AGILE SUPPLY CHAIN: STRATEGY FOR COMPETITIVE ADVANTAGE BJMP 6233 SUPPLY CHAIN STRATEGY Group Presentation 806665 Koo Suet Yan (Jerry) 806667 Wong Hui Yee (Chloe) 809403 Yap Zie Tieng (Denice) 805550 Wong Kam Phun Date : 24th June 2012 LECTURER: DR. HASBULLAH HJ. ASHARI

1.0 INTRODUCTION The turbulent market conditions in the 21st century have heightened the need for more competitive strategies to be developed for growth. In the current economic climate, the only constant is rapid change. New markets are emerging, raw materials and commodities are decreasing, customer preferences are changing, and new technologies are appearing every day. As a result, businesses have to be able to react to changing external conditions with increasing speed and flexibility.

Most of the strategic issues that confront business today come from the new rules of competition, globalization down pressure on price and the customer taking control. Agility has the ability to rapidly respond to changes in market and customer demands as the bearer of competitive advantage. The article explores the concept of agile supply chain and competitive advantage. The article also presents a framework on the linkage between agile supply chain and competitive advantage.

2.0 SUPPLY CHAIN MANAGEMENT Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together

Supply-chain management (SCM) is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer In our own understanding, the SCM can be defined as managing the flow of information, money and materials from the upstream to the downstream The main objective of SCM is to maximize value in the supply chain and competing on value, collaborating with customers and suppliers to create a position of strength in the market place based on the value derived from the end consumer. Value is not inherent in products or services but rather is perceived or experienced by the customer.

3.0 SUPPLY CHAIN STRATEGIES A supply chain strategy is defined, relative to its competitor’s, the set of customer needs that it seeks to satisfy through its products and services (Chopra and Meindl, 2007). It involves decision relating to the selection of suppliers, the location of facilities and the choice of distribution channels. Capital efficiency is at the lowest level. The strategies should be tailored to match the required “order winning criteria” in the market place and it need to be appropriate to specific product or market condition.

3.1 LEAN vs AGILE SUPPLY CHAIN STRATEGIES The major generic strategies in supply chain are lean and agility. Leanness means developing a value stream to eliminate all waste including time, and to enable a level schedule. Agility means using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place. The concept of agile supply chain was introduced to transfer and apply the winning strategy of agility to the supply chain. Agility is all about the customer responsiveness, people and information, cooperation within and between firms and fitting a company for change.

THE CONCEPT OF AGILITY Agile supply chain Market sensitive Supply chain is capable of reading and responding to real demand Virtual Information-based supply chain, rather than inventory-based. Network based EDI and internet enable partners in the supply chain to act upon the real demand Process integration Collaborative working between buyers and suppliers, joint product development, common systems and shared information Agile supply chain

Demand characteristics and supply capabilities Selecting a strategic approach in a supply chain can be complex. Intelligent supply chains throughout the world use a combination of lean and agile strategies for their benefits.

Distinguishing attributes Demand characteristics and supply capabilities Distinguishing attributes Lean supply Agile supply Typical products Commodities Fashion goods Marketplace demand Predictable Volatile Product variety Low High Product life cycle Long Short Customer drivers Cost Availability Profit margin Dominant costs Physical costs Marketability costs Stock out penalties Long-term contractual Immediate and volatile Purchasing policy Buy materials Assign capacity Information enrichment Highly desirable Obligatory Forecasting mechanism Algorithmic Consultative

Comparison of characteristics of lean and agile supply Logistics focus Eliminate waste Customers and markets Partnerships Long-term, stable Fluid clusters Key measure Output measure such as productivity and cost Measure capabilities, and focus on customer satisfaction Process focus Work standardization, conformance to standards Focus on operator self-management to maximize autonomy Logistics planning Stable, fixed period Instantaneous response

3.2 MARKET WINNERS AND MARKET QUALIFIERS After selecting the supply chain strategy, the organizations need to identify the market winners and also the market qualifiers for its products. Order qualifiers – minimum criteria that a company must meet in order to be considered as a possible supplier Order winner – criteria that wins the orders Source: Mason-Jones, Naylor and Towill (2000), Engineering the leagile supply chain

Understanding the particular characteristics of the product type, market place requirements and managing challenges will help an organizations to design the correct supply chain strategy that will ensure optimal performance and gain competitive advantage. According to Fisher, a supply chain may need to be lean for part of the time and agile for the rest of the time. Leagility – the combination of the lean and agile paradigm within a total supply chain strategy positioning the decoupling point, so as to best suit the need for responding to a volatile demand downstream yet providing level scheduling upstream from the decoupling point.

4.0 competitive advantage Exists when a firm has a product or service that is perceived by its target market customers as better than its competitor’s products. It is gained by offering consumers greater value either by means of lower prices or by providing greater benefits and service that justifies for higher price. Within an organization, customer value is created through collaboration and cooperation to improve efficiency (lower cost) or market effectiveness (added benefits) in ways that are most valuable to key customers. By satisfying customers and achieving competitive advantage, firm in a supply chain influence customers to make choices and behave in ways that improve the financial performance of the supply chain and the firms within it.

An organization’s competitive advantage is built upon a well-planned and executed SCM strategy that is sustainable. It belongs to those supply chains that can activate concurrent business processes and core competences that merge infrastructures, share risks, and gain and anticipate new vistas for competitive leadership. A supply chain is a part of competitive advantage for an organizations. Therefore, if any part of the chain is weak, than the whole business model becomes weak. Competitive advantages can be achieved by aligning the supply chain strategy to the competitive strategy.

4.1 competitive strategies A firm’s relative position within an industry is given by its choices of competitive advantage and its choice of competitive scope. Competitive scope distinguishes between firms targeting broad industry segments and firms focusing on a narrow segment. Porter (1995) claims that achieving competitive advantage requires a firm to make a choice about the type and scope of its competitive advantage. Therefore, organizations can create competitive advantage through cost leadership, differentiation and focus.

5.0 framework for aligning agile supply chain to competitive strategies The best supply chain strategy to use to meet customer expectation when demand is uncertain is agile supply chain. Competitive advantage is achieved when the organizations determine the drivers of change, be flexible, adaptive and responsive through agile supply chain strategy and align the supply chain strategy to the overall business strategy.

Drivers of change – the main driving force for agility Drivers of change – the main driving force for agility. It is changes or pressure in a business environment that forces a company to search for new ways of running its business in order to maintain their competitive advantage. The changes may involve changes in market place, customer requirements, competition criteria, technology and social factors.

6.0 conclusion Agile supply chain is a winning strategy for growth, and lean supply chain is a pre-requisite for the creation of an agile supply chain, it is proved that it is a strategy for competitive advantage. Agile supply chain is triggered by the change which is constant in the business environment and agility is considered as a vital factor for business success in complex industrial landscapes as it enables rival firms to efficiently perform under time-to-market pressure. Lean is needed to built agility and therefore, agile supply chain become the pre-requisite for business success in the market. The key to success of an organization is to align agile supply chain strategy to the differentiation strategy to meet the overall objective for competitive performance, hence competitive advantage.

Therefore, to sustain and maintain supply chain agility, an organization should: Commit to flexibility and adaptability in regards to the supply chain. Identify the factors involved in past problems with the company’s supply chain. Implement simple solutions to these problems Design programs for solutions that are not solved simply. Prioritize problems on the basis of which are most likely. Systematically move through the problems. Address flexibility and adaptability while moving through the later stages of disaster-proofing the production. Begin by asking input from all levels of production till manager levels. Centralize responsibility for reviewing plans for change. Those with responsibility should have a broad base of knowledge. Involve consulting firms if needed. Integrate the newer theories of agile supply chain, specifically those that allow for greater coordination between customers and suppliers, where appropriate.

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