Syllabus 3

CREATING RESPONSIVE SUPPLY CHAIN

CHAPTER 3

1
 TABLE OF CONTENT

4.1 Product ‘push’ versus

demand ‘pull’
4.2 The foundations of agility

4.3 A routemap to
responsiveness
2
4.1 Product ‘push’ versus demand
‘pull’
➢ Just-in-time (JIT) is a ‘pull’ concept, where
demand at the end of the pipeline pulls
products towards the market.
➢ This contrasts with the traditional ‘push’
system where products are manufactured or
assembled in batches in anticipation of
demand.

THE SUPPLY CHAIN MANAGEMENT: KEY

3
CONCEPTS & CASE STUDIES
Figure 4.1: ‘Push’ versus ‘pull’ in the logistics chain

4
4.1 Product ‘push’ … (cont.)
➢ Demand is termed ‘dependent’ when it is
directly related to, or derives from, the demand
for another inventory item or product.
➢ The demand for a given item is termed
‘independent’ when such demand is unrelated
to demand for other items.
➢ This distinction is crucial because whilst
independent demand may be forecast using
traditional methods, dependent demand must
be calculated, based upon the demand at the
next level in the logistics chain.
THE SUPPLY CHAIN MANAGEMENT: KEY
5
CONCEPTS & CASE STUDIES
4.1 Product ‘push’ … (cont.)
➢ The EOQ can be easily determined by the formula:

➢ where,
▪ A = annual usage
▪ S = ordering cost/set-up cost
▪ i = inventory carrying cost
Example
• if we use 1,000 units of product X a year, each costing £40, and
each order/set-up costs £100 and the carrying cost of
inventory is 25 per cent then:

THE SUPPLY CHAIN MANAGEMENT: KEY

6
CONCEPTS & CASE STUDIES
4.1 Product ‘push’ … (cont.)
➢ The problem is that this reorder quantity
means that we will be carrying more
inventory than is actually required.
➢ The result is that we end up with a lot of
unproductive inventory, which represents a
continuing drain on working capital.

THE SUPPLY CHAIN MANAGEMENT: KEY

7
CONCEPTS & CASE STUDIES
4.2 The foundations of agility
 Synchronise activities through shared
information
➢ Web-based technology enables different entities
in a network to share information on real
demand, inventory and capacity in a
collaborative context.
➢ There is a growing number of examples of supply
chain synchronisation made possible by the
retailers’ increasing willingness to share point-of-
sale data with manufacturers.
THE SUPPLY CHAIN MANAGEMENT: KEY
8
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
Example: TESCO
• The Tesco Information Exchange (TIE) is an extranet that enables Tesco’s
suppliers to access their own sales data, item by item.
• This data is updated several times a day and potentially can provide
manufacturers with the means to link their production schedules to Tesco’s
replenishment requirements.

Example: Automobile Industry

• In the automobile industry most of the volume car manufacturers have
established ‘seamless’ processes with their first tier suppliers based upon
providing immediate access to production plans and schedules.
• This enables just-in-time deliveries to be achieved without the need for
major buffers of inventory at the first tier level.

Example: US Apparel Industry

• In the US the ‘quick response’ initiative in the apparel industry has linked
retailers to garment manufacturers and also to the fabric producers through
shared information.
THE SUPPLY CHAIN MANAGEMENT: KEY
9
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
 Work smarter, not harder
➢ Time is being spent on activities that typically create
cost but do not create a benefit for the customer.
Example
• Time spent in inventory is a classic example of non-value-
adding time.

➢ Supply chain mapping can reveal where this idle

time occurs.
Example
• If it takes three weeks from raising a purchase order to
receiving the goods, at least three weeks of inventory will
be required to buffer ourselves during that lead time.
THE SUPPLY CHAIN MANAGEMENT: KEY
10
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
➢ Business process re-engineering (BPR) is the term frequently
applied to the activity of simplifying and reshaping the
organisational processes with the goal of achieving the
desired outcomes in shorter time-frames at less cost.
➢ Many processes in the supply chain are lengthy because the
constituent activities are performed in ‘series’.
Example
• In a linear, ‘one after the other’ way.

➢ It is often possible to re-engineer the process so that those

same activities can be performed ‘in parallel’.
Example
• Simultaneously.
THE SUPPLY CHAIN MANAGEMENT: KEY
11
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
 Partner with suppliers to reduce in-bound lead times
➢ Supplier agility is one of the main requirements in the
creation of a more responsive supply chain.
➢ Using joint supplier/customer teams to explore opportunities
for re-aligning and re-engineering processes.
➢ Allowing their suppliers to access their own information and
planning systems.
Example
• Providing access to enterprise planning systems such as SAP.

➢ Often suppliers may well be able to transfer knowledge and

best practice from their operation to their customers’ – and
vice versa. THE SUPPLY CHAIN MANAGEMENT: KEY
12
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
 Seek to reduce complexity
➢ Complexity may be generated by:
▪ multiple variants of the same product; or
Example
• Different pack sizes.

▪ each product in a family having greatly different

Bills of Material; or
▪ frequent product changes;
▪ and so on (etc.)

THE SUPPLY CHAIN MANAGEMENT: KEY

13
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
➢ Simplification can sometimes be achieved
through seeking greater commonality of
components or sub-assembly across a family
of products.
Example: Automobile design

• In automobile design these days it is increasingly

the case that several different models of car are
built on the same platform and ‘under the skin’
share common components and sub-assemblies.
THE SUPPLY CHAIN MANAGEMENT: KEY
14
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
 Postpone the final configuration / assembly /
distribution of products
➢ Postponement refers to the process by which the
commitment of a product to its final form or
location is delayed for as long as possible.
➢ When decisions on the final configuration or
pack have to be made ahead of demand there is
the inevitable risk that the products that are
available are not the ones the customer wants.
THE SUPPLY CHAIN MANAGEMENT: KEY
15
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
Example: Ordering a car
• The customer may want a blue four-door car with air-conditioning but
the dealer has a red, two-door with a sunroof.
• Or, again, there may be a blue four-door available but it is at a different
dealer at the other end of the country.

Example: DeskJet printers

• An example of late configuration is provided by Hewlett Packard and its
DeskJet printers.
• These products are designed so that they can be manufactured as
generic, but incomplete, units.
• They are then localised at regional centres where the appropriate power
pack, plug and cable, local packaging, etc., are added.
• In this way inventory is minimised but availability is enhanced.

THE SUPPLY CHAIN MANAGEMENT: KEY

16
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
 Manage processes not just
functions
➢ In functionally based businesses the new product
development activity.
Example
• Is often lengthy as it moves from R&D to product engineering
to market research and eventually into production.

➢ On the other hand, those companies that are able to

respond rapidly to changing customer requirements tend to
focus more upon managing ‘processes’.
➢ They are cross-functional by definition and are usually best
managed through the means of interdisciplinary teams.
THE SUPPLY CHAIN MANAGEMENT: KEY
17
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
 Utilise appropriate performance
metrics
➢ Business organisations where formal
measurement systems drive the business.
Example
• If, a manufacturing facility is measured on, say, unit cost of
production then the incentive will be to go for big batch sizes
to take advantage of economies of scale.
• However, such actions will probably lead to a loss of flexibility
and the creation of additional inventory.
• If, on the other hand, time-based metrics were to be employed
then the focus could be on cycle-time reduction, set-up time
reduction and other measures that encourage agile practices.
THE SUPPLY CHAIN MANAGEMENT: KEY
18
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
➢ One such widely used measure is ‘perfect order
achievement’.
➢ A perfect order is one where the customer gets exactly
what they want at the time and place they want it.
➢ ‘Time to market’ and ‘time to volume’ are powerful
metrics employed by companies.
Example: Sony and Canon
• Sony and Canon where short life cycles dictate a focus on rapid
response to fast-changing technologies and volatile customer
demand.

THE SUPPLY CHAIN MANAGEMENT: KEY

19
CONCEPTS & CASE STUDIES
4.2 The foundations … (cont.)
➢ In the past, the focus of many companies was
primarily on efficiency.
Example
• A continuing search for lower costs, better use of
capacity, reduced inventories and so on.

➢ These are still worthy goals today but the priority

has shifted.
➢ Now the emphasis must be on effectiveness.

THE SUPPLY CHAIN MANAGEMENT: KEY

20
CONCEPTS & CASE STUDIES
4.3 A routemap to responsiveness
➢ There are many prerequisites for responsiveness
and Figure 4.2 summarises the key elements.
➢ The responsive business will have agile suppliers
and will work very closely with them to align
processes across the extended enterprise.
➢ It will also be very close to its customers,
capturing information on real demand and
sharing that information with its partners across
the network.
THE SUPPLY CHAIN MANAGEMENT: KEY
21
CONCEPTS & CASE STUDIES
4.3 A routemap … (cont.)
➢ Internally the business will also be focused on
agility through the way it organises – breaking
through functional silos to create process teams.
➢ In terms of its manufacturing and sourcing
strategy, the responsive business will seek to
marry the lean and agile paradigm through de-
coupling its upstream and downstream
processes, utilising the principles of
postponement wherever possible.

THE SUPPLY CHAIN MANAGEMENT: KEY

22
CONCEPTS & CASE STUDIES
Figure 4.2: Route map to the responsive business

Vendor
Economies of Standardization/ managed
scale modularization inventory

Synchronized
production
Waste
Lean reduction
Capacity
production Agile
management
supply

Process
De-couple The management
Flexible the supply Responsive
response chain Business
Organisational
agility

Setup time Quick

response Demand Cross-
reduction functional
driven
teams

Process Continuous
Non-value-adding re-engineering replenishment
time reduction programmes
Visibility of
real demand

23