Agile or lean? “Lean” works best in high volume, low Volume 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.

Demand/supply characteristics determine supply chain strategy Lean Plan & optimise Agile Quick response Long lead-times Short Predictable Unpredictable Demand characteristics Supply characteristics Kanban Continuous replenishment Hybrid De-couple through postponement

Lean Agile The decoupling point Forecast at generic level Economic batch quantities Maximise efficiencies Demand driven Localised configuration Maximise effectiveness Strategic Inventory

The Volume/Variability Matrix High Sales Variability Low Low Sales Volume Hi

Supply Chain Differentiation LOW 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

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

The reorder point method of stock control quantity Reorder point Stock level Average lead-time demand Lead time Safety stock Order placed Order arrives Time

The review period method of stock control Replenishment level Stock level Review period

Order point and dependent demand 1. Regional distribution centre (RDC) inventory: many small independent demands from customers Order point Inventory

Order point and dependent demand 2. Central warehouse inventory: few large demands dependent on RDC demand Order point J F M A S O N D

Order point and dependent demand 3. Plant inventory: irregular demand dependent on warehouse demand Order point J F M A S O N D

Causes of uneven demand at plant level Combined 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

Determining the economic order quantity Total cost Inventory carrying cost Cost Ordering/ set-up cost EOQ Quantity

Inventory hides the problems A Inventory B Volatile Demand Inaccurate Forecasts Unreliable Suppliers Quality Problems Bottlenecks

Reducing set-up costs/ordering costs Order/batch quantity

Reducing the economic batch/order quantity Total cost (1) Total cost (2) Cost Inventory carrying cost Set-up cost (1) Set-up cost (2) EOQ (2) EOQ (1) Order/batch quantity

The agile supply chain Agile supply chain Network based Virtual Market sensitive Process alignment

Route map to the responsive business Vendor 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