The days when factories could run the same product for days on end and ship in railcar quantities are far behind us—not to mention the now-archaic commonplace of warehouses holding oceans of product and shipping pallets out in full truckloads.
People are no longer exaggerating when they talk about a lot size of one, or mass customization. Today, we are expected to fill orders for quantities of one or two units, not cases, and to ship mixed pallets of products. Customers want special markings and labels, store-ready preparation, kitting, and more. Parcel shipment has become a major, if not dominating, factor in our lives. To use the word of Bill Watterson's Calvin, our supply chain world has been put through a "transmogrifier."
What does that mean for the people trying to manage supply chains in this brave new world? To begin with, they have to be fast on their feet, ready to respond to changing demands at a moment's notice. That is to say, they must be flexible—and the same holds true for their supply chains. Today, the concepts of quick changeovers, short runs, customer/channel-specific processes, and lean are no longer simply tickets to best-practice land; they are instead, perhaps, requirements for survival.
Increase your flexibility
What are the hallmarks of a flexible supply chain? Generally, when people talk about supply chain flexibility, they're referring to the following broad attributes: redundancy, interchangeability, supply management, and postponement. Let's look at each one:
- Redundancy is simply capacity that would be deemed excess, unless and until either a catastrophe or a demand spike occasions its use. Redundancy might involve bricks and mortar facilities, capital equipment, and/or people. One great way to develop redundancy is to contract with third parties for capacity. It is typically not cheap, but it is most often far less expensive than carrying redundancy yearround. The redundancy can involve supply/manufacturing, transportation, and/or distribution space.
- Interchangeability means using the same equipment, layouts, processes, and standards throughout the network, so that any activity might be seamlessly re-routed.
- Supply management involves a number of carefully balanced initiatives to develop alternative supply sources, to manage redundant supply capacity for reallocated demand within the network, and/or to draw up flexibility contingency plans within the supply base.
- Postponement might merit a chapter on its own, maybe even an entire book. For now, postponement stands as the Holy Grail of flexibility. Among other things, postponement either allows production to skate on quick changeover/short run tactics or amplifies the capabilities that result.
Just imagine the consequences—in efficiency, in consistency, in inventory management—of making dozens of customer-specific SKUs in one run, labeling them only when orders are received, and treating them as a single SKU until then. Consider the asset investment ramifications of not having any finished-goods inventory and assembling components only upon receipt of an order.
Picture an apparel retailer who can wait until early results are in before dyeing goods in this season's hot new color (and avoid dyeing and shipping what turns out to be this season's not-so-hot new color). What bliss if merchandise can be held in a master distribution center (a short distance from a network of stores) until demand patterns are established and warrant shipment. From batteries to paint, from Tshirts to shoes, from frozen peas to PCs, postponement is a big deal in the flexible world.
But there's more.
Other contributors to flexibility
For example, defining processes, including resource requirements, for so-called non-standard products and activities can be a life-saver. Typically, the elements aren't really non-standard but rather, represent such a small minority of transactions that they get lost in the shuffle of designing new systems or facilities. When they do show up in real life, if the workarounds haven't been specified, they can bring an operation to its knees—and usually at the worst possible time. The investment of solving these problems in advance is worth its weight in Valium.
It is also good practice to consciously avoid over-investment in complex material handling and control systems. It is quite common for customer and order profiles to change even before new facilities and systems are brought online. Making mechanized systems not too rigid, and relatively easy to re-engineer is critical to the flexible life.
Then, there could be more customer issues. As time passes, individual customers—certainly the major ones, and to an extent, the minor ones as well—will diverge in their requests and demands for special handling. So the potential for mechanical systems and people processes to do essentially the same thing in different ways becomes critical.
The adaptability of information systems to change is another vital enabler to successful organizational flexibility. A sure warning sign is when a company decides that something "can't be done" because "the system won't let us." The bedrock foundation for any and all of these approaches to flexibility is, however, cultural. Flexibility is only a word to organizations that try to force all transactions and relationships through a one-sizefits- all model. The old idea of high-volume standardization equating to "efficiency" doesn't work in customer-focused demand-driven supply chains.
What it's all about
So what is flexibility all about? Only a few things, really, but all vitally important:
- The ability, and willingness, to stop on a dime and change direction when either strategies or tactics dictate.
- The capacity, and desire, to alter both physical and intellectual processes when customers and markets require a next level of execution.
- The capability to maintain excellence in parallel processing paths for customers and channels with differing requirements— that is, the simultaneous execution of diverse game plans.
- The discipline to set up and test alternatives in sourcing, manufacture, transportation, warehousing, order processing, information systems, and communications, both as capacity/capability solutions for seasonal and other peak periods, and as provisions against future needs to change.
- The routine integration of flexibility techniques into operations, throughout the realm of supply chain planning and execution.
- A culture that goes beyond embracing change, to one that seeks change and understands how to leverage fragmented, diverse, and focused solutions for longterm marketplace success.
Like most worthwhile efforts, there's loads of hard work, persistence, stamina, commitment, and resources involved in building flexibility into the supply chain. What a payback, though!
