Types of Supply Chain

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Types of Supply Chain

In the COVID crises, we have seen the supply chain teams have a got a seat on the table. A few weeks ago I met a senior supply chain professional of a renowned MNC and he was pleased that due to unforeseen situations we have gained a lot of space in the organization.

The challenge is that we have to transform our core supply chain team into a complete paradigm shift from the existing with an overhaul of the process. To solve his problem of defining his core here are three streams of Supply Chain that will help you in giving leaders a road map of their existing and to be Supply Chain in the organization.

Lean supply chain –

A lean supply chain (LSC) employs continuous improvement efforts that focus on eliminating waste or non-value-added steps along the chain. It is supported by efforts to achieve internal manufacturing efficiencies and setup time reduction, which enables the economic production of small quantities and enhance cost reduction, profitability, and manufacturing flexibility to some degree. The short setup time provides internal
flexibility, but an LSC may lack external responsiveness to customer demands, which can require flexibility in product design, planning and scheduling, and distribution in addition to manufacturing.

Agile supply chain –

An agile supply chain (ASC) focuses on responding to unpredictable market changes and capitalizing on them through fast delivery and lead time flexibility. It deploys new technologies, methods, tools, and techniques to solve unexpected problems. It utilizes information systems and technologies, as well as electronic data interchange capabilities to move information faster and make better decisions. It places more emphasis on organizational issues and people (knowledge systems and empowered employees), so decision-making can be pushed down the organization. The ASC paradigm is a systemic approach that integrates the business, enhances innovations across the company, and forms virtual organizations (VOs) and production entities based on customer needs.

Hybrid supply chain –

A hybrid supply chain (HSC) generally involves “assemble to order” products whose demand can be forecasted with a relatively high level of accuracy. The chain helps to achieve mass customization by postponing product differentiation until the final assembly. The lean or agile supply chain techniques are utilized for component production with different characteristics. For example, in the automotive industry, airbags would most likely be produced with an LSC while engine electronics might require the innovation found in an ASC. Besides, agility is needed to establish a company–market interface to understand and satisfy customer requirements by being responsive, adaptable, and innovative.

With a rapidly changing business environment, organizations require a supply chain model that deals with strategic and customer issues in addition to operating constraints. The product is the soul of the supply chain; there is no justification for adopting a particular supply chain type unless it conforms to the needs of the product and its customers.

So let’s see the concepts in detail.

Lead time focusLean Supply ChainAgile Supply ChainHybrid Supply Chain
PurposeFocus on cost reduction and
flexibility for already available
products. Employs a
continuous improvement
process to focus on the
elimination of waste or
nonvalue–added activities
across the chain. Primarily
aims at cost-cutting, flexibility,
and incremental
improvements in products
Understands customer
requirements by interfacing
with customers and market and
being adaptable to future
changes. Aims to produce in
any volume and deliver to a
wide variety of market niches
simultaneously.
Provides customized products
at short lead times
(responsiveness) by reducing
the cost of the variation
Employ lean production
methods for manufacturing.
Interfaces with the market to
understand customer
requirements.
Achieve a degree of
customization by postponing
product differentiation until
final assembly and adding
innovative components to the
existing products
Approach to manufacturingAdvocates lean manufacturing
techniques
Advocates agile manufacturing
techniques, which is an
extension of lean
manufacturing
Employs Lean and agile
manufacturing techniques
Integration Integrate manufacturing,
purchasing, quality, and
suppliers
Integrates marketing,
engineering, distribution, and
information systems
Similar to the LSC at the
component level and follows
an ASC at the product level
Production planning Works on confirmed orders
and reliable forecasts
Has the ability to respond
quickly to varying customer
needs (mass customization
Works on confirmed orders
and reliable forecasts with
some ability to achieve some
produce variety
Length of the product life
cycle
Standard products have a
relatively long life cycle time
(>2 years)
Innovative products have short
life cycle time (3 months to
1 year)
Involved the production of
“assemble to order” products,
which stay in the maturity phase of
the life cycle for a long time
AlliancesMay participate in traditional
alliances such as partnerships
and joint ventures at the
operating level
Exploits a dynamic type of
alliance known as a “virtual
organization” that works on
product design
Along with traditional
operating alliances, HSCs may
utilize strategic alliances to
respond to changing consumer
requirements
MarketsServe only the current market
segments
Acquire new competencies,
develop new product lines, and
open up new markets
Respond to customer
requirements with innovative
features in existing products.
This enables the organization
to capture a larger segment of
that product market
Approach to choosing
suppliers
Supplier attributes involve low
cost and high quality
Supplier attributes involve
speed, flexibility, and quality
Approach to choosing
suppliers
Inventory strategyGenerates high turns and
minimizes inventory
throughout the chain
Make in response to customer
demand
Postpone product
differentiation and minimize
functional components
inventory
Product design strategyMaximize performance and
minimize cost
Product design strategyDesign products to meet
individual customer needs
Demand patternsDemand can be accurately
forecasted and an average
margin of forecasting error
tends to be low, roughly 10%
Demand is unpredictable with
forecasting errors exceeding
50%
Similar to the LSC. The average
product demand can be
accurately forecasted.
Component-level forecasting
may involve larger errors
Lead time focusShorten lead time as long as it
does not increase the cost
Invest aggressively in ways to
reduce lead time
Similar to the LSC at the
component level (shorten lead
time but not at the expense of
cost). At the product level, to
accommodate customer
requirements
Organizational structureUses a static organizational
structure with few levels in the
hierarchy
Organizational structureMaintain an organization
similar to an LSC. May create
temporal relationships with
partners to implement
innovative features
Human resourcesEmpowered individuals
working in teams in their
functional departments
Involves decentralized
decision making.
Empowered individuals
working in cross-functional
teams, which may be across
company borders too
Empowered individuals
working in teams in their
functional departments
Supply Chain concepts details as per various parameters

After analyzing the same it is evident that based on product and customer demand, organizations shall decide their supply chain model.

So, what’s your model? Let us know in the comment section.

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