The “Hybrid” Supply chain

The articles this week are a mix of the future of supply chain and rethinking outsourcing. This got me thinking about supply chains that have both outsourced and insourced manufacturing or “Hybrid” supply chains.  What is a hybrid supply chain? As per the Supply Chain Digest, a hybrid supply chain is both “Lean” and “Agile” or  “Leagile”. This can take one of several approaches¹:

• Using make-to-stock/lean strategies for high volume, stable demand products, and make-to-order/agile for everything else
• Have flexible production capacity to meet surges in demand or unexpected requirements
• Use of postponement strategies, where “platform” products are made to forecast, and then final assembly and configuration done upon final customer order

As per the strategy, Lenovo manufactures about one-third of its products in-house². They believe that this strategy allows them to produce innovative products and bring the product to-market quicker. The company also believes that keeping part of the production in-house enables greater speed and flexibility in shifting product mix in order to mitigate potential supply chain risks. This was tested when the Thailand floods in October 2011³. Lenovo grew market share to 13.5% to be the second largest PC manufacturer behind HP.

Another company that has invested in “in-sourcing” is GE in Louisville, Kentucky⁴.  The management found that when the workers were are to design a water heater, they designed it with 20% fewer parts and 50% less labor. Also, the inventory was “reduced 60%, labor efficiency improved 30%, time-to-produce was reduced 68%, and space required for the line came down by 80%.”⁵

Managing these “hybrid” supply chains must be much harder than managing completely outsourced goods. How do supply chain managers ensure smooth supply chains despite disparate product part mixes?

References:

¹http://www.scdigest.com/assets/NewsViews/06-08-31-2.cfm

² http://www.eft.com/general-supply-chain/lenovo-credits-supply-chain-its-success

³http://supply-chain.org/f/Zapko-Inside_Lenovos_Hybrid_Supply_Chain_Strategy.pdf

⁴http://www.ec-bp.com/index.php/articles/industry-updates/9715-insourcing-and-the-supply-chain#axzz2frqkhzmp

⁵http://blogs.hbr.org/2013/07/insourcing-at-ge-the-real-stor/

http://online.wsj.com/article/SB10001424052702303302504577325522699291362.html