Hi folks,
I hope you are having a good week!
As you know, I have been writing a series of posts on supply chain design. My past two posts have looked at the issue of supply chain design based on two different levels of analysis. The first post, positioning the decoupling point, explored how the nature of customer demand in any given industry can influence the supply chain design. The second post in the series examined how the work's complexity level influences the supply chain structure, i.e., the strategic design choice between the vertical or lateral supply chain.
In this post, I will talk about how the level of innovativeness in a product influences whether you should have a lean or an agile supply chain. Towards the end, I share a quote that caught my attention this week and discuss a recent article.
I hope you enjoy this newsletter. Happy reading!
Supply Chain Design- III: Choosing between Lean and Agile
In 1997, Marshall Fisher wrote a seminal article in Harvard Business Review on this issue. He categorised a finished product into two types: functional and innovative. A functional product satisfies customers’ basic needs, have stable and predictable demand patterns, and a long lifecycle. Automotive companies, for instance, have years between their new product launches. For such products, it would make sense to have a physically efficient supply chain. Innovative products, in contrast, have unpredictable demand patterns, and a shorter lifecycle, i.e., companies need to innovate them steadily or lose out to the competition (now you know why you get a new iPhone every year!).
To design the supply chains for these products, a Supply Chain Strategist must think of the critical strategic principle: what is this product competing on? Functional products compete on cost, and innovative products compete on differentiation and replenishment. If a customer is buying a personal computer for everyday use, they might be more inclined to buy a lower-priced one. Depending on their usage, the same customer might be willing to pay a few extra pounds for a more innovative smartphone. This means that the supply chain for a functional product needs to be more oriented towards efficiency, and leanness, whilst innovative products need more responsive and agile supply chains. In other words, quality, lead-time, and responsiveness are the minimum required criteria for functional products, with cost being the order-winning criteria. In contrast, cost, quality, and lead-time are the hygiene factors for innovative products, whilst market responsiveness is the order-winning criteria.
Understanding the importance of the fit between the product-type and supply chain design is critical, or you risk losing market share. If you introduce innovations in a functional product that your customers don’t need, you will needlessly add cost to your product that the customer would be unwilling to pay for, leaving you with a failed product. Nobody is looking for innovation when buying nuts and bolts! However, if the market is starting to show signs of evolution and you are forced to innovate your product radically, you must— or face the fates of Nokia and Blackberry! Just remember to ‘upgrade’ your supply chain to be more agile and responsive. Otherwise, your supply chain can’t respond to your customers’ changing needs, and you will be left with an obsolete product as your customers move on to your competitors, who are faster at delivering innovation, despite charging them a small fortune. A personal aside: I still miss my Blackberry and held on to it for as long as I could before I had to move with the times!
Now that you have decided on the right supply chain for your product, how do you go about designing a lean or an agile supply chain? In my next couple of posts, I will delve into this issue.
Stay tuned!
A quote I have been mulling over:
“If productivity is your goal, maybe you’ve got the wrong goal!”
- Prof. Adam Grant
New publication on multi-level project governance
I and my co-authors (Mohamad Tannir, Professor Grant Mills, and Dr. Ilias Krystallis) have just published an academic article in the International Journal of Operations & Production Management. In this study, we examined the interplay of governance, coordination, and cooperation in six major projects across three infrastructure project networks (flood defence, water, and rail). We studied the interactions between multiple organisations and actors embedded in project networks across following levels:
1. The Client/owner/operator
2. The Executive Board
3. The Auditors
4. The Project Management Office
5. Consultants, Integrator, and Coordinators
6. The Supply Chain
This multi-level analysis revealed a few novel findings, but I will stick to three here:
1. Governance, cooperation, and coordination are not only three distinct concepts, but they also manifest differently across multiple levels. This means that the client must carefully design these three mechanisms, and not take any of these for granted.
2. If governance and coordination are sorted at the top, it will filter down into the lower levels of the project network. This means that once the governance and coordination mechanisms are chosen carefully, there is a good chance that they can be executed smoothly across different levels.
3. Cooperation, however, is even more complicated. We found that cooperation did not filter down across different levels, which further highlights that the goals and intentions of actors at different levels are different. Therefore, clients must invest effort in aligning goals and incentives to foster cooperation and monitor cooperation levels throughout the project.
Click on this link to the article if this article is of interest. It’s behind a paywall, so in case you need a full text, send me a note, and I will share it with you.
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Until next week,
Cheers, Jas