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 focus | Lean Supply Chain | Agile Supply Chain | Hybrid Supply Chain |
| Purpose | Focus 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 manufacturing | Advocates 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 |
| Alliances | May 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 |
| Markets | Serve 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 strategy | Generates high turns and minimizes inventory throughout the chain | Make in response to customer demand | Postpone product differentiation and minimize functional components inventory |
| Product design strategy | Maximize performance and minimize cost | Product design strategy | Design products to meet individual customer needs |
| Demand patterns | Demand 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 focus | Shorten 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 structure | Uses a static organizational structure with few levels in the hierarchy | Organizational structure | Maintain an organization similar to an LSC. May create temporal relationships with partners to implement innovative features |
| Human resources | Empowered 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 |
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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