Chapter 3 Supply Chain Strategy Lean and Agile PDF

CHAPTER 3 Supply Chain Strategy: Lean and Agile Top-down Perspective on Strategy  A Holistic View of Logistics and SCM Strategy Formulation Supply chain strategy determines the nature of material procurement, transportation of materials, manufacture of product or creation of service...

CHAPTER 3 Supply Chain Strategy: Lean and Agile Top-down Perspective on Strategy  A Holistic View of Logistics and SCM Strategy Formulation Supply chain strategy determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product, follow-up service, and whether processes will be in-house or outsourced. Logistics and SCM can be the foundation of overall strategic action. Here, Logistics and SCM are activities that are truly cross- functional and not limited to one functional area. It carries over all divisions and functions. There are two key logistics and SCM strategies: 1.Lean 2.Agile The Evolution of Production Strategies This diagram has its origins in a diagram originally contained in a seminal book entitled The Machine that Changed the World: The Story of Lean Production (J. Womack, D. Roos & D. Jones, Harper Perennial, 1991). Lean Production · Lean production is associated with several operational practices that help to deliver the aim of waste minimization. · Eliminating waste in a pull-based value stream of activities · A pull system is an inventory control system in which businesses respond to consumer demand. · JIT: A management strategy that has a company receive goods as close as possible to when they are needed. · In contrast, a push system is a type of inventory control system in which businesses predict consumer demand. Then they push products to distributors and retailers in anticipation of consumer purchases. The Seven Wastes (Muda) The origins of lean production can be traced back to the car company Toyota. The Toyota production system (TPS) was born to eliminate waste in seven key areas: 1. Overproduction 2. Waiting 3. Transportation 4. Inappropriate processing 5. Unnecessary inventory 6. Unnecessary motion 7. Defects … and in recent years an 8th has been added: underutilization of resources The Seven Wastes (Muda) 1. Overproduction: producing too much (overstock). 2. Waiting: poor process design and/or poor planning may result in work-in-progress inventory waiting until the machine or operator becomes available so that it can go through the next stage of production (slow progress). 3. Transportation: Most products have to be physically transported to the marketplace. This idle time is known as non-value adding. (ex: transporting bananas or meds) 4. Inappropriate processing: Sometimes all products require the same processing and packaging (standardized procedures). Yet not all products require extensive processing. The Seven Wastes (Muda) 5. Unnecessary inventory: Holding unnecessary inventory just in case is costly. 6. Unnecessary motion: In poorly designed production systems, it may be the case that items move from one location to another in an inefficient manner. (ex: an item moving from region X to Y, only to be moved back to a distributor close to region X). 7. Defects: Products with defects can cause production delays as it may be necessary to see what caused the defect. 8. In recent years, an 8th has been added, underutilization of resources: the inefficient use of resources in a service business resulting in reduced profits. Five Key Principles · Identify where – from the perspective of the customer – value is created. (where is value added/created?) · Map the value stream – i.e., the process that creates customer value. · Ensure that all steps in the process flow efficiently and that any waiting is eliminated. · Pull not push produce in response to customer demand. · Identify the root cause of any problems and strive for perfection. Lean Consumption · Solve the customer’s problem completely. · Don’t waste the customer’s time. · Provide exactly what the customer wants. · Provide what’s wanted exactly where it’s wanted. · Provide what’s wanted where it’s wanted exactly when it’s wanted. · Continually aggregate solutions to reduce the customer’s time and hassle. Agile Supply Chains · The demand for products is not stable nowadays. Customers are demanding greater variety, outsourcing has increased, globalization has increased competition, and there have been continuous advancements in technology. · Thus, the agile supply chain model emerged in the 2000s. · The agile supply chain is designed to cope with volatility. · According to Professor Christopher, ‘to a truly agile business volatility of demand is not a problem; its processes and organizational structure, as well as its supply chain relationships, enable it to cope with whatever demands are placed upon it’. · Enabled by mass customization. Mass Customization · Enabled by postponement. – the customization of products and processes is postponed as far downstream as possible (towards the final stages). – Can be applied to manufacturing such as cars and laptops. – This also applies to packaging, known as packaging postponement where the final packaging of products is delayed until customer orders are received. Different customers may request different packaging. – Also applied to services. Your typical fast-food restaurant will have the main components of your meal ready but won’t finalize everything until your order is received. (Example: Subway) – The point at which the product moves from the base product to a customized product is called the decoupling point. – Products following mass customization also use different stock-keeping units (SKUs). Comparison of Lean Supply with Agile Supply Combined Logistics Strategies Lean, continuous replenishment: this applies to situations where demand is predictable and replenishment lead times are short. Suppliers here make regular deliveries. Ex: retail clothing. Lean, plan, and execute: this applies to situations where demand is predictable and replenishment lead times are long. Since lead times are longer, more planning is required well ahead of time. Ex: importing Christmas trees from Asia (China) to Europe. Combined Logistics Strategies Agile, quick response: this applies to situations where replenishment lead times are still short but where demand is now unpredictable. In such situations, suppliers need to respond rapidly to changes in demand. Ex: Zara Leagile, postponement: this applies to situations where replenishment lead times are still long, and demand is unpredictable. Both lean and agile strategies are used here using postponed production. Ex: computer keyboards/languages (mass The Leagile Supply Chain Critical Factors to Consider in Supply Chain Planning Guidelines that help managers develop their supply chain strategies: · Focus on processes and flows: focus on the entire supply chain and its integration rather than individually separate units. · Focus on high-level objectives: the best supply chains are agile, adaptive, and have aligned interests among the firms in the supply chain. This is known as the Triple-A Supply Chain. · The importance of people: the role of people in supply chains is often overlooked. In fact, it is people who drive supply chains and are at the heart of the business. For supply chains to succeed, three elements need to be kept in balance; people, process, and technology. · Its supply chains that compete: the way companies structure their supply chains is often the key determinant of success. A company can have the best and most sophisticated product in the world, but if it doesn’t have a good supply chain, then it will more likely not be able to compete, especially in terms of cost speed, and many other attributes. Supply chain excellence is apparent when there is (1) a relative customer value increase and (2) a relative cost decrease.