Managing demand uncertainty and resolving the trade-off implications of global supply

The reduction of wasteful variation within the supply chain is naturally suited to high and stable volumes, as epitomised in the lean practices of the automotive industry. However, with the growth of products characterised by lower volumes and uncertain short-lived demand, it is also important to develop strategies to effectively manage the externally imposed variation resulting from volatile markets. Such strategies often come under the banner of quick response or agile supply. The distinction between lean and agile supply highlights a trade-off between investing in responsive capacity and protective inventory, which is closely related to the conflicting manufacturing tasks of fast response and low cost. The implications of this conflict have been more widely felt in recent years, as companies have opted to outsource manufacture to low cost overseas suppliers. The rationale is to reduce manufacturing costs, but the trade-off is a dramatic loss of responsive capacity with the consequent higher dependency on protective inventory. As with lean and agile supply, the trade-off implications of such choices need to be acknowledged, conceptually understood and then separate out, or otherwise resolved. This paper practically illustrates the business need, before exploring the significance of variation and the associated concepts of protective inventory and responsive capacity. These concepts will then be used to unpack the lean and agile paradigms before applying the thinking to a specific industrial case concerning offshore supply.