Managing supply chains effectively is a complex and challenging task, due to the current business trends of expanding product variety, short product life cycles, increased outsourcing, globalisation of businesses and continuous advances in information technology.9 Indeed, we can add more factors to this list such as hyper competition in markets and increasing demands from customers. In recent years the area of risk in supply chains, whether from natural sources (for example disease in the food supply chain) or manmade sources (for example terrorism), is adding to the challenges in SCM (we will return to this growing and important area in Chapter 13). All of these disparate factors have led to a high level of volatility in demand for products.
To mitigate such volatility another supply chain model has emerged, the agile supply chain. Pioneered by Professor Martin Christopher and colleagues at Cranfield University, and others, the agile supply chain is designed so as to cope with such volatility. According to Professor Christopher, ‘to a truly agile business volatility of demand is not a problem; its processes and organisational structure as well as its supply chain relationships enable it to cope with whatever demands are placed upon it’.10 A particular characteristic of the agile supply chain is that it in effect seeks to act as a ‘demand chain’ with all movement upstream in the supply chain as a result of customer demand.
One of the key enablers of agile supply chains is the use of a technique known as mass customisation. This involves customisation into various different finished products of what are often largely mass-produced products. Even when different product configurations contain a majority of shared components and features, the customer will usually concentrate upon the dissimilar features among the similar products.
Mass customisation makes use of a production philosophy known as the principle of postponement (Figure 4.4). Think of the black circles in the diagrams as work-in-progress inventory with the black squares on the right of each diagram as the (8) finished products. Both of the production processes depicted thus comprise three intermediate production stages prior to production of the finished products. Production processes with many different parallel production lines can be very inefficient (left-hand side of Figure 4.4), especially if demand reduces for the output of one line and increases for that of another. However, by reconfiguring processes and standardising certain inputs and steps, the impact of variability in demand for finished products can be reduced. We can see on the right-hand side of Figure 4.4 that if it is discovered during the production process that demand for certain finished products reduces, semi-processed product can easily be ‘diverted’ into the production of other finished products.
Figure 4.4 The principle of postponement
Mass customisation is enabled by a production philosophy known as postponement, which involves the reconfiguration of product and process design so as to allow postponement of final product customisation as far downstream as possible. Other names for this approach are simply ‘delayed product configuration’, ‘delayed product differentiation’ and ‘late stage customisation’.
The postponement approach doesn't just apply to manufacturing. Packaging postponement for example is merely delaying final packaging of products until customer orders are received (different packaging may be required for different customers, and rather than make different packaged product lines to stock, product could be quickly packaged as required once specific orders are received).
Many manufacturers are now realising the benefits of producing products on what have come to be known as common or shared platforms. Various labels have been given to these shared platforms in different industries, for example the base product, the core product, the vanilla product (using the ice cream analogy of undyed plain ice cream), the generic product and the grey product (a term used in garment manufacturing to refer to undyed fabric). In a postponed production system, ideally the final value-adding activities in the supply chain are delayed until customer orders are received.
The point at which we move from the base product to customised products is called the decoupling point. If you look to the case study on Dell at the end of Part One of the book, the decoupling point is the point in the production process where the core PC platforms are configured into final products demanded by customers.
The automobile manufacturing industry has been a keen user of mass customisation (see the box: Small Car Manufacturing: Cooperation between Toyota, Peugeot and Citroën). Indeed Toyota, Peugeot and Citroën were not the first to do so. Other advocates of the approach include the Volkswagen Group which comprises among others the brands Volkswagen, Audi, Skoda and Seat. Many of the product offerings in the different car models across these brands share similar platforms and components. Apart from making sense from production and financial perspectives, consolidation in the automobile manufacturing sector, where once many companies were keen competitors but are now working together and sometimes even merging, is now driving increased application of mass customisation in the industry.
OTHER EXAMPLES OF MASS CUSTOMISATION
It's not just the automobile manufacturing industry that employs mass customisation, many other industries have also adopted the technique. Just think of the way in which the purchase of paint has changed. Because of developments in both production technology and the marketing of paint, the range of different paint colours it is now possible to purchase has increased dramatically. In addition, it is usually possible to buy paint in various different can sizes (e.g. 1 litre, 5 litres). The range of potential stock-keeping units (SKUs) in paint distribution is thus huge.
Rather than keeping all possible SKUs in each store, mass customisation has become very popular in paint distribution. Each store holds the primary colours of paint and a machine then mixes these to a specific formula to produce the exact required colour of paint from a range of possible colours. All that is otherwise required are paint cans in the different sizes and a simple printing machine that can produce labels with the name of the paint. Yet another example is breakfast cereal – the company mymuesli (http://uk.mymuesli.com) – allows you to order organic muesli online for delivery to your home, claiming ‘with over 80 different ingredients there are 566 quadrillion possible mixes!’
Note: An SKU is a unique version in terms of size, packaging etc. of a particular product type, e.g. 2-litre cans of white paint would be one unique SKU, 2-litre cans of harvest yellow paint would be another unique SKU, while 1-litre cartons of harvest yellow paint would be yet another unique SKU, and so forth.
Now back to agility. Professor Christopher describes agility as ‘the ability to respond rapidly to unpredictable changes in demand’.11 In his view ‘agility is not a single company concept, it extends from one end of the supply chain to the other’.
The agile supply chain is a demand-pull chain designed to cope with volatile demand. It is structured so as to allow maximum flexibility and will often incorporate postponed production.
Christopher points out that ‘agility is concerned primarily with responsiveness. It is about the ability to match supply and demand in turbulent and unpredictable markets’.12
The questions which now arise are: which approach is better, lean or agile? And are the lean and agile supply chain approaches mutually exclusive, i.e. can we have both together? These are questions of much debate in the academic literature and which we attempt to answer in the next section.