Agile Supply Chain

Working subject:

An investigation of the supply chain and how to manage it.

Approach:

The assignment revolves around the supply chain and supply chain management in the fashion retail industry.

The aims are to:

- Analyse strategies used to obtain an agile supply chain

- Evaluate the benefits of an agile supply chain compared to a traditional supply chain based on forecasting

Introduction:

Bowersox, Closs and Cooper (2010) state that supply chain management is about matching supply and demand - a difficult task, because uncertainty and instability in demand makes it hard. Bowersox, Closs and Cooper (2010) state that at the same time lifecycles are getting shorter than ever and products are being replaced faster - an example could be the personalized computer which have a life cycle as short as a year compared to a typewriter which had a life cycle as long as up to 30 years - this is of course due to competition (Naumann, 1995).

The consequences of entering a market too late is therefore less time to sell the product which means less profit, and can also lead to losses.

There are different versions of a supply chain, depending on the SCM strategy an organisation choose. As illustrated in fig. 2 these different strategies of how to run production will have different results and the choice of strategy is linked to the type of organisation depending on how they need their merchandise handled.

Chopra & Meindl (2009) state that the organisation's production strategy is therefore important to determine what is most beneficial for the organisation.

Discussion:

Christopher (2004) suggest that supply chain management is a crucial to the organisation since it affects how the organisation is running, and has great impact on their financial status as well. In the fashion industry two different strategies for supply chain management are the agile supply chain, and forecasting based supply chain.

Christopher, Lowson, & Peck (2004) state that the agile supply chain aims to be responsive, and that agility means faster response - it builds on leaness and is market sensitive and market responsive. There are several strategies to achieve agility, for example postponement, information sharing and process management which will all be discussed later.

Forecasting builds on data.

The production time is often longer than the order cycle, meaning how long the customer is prepared to wait for a product - a lead time gap is thereby occurring. Chopra & Meindl (2009) suggest that in a forecasting based supply chain the only way to bridge this gap is by carrying inventory. Therefore many organisations seek to forecast the market requirements and build inventory ahead of demand (Frazelle, 2002).

Forecasting is as stated based on data and is about predicting the future by using these data. However, the forecast inaccuracy gets bigger when what is being predicted is too far away in the future.

On the other hand, the agile supply chain aim to respond to real market demand instead of trying to predict the future. Anderson & Vincze (2004) state that the tenet of agility is customer responsiveness, thus the need to ensure it. The agile supply chain is therefore gains the benefit of flexibility.

As mentioned there are several strategies that can be used when wanting an agile supply chain. As mentioned earlier was the lead time gap, which the forecasting based supply chain is trying to bridge the gap by carrying inventory. However, in the agile supply chain it is desirable to shorten logistic lead times and thereby moving the customer's order cycle closer through an improved visibility of demand - in both cases the challenge is to close the lead time gap (Christopher, 2005).

Improving visibility of demand is finding out the real demand from the customers, thus not having upstream derived demand from manufacturers.

(Christopher, 1998) state that there in SCM there is a so-called pipeline - meaning the different processes a product goes through, and each of these takes time leading to reduction in reliability of delivery. It thereby also follows that pipeline length determines product price as it consumes capital - the length of the pipeline determines prices as it consumes capital, and the shorter the pipeline, the faster money can be converted into cash. To control the pipelines is true logistic lead-time management. Harrison & Hoek (2008) suggest that the processes a product goes through, such as being stocked or transported, is non-value-adding time spent, which also means money spent. Supply chain mapping shows when in the supply chain a product stands still and is not adding any value, just draining capital and therefore being cost-adding - by closing these gaps, the business can not only become more flexible (by reducing non-value-adding time) but also save money as cost-adding time is being reduced. It is also desirable to have a short lead time because a long lead time means uncertainty (Holck & Jensen, 2006).

This leads on to the demand penetration point also referred to as the decoupling point - where real demand meets the plan. This is where strategic inventory is often held. It's a hybrid approach that gives an agile response but builds on a lean platform. It can here be argued that forecasting is then somewhat necessary.

Møller suggest that another strategy to gain a flexible and agile supply chain is to control the supply chain fulcrum. The supply chain fulcrum is the point when the final product is sourced / produced or shipped, depending on the product, and also where final decisions on volume and mix are made (Harland, 1996). In the traditional supply chain there is forecasting and inventory. If the fulcrum is controlled it could be that the capacity is maintained by having access to a supply that is not held as inventory, as long as there is enough to meet the anticipated demand. So if the fulcrum is closer to the demand then the capacity and inventory be reduced which will be a financial benefit.

As discussed there are several benefits to an agile supply chain, including timesaving, flexibility, and financial benefits. Having the agile supply chain builds on the fact that life cycles are short as discussed earlier. Essentially it means that the agile supply chain is desirable to be able to respond faster to demand. However, agility build on leaness, a strategy that works well with big volumes. But it