the supply chain
- the point beyond which the customer-specific order is no longer visible to the supply chain
For a supply chain that is mainly ship-to-stock, the decoupling point tends to be very much at the
downstream end of the supply chain; while for the supply chain that is mainly make-to-order, the decoupling
point is usually at the manufacturing stage in the middle part of the supply chain. It is therefore clear that on
the downstream side of the decoupling point the supply chain operating model is customer ‘pull’ - responding
to demand changes. On the upstream side of the decoupling point the supply chain is operating in a ‘push’ mode,
where one the generic components are produced based on amalgamated forecast and schedule.
The postponement strategy is aiming to achieve market responsiveness in terms of producing the right
variety and right product portfolio at the right quantity, but do it efficiently at a mass production price. To
achieve this, the order decoupling point is postponed to a later, or as later as possible, stage close to product
delivery.
The resultant supply chain will have most part its operation under scheduled generic components
manufacturing, which is based on the aggregated demand and in a volume production mode leading to low
cost and high efficiency. Reflecting what we have learnt about the lean supply, understandably the part of
supply chain before the decoupling point is predominantly lean. Then at the end of this lean section, there
will be a stockpile of the inventory of those generic components called strategic inventory.
After the strategic inventory, the orders from customers are visible to the supply chain, and the supply
chain operation is focused on configuring (assembling to order) the products to satisfy the demand. Because it
is driven by demand, this part of the supply chain is primarily agile.
The critical design point of postponement strategy is based on the understanding of the market. When
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operated in an uncertain and volatile market environment the actual customer demand on the variety of
products is largely uncertain, unpredictable or volatile.
Getting it Right from Within
1. Structure Change
- developing an agile supply chain applies to two aspects: supply chain architecture and
organizational internal structure
- business and supply chain strategies have been and will be developed appropriately to support the
structure decision making
Supply Chain Architecture
- all about the organization's external connections and how the whole supply chain is networked
together
- first consideration is the extent of vertical integration: the broad guidance is to have small or narrow
span of vertical integration which will give the supply chain a great deal of flexibility without feeling
bogged down by the fixed assets
- second aspect to consider might be outsourcing alternatives: to have a network of capable suppliers
that can take outsourcing contracts from your business, will materially improve the agility of the
supply chain
- third aspect to consider is the location of the suppliers: long-distance and poor infrastructure will
certainly impede the supply chain’s fast reaction and thus need to be pruned in the network
Organizational Internal Structure
- centralized operations may need to be decentralized to cut the bureaucracy and respond to local
conditions
- multi-divisional structure may be advisable to concentrate on the product, service, and geographical
area and allowing units to adapt to local needs
- prefer more flat structures not tall hierarchies
- High degree of empowerment and less formal rules are also positive factors to the agile structure
2. Process Change
- any process slows down the response time should be considered for reengineering
- some process short-cuts are necessary for the agile operation and the level of operational risks may
rise
- top priority is still the responsiveness, so long as the safety is not compromised
- the process that drives and support agile supply chain are often the unique combinations of standard
or modular process which is the key to containing the cost while delivering the service to unexpected
demand
- postponement process is a widely applied process to achieve higher agility
- business processes must be properly coordinated and aligned through the supply chain
3. IT Systems
- agile supply chains are best underpinned by an Enterprise Resource Planning (ERP) system similar
to those used in other supply chain types
- an array of additional applications designed to optimize the agile capabilities including process
alignment and joint forecasting and planning
- investing in applications does not necessarily mean investing in large lump of capital equipment
- renting or buying the service without taking ownership of the hardware appears to be a better choice
for agile supply chains
4. Key Performance Indicators
- are quantifiable measurements used to gauge a company’s overall long-term performance
- the commonly used KPI in a predominantly lean supply chain operating environment will not fit and
often misguide the management
- fundamentally the KPI for the agile supply chain is the market responsiveness in terms of speed
product range and service quality
- the detailed KPI for a specific organization, however, must be aligned with its top-level business
strategies and related with the industry sector and product categories
Most Frequently Used KPI For Agile Supply Chains
1. Design to market time
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2. Customer satisfaction and delight
3. Production throughput
4. Delivery lead-time
5. Product availability in the market
6. Capacity synchronization and optimization
7. Cost-to-serve
8. Frequency of product up-grading
9. Service innovation and flexibility
Guide Questions:
1. How does the demand for speed and responsiveness in the hospitality industry influence the design of an
agile supply chain?
2. What are the advantages of adopting an agile supply chain in the hospitality industry, particularly in terms of
inventory management and customer satisfaction?
3. How can hospitality companies integrate technology to enhance market sensitivity and real-time customer
feedback in their supply chains?
4. In what ways can hospitality businesses reduce the risk of the bullwhip effect through agile supply chain
practices?
5. What internal strategies can hospitality businesses implement to foster agility in their supply chains?
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