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Agility for Success
Sumit Dutta
Partner – McKinsey & Company
Automotive Supply Chain Conference - 27th August, 2012
Organized by CII Institute of Logistics
Trends & discontinuities
affecting auto supply chain
Agility for success
Cross functional agility to drive an
agile organization
Implementing agility
McKinsey & Company
| 1
Sharpening of megatrends driving industry supply chain
NOT EXHAUSTIVE
Key trends driving auto supply chain
Example
1
Increasing
service
requirement
Increasing need for convenience
features, drive towards just in time /
sequence delivery
2
Global
production
and supply
networks
Toyota has 29 assembly sites across 22
countries, Tier-1 suppliers across 3
continents and 15+ countries
3
Reduced
value
creation by
OEM
4
Increasing
complexity
SOURCE: McKinsey
Evolution of the Automotive OEMs global profit pool by geography
$ bn, 2006-15E
BRIC
Europe
North
America
Japan
and Korea
48
Restructuring
53
Partnership
55
39
25
3
9
-10
2006
07
08
09E
2010E
Bear
case
Base
case
Smart
consolidation
Declining global profit pools post
financial crisis, 2015 base case estimate
profit pools to be at <80% of 2007 levels
2015E
Number of car variants have increased
to 2X over the last 5 years
McKinsey & Company
| 2
Unforeseeable risks have increased in frequency and intensity
▪
Unexpected
changes in demand
▪
▪
Increased demand
for customization
As uncertainty rises …
▪
▪
Price volatility
Natural disasters
▪
Political unrest ▪ Adverse weather
Non-economic
Value stream
No. of disruptive events
Probability of steel price change
Before 2000
2000-2005
After 2005
Supplier insolvency
Climatic catastrophes
Meteorological events
Hydrologic catastrophes
Geophysical events
1,100
1,000
900
+3% p.a.
800
700
600
500
400
300
>20
10
5
2
0
-2
-5
<-20 -10
Monthly price change In percent
Credit availability
Exchange rate
fluctuations
Macro/regulatory
0
82
84
86
88
90
92
94
96
98
2000
02
Global interconnectedness
(1990-2011)
Index
S&P 500
(1990 to 2011)
Index
Volatility
500Volatility
S&P
Toyota assembly sites and suppliers
interconnectness
Global to
disruptive events (3 yrs)
exposure
90
04
Final assembly sites
2010
08
1990-2010
<1990
06
of disruptions
Examples
Disruptive event
in the last 3 years
Assembly sites, 2010
Assembly sites, 1990
15+ Tier 1 suppliers
80
3-15 Tier 1 suppliers
70
1-2 Tier 1 suppliers
60
50
40
New Normal
30
Average: 18.6
Stdev : 5.9
10
Greater opportunities for
agile companies to
capitalize on
uncertainty
SOURCE: McKinsey Agile Operations
▪
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0
1993
Trade protectionism
Average: 22.0
Stdev : 9.4
Old Normal
20
1992
Euro crises impact
1991
▪
▪
100
1980
1990
▪
▪
200
Global supply and demand networks amplify
and transmit changes at unprecedented pace
McKinsey & Company
| 3
Executives feel unprepared to deal with the risks associated
with growing uncertainties
Leaders
recognize…
“Disruptions
to supply
chains can
adversely
impact
growth and
productivity”
“…need to
be ready to
cope with
externallyimposed
crises…”
– Carlos
Ghosn
However, supply chain
BCM is still immature
Executives are inadequately
prepared to manage risks
▪
Preparedness gap index
(10 = unprepared; 0 = well prepared)
▪
▪
15% not reviewing their
business continuity plan
with key suppliers
Cost and availability
18% not seeking evidence of credit
of BCM arrangements
Supplier insolvency
8.5
7.0
50% not validating that
key suppliers business
continuity plans would
actually work in practice
Loss of customers
6.5
Currency fluctuations
6.0
Cancelled orders
6.0
How much should I
spend on supply chain
risk management and
on risk mitigation?
Regulation
4.5
Trade protectionism
Asset price volatility
SOURCE: Kevin Hendricks, University of Western Ontario, Vinod Singhal, Georgia Institute of Technology
July 2009 Lloyds 3600 Risk Insight and Economist Intelligence Unit
2.0
0.5
McKinsey & Company
| 4
Normal / Very Important
Survey: Responding quickly to supply chain
disruptions is a top priority for organisations
Critical Importance
Top functional priority /
Top organizational priority
Organisational priorities in the coming five years
N = 22
Responding quickly to
supply chain disruptions
xx
5%
32%
Challenging cost
escalations
14%
23%
Increasing consumer
requirements
9%
32%
Driving product development to
balance cost and value
14%
Managing sales losses and
wrong inventory accumulation
23%
Optimizing a global
manufacturing foot print 2
33%
64%
3.9
64%
3.8
59%
36%
27%
19%
Average rating
3.9
50%
3.6
50%
3.5
48%
3.2
1 Rating scale: 1 – Normal Importance -- 2 Very Important -- 3 Critically important - 4 Top priority for the functional leader -- 5 Most important priority for
the organization
2 Excludes respondents who did not respond to the question
SOURCE: Survey of participants of Automotive Conference, Delhi 2012
McKinsey & Company
| 5
Select themes are important for automotive supply
chains to respond better to business necessities
1
SCM flexibility and agility
for market uncertainties
NOT EXHAUSTIVE
Main focus
of the
document
Cost innovation for tier 2/3
2
market penetration
3
Cracking the code on
outsourcing
4 Managing global disruptions
SOURCE: McKinsey
McKinsey & Company
| 6
Current trends impacting
automotive supply chain
Agility for success
Cross functional agility to drive an
agile organization
Implementing agility
McKinsey & Company
| 7
Volume volatility severely impacts enterprises – Agility
critical to manage business cycles
Development of volume demand
Actual
Index – units per year
▪
▪
▪
Volume faster
than forecast
Growth
challenge
▪
Back on same
levels as
before crisis
COMMERCIAL
VEHICLE
MANUFACTURER
Forecast
How to
prepare for the
next downturn
+70%
volume
12-18 months
100%
▪
▪
2006
07
SOURCE: McKinsey Agile Operations
Volume
drop
in 4-6 m
▪
Start of
financial crisis
08
09
10
5 to 1shift with
4 days of
productio
n
11
▪
New
financial
crisis ?
12
2013
McKinsey & Company
| 8
Demand
Capacity
Agility critical for through-cycle success
xx
India Actual 1
903
518
Indian auto
industry is
no exception
559
759
578
427
Preempt
▪
▪
Reduce
variability
Build
structural
agility
Detect
▪
▪
Create real time
visibility
Define targets
and triggers for
fast action
Respond
▪
▪
Outline “playbooks”
and trigger points
Teams with clear
decision rights &
capabilities to react
Capture advantage
▪
▪
Understand true
drivers of change
Gain competitive
advantage from
disruption
Capabilities and culture to deal with changes
Prioritized
uncertainties
Fully resourced
agility plan
Agility built in routine strategic
planning & business decisions
War
room
1 Actual CV sales (trucks & buses) in India from FY 06-07 to FY 11-12 in ‘000 units
SOURCE: McKinsey Agile Operations
McKinsey & Company
| 9
PREEMPT & DETECT – Some companies have developed good
practices to cope with unpredictable and rapid changes
Relevance
for Auto
Example
▪
Flexible
production
Agile
supplier
development
Flexible
assets
Quick
response
capabilities
SOURCE: McKinsey Agile Operations
▪
2-phase production to combat seasonality
(“Build to stock”; “Near just-in-time” for winter)
Allowed for lower inventory levels and less
risk throughout the year
▪
▪
Segmented manufacturing process
Implemented demand flow (e.g., at GE,
Boeing, Flextronics, etc.)
▪
▪
Standardized processes across all models
Quickened reactions to changes in mix
▪
▪
Implemented systems and infrastructure
Weekly reviews with top 35 global leaders
McKinsey & Company
| 10
RESPOND & CAPTURE – Agility can differentiate companies that
will struggle with volatility from those that profit by it
Example downside – Share price
declines by >50% within 18 months
Example upside – ~25 to 35%
savings from RM volatility
Mattel share price development1
Raw materials price development
100
80
60
1,500
0
01/07
▪
▪
▪
-58%
Feed
stock A
Feed
stock B
1,000
500
0
07/07
01/08
07/08
01/09
07/09
Lead paint discovered in toys;
Sourcing: non pre-approved supplier
Took long to detect the quality issue
2005
2006
2007
2008
2009
▪
Identified a substitute feedstock (B)
25% cheaper than the current (A)
▪ Feedstock B also used 10% less
volume in manufacturing process
Upside for Chemicals company
▪ Saved 25% of costs by switching
Downside for Mattel:
▪ Recalled ~3 mn toys, Paid $12 mn
settlement; 50% loss in market cap
Closer home, lesser than expected sales of Nano and labour unrest at
Maruti highlight the need for agility of OEMs and suppliers
1 Indexed: 100% = price on May 1st, 2007
SOURCE: McKinsey Agile Operations, Caijing Magazine, Datastream
McKinsey & Company
| 11
Current trends impacting
automotive supply chain
Agility for success
Cross functional agility to drive an
agile organization
Implementing agility
McKinsey & Company
| 12
Key to build agility across functions
Presented today
Examples of levers
Agile Organization
Capital
productivity
agility
Production
agility
▪1
Labor
flexibility
▪4
Asset
footprint
▪2
Ramp
up/down
capabilities
▪5
Asset
flexibility
▪3
Process
design
flexibility
SOURCE: McKinsey Agile Operations
Purchasing
agility
▪6
▪7
▪8
Supplier
selection ;
develop
Make or
buy;
Contracting
strategies
Risk
transfer
Product
development
agility
▪9
▪10
Modularizat
ion/
standardiza
tion/ late
differentiati
on
Diversified
R&D funnel
Planning
agility
▪11
Demand
shaping
▪12
Inventory
strategy
▪13
End-to-end
planning
▪14
▪15
Forecasting
War room
McKinsey & Company
| 13
Bridging demand forecast volatility and volume
flexibility in production planning can avoid lost sales
Capacity increase
Percent
Demand forecast
Long-term
investment
curve
Key question
▪ Which flexibility is required for
each component – based on
volatility in demand and time
for capacity increase
Short-term investment
High
Demand
volatility
2nd sourcing
Escalation
Banking/Pre-Production
Work organization (labor
flexibility)
Contracted flexibility, e.g., 10%
2 years prior
to production
SOURCE: McKinsey Agile Operations
EXAMPLE
Time
Finalization of Produplanning
ction
Low
Lo
w
High
Lead time to
capacity adjustment
De-stresses the supply chain
with removal of uncertainty
in capacities and aids in
setting up a ‘stable’ supply
chain
McKinsey & Company
| 14
Understanding component level flexibility
characteristics are critical to building production agility
EXAMPLE
Volatility exposure and reaction time
Inadequate
processes for
critical components
Volatility exposure index
Sensitivity towards mix-shifts
100
10
20
Component A
75
Component B
Component C
Component K
50
▪
Flexibility not
addressed in
supplier selection
▪
Late communication of changes
in volume forecasts
▪
No transparency
of spare capacities
at suppliers
▪
No active capacity
management
Component D
Component G
Component F
Component E
Component J
Component H
25
Component I
40
70
0
0
5
10
15
20
25
30
Technical reaction time (months)
Significantly impacts the ability of the supply chain to
▪ Respond to changing needs of production
▪ Actively plan for managing risks
1 Time to extend machine-capacity
SOURCE: McKinsey Agile Operations
McKinsey & Company
| 15
Agree / Strongly agree
Survey: Organizations are aware of
asset capacity and plan for asset agility
~65% of respondents believe
decision makers are aware of
manufacturing ability
Neutral
Disagree / Strongly disagree
xx
Average rating
~65% of respondents believe
the new assets are designed
for agility
N = 22
N = 22
Decision makers are
fully aware of the
capacities (including
limitations) of
manufacturing plants
based on various
scenarios (product
mix, demand pattern
etc)
The new assets that
are being planned
are designed to
improve agility
(through
standardization,
flexibility etc.) in
operations
64%
18%
64%
36%
18%
3.7
3.8
1 Rating scale: 1 – Strongly disagree -- 2 Disagree -- 3 Neutral - 4 Agree – 5 Strongly agree)
2 Excludes respondents who did not respond to the question
SOURCE: Survey of participants of Automotive Conference, Delhi 2012
McKinsey & Company
| 16
Examples
Flexible production systems to manage throughput,
model diversity and cost
Enhanced thruput
Improved Model Diversity
▪ Linking technology, ▪ Standardized processes
prod. development,
across models in the main line
and production
▪ Introduction of the “lineless
line” – cooperating robots
Flexible production
sequence
‘Lineless’ line
“Mobile Cells” at
BMW, Leipzig
Characteristics
▪ 1 platform follows
the next with no
retooling time for
setup
Characteristics
▪ Low changeover time
▪ Mobile cells can be
moved between
plants in 3 days
Characteristics
▪ Robots and products move
in rails
▪ Robots cooperate in
defined scope
Building flexibility
▪ Mobile cells for plants
▪ Investments in flexible
equipment
Flexible production systems key to maintain high customer service
levels, respond to changing market requirements and reduce lost sales
SOURCE: McKinsey Agile operations team, Press clippings; internet search
McKinsey & Company
| 17
Agree / Strongly agree
Survey: There is scope for improvement
in supplier management practices
~40% of respondents believe there are
gaps in supplier management practices
N = 22
There is
complete
trust based
transparent
professional
supplier
management
and
development
process in
my organization
Neutral
Disagree / Strongly disagree
xx
Average rating
~35% of respondents are not
confident of managing supply chain
risks
N = 22
64%
23%
14%
3.6
There is
complete
visibility on
supplier
capacities
and
constraints
(at least for
critical
products)
59%
There is
confidence
in the
organization 64%
to overcome
supply chain
disruptions
18%
32%
23%
5%
3.5
3.5
My
organization is
aware of
the supply
chain risks
and has
clear risk
management plans
68%
18%
14%
3.6
1 Rating scale: 1 – Strongly disagree -- 2 Disagree -- 3 Neutral - 4 Agree – 5 Strongly agree)
2 Excludes respondents who did not respond to the question
SOURCE: Survey of participants of Automotive Conference, Delhi 2012
McKinsey & Company
| 18
Organizations should follow professional supplier
development to build purchasing agility
Supplier performance
Reactive supplier
management
Supplier monitoring
Supplier
evaluation
Supplier
Improvement
Professional
supplier
development
Time frame
▪
Typically cost and
delivery time accuracy
▪ Criteria defined which A▪ Integrated scorecard with
A
require action in case
parameters tracked
of non- fulfillment only
▪
Supplier improvement
expected to be done
by supplier himself
▪ Selected, single
B
B▪ Ongoing supplier
supplier improvement
workshops in
workshops
improvement process
▪ Task force to solve
C
C▪ Professional supplier
key issues at suppliers
support center
▪ No sophisticated
D
D▪ Temporarily supplier
supplier incentives
incentives
Subsupplier
Management
SOURCE: McKinsey Agile Operations
E▪ Direct negotiation and
management of subsupplier
McKinsey & Company
| 19
Co-locating suppliers help build a agile supply chain
Industriepark Smartville,
Hambach, France
Further examples
TNT
Magna
Eisenmann
▪
▪
TKA
▪
▪
Bosch
▪
VDO
Sales
MCC
assembly
Dynamit
Nobel
▪
▪
Industriepark
Ingolstadt, Audi
Uniport
Proximity allows for more
efficient processes and short
distances
Especially leveraged for
variant parts and JiS delivery
SOURCE: McKinsey Agile Operations
Carcoustics
Delphi
Faurecia
Rehau
Röchling
Automotive
▪ ...
Frisia
Industriepark
Industriepark
Saarlouis, Ford Mosel, VW
▪ Benteler
▪ Johnson
Controls
▪ Lear
▪ Stadco
Saarlouis
▪ Saint-Gobain/
▪
▪
▪
▪
▪
▪
Brose
Faurecia
Tenneco
Peguform
Sachsentrans
...
Sekurit
▪ ...
▪
▪
▪
Visibility by co-locating suppliers
How will companies respond to
disruptions in tier – 2 suppliers?
Focus on alternate suppliers even if
primary suppliers are in parks?
McKinsey & Company
| 20
In the face of natural disaster, Chiquita increased its
revenue by 4%, while Dole´s revenue fell by 4%
Situation
In 1998, Hurricane Mitch
devastated Honduras
▪ 70-80% of transportation
infrastructure washed
away
▪ 80% of banana crop
destroyed
Alternative sourcing key to
Chiquita's success
Drop in sales
for Dole
Chiquita
increased sales
▪
▪
▪
Lost 70% of
their supply
Revenue fell
by 4% as lost
supply was not
replaced
▪
Increased output
from alternative
suppliers in
unaffected areas
Chiquita was
able to increase
its revenue by
4%
Reactivity of 2 banana
sellers in supply base
clearly separated
performance
SOURCE: A. J. Schmitt. Using Stochastic Supply Inventory Models to Strategically Mitigate Supply Chain Disruption Risk.
Logistics Spectrum, 2008 and EIU "Managing supply-chain risk for reward"
Ability of
purchasing
and supply
chain to
respond
quickly to
disruptions
and identify
alternate
options is
critical
McKinsey & Company
| 21
Cost differences drive selective outsourcing,
provided the service requirements are met
Cost differences…
drive outsourcing across the world
(per year, tsd EUR, Labor cost)
68
-40%
41
3PL is responsible for
▪ JiS delivery to assembly line
▪ Replenishment of picking stations
▪ Operation of warehouse storing
slow moving, low value parts
▪
OEM
3PL1
Complete logistics outsourcing –
3PL is resonsible for physical
handling, inspection and
replenishment of line
1 Considering additional overhead and required management resources
SOURCE: McKinsey Agile Operations, Press clippings
McKinsey & Company
| 22
Agree / Strongly agree
Survey: There are gaps in the process and
pace of product development
Neutral
Disagree / Strongly disagree
xx
Average rating
~50-60% respondents believe key product dev. processes are in place,
Only 30% believe their new product development practice takes the right time
N = 21
N = 22
N = 22
Our new
products are
developed
considering
standardizations / design
for manufacturability
There is excellent
cross functional
coordination
accelerating
product
development
Our new
product
development
takes the
right amount
of time
62%
50%
27%
50%
45%
33%
23%
5%
5%
3.5
3.5
3.0
1 Rating scale: 1 – Strongly disagree -- 2 Disagree -- 3 Neutral - 4 Agree – 5 Strongly agree)
2 Excludes respondents who did not respond to the question
SOURCE: Survey of participants of Automotive Conference, Delhi 2012
McKinsey & Company
| 23
Platforming used to adapt easily to the changes in
demand mix
Examples
Common platform
▪ Production, design
system that can flex
to the changes in
demand mix
FM
chassis
Adopting modularity
▪
▪
Increasing speed in current
structure
Flexible range & volume at
low cost
Simple, slim, and
speedy … we will
have more flexibility
than ever before..”President Toyota
Past
Nissan 350Z Murano
F
E
D
C
B
A
Today
Synergies
Infiniti FX
F
E
D
C
B
A
45% specific
25% modular
30% platform
F
E
D
C
B
Synergies
20% specific
60% modular
20% platform
Infiniti G35
Future
Infiniti M
A
50% specific
Synergies
50% platform
Modular production and common platforms by Indian players (e.g., ‘Yf/YJ’
platform by Maruti; ‘LC’ platform by Hyundai)
SOURCE: McKinsey Agile Operations
McKinsey & Company
| 24
Increasing parallelization is critical for building product
development agility, requires new practices to be successful
Mktg.
PD
Mktg.
PD
Mktg.
Mfr.
PD
Mktg.
PD
Mfr.
Mfr.
Mfr.
Sequential
design
Concurrency
between
functions
Concurrency
within
engineering
Maturity-driven
engineering
Information
characteristics
▪
▪
▪
▪
▪
TTM
potential
0
Sequential
Push
▪
Predominantly
sequential
Push
~ 20 to 30%
▪
Predominantly
sequential
Push
~ 40 to 50%
▪
Constant, bidirectional
exchange
Pull
~ 50 to 60%
Product development agility key to reduce time to market for new
products and accelerate value engineering projects
SOURCE: McKinsey Agile Operations
McKinsey & Company
| 25
Agree / Strongly agree
Survey: There is a disconnect in the
effectiveness of planning process
~50 – 60% respondents believe there
are gaps in key planning processes
N = 22
There is
complete
trust and
alignment
between
production,
sales and
procurement
functions
Neutral
Disagree / Strongly disagree
xx
Average rating
Yet, tend to believe there are no sales
losses or wrong inventory pileup
N = 22
36%
32%
There is a
robust
Sales &
Operations
planning
(S&OP)
process in
place
50%
The sales
loss in my
organization
is severe 2
41%
10%
30%
The levels
of 'wrong'
FG / WIP
inventory is
very high
27%
36%
60%
36%
32%
9%
3.1
3.5
2.1
2.8
1 Rating scale: 1 – Strongly disagree -- 2 Disagree -- 3 Neutral - 4 Agree – 5 Strongly agree)
2 Excludes respondents who did not respond to the question
SOURCE: Survey of participants of Automotive Conference, Delhi 2012
McKinsey & Company
| 26
Demand shaping enables a company to influence
customer decisions to smoothen operations
Concept and solution
▪ Customer preferences and demand
proactively influenced
▪
▪
Influences customers to
choose products in excess
supply, by changing default
choices on web site,
discounting, and
promotions
Pricing, price promotions,
strategic product placement key
levers
Result
▪
▪
Example
Orders matched to availability
Mix of products, volume/timing of
orders influenced to linear demand,
taking volatility out of supply chain
Customers perceive the supplier to
be flexible and reliable
SOURCE: McKinsey agile operations, Press clippings, internet search
Tire
manufacturer
Smoothens fluctuating
demand by discouraging
end-of-period promotions
Volume adjusted price to
Auto
suppliers capture runner products and
increase asset utilization
Helps in optimal utilisation of
assets and managing volatility
McKinsey & Company
| 27
Segmentation can result in substantial service level
improvement and inventory reduction
DRY GOODS
EXAMPLE
Segmentation of SKUs by volume and demand variability
1 High vol., low variability: Steady flow
Make to order, Low safety stock
Volume
1
2 High volume, high variability: Segment
forecast accuracy based on predictability
A: Predictable: Build to forecast
B: Unpredictable: Improve ability to react;
Make-to-order
2
3
4
0%
50%
100%
150%
200%
250%
Demand variability
Dramatic improvement in
service levels & inventory
▪ Service levels in high 90s
▪ Lead time reduced to days
▪ Inventory reduced by half
3 Low vol., low variability: Basic
replenishment
▪ Make-to-stock with small lots
▪ Minimize dependence on forecast
4 Low vol., high variability: Manage
complexity; Stock at semi-finished level,
build to order
McKinsey & Company
| 28
Improved forecasting enables an agile supply chain
by helping companies to anticipate variability
Concept and solution
▪ Use feedback to optimize forecasting
▪
Manual forecasting focused on
select products
▪
In cases of high volatility, use range
forecasts on economic benefit
Result
▪
▪
Early detection of changes
Example
Forecasts are
updated in real time
with product
performance,
outside factors
(e.g., weather), and
live stock levels
Use prediction
market approach
for forecasting
Resources released from fire-fighting
1 Prediction market – broad group of experts provide "wisdom of the crowd" in forecast
SOURCE: McKinsey agile operations, Press clippings, internet search
McKinsey & Company
| 29
Planning and collaborating with partners allows
end-to-end visibility and increased ability to adapt
Concept and solution
▪ Collaboration and visibility allows
coordinated and efficient responses
▪ Key enablers are planning capabilities
and tuned process execution
▪ Joint "burning platform" helps alignment,
Result
▪ Shared understanding in volatile situations
▪
▪
Reliable planning and scheduling
process with visibility and accountability
for all partners end-to-end
Coordinated efforts between functions
SOURCE: McKinsey agile operations, Press clippings, internet search
Example
Uses a web-based data
platform – “retail link” to
allow real-time
information sharing
with suppliers such as
item sales by hour
DSi2 system provides
real-time data across
global suppliers and
Dell factories for
planning and enabling
demand scheduling
McKinsey & Company
| 30
Boeing implemented a Production Integration Center
for managing development of its troubled 787
Situation
Concept and solution
▪
▪
▪
787 delayed by 2 years
Globally dispersed
supply base unable to
fulfil responsibilities
Implemented an operations center to monitor
global production among all of Boeing's suppliers,
Example
Features of center
Operation
▪ Inspired by other 24/7 ▪ Central video screen displays
centers (NASA, 911)
global news, weather, earthquakes,
▪ Access to translators production issues with each supplier,
for 28 different
▪ Live video feeds from suppliers
languages
▪ Personnel from different functions
▪ Personnel works for a short-term
SOURCE: Seattle Post-Intelligencer; McKinsey agile operations
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Managing inventory placement enables reacting
to demand changes both globally and locally
Concept and solution
▪
Design network, balancing benefits of
centralized and decentralized network
▪
▪
Define inventory policy
Ensure flexibility of inventory levels to
be able to react quickly to
upturns/downturns (driven by flexibility of
production and suppliers)
Example
▪
Centralized
distribution center
replenishes all stores,
delivery from center
to store takes 24-48
hours
▪
Reacted quickly to
reduce inventory
levels upon downturn
by reducing lot-size,
segmentation
▪
One multi-country
inbound/ source
consolidation center
Chemical
company
Result
▪
Ability to meet customer demands, both
locally and globally despite shifts in
volumes, product and geographical mix
▪
Ability to react to upturns/downturns
effectively
SOURCE: McKinsey agile operations, Press clippings, internet search
Minimises time to market and
respond to changing needs
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Global consolidation and optimization of regional
demand helped VW face increasing need fragmentation
Situation
Concept and solution
▪
Global consolidation, optimization of
regional demand
▪
▪
Companies acting
more globally
A
Distinct and
more and more
fragmented
customer needs
in each country
Engineering
capacities not
suited to manage
complexity and
a growing product
portfolio
Transparency
current portfolio
Regional
product pricevolume curve
B
Consolidate
global portfolio
Module
strategy and
roadmap
▪
Consolidation
of demand
curves
▪
Iterative
process to
determine level
of local
adaptation
▪
VW Polo India
as locally
produced and
less equipped
car to meet
local needs
Module
Example
“Polo India” from VW
VW Polo
~12,300 EUR
VW Polo India
~7,000 EUR
1 Polo India (released 2009) without airbags, lower interior quality, and partially exchanged components;
sourcing target of 70% from local suppliers
SOURCE: McKinsey agile operations, Press clippings, internet search
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Lean fulfilment/replenishment concepts enable
a quick response to changes in demand
Concept and solution
▪
Frequent planning cycles, steady
flow production
▪
▪
Minimal administrative time delay
▪
Systems, organization, and
mindsets support quick changes
A "fast track" allows speeding
urgent orders through the supply
chain when the need arises
Result
▪
A fast replenishment structure
allows quick response to changes
in demand
SOURCE: McKinsey agile operations, Press clippings, internet search
Example
With a frequent
replenishment structure,
Coca Cola has less than 3
weeks of inventory
Synchronization of
production with Tesco's
requirements minimized stock
holdings throughout the chain
and led to dramatic service
level improvement
Different processes for
different products allow for
dramatic reduction in lead
time
Helps companies manage costs and
reduce non-value adding capital
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Current trends impacting
automotive supply chain
Agility for success
Cross functional agility to drive an
agile organization
Implementing agility
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Agree / Strongly agree
Survey: Organizations believe agility is critical,
however realize they are under prepared
Respondents believe agility
in business is critical…
Neutral
Disagree / Strongly disagree
xx
Average rating
However realize organizations are underprepared today
N = 21
N = 22
It is very important to plan,
design and build agility (Ability
to build the organization for
quick response) in business
My organization has built / clear plans to build
agility across functions
86%
14%
Agility is
important
4.2
55%
43%
27%
43%
18%
14%
64%
68%
27%
9%
18%
14%
77%
9%
14%
Production Capital
Product Purchasing Planning
asset 2 development
3.5
3.3
3.8
3.7
3.9
1 Rating scale: 1 – Strongly disagree -- 2 Disagree -- 3 Neutral - 4 Agree – 5 Strongly agree)
2 Excludes respondents who did not respond to the question
SOURCE: Survey of participants of Automotive Conference, Delhi 2012
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Building a holistic agility organization has not been treated as
priority because of misconceptions
Common misconceptions
Our core beliefs
Why leaders put off becoming agile
Agility is easier than what is thought
▪
I’m not sure I could define agility
or its value to my team
▪
Agility has a measurable benefit and
it is a strategic game
▪
It will cost too much
▪
Not all agility levers require a
cost/benefit trade-off
▪
It will take too long; It is too
overwhelming
▪
Start with a short-list of priority
uncertainties
▪
Functional improvements is ok
▪
Cross-functional operations key
▪
I just trust my teams on the
ground to do the right things
▪
Majority of managers lack agile
leadership skills and mindsets
▪
It's all about how quickly you
react anyway
▪
Preparation defines the degrees of
freedom
SOURCE: McKinsey Agile Operations
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Agility should be built following a four step approach
▪
▪
▪
Awareness &
assessment Understand
exposure to
uncertainties
Identify,
prioritize
sources of
uncertainty
Establish
infrastructure to
institutionalize
agility
Design an
adaptive
management
infra-structure
SOURCE: McKinsey Agile Operations
▪
Assess current
agility in
prioritized areas
▪
Identify key
strengths and
gaps
▪
Identify levers
to address
uncertainties
▪
Develop
contingency
plans with
defined triggers
▪
Determine key
people required
1
Assess
current
agility level
4
2
Make
agile
operations
stick
3
Determine
where and
how to build
agility
“Anticipate what could
happen instead of reacting
to what has happened”
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