1 Agile or lean? “Lean” works best in high volume, lowVolume per variant Variety/ Variability “Lean” works best in high volume, low variety and predictable environments. “Agility” is needed in less predictable environments where the demand for variety is high.
2 Demand/supply characteristics determine supply chain strategyLean Plan & optimise Agile Quick response Long lead-times Short Predictable Unpredictable Demand characteristics Supply characteristics Kanban Continuous replenishment Hybrid De-couple through postponement
3 Lean Agile The decoupling point Forecast at generic levelEconomic batch quantities Maximise efficiencies Demand driven Localised configuration Maximise effectiveness Strategic Inventory
4 The Volume/Variability MatrixHigh Sales Variability Low Low Sales Volume Hi
5 Supply Chain DifferentiationLOW VOLUME HIGH VARIABILITY Unpredictable, ‘spikey’ volumes SIMPLIFY AND JUSTIFY HIGH VOLUME Base volume with unpredictable surges SEPARATE BASE AND SURGE LOW VARIABILITY Predictable but small volumes LEAN AND EFFICIENT Large predictable volumes CONTINUOUS REPLENISHMENT High Variability Low Low Volume High
6 Finished Products (demand forecast level)‘Push’ versus ‘pull’ in the logistics chain Demand ‘pull’ Customers Finished Products (demand forecast level) D1 D2 D3 D4 Regional Distribution Centres RDC1 RDC2 Finished Products Factory Warehouse Finished Products Factory Work-in-Progress Sub-assemblies Components Product ‘push’ Vendors/Suppliers
7 The reorder point method of stock controlquantity Reorder point Stock level Average lead-time demand Lead time Safety stock Order placed Order arrives Time
8 The review period method of stock controlReplenishment level Stock level Review period
9 Order point and dependent demand1. Regional distribution centre (RDC) inventory: many small independent demands from customers Order point Inventory
10 Order point and dependent demand2. Central warehouse inventory: few large demands dependent on RDC demand Order point J F M A S O N D
11 Order point and dependent demand3. Plant inventory: irregular demand dependent on warehouse demand Order point J F M A S O N D
12 Causes of uneven demand at plant levelCombined demand at the factory 750 250 500 Quantity ordered* 250 500 200 150 350 Combined demand Regional centre 1 Regional centre 2 50 150 100 250 Quantity ordered** Basic demand (pallet loads) 10 10 10 10 10 10 60 60 60 60 60 60 30 30 30 30 30 30 70 70 70 70 70 70 Depot A Depot B Depot C Depot D *Orders placed in multiples of 250 pallet loads **Orders placed in multiples of 50 pallet loads
13 Determining the economic order quantityTotal cost Inventory carrying cost Cost Ordering/ set-up cost EOQ Quantity
14 Inventory hides the problemsA Inventory B Volatile Demand Inaccurate Forecasts Unreliable Suppliers Quality Problems Bottlenecks
15 Reducing set-up costs/ordering costsOrder/batch quantity
16 Reducing the economic batch/order quantityTotal cost (1) Total cost (2) Cost Inventory carrying cost Set-up cost (1) Set-up cost (2) EOQ (2) EOQ (1) Order/batch quantity
17 The agile supply chain Agile supply chain Network based Virtual Marketsensitive Process alignment
18 Route map to the responsive businessVendor managed inventory Economies of scale Standardization/ modularization Synchronized production Waste reduction Lean production Capacity management Agile supply Process management De-couple the supply chain The Responsive Business Flexible response Organizational agility Quick response Setup time reduction Demand driven Cross-functional teams Process re-engineering Continuous replenishment programmes Non-value-adding time reduction Visibility of real demand