Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.3.4 Target Area Flexibility: Investments in Enabling Organizations, Processes, and Basic Technologies

Intended learning outcomes: Present flexibility, agility and different aspects thereof. Differentiate between short, medium and long term potentials developed by agile companies. Describe various enabling information technologies allowing worldwide running order coordination.


Flexibility is the capability to adapt to new, different, or changing requirements [MeWe18].

This general term is variously defined and used in the literature on logistics, operations, and supply chain management. In any case, however, it refers to making appropriate investments to proactively build up certain potentials for better fulfillment of objectives in the target areas of quality, costs, and delivery in future and thus to achieve future benefits. Figure 1.3.1.1 shows three specific kinds of flexibility that have proved to be important in this target area.

[APIC16] distinguishes six categories of flexibility: mix flexibility, design changeover flexibility, modification flexibility, volume flexibility, rerouting flexibility, and material flexibility. [Gots06] provides a comprehensive list of kinds of flexibility. [WiMa07] introduces changeability as a general con­cept; other concepts, including transformability and flexibility concepts, fall under the general concept as specializations. In Figure 1.3.4.1 specializations of changeability are assigned to the various levels of the product and productions systems within a factory and its surrounding field.

Fig. 1.3.4.1        Classes of changeability within a factory and in its surrounding field (according to [WiMa07]).

Aspects of flexibility that describe the company, network, or supply chain as a whole are adjectives like lean, agile, adaptable, changeable, resilient (see [Shef07]). The examples that are given for these terms are all quite similar and are now discussed using the term agility.

Agility is defined in [MeWe18] as ability to move; dexterity. Agile manufacturing refers to the building up of poten­tials or scope (or “play”) in the right place at the right time and in the right amount. Agile companies are companies that apply the principles of agile manufacturing to all areas in their organizations.

Increasingly, the buyer’s market demands personalized production even of consumer goods. The product is ever more frequently defined in direct inter­action with the customer. At the same time, clearly identifiable market segments dis­appear. Brand names serve increasingly to reflect the personality of the customer instead of providing a function as they used to do.

Agile competitors [PrGo97] understand how to remain competitive by means of proactive amassing of information, knowledge, know-how, and competency. 

Agile companies develop potentials and play or slack in the supply chain that the end customer might not pay at the moment. In the long term, though, these potentials allow opportunities to be seized or supply chain risks (see Section 2.4) to be reduced. Examples:

  • Short term: Formation of parallel management of orders and running order coordi­na­tion in the supply chain linked by pull logistics (see Section 4.2.1); establish­ment of overlapping activities in part-processes to coordinate push logistics (see Section 4.2.2). Each of these makes possible rapid business processes of high quality
  • Medium to long term: Building a staff capable of qualitatively flexible work assignments by means of training qualifications and coordination in groups; setting up a production infrastructure that can be implemented flexibly. Both measures lead to flexibility in the use of resources.
  • Medium term: Building over­capacity or quantitatively flexible capacity and/or inventories, allowing a response to unplanned demand or shifts in demand with short delivery lead times. In the production of capital goods, capacity measures that reduce ordering deadlines take precedence.
  • Medium term: Development of competency in proactive service. The maker gathers “life data” on the product. By evaluating this data, he is able to recog­nize changes in customer demands. The maker can proactively offer an upgrade or new product, before the customer is aware of need. In this way, the maker sells to the customer a solution rather than a single product. The customer feels cared for (total care).
  • Long term: Development of know-how and methods to develop and manufacture products in manifold variants. This knowledge allows flexibility in achieving customer benefit. The maker is able to give positive answers to customer requests at crucial moments, which increases bid proposal and order success rate.
  • Long term: Developing know-how for supply chain changeability, e.g., know-how in reconfigu­ring the supply chain. This knowledge also com­pri­ses the flexibility to enter as a partner in supply chains. Accor­ding to the product, departments take on a new structure and coo­perate with other organizations. Thus, for example, a company can become a partner of a virtual enterprise at the right moment.

Automation with broad implementation of enabling information technologies allowing worldwide running order coordination supports agility. Here are some examples:

  • Protocols, that is, a set of rules for defining formats for data transfer: In the manufacture of cars or airplanes, the partners repre­sent their business objects in a standardized form. They developed special standards of EDI,[note 117] among others, IGES (later STEP, for engineering purposes), and EDIFACT[note 118] with its variati­ons (Odette in the automotive industry, for example) for order pro­cessing. There are also various Internet protocols, such as VoIP (Voice over Internet Protocol) or file transfer protocols (FTPs) and XML. The electronic signature also belongs to this domain.
  • E-commerce to conduct business via electronic transfer of data and documents: e-mail, Internet, company-internal intranets, trans­corporate extranets, and electronic communities, that is, communi­ties of people who communicate only electronically.
  • Business-to-business commerce (B2B) / business-to-consumer sales (B2C): Busi­ness via the Internet between companies or with consumers. For example, in jeans or shoe stores, customer measurements are taken and transmitted directly to produc­tion. Later, the customer receives the finished, made-to-order product. Or, customers may configure specific insurance policies via the Internet. They type in the desired parameters, which they may vary according to need. See here also [MaSc04].
  • Automatic identification and data capture (AIDC) is a set of tech­nologies that collect data about objects and send these data to a com­puter without human intervention. Examples are the RFID tech­ni­que, bar code scanners, badges. See Section 15.3.4.
  • Tracking and tracing: Transport companies supply the customer with information on the location of their deliveries via the Inter­net and the World Wide Web. This is enabled through self-identification of goods by means of attached transponders, e.g. an RFID sensor.
    ERP and SCM software are used to describe software for informa­tion systems within and across companies. For details, see Section 9.2. In the example of pro­acti­ve service mentioned above, automobile manufacturers have access to the product and service data bank of their customers via service centers.
    Supply chain event management (SCEM): Suitable SCEM soft­ware allows the users of an application to mark the occurrence of events in the supply chain and to create event alerts for notification or action in other applications. In this way, business processes such as procurement, production, and delivery can be monitored. SCEM can then also be used for business intelligence applications, for example when unexpected events occur. Another utilization is the direct transmission of order data to control processes (such as in machines).


Course section 1.3: Subsections and their intended learning outcomes

  • 1.3 Strategies in the Entrepreneurial Context

    Intended learning outcomes: Differentiate between various entrepreneurial objectives in a company and in a supply chain. Explain resolving conflicting entrepreneurial objectives. Describe the customer order penetration point (OPP) and the coordination with product and process design. Produce an overview on the target area flexibility: investments in enabling organizations, processes, basic technologies, and technologies toward personalized production.

  • 1.3.1 QCDF — Entrepreneurial Objectives in a Company and in a Supply Chain

    Intended learning outcomes: Produce an overview on company performance, or supply chain performance. Identify entrepreneurial objectives affected by logistics, operations, and supply chain management in the target areas of quality, costs, delivery, and flexibility (QCDF). Describe target areas in supply chain performance across companies.

  • 1.3.2 Resolving Conflicting QCDF Objectives

    Intended learning outcomes: Produce an overview on the supply chain strategy and the business plan. Explain opportunity, opportunity cost, and the potential for conflicting QCDF objectives. Present terms such as return on net assets, net income, profit after tax, net working capital, and primary entrepreneurial objective. Disclose the objective of a supply chain initiative (SCI).

  • 1.3.3 Customer Order Penetration Point (OPP), or Customer Order Decoupling Point (CODP), and Coordination with Product and Process Design

    Intended learning outcomes: Explain the determination of the (customer) order penetration point, or customer order decoupling point, and the stocking level. Describe the modular product concept, the concepts of customization and late customization as well as the postponement approach.

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