Agile Information Systems for Mastering Supply Chain Uncertainty

Abstract

Mastering both demand and supply uncertainty is a key challenge for many companies. Markets are increasingly turbulent and also the vulnerability of production and logistics processes is growing. The management of uncertainty has been addressed as an essential task of supply chain management (among others by Davis 1993 and van der Vorst & Beulens 2002). For coping with the addressed uncertainties, Supply Chain Management (SCM) literature initially has focused on creating so-called lean supply chains that efficiently push products to the market. Lean supply chains build upon reduction of demand uncertainty, especially by product standardisation. Customers must choose from a fixed range of standard products that are made to forecast in high volumes. Business processes in lean supply chains can be highly automated by Enterprise Resource Planning (ERP) systems (Davenport and Brooks, 2004). In the late 1990s, the then dominant approach of leanness was criticised more and more. It was argued that in volatile markets it is impossible to remove uncertainty. Companies therefore should accept differentiation and unpredictability, and focus on better uncertainty management. Agility was proposed as an alternative approach that aims for rapid response to unpredictable demand in a timely and cost-effective manner (Fisher, 1997, Christopher, 2000). It is founded on a mass customisation approach that combines the seemingly contradictory notions of flexible customisation with efficient standardisation (Davis, 1989, Pine et al., 1993). Efficient standardisation is realised by fabricating parts of the product in volume as standard components; distinctiveness is realised through customer-specific assembly of modules (Duray et al., 2000). Until then, SCM focused on strategies for coping with demand uncertainty. Lee (2002) was one of the first who stressed the impact of supply uncertainty on supply chain design. Supply chains characterised by high supply uncertainty require the flexibility to deal with unexpected changes in the business processes. Disturbances of logistics, production or supply of materials should rapidly be observed and lead to process changes including replanning and re-scheduling, purchasing new material, hiring alternative service providers, or negotiating new customer requirements.