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DEMANDCOMPLEXITY AND THENEED FOR AFLEXIBLERESPONSE 399These changes in the business environment bring
about an unprecedented reconfiguration of consumer de-
mand. In turn, these forces are being passed along sup-
ply and demand systems. Unfortunately, the farther away
from the point of sale, and from any indication of demand
preference, the harder it becomes to react in an effective
and efficient manner. And certainly, recourse to long-term
forecasting becomes virtually useless as complexity and
dynamism continues to grow. This brings us to the second
problematical area when considering the driving forces
for variety: the inherent uncertainty this brings.Demand Uncertainty
If we accept the picture of increasing variety in both goods
and services and the search for ways to customize prod-
ucts at an individual level, we can see that many industries
are characterized by complexity and dynamism. Unfortu-
nately, modern organizations are ill-equipped to deal with
such uncertainty. A short history lesson:
At the turn of the 20th century, manufacturing, for
example, was characterized by an emphasis on mass
markets, high volume, and the use of interchangeable
parts. When the principles of scientific management, as
promulgated by Frederick Taylor and his disciples, were
also adopted, it produced a new era of industrial power
that was eagerly exploited by the likes of Henry Ford, Isaac
Singer, and Andrew Carnegie.
The dogma was clear. For utmost efficiency in any fac-
tory, the following was advised: divide work into the small-
est possible components; assign the tasks to specialists;
appoint managers to supervise and make decisions, leav-
ing workers free to concentrate on manual tasks; reduce
variation to a minimum; standardize all inputs and out-
puts to reduce defects; exercise control through a rigid
hierarchy that channels communication in the form of
exception reports upward and directives downward; mea-
sure performance by cost, scale, experience, and length of
production run; and employ forecasting systems to antic-
ipate any possible changes.
Then in 1974, Wickham Skinner proposed the idea that
manufacturers focus their plants (or even in departments
within plants) on a limited range of technologies, volumes,
markets, and products, and that strategies, tactics, and
services be arranged to support that focus. The maxim
was that a factory that succeeds in focusing its activities
will outperform one that does not. Costs would be lower
than in unfocused operations due to experience curve and
scale benefits; consequently, focus would provide compet-
itive advantage. Today, these philosophies continue to be
espoused under the heading of lean production and lean
thinking (although their supporters would have us believe
that lean also means agile).
There are, however, always trade-offs with such ap-
proaches; for example, low cost and flexibility are incom-
patible bedfellows. If the market demands greater variety
and diversification, the focused factory comes under con-
siderable strain, often alleviated only at the expense of
high inventory levels.
As we reached the 1980s, it soon became apparent
that organizations operating in this manner were un-
able to cope with one particular demand: variety. Fun-
damental and radical new methods of organization andmanagement were needed once the demand for diversity
reached a critical level. We are still searching for many of
these new approaches (many of which we now call oper-
ations strategies).
The next factor in the flexibility debate is the changes
that these stimuli have engendered in organizational ac-
tivity.The Commercial Response to Changing
Consumer Demand
Today’s competitive environment requires enterprises to
seek greater product and process variation (flexibility)
through agility and responsiveness, increasingly rejecting
the Fordist principles of mass manufacturing and moving
toward mass customization.
However, this “Holy Grail” of mass customization can
only be reached once an entire supply network (supply
networks’ or ‘supply systems’ are our preferred terminol-
ogy to describe what is often known as the ‘supply chain’),
is integrated and data openly shared for visibility at all
stages (Shore, 2001). A supply system, or perhaps demand
system, that is fully visible provides the basis for flexibility
and responsiveness to real-time demand.
How close are we to achieving such a situation?
Figure 1 shows the evolution of such a supply system.
Stage I depicts the situation for most goods and services
sectors at the turn of the past century. The participants
considered themselves separate and autonomous indus-
tries with no influence, reliance, or interconnection with
each other. The second stage (II) shows the effect of in-
terdependence, and the supply chain is born with all its
accompanying opportunities and pitfalls (Lee & Billing-
ton, 1992). However, industries remained manufacturing
and product driven. In Stage III we see the current sit-
uation (theoretically), with electronic data interchange
(EDI) beginning to form an interface between industries
in a pipeline responding to consumer pull.
In the light of the changing business environment de-
scribed above, a fourth, more radical stage is needed
for successful competition and the necessary flexibility.
Figure 2 shows Stage IV, what we term the “cluster of
value.” This is a future vision. The consumer group is the
nucleus of activity, dictating and driving all demand pref-
erences for variety. The entities circling (sales processes,
operations processes, vendor processes) are all closely
linked in a network relationship and respond by providing
value when, and in the exact format, required. Consumer
groups are constantly changing over time, and, an impor-
tant aspect, organizations will be involved in many differ-
ent simultaneous clusters of value (an issue to which we
will return). This type of structure and interaction is nec-
essary in response to a growing demand for variety and
moves toward mass customization.A Classification of Flexibility
Operational flexibility can be witnessed at three levels in
an organization: (a) At an inter- and intra-organizational
level—the strategic choices made by the firm and its
supply systems concerning the ability to offer a partic-
ular level of flexibility in products or services; (b) at
an operations level—whether in a distinct operations