Lean, agile or leagile?

Matching your supply chain to the marketplace(Mason 5th

reading)
Sc- supply chain
Introduction

 The success and failure of supply chains is ultimately determined by the end
consumer.
 Right product at right time and right place needed for survival and competition.
 Customer satisfaction and marketplace understanding- crucial to consider establishing
new supply chain strategy.
 Main goal of supply chain performance improvement- match supply and demand and
reduce costs while maximizing customer satisfaction- (is done by) driving uncertainty
to lower levels within supply chains.
 However, uncertainty can’t be reduced in all supply chain due to the type and nature
of the product- hence here you need to accept still remain proactive to meet demand
(e.g fashionable items)
 Those firms who Design strategies (mechanisms) to tackle such uncertainties get a
competitive advantage as compared to firms which are purely reactive.
Main focus: supply chains need to adopt a strategy that suits both their particular
product and market- place
Supply chain uncertainty.
 Much uncertainty in supply chains- system induced and magnified by the
`Bullwhip effect (demand amplification) rather then bcz of market place
 System induced uncertainty is inherent within supply chains due to the
strategies and relationships involved and is therefore within the direct control
of the companies involved

Coping with differing product type

 To develop a sc strategy aiming to match demand and supply-the relationship
between product type, supply chain and sales predictability is pivotal to
ensuring that the optimal approach is adopted
Two types of products
1. Fashion products (e.g trendy clothing): short life cycle and high demand
uncertainty- leading to risks of stockout and obsolescence (unpredictability is
accepted as business risk)
Challenge- to develop a strategy that will improve the match between supply
and demand and enable the companies to respond faster to the marketplace.
2. Basic products- long life cycles and have low demand uncertainty-
established patterns of demand- main aim is cost reduction.
  Important: Both types of products require different approaches according to
their characteristics which will then lead to optimum SC strategy

 supply chain must excel at the market winner metrics and be highly
competitive at the market qualifier metrics.
Matching supply chain strategies with product type

 Agility: using market knowledge and a virtual corporation to exploit profitable

opportunities in a volatile marketplace. - suitable for fashion as demand
unpredictable
 Leanness: developing a value stream to eliminate all waste, including time,
and to ensure a level schedule. - suitable for basic as demand predictable
Note: anything waste in lean can be essential in agile

Leagile is the combination of the lean and agile paradigms within a total
supply chain strategy by positioning the decoupling point so as to best suit the
need for responding to a volatile demand downstream (agile approach) yet
providing level scheduling upstream(lean approach) from the marketplace.

`The decoupling point is the point in the material flow streams to which the
customer’s order penetrates. It is here where order-driven and the forecast-
 driven activities meet. As a rule, the decoupling point coincides with an
important stock point

Minimize uncertainty to maximize competitive advantage by

 Selection of good Decision Support Systems

 Slashing of material f ow and information flow lead times
 The widespread provision and integrity of operations information
 Elimination of redundant echelons:

Reading 6 -Purchasing strategies in the Kraljic matrix—A power and dependence

perspective-Canie

 A firm’s supply strategy depends on two factors: (1) profit impact and (2) supply
risk.
 General idea of the portfolio approach is to ‘‘minimize supply vulnerability and make
the most of potential buying power’’.
  Power and dependence play an important role
 The matrix identifies four stages: (1) purchasing management; (2) materials
management; (3) sourcing management; and (4) supply management.
four-stage approach as a framework- to develop supply strategy for a single or product grps
1) a company classifies all its purchased products in terms of profit impact and supply
risk
2) the company weighs the bargaining power of its suppliers against its own power
3) the company positions the products that were identified in the first stage as strategic
(high profit impact and high supply risk) in a portfolio matrix\
4) it develops purchasing strategies and action plans for these strategic products,
depending on its own strength and the strength of the supply market
purchasing strategies
1) exploit (in case of buyer dominance)
2) balance (in case of a balanced relationship)
3) diversify (in case of supplier dominance).
 With the help of this matrix, professional purchasers can differentiate between the
various supplier relations and choose strategies that are appropriate for each category
and thereby effectively manage suppliers

2.2. Power and interdependence

power and interdependence issues are fundamental to the way in which buyers and
suppliers interact hence effecting choice of purchasing strategy

 relative power as ‘‘the dependence of one party compared to the dependence of the
other party’.( depends on dependence of the the firm and supplier)
 interdependence asymmetry-difference between the two partner’s levels of
dependence.- leads to dysfunctional relationship
 Total interdependence- intensity of a relationship- high- strong, cooperative and long
term relationships
 Loyalty and desire to continue relationship – motivation for firms to keep partnership
intact.
1) relative power result of interdependence asymmetry
2) total power is result full interdependence (full interdependence)
2.3.1. Strategic items- ( e.g engines and gearboxes )represent a considerable
value to the organization in terms of a large impact on profit and a high
supply risk
1. Maintain strategic partnership with supplier- to max trust and reduce risk
2. Accept a locked-in partnership- monopoly of supplier – less total
interpendence
3. Terminate a partnership- employed when a supplier’s performance has become
unacceptable and incorrigible- search for alternatives

Bottleneck items- moderate influence on the financial results of a firm,

however, they are vulnerable with regard to their supply hence supplier
dominant .
1) Accept dependence, reduce negative consequences: supplier dominant
accept it- highest supplier dominance
2) . Reduce dependence and risk, find other solutions: reduce dependence on
supplier
2.3.2. Leverage items- leverage products can be obtained from various
suppliers. These products represent a relatively large share of the end
product’s cost price in combination with a relatively low supply risk.
(greater buyer power)
1) Exploit buying power- competitive bidding as interchangeable
products – make short term contracrs
2) . Develop a strategic partnership: dont leverage – only useful when
supplier gives you any sort of competitive advantage( e.g technology)-
higher total interpendence then in 1
2.3.3. Non-critical items- smaller value per unit- alternative suppliers are
available
 1) Pool purchasing requirements:- reduce the logistic and administrative
complexity (Olsen and Ellram, 1997). Systems contracting is generally
advised as the way of doing business with suppliers of routine products
2) . Individual ordering, efficient processing
Relative power remains balanced in both ( nechay summary of article)

Reading 7- Managing service inventory to improve performance

Pull- when demand arises
Push- work done even before demand arises

 Push and pull point: the point at which a supply chain switches from building to
forecast to reacting to demand.- helps in avoiding costly mismatches in demand and
supply
 Inventory: a way to store work ; helps in buffer resources and match demand and
take advantage of economies of scale and improved response times – leads ro better
quality and competitive pricing
 Service inventory: all process steps completed prior to customers arrival.

Service as attributes and process

  Each service has unique attributes which leads to its competitive advantage.
 How well a firm delivers on its bundle of attributes depends on process.
 Process design- fundamental managerial procedure

3 drivers of performance
1)placement of push and pull boundary(determine how much work is done in anticipation
of demand)- significant in service process design
2)level of composition of resources and access policies (used to govern how customers are
able to make use of service inventory and resources)

The role of service inventory

 Choice (type )of service inventory depends on- industry and desired position in the
market
 E.g. Tools helping customers run online auctions on ebay- type of service inventory.
 E.g. in title insurance their financial data base acts as a service inventory.

Important : Service inventories are only those pre-performed steps which reduce the post
demand arising steps as by this they reduce work that is needed to be done after.

 Service inventory based on information takes advantage of economies of scale e.g

database development costs a lot but addition of data in it is not that costly.
 It also takes advantage from info technology.
 Doesn’t get depleted like product inventory. And same data can be used again and
again
 Fundamental decision: what kind of work to hold rather then how much work to hold.
 A service provider has to define for which of its service it requires inventory and how
much of work to be done pre demand.

The Strategic impact of pushing services

1) Quality- transational conformance- being able to get service realibily and

accurately
Service inventory helps in service recovery

2) Speed- shorten turn around time and can make it more economical to use large
amount of in expensive capacities
3) Customization: gives customer more info and control
4) Price
3 reasons why service providers are in better position then manufactures in terms of inventory
1)less costly
2) uniqueness here comes after individual’s enter themselves and not from any special
processing
3) service inventory build on info is inherintely modular

Locating the push and pull boundary strategically

Ideally depends on characteristics of market(likelihood it will be used) and cost of creating it
(how risky)
How to push customers to service inventories

 Impose extra cost on the other modes.

Reading 8 – Inventory management in the age of big data

 In today’s world we have huge amounts of data and in order to effectively use this
mangers need to redesign their supply chain process. And use different tools to create
linkages between these data and hence accurately forecast demand.
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