Flexibility the key to staying afloat

2 November 2000
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02 November 2000

The debate over lean versus agile supply chains rages on, but the advocates of agility seem to be gaining ground. Cathy Hayward reports from the Logistics Forum 2000

The words "we need to talk about our relationship" may signal the end of a romantic liaison, but for buyers and suppliers it indicates the beginning of a major shift in supply chain management thinking, delegates at Logistics Forum 2000, on board the P&O liner Aurora, heard.

Forget the lean, just-in-time supply chains that characterised manufacturing thinking in the 1990s. Today's supply manager needs to be thinking flexibly, optimising the supply chain, talking to their suppliers constantly and creating total visibility.

So what's behind this way of thinking? George Rzevski, professor of intelligent systems at Brunel University, said global competition was forcing firms to become more agile. "To compete against the cheap mass-production of their Asian and American rivals, British firms must provide flexibility."

Increased customer demand and market sensitivity are also key, argued David Hindson, group director of marketing and IT at distribution firm TDG. "Companies are finding it increasingly difficult to compete on product differentiation," he said. "They have to compete on service, which means developing an agile supply chain that is more customer-focused that the cost-focused lean supply chain."

Alan Harrison, professor of operations and logistics at Cranfield School of Management, predicted that firms would abandon lean models, because agile supply chains allowed them to react faster to surges in demand and offer bespoke products with the lead times of mass-produced goods.

The fuel crisis pushed agility into the limelight and built on these long-term drivers. A conference survey revealed that most delegates' businesses were unaffected, but would have been hit had the dispute lasted for just a few more days.

That they could survive that long, argued Harrison, was down to increased flexibility, which enabled purchasers to assess the situation better and redirect goods and fuel where necessary. Rigid just-in-time chains adopted by many of the motor manufacturers, including Honda, which was forced to stop production at its Swindon plant, did not allow this flexibility.

Following the crisis many firms stockpiled fuel or called on their suppliers to do so until the immediate threat was over. The threat of further blockades has prompted many companies to consider keeping their fuel and goods stocks high permanently.

But getting suppliers on board the agility train can be tricky, as it means running factories in a less efficient way. "Production and transport costs typically rise by 17 per cent," said Harrison. "But service levels also go up, typically from around 80 to 98 per cent, which is where the main benefit comes."

The supplier base should also be widened, from a supply chain to a supplier network, which can create relationship problems. Firms needed alternative suppliers to deliver in case of emergencies.

Supply chains should also be seen less as a business process and more as a marketing tool to gain competitive advantage. Before opting for an agile supply chain, Dawson Fabrics exported 40 per cent of its goods. That has now increased to 65 per cent as the group competes in overseas markets. "We can export goods to the US quicker than their own companies," claimed the firm's chief executive, David Lamb, speaking at the conference. The agile supply chain cut lead times from five weeks to a fortnight.

And agility was not just a conference lectern fad. Software providers are moving away from the "pile 'em high, sell 'em cheap" philosophy to concentrate on tailored products. This is reflecting the trend away from lean supply chains, said one supplier. Firms are more interested in how consultants and software can help them to maximise what they have and make it flexible.

But agility doesn't work for everyone. Raymond Runza, divisional manager of operations at Honda, said there were too many components, models and customers wanting bespoke products to have agile supply chains in the motor industry.

Others argued that agility tries to predict the unpredictable. "Lean works 99 per cent of the time. You can't predict things like the fuel crisis and earthquakes," said Darren Hall, consultant at Logistics Consulting Partners.

Agility's advocates retort that an agile supply chain can ensure that when that one-in-a-hundred event happens, your company - and its suppliers - will stay afloat.

SMnov2000

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