Types of Supply Chain

    In the COVID crises, we have seen the supply chain teams have a got a seat on the table. A few weeks ago I met a senior supply chain professional of a renowned MNC and he was pleased that due to unforeseen situations we have gained a lot of space in the organization.

    The challenge is that we have to transform our core supply chain team into a complete paradigm shift from the existing with an overhaul of the process. To solve his problem of defining his core here are three streams of Supply Chain that will help you in giving leaders a road map of their existing and to be Supply Chain in the organization.

    Lean supply chain –

    A lean supply chain (LSC) employs continuous improvement efforts that focus on eliminating
    waste or nonvalue- added steps along the chain. It is supported by efforts to achieve internal manufacturing efficiencies and setup time reduction, which enables the economic production of small quantities and enhance cost reduction, profitability, and manufacturing flexibility to some degree. The short setup time provides internal
    flexibility, but an LSC may lack external responsiveness to customer demands, which can require flexibility in product design, planning and scheduling, and distribution in addition to manufacturing.

    Agile supply chain –

    An agile supply chain (ASC) focuses on responding to unpredictable market changes and
    capitalizing on them through fast delivery and lead time flexibility. It deploys new technologies, methods, tools, and techniques to solve unexpected problems. It utilizes information systems and technologies, as well as electronic data interchange capabilities to move information faster and make better decisions. It places more emphasis on organizational issues and people (knowledge systems and empowered employees), so decision making can be pushed down the organization. The ASC paradigm is a systemic approach that integrates the business, enhances innovations across the company, and forms virtual organizations (VOs) and production entities based on customer needs.

    Hybrid supply chain –

    A hybrid supply chain (HSC) generally involves “assemble to order” products whose demand
    can be forecasted with a relatively high level of accuracy. The chain helps to achieve mass customization by postponing product differentiation until the final assembly. The lean or agile supply chain techniques are utilized for
    component production with different characteristics. For example, in the automotive industry, airbags would most likely be produced with an LSC while engine electronics might require the innovation found in an ASC. Besides, the agility is needed to establish a company–market interface to understand and satisfy customer requirements by being responsive, adaptable, and innovative.

    With a rapidly changing business environment, organizations require a supply chain model that deals with strategic and customer issues in addition to operating constraints. The product is the soul of the supply chain; there is no justification for adopting a particular supply chain type unless it conforms to the needs of the product and its customers.

    So let’s see the concepts in detail.

    Lead time focusLean Supply ChainAgile Supply ChainHybrid Supply Chain
    PurposeFocus on cost reduction and
    flexibility for already available
    products. Employs a
    continuous improvement
    process to focus on the
    elimination of waste or
    nonvalue–added activities
    across the chain. Primarily
    aims at cost-cutting, flexibility,
    and incremental
    improvements in products
    Understands customer
    requirements by interfacing
    with customers and market and
    being adaptable to future
    changes. Aims to produce in
    any volume and deliver to a
    wide variety of market niches
    Provides customized products
    at short lead times
    (responsiveness) by reducing
    the cost of the variation
    Employ lean production
    methods for manufacturing.
    Interfaces with the market to
    understand customer
    Achieve a degree of
    customization by postponing
    product differentiation until
    final assembly and adding
    innovative components to the
    existing products
    Approach to manufacturingAdvocates lean manufacturing
    Advocates agile manufacturing
    techniques, which is an
    extension of lean
    Employs Lean and agile
    manufacturing techniques
    Integration Integrate manufacturing,
    purchasing, quality, and
    Integrates marketing,
    engineering, distribution, and
    information systems
    Similar to the LSC at the
    component level and follows
    an ASC at the product level
    Production planning Works on confirmed orders
    and reliable forecasts
    Has the ability to respond
    quickly to varying customer
    needs (mass customization
    Works on confirmed orders
    and reliable forecasts with
    some ability to achieve some
    produce variety
    Length of the product life
    Standard products have a
    relatively long life cycle time
    (>2 years)
    Innovative products have short
    life cycle time (3 months to
    1 year)
    Involved the production of
    “assemble to order” products,
    which stay in the maturity phase of
    the life cycle for a long time
    AlliancesMay participate in traditional
    alliances such as partnerships
    and joint ventures at the
    operating level
    Exploits a dynamic type of
    alliance known as a “virtual
    organization” that works on
    product design
    Along with traditional
    operating alliances, HSCs may
    utilize strategic alliances to
    respond to changing consumer
    MarketsServe only the current market
    Acquire new competencies,
    develop new product lines, and
    open up new markets
    Respond to customer
    requirements with innovative
    features in existing products.
    This enables the organization
    to capture a larger segment of
    that product market
    Approach to choosing
    Supplier attributes involve low
    cost and high quality
    Supplier attributes involve
    speed, flexibility, and quality
    Approach to choosing
    Inventory strategyGenerates high turns and
    minimizes inventory
    throughout the chain
    Make in response to customer
    Postpone product
    differentiation and minimize
    functional components
    Product design strategyMaximize performance and
    minimize cost
    Product design strategyDesign products to meet
    individual customer needs
    Demand patternsDemand can be accurately
    forecasted and an average
    margin of forecasting error
    tends to be low, roughly 10%
    Demand is unpredictable with
    forecasting errors exceeding
    Similar to the LSC. The average
    product demand can be
    accurately forecasted.
    Component-level forecasting
    may involve larger errors
    Lead time focusShorten lead time as long as it
    does not increase the cost
    Invest aggressively in ways to
    reduce lead time
    Similar to the LSC at the
    component level (shorten lead
    time but not at the expense of
    cost). At the product level, to
    accommodate customer
    Organizational structureUses a static organizational
    structure with few levels in the
    Organizational structureMaintain an organization
    similar to an LSC. May create
    temporal relationships with
    partners to implement
    innovative features
    Human resourcesEmpowered individuals
    working in teams in their
    functional departments
    Involves decentralized
    decision making.
    Empowered individuals
    working in cross-functional
    teams, which may be across
    company borders too
    Empowered individuals
    working in teams in their
    functional departments
    Supply Chain concepts details as per various parameters

    After analyzing the same it is evident that based on product and customer demand, organizations shall decide their supply chain model.

    So, what’s your model? Let us know in the comment section.

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