Lean supply chain – Is that always good
Take the case of cell phones, with the lead time to introduce a newer phone getting reduced the manufacturers are wanting to keep minimal inventory levels in the supply chain and hence reduce losses due to dead sales for the product. This leads to a make to order scenario.But, does this hold good in today’s highly dynamic market condition. Today’s market requires the manufacturer to keep sufficient inventory at every Point of Sale and avoid missed business due to product non availability. Even the lead time to introduce a competitive product with better features is decreasing by the day. As another example considering the Personal computer market, the consumers usually have similar requirements with standard configuration. So, as a customer unless my requirements are very specific, I would go for a product that essentially delivers with lowest lead time. It is for this reason that we see ‘Fast track laptops’ from Dell and similar from other vendors. Even in the consumer product groups like ‘Soap’, a customer would rarely wait for a typical soap to arrive on the shelf and move to a readily available brand.
The concept of Lean does not hold true in these cases. Though a company wants to have a lean supply chain at the ‘goods in process’ leg but at the same time it wants to have a ‘fat’ supply chain at the customers end. This means the business requires a hybrid system that caters to both push and pull. Pull in terms of having an agile system that responds quickly to any change in customer demands and Push in terms of maintaining sufficient inventory at the end of the system to be able to push sales by minimizing the losses due to non availability of product.
This puts up one question - what happens in the case when the demand of the product ceases due to the introduction of a rival product? This would lead to a lot of dead inventory in the stock. I feel that the answer lies in the concepts of agility, reverse logistics and modular engineering. A high degree of agility would not only give more visibility and effective supply & demand management but also allow the management to keep track on the Inventory and the obsolescence of its products. The quick response across various points also leads to a higher customer relationship focus. But the question still remains. One still needs to take care of the inventory, which has a high degree of susceptibility to being obsolete. It is here that Reverse logistics comes into the picture. It would help in planning for the effective reuse, sale of the surplus and even disposal of these products. It will typically start from the Point of Sale and end at the point of manufacture / origin / disposal. This process would primarily help in clearing the shelf space for the new products, tend to minimize the losses due to no sale and also enable to create an effective system for reutilization of these products. To complement the process of Reverse logistics the manufacturers should also look into the aspect of Modular engineering. This means the product design be as modular as possible leading to higher reusability of the components in the event of a product getting isolated. As an example a Desktop computer should be created as modular as possible so that in the event of the configuration getting obsolete it could be deassembled and the reusable parts be put to a better use.
A typical depiction of the model described above would be as follows:
Is this system viable? How would such a system be designed? What are the business complexities involved? Do let me know your thought process and comments on these.