2 Generic Supply Chain Strategies

Fig. 4.2 Generic Supply Chain Strategies

L O G I S T I C S A N D S U P P LY C H A I N M A N A G E M E N T

In those cases where demand in predictable and replenishment lead times are short, then a ‘Kanban’ type of solution is indicated. This is a philosophy of continuous replenishment where, at its extreme, as each product is sold or used it is replaced.

In the top left hand box where lead times are long but demand is predictable then a ‘lean’ type approach will be appropriate. Materials, components or products can be ordered ahead of demand and manu- facturing and transportation facilities can be optimized in terms of cost and asset utilization. Conversely the bottom right hand corner is the real domain of the agile supply chain. Here demand is unpredictable but lead times are short, enabling ‘quick response’ type solutions – the extreme case being make-to-order (but in very short time-frames).

The top right hand corner presents an interesting situation: lead times are long and demand is unpredictable. In situations such as this, the first priority should be to seek to reduce lead times since the vari- ability of demand is almost certainly outside the organization’s control. Lead-time reduction would enable the application of agile solutions. However, if lead times cannot be reduced the next option is to seek to create a hybrid lean/agile solution. These hybrid solutions require the supply chain to be ‘de-coupled’ through holding strategic inventory in some generic or unfinished form, with final configuration being com- pleted rapidly once real demand is known. This is the classic ‘postponement’ strategy. An alternative form of postponement where the final physical configuration cannot be delayed is to postpone the actual distribution of the product by holding it in fewer (or even only one) locations and using express transportation to move it to the final market or point of use once actual demand is known.

The goal of a hybrid strategy should be to build an agile response upon

a lean platform by seeking to follow lean principles up to the de-coupling point and agile practices after that point. 3 Figure 4.3 illustrates this idea.

A good example of a de-coupling point enabling a lean/agile hybrid strategy is provided by paint manufacturers such as ICI. Today, con- sumers can be offered customized solutions in terms of the colour of paint through the use of paint mixing machines located in retail outlets. The retailers only need to stock a relatively small number of base colours to provide an almost infinite number of final colours. Thus ICI can utilize lean processes in producing base colours in volume but can provide an agile and timely response to end users. This example also

4 C R E AT I N G T H E R E S P O N S I V E S U P P LY C H A I N

illustrates the principle of seeking to reduce complexity whilst provid- ing the requisite level of variety that the market demands.

Lean Agile

• Forecast at generic level • Demand driven • Economic batch quantities

• Localized configuration • Maximize efficiencies

• Maximize effectiveness

Strategic inventory