Salam and

Good Day!

With the new day comes

new strength and new
thoughts – Eleanor
Roosevelt
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

CHAPTER CREATING
THE
RESPONSIVE
3 SUPPLY CHAIN

AHMR
 TABLE OF CONTENT
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

3.1 Product ‘Push’ versus Demand ‘Pull’

3.2 The Foundations of Agility
3.3 A Route-Map to Responsiveness

3
 Learning
Objectives
• Upon completion of the
chapter, you should be able
to:
1. Differentiate the
concept of product
‘push’ versus demand
‘pull’
2. Know the foundations
of agility
3. Explain the route map
to responsiveness

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MANAGEMENT 4
 3.1 Product ‘Push’ Versus Demand ‘Pull’
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

• 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. 5
Figure 3.1: ‘Push’ Versus ‘Pull’ in the Logistics Chain

6
 3.1 Product ‘push’ … (cont.)
• Demand is termed ‘dependent’
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

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 forecasted using traditional
methods, dependent demand must
be calculated, based upon the
demand at the next level in the 7
logistics chain.
3.1 Product ‘push’ … (cont.)
• The EOQ can be easily determined by the formula:

• whereby,
▪ 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% then:

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 3.1 Product ‘push’ … (cont.)
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

• The problem is that this

reorder quantity means
that we will be carrying
more inventory than is
required.
• The result is that we end up
with a lot of unproductive
inventory, which represents
a continuing drain on
working capital.
9
 What is the Meaning of Agility?

https://www.e2open.com/how-to-build-an-agile-supply-chain-lessons-from-the-best-companies/

OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT 10

 3.2 The Foundations of Agility
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

 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.
11
3.2 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 Example: US Apparel
Industry Industry
In the automobile industry In the US, the ‘quick
most of the volume car response’ initiative in the
manufacturers have apparel industry has linked
established ‘seamless’ retailers to garment
processes with their first- manufacturers and to the
tier suppliers based upon fabric producers through
providing immediate access shared information.
to production plans and
schedules.
This enables just-in-time
deliveries to be achieved
without the need for major
buffers of inventory at the
12
first-tier level.
3.2 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.

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MANAGEMENT
3.2 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.
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MANAGEMENT
It’s break time

Let’s take 5!
3.2 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 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. OPM560 SUPPLY CHAIN LOGISTICS
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MANAGEMENT
3.2 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.)

17
3.2 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.

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 3.2 The Foundations … (cont.)
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

 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 must be made
ahead of demand there is the
inevitable risk that the products that
are available are not the ones the
customer wants.
19
3.2 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.

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MANAGEMENT
3.2 The Foundations … (cont.)
 Manage Processes Not Just Functions
• In functionally based businesses of 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. 21
3.2 The Foundations … (cont.)
 Utilise Appropriate Performance Metrics
• In 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 OPM560
measures thatLOGISTICS
SUPPLY CHAIN encourage agile practices. 22
MANAGEMENT
3.2 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.
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MANAGEMENT
3.2 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.
3.3 A Routemap to Responsiveness
• There are many prerequisites for responsiveness
and Figure 3.2 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.

25
 3.3 A Routemap … (cont.)
OPM560 SUPPLY CHAIN LOGISTICS MANAGEMENT

• 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
26
wherever possible.
Figure 3.2: 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

27
Share of
Thoughts
 Thank you!

End of Chapter 3 29