Assignment 1

AGILE SUPPLY
CHAIN
Supply Chain Management

Utkarsh Grover, 106

Parth Shah, 119
Vatsalam, 124

MBA(Tech) – IT, 4th Year

Mumbai Campus
Contents

Parth Shah- 119

Agile Supply Chain Management...........................................................................................................3

Agility v/s Leaness................................................................................................................................3
Routes To Agility..................................................................................................................................4
Seven Principles of Supply Chain Agility................................................................................................5
Utkarsh Grover-106
From Supply Chain to Demand Chain....................................................................................................6
Using Agile Supply Chain to compete....................................................................................................6
Elements of Agile Supply Chain.............................................................................................................7
The role of decoupling point.................................................................................................................8
Vatsalam-124
Virtual agile supply chain.......................................................................................................................9
Virtual Teaming...................................................................................................................................10
Role of supplier and customer.............................................................................................................11
Examples of Agile Supply Chain...........................................................................................................12
Conclusion...........................................................................................................................................13

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AGILE SUPPLY CHAIN MANAGEMENT

Agility is a business-wide capability that embraces organizational structures, information

systems, logistics processes and, in particular, mindsets. A key characteristic of an agile
organization is flexibility.

Agility is an exceptional nimbleness and unparalleled ability to respond rapidly and

appropriately to changing market conditions.

AGILITY V/S LEANNESS

Agility should not be confused with leanness. Lean is about doing more with less. The term is
often used in connection with lean manufacturing to imply “zero inventory”, just-in-time
approach. Contradictorily, many companies that have adopted lean manufacturing as a
business practice are anything but agile in their supply chain. The car industry in many ways
illustrates this conundrum. The origins of lean manufacturing can be traced to the Toyota
Production System (TPS), with its focus on the reduction and elimination of waste.

Leanness may be an element of agility in certain circumstances, by itself it will not enable the
organization to meet the precise needs of the customer more rapidly. There are certain
conditions where a lean approach makes sense. In particular where demand is predictable and
the requirement for variety is low and volume is high. In fact the very conditions in which
Toyota developed the lean philosophy. The problems arise when we attempt to implant that
philosophy into situations where demand is less predictable, the requirement for variety is
high and consequently volume at the individual stock keeping unit (SKU) level is low .

Figure: suggests that the three critical dimensions of Variety. Variability (or predictability)
and Volume determine which approach “agile or lean” make greatest sense.

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ROUTES TO AGILITY

Agile a supply chain must possess a number of distinguishing characteristics. Firstly, the
agile supply chain is market sensitive. Market sensitive means that the supply chain is
capable of reading and responding to real demand. Most organizations are forecast-driven
rather than demand-driven. In other words because they have little direct feed-forward from
the marketplace by way of data on actual customer requirements they are forced to make
forecasts based upon past sales or shipments and convert these forecasts into inventory. The
breakthroughs of the last decade in the form of Efficient Consumer Response (ECR) and the
use of information technology to capture data on demand direct from the point-of-sale or
point-of-use are now transforming the organizations ability to hear the voice of the market
and to respond directly to it.

The use of information technology to share data between buyers and suppliers is, creating a
virtual supply chain. Virtual supply chains are information based rather than inventory
based. Electronic Data Interchange (EDI) and the Internet have enabled partners in the supply
chain to act upon the same data i.e. real demand, rather than be dependent upon the distorted
and noisy picture that emerges when orders are transmitted from one step to another in an
extended chain.

Shared information between supply chain partners can only be fully leveraged through
process integration. Process integration means collaborative working between buyers and
suppliers, joint product development, common systems and shared information. This form of
co-operation in the supply chain is becoming ever more prevalent as companies focus on
managing their core competencies and outsource all other activities.

This idea of the supply chain as a confederation of partners linked together as a network
provides the fourth ingredient of agility. There is a growing recognition that individual
businesses no longer compete as stand-alone entities but rather as supply chains. We are now
entering the era of network competition. where the prizes will go to those organizations who
can better structure, co-ordinate and manage the relationships with their partners in a network
committed to better, closer and more agile relationships with their final customers.

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 SEVEN PRINCIPLES OF SUPPLY CHAIN AGILITY

In today's fiercely competitive global economy, almost every company faces the challenges
of ever-increasing supply chain complexity. Keeping up, while maintaining competitive costs
and satisfied customers, is getting harder, especially because supply and demand variables are
changing more rapidly than ever before. Despite these challenges, few companies like Wal-
Mart and Dell, whose supply chain excellence is legendary, are exception to the rule. The
following principles outline the multiple capabilities that companies with agile supply chains
exhibit.

1. Agile organization
2. Keeping commitments via closed-loop plan management
3. Customer intimacy via closed-loop demand management
4. Supplier intimacy via closed-loop supply management
5. Efficient delivery via closed-loop fulfillment management
6. Rapid business reconfiguration
7. Agile IT systems

 Agile organization: An agile supply chain is the result of synchronized, inter-organizational

processes, designed to enable a rapid response to shifts in demand or supply. Processes and
systems facilitate the real-time transfer of information and plans among multiple departments.
Cross-functional synchronization is especially critical, with shared goals and metrics that
support agility.

 Keeping commitments via closed-loop plan management: Agile companies implement

closed-loop plan management principles that involve rapid formulation of a realistic
synchronized plan and continuous monitoring of plan execution. In other words, they focus on
making the plan happen. Plan execution is rarely a straight path. Agile companies understand
that it's an ongoing cycle of planning, doing, checking and taking corrective actions. This
"plan-do-check-act" cycle is applied to closed-loop plan management, a cornerstone of agility.

 Customer intimacy via closed-loop demand management: The forecast is often "owned"
by an analyst, the plan is owned by a manager with a commitment to making the demand plan
happen, despite variability. This process of making a demand plan happen is called "closed-
loop demand management," where the plan-do-check-act process is applied to demand
management.

 Supplier intimacy via closed-loop supply management: Supply management includes

internal and external sources of supply. As suppliers vie to increase their return on assets, they
actively reduce their excess capacity and inventory. The timely and accurate exchange of plans
between manufacturers and suppliers helps suppliers maintain their responsiveness to
variability.

 Efficient delivery via closed-loop fulfillment management: Agile companies are able to
respond to complex order requests within seconds and continuously monitor the execution of
the different actions required to deliver the customer order. When there is potential for delay,
options such as using air freight, replacing the order with an upgrade or allocating inventory
differently are evaluated.

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 Rapid business reconfiguration: Companies strategize how best to manage product design
and production. For example, printing on labels rather than directly onto bottles allows
companies with global operations to hold off deciding which market to send products to—and
which language to print on the label— until demand trends become clear. Agile companies
aggressively deploy such postponement strategies to gain more flexibility. They tune their
supply networks, inventory strategy, fulfillment strategy, product designs and other associated
policies sometimes 10 times as often as less agile companies.

 Agile IT systems: An agile IT system acts like an intelligent assistant, evaluating what
events call for action from different levels of management at a company. Agile companies
know how important it is to be able to read and interpret critical data across multiple systems.
Modern visibility tools that overlay existing data sources enable supply chain executives to tap
into multiple data sources, and then convert data to formats that are helpful in analysis. IT
supports to identify the root cause of the problems.

From Supply Chain to Demand Chain

There is a fundamental difference between the traditional approach to supplying product to

markets and the newly emerging model. The traditional approach is based upon optimising
production, handling and transportation through the calculation of ‘economic batch
quantities’. It is essentially a ‘push’ type of system were product is produced ahead of
demand, normally against a forecast and is then held in the market place awaiting orders. The
new model suggests that ideally the supply chain should become a ‘demand chain’ - in other
words, everything that is moved, handled or produced should ideally be in response to a
known customer requirement. A supply chain tends, by its very nature, to focus on creating
efficiency in terms of the flow of material from source to user. On the other hand a demand
chain is focused more on effectiveness in the sense that it seeks to be market-driven
responding to the needs of the market more rapidly.

The key to this transformation - from supply chain to demand chain - is agility.

USING AGILE SUPPLY CHAIN TO COMPETE

It is becoming increasingly clear that the changed conditions in the global marketplace
demand a much more agile response from the organisation and its partners in the supply
chain. The idea in the past was that marketing success was based upon strong brands and
innovative technologies. Today brands and innovation are still critical but they are not
enough. Instead the winning combination is strong brands and innovative technologies
supported by an agile supply chain capable of responding more rapidly to volatile demand.

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True competitive advantage is gained when the organisation is able to consistently meet the
needs of customers more precisely and in a more timely way than anyone else. As the
realisation grows that it is no longer company competing against company but rather supply
chain against supply chain, then the prospect of market leadership will surely be enhanced.

ELEMENTS OF AGILE SUPPLY CHAIN

The elements of agile supply chain can be classified as:

 Customer sensitivity through continuous enrichment as against focusing on waste

elimination.

 Virtual integration, with emphasis on instantaneous response in addition to stable

production flows.

 Process integration through self-managing teams as against work standardisation and

conformance.

 Network integration through ‘‘fluid’’ clusters of associates who venture into temporal
opportunities.

Customer sensitivity means that collaborative initiatives should be driven by quick response
to customer requirements. In this respect, manufacturing processes require integration and
specialisation based on relative areas of excellence in core competencies.

Network integration requires that companies in the chain have a common identity, which can
range from commitment to agile practices, compatibility of structure, information architecture
and tradable competencies.
Process integration and inter-dependence so that core modules of products can be delegated
within networks of agile competitors.

Lastly, virtual integration envisages access to information, knowledge and competencies of

companies through the Internet.

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THE ROLE OF DECOUPLING POINT

The major problem in most of the supply chains is the limited visibility of the real demand.
The reason being that, supply chains tend to be extended with multiple levels of inventory
between the point of production and the final marketplace, they tend to be forecast driven and
not demand driven.

Decoupling point can be defined as the point at which demand penetrates upstream (looking
up to supplier) in a supply chain. The main issue here is that how far the real demand is made
visible. Orders are aggregation of demand and in - turn the demand reflects the ongoing
requirement in the final marketplace.

The decoupling point must dictate the form in which the inventory is held. This point can be
made clear through an example. In the figure demonstrated below, the uppermost part, the
demand penetrates at the point of the manufacturer and inventory is held in the form of
components and materials. And in the lower part, demand is visible only at the end of the
chain. Hence, the inventory will be in the form of finished products.

The aim of the agile supply chain should be to carry inventory in a generic form, that is,
standard semi finished products awaiting final assembly. This is the concept of
‘postponement’, a vital element in agile strategy.

Postponement, or delayed configuration, is based on the principle of seeking to design

products using common platforms, components or modules but where the final assembly or
customisation does not take place until the final market destination and/or customer
requirement is known.

The advantages of the strategy of postponement are several. Firstly, inventory can be held at
a generic level so that there will be fewer stock-keeping variants and hence less inventory in
total. Secondly, because the inventory is generic, its flexibility is greater, meaning that the
same components, modules or platforms can be embodied in a variety of end products.
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Thirdly, forecasting is easier at the generic level than at the level of the finished item. This
point is particularly relevant in global markets where local forecasts will be less accurate than
a forecast for worldwide volume. Furthermore, the ability to customize products locally
means that a higher level of variety may be offered at lower total cost enabling strategies
of .mass-customization. To be pursued.
By using generic or modular inventory to postpone the final commitment it should be
possible to achieve volume-oriented economies of scale through product standardization. The
flow of product up to the decoupling point may well be forecast driven after the decoupling
point it should be demand driven.

An important point to recognize is that there are actually two decoupling points. The first is
the one already referred to i.e. the .material. Decoupling point where strategic inventory is
held in as generic a form as possible. This point ideally should lie as far downstream in the
supply chain and as close to the final market place as possible. The second decoupling point
is the information decoupling point the idea here is that this should lie as far as possible
upstream in the supply chain. It is in effect the furthest point to which information on real
final demand penetrates.

VIRTUAL AGILE SUPPLY CHAIN

Lately the supply in present market is more forecast driven rather demand driven which
increases the complexity of the existing system as well as endures losses and creating rifts
between the cost cutting and optimized production with ability to meet the demands of
customers for ever-shorter delivery times and to ensure that supply can be synchronized to
meet the peaks and troughs of demand which is of very much importance in this era of time-
based competition.

Considering reaching on time at the very first place Virtual supply chain comes as a very
handy option now what do we mean by virtual supply chain it is the use of information
technology to share data between buyers and suppliers is, in effect, creating a virtual supply
chain. Virtual supply chains are information based rather than inventory based. Conventional
logistics systems are based upon a paradigm that seeks to identify the optimal quantities and
the spatial location of inventory. Complex formulae and algorithms exist to support this
inventory-based business model. Paradoxically, what we are now learning is that once we
have visibility of demand through shared information, the premise upon which these
formulae are based no longer holds. Electronic Data Interchange (EDI) and now the Internet
have enabled partners in the supply chain to act upon the same data i.e. real demand,
rather than be dependent upon the distorted and noisy picture that emerges when orders are
transmitted from one step to another in an extended chain.

The breakthroughs of the last decade is in the form of Efficient Consumer Response (ECR)
and the use of information technology to capture data on demand direct from the point-of-
sale or point-of-use are now transforming the organization’s ability to hear the voice of the
market and to respond directly to it.

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VIRTUAL TEAMING
Virtual teaming eliminates the necessity for physical co-location thus enabling manufacturers
to rapidly and continuously collaborate with suppliers world-wide irrespective of
geographical constraints. To achieve high levels of performance, virtual teaming requires
the co-ordinated development of people, process and technology in short this means cross-
functional workgroups brought together to tackle a project for a finite period of time
through a combination of technologies without bringing them physically present at particular
place.

The following characteristics clarify the definition of virtual teams

 Team members are goal oriented.

 Members are dispersed geographically (nationally or internationally)
 The team works apart more than in the same location.
 The team is a collection of individuals who work together to attain a goal by using
computer-supported networking.
 Team members are involved in a co-ordinated undertaking of interrelated activities.
 Members are mutually accountable for team results.
 Team members solve problems and make decisions jointly.
 They are of finite duration, with a beginning and ends (few teams are permanent).

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For Example

The Team-based European Automotive Manufacture demonstrated the benefits that can be
achieved by using appropriate information systems to support collaborative working between
geographically distributed project teams. The findings are based on an analysis of two Virtual
Teams comprising design, logistics and quality engineers plus business managers from key
suppliers over many meetings tackling problems that would normally require face to face
meetings, or problems which normally one of the parties would attempt to resolve
themselves. They used a Computer-Supported Collaborative Working system (CSCW)
that provided facilities for audio and video links, a shared whiteboard, sharing of documents,
real time sharing of CAD applications and a Web-based product library with controlled
access. Interviews with key participants and with members of the organisational hierarchy
were conducted so that the critical success factors related to the introduction of such
technology could be derived. The benefits of effective Virtual Teams were found to include:

 Reduction in non-value-adding activities such as travel and delays imposed by mail;

 The ability to react quickly and flexibly to problems;
 A more accurate understanding of the design issues due to the interactive nature of the
discussions

Potential time-savings of up to 50% for some stages of the Product Introduction Process.

Diagram of CSCW:

ROLE OF SUPPLIER AND CUSTOMER

One of the keys to achieving agile response to fast-changing markets lies upstream of the
organization in the quality of supplier relationships. Often it is the lead-time of in-bound
suppliers that limits the ability of a manufacturer to respond rapidly to customer
requirements. Equally new product introduction time can be dramatically reduced through
the involvement of suppliers in the innovation process. Still today many companies have not

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recognized that competitive advantage that can be derived from closer relationships with key
suppliers. To really leverage the opportunity for greater agility through closer supplier
relationships requires a number of pre-requisites to be in place.

Firstly, it is inevitable that the supplier base be rationalized. It is not possible to create close
relationships through process integration with multiple suppliers. Agile companies have
sought to identify a limited number of strategic suppliers with whom they can work as
partners through linked systems and processes. Whilst the dangers of single-sourcing need to
be recognized, the advantages of having a network of key suppliers able to synchronies their
production and deliveries with the requirements of the company are considerable.

A further pre-requisite for the creation of a more agile supplier base is a high level of shared
information. In particular there has to be clear visibility of downstream demand; data on real
demand needs to be captured as far down the chain as possible and shared with upstream
suppliers. Perhaps the most important pre-requisite is the need for a high level of
connectivity between the firm and its strategic suppliers. It is increasingly common today for
companies to create supplier development teams which are cross functional and as such are
intended to interface with the equivalent customer’s management team within the supplying
organisation.

EXAMPLES OF AGILE SUPPLY CHAIN

Dell Computer is the US’s number one computer supplier and is reckoned to be the fastest
growing such company in the world. Customers can specify hardware and software
requirements that Dell then assemble and deliver. Their popularity has caused traditional
players, such as IBM, to react and adapt or risk extinction. Dell’s supply chain involves so-
called ‘virtual integration’; communicating and coordinating with suppliers via an extranet as
if they were part of the same company, a so-called ‘extended enterprise’. Its direct customer
contact gives Dell undiluted feedback that they use to improve their methods.

 Intel's in the microprocessor business. Each new product model costs $1 billion to develop
and each new plant costs $1 billion to build; and they just make a small component in the
"real" product - the computer system. Two years ago they were just a supplier to the OEMs in
the computer business. That's history. Their "Intel Inside" marketing campaign is like Ford,
Toyota, and Mercedes putting a "Delco Inside" sticker on each car they sell. Intel didn't stop
with that: they decided the OEM's weren't growing the market fast enough, so they started
building entire motherboards, so now what used to be a computer maker runs the whole
computer sales channel.

Volkswagen has even started to use the supplier to assemble the vehicle and it is
synchronized with the corporate preparedness to switch to something radically different.
Decision makers focused on realigning existing supply relationships with the accelerating
business environment are generally unwilling to risk the current income stream on unproved

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concepts. A new supply-chain management practice focusing initially on delivering
immediate benefits, while enabling advanced capabilities for more gradual exploitation.

CONCLUSION

The design, manufacture and delivery of a product requires ever-higher levels of knowledge
and expertise within the supply chain - above and beyond the exchange of information and
data - if turbulence in tiered supply chains is to be fully overcome. The agility philosophy
goes so far as proposing that successful, agile, supply chains are built on rich relationships
amongst all parties: certainly embodying knowledge and expertise. Supply chains are
becoming increasingly ‘demand driven'. The Internet is both accelerating this process and
providing part of the solution. Michael Dell comments, “I’m only half joking when I say that
the only thing better than the Internet would be mental telepathy”. It provides a clear
opportunity to supply new markets as well as a new source of challenges, such as 48 hour
global deliveries and opportunities for competitors to appear suddenly from any part of the
globe. A key to beating the competition will be excellence in the supply chain.

Leading companies are already implementing marketing strategies which are underpinned by
a supply chain strategy designed with agility in mind. These are the organizations that will
be best equipped for survival in the uncertain markets of the 21st century.

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