In the poultry supply chain, living chickens and perishable products are exchanged. Wings & Legs therefore not only have to take into account variations in demand, but also variations in supply. What information should flow downstream in the supply chain (to the poultry processors) so that Wings & Legs is able to match supply with demand in a better way?
How might Wings and Legs combine a lean and agile approach in its supply chain?
In order to undergo achieving the equilibrium of having the combination of both the lean and agile in approach to their supply chain, the company must follow certain steps. As Wings and Legs are dealing with perishable goods, they have to be efficient in their supply chain in order for it to work. The problems the company faces in the beginning are that there have been a decrease in sales and that the product quality has somewhat gone downhill. To eradicate the quality problem, Wings and Legs must ensure that their supply chain has the quickness and agility to get to the consumer while still fresh and in its best condition for eating.
To begin this, it is clear that the Sales management need to be in better and more frequent communication with the Operations and Purchases management to avoid disorganization, slow movement of product, and possibly even reduce production costs somewhere along the supply chain. It is possible to find a “happy medium” and a healthy balance between the two terms “lean” and “agile” to go towards having a successful supply chain. Although they are different requirements we can see that all the major and successful global companies have vast yet efficient supply chains which balance efficiency and low costs together.
With Wings and Legs, driving cost down is key to staying competitive within their market segment and keeping the supply chain at its leanest is how to do this. Cutting cost while keeping standards is of optimum importance to the longevity of the company. Leanness helps companies like Wings and Legs to do this. Wings and Legs are in a market segment whereby the demand for the product may fluctuate from day to day, week to week, year to year. To stay relevant in the marketplace, Wings and Legs must be agile.
They must be flexible in terms of being able to follow the trend of demand and react quickly to the changes in this demand. Developing an efficient and flexible supply chain can put companies like Wings and Legs in a prime position to gain market share and take advantage of the inconsistent demands of consumers. One method on how to achieve a successful combination of lean and agile in a supply chain is using the decoupling point. The decoupling point can be defined as “The point in the supply chain which provides a buffer between differing input and output rates”.
Overview of the Wings and Legs supply chain. Using techniques such as the decoupling point can help reduce lead times and production costs throughout the chain. Finding where exactly the decoupling point requires determining the balance between various costs such as storage and distribution, while maintaining customer service. The idea is by using the decoupling point a company can rely less on forecasting and focus on demand driven supply. The decoupling point is situated in between the order and supply forecasts and is the primary outlet of inventory from where consumers are delivered to.
These forecast driven activities are not determined by irregularities or trends in the market so they can be optimised to create the most efficient supply chain. There are two main factors that go towards deciding the actual point of decoupling- Product and Process. The product’s relationship with the market (i. e. delivery time/reliability) and the process of analysing stock characteristics like costs of production process and lead times are all variables which constitute the location of the decoupling point. If for example, there is a short required delivery time, the decoupling point will be closer to the consumer and vice versa.
There are a few different options regarding where the decoupling point may be. These are: Make and ship to stock, Make to stock, Assemble to order, Make to order, and purchase and make to order.
What are the relative merits of each possible position of the material decoupling point and of the information decoupling point? How do they relate to each other with respect to supply chain planning and control?
Wings & Legs produce a large assortment of fresh poultry products in many different variations and combinations. As an important characteristic of fresh poultry products is ‘product perish ability’ it is vital for Wings & Legs delivery reliability to be close to 100%. It is important for Wings & Legs also to manage their products closely when travelling through the supply chain to ensure each product receives the correct best before date and packaging. As demand uncertainty is high, the general manager discusses the option of implementing a decoupling point.
According to the Manager at Wings & Legs by using the material decoupling point and by delaying the point of product differentiation, it would help solve there current situation. There are three possible postponement options available to Wings & Legs.
- Situation 1: Current Situation The inventory buffer is placed before the packaging process begins, with strategic inventory taking place last. The merits of this process is that there is a decrease in waste from packaging and labelling . Placing the inventory buffer at the beginning and the inventory at the end also allows Wings & Legs a longer lead time.
- Situation 2: Postponing the labelling option The inventory buffer is placed before the packaging process begins with the strategic inventory taking place after packaging commences and before the labelling process. As the inventory buffer is placed before packaging there is a decrease in the loss of raw product.
- Situation 3: Postponing the Packaging Operation. Inventory takes place after the processing operation and the buffer is placed before the labelling process. As the strategic inventory is placed after packaging there is a greater chance of products losing their perish ability as they still have t be labelled before being sent off.
Merits of the Information decoupling point The information exchange within Wings & Legs supply chain need to be greatly improved . It is noted in the case study that the enhanced information exchange about past sales could benefit Wings & Legs and its supply chain. As Wings & Legs deals mostly with retailers it is critical that retailers exchange information about upcoming promotions earlier in the year. If demand information went further upstream to the hatchery, it would affect the whole supply chain, and Wings & Legs would be able to provide their clients with quality product .
Not only would Wings & Legs decrease their losses but the retailers would also. The Material decoupling point and the Information decoupling point By combining the material decoupling point and the information decoupling point Wings & Legs could plan their supply chain in a way that could meet forecasted demand more accurately . Discovering where to place the inventory buffer in the supply chain would result in a decrease in losses, increased performance, longer lead times and an improved quality of the finished product.
Also by working with the retailers and exchanging inf0rmation this would not only help improve the material decoupling point but would also relieve the stress put on management. Changes in Wings & Legs sales figures would come about very quickly by positioning the packaging or labelling process along with the improved exchange of information.
What are the advantages for the retail companies of exchanging more timely and more accurate information about promotions with Wings & Legs?
Retailers are now in more competition with each other than they ever were, not only in price but also in relation to product therefore to try and increase footfall and sales in their stores retailers will offer promotions. As noted in the case study Wings & Legs relationship has deteriorated with the retailers as a result of a lack of information about upcoming promotions in advance.
This has resulted in a breakdown in communication, meaning that Wings & Legs are failing to match the supply of chicken with demand. As Wings & Legs supply chain is strongly interconnected and processes cannot be buffered easily. The averages lead time from the hatchery to the supermarket floor is around 12weeks and 5 days, leaving Wings & Legs under stress when the retailers spring up and coming promotions on them. The current relationship between Wings & Legs and the retailers should be of a collaborative nature, with the retailers providing Wings & Legs with upcoming promotions in advance, perhaps leaving Wings & Legs longer lead times.
Better co-operation between both the supplier and the retailer would not only be beneficial to Wings & Legs relationship with the retailers but would also benefit many other aspects on many levels.
- Longer Lead Times: If the retailers provide Wings & Legs with the information on upcoming promotions throughout the year it would give Wings & Legs a lot more time to prepare for an increase in possible supply and they would be able to match the demand more consistently to the retailers’ specifications. Also many retail outlets give their customers loyalty cards which are swiped every time they shop, by looking at purchases during past promotions the retailer could possibly come up with a forecast consisting of possible demand and could pass that information on to Wings & Legs.
- Improved Finished Good: It was stated in the case study that the retailers were less satisfied with the quality of the products they received and that product freshness and product weight had not been met by the required specifications. If the sales departments from the retailers met with Wings & Legs maybe earlier in the year they could agree on sales arrangements. This would give Wings & Legs a opportunity to plan the supply chain so that the product would be ready to be delivered to the retailers once it was packaged. This would mean there would no longer be packaged meats waiting t be supplied, product thrown out or product having to be repackaged, instead the product would remain fresh and consistent with the retailers standards and guidelines.
- Customer Satisfaction: An improvement in the exchange of information between the retailers and Wings & Legs would impact on customer satisfaction. As a result of better quality chicken products, consumers are more likely to shop in that retailer’s outlet and purchase that particular product again. By using promotions, for example “Buy one, get one Free”, retailers are grabbing the consumers attention about the product and enticing them to purchase it. If the product is of poor condition it is unlikely the consumer will buy it again, however if the product is fresh and appealing it is very likely the consumer will buy it again. This also increases sales, footfall and leads to positive consumer feedback for the retailer.
- Increase in Sales: If Wings & Legs product is now being produced to the retailers’ standards and there is a decline or complete stoppage in stock being thrown out, the retailers’ losses will decrease. Also as a result of better quality of the product and an increase in customer satisfaction sales will also increase. Through the simple notion of exchanging timelier and more accurate information about promotions, the retailers are now making a profit on stocking Wings & Legs products in their stores, and are now more likely to continue to stock it.
- Improved Relationship: The final advantage for the retailer would be the improved relationship between themselves and the supplier ‘Wings & Legs’. By exchanging information, retailers would be able to get what they want out of Wings & Legs ,and Wings & Legs would be able to maintain a high quality standard in relation to their product. There is also the added benefit of less stress put on mangers and the sales management teams.