020-0724
Reviewing Supply Chain Strategy - a longitudinal case study
Roy Stratton, Nottingham Trent University, Burton Street, Nottingham, NG14BU, UK
[email protected]
Tel: +441158488689
POMS 22nd Annual Conference
Reno, Nevada, U.S.A.
April 29 to May 2, 2011
Abstract
Markets are increasingly characterised by demand uncertainty and short product life cycles
that are often exacerbated by supply shifting to low cost global sources. The effect of these
two changes is the growing importance of a cost versus response trade-off, acutely felt in the
apparel industry (Fisher, 97; Lowson, 2002; Lee, 2002; Stratton,2003, Sun et al., 2009).
However, when management is confronted by such transitions the implications of poor
response are often only belatedly acknowledged and addressed. This paper reports on a
longitudinal case study where the trade-off implications of such a transition initially resulted
in significant supply instability. The study explores how and why stability was re-established
through product and process design changes with particular reference to the systematic causes
of the management inertia. This case is then used to explore how existing supply chain
strategy models (Fisher, 97; Lee, 2002) support such decision making.
1.0
Introduction
The term supply chain management (SCM) was originally introduced in the early 1980s
(Oliver and Webber, 1992), however, the concept of a supply chain is a natural extension of
production operations management and there are common underlying theoretical
developments (Schmenner and Swink, 1998). Central to these is the need to control variation
(Shewart, 1931) which rapidly progressed into an awareness of the implications of variation
on the wider production system (Deming, 1986) in improving overall supply chain
performance. The quality revolution that developed in Japan quickly merged with the Toyota
Production System (Ohno, 1988) with what we now know as lean supply. This led to a flow
focus, level scheduling, close supplier relationships and the reduction of wasteful variation
that drives inventory and capacity buffering.
Rather than directly reducing the wasteful variation in the supply chain western
attention was directed at understanding how to manage the supply dynamics associated with
mulit-echelon information and material flows (Forester, 1961). The need to manage such
variation and uncertainty resulted in the emergence of the concept of manufacturing strategy
(Skinner, 1969) and with it the need to focus (Skinner, 1974; Hill, 1985; Porter, 1987) in
making strategic choices. The supply chain offers the opportunity to focus differently across
the supply chain through postponement (Zinn and Bowersox, 1988; Van Hoek, 1998;
Olhanger, 2003) and mass customization (Pine, 1993; Fitzingler and Lee, 1997). These
concepts effectively limit the impact of the demand variation and uncertainty through
postponing the introduction of customized design features (Walker et al., 2000). In this way
both lean and agile systems can be associated with the same supply chain (Nailor et al., 1999).
1.1
Supply chain strategy models
Our understanding of how these concepts and theoretical developments impact supply chains
have been influenced by two particular publications (Fisher, 97 and Lee, 2002) which have
been validated academically through various hypotheses tests (Selldin and Olhager, 2007;
Sun et al., 2009). Such tests verify the general relationships but do not effectively evaluate the
practical utility of the conceptual models from a management perspective. This paper aims to
explore the practical utility of such models by using a longitudinal case study to identify the
managerial issues and then evaluate the support offered by these models in comparison with a
further model developed through multi-case research (Stratton, 2008).
2.
Theoretical models in support practice
These three conceptual models are described below.
2.1
Fisher‟s supply chain management model
Fisher (1997) used empirical case research to clarify the trade-off relationship between
different classes of product with efficiency and response in a supply chain (Fisher et al.,
1997). Figure 1 highlights the need to align the design of the supply chain with the uncertain
nature of the product, embracing the concepts of uncertainty, trade-offs and buffering
(capacity,
inventory
and
customer
tolerance
time).
Efficient Supply
chain
Match
Responsive supply
chain
Functional Products Innovative Products
Mismatch
Mismatch
Match
Figure 1. Matching Supply Chains with Products
(Source: Fisher, 1997, p109)
Fisher uses the model to convey the concept of performance trade-offs and clearly associates
the supply chain choice of efficiency (therefore minimal buffering) with minimal demand
variation and uncertainty associated with functional products. Whereas, demand uncertainty,
associated with innovative products, is allied to the choice of a responsive supply chains. The
top right mismatch zone effectively conveys the excess and shortage consequences of not
suitably buffering in the case of innovative products. Fisher uses this model to stress the need
to adopt three coordinated strategies.
1. Strive to reduce uncertainty (e.g. timely demand data or common parts)
2. Avoid uncertainty by cutting lead-times and increasing the supply chain flexibility so
that it can produce ideally within the tolerance time of the customer.
3. Once uncertainty has been reduced or avoided as much as possible, hedge against the
remaining residual uncertainty with buffers of inventory or excess capacity.
(Fisher, 1997: 114)
This model and the associated strategies emphasise demand uncertainty rather than wider
sources of variation, however, it implicitly encompasses the concept of postponement in the
first of the three coordinated strategies. Again, the use of buffering is embodied in the third
strategy, with the trade-off implications implicitly if not explicitly conveyed. Fisher‟s model,
therefore, implicitly links the key concepts of uncertainty, performance trade-offs and
buffering mechanisms in a supply chain setting, but does not attempt to integrate this with
production and other sources of variation and uncertainty. This model, therefore, is limited in
its utility to SCM and the model is not presented in such a way as to support falsification.
2.2 Lee‟s supply chain management model
Lee (2002) extended Fisher‟s model to accommodate supply as well as demand uncertainty,
claiming that the uncertainty associated with the supply chain also needs to be strategically
managed. In addition to the demand uncertainty Lee maps the extremes of supply uncertainty
identifying „stable processes‟ and „evolving processes‟ with low and high levels respectively.
Lee identifies the continuous improvement need to adopt uncertainty reduction strategies as
opposed to the trade-off management emphasized in Fisher‟s model. To accommodate these
different sources of uncertainty Lee (2002) proposes four viable supply chain strategies:
efficient, responsive, risk-hedging and agile.
High
Supply uncertainty
Low
Demand Uncertainty
Low (Functional)
High (Innovative)
Efficient supply
chain
Risk-hedging
Supply chain
Responsive supply
chain
Agile supply
chain
Figure2. Matched Strategies
(Source: Lee, 2002, p114)
The efficient and responsive strategies are closely allied to Fisher‟s model as there is low
supply uncertainty. A risk-hedging strategy is allied to low demand and high supply
uncertainty and in this situation he advocates managing the disruption through pooling and
sharing resources in the form of inventory or capacity. The final strategy, agile supply, aims at
being responsive and flexible to customer demand, while hedging the risk of supply
uncertainties. Agile strategies are, therefore, for the most unstable environments, high demand
and supply uncertainty. Lee leaves these strategies at this conceptual level although he
discusses with examples the need to postpone and buffer with inventory and capacity. He
finishes by stressing the need to devise the right strategy whilst also identifying the need to
dynamically adjust and adapt. However this is not specifically addressed.
2.3 Variation & Uncertainty Buffering (VUB)Model
This model (Figure 3) was developed through multi-case research (Stratton, 2008) of which
this case is one of six. This research identified key concepts of variation and uncertainty,
performance trade-off and buffering mechanisms (capacity, inventory and forward load).
Therefore, avoiding the use of complex constructs, such as flexible and agile, used in Lee‟s
model. This VUB model, in a similar way to Fisher (1997), incorporates three coordinated
generic strategies, however the definition of these strategies is more tightly defined around
seven observed propositions linking the key constructs.
Focus
Limiting operations related capabilities
(e.g. price and delivery speed)
GS 1
Buffer the
variation and uncertainty
GS 2
Reduce the
variation and uncertainty
Reduce /
align
buffering
GS 3
Separate or postpone the
variation and uncertainty
Figure 3 Variation and Uncertainty Buffering Model
The generic strategies were found to be present in all the cases investigated and the GS
definitions are as follow.
GS 1 Buffer variation and uncertainty
Variation and uncertainty in a supply chain drives the need for buffering and the mix of
buffering mechanism (forward load, capacity and inventory) determines the performance
trade-off.
GS 2 Reduce variation and uncertainty
The reduction of variation and uncertainty reduces the need for buffering and the associated
waste. The variation and uncertainty may be in demand, supply or internal processes
(including set-up time).
GS 3
Separate or postpone variation and uncertainty
The buffering requirements in size and form may be limited by separating or postponing the
impact of variation and uncertainty on the supply chain.
The model shows these generic strategies need to be focused on limiting operations trade-offs
or market priorities with the intention of reducing /aligning the buffering mechanisms, as
illustrated in Figure 3.
The model embraces the concept of variation as well as uncertainty but emphasizes
the buffering implications, therefore, the need to reduce and align the buffer choices with the
market priorities. These generic strategies can be aligned to the classic paradigms discussed
earlier but as the model illustrates they need to be uniquely coordinated.
3.0
Research methodology
This apparel case study (Stevensons) comprises two echelons in the supply chain with the
focal company supplying direct to a major high street retailer in the UK. The case study
covered 3 years which involved 6 site visits together with a retail customer survey and
customer interviews. In total nine senior level management interviews took place together
with gathering a collection of multiple sources of data. Repeated visits enabled the collection
of contemporary evidence and the development and testing of the causal relationships. The
study concluded with the relocation of the garment dyeing facilities to a lower cost country in
a joint venture.
This case formed part of a wider research project that gave rise of the VUB model
being evaluated. The research questions centred on clarifying the key concepts/variables and
their relationship to each other. Such research is clearly suited to focused multiple case
research (Melnyk and Handfield, 1998; Voss et al., 2002). The approach adopted embraces
analytic induction which is now a well established research approach (Yin, 1994) that
Eisenhardt (1989) has developed into a staged theory building process to encourage rigor.
This process was followed and commences with tentative propositions/hypotheses that are
progressively developed through the focused analysis of cases. These cases were selected
(Yin, 1994: 48) to both replicate and extend the boundaries of the emergent theory. The
automotive, grocery and apparel sectors were chosen to reflect a cross section of supply
chains that encompass distinct forms of variation and uncertainty.
The case analysis involved inductive analysis of transitions in the level of stability,
with a particular focus on the trade-off performance associated with changes in the choice and
level of buffering mechanism. Data was collected in line with a protocol using multiple
sources of evidence. The data collection methods included plant observation, semi-structured
interviews, archival records and documents, with due attention being given to triangulation
and subsequent analysis (Miles and Huberman, 1994). Case data was collected in line with
pre prepared semi structured interviews, followed up by archival data and observations allied
to changes in transition.
The interview process was designed to take an overview of the immediate supply
chain from the perspective of the company concerned before centering on any sustained
transitions in variation, uncertainty and buffering mechanism. Such transitions provided the
focus for data collection with reference to customer order winners and qualifiers, together
with the nature and location of associated buffering mechanisms. Emphasis was placed on
exploring changing trade-offs associated with the transition and the drivers and actions
involved in reducing, mitigating and managing the trade-off implications.
4.0
Stevensons case analysis
4.1
Overview
Stevensons is a garment dying business that was originally vertically integrated with the
Coats Viyella Group (CVG) in the UK providing the capability to postpone the colour choice
in garment manufacture. The transition in stability occurred in 2001 when the Group
dissolved and much of the work moved offshore, considerably extending the colour choice
lead times with the move to yarn rather than garment dyeing. Stevensons downsized and
developed its capability to both garment dye and finish within 10 days. The capability was,
however, more expensive and the tension between fast response and low cost resulted in
uncertain demand over the years, finally resulting the plant being closed and moved to Sri
Lanka and Bangladesh in 2006. The case outlines the issues and the factors underlying the
transitions concerning sourcing choices.
4.2
Supply chain issues and analysis
Stevensons garment dyers occupies a 17-acre site in Derbyshire and is one of the largest
garment dyeing facilities in Europe, combining expertise with the economies of a semi-
automated plant which was part of a multi-million pound investment installed in the late
1990s. For several decades it was part of the vertically integrated Coats Viyella Group
(CVG). Typical garment dyed products included knitwear, hosiery, and woven fabrics, but the
technical requirements of knitwear had become their main focus of activity in recent years as
this area of CVG business had proved more difficult to move offshore. Stevensons worked
alongside local knitting and finishing factories in the design and development of garments as
well as volume production. As CVG was a major supplier to high street retailers Stevensons
had generally been made responsible for developing the seasonal colour pallet and recipes
across their product ranges as well as supporting product development.
In 2001 CVG withdrew from garment manufacture, closing or selling off its interests
in knitwear. Stevensons annual sales quickly fell from £15M to £5M and their full time
workforce was subsequently reduced from over 500 employees to a little over 100, in their
fight to remain in business under a management buyout. By 2002 their major retail customers
still depended on them for the colour pallet and recipe specification, but few regular
production orders remained.
4.3
Typical product and dyeing process
Typical garment dyed products are often solid (single) colours, but the garment dyeing
process can be very sophisticated. For example, by pattern knitting ecru (undyed) yarns with
different dye resist properties the cross dyeing process enables complex coloured patterns to
be dyed into a garment. A wide range of fibres may be dyed in this way, including: lambs
wool, acrylic, cashmere, cotton, and mohair.
In the case of knitwear, as the name suggests, garment or piece dyeing involves
dyeing the garment after it has been knitted in the natural colour of the fibres, referred to as
ecru. The alternative is to use pre-dyed yarn to knit the garment. The garment dyeing facility
at Stevensons comprises a wide range of chemical treatment processes, but the main
capability is embedded in the semi-automated dye mixing and dispensing to the dyeing
machines.
4.4
Original knitwear process route
Garment dyeing had advantages over yarn dyeing for both the supplier and the retailer and
therefore had become a popular option when CVG was developing new products for their
customers. Almost the first decision in the yarn dye manufacturing process is the colour
choice, whereas with garment dyeing it is close to the last. Committing to a colour and
quantity is a risk that worsens the further ahead you forecast therefore, it is important to
minimise the lost sales or excess stock by postponing this decision as long as possible. This
need to delay colour choice also puts pressure on the seasonal workload for yarn dyeing and
subsequent knitting in an attempt to delay the colour choice and subsequent start of
production. Therefore, there has been a constant tension over the years between the
manufacturer attempting to efficiently smooth his capacity demand by insisting on longer
lead-times and the retailer compressing the lead-times in order to postpone the colour
decision. CVG was also commercially aware of this conflict as it was common practice for
them to share the losses associated with excess stock at the end of a season with their retail
customers. The neat advantage offered by garment dyeing was the partial separation of these
two conflicting requirements. The knitting factory was able to start manufacturing garments
as soon as the styles were agreed, typically much earlier, without having to wait for colouring
decisions and dyed yarn to be supplied. This use of ecru yarn also enabled longer production
runs and fewer set-ups, which improved the reliability of the process as changing to different
coloured yarns introduces process variation and associated quality issues and delays. Also,
with ecru yarn there is no risk of running out of specific colours and therefore yarn wastage
and shortages are reduced.
The garments were knitted at this stage in two pieces with the neck separate from the
body. The garment was normally then stored ready for colour specific call-offs. With the
colour recipe and treatments having been pre-specified, once the colour choice was made by
the retailer, the ecru garments could be processed immediately assuming dyeing capacity was
available. The actual dyeing process can involve several semi automated stages taking over 11
hours in all. Once dyed the body and neck were assembled at one of the local satellite
finishing factories, where labels were attached and the garments pressed and packed for
dispatch to the retailer‟s distribution depot. Figure 4 illustrates this process.
Colour specified 4-6 weeks prior to Depot arrival
Undyed yarn knitted into
bodies and necks
(Knitting factory)
Knitted bodies
and necks stored
at Stevensons
Awaiting dyeing
instructions
Onshore
Bodies and necks
garment dyed, finished
and dryed at Stevenson’s
(Dye Works)
Dyed bodies and necks
Linked, labelled, hung,
pressed and packed
(Finishing Factory)
Retailer’s
Distribution
Depot
Onshore
Figure 4 Original piece dyed knitted garments process sequence
Although this route enables the colouring decision to be made much closer to the time of sale,
typically 4-6 weeks, there was commonly pressure to delay the colouring decision still
further. It was therefore common for these finishing satellite factories to need to respond to
significant peaks in demand as garments were prepared for the start of the season, commonly
resulting in workers being laid-off then reemployed a few weeks later.
The reasons for not assembling the knitted garment before the dyeing process and
therefore relieving this uneven demand profile further was discussed in the mid 1970s when
the dyeing of fully assembled garments was popularised by Benetton. However, at that time
the benefits were not seen as significant and therefore the process was not developed. The
Commercial and Operations Director at Stevensons recalls visits to Benetton‟s Dye Works in
Italy in the mid 1970‟s and subsequently doing dyeing trials with the neck attached while he
was working as the Dye House Manager at Courtaulds, another major high street retail
supplier. These trials, around 1977, were successful but the process was never put into
production. One of the main arguments against this new development, as he recalls, was that
the knitting factory production costs were higher than the finishing factory and a finishing
stage would still be necessary anyway. As the Commercial and Operations Director recalled.
„Courtaulds and Coats Viyella saw little benefit in introducing such a change
and therefore the capability was not developed until after 2001. Old habits
die hard though, and we are still dyeing the necks separately for one of our
customers even today.‟
(Commercial and Operations Director)
4.5
The yarn dyed and garment dyed processing options post changes
Although other parts of CV‟s operations, such as men‟s shirts, had been progressively moving
offshore over several years, knitwear was more specialised and not so well progressed by
2001. With the loss of the CVG supply chain the retailers rapidly became much more
dependent on offshore supply, initially via other intermediate UK suppliers, but increasingly
dealing with the offshore suppliers direct. However, the Far East manufacturers utilised yarn
dyed routes with the associated need to specify colour, typically 18-20 weeks prior to depot
delivery, as illustrated in Figure 5.
Colour specified 18-20 weeks prior to Depot arrival
Yarn dyed and spun
Body and necks
Linked and labels
Attached
Yarn knitted into
body and necks
Offshore
Container
transported
on hangers
to UK
Hung,
pressed and
Packed
Dense
packed
Offshore
Container
Transported
dense packed
to UK
Retailer’s
Distribution
Depot
Unpacked, refurbished,
hung, pressed
and packed
At Stevensons
Onshore
Figure 5 Yarn dyed knitted garments produced offshore post changes
Now part of the Quantum group the Stevensons management realised they needed to offer a
dyeing and finishing process in one if they were to have any chance of winning back dyeing
work based on fast response. The finishing processes they introduced involved steam
pressing, labelling and packaging on hangers ready for retail stores.
This initially enabled Stevensons to take advantage of the growing demand for
refurbishing garments transported here close packed, typically from the Far East, and
preparing them for retail display. This rapidly growing market helped to sustain sales revenue
levels but typically at a low unit price as it did not take advantage of their dyeing capability.
Colour specified 1-2 weeks prior to depot arrival
Body and necks
Linked and labels
attached if possible
Ecru yarn knitted into
body and necks
Dense
packed
and shipped
to UK
Offshore
Unpacked,
Dyed and finished,
labelled if necessary
hung on hangers,
pressed and packed in UK
at Stevensons
Garments stored
in UK at
Stevensons
Retailer’s
Distribution
Depot
Onshore
Figure 6 Garments ecru knitted offshore and garment dyed and finished onshore at
Stevensons
Fortunately, an additional source of revenue was also available in the form of recovery work
from overseas. For example: fixing a dye, making the garment machine washable, or even redyeing. The cost of such recovery could range from £1-50 to £3-00 per garment.
However, in the longer term the company needed to exploit the fast response
capability that their dyeing facility could offer. With their finishing facility in place they were
offering between 5-10 day lead-time from colour choice to distribution depot.
(See Figure 6).
The principle they worked to was postponing the colour choice with as few finishing
operations as possible. They had now perfected the process where the neck was attached
offshore, and where feasible the garment labels also could be attached offshore otherwise the
cost of labelling within the Stevensons‟ finishing process added an extra 17p, but at least one
of the labels usually specifies the colour. The dyeing and treatment process also causes the
labels to curl and discolour and although they were still readable this was not acceptable to
their most quality conscious retailers. Where labels needed to be attached they also needed
fast response from the label supplier once the colour had been agreed.
4.6
Quantifying the process route trade-offs
The Throughput Implications
In response to the limited interest in their fast response route, Stevensons tried to better
understand the market need and especially the problems experienced further down the supply
chain through markdowns and shortages in the retail outlets. In 2002 together with the help of
the Industry Forum they independently surveyed 11 major retail stores looking at the stock
levels of various colours and sizes of garment previously dyed by Stevensons, but now yarn
dyed and manufactured entirely in the Far East. The survey showed that, whereas the
availability of sizes was roughly in-line with those planned this was not the case with colour.
In this instance there were major shortages in beige and black and a particular excess in reds
that were subsequently marked down in price.
In this particular case an additional supply of black garments eventually arrived, but 3
weeks after the other garments had been put on sale, further complicating the situation from
the customers‟ perspective. Subsequent discussion of their findings with the retail
management teams confirmed that these consequences were increasingly widespread. It was
generally acknowledged that the low global supply routes were resulting in longer lead times
so obliging the retailer to commit to colour well in advance of the season and therefore
limiting the retailer‟s ability to respond to uncertain colour demand. Typical offshore supply
lead-times were:
Garment shipping
6 weeks
(including despatch delays and customs)
Manufacture
4 weeks
(assuming capacity is booked especially peak season)
Yarn shipping
4 weeks
(assumes shipping is required)
Yarn and colour work 4-6weeks (assuming capacity is booked especially in peak season)
These offshore timescales could be expeditiously compressed by using air transport, but this
was an expensive option.
As a consequence order commitments are typically made over 20 weeks ahead, where
forecasting for 30 percent of stock keeping units (SKU) have been claimed to be over 25
percent in error. This is a figure commonly quoted in the industry and obviously seen as
sensitive by the retailers present but multiple sources were found to support this level of
forecast error. It was also acknowledged that this forecasting accuracy did not significantly
improve until after the start of the season, typically only 12-16 weeks long. More recently the
cost of markdowns has been formally measured by the retailers concerned, but the immediate
and long term impact of stock-outs is not so easily quantified.
The operating expense implications
Stevensons also sought to understand the net manufacturing cost to their retail customers
when adopting the garment dyed route. They estimated figures showing that the garment
dyeing route was just 35 pence above that of yarn dyeing (See Figure 7).
•
•
•
•
•
•
•
Ecru versus dyed yarn
Wastage of dyed yarn
Reduced import duty
Cost of scour
Cost of pressing
Cost to label and pack
Reduced transport costs
TOTAL
£
1.50
0.15
0.20
0.33
0.05
0.07
0.20
2.50
Figure 7 Claimed savings associated with the garment dyeing option
They presented these figures to show that £2.50 of the £2.85 Stevenson charge for
their dyeing and finishing could be saved by the retailer in adopting the garment dyed route.
Clearly, realising these potential savings would need to be worked on with the ecru garment
supplier, therefore, the claimed savings were difficult to verify.
However, they did acknowledge the benefit to the offshore knitting factory of being
able to smooth out the seasonal load. It was also acknowledged that because the dyeing of the
yarn is at the beginning of the process route, any fashion colours put pressure on this lead
time. This means that the late release of colours results in a very tight schedule during the
peak manufacturing period with little opportunity to use inventory or capacity to buffer
against uncertainty. Consequently, it was not uncommon for air freight to be used to meet
launch deadlines.
In this instance postponing the dyeing process was the obvious means of avoiding
demand uncertainty and the technology already existed. If garments are produced in ecru form
offshore they can be stored at Stevensons who set themselves the target of delivering the
garments to the retailer within 5-10 days, a target which they achieved. Stevensons already
had the dyeing facility but now realised they needed to invest in the additional, but not
difficult finishing process that includes dyeing, label, press, examine, package and despatch.
The practice of dual sourcing strategies has demonstrated that the postponement of the
dyeing process is not necessary for all the stock, as a partial forecast could still be sent
overseas to preserve Stevensons capacity. Therefore, building the ecru option into the garment
design to enable postponement avoids the current mismatch and effectively avoids the tradeoff by holding ecru inventory and assigning responsive capacity only to the dye and finishing
process.
Whereas the move to offshore supply two years previously induced a mismatch, the
offshore ecru supply and local finishing restores the balance and ensures both low cost and
fast response. In this way product design strategies needs to not only to take account of the
technical needs of production but also the business needs of the market and the delivery
system. However, to better understand the retailers‟ reluctance to use this route interviews
were made with two merchandisers of major retailers who had recently started using
Stevensons on a volume production basis.
A customer representative interviewed in October 2004 was present at a meeting at
Stevensons with the offshore supplier of the ecru garments as they were being processed. The
purpose of the meeting was to improve the coordination between the two plants on future
orders. This was clearly a discouraging factor as the merchandiser was typically having to
deal with such anomalies. The garments being dyed and finished were already priced up at 15
Euros and the garment dyeing route was seen as warranted even with low priced knitware.
However, with the retirement of this merchandiser in 2005 this project was not progressed by
his replacement. This account has been included here as it provides evidence of fragile
strategic developments at the operations level of buyers and merchandisers. A point to be
developed in subsequent analysis.
In 2005 a menswear Merchandiser for another major retailer made intensive use of
Stevensons for garment dyeing and finishing, producing 400,000 acrylic jumpers. When
interviewed in March 2006 the Buyer‟s view was that the fast response offered by Stevensons
was now acknowledged to be of significant strategic benefit for the uncertain fashion colours.
He did not expect, however, the route to be used for the basic colours which would be either
yarn dyed or garment dyed offshore.
He explained how the drive for higher gross margin and lower levels of discounting
had encouraged the selection of deep and narrow colour ranges which naturally discourages
the riskier fashion colours.
„We have put more colours back in the last couple of years because we have felt more
confident. In previous years we either bought a tiny amount of it and ran out or we
had an excess. I remember one year there was wall to wall burnt orange everywhere.
I would like to think that would not happen today.‟
(Retail Menswear Merchandiser)
When asked where the impetus came from for garment dyeing in 2005 it was clearly a
directive from the top of the organisation to offer more vibrant colours.
„The pressure was to extend the colour range in 2005 and we knew we had to do it in
such a way that the markdowns were not compromised… We had to provide more
colour and we asked how do we go about doing that and we came by this route of
making them in the Far East and dyeing them in the UK‟.
(Retail Menswear Merchandiser)
5.0
Case Evaluation
Table 1 summarizes the nature of the transition, the tactics adopted and the corresponding
strategic use of buffering.
Table 1 Stevenson case summary
Case companies
-delivery systems
Stevensons
Changing levels of
variation and
uncertainty
CVG withdraw from
garment manufacture
and onshore knitware
manufacture moves
offshore.
Subsequently a mix of
onshore and offshore
manufacture is
adopted on a limited
range of products.
Distinct supply tactics
adopted
Strategic use of buffering
CVG onshore knitting,
garment dyeing and finishing
process. This tactic decoupled
the knitting factories from the
more volatile colour choice
enabling more scheduling
flexibility. 4-6 week call off
by retailers involving garment
dyeing, neck attach and
finishing.
Offshore supply of finished
garments produced from predyed yarn resulting in a
colouring lead times of 18
weeks+
Impact of seasonal variation on
knitting smoothed by inventory
buffering ecru garments and
postponing the colour choice and
finishing.
Offshore supply of finished
ecru garments with neck
attached, produced in advance
of peak demand.
Stock held at Stevensons.
Garments dyed and finished
on site with a lead time of 510 days.
Ecru stock produced off-shore offseason so helping to smooth
capacity demands on suppliers.
Stock finished to order in line with
demand and replenishment lead
time. Reactive capacity needed to
at Stevensons to meet peak sales
demands or hold finished stock.
No intermediate pre-colour
inventory buffering opportunity.
This together with extended lead
times result in the need to make to
finished stock with high levels of
demand uncertainty.
Table 2 interprets the transitions further in terms of the key constructs in relation to the order winning
criteria. The table shows the impact of the system developments on the buffering mechanisms.
Table 2 Summary analysis (the number of „ √‟ represents relative weighting of buffer choice before and
after the related case transition)
Order winners
(Hill, 2000)
Case study
Delivery system
Stevensons
- before
- after
- offshore only
-Hybrid
- offshore
- onshore
5.1
Replenishment
Lead time
Demand
Variation
& (uncertainty)
Internal
Process
Variation
Buffering
Mechanisms
Price (P)
Delivery speed
(DS)
Long
Short
Mixed
High
Low
Batch size
Forward
load
Inventory
Capacity
P/DS
Short
Mixed (Low)
Medium
√
√√
√
P/DS
Long
Mixed (High)
Large
√
√√√
P
DS
Long
V Short
Low
High
Large
Small
√
√√
√
√√
Fisher‟s Model (1997)
Figure 8 illustrates how the case can be graphically related to the model. Prior to supply
moving offshore the colour choice lead time was relatively responsive at 6 weeks (lower right
segment). With the moving of supply offshore the colour choice lead time increased to 20
weeks. This effectively positioned the supply in the top right mismatch zone. Although this is
not necessarily inefficient it is certainly unresponsive. Figure 8 shows how the postponement
strategy can be represented in the model. Figure 8 specifically shows the ecru garments being
produced offshore under stable demand conditions (top left) and finished on-shore with a
responsive supply chain (bottom right). In this way the Fisher model effectively represents the
trade-off implications and the opportunity to operate separate strategies in the same supply
chain through postponement.
Responsive supply
chain
Efficient Supply
chain
Functional Products Innovative Products
Match
Ecru garments
produced offshore
Mismatch
Mismatch
Offshore
supply option
Match
Finishing of
ecru garments
at Stevensons
Figure 8 repositioning the supply chain alignment via garment dyeing (source Fisher, 97
modified)
5.2
Lee model (2002)
This model does not attempt to convey the mismatch implications of misalignment as
graphically as Fisher‟s model, but can represent changes in supply uncertainty. The move to
offshore supply is represented by the arrow in Figure 9 indicating the increased supply
uncertainty. Moving the work offshore increased the supply uncertainty resulting in a shift
into the agile zone, however, this was not anticipated and adopted as a proactive strategy. The
opportunity for Stevenson to provide the „agile‟ capability provided a life line to Stevensons,
however, it would be only short term unless the fast response capability could be sold to meet
the demand uncertainty.
Supply uncertainty
Low
Demand Uncertainty
Low (Functional)
High (Innovative)
Efficient supply
chain
Agile supply
chain
High
Risk-hedging
Supply chain
Responsive supply
chain
Figure 9. Moving from responsive to agile
(Source: Lee, 2002, p114) modified
5.3
Stratton model (2008)
The above models can be used to convey the need to consider the position on the matrix and
the general nature of the supply chain strategy choices. However, these models have limited
practical value in supporting management in the development of unique solutions to meet the
changing business need. The VUB model attempts to go one stage further by emphasizing the
direction of improvement but also the need to realign any change in the level of variation and
uncertainty across demand or supply using common constructs. Table 2 highlights the need to
acknowledge the trade-off implications of the different buffering choices in relation to the
market priorities. All three generic strategies are apparent in the case study (Table 3).
Table 3 The Generic Strategies for Stevensons
Generic Strategies
Case study
GS1
Buffer the variation and uncertainty
Stevensons
Buffer stock of ecru garments
held at Stevensons.
Stevensons provides a
proactive capacity buffer for
dyeing and finishing (10 days).
Forward load off-shore manufacture
of ecru garments to avoid demand
peak
GS2
Reduce the variation and
uncertainty
Demand uncertainty
associated with colour
choice is reduced
through shortened lead time,
enabling replenishment to
consumption rather than
forecast.
Uncertainty of ecru garment
reduced due to aggregation
of demand by size and
style.
GS3
Separate or postpone variation
and uncertainty
Adopt garments dying process
to separate (postpone) colour
choice from garment
manufacturer.
Although these generic strategies are defined more specifically than Fisher‟s (1997) the
findings are in agreement regarding the need for the strategies to work together. We are,
however, still left with the question of how to support the creative process of identifying the
underlying strategic conflict and how to resolve it.
Figure 10 is a development on Figure 3 that helps link the model to the conflict resolution
diagram (Figure 11). This variant on the VUB model (Fig 10) focuses attention on the
underlying operations conflict which is represented in Figure 11 as D-D‟. This identifies the
underlying conflict as the tension between needing to placing orders early and late. The
conflict resolution diagram is completed by defining the corresponding requirements and the
common objective. Conflict resolution diagrams are an established means of systematically
resolving core conflicts by challenging the underlying assumptions (Stratton and Warburton,
2003; Stratton and Mann, 2003) and Table 4 shows how this assumption breaking process can
be linked back to the generic strategies.
Focus
Limiting operations trade-off
Clarify the conflicting requirements
GS 1
Buffer the
variation and uncertainty
choose and locate buffers
Reduce /
align
buffering
GS 2
Reduce the
variation and uncertainty
challenge the assumptions
underlying the conflict
GS 3
Separate or postpone the
variation and uncertainty
separate out the conflict
Fig 10 Variation and Uncertainty Buffer Model Extended to challenge assumptions
This development of the VUB model attempts to more dynamically link the management
issues with a process of enquiry that seeks to identify routes to satisfying the generic
strategies in a focused and coordinated way. Although the conflict resolution diagram is
widely used by management it has not been formally tested in this context to date.
Assumption:- Pipeline delay cannot be reduced?
- Supplier demand needs to be level scheduled?
Requirements
Prerequisites
Objective
A
Maximise
Business performance
B
Minimise unit
production cost
(via remote low
cost suppliers)
C
Assumption:
Satisfy
Volatile
-There is no possible
Sales Demand
advanced information?
D
Order early
to long-term forecast
Apply
separation
principles
D‟
Order late
to short-term forecast
Assumption:- The resulting fluctuations
cannot be effectively protected by inventory?
Figure 11 The Stevenson case supply cloud
from the retailers perspective
Strategically limiting
operations trade-off
requirements
explicit conflict
B &C
(D versus D‟)
Minimise unit
production cost (via
remote low cost
suppliers)
and
Satisfy uncertain
sales demand
Orders early to
long-term
forecast
.
Versus
Order late to
short-term
forecast
Reduce the underlying variation
and uncertainty
(challenge underlying
assumptions)
Separate or postpone the
variation and uncertainty.
(separate out the conflict)
(D-D‟)
Buffer variation and
uncertainty using forward
load, inventory and
capacity buffers
(challenge buffering
assumptions)
(Assumption C-D‟) - because the
casting specification cannot be
released early
Separate conflicting
requirements on condition
(standard from special)
Separate in time the release of
the casting specification
(Assumption B-D) –
because reserving capacity
is not feasible
(Assumption A-C) – because no
advanced sales data is available
Separate upon condition:
fashion products from basics.
Separate in time: early and
late orders
Separate in space off-shore
and on-shore manufacture
Separate the whole from the
part: Garment manufacture
separated from the
colouring process
(Assumption C-D‟) –
because uncertain demand
cannot be effectively
buffered by finished stock.
(Assumption B-D) – because
transportation lead time is long.
(Assumption C-D‟) – because
order must be produced as one
batch.
(Assumption A-C) – because all
the demand of all products is
unpredictable
Table 4 Linking the breading of assumption to generic strategies (Stevenson case)
(Assumption B-D) –
because there is no means of
postponing the colour
choice.
(Assumption C-D‟)- because
shortage and markdown
costs are excessive
Conclusion
Although only one case is reported here the longitudinal study provided extensive detail and
depth that identified the importance of the key constructs of uncertainty, trade-offs and
buffering mechanisms (capacity, inventory and forward load). The case clearly illustrates the
implications of strategic changes, the impact on the decoupling points and the distinct
strategies before and after the customer order penetration point. The case effectively
illustrates how the three supply chain strategy models are broadly consistent but provide
different insights. The VUB model builds on the earlier models by focusing on the need for
management to creatively resolve trade-off conflicts. The process of resolving such trade-offs
has been shown to comprise the three generic strategies but the challenge is in creatively
tailoring these strategies to meet dynamic business needs. The process of explicitly defining
the underlying conflict provides a means of framing and systematically challenging the
underlying assumptions in realigning the buffer choices.
References
Christopher M and Towill D (2001) “An integrated model for the design of agile supply
chains”, International Journal of Physical Distribution & Logistics Management, 31 (4), 110.
Cooney R (2002) “Is „lean‟ a universal production system? -Batch production in the
automotive industry”, International Journal of Operations & Production Management, 22
(10), 1130-1147.
Deming, W.E. (1986), Out of the Crisis. Cambridge, MIT, MA.
Eisenhardt, K.M. (1989), “Building Theories from Case Study Research,” Academy of
Management Review, Vol.14, No.4, pp. 532-550.
Feitzinger, E. and Lee, H.L. (1997), “Mass customization at Hewlett-Packard: The Power of
Postponement,” Harvard Business Review, January-February, pp116-121.
Ferdows, K. and De Meyer, A. (1990), “Lasting improvements in manufacturing
performance: in search of a new theory,” Journal of Operations Management, Vol.9, No.2,
pp168-184.
Fisher, M., Hammond, J., Obermeyer, W., and Raman, A. (1997), “Configuring a supply
chain to reduce the cost of demand uncertainty,” Production and Operations Management,
Vol.6 No.3, pp211-225.
Fisher, M.L. (1997), “What is the right supply chain for your product?,” Harvard Business
Review, March-April, pp105-116.
Ford, H. (1926), Henry Ford – Today and Tomorrow, Productivity, Portland OR.
Gunasekaran, A. and Yusuf, Y.Y. (2002), “Agile manufacturing: a taxonomy of strategic and
technical imperatives,” International Journal of Production Research, Vol.40, No.6, pp 13571385.
Fuller J B, O‟Conner J and Rawlinson R (1993), “Tailored Logistics: The next advantage”,
Harvard Business Review, May-June, 87-98.
Handfield, R.B., Melnyk, S.A. (1998), “The Scientific theory-building process: a primer using
the case of TQM,” Journal of Operations Management, Vol.16, pp 321-339.
Hill, T. (1985), Manufacturing Strategy, Macmillan Education, London.
Hill, T. (2000), Manufacturing Strategy-text and cases. 2nd Ed. Palgrave, London.
Hoekstra S, Romme J & Argelo S M (1991), Integrated Logistics Structures: Developing
Customer-oriented Goods Flow, London: McGraw-Hill.
Lee, H.L (2002), “Aligning supply chain strategies with product uncertainties”, Calefornia
Management Review, Vol. 44 No. 3, pp. 105-120.
Lowson R (2001), “Analysing the effectiveness of retail sourcing strategies”, European
Management Journal, 19(5), 543-551.
Lowson, R., 2003. Apparel sourcing: assessing the true operational cost. International Journal
of Clothing Science and Technology, 15 (5), pp335-345.
Melnyk, S.A., and Handfield, R.B. (1998), “May you live in interesting times…the
emergence of theory-driven empirical research,” Journal of Operations Management, Vol.16,
pp311-319.
Miles, M. B., and Huberman, A.M. (1994), Qualitative Data Analysis, 2nd Ed, Sage, London.
Naylor, J.B., Naim, M.M. and Berry, D. (1999), “Leagility: integrating the lean and agile
manufacturing paradigms in the total supply chain,” International Journal of Production
Economics,Vol. 62, pp.107-118.
Ohno T (1988), The Toyota Production System; Beyond Large-Scale Production, Portland,
OR: Productivity Press.
Olhager, J., 2003. Strategic positioning of the order penetration point. International Journal
of Production Economics ,85 (3), pp319-329.
Pine BJ, Victor B and Boynton AC (1993), “Making Mass Customisation Work”, Harvard
Business Review, Sept-Oct, 108-119.
Schmenner, R.W., and Swink, M.L. (1998), “On theory in operations management,” Journal
of Operations Management, Vol.17, pp 97-113.
Skinner, W. (1969), “Manufacturing-missing link in corporate strategy,” Harvard
BusinessReview, May-June, pp 136-145.
Skinner, W. (1974), “The Focused Factory,” Harvard Business Review, May-June, pp 113
21.Review, May-June, 136-145.
Stratton R and Mann D (2003), “Systematic Innovation and the underlying principles behind
TOC and TRIZ applied”, Accepted by the Journal of Materials Processing Technology.
Stratton, R. and Warburton R, 2003. The strategic integration of lean and agile supply.
International Journal of Production Economics, 85 (2), pp183-198.
Sun, S., Hsu, M, and Hwang, W., 2009. The impact of alignment between supply chain
strategy and environmental uncertainty in SCM performance., Supply Chain Management –
an international journal, 14/3, pp 201-212
van Hoek R I, Harrison A and Christopher M (2001), “Measuring agile capabilities in the
supply chain”, International Journal of Operations & Production Management, 21 (1/2), 126147.
Voss, C., Nikos, T and Frohlich, M. (2002), “Case Research in Operations Management,”
International Journal of Operations and Production Management, Vol.22, No.2, pp 195-219.
Waller, M.A., Dabholkar, P.A., and Gentry, J.J. (2000), “Postponement, Product
Customisation and Market Orientated Supply Chain Management,” Journal of Business
Logistics, Vol.21, No.2, pp133 -159.
Womack, J.P., Jones, D.T, and Roos, D. (1990), The Machine that Changed the World,
Macmillan, New York.
Womack J P and Jones D T (1996), Lean Thinking-Banishing Waste and Creating Wealth in
Your Corporation, New York: Simon and Schuster.
Yin, R.K. (1994), Case Study Research, 2nd Ed., Sage, London.
Zinn, W., and Bowersox, D.J, (1988), “Planning physical distribution with the principle of
postponement,” Journal of Business Logistics, Vol. 9, No.2, pp117-136.