Engineering The Leagile Supply Chain Essay Example

of all made (waste). By eliminating made the businesses will maximize their profit through minimizing their physical costs, as typified by and Jones (1996).

By explaining the rationale behind the adoption of either of the paradigms in terms of cost or service, the paradigms can be linked to Equation 1 . , 1993), which expresses the total performance metric in terms of value to the customer as follows: Total value 0 quality x Costs x lead time 0010 Agility means using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place. Leanness means developing a value stream to eliminate all waste, including time, and to enable a level schedule. Two of the authors (R. Mason-Jones and J.

B. ) were funded by Studentships during the execution of this research. This support is gratefully acknowledged. In the case of agility the key point is that the marketplace demands are extremely volatile. The businesses in the supply chain must therefore not only cope with, but also exploit this volatility to their strategic advantage. Thus we shall see that customer service level, I. E. Availability in the right place at the right time, is the market winner in serving a volatile marketplace. However cost is an important market qualifier, and this is usually reduced by leanness.

The solution is therefore to utilities the concept of the league supply chain shown in Figure 1 . The definition of liability also follows from . , 1997 as: Liability is the combination of the lean and agile paradigm within a total supply chain strategy by positioning the decoupling point so as to best suit the need

for responding to a International Journal of Agile Management Systems 2/1 [2000] 54 В±61 # MAC university press [SINS 1465-4652] The current issue and full text archive of this Journal is available at http:// www. Emerald-library. Mom Equation (1) is particularly helpful as it emphasizes the futility of improving one performance measure at the expense of worsening another. Additionally it is possible to make a major distinction between lean and agile supply in terms of the market qualifiers В± market winners as defined by Hill (1993), as shown in matrix format in Figure 2. [54] Rachel Mason-Jones, Ben Analog and Denis R. Twill Engineering the illegal supply Whereas quality, service level, and lead time are market qualifiers for lean supply, tit the market winner then being cost, the latter benchmark is merely a qualifier in agile supply.

The market winner herein is service level because as Fisher (1997) has indicated, the total costs for the Product Delivery Process are given by the important formula showing that: ! ! Supply chain Physical PDP 0 Total PDP costs Costs Marketability Costs ! 020 Figure 2 Market winners and market qualifiers for agile versus lean supply where: . Physical costs includes all production, distribution, and storage costs.. Marketability costs includes all obsolescence and stockpot costs. The former cost resource dominates lean supply whereas the latter cost source dominates agile supply.

Note that lost sales are gone forever in the agile supply chain whether due to checkouts or obsolescence. This is because it is an extremely harsh and competitive marketplace with little brand loyalty. We shall now undertake a more detailed comparison of lean and agile supply. Attributes of

lean and agile supply Both agility and leanness demand high levels of product quality. They also require minimum total lead-time defined as the time taken from a customer raising a request for a product or service until it is delivered.

The total lead-time has to be minimized to enable agility, as the demand is highly volatile and thus fast moving. If a supply chain has a long lead-time then it will not be able to respond quickly enough to exploit marketplace demand. Furthermore the proper engineering of cycle time reduction always leads to significant bottom line improvements in manufacturing costs and productivity (Twill, 1996). Lead-time needs to be minimized in lean manufacturing as by definition excess time is waste and leanness calls for the elimination of all waste.

The essence of the difference between leanness and agility n terms of the total value provided to the customer is that service is the critical factor for agility whilst cost, and hence the sales price, is crucial for leanness. However, whereas the Total Cycle Time Compression Paradigm (Twill, 1996), when effectively implemented, is a sufficient condition for achieving lean production, it is only one necessary condition for enabling agile supply. Table I illustrates the comparison of attributes between lean and agile supply. In the volatile unpredictable marketplace for ' 'fashion" goods, both stockpot and obsolescence costs are punitive.

Consequently the purchasing policy moves from placing orders upstream for products moving in a streamline flow to assigning Figure 1 Lean, agile and illegal supply [ 55 ] Table I Comparison of lean supply with agile supply: the distinguishing attributes Distinguishing attributes Typical products Marketplace demand Product variety Product

life cycle Customer drivers Profit margin Dominant costs Stockpot penalties Purchasing policy Information enrichment Forecasting mechanism Source: The authors capacity to finalist products in rapid response mode.

As Fisher et al. (1994) eave indicated, this means forecasting via ' 'intelligent" consultation so as to maximize inputs from 'rich" marketplace insider sources. Our view (Mason-Jones and Twill, 1999) is that ' 'information enrichment" throughout the chain is not merely desirable, but obligatory. In addition to showing some basic supply chain structures Figure 3 summarizes the effect of the decoupling point on supply chain demand experienced by individual businesses within the chain.

On the downstream side of the decoupling point is a highly variable demand with a large variety of products, whereas upstream from the decoupling point the demand is smoothed tit the variety reduced. The lean paradigm can therefore be applied to the supply chain upstream of the decoupling point as the demand is smooth and standard products flow through a number of value streams. Thereafter the agile paradigm should be applied downstream from the decoupling point as demand is variable and the product variety per value stream has increased.

Lean supply Commodities Predictable Low Long Cost Low Physical costs Long term contractual Buy goods Highly desirable Algorithmic Agile supply Fashion goods Volatile High Short Availability High Marketability costs Immediate and volatile Assign capacity Obligatory Consultative The supply chain structure and the decoupling point The decoupling point separates the part of the supply chain geared towards directly satisfying customer orders from the part of the supply chain based on planning.

The decoupling point is also the point at which strategic stock is held as a buffer

between fluctuating customer orders and/or product variety and smooth production output. The positioning of the decoupling point is also associated with the issue of postponement which increases the efficiency as well as the effectiveness of the apply chain. This is achieved by moving product differentiation (at the decoupling point) closer to the end user. Postponing product differentiation reduces the risk of both stock-outs and holding excess stocks (Davies, 1993).

Figure 3 presents the family of simplified supply chain structures with the decoupling point marked as a stock holding point (Hookiest and Rome, 1992). The manufacturers/assemblers represent one or more businesses in the supply chain. By varying the position of the decoupling point Figure 3 highlights four common supply chain structures. These traceries range from providing unique products to an end-user that is prepared to accept long lead times (buy-to-order) through to providing a standard product at a fixed location (ship-tussock).

Stalk and Hoot (1990) specifically warned of the dangers arising from slow information lead-times in supply chains when they state ' 'The underlying problem here is that once information ages, it loses value F F F old data causes amplifications, delay and overhead F F F the only way out F F F is to compress information time". Overcoming these problems leads naturally to the concept of the ' 'Information Enriched" supply chain (Mason-Jones and Twill, 1997) in which substantial improvements accrue throughout the PDP process.

However, as Fisher (1997) has argued, it is not sufficient to implement EDI and hope that performance improvement will follow as of right. Instead the information systems must be carefully engineered to match our specific supply chain requirements. In

a traditional supply chain the retailer is the only player who has direct sight of the consumer demand. All other members only [56] chain International Journal of Agile Management Systems 2/1 [2000] 54В±61 observe the orders from their immediate customer (I. E. The warehouse only has sight of the distributor's orders).

Therefore in the traditional mode the market information is distorted initially by the retailer and further distorted with each successive link in the chain. However in the information enriched supply chain each player receives the marketplace data directly. This will increase transparency whilst decreasing distortion. In addition to the primary objective of reducing lead times it also has the benefit of avoiding double-guessing by decision makers leading to the well known ' 'Flywheel Effect" (Hooligan, 1987). Whereas the information enriched concept is highly desirable in lean supply, it is obligatory in the achievement of agile supply.

It is only when effective marketplace feedback is available that the next deliveries can be pulled from the supplier. In meeting this demand at very short notice new production processes may need to be developed for rapid response after the decoupling point. This highlights a further distinction between the engineering of lean and agile processes. In Figure 4 industrial engineering and operations engineering improvements lie at the heart of lean supply: a real breakthrough in agile supply additionally requires substantial production engineering improvements.

A good illustration is the re-engineering of the retail carpet PDP process described by Johansson et al. (1993). The 'traditional" supply had a total cycle time of 16 weeks. Elimination of the non-value added time still left a total cycle time of four weeks. But

the marketplace demanded a one week lead time from the customer placing an order to having the carpet installed in their home, a targeted improvement which is way beyond the scope of ' 'leanness" alone.

Meeting this requirement necessitated implementing major production process improvements. This included finding a way to dyeing at the yarn stage, rather than leaving it to the carpet stage as was normally Practical supply chain re-engineering for leanness and agility This section summarizes a substantial reengineering programmer aimed at streamlining an electronics products supply chain. The process of supply chain re-design consisted of a series of stages that began in the early sass and which continue to be enabled through to the present day.

Figure 5 summarizes the re-engineering phases and indicates the extent to which the manufacturing philosophy of the time may be graded as mass production, lean, and agile. It is clear that only at Phase 3 does the concept of agility becomes an obvious part of the BPR Programmer. In contrast Phase 4 is wholly agile supply orientated to meet the new level of customer service expectancy. Figure 6 presents the snapshot of the supply chain after Phase 4 of the programmer. It can be seen that the decision was made to position the decoupling point at the finished goods assembly echelon.

Hence this supply Figure 3 Supply chain structures and the decoupling point [57] Figure 4 Practical ways to achieve time compression in lean/agile supply Hahn follows the Assemble-to-order supply chain strategy shown in Figure 1 . The main restraint on the location of the decoupling point was the lead-time imposed by the marketplace. Also if the

decoupling point was placed further upstream the company would have serious problems with forecast accuracy. Consequently this re- engineered supply chain has been able to operate upstream in an essentially level scheduling mode (Berry et al. , 1995).

By achieving this aim via leanness yet meeting marketplace demand via agility, an internationally competitive illegal supply chain has been enabled. The practical conclusion is that the supply chain on the upstream side of the decoupling point has adopted the lean manufacturing paradigm with level scheduling. However the supply chain has adopted the agile manufacturing paradigm downstream from the decoupling point. From further analysis of the re- engineering programmer via a verified simulation model of the phases of the programmer, the benefits accrued by each phase have been estimated (Berry et al. 1995). The total programmer substantially improved the supply chain performance with the final stage, including the use of a decoupling point, accounting for 58 per cent of the improvement. Note that the magnitude of the improvement in performance is beyond the comprehension of anyone engaged in the supply chain during the baseline phase. The route map for change previously, the Route Map for change presented in Figure 7 has been constructed. By using market knowledge all businesses in a supply chain can develop systems to cope with the product demand variability and product variety.

By identifying the point of differentiation in the supply chain and the total lead-time required to marketplace the total supply chain structure can be defined. The material and information flows should 58] Figure 5 Manufacturing philosophy during the various stages of an electronics products supply chain BPR programmer be integrated to

minimize stocks, demand distortion and lead time and maximize transparency. By using market knowledge to position the decoupling point the use of agility and leanness is thereby defined and the engineering consequently required is automatically identified.

Agility will be used downstream from the decoupling point and leanness upstream from the decoupling point. Once the decoupling point has been implemented the two paths for leanness and agility diverge. The path to meanness emphasizes cost reduction with total waste removal, whilst agility requires design for total flexibility. Both of these approaches will maximize the profits of the two parts of the supply chain. Leanness will maximize profits through cost reduction and providing service suitable for a level schedule.

Agility maximizes profit through providing exactly what the customer requires and reducing costs whilst not impeding the ability to meet the customer service requirements. The illegal supply chain enables the upstream part of the chain to be cost-effective and the downstream part to achieve high service levels in a little marketplace. Owing to the different customer drivers attributed to leanness and agility (cost and service level respectively) one of the significant differences to ensure control of the process is via the capacity calculations.

The drive to reduce waste and level schedule a lean process mean that companies tend to operate with little spare capacity. Hence as a rule of thumb lean processes tend to base the maximum capacity level on approximately 1. 2 times the average demand. In contrast, an agile process may well be expected to cope with volatile demand swings between 20 per cent and 100 per cent of capacity. Therefore to ensure agility a process may

well have be designed so that the maximum capacity level is as high as twice its average demand. Can agility be achieved without experiencing relevant stages of leanness?

For two reasons we think the answer is ' 'no". First, lean and agile supply share many common features which helps steppes the [59] learning curve. Hence agile may be initiated by building on the relevant parts of lean especially by emphasizing the different views on the provision of spare capacity. Secondly, agility requires mastery of all processes in the supply chain. It is very official to see how this can be acquired without having first gone through the process enhancement stage of lean production (Victor and Boonton, 1998).

Conclusion Before embarking upon a re-engineering programmer of a supply chain, the businesses involved need to identify and fully understand the marketplace requirements. The product variety and the extent of the demand variability must be known. This knowledge has to be used in conjunction with identification of the point of product differentiation to establish the lead times required to guarantee we achieve market qualifier standard. Once these factors have been established the supply chain can be restructured to integrate the lean and agile paradigms with use of the ' 'illegal" decoupling point and supplemented by information enrichment.

Adopting such an approach to supply chain re-engineering will ensure that customer Figure 6 The re=engineered electronic products illegal supply chain Global Material Planning System Figure 7 Route map for integrating leanness and agility [60] service levels are improved whilst lead times and costs are greatly reduced. Within the illegal supply chain the market winner is availability, hence the prime acquirement

for agility. However, cost, lead-time, and quality are market qualifiers. Hence the additional need for lean production to be engineered into the supply chain as appropriate to the product.