1. BIA 674 supply chain analytics Lecture 2b
Stevens Institute of Technology

2. Flexible Supply Chains
Panos Repoussis
Assistant Professor
Howe School of Technology Management

3. Create a Flexible Supply Chain
Flexibility comes to cure:
Having too little of the right product
Having too much of the wrong ones
Flexibility – having a fast and efficient supply chain that if needed (in order to avoid a stockout) they can replenish an item within very short lead time

4. Create a Flexible Supply Chain
National Bicycle Case (M. Fisher & A. Raman, chap. 4)
Inflexible Mass Production Supply Chain
Very long lead times that resulted in stockouts and lost sales
Delay in receiving orders from customers
Batch production setup with long preparation times for switching between different products
Long transportation times among the factory, warehouses and retailers
Aggregation of production orders

5. Create a Flexible Supply Chain
National Bicycle Case (M. Fisher & A. Raman, chap. 4)
Flexibility finally arrives… Mass Customization
Production of customized products with nearly the efficiency of mass production
What happened?

6. Create a Flexible Supply Chain
Efficient production of small quantities
New production equipment and re-organization of the production layout
Ability to offer a wide variety of products
Introduction of skilled workers
Accommodation of variation in aggregate demand volume
High capacity utilization using low demand periods for producing high-end make to stock bikes.

7. Create a Flexible Supply Chain
Very short lead times
Direct orders from the retailers to the factory
Handling batches of one item (don’t wait for orders to back up)
Quicker modes of transportation for custom bikes
Average in-stock level of 99.4% of all components required to build a bicycle + 1 week emergency delivery from their suppliers
Two week lead time guarantee!

8. Create a Flexible Supply Chain
Where to place the decoupling point (push/pull boundary) is the key!
The decoupling point must be placed at a point to allow sufficient inventory to decouple the upstream push processes from the downstream pull processes.
To achieve this you must have low variety upstream and high variety downstream!

9. Does Mass Customization pays?
Flexibility comes with a cost.
Sophisticated production facilities, need for high-end IT systems for order processing, skilled manpower…
But, customization eliminates unsold inventory that has to be marked down at the end of the season
You must ensure that your customer is willing to pay a surcharge and wait for a make-to-order product

10. Flexibility and Speed enablers
Choose the appropriate decoupling points
Reserve production capacity far in advance
Make sure you have appropriate inventory to support push processes
Use efficient technologies and skilled line of workers to enable small-lot production
Design effectively the supply network
Gather information and empower your people to respond rapidly to the changes of the market
Partner with your suppliers
Provide accurate demand forecasts

11. How much flexibility do you need?
Ability to provide accurate demand forecasts
Ability to increase supply chain flexibility
Ability to carry stocking inventory
Devise an effective supply chain strategy–consider the nature of the demand
Maximum flexibility makes sense only for high-margin products with unpredictable demand

12. Is your product Functional or Innovative?
Functional Products
Product Life Cycle : > 2 years
Contribution Margin : 5% to 20%
Product Variety : Low 10 to 20 variants
Average Margin of error in the forecast: 10%
Average stockoutrate: 1% to 2%
Average forced end-of-season markdown as percentage of full price: 0%
Lead time for made-to-order products: 6 months to 1 year

13. Is your product Functional or Innovative?
Innovative (Unpredictable Demand)
Product Life Cycle : 3 months to 1 year
Contribution Margin : 20 % to 60%
Product Variety : High (often millions of variants)
Average Margin of error in the forecast: 40 to 100 %
Average stockoutrate: 10% to 40 %
Average forced end-of-season markdown as percentage of full price: 10 % to 25 %
Lead time for made-to-order products: 1 day to 2 weeks

14. Physically efficient Supply Chain
Primary purpose: supply predictable demand efficiently at the lowest possible cost
Manufacturing focus: maintain high average utilization rate
Inventory strategy: generate high turns and minimize inventory throughout the chain
Lead-time focus: shorten lead time as long as it doesn’t increase cost
Approach to choosing suppliers: select primarily for cost and quality
Product-design strategy: maximize performance and minimize cost

15. Market responsive Supply Chain
Primary-purpose: respond quickly to unpredictable demand in order to minimize stockouts, forced markdowns, and obsolete inventory
Manufacturing focus: deploy excess buffer capacity
Inventory strategy: deploy significant buffer stocks of parts or finished goods
Lead-time focus: invest aggressively in ways to reduce lead time
Approach to choosing suppliers: select primarily for speed, flexibility, and quality
Product-design strategy: use modular design in order to postpone product differentiation for as long as possible

16. Matching Supply Chains with Products
Efficient Supply chains
Responsive Supply Chains
Functional Products
MATCH
MISMATCH
Innovative Products