Agility versus flexibility

There is such a thing as flexible manufacturing, which refers to the ability to produce different products on the same production line, although some definitions restrict the meaning to products within the same general family (Upton, 1995). In this sense, agility might be the ability to switch rapidly among the various

product lines, a concept also referred to as mobility. So, is flexible the same as agile? There are two kinds of perceptions summarized from the prior debate, listed below.

One of the important perceptions of agility is that it is a combination of speed and flexibility. For instance, Vastag, Kasarda and Boone (1994) observe that time-based competition and flexibility converge in agile manufacturing.

McGaughey (1999) views agility as the ability of an enterprise to respond quickly and successfully to change. Sohal (1999) cites the description of agile

manufacturing, as “A manufacturing system with extraordinary capability to meet the rapidly changing needs of the marketplace.

A system can shift rapidly amongst product models or between product lines, ideally in real-time response to customer demands”. Zhang, Gu, Peigen and Duan (1999) view agile manufacturing as an emerging concept in industry that aims at achieving flexibility and responsiveness to the changing market needs. Prater, Biehl and Smith (2001) observe that an agile firm has designed its organization, processes and products such that it can respond to changes in a useful time frame, and the two concepts inherent to the definition of agility are speed and flexibility.

On the other side, several authors view agility as an extension of flexibility.

For instance, Vokurka and Fliedner (1998) view agility as a capability of

responding to change in a dimension beyond flexibility. In their view: flexibility refers to the capability of an organization to move from one task to another quickly and as a routine procedure, with each situation defined ahead of time so that the procedures needed to manage it are in place. To be agile, a firm needs to be able to deal with unpredictable changes in market or customer demands. The key difference is the ability to respond quickly to unanticipated marketplace changes. Flexible changes are responses to known situations where the procedures are already in place to manage the change. Agility extends the capability of flexibility by requiring the ability to respond to unpredictable changes in the market or customer demands.

Similarly, Tan (1998) observes that agility and flexibility are closely related.

In its most restricted form, flexibility refers to adaptability and versatility while agility is related to the speed that a system adapts. Therefore flexibility is a

necessary condition for agility. Backhouse and Burns (1999) define agility as the ability of an enterprise to adapt to unpredicted changes in the external

environment, in contrast to flexibility, which is taken to mean the ability of companies to respond to a variety of customer requirements that exist within defined constraints. They further observed that the boundary between flexibility and agility is naturally blurred.

Recently, Wadhwa and Rao (2003) argue that the distinctive focus of

flexibility and agility differs mainly in terms of addressing the predictable change and unpredictable change, respectively. Agility thus should focus more on

external environment (more unpredictable) and view flexibility as an internal capability (more predictable) to deal with change, as indicated in Figure 2- 1.

Figure 2- 1 Distinctive focus of flexibility vis-à-vis agility in managing change (Source: Wadhwa and Rao, 2003)

2.2.4 Characteristics of an agile organization and supply chain

Judging from the above, agility became a broad collection of modern

management techniques and hot topics in management literature. Collectively these literatures provide insights to what constitutes agile practices and attributes of an agile organization. Yusuf, Sarhadi and Gunasekaran (1999) summarize the suggested attributes of agility in Table 2- 1. The table presents 32 attributes, in 10 decision domains, of an agile manufacturing enterprise. The pathways and obstacles to achieving these attributes are important issues for consideration if progress is to be achieved in moving towards agility.

Table 2- 1 The attributes of an agile organization

(Source: Yusuf, Sarhadi and Gunasekaran , 1999)

But the former researches lack a structured framework and practical formats in supply chain wide setting. The first contribution to agility from the logistics discipline in the global CLM 1995 World Class Logistics study and its follow up 1999 study in the USA provided a step ahead in some respects. Because of the obvious role of logistics in achieving agile (and QR) goals, the concept of agility was integrated into the world-class logistics model as one of four central

constructs. However, it did not focus on constituting the general agility concept within the supply chain. Rather, it used elements of agility in the construction of a larger logistics model (van Hoek and Harrison, 2001).

As to the practical relevance of agility, companies that participated in a Cranfield audit of agile capabilities (Harrison, Christopher and van Hoek, 1999) indicated that, in finding ways to realize agility in the supply chain, development of a strategic mindset is the key challenge. Christopher, Chairman of the

Cranfield Centre for Logistics and Supply Chain Management (CLSCM), defines that to be truly agile a supply chain must possess a number of distinguishing characteristics, and this is the first model researching in agile supply chain (Harrison et al., 1999). Figure 2- 2 illustrates the concept.

Firstly, the agile supply chain is market sensitive. By market sensitive is meant that the supply chain is capable of reading and responding to real demand.

Most organizations are forecast-driven rather than demand-driven. In other words because they have little direct feed-forward from the marketplace by way of data on actual customer requirements they are forced to make forecasts based upon past sales or shipments and convert these forecasts into inventory. The breakthroughs of the last decade in the form of Efficient Consumer Response

(ECR) and the use of information technology to capture data on demand direct from the point-of-sale or point-of-use are now transforming the organization’s ability to hear the voice of the market and to respond directly to it.

Figure 2- 2 The agile supply chain (Source: Harrison et al., 1999)

The use of information technology to share data between buyers and suppliers is, in effect, creating a virtual supply chain. Virtual supply chains are information based rather than inventory based.

Conventional logistics systems are based upon a paradigm that seeks to identify the optimal quantities and the spatial location of inventory. Complex formulae and algorithms exist to support this inventory-based business model.

Paradoxically, what we are now learning is that once we have visibility of demand through shared information, the premise upon which these formulae are based no longer holds. Electronic Data Interchange (EDI) and now the Internet have enabled partners in the supply chain to act upon the same data i.e. real demand, rather than be dependent upon the distorted and noisy picture that

emerges when orders are transmitted from one step to another in an extended chain.

Shared information between supply chain partners can only be fully leveraged through process integration. By process integration is meant

collaborative working between buyers and suppliers, joint product development, common systems and shared information. This form of co-operation in the supply chain is becoming ever more prevalent as companies focus on managing their core competencies and outsource all other activities. In this new world a greater reliance on suppliers and alliance partners becomes inevitable and, hence, a new style of relationship is essential. In the ‘extended enterprise’ as it is often called, there can be no boundaries and an ethos of trust and commitment must prevail. Along with process integration comes joint strategy determination, buyer-supplier teams, transparency of information and even open-book accounting.

This idea of the supply chain as a confederation of partners linked together as a network provides the fourth ingredient of agility. There is a growing recognition that individual businesses no longer compete as stand-alone entities but rather as supply chains. We are now entering the era of ‘network

competition’ where the prizes will go to those organizations who can better structure, co-ordinate and manage the relationships with their partners in a network committed to better, closer and more agile relationships with their final customers. It can be argued that in today’s challenging global markets, the route to sustainable advantage lies in being able to leverage the respective strengths and competencies of network partners to achieve greater responsiveness to

market needs (Harrison et al., 1999).

2.3

Comparison between the two kinds of thinking

While the means of achieving lean production and agile manufacturing may be similar, there is a difference in the strategic intention used to drive through the necessary changes. Whereas the overarching goal of lean supply, lean

manufacturing and lean logistics is to eliminate waste, agile manufacturing goes a step beyond by seeking to achieve competitive advantage through rapid response and mass customization:

Whereas lean methods offer customers good quality products at low price by removing inventory and waste from manufacturing, agile manufacturing is a strategy for entering niche markets rapidly and being able to cater for the specific needs of ever more demanding customers on an individual basis (Robertson and Jones, 1999).

Naylor, Naim and Berry (1999) compare lean and agile characteristics in their research. Table 2- 2 presents some of the key characteristics of the agile and lean manufacturing paradigms as supply chain strategies. It is based upon

literature regarding lean manufacturing, agile manufacturing and supply chain management and on industrial case studies. Highlighted are the prerequisite

characteristics of the lean and agile paradigms. These can be regarded as essential, desirable and arbitrary for a given paradigm to be successfully implemented. The table can be broken down into the characteristics that are of the same, similar and deferent importance.

Table 2- 2 Rating the importance of different characteristics of leanness and agility

Note: ○○○=essential. ○○=desirable. ○=arbitrary.

(Source: Naylor et al., 1999)

Summarized from “Eliminate muda” and “Rapid reconfiguration” two characteristics, agile manufacturing calls for a high level of rapid reconfiguration and will eliminate as much waste as possible but does not emphasize the

elimination of all waste as a prerequisite. On the other hand, lean manufacturing states that all non-value adding activities, or muda, must be eliminated. The supply chain will be as flexible as possible but flexibility is not a prerequisite to be lean.

From Table 2- 3 it can be seen that the best situation would be a supply chain that could use both of these paradigms.

Table 2- 3 Rating the importance of the different metrics for leanness and agility

Metric Lean Agile

Note: ○○○=key metric. ○○=secondary metric. ○=arbitrary metric.

(Source: Naylor et al., 1999)

There are two characteristics of different importance:

1. Robustness.

An agile manufacturer must be able to withstand variations and disturbances and indeed must be in a position to take advantage of these fluctuations to maximize their profits. If a manufacturer needs to be as responsive as a truly agile manufacturer must be then it is inevitable that the demand for the product will not be stable. This is in direct

contradiction with the next characteristic of a supply chain (Naylor et al., 1999).

2. Smooth demand/level scheduling.

Lean manufacturing avoids the requirement for robustness by calling for the demand to be stable through the use of market knowledge and information, and forward planning (Harrison, 1995). Lean manufacturing by its very nature tends to reduce demand variation by simplifying, optimizing and streamlining the supply chain (Naim, 1997). However, if the end-user demand is beyond the control of the supply chain it will not be possible to implement lean manufacturing at the interface with the end-user (Harrison, 1995).

Recently, McCullen and Towill (2001) show the difference between lean and agile approaches by explaining in terms of outcomes and strategic intent (Figure 2- 3).

Lean Agile

Strategic intent

Eliminate waste

Rapid response to requirements

Outcome

Quality and efficient use of all resources

Rapid response, mass customization

and selective resource efficiency

Figure 2- 3 Intentions and outcomes of lean and agile paradigms

(Source: McCullen and Towill , 2001)

Mason-Jones, Naylor and Towill (2000) suggested, in the volatile

unpredictable marketplace for ‘fashion’ goods, both stockout and obsolescence costs are punitive. Consequently the purchasing policy moves from placing orders upstream for products moving in a streamline flow to assigning capacity to finalize products in rapid response mode. As Fisher et al. (1994) have indicated, this means forecasting via "intelligent" consultation so as to maximize inputs from ‘rich’ marketplace insider sources. Table 2- 4 illustrates the comparison of attributes between lean and agile supply.

Table 2- 4 Comparison of lean supply with agile supply: the distinguishing attributes

Distinguishing attributes Lean supply Agile supply Typical products

(Source: Mason-Jones et al., 2000)

Chapter 3 Combining Lean Thinking and Agile Thinking

3.1

Major factors

At 1999, a whole new term combing lean and agile – “leagility” – emerged.

As the lean thinking and agile manufacturing paradigms have been developed, there has been a tendency to view them in a progression and in isolation. Naylor et al. (1999) consider that this is too simplistic a view. In their research, the use of either paradigm has to be combined with a total supply chain strategy particularly considering market knowledge and positioning of the decoupling point, as agile manufacturing is best suited to satisfying fluctuating demand and lean

manufacturing requires a level schedule. The content will be described more clearly in Section 3.2.2.

Mason-Jones and Towill (1999) propose that supply chains have at least two distinct flow pipelines: the order information transfer pipeline and product transfer pipeline, as Figure 3- 1 indicates. They suppose that to fully realize performance improvement potential, supply chains need to develop integrated strategies for both information and material flow pipelines.

Figure 3- 1 Traditional supply chain with "U" shaped total lead-time (Source: Mason-Jones and Towill, 1999)

Christopher (2000) propose an important point to recognize is there are actually two decoupling points while we are arguing about leagility. The first is the one already referred to i.e. the “material” decoupling point where strategic inventory is held in as generic a form as possible. This point ideally should lie as far downstream in the supply chain and as close to the final market place as possible. The second decoupling point is the “information” decoupling point. The idea here is that the point should lie as far as possible upstream in the supply chain - it is in effect the furthest point to which information on real final demand penetrates.

3.1.1 Material decoupling point

The decoupling point is a standard term given to the position in the material pipeline where the product flow changes from “push” to “pull”. It should

therefore also correspond to the Demand Penetration Point (Christopher, 1998).

The decoupling point is formally defined (Hoekstra and Jac Romme, 1992) as:

The point in the product axis to which the customer's order penetrates. It is where order driven and the forecast driven activities meet. As a rule, the

Decoupling Point coincides with an important stock point- in control terms a main stock point - from which the customer has to be supplied.

The material decoupling point thereby acts as a buffer between upstream and downstream players in the supply chain. This enables upstream players to be protected from fluctuating consumer-buying behavior therefore establishing smoother upstream dynamics while downstream consumer demand is still met via

a product pull from the buffer stock. Figure 3- 2 summarizes in flow diagram from the foregoing material pipeline decoupling point definition.

Figure 3- 2 Representation of the material decoupling point (Source: Mason-Jones and Towill, 1998)

The effect of the decoupling point is summarized in Figure 3- 3 (Naylor et al., 1999). This shows a decoupling point with the level product variety and demand variability experienced either side of the decoupling point. On the

downstream side of the decoupling point is a highly variable demand with a large variety of products, and upstream from the decoupling the demand is smoothed with the variety reduced. This indicates that the point of product differentiation is at or downstream from the decoupling point and the stock held at the decoupling point acting as a buffer between variable demand and a level production

schedule.

Figure 3- 3 Effects of the (material) decoupling point (Source: Naylor et al., 1999)

The strategic position of the material decoupling point depends very much on the product type, consumer demands and supply chain approach adopted.

Figure 3- 4 summarizes the four simplified generic supply chain strategies as defined by Pagh and Cooper (1998), which are available by altering the position of the material decoupling point. These strategies range from providing highly customized products, which have high uncertainty (full postponement strategy) through to providing a standard product with low demand uncertainty (full speculation strategy).

Figure 3- 4 Definition of differing supply chain postponement strategies (Source: Mason-Jones and Towill, 1998)

Despite the fact that the material decoupling point for each of the previously mentioned postponement strategies are at different points of the supply chain, the governing principle is always to move the material decoupling point as close to the end consumer as possible thereby ensuring the shortest lead-time for the consumer. This approach also enables full capitalization of the benefits of divorcing the customer variability from the demands placed on the majority of

players in the supply chain.

3.1.2 Information decoupling point

As previously stated, there are a minimum of two pipelines within the supply chain; the material flow and the information flow. Mason-Jones and Towill (1998) argue that both flows have their own significant decoupling point, the strategic use of which differs due to the dynamic effect each has on the performance of the supply chain. Hence, each supply chain has both a material decoupling point and an information decoupling point each of which is a separate entity. Only while recognizing this and strategically positioning both decoupling points can full performance improvements be realized. However, due to the differences in the two pipelines the information decoupling point requires a definition of its own as follows:

The point in the information pipeline to which the marketplace orders data penetrates without modification. It is here where market driven and forecast driven information flows meet (Mason-Jones and Towill, 1998).

The order information pipeline decoupling point is the point at which

information turns from the high value actual consumer demand data to the typical upstream distorted, magnified and delayed order data. Traditionally, in supply chains this tends to be placed at the same point as the material decoupling point and is therefore placed as close to the end consumer as possible. This positioning is very wasteful and limits the effectiveness of the high value resource of

undistorted order information available on the dynamics of the supply chain.

Therefore, to maximize the strategic potential of these data within the supply chain, in direct contrast to the material decoupling point, the information

decoupling point should be moved as far upstream as possible. This enables upstream players to include within the ordering decisions the unbiased

undistorted, rich information that is already available downstream. There will be greater upstream market order penetration while leaving the point at which the supply chain directly responds to the customer (the material decoupling point) intact. Figure 3- 5 summarizes this perception of the two decoupling points and their relative positions within the supply chain structure.

Figure 3- 5 Comparison between material and information decoupling point positions within a supply chain

(Source: Mason-Jones and Towill, 1998)

Theoretically, the argument for moving the information decoupling point upstream in order to give more players the benefit of having undistorted data appears quite clear and straightforward. However, the question that needs to be

Theoretically, the argument for moving the information decoupling point upstream in order to give more players the benefit of having undistorted data appears quite clear and straightforward. However, the question that needs to be