Supply Chain Strategy and Supply Chain Reliability Which factors need to be considered for possible success?

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Supply Chain Strategy and Supply Chain Reliability

Which factors need to be considered for possible success?

Master Thesis

MSc BA Operations & Supply Chains University of Groningen

F. Hagen January 2009

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A research into the actual and required characteristics

of the Brandon supply chain

BRANDON

Supervisor Jenkins X. X Supervisor University Prof. Dr. D.J.F. Kamann Co-assessor University Dr. Ir. S. Brinkman Author: F. Hagen Student number: 1375512

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Preface

You are reading the report of a 20 week research into the supply chain of the Brandon product line owned by Jenkins. This research has been performed on behalf of the thesis project of the specialization Operations & Supply Chains of the Master of Science in Business Administration at the University of Groningen. The main research subjects of this thesis were the supply chain strategy and supply chain reliability of the Brandon products.

This thesis would not have existed without the possibility to perform a research into the Brandon product line at Jenkins. This is why I would like to thank Jenkins, in particular my company supervisor X. X., for providing me the opportunity to perform a research on behalf of their products. Besides X.X., I would like to thank all the employees at Jenkins who made time for interviews and participated in the research: the Logistics Department, the Buying Department, and the Design Manager.

Of course, I would also like to thank Prof. Dr. Dirk-Jan Kamann for guiding me through the thesis project and providing useful feedback. Furthermore, beside Prof. dr. Dirk-Jan Kamann, I would like to thank the co-assessor of this master thesis, dr. Ir. Bas Brinkman, for the provision of feedback, even during his own holiday.

In this thesis some subjects are discussed quite detailed. Additionally, a lot of different subjects within the literature are discussed. All this is done to offer Jenkins the information to decide on the needed changes and how these changes should be implemented and designed.

I hope you will enjoy reading this report.

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Management Summary

This research has been performed for Jenkins. Jenkins is a Dutch retailer with stores in several countries. Jenkins offers different brands in an online store and in two physical store concepts: Jenkins and Brandon. One of these brands is their own brand Brandon, for which this research is performed. The scope of the research was on internal information.

The last few years Jenkins has faced some serious problems regarding the delivery of the Brandon products. Although the focus has been on speed – which had a negative and unwanted impact on quality – most orders were delivered too late and suffered long lead times. Jenkins wants to solve these problems by finding out how their supply chain should be organized optimally. To provide a proper solution for Jenkins, the following research problem has been identified:

Which supply chain strategy is appropriate for the Brandon products, and which factors are critical for the achievement of a reliable supply chain?

To answer the research problem, it is divided into three research questions about: 1) important factors for supply chain strategy determination, 2) critical factors for supply chain reliability and 3) supplier base management. Because Jenkins outsources the complete production, sourcing and supplier management is of high importance, and that is why the latter research question is added. To answer the research questions literature has been studied, interviews are conducted and internal information has been gathered and analysed. Throughout the research the Brandon strategy has been taken into consideration, since the supply chain strategy should be aligned with the corporate competitive strategy. Furthermore, attention is paid to the alignment of the strategy with the organisational structure and the processes. The Brandon strategy is defined as: to become a global, non-conformist jeans brand for men with best in class products. From the research it appeared that Jenkins needs to undertake some major and urgent improvements if it wants to become a global brand delivering best in class products with a high quality.

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disadvantages of the system, the consequences of the system for the different departments, defining clear and unambiguous roles, responsibilities, procedures and policies, consequent administration of adaptations (cultural change), the total costs and the necessary education and training. The implementation of a decent information system is a requirement for the achievement of a reliable and integrated supply chain.

For Brandon design and sourcing are extremely important. This since without good designs the products will not be sold and without good sourcing the products lack in design, quality or fit. Good designs reflect customer demand and thus research need to be performed into customer requirements. Currently, Jenkins does not perform any research into customer requirements. For the right execution of the designs a decent supplier base is necessary. The Product Managers of Brandon can be considered as traditional purchasers (focus on price) and this needs to be changed. Cooperative purchasing is required instead of traditional purchasing. Partnerships need to be established to develop a decent supplier base which will increase product and design quality and reliability. Furthermore, Brandon products need to have a high quality and to ensure high quality partnerships are essential. To realize the change in the purchasing approach the Product Managers need education and training, and a cultural change within the department is required.

For supply chain strategy determination four product categories can be distinguished: basics, carry-overs, developments and new designs. The pure basics are suited for a lean supply chain, because demand is quite stable and can thus be forecasted easily and this enables a level production. A lean supply chain focuses on effectiveness by eliminating every kind of waste and to ensure a level schedule.

For the carry-overs, developments and new designs at least an agile – responsive – supply chain is required. This since these products are season specific and customer demand for these products is volatile. A responsive supply chain focuses around speed and flexibility to fulfill the fast changing consumer requirements and thus a flexible manufacturing system is required.

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Chapter 1 Introduction Jenkins

This chapter will give an introduction to the organisation Jenkins. The first section will provide a short description of Jenkins and the organisational structure of the headquarter. In section 1.2 the strategy of Jenkins and of Brandon will be stated, together with the house of Brandon. The house of Brandon is presented to provide more insight into the goals and focus areas of the brand Brandon. In the final paragraph, section 1.3, an outline is given of the different Brandon products.

1.1 Introduction Jenkins

Jenkins is a Dutch retail company with stores in several countries. Jenkins offers jeans, shirts, boxer shorts and accessories for men in the age of xx to xx years in the middle to middle high segment. Jenkins sells fashion of several mono-brands and its own brand Brandon. Jenkins offers its products in two store concepts, namely Jenkins – providing all the brands – and Brandon. The latter one, as its name implies, only sells Brandon products. Beside the physical stores, Jenkins also sells its jeans online at www.Jenkins.nl.

Jenkins was founded in 19xx by director and owner of Jenkins Mr. Z. The headquarter and distribution centre are both located in Rotterdam, the Netherlands. At the headquarter, about 60 employees work at the different departments like Marketing, Logistics, and Design. The brand Brandon has been founded in 19xx. Nowadays, Jenkins has about 110 stores, of which about 32are Brandon stores. In the future, Jenkins wants to enter the entire European market and it aims to be one of the European top retailers for men’s jeans. It will try to do so, by providing top brands which are durable and have a strong brand image. In section 1.3 the characteristics of Brandon products can be found.

Organisational Structure

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12 1.2 Strategy & Goals

As mentioned before Jenkins is a Dutch retail company, that sells jeans and related apparel products of several mono-brands and its own brand Brandon. Jenkins wants to become the European top retailer in the men’s jeans market with Brandon as the constant and most important pillar. The aim of Brandon is to become a global, non-conformist jeans brand for men with best in class products, which are only sold in Jenkins and Brandon stores. To reach this goal, the house of Brandon is developed recently, which can be used as a focus and guideline by the employees. According to the management of Jenkins the house of Brandon should be used by the employees as a starting point and focus point: it should be further developed and operationalized by the employees. The house of Brandon can be found in figure 1.2. The aim is to reach the goals of the house of Brandon within ten years. The ultimate goal is tried to reach by focusing on the development of four important areas: consumers, employees, partners, and financials. These four elements will be described.

Consumers

Brandon products are designed for non-conformist, tough, male jeans fans between xx-xx years old, who can afford products in the middle to middle-high price segment. Within the consumer area, Brandon wants to become the number 1 brand of choice for all the male jeans fans around the globe.

CEO Real Estate HR P.A. Chief Purchasing Office & Branding Chief Operating Office Chief Financial Office Manager Logistics & IT

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Brandon tries to achieve this through deepening consumer relationship by delivering compelling integrated concepts at retail, supported by high impact brand communication. Important aspects regarding this aim are 1) to know the consumer, 2) to drive integrated and flawless seasonal execution of critical brand concepts, and 3) to drive retail and PR excellence.

Employees

Brandon wants to hire and retain the most talented people, to gain a future competitive advantage. These people need to deliver absolute product superiority. To reach this goal, they need to know and understand the consumer, they need to know the competition, and they need to understand the brand Brandon.

Partners

Brandon wants to become the partner of choice for factories, franchisers, and other business partners. To become the partner of choice, profitable growth should be supported by maximizing efficiency across the supply chain. This should be achieved by 1) discipline, 2) calendar management, 3) style and stock keeping unit management, and 4) cycle time reduction.

DEVELOP HIGH PERFORMING ORGANISATION AND DIVERSE LEADERSHIP

DELIVER ABSOLUTE PRODUCT SUPERIORITY PERIOD SUPPORT PROFITABLE GROWTH BY MAXIMIZING EFFICIENCIES ACROSS

THE SUPPLY CHAIN DEEPEN THE CONSUMER RELATIONSHIP THRU INTEGRATED CONCEPTS AT RETAIL SUPPORTED BY HI IMPACT BRAND COMMUNICATION FOCUS TO GROW; LEVERAGE THE CORE TO CREATE NEW BRAND AND BUSINESS OPPORTUNITIES

CONSUMERS; be the No.1 Brand of choice For all male jeans fans across the Globe

EMPLOYEES; Hire/ retain the best talent as our future competitive advantage

PARTNERS; become the Partner of choice for factories, Franchise and other Business partners FINANCIALS; 1000 doors, 1 B revenue 15% ops profit OUR DREAM IS TO BECOME

A GLOBAL, NON CONFORMIST JEANS BR@ND, FOR MEN, DISTRIBUTED THRU OUR OWN(ED) DOORS ACROSS THE GLOBE*

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Financials

Within ten years, the financial aim is to have 1000 stores, 1 billion revenue and an operating profit of sales before taxes of 15%. There needs to be a focus to grow and the core should be leveraged to create new brand and business opportunities. Aspects that are important are 1) the customer preferences, 2) management of the core, 3) the creation and delivery of outstanding brand concepts within the core business, and 4) the easy flow and making of money.

1.3 Brandon Products & Stores

The Brandon products must have a strong brand appearance with characteristics like durable, basic, design, jeans and reliable. The design of Brandon has to meet the market demand and this implies speed to market. However this speed to market may not harm the brand appearance and the quality and durability of Brandon products. The products of Brandon need to have a non-conformist, free-spirited, tough and masculine appearance. Brandon needs to be considered as a premium brand by the market, and it should react fast on changing market conditions. Important characteristics regarding the brand image of Brandon are: quality (high), strong (brand) image, compassion, recognisability through branding, durability, and price. Brandon products need to be mature, and not too fashion. They need to have an outstanding quality and an excellent fit.

The products that Brandon offers can be divided into eight different product groups: denim, non denim, jackets, shirts (blouses), tees (t-shirts), sweats, knitwear, and accessories. These eight product groups can be divided in woven and non woven articles. Woven product groups are denim, non denim, jackets, and shirts. Non woven product groups are tees, sweats, knitwear, and accessories. Furthermore, each season also new trimmings are developed. The products are designed for four seasons: Easter, Summer, Autumn, and Winter. Regarding these four seasons products are developed for the short term (production within or close to Europe), and the long term (production in the Far East). For the short and long term products a separate planning is applied.

As mentioned before, Brandon products can be found in two kinds of stores: Jenkins and Brandon. Both concepts are owned by Jenkins. Currently there are 76 Jenkins stores, and 32 Brandon stores, of which only a few are franchise stores. The Brandon products will only be offered via these two canals.

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Chapter 2 Research Design

This chapter will describe the different problems that Jenkins is facing regarding the Brandon products. From these problems a research problem will be detracted. The problem description and the research problem will be presented in the first section. After this, a theoretical framework from grounded theory will be provided in section 2.2 for the development of the research questions. The scope of the research will also be provided in this section. Section 2.3 gives an overview of how the different kinds of data are retrieved. Finally, in section 2.4, the structure of the remaining report will be provided.

2.1 Problem Definition

When Jenkins started, it worked with two seasons: at the beginning of the spring and the autumn the whole collection was delivered to the stores. During these seasons no further production existed. Deliveries during the season existed of inventory replenishment from the central distribution centre or replenishment from the other stores. As a consequence, during the season the stores became more and more empty. However, the customer was becoming more and more demanding. That is why Jenkins altered to a system entailing the design of a few Brandon collections a year with continuous replenishment.

During the last year, new Brandon collections were designed almost every month. This resulted in the fact that the design, procurement and production needed to take place in a very short time span. A lot of emphasis was placed on speed, which had a negative impact on the objectives of brand appearance, durability and quality. The resulting products were comparable to the products of chains like H&M and Zara, except for the price: Brandon products were more expensive. One cause of this problem could be within the Purchasing Department: in the last two years the Purchasing Department considered an employee turnover of about 200% and the current workforce mainly consists of Purchasers with experience of about one year.

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quality in any way. Jenkins needs to find a new balance between these objectives. At this moment it is also the question if the Brandon products are priced to high compared to competitors. Either way, the quality of the designs must be improved: the Brandon products should not be comparable to products at chains like Zara. In the future, Jenkins wants to deliver a huge part of its collection in the beginning of the two seasons again, and replenishment will take place any time during the seasons. These replenishments consist of new designs and the replenishment of existing popular designs. Replenishment decisions will be based on sales data, forecasts and information about trends.

In the past Jenkins did not really focus on supply chain coordination. Jenkins wants to change this: in the future the whole chain – from the production of materials to sales and service – needs to be managed from the same philosophy. However, the question is how this could be organised optimally, and how all the different parties could and should be involved taking into account the important objectives of the Brandon products? To conduct a proper and structured research into the mentioned problem area, a Management Decision Problem (MDP) and Research Problem (RP) are formulated.

Management Decision Problem (MDP)

How should the different parties in the supply chain of Brandon products be aligned, so that they strive for the same ultimate goal, namely delivering durable, high quality fashion with a strong brand image at the right quantities, to the right locations, and at the right time, with the objective to minimize systemwide costs and satisfying service level requirements?

Research Problem (RP)

Which supply chain strategy is appropriate for the Brandon products, and which factors are critical for the achievement of a reliable supply chain?

2.2 Theoretical Framework & Research Questions

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Figure 2.1 Simplified supply chain Jenkins

Before the real problem can be tackled, it can be useful to get more insight into the structure of the organisation and its strategy. This because these should be aligned with the supply chain strategy (see figure 2.2). A firm’s strategic vision can be defined as its long-term direction, with its technical-product-customer focus, and its future business scope (Thompson and Strickland 2003). This vision should be aligned with the firm’s organisational goals and corporate strategy if it wants to be successful (Thompson and Strickland 2003, Poirier et al. 2007). In literature a lot of different definitions are used for strategy. Watts et al. (1995) mention that every definition of corporate strategy refers to “the pattern of decisions in a company that 1) determines and reveals its goals and objectives; 2) produces the principal policies and plans for achieving those goals; and 3) defines the range of business the company is to pursue, the kind of economic and human organisation it is or intends to be, and the nature of the economic and noneconomic contribution it intends to make to its shareholders, employees, customers, and communities.” The competitive strategy of an organisation is in the center of its corporate strategy (Watts et al. 1995). However, before a company defines its corporate competitive strategy, they should analyze the internal and external factors that give or limit the company’s potential success in the respective market. If a company wants to be successful in pursuing its strategy, the corporate competitive strategy must reflect the dynamic environment (Watts et al. 1995).

Furthermore Schnetzler et al. (2007) stress that to achieve an optimal contribution to business success with SCM, the supply chain strategy has to be aligned with and optimally support the corporate strategy. According to them this can be achieved by translating the company’s strategic priorities into SCM objectives, and implement these in operations. Congruency theory states, that to be an effective working system the organisation’s elements have to fit each other just as well as they have to be aligned with their external context (Nadler and Tushman 1980). And thus Kamann et al. (2001) state,

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that policies and organisational goals (P), organisational structure (O) and its processes (P) – the POP model – should be in congruence with each other and the particular external environment and the demands, requirements, and challenges and threats of the environment.

Scope

The research is performed for the Brandon product line. Within this research the scope will be on the information that is present regarding the Brandon products inside of the organisation. So the processes within the organisation will be researched, and the existing data at Jenkins regarding the different processes within the supply chain will be analysed. This will be done for all the product groups for the seasons Winter 2007 (207W) and Easter 2008 (208E). During the research quality will not be taken into account, except for the quality controls that occur in the product development process. Furthermore, the corporate strategy will be examined, because the supply chain strategy should be aligned with the corporate strategy.

Research Questions

According to the research problem, figure 2.2, the POP model and the scope of the research the following main research questions can be developed:

1. Which factors are determining for choosing the appropriate supply chain strategy and how are these factors for the Brandon products?

2. Which factors are important to achieve a reliable supply chain and how are these factors at the Brandon supply chain?

Supply chain strategy Corporate strategy Organisational goals Performance objectives Demand uncertainty Supply Uncertainty Strategic vision Measures & targets

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3. How can the sourcing strategy of Brandon products be described, and how should the supplier base be managed ideally?

To derive at the answers of these questions literature has been studied and data and information is retrieved within Jenkins. The next section will describe the research methodology more thoroughly.

2.3 Research Methodology

In this part of the proposal the different forms of data retrieval will be described beginning with desk research, which is followed by field research. Within desk research a separation can be made between internal secondary data and external secondary data. Regarding field research a distinction can be made between internal primary data and external primary data. Since the scope of the research is on the information inside of the organisation the latter data source – external primary data – is not exploited. All data is judged on consistency and reliability.

Desk Research

Internal secondary data is retrieved by reading the reports of Jenkins’s trainees. Beside these reports existing useful documents, like the buying planning, were used. Data of orders were extracted from Profashionall, Track & Trace, the ordersheets, standard size packs, and trimming sheets. More about the collection of these data can be found in section 5.4. From the data of orders that is retrieved by the desk research, analyses are made in SPSS to generate new insight into the data.

Sources that are used to collect external secondary data are the internet, business journals and relevant literature.

Field Research

Internal primary data has been gathered by conducting interviews with several employees. The following employees are interviewed:

• Logistics Manager • three Logistics employees

• Chief Purchasing Office & Branding • Buying Manager

• Quality & Fit Manager

• Assistent Product Manager (trimmings) • Design Manager

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The different questions that are asked can be found in appendix 1. Since some people nearly had any time, not all the questions could be asked. Furthermore, the questions that were asked, could not all be answered, because of a lack of information.

Jenkins has no clear overview of the Brandon supply chain. To achieve an optimal supply chain it is important that all the actors in the supply chain strive for the same ultimate goal. However this is beyond the scope of this research. To perform a decent and structured research overview of the Brandon supply chain should be created. The current Brandon supply chain will be depicted using internal information and data. Hereafter, it will be analysed using different techniques found in literature. One of these techniques is the general model with supplier configurations (Kamann and Steller 2007). Here, the configurations of actors are drawn which are involved in the supply chain of Brandon products including the key activities of each actor. Actor characteristics, roles and the relations between the actors are named and specified. Besides the supplier configurations, process flow charts are also established to provide a clear overview of all the processes that occur during product development and the sequence of these processes.

2.4 Structure of the Report

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Chapter 3 Literature

This chapter will give an overview of several subjects that are discussed in supply chain literature. First, in section 3.1, an introduction to and a definition of supply chain management will be provided. In section 3.2 to 3.10 the following subjects will be discussed: supply chain measures 3.2), supply chain strategies (3.3), delayed configuration (3.4), cost focus leanness & agility (3.5), lead time reduction (3.6), supply chain reliability (3.7), information sharing & information systems (3.8), business process reengineering (BPR, 3.9), and purchasing & supplier management (3.10). All these subjects are interrelated in an agile and/or lean supply chain. The relationships between these subjects are depictured in figure 3.1 for the agile supply chain and in figure 3.2 for the lean supply chain. For the readability of this chapter, the relationships between the sections will also be described shortly below, without references. Within the sections references are incorporated. In the two figures, a link is provided between important characteristics of the Brandon strategy and the characteristics of the suitable supply chain strategy. This since the corporate competitive strategy should be congruent with the supply chain strategy. In figure 3.1 and 3.2 the relevant sections are depictured in red.

Agile Supply Chain – Figure 3.1

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best practices, and best in class practices are congruent with the Brandon strategy of delivering best in class products. Besides this, BPR is a useful method to apply delayed configuration.

Lean Supply Chain – Figure 3.2

In section 3.3.b a description of the lean supply chain can be found. As mentioned before, every supply chain, no matter what the strategy is, should be integrated and reliable (3.7). Reliability can be increased by reducing uncertainty (3.7). Functional products suit a lean supply chain. For Brandon the pure basics can be considered as the functional products. Functional products generally have a long life cycle and thus competition is harsh. The market winner for these products is price (3.2). Because of the stable demand of functional products, the cost focus should be on minimizing the physical costs (3.5). However, the lean supply chain does not only focus on minimizing costs: it focuses on zero waste. The lean supply chain is designed around effectiveness (3.3). Among others, zero waste implies a level production with minimal change overs, total cycle time reduction (3.6), and zero defects. Zero defects require a high process and product quality, which can be accomplished by the proper instalment of joint-development and cross-functional teams. As mentioned before, joint-development teams and cross-functional teams are important drivers for the establishment of a decent network. And a decent network creates an integrated supply chain, which is required for every supply chain. The production of a lean supply chain is based on forecasting. Forecasting is suitable, because functional products tend to have a stable and predictable demand. This stable and predictable demand also enables a level production. Proper forecasting across the entire supply chain can be accomplished best through information sharing (3.8). An ERP system (3.8) is a possible solution to establish a suitable environment for information sharing. Furthermore, an ERP system implements best practices, which is aligned with the Brandon strategy of delivering best in class products. One of the CSFs of ERP implementation is BPR (3.9), which can also implement best in class practices. To achieve information sharing across the supply chain close supplier relationships are required: partnerships (3.10). The desired high quality of the Brandon products also necessitates partnerships.

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23 Innovative products 3.3 Unstable demand Agile Supply Chain 3.3 focus on and paced to designed around Actual end customer demand Responsiveness 3.3 consists of A) Flexibility B) Speed to market through Market winner Service level/ Availability 3.2 reached by Seasonable Brandon products (fashion) 1.3, 5.1 implies

Total cycle time reduction 3.6 Best in class Important characteristics High quality through Information sharing 3.8 Requirement Comprehensive IT infrastructure

Requirement can be reached by

ERP sytem 3.8 BPR 3.9 CSF implements increased by Delayed configuration 3.4

can be applied using

enables Demand uncertainty reduces reduces Supply Chain Reliability 3.7

increases, when reducing Uncertainty 3.7 Supplier uncertainty Technology/ Manufacturing uncertainty requires Partnerships (decent supplier base) 3.10 reduce requires Joint-development teams enable reduce Requirement enable Cross-functional teams Network (internal & external) 3.3 Leagility 3.3 enables Drivers (external) Driver (internal) makes use of increased by consists of Marketability costs 3.5 cost focus: managing

Integrated Supply Chain requires enables enables Supply Chain Analysis & Improvement enables reduces improves reduces enable enable LEGEND Brandon characteristics Agile supply chain characteristics Lean & Agile supply chain characteristics

Requirement

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25 3.1 Supply Chain Management

In literature different definitions of supply chain management (SCM) can be found. According to Tan (2000) two different paths of SCM are described in literature: the purchasing and supply perspective of SCM, and the transportation and logistics perspective of SCM. The purchasing and supply perspective focuses on the purchasing and supply function of industrial buyers, and how this function can be evolved from a clerical to a strategic role with the ultimate goal of supplier base integration (Tan 2000). The retailers and wholesalers also focused on integration of physical distribution and logistics to develop a competitive advantage (Tan 2000). According to Tan (2000), the two different paths evolved in time “and eventually merged into a holistic and strategic approach to operations, materials and logistics management,” also referred to as SCM. If the term SCM is used in this paper, then the following definition of Simchi-Levi et al. (2003) is meant:

“Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed, at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirements.”

This definition encompasses a) all the actors that engage in the entire supply chain and contribute to supply chain performance, b) the efficiency and cost-effectiveness across the entire supply chain and c) the activities at all the different levels (Simchi-Levi et al. 2003). Thus SCM tries to enhance the competitive performance by closely integrating internal functions within a company, and linking these effectively with the external operations of the different members of the supply chain (Kim and Park 2007).

SCM is also referred to as demand chain management, since the entire supply chain should be designed to optimally fulfil customer demand. However, in this document the term supply chain management is used instead of demand chain management. This since the term supply chain management is widely used in literature.

The two main points of this section are:

• SCM tries to enhance the competitive performance by closely integrating the internal functions within a company, and linking these to external operations of the different members across the supply chain.

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26 3.2 Supply Chain Measures

If an end-customer orientation is followed, all the organisations within a supply chain must work together to form an integrated supply chain, no matter what strategy is adopted. The aim of an integrated supply chain is to remove all boundaries to ease the flow of materials, resources, cash ànd information (Naylor et al. 1999). When business in a supply chain is paced according to the end-user demand, different metrics can be considered. Slack et al. (2004) define five performance objectives which can be used to translate the customer requirements into operational measures. The five performance objectives they distinguish are: quality, speed, dependability, flexibility and cost.

Another model of metrics that focuses on the end-consumer requirements is the total value metric. The metrics of this model are widely used in the supply chain literature, among others by Johansson et al. (1993), Naylor et al. (1999), Christopher and Towill (2000), and Mason-Jones et al. (2000). The total value metric can be found in figure 3.3 and consists of the metrics service, quality, cost, and lead time. The different aspects of each metric are also presented in this figure. Christopher and Towill (2000) state that Johansson’s value equation is particularly helpful, since it emphasizes the ineffectiveness of improving one performance measure at the expense of worsening another. The total value metric focuses on improved product quality and service, and reduced cost and lead time, while simultaneously effort is spent on increasing the speed of innovation and new product development (Johansson et al. 1993).

The value metrics are generally used to identify the market qualifiers and market winners (Naylor et al. 1999, Mason-Jones et al. 2000). Hill (1993) has developed the concept of market qualifiers and

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market winners. Slack et al. (2004) define qualifying factors as factors that are not the major competitive determinants of success, but they need to be at a certain level to be considered for purchase by the customers. The market winner factors are the factors that are key to the customer for acquisition. If the company at least meets the desired level of the market qualifiers, and it excels in the market winner factor(s), then a product has a great potential for success. Thus the market winners can contribute to success directly and significantly (Slack et al. 2004). Mason-Jones et al. (2000) provide a classification of market qualifiers and market winners of the value metrics, which can be found in figure 3.4. They argue that for commodities (i.e. functional products) quality, lead time, and service level are market qualifiers, and the market winner criteria is price. Fashion goods (i.e. innovative products) also have quality and lead time as market qualifiers. However, price is also considered a market qualifier, whereas service level is considered a market winner. Mason-Jones et al. (2000) define service level as the availability of the products according to customer requirements.

In the next section the difference between functional and innovative products with their strategies will be discussed. The value metrics lead time and cost will be discussed in section 3.5 and 3.6. The different aspects of the metrics quality and service can be found in figure 3.3. Since the total value

• Quality • Lead Time • Price/Cost • Service Level • Quality • Lead Time • Service Level • Price/Cost Agile Supply (Fashion Goods) Lean Supply (Commo-dities)

Market Qualifiers Market Winners

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metric is widely acknowledged in supply chain literature, these value metrics will be used throughout this report.

The main points of this section are:

• If an organisation is oriented around the end-customer requirements, it should develop an integrated supply chain.

• The aim of an integrated supply chain is: remove all boundaries to ease the flow of materials, resources, cash and information.

• Used end-customer oriented metric: Total value metric = (Quality . Service) / (Cost . Lead Time).

• Market winner of functional products (lean supply): cost/price.

• Market winner of innovative products (agile supply): service level/availability.

3.3 Supply Chain Strategies

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Functional products satisfy basic needs, and these products have a stable demand over time. The products generally have a long life cycle. Because of the stability of the demand, there is a lot of competition, which leads to low profit margins, and thus functional products ask for an efficient supply chain (Fisher 1997). To avoid the low margins that typify the functional products, companies introduce innovations into their products. Fisher (1997) mentions high fashion and technology innovations as examples. Because of the newness of the innovative products, these products suffer from a very unpredictable demand and short life cycles. The positive side of innovative products is that profit margins are usually high. Due to the dynamic and unpredictable characteristics of innovative products, they require a responsive supply chain (Fisher 1997). Table 3.1 provides several characteristics of efficient (lean) and responsive (agile) supply chains. However, it must be pointed out that a lean supply chain is suitable for functional products, but focuses on effectiveness instead of efficiency. Because effectiveness is regarded as one step further than efficiency (see also table 3.4), and leanness is suitable for functional products, the lean paradigm will be discussed in this literature review as a suitable supply chain strategy for functional products.

Table 3 .1 Distinguishing attributes of the lean and agile paradigms, source: Bruce et al. (2004)

In the following subsections the different strategies will be discussed. Regarding the responsive supply chain “Quick Response” and agility will be described. This will be followed by a description of a well known philosophy of efficient supply chains: leanness. Finally, the responsive and efficient supply chains will be combined to reach leagility.

The summarizing points are:

• The key to survival is: to get the right products to the customers, at the right price, at the right quantities, and at the right time.

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• Lean supply suitable for: functional products – predictable, stable demand (forecasting). • Agile supply suitable for: innovative products – unpredictable, unstable demand (use of actual

demand).

3.3.a Responsive Supply Chain – Quick Response & Agility

The value of Quick Response (QR) lies in its ability to deal with uncertainty through speed and flexibility. However, the type of the supply chain, needs to fit the product characteristics as well as the uncertainty associated (Christopher et al. 2004). Within the ultimate QR situation, as little goods as possible are made before the season. From the first day of the season point of sale (POS) data are gathered and analysed. The results are used to analyse and try to understand the demand and customer preferences (Christopher et al. 2004). The Shop Managers can also communicate customer questions for products to the headquarters. The Product Development team will translate this information into new products as fast as possible (Powerpoint Modint about Zara). During the whole season manufacturing is guided by the daily or weekly POS data and actual customer requirements. In this way the products in the shops reflect customer demand best, and thus fewer products need to be sold below the original price. Replenishment approaches, and re-order and re-estimation are used for the frequent re-orders (Christopher et al. 2004).

As can be drawn from this description, a prerequisite for QR is short lead times and responsiveness. Section 3.6 provides more information about total cycle time compression. Reichhart and Holweg (2007) define responsiveness of a manufacturing or a supply chain system as:

“The speed with which the system can adjust its output within the available range of the four external flexibility types: product, mix, volume, and delivery, in response to an external stimulus, e.g. a customer order.”

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Christopher et al. (2004) mention the following strategic implications for organisations that foster QR: - The alignment of organisational activity to demand; all the activities within the organisation

should be paced to customer demand and behaviour. - Linkages between demand and supply.

- Demand relationships; customers and products are dynamic and both place unique demands

on the company.

- Resource configurations; networking.

- Time; fast and accurate adaptation to market changes is of high importance.

- Primacy of information; timely and accurate information flows across the entire supply chain

are evidential.

- Partnerships and alliances.

Figure 3.5 Conceptual framework supply chain responsiveness, source: Reichhart and Holweg (2007)

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2004). According to Slack et al. (2004) a network structure is appropriate to reach an integrated seamless supply chain. The idea of agility in supply chains focuses around responsiveness. Agile supply chains are demand driven and thus must be as short as possible. Naylor et al. (1999) define agility as using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile marketplace. Agile manufacturing is best suited in situations with a fluctuating demand regarding volume and variety. Christopher and Towill (2000) state that, the origins of agility as a business concept are grounded in flexible manufacturing systems taking an organisational orientation. Christopher and Towill (2000) and Christopher et al. (2004) argue that an agile supply chain must incorporate the following characteristics: a) market sensitive, b) virtual – information sharing across the supply chain, c) network-based, and d) process aligned – create seamless connections internal and external. These four key dimensions are modelled in figure 3.6.

Network Structure

According to Slack and Lewis (2002) the organisational structure to reach a seamless supply chain is the N-form organisation: a network organisation. Slack and Lewis (2002) define organisational structure as “the way in which tasks and responsibilities are divided into distinct groupings, and how the responsibility and coordination relationships between the groupings are defined.” Formal as well

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as informal relationships are important here (Slack and Lewis 2002). In N-form organisations organisational boundaries are less clear, and the network is directed to market demand. Since the current environment is dynamic, the market emphasis of network organisations is on flexibility, which is also a crucial aspect for agile supply chains. The resource emphasis of a network organisation is on network competencies (Slack and Lewis 2002).

In N-form organisations information about the whole is stored in each part of the organisation. Thus, an information system with one database is suited. Strategy, guiding behaviour principles, and access to detailed information are widely shared in the whole organisation. The resources are clustered into groups as with other organisational forms, however network organisations have more delegation of the responsibility of strategic management of those resources. Each cluster of resources is linked to the other clusters, and a network prevails. The relationships within the network change over time due to the changing market environment. Network organisations generally have little hierarchical reporting and control (Slack and Lewis 2002).

The discussed points of this subsection about agility are:

• Definition of agility: using market knowledge and a virtual corporation to exploit

profitable opportunities in a volatile marketplace.

• Agile design characteristic: responsiveness – deal with uncertainty through speed and

flexibility.

• Lead time reduction is focused on speed to market.

• Sourcing implication agility: total costs perspective (hidden costs & inflexibility costs

of great importance), buy & assign capacity.

• Production is paced according to customer demand.

• Information sharing across the supply chain is required.

• The supply chain is a network of actors, with usage of joint-development teams.

• The organisational structure that is suited within agility: a network organisation.

• Characteristics of a network organisation: faded organisational boundaries, network directed to market demand, flexibility, one source database (IT environment), empowerment, cross-functional teams which are linked to each other so that a (internal) network prevails.

3.3.b Efficient Supply Chain - Leanness

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applied. The lean philosophy however, takes the efficient supply chain of Fisher (1997) even one step further: it also incorporates effectiveness. Naylor et al. (1999) define leanness as “developing a value stream to eliminate all waste, including time, and to ensure a level schedule.” This means that an integrated supply chain needs to be developed, with an emphasis of eliminating everything that is not adding value to a process or service. Lean manufacturing is suitable in situations with a stable, predictable demand, ànd a low demand for variability in production (Naylor et al. 1999). With lean manufacturing service is less important, because this requires a high level of flexibility, which is not required for products with a stable and predictable demand, and thus availability should be easily to manage (see also section 3.5). With a stable demand, the production can be planned well ahead, and thus a level production can occur with minimal inventories, and minimal setup and change-over times. Any variation in demand leads to waste, because of more frequent change-overs, keeping of more buffer-stock, and/or not producing near capacity (Naylor et al. 1999). Furthermore, process and product quality are also important, since quality disruptions are defects. These defects can increase production time and they incur costs, which are both considered as waste. To improve process and product quality joint-development teams could be established (Chen and Paulraj 2004). In addition, with lean manufacturing time compression and “zero” non value adding time is essential. In a situation with an unpredictable and unstable demand an agile approach to the supply chain is more suitable. However, the advantages of both the lean and agile paradigm can be exploited, when a combination of these two approaches is applied. This combination will be described in the next subsection.

The discussed points of this subsection about leanness are:

• Definition of leannes: developing a value stream to eliminate all waste, including time, and to ensure a level schedule.

• Lean design characteristic: effectiveness – eliminating all kinds of waste.

• Lead time reduction is focused on effectiveness and eliminating non value adding time • Sourcing implication leanness: quality and zero waste, buy goods.

• Production is based on forecasting, because of the stable and predictable demand. • Process and product quality imply joint-development teams.

3.3.c Integrating Lean and Agile: Leagility

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improves responsiveness. Responsiveness for example asks for more product change overs, and these change overs entail non-value adding time. In the lean paradigm the extra costs and non value adding time of the change-overs are considered as waste. In table 3.1 the distinguishing attributes of the lean and agile supply chain can be found.

If demand for a product is unpredictable, lean manufacturing cannot be implemented until the interface with the end-customer (Naylor et al. 1999). However, a combination between lean and agile is possible. To combine these two paradigms optimally, advantages of each of the paradigms should be exploited. According to the literature of the market winners, these advantages are cost effectiveness for the lean paradigm and a high service level for the agile paradigm (Mason-Jones et al. 2000). The trick is thus to combine these paradigms in such a way that the benefits of both metrics are fully exploited taking into account the customer requirements. In this way, leagility enables zero waste and effectiveness upstream of the decoupling point, and high service levels downstream of the decoupling point to serve the volatile marketplace optimally (Bruce et al. 2004). Furthermore, the market qualifier metrics should minimally be at the qualifying level. Table 3.2 provides the contents of the value metrics regarding the lean and agile manufacturing paradigms.

Value Metric Lean Agile

Quality 2. Important: quality disruptions cause waste of time, money, material, etc. TQM, continuous improvement & incremental ongoing quality improvements

2. Important: lack of quality (for example in production technology) may harm the flexibility and speed objective.

TQM, Business Process Reengineering, radical changes to ensure improvement

Cost 1. Cost effectiveness: cost is the main driver, since price is considered as the market winner for functional products. Stocks are considered as waste.

3. Cost is seen as a trade off for flexibility; higher costs might be accepted if responsiveness increases. Stocks can be justified if it improves time to market (stocks at the material decoupling point).

Service 3. Service is important, but should be easily to manage because of the predictable demand; so less focus on designing service into the supply chain.

1. Service is of major importance: demand is unpredictable and thus the supply chain should be designed around flexibility and speed; availability of the required products is the market winner.

Lead Time 2. Lead time reduction is important: effectiveness: elimination of all sorts of waste and non value adding activities.

2. Lead time reduction is important: speed to market must be as fast as possible and can be improved by applying delayed configuration.

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Transition Lean – Agile: Decoupling Points

A decoupling point separates the part of the organisation or supply chain that is paced according to customer demand, from the part of the organisation or supply chain that is based on planning (Naylor et al. 1999). The transition from lean to agile manufacturing in a supply chain depends on the material decoupling point. At the material decoupling point strategic stock should be held, to act as a buffer between the fluctuating customer demand and the level production schedule of the forecasted part of the supply chain. To detect the optimal position of the material decoupling point the following information is needed: a) the longest lead time the end-user is prepared to tolerate, and b) the point in the supply chain at which variability in product demand dominates (Naylor et al. 1999). Before the material decoupling point (upstream) demand is quite stable, products can be standardized and thus lean manufacturing can be applied to operate smooth and efficiently. After the material decoupling point (downstream), demand is variable with a large(r) variety in products, and thus production should be paced according to demand of the end-customer (Naylor et al. 1999), and an agile supply chain is appropriate.

Ideally, the material decoupling point should be as far downstream in the supply chain as possible, i.e. as close to the final customer as possible. This can be achieved by applying delayed configuration, which will be highlighted in the next section. On the contrary, the information decoupling point should lie as far upstream in the supply chain as possible. The information decoupling point is the point until where the actual market demand is penetrated (Christopher and Towill 2000). If the material and information decoupling points are managed optimally, a powerful opportunity for agility can be created (Christopher and Towill 2000), or leagility.

The discussed points of this subsection about leagility are:

• Leagility can be used as a replacer for agility by applying delayed point of product differentiation.

• Aim of leagility: zero waste and effectiveness upstream of the decoupling point, and high service levels downstream of the decoupling point to serve the volatile marketplace

• Lead time reduction: 1) Lean; effectiveness and elimination of all non value adding time – time compression, 2) Agile; speed to market – delayed point of differentiation & time compression.

• Inventory: 1) Lean; inventory considered as waste, 2) Agile; strategic inventory at point of differentiation (to improve speed to market).

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• Cost: 1) Lean; cost effectiveness, market winner, 2) Agile; cost less important if it improves responsiveness.

• Availability: 1) Lean; should be easy to manage – predictable, stable demand, 2) Agile; Market winner, availability should be designed into the supply chain and thus focus on flexibility and speed to market.

• The material decoupling point should lie as far downstream in the supply chain; as close to the final customer by applying delayed point of product differentiation.

• Production: before material decoupling point according to forecasts, after material decoupling point according to customer demand.

• Strategic stock should be held at the material decoupling point.

• The information decoupling point should lie as far upstream in the supply chain.

3.4 Delayed Configuration

In the current environment customers become more and more demanding and they want to have the required products as fast as possible, at a specific quality, and at the lowest cost. Using traditional manufacturing techniques this implies more product varieties and a considerable inventory level if companies want to meet these demands. To avoid high inventory levels and to satisfy customer demands, the product or the production process can be redesigned to delay the point of product differentiation as much as possible (Lee and Tang 1996). Before the point of product differentiation the products are standardized, after it they become “customized”. Thus, at this point the work-in-process is not finished into a particular product until customer demand is known, and it is after this point that a product obtains its unique identity. Product and/or process redesigns create more flexibility to cope with market uncertainties, and the overall inventory level of the same target service can be reduced (Lee and Tang 1996).

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steps that exist during manufacturing, in such a way that common process steps shared by multiple products are performed before the product specific steps. Process restructuring can be divided into a) postponement – postponing an operation, and b) operations reversal – reversing the order of two operations (Lee and Tang 1996). With operations reversal, the product features whose options exhibit lower variability in the choice probabilities should be sequenced first (Jain and Paul 2001). This to reduce the variability in the production volumes and the inventory related costs in the manufacturing process (Jain and Paul 2001). Christopher and Towill (2000) consider delayed configuration as a vital element in any agile supply chain. Delayed configuration enables a leagile supply chain, since leanness can be applied upstream of the product differentiation point.

Table 3.3 Implications three basic approaches for delayed product differentiation, source: Lee and Tang (1996)

An example of operations reversal can be found at Benetton. Benetton uses “piece dyeing” and POS data to respond quickly to market demand. Benetton used to dye the fabric, and then manufacture the garment. After the operations reversal, the garments were manufactured in a raw colour material, and when the POS data reflected a certain colour preference of the customers, the finished raw colour garments were dyed into the demanded colour (Lee and Tang 1996, Jain and Paul 2001).

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lead time and/or the unit inventory holding costs (Lee and Tang 1996). How to decide whether delayed product differentiation is beneficial and which costs should be taken into account, is outside the scope of this report.

The discussed points regarding delayed configuration are:

• Three approaches of delayed product differentiation can be distinguished: 1) standardization, 2) modular design, and 3) process restructuring.

• Delayed product differentiation is a powerful tool to create flexibility and speed to market into an agile supply chain.

• Delayed product differentiation enables a leagile supply chain.

• If delayed configuration is applied, demand uncertainty will be reduced, because until the decoupling point demand aggregation can occur.

• If delayed product differentiation is applied, it can be useful to do this in conjunction with business process reengineering (see section 3.9).

3.5 Cost Focus Lean & Agile

Fisher (1997) has indicated that the total costs of the product delivery process consist of physical costs and marketability costs. He describes physical costs as the costs of production, inventory storage, and transportation. Market mediation costs are the costs that companies face when they have a shortage or excess in the supply of products. In the case of a shortage in products the company faces a loss in sales opportunities and the costs of a dissatisfied customer. When there are too many products the products should be sold at a lower price, or are even written of.

Fisher (1997) argues that functional and innovative products both incur different costs. Functional products are characterized by a predictable demand, and thus the management of marketability costs is straightforward and it should be easy to keep these close to zero. Regarding functional products the emphasis should lie on minimizing the physical costs. This is crucial, because of the existence of price sensitivity – and thus low margins – with most functional products. In this case, inventory levels should be minimized, and production efficiency should be maximized (Fisher 1997), and of course transportation costs should be kept at the lowest level. Christopher and Towill (2000) believe that these products suit a lean supply.

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different initiatives that can reduce demand uncertainty. Regarding innovative products an agile supply is appropriate (Christopher and Towill 2000), or a leagile one. Christopher and Towill (2000) also mention that in an agile supply chain lost sales are gone forever, because it is an extremely harsh and competitive marketplace characterized with little brand loyalty.

The main point of this section is that functional and innovative products require a different cost focus across the supply chain, namely:

• Functional products: focus on minimizing physical costs; keeping marketability costs close to zero should be easy.

• Innovative products: focus on minimizing marketability costs because of the importance of the right availability (availability according to customer demand).

3.6 Lead Time Reduction

This section discusses the definition of lead time and the importance for lead time reduction for the lean and agile supply chain. After this the four strategies to reduce total cycle time that are identified by Mason-Jones and Towill (1999) will be outlined shortly. The importance of reduction of procurement lead time is also highlighted. This, because due to the outsourcing of manufacturing, the sourcing process of the Brandon products is very important.

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TCT Reduction

Mason-Jones and Towill (1999) mention four strategies that can be used for total cycle time reduction. These are: 1) elimination – remove a process, 2) compression – remove time within a process, 3) integration – reengineering interfaces between successive processes, and 4) concurrency – operate processes in parallel. Another way to reduce lead time is batch sizing (Schönsleben 2003). It is mathematically proven that by applying smaller batches lead time will decrease, if the setup and change over times are not too high. However, because of the smaller ordered amounts, more order points are required (Schönsleben 2003). For agility applying small batches can be considered a suitable technique to improve speed to market if setup and change over times are small. However, by applying small batches change overs occur more often and setup time and costs increase (Schönsleben 2003). And this is considered as waste in the lean supply chain, which makes small batches less appropriate for the lean paradigm.

A method to reach total cycle time reduction is the drawing of process flow charts by cross-functional teams (internal) and joint-development teams (external). From the process flow chart a bar chart can be made, which contains every actor on the y-axis, and the time on the x-axis. For every actor the processes are visualized including the moment that they start and the time that they take. The bar chart should provide information about value adding and non value adding time. By drawing a process flow chart the processes that are top priority in engineering a supply chain can be identified. The charts should be agreed by all the actors as being a realistic description of the supply chain, and it should depict value added and non value added time (Johansson et al. 1993, Mason-Jones and Towill 1999). After the visualization, the four strategies of cycle time reduction (elimination, compression, reengineering and concurrency) can be discussed in the teams for appliance. Appendix 2 provides an example of a bar chart and appendix 4 contains a process flow chart of the product development process of Brandon products.

Procurement Lead Time

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supplier relations (Perry 1990). Perry (1990) concludes that the common ingredient that drives the successful procurement lead time reduction is the motivation and guidance from the executive level: highly visible, very active, continuing involvement by top management. More information about purchasing and supplier management can be found in section 3.10.

The major points of this section are:

• Total cycle time reduction: 1) Lean; eliminating all sorts of waste thus also non value adding time, 2) Agile; improve responsiveness.

• Four strategies to reduce TCT: 1) elimination, 2) compression, 3) integration, and 4) concurrency.

• Procurement lead time is lower at companies who focus on supplier relations and share information with them.

• Motivation and guidance from the executive level is an important driver for successful procurement lead time reduction.

3.7 Supply Chain Reliability

Reliability can be used as operations performance, and as a measure of failure (Slack et al. 2004). Slack et al. (2004) define the latter reliability as the ability of a system, service, or product to perform as expected over time. Thus, in this perspective supply chain reliability can be defined as the ability of the supply chain to perform as expected over time (Slack et al. 2004) and in time (Klimov and Merkuryev 2008). When reliability is applied to operations performance, it can be compared to dependability: to deliver the products when they are needed, or at least when they are promised (Slack et al. 2004). It is thought that supply chain reliability can be increased if uncertainty is reduced (Klimov and Merkuryev 2008).

Uncertainty

Supply Chain Strategy and Supply Chain Reliability Which factors need to be considered for possible success?