SUPPLY CHAIN MANAGEMENT

Chapter 9: Building a responssive supply

chain
 References

Prescribed textbook:
 Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. 2003, Designing and Managing the Supply Chain, 3rd edition,
McGraw-Hill, USA.
Reference textbook:
 Bloomberg, D.J., Murray, A. and Hanna, J.B. 1998, The Management of Integrated Logistics: A Pacific Rim
Perspective, 2nd edn, Sprint Print, Prentice-Hall.
 Bowersox, D.J. Closs, D.J. and Cooper, M.B. 2002, Supply Chain Logistics Management, McGraw-Hill/Irwin, New
York.
 Christopher, M. 1998, Logistics & Supply Chain Management, 2nd edn, Pearson Education. Essex.
 Cooper, J. 1994, Logistics & Distribution Planning, Kogan Page, London.
 Coyle, J. J., Langley, C. J. & Bardi, E. J. 2003, The Management of Business Logistics: A Supply Chain Perspective,
7th edn, Thomson Learning, Canada.
 Coyle, J.J., Bardi, E.J. and Langley, C.J. 2003, The Management of Business Logistics, West Publishing Company,
New York.
 Greasley, A. 2006, Operations Management, John Wiley & Sons Ltd, Chichester, England.
 Johnson, J.C. 1999, Contemporary Logistics, Prentice Hall, Upper Saddle River, N.J.
 Lambert, D. M., Stock, J. R. and Ellram, L. M. 1998, Fundamentals of Logistics Management, McGraw Hill, USA.
 Rushton, A., Croucher, P. and Baker, P. 2006, The Handbook of Logistics and distribution Management, 3rd edn,
Kogan Page, UK.
 Stock, J.R. and Lambert D.M. 2001, Strategic Logistics Management, 4th Edn, Irwin/McGraw-Hill, Boston.
 Mentzer, J. T., DeWitt, W., Min, S., Nix, N. W., Smith, C. D. and Zacharia, Z. G. 2001, ‘Defining supply chain
management’, Journal of Business Logistics, Vool. 22, No. 2, pp. 1 – 25.
 Sunil Chopra and Peter Meindl (2016), Supply chain
management : strategy, planning, and operation, 6th ed.,
Pearson Education, Inc. (Chapter 2, pp. 19-31)
 Joel Wisner, Keah-Choon Tan, G. Keong Leong (2019),
Principles of Supply Chain Management, 5th ed., Cengage
Learning® (Chapter 8, pp. 281-91)
 Martin Christopher (2011), Logistics and supply chain
management : creating value-adding networks, 4th ed., Pearson
Education Limited (Chapter 5, pp. 99-119)
 Naylor, J.B., Naim, M.M. and Berry, D. (1999), Leagility:
Integrating the lean and agile manufacturing paradigms in the
total supply chain, International Journal of production
economics, 62(1-2), pp.107-118.
 Reference

Prescribed textbook:
 Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. 2003, Designing and Managing the Supply Chain, 3rd edition,
McGraw-Hill, USA.
Reference textbook:
 Bloomberg, D.J., Murray, A. and Hanna, J.B. 1998, The Management of Integrated Logistics: A Pacific Rim
Perspective, 2nd edn, Sprint Print, Prentice-Hall.
 Bowersox, D.J. Closs, D.J. and Cooper, M.B. 2002, Supply Chain Logistics Management, McGraw-Hill/Irwin, New
York.
 Christopher, M. 1998, Logistics & Supply Chain Management, 2nd edn, Pearson Education. Essex.
 Cooper, J. 1994, Logistics & Distribution Planning, Kogan Page, London.
 Coyle, J. J., Langley, C. J. & Bardi, E. J. 2003, The Management of Business Logistics: A Supply Chain Perspective,
7th edn, Thomson Learning, Canada.
 Coyle, J.J., Bardi, E.J. and Langley, C.J. 2003, The Management of Business Logistics, West Publishing Company,
New York.
 Greasley, A. 2006, Operations Management, John Wiley & Sons Ltd, Chichester, England.
 Johnson, J.C. 1999, Contemporary Logistics, Prentice Hall, Upper Saddle River, N.J.
 Lambert, D. M., Stock, J. R. and Ellram, L. M. 1998, Fundamentals of Logistics Management, McGraw Hill, USA.
 Rushton, A., Croucher, P. and Baker, P. 2006, The Handbook of Logistics and distribution Management, 3rd edn,
Kogan Page, UK.
 Stock, J.R. and Lambert D.M. 2001, Strategic Logistics Management, 4th Edn, Irwin/McGraw-Hill, Boston.
 Mentzer, J. T., DeWitt, W., Min, S., Nix, N. W., Smith, C. D. and Zacharia, Z. G. 2001, ‘Defining supply chain
management’, Journal of Business Logistics, Vool. 22, No. 2, pp. 1 – 25.
 Content

9.1 lean thinking and supply chain management

9.2 the elements of lean
9.3 agile - agility
9.4 the agile supply chain
9.5 lean or gile
9.6 leagile
9.7 competitive and supply chain strategies
9.8 achieving strategic fit
9.9 tailoring the supply chain for strategic fit
9.1 LEAN THINKING & SUPPLY CHAIN
MANAGEMENT
 Lean thinking, closely related to Just-in-Time (JIT),
describes a philosophy incorporating tools that seek
to economically optimize time, human resources,
assets, and productivity, while improving product and
service quality.

 Quality assessment and improvement is a necessary

element of lean production.
LEAN THINKING & SUPPLY CHAIN
MANAGEMENT
 The objective of supply chain management is to
balance the flow or supply of materials with
downstream customer requirements throughout the
supply chain, such that costs, quality, and customer
service are at optimal levels.
 Lean production emphasizes reduction of waste,
continuous improvement, and the synchronization of
material flows from within the organization and
eventually including the organization’s first-tier
suppliers and customers.

 Supply chain management seeks to incorporate lean

thinking across entire supply chains.
9.2 THE ELEMENTS OF LEAN
 Waste Elimination
 Lean Supply Chain Relationships
 Lean Layouts
 Inventory and Setup Time Reduction
 Small Batch Production Scheduling
 Continuous Improvement
 Workforce Commitment
Waste Elimination
 Eliminating waste is the primary concern of lean
thinking. This includes reducing excess inventories,
material movements, production steps, scrap losses,
rejects, and rework.
 Waste is any nonvalue-adding activity

 The Seven Wastes

 The Five-Ss
The Seven Wastes
The Five-Ss (Five-Why)
Lean Supply Chain Relationships
 When the focal firm, its suppliers, and its customers
begin to work together to identify customer
requirements, remove wastes and reduce costs, while
improving quality and customer service, it marks the
beginning of lean supply chain relationships.

 Firms can use lean thinking with their key suppliers

and customers.

 Mutual dependencies and mutual benefits occur

among all of these lean supply chain relationships,
resulting in increased product value and
competitiveness for all of the trading partners.
Lean Layouts
 The primary design objective with lean layouts is to
reduce wasted movements of workers, customers,
and/or WIP inventories, while achieving smooth
product (or customer) flow through the facility.

 Lean layouts are very visual, meaning that lines of

visibility are unobstructed, making it easy for
operators at one processing center to monitor work
occurring at other centers.

 Lean layouts allow problems to be tracked to their

source more quickly as well.
Inventory and Setup Time Reduction
 In lean thinking, excess inventories are considered a waste,
since they can hide a number of purchasing, production, and
distribution problems within the organization.
 Firms must then either find a way to resolve the supplier’s
delivery problem or find a more reliable supplier.
 Another way to reduce inventory levels is to reduce
purchase order quantities and production lot sizes.
 Setup times can be reduced in a number of ways including
doing setup preparation work while the previous production lot
is still being processed, moving machine tools closer to the
machines, improving tooling or die couplings, standardizing
setup procedures, practicing various methods to reduce setup
times, and purchasing automated machines that require less
setup time.
Small Batch Production Scheduling
 Small batch scheduling drives down costs by reducing
purchased, WIP, and finished goods inventories, and it
also makes the firm more flexible to meet varying
customer demand.
 Moving small production batches through a lean
production facility is often accomplished with the use
of kanbans.
 When manufacturing cells need parts or materials,
they use a kanban to signal their need for the items
from the upstream manufacturing cell, processing unit,
or external supplier providing the needed material. In
this way, nothing is provided until a downstream
demand occurs. That is why a lean system is also
known as a pull system.
Small Lot Sizes Increase Flexibility
A Kanban Pull System
Continuous Improvement
 To make the lean system work better, employees
continuously seek ways to reduce supplier delivery and
quality problems, and in the production area they solve
movement problems, visibility problems, machine
breakdown problems, machine setup problems, and
internal quality problems.
 In Japanese manufacturing facilities, this is known as
kaizen. A literal translation of kaizen is “good change”.
 Some firms embrace what is known as a kaizen blitz,
which is a rapid improvement event or workshop, aimed
at finding big improvements quickly. Most kaizen
improvements though, are small individual events,
emphasizing creativity.
 Quality improvement is certainly part of the ongoing
continuous improvement effort in lean systems.
Workforce Commitment
 Since lean systems depend so much on waste
reduction and continuous improvement for their
success, employees must play a significant role in this
process.

 In lean manufacturing systems, employees are cross-

trained on many of the various production processes
to enable capacities to be adjusted as needed when
machines break down or when workers are absent.
 Most employees who work for lean companies enjoy
their jobs; they are given a number of responsibilities
and are considered one of the most important parts
of a successful lean organization.
9.3 AGILE - AGILITY
 As competitive pressures force more frequent product
changes and consumers demand greater variety than
ever before.
 An organization needs to be able to adjust output
quickly to match market demand and to switch
rapidly from one variant to another.

 A key to agile response is the presence of agile

partners upstream and downstream of the focal firm.
9.4 THE AGILE SUPPLY CHAIN
THE AGILE SUPPLY CHAIN
 The agile supply chain is market-sensitive. By market-
sensitive is meant that the supply chain is capable of
reading and responding to real demand.
 The use of information technology to share data between
buyers and suppliers is, in effect, creating a virtual supply
chain. Virtual supply chains are information based rather
than inventory based.
 Supply chain partners can only make full use of shared
information through process alignment, i.e. collaborative
working between buyers and suppliers, joint product
development, common systems and shared information.
 This idea of the supply chain as a confederation of
partners linked together as a network provides the fourth
ingredient of agility.
9.5 LEAN OR AGILE
LEAN OR AGILE - GENERIC SUPPLY
CHAIN STRATEGIES
9.6 LEAGILE - DECOUPLING POINT
LEAGILE - DECOUPLING POINT
LEAGILE - ROUTEMAP TO THE
RESPONSIVE BUSINESS
9.8 COMPETITVE AND SUPPLY CHAIN
STRATEGIES
Competitive strategy of a company defines, relative to
its competitors, the set of customer needs that it seeks
to satisfy through its products and services.

 The competitive strategy is defined based on how the

customer prioritizes product cost, delivery time,
variety, and quality (customers’ priorities).

 Competitive strategy targets one or more customer

segments and aims to provide products and services
that satisfy these customers’ needs.
COMPETITVE AND SUPPLY CHAIN
STRATEGIES

Figure 1: The Value Chain in a Company

COMPETITVE AND SUPPLY CHAIN
STRATEGIES
A product development strategy specifies the portfolio of
new products that a company will try to develop. It
also dictates whether the development effort will be
made internally or outsourced.

A marketing and sales strategy specifies how the market

will be segmented and how the product will be
positioned, priced, and promoted.
COMPETITVE AND SUPPLY CHAIN
STRATEGIES
A supply chain strategy determines the nature of
procurement of raw materials, transportation of
materials to and from the company, manufacture of
the product or operation to provide the service, and
distribution of the product to the customer, along with
any follow-up service and a specification of whether
these processes will be performed in-house or
outsourced.
 Supply chain strategy specifies what the operations,
distribution, and service functions, whether performed
in-house or outsourced, should do particularly well.
ACHIEVING STRATEGIC FIT

Strategic fit requires that both the competitive and

supply chain strategies of a company have aligned
goals.

 It refers to consistency between the customer

priorities that the competitive strategy hopes to
satisfy and the supply chain capabilities that the
supply chain strategy aims to build.
9.8 ACHIEVING STRATEGIC FIT

Step 1: Understanding the customer and supply chain

uncertainty

Step 2: Understanding the supply chain capabilities

Step 3: Achieving strategic fit

Step 1: Understanding the customer
and supply chain uncertainty
 Identify customer demand (customer needs) in
focused segment
 Demand uncertainty vs. Implied demand uncertainty
 Demand uncertainty reflects the uncertainty of customer
demand for a product.
 Implied demand uncertainty, in contrast, is the resulting
uncertainty for only the portion of the demand that the
supply chain plans to satisfy based on the attributes the
customer desires.
 Implied demand uncertainty is correlated with
customer needs and other characteristics of demand
 Considering uncertainty resulting from the capability
of the supply chain (supply uncertainty)
Step 1: Understanding the customer
and supply chain uncertainty

Table 1: Impact of Customer Needs on Implied Demand

Uncertainty
Step 1: Understanding the customer
and supply chain uncertainty

Table 2: Correlation Between Implied Demand Uncertainty

and Other Attributes
Step 1: Understanding the customer
and supply chain uncertainty

Table 3: Impact of Supply Source Capability on

Supply Uncertainty
Step 1: Understanding the customer
and supply chain uncertainty

Figure 2: The Implied Uncertainty (Demand and

Supply) Spectrum
 Step 2: Understanding the supply chain
capabilities
 Supply chain
responsiveness vs.
Supply chain efficiency

 Cost-responsiveness
efficient frontier

Figure 3: Cost-responsiveness
efficient frontier
Step 2: Understanding the supply chain
capabilities

Figure 4: Responsiveness spectrum

 Step 3: Achieving strategic fit

Figure 5: Finding the zone of

strategic fit
 Step 3: Achieving strategic fit

Figure 6: Different Roles

and Allocations of
Implied Uncertainty for
a Given Level of
Supply Chain
Responsiveness
 Step 3: Achieving strategic fit

Table 4:
Comparison
of Efficient
and
Responsive
Supply Chains
9.9 TAILORING THE SUPPLY CHAIN
FOR STRATEGIC FIT
 Appropriate tailoring of the supply chain helps a firm
achieve varying levels of responsiveness for a low
overall cost. The level of responsiveness is tailored to
each product, channel, or customer segment.
 The concept of tailoring to achieve strategic fit is
important in industries such as high-tech and
pharmaceuticals, in which innovation is critical and
products move through a life cycle.
 Considering changes in demand and supply
characteristics over the life cycle of a product.
TAILORING THE SUPPLY CHAIN FOR
STRATEGIC FIT
 New products are typically introduced using flexible
capacity that is more expensive but responsive
enough to deal with the high level of uncertainty
during the early stages of the life cycle.
 Mature products with high demand are shifted to
dedicated capacity that is highly efficient because it
handles low levels of uncertainty and enjoys the
advantage of high scale.
 The tailored capacity strategy has allowed firms to
maintain strategic fit for a wide range of products at
different stages of their life cycle.