Subscribe to our free, weekly email newsletter!


Pearson on Excellence: Adaptable Structure—The essence of supply chain flexibility

By Mark Pearson
March 01, 2013

In this column—the third in a series of five articles focused on dynamic operations—we look at the role and importance of adaptable structure.

Think about how rapidly mergers, acquisitions, market shifts, economic upheavals, and other events can knock a company’s supply chain off balance. Almost overnight, arteries, people, and facilities may no longer be positioned to buy, make, move, or sell the right items in the right quantities in the right places. Change happens. But rigid supply chain structures don’t like change. An adaptable structure, on the other hand, embraces change.

Companies often respond to the above-mentioned shifts by adjusting their product designs. However, it can be far more difficult to achieve the process and system flexibility needed to also adjust your supply chain operations. This is the focus of adaptable structures. The most obvious example is flexible manufacturing: responding quickly to currency fluctuations, supply disruptions, or sudden demand shifts by altering manufacturing volumes, venues, and mixes.

In addition to flexible manufacturing, companies with adaptable structures may excel at hedging. These organizations are often able to rapidly assess the level of redundancy needed to mitigate supply chain risks. If risk is deemed too high, they can raise their investment in the flexibility of a particular node—procurement, manufacturing, distribution, etc.

Companies with adaptable structures also tend to leverage outsourcing as a cost-management mechanism and even a competitive weapon. The ability to turn fixed costs into variable costs is, in a very real sense, the epitome of flexibility.

Nissan is a good example of how adaptable structures can play a big role in today’s volatile business environment. As it was covered in great detail, 2011 was a tough year for Japanese automakers. Two natural disasters—the Japan earthquake and the Thailand floods—crippled production, while a strong Yen and increasing competition put extreme pressure on markets.

However, Nissan fared quite well. Following the earthquake, Nissan was the first Japanese car company to get back to business. And in the wake of the Thailand floods, Nissan was able to contain the issues locally, with global parts-supply operations hindered far less than those of many competitors.

Several innovations explain Nissan’s adaptability. One is that the company had carefully implemented a long-term strategy focused on rapid recovery during times of volatility. Cross-functional teams—led by the CEO and a chief recovery officer—were already in place to ensure continuity and manage adverse situations. Within days of the earthquake, the CEO and a risk management team visited the plant, surveyed the damage, and determined what should be done to regain normal operations.

Another innovation was Nissan’s global, low-cost “V” platform for vehicles in emerging markets. The V has allowed Nissan to extend its production base across the world—using standardized parts in different production facilities. When the Thailand floods hit, Nissan was able to swiftly re-source parts from China, thereby limiting production constraints to Thailand. Global operations were largely unaffected.

In the wake of Asia’s weather calamities, Nissan’s adaptable structure innovations helped the company sell more cars in the U.S., while its competitors dealt less effectively with production issues. Nissan’s Altima model did particularly well, outselling competitors and capturing the top position for several months. Nissan also posted strong sales in other regions such as China and Europe. And in Japan, Nissan suffered 2011 sales drops that were far less severe than those of most competitors.

Making it happen
Adaptable structure has a handful of cornerstones. But companies can often benefit by taking a far-reaching, multi-pronged approach:

  • Infuse a risk-management mindset throughout the company, instead of a risk-avoidance mindset.
  • Develop a variable, rather than fixed, cost structure on a node-by-node basis. At one company, it may be feasible to contract out some manufacturing operations, thus making it easier to scale or move production. At another organization, outsourcing might make more sense for post-sale service management than for manufacturing.
  • Launch flexible-capacity initiatives to ensure the ability to handle demand peaks and reduce costs during slow times.
  • Establish hedging strategies for critical components and supplies, and put appropriate backup plans in place.
  • Consider actual insurance policies for specific high-risk events.
  • Explore the use of shared services models.
  • Implement flexible pricing structures to rapidly align demand and supply.

Perhaps the easiest way to understand adaptable structure is to envision a supply chain environment in which products, processes, and systems are easily modified in response to changing conditions. This, in turn, could be one of the clearest paths to high performance.

About the Author

Mark Pearson

Mark Pearson is the managing director of the Accenture’s Supply Chain Management practice. He has worked in supply chain for more than 20 years and has extensive international experience, particularly in Europe, Asia and Russia. Based in Munich, Mark can be reached at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Lyon, France-based Norbert Dentressangle, a $5.5 billion global third-party logistics (3PL) services provider focused on global logistics, transport, ocean, and air services, said today it has acquired Des Moines, Iowa-based Jacobson Companies, a value-added warehousing (VAW) company, for $750 million from private equity firm Oak Hill Capital Partners.

Download the newly released research report, "Transportation Management Systems" conducted by Peerless Research Group (PRG) on behalf of Supply Chain Management Review and Logistics Management magazines. Learn what logistic experts are saying about their current supply chain technology infrastructures, how they tackle the transportation component, and revealed the gaps that still need to be filled in order to attain end to-end visibility of a streamlined supply chain.

From cost center to growth center. Get insightful opinions on changes in the marketplace from this independent survey of warehouse personnel. Motorola Solutions examined the current warehousing marketplace in our 2013 Warehouse Vision Report, conducted April-May of 2013.

Even though not all publicly-traded less-than-truckload carriers (LTL) have posted second quarter earnings yet, the early consensus for those that have issued results is looking very good.

The advance estimate for second quarter GDP at 4.0 percent could serve as a sign of a steadier and improving economy.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA