Agile Supply Chain

1. Agile Supply
Chain
Archil Nasrashvili

2. First Point: Existent Environment
• Globalization Of Competition
• Customer Bargaining Power Increase
• Demand For Innovative Product Features
• More Product Varieties
• Better Performance And Quality At A Best In Class And
• Greater Speed - Consumers Expect Fulfilment Of Demand Almost Instantly
• At A Competitive Price

3. Second Point: Demand and Product
Varieties
• Predictable Demand Versus Unpredictable
• Functional Versus Innovative Products
Predictable:
Example: Staples
Satisfy Basic Needs And
Have A Predictable Demand With
A Long Lifecycle And
Low Profit Margin
Product Life Cycle More Than 2 Years
The Margin Of Error For Forecasting For Functional
Products Is In The 10 Per Cent Range
Rivals: Many
Unpredictable:
Innovative Products: Like State Of The Art MP4
Players Or Fashion Clothes
Having A Short Life Cycle
Short Lead Time
With Higher Profit Margins But
With Very Unpredictable Demand
Product Life Cycle From 3 Months To 1 Year
The Margin Of Error For Forecasting Varies From 40
To 100 Per Cent
Rivals: Few

4. Third Point: Types of S.Ch‟s
“In Their „Pure‟ Form Three Models Of Supply Chain Can Be Identified Being
Traditional, Lean And Agile”
Traditional
Known For:
• Protection Of Market, Aims For
Leadership
• Forecast Driven
• Higher Emphasis On Customer
Service Than Cost
• Inventory Held To Buffer
Fluctuations In Demand And
Lead Times
Lean
Characteristics:
• Integration Upstream With
Suppliers
• Integration Downstream With
Customers
• High Emphasis On Efficiency
• Aims For Minimum Stock Holding
Agile
Known For:
• Flexibility And
• Speed In
• Coping With Innovative Products
And Unpredictable Demand,
• Achieving Responsiveness
Advantage
“Although Many Supply Chains Will Be A Hybrid Of Models”

5. “Agile” Supply Chain Fits Unpredictable
Demand / Innovative Products
“Traditional Forecast Driven Lengthy Supply Line Has Become Untenable For Consumer Products”
• Innovative Products Need An Agile Supply Chain While Predictable Demand Products Need Traditional Or Lean
Value Chains To Minimize The Cost As Much As Possible To Withstand Bigger Competition
• We Know That Not ‘Too Many’ Companies Have Power To Operate In Innovative Product Business And Thus They
Place Themselves With Functional Products, And Thus The Competition Is Bigger, Followed By The Bigger Need
For Efficiency – Lean!

6. “Agile” Supply Chain Connection To
Business Strategy
• Lean Supply Chain Should Be Applied Upstream The CODP, While An Agile Supply Chain Would Be More Suitable
For Downstream Operations
• The Distinction Between Lean And Agile Has Been Tested Empirically Concerning Drivers And Performance
Outcomes:
• They Found That Lean Is Associated With A Cost Leadership Strategy And Cost Performance, While Agile Is
Associated With A Differentiation Strategy And Flexibility Performance

7. The Characteristics Of An Agile Supply
Chain: 1.Flexibility
(Flexibility = Changes In Demand For Both Volume And Variety)
• Short Lead Times
• Fast Replenishment Of Goods
• Reduced Complexity Of Products For Mass Customization
• Reduced Complexity In Process By Standardization
• Organizational Flexibility Via Multiskilling And Seamless Working Practices

8. The Characteristics Of An Agile Supply
Chain: 2.Market Sensitivity
• Demand Planning Based On Actual Customer Orders Instead Of Traditional
Forecasting Methods
• In Addition: Efficient Consumer Response (ECR) & Customer Relationship
Management (CRM) Usage
• ‘Loyalty Cards’ And ‘Store Cards’ Are Some Of The Means
• The Scheduling Of Operations Based On “Backward Scheduling” Approach

9. The Characteristics Of An Agile Supply
Chain: 3.Virtual Network
The Use Of Internet And Information Technology For The Real-time Sharing Of Data Between:
• Customers
• Buyers
• Suppliers
• Planners
• Manufacturers
• Distributors
In A Virtual Network. The Visibility Of Demand And Collaborative Planning, Forecasting And
Replenishment
(And This Way You Avoid The Bullwhip Effect As Well)

10. The Characteristics Of An Agile Supply
Chain: 4.Postponement
1. Basic, Standardized Components And Procedures For Different Products Are
Always Ready (Stocked, Buffered)
2. The Final Assembly Or Customization Does Not Take Place Until The Final
Customer Or Market Requirements Are Known
3. When There Is An Order, You Start Manufacturing The Standardized
Components Into The Customized Finished Goods
(There is a Note)

11. Explanation: Base For Postponement
Method Idea
Two Ideas Behind Postponement:
1.Demand Projections For A Product Group Are Generally More Accurate Than Projections For
Individual Products. Example: Total Demand For LCD TVs Vs Individual TV Of A Specific Brand
2.The Accuracy Of Forecast Demand Decreases With An Increase In The Time Horizon.
(Examples are in the Notes)

12. The Characteristics Of An Agile Supply
Chain: 5.Picking Some Lean Principles
• A Pure Lean Strategy Can Be Applied Up To The De-coupling Point And Then An Agile
Strategy Can Be Applied Beyond That Point
• So The “Same Basic Parts” Can Be “Leaned” And The Customization Parts Need Agile
Approach.
• It Should Be Possible To Achieve Volume-oriented Economies Of Scale Up To The De-
coupling Point.
(Note)

13. Term Definition: De-Coupling Point
• Decoupling: “The Separation Of Previously Linked Systems So That They May
Operate Independently”
• The Decoupling Point Is A Standard Term Given To The Position In The Material
Pipeline Where The Product Flow Changes From “Push” To “Pull”
• Before The Point Where The Materials (The Inputs Into The Products, The
Parts) Are Not Needed For Non Business Customers

15. 4 Rules For Achieving Agility
The Agile Supply Chain Is Achieved, According To The Author, By Adopting
Four Rules:
1. Accept That Uncertainty Is Inherent In Innovative Products,
2. Reduce Uncertainty By Finding Data That Can Support Better Forecasting
3. Avoid Uncertainty By Cutting Lead Times, Increasing Flexibility In Order
To Produce To Order Or Move Manufacturing Closer To Demand And
4. Hedge Against Uncertainty With Buffer Inventory And Excess Capacity

16. Achieving Agility In Production
(Some Ideas)
• The Agile Supply Chain Is Achieved By Buffer Capacity And Buffer Stocks (Note)
• Cellular Manufacturing Layout of The Factory Is Recommended
• Usage of ERP System is Almost a Must (Enterprise-wide integration of functions)
• Cross functional teams
• Decentralized decision making (At Operational Level)
• Learning Organization Principles
• Suppliers Should Be “Agile Enabled” as Well

17. Agility Objectives
4 Pivotal Objectives Of Agile Manufacturing As Part Of An Agile Supply Chain
1. Customer Enrichment Ahead Of Competitors
2. Achieving Mass Customization At The Cost Of Mass Production
3. Mastering Change And Uncertainty Through Routinely Adaptable Structures And
4. Leveraging The Impact Of People Across Enterprises Through Information Technology

18. Case Example: Zara: 1. Market
Sensitivity:
Cross-functional Team Comprising Of:
1. Fashion
2. Commercial And
3. Retail Specialists
Try To Plan The Supply Based On Identification Of International Fashion Trends Of Target Customers Via Visits To:
1. Relevant Fashion Shows
2. Stores
3. University Campuses
4. Cafes
5. Clubs And
6. Events Appropriate For The Life Style Of Young
7. Along With Regular Inflow Of Sales Data From Company’s Stores Around The World

19. Case Example: Zara: 2. Decoupling Point &
Postponement Principle:
Base materials: Approximately 40 per cent of broadest but least transient garments are purchased as finished
products from the low cost centers of the Far East
They postpone manufacturing before they agree on the trend
Decoupling point materials: The remaining 60 per cent are produced by quick response in Zara’s-automated
factories in Spain and a network of small contractors

20. Case Example: Zara: 3. Flexibility
Flexibility: The operations with a higher economy of scale (e.g. cutting, dying, labelling and packaging)
are conducted in-house to enhance cost efficiency = Lean Principle!
Other manufacturing activities including the labor intensive finishing operations are accomplished by a
network of 300 specialist subcontractors = Agility Principle!
These subcontractors work exclusively for Zara’s parent company, Inditex SA.
They receive necessary training and technological, financial and logistical support as if they are
subsidiaries of Zara