An agile firm manages change as a matter of routine. By combining a competitive vision with internal and external initiatives, and the application of technology, an enterprise can deliver on the four key competitive priorities -- cost, quality, dependability and flexibility.

By Gene Fliedner, CFPIM & Robert Vokurka, CPIM, CIRM

The operations strategy for many firms in the 1950s and 1960s emphasized mass production, with little product or process flexibility, in order to achieve low cost per unit. In response to increasing foreign competition, American businesses in the 1970s placed greater strategic emphasis on the competitive weapons of cost and quality. In the 1980s, competition escalated so that world-class organizations offered low cost, quality products with greater reliability or dependability.

The competitive environment of the global marketplace in the 1990s is changing. Markets are becoming more international, dynamic, and customer driven. Customers are becoming more sophisticated. They demand more variety, better quality, and greater service in terms of reliability and response time. Product lifecycles are shortening and product proliferation is expanding. Technological developments are occurring at an ever-increasing pace, providing both product innovations and manufacturing process improvements. As a result, the model of a world-class firm is changing. World-class firms are emphasizing agility in operations strategies. Firms that will prosper in tomorrow's dynamic competitive environment are those that become today's agile enterprises. This entails merging the delivery of the competitive priorities of cost, quality and dependability from prior decades with greater flexibility (see Figure 1).

Agility explained
Agility is the ability to successfully market a broad range of low cost, high quality products and services with short lead times and in varying volumes that provide enhanced value to customers through customization. Agility challenges the strategic priorities of cost, quality and dependability of the 1980s through the ability to rapidly respond to any change in market demand, whether this is a change in product characteristics, customer orders, or internal company conditions. Agility merges the four distinctive competencies of cost, quality, dependability and flexibility.

Traditional dimensions of flexibility include those that are product or service related, such as volume, product mix and specification flexibility. It also includes those that are process related, including machine changeover, scheduling and innovation flexibility. Agility can easily refer to any of these dimensions of flexibility. The difference between agility and flexibility is whether or not the change in market demand has been predicted. Namely, flexibility refers to the capability of rapidly changing from one task to another when changing conditions are defined ahead of time. Agility provides the firm with the ability to respond quickly to unanticipated marketplace changes. An agile firm manages change as a matter of routine.

Agility has come about as customers increasingly demand lower costs, higher quality, shorter lead times and smaller lot sizes combined with the opportunity to choose customized product or service features. Described as mass customization, firms are looking for the ability to customize outputs on a large scale. Customers are able to demand all of this in large part because of a larger supply base to draw upon -- firms are faced with increasing competition. This creates an environment where fast changes and responses are necessary for survival. This is true for both manufacturing and service organizations.


Dimensions of agility
In 1995, Goldman et al identified four key dimensions of agile competition (see Table 1). The first dimension is enriching the customer. This entails a quick understanding of the unique requirements of each individual customer and rapidly providing it. The second dimension entails cooperation in order to enhance competitiveness. This cooperation includes better intraorganizational cooperation as well as interorganizational cooperation, such as partnerships with suppliers, and may possibly extend to newer, emerging virtual relationships with competing organizations. The third dimension utilizes new organizational structure provided by techniques such as concurrent engineering and cross-functional teams in order to master change and uncertainty. The fourth dimension leverages the impact of people, information and technology. This dimension recognizes the importance of employees as a company asset and therefore places greater emphasis on the development of this asset through education, training and empowerment.

Firms are implementing numerous strategies to achieve these four dimensions of agility. However, the implementation of agility is highly context dependent. The appropriate strategy followed will differ for each company, and each company must base its strategy upon an understanding of its customers and markets, products, strengths and weaknesses, competition, and resources. Various combinations of strategies are being pursued by many firms with a heightened emphasis on providing greater value to the customer through the ability to offer customized products, services and information.


Agility strategies
Firms are implementing a variety of specific strategic practices aimed at promoting agility and enriching the customer. These strategies include both internal and external initiatives. Examples of prevalent internal initiatives include business process reengineering, adoption of new technology and management planning tools for cycle time and order response time reduction, teamwork, employee empowerment, and employee education and training. Examples of external initiatives, which focus upon supply channel performance improvements, include new forms of partnerships, outsourcing, schedule (information) sharing, postponement and technology adoption. Each of these initiatives contributes to the attainment of the four dimensions of agility in varying degrees. The following practices and examples are representative of the improvements firms are making to enhance their agility.


Internal initiatives
Business process reengineering (BPR) is an improvement practice used by companies to streamline operations and provide enhanced value to customers. BPR may be defined as the redesign of the end-to-end set of activities encompassing order receipt to product/service delivery that creates enhanced value for a customer. BPR leads to improvements in critical, contemporary measures of performance, such as cost, quality, service and speed.

An example of successful reengineering in a service firm is the Aetna Life & Casualty Company, which previously took 28 days to process an application that actually entailed only 26 minutes of work. The application was processed through a sequence of workers with delays at every step. Aetna reengineered the process such that each application is handled by a single customer account manager who processes the entire transaction.

An example of successful reengineering in a manufacturing firm is that of the Halmar Robicon Group. Utilizing design for manufacturing/assembly, a technique used to improve the quality of designs and reduce time from product concept to production, in conjunction with reengineered materials and processes has led to significant reductions in part numbers, assembly labor hours, quality control test times, and production costs while shortening product time-to-market. Design principles -- ranging from modular products which allow for future product upgrades, fewer parts for enhanced reliability, to the provision for recycling -- form the basis of agile strategies that are providing valuable solutions for customers.

In an attempt to reduce manufacturing cycle, some firms are reorganizing portions of manufacturing processes. Philips Consumer Electronics has helped reduce manufacturing throughput time for printed circuit boards from 15 days to one hour and 12 minutes while decreasing non-value adding materials movements from two miles to only several hundred feet with cellular manufacturing. The concept of organizing manufacturing processes around multifunctional, cross-trained cells responsible for a family of products is being extended to white collar work as well.

A strategy placing emphasis on the adoption of new management planning tools is being utilized in order to achieve agility. Some of the newer planning tools being used include real-time manufacturing execution systems (MES), production planning configurators and real-time threaded scheduling. MES includes multiple, integrated functions that provide management with real-time product availability and available-to-promise data based upon up-to-date inventories and planned production as opposed to averages or estimates of inventory. Typical MES functions include resource management, capacity scheduling, maintenance management, product distribution, statistical quality control, process management, process optimization, data collection and document management. A configurator is a computer program that works within a material requirements planning system framework to allow manufacturers to define the characteristics of a product. The manufacturer can use this definition to determine if, when and how to produce the product in varying volumes, customized, efficiently, with consistent quality and within competitive cycle times. Threaded scheduling systems synchronize the simultaneous development of feasible material requirement and capacity plans. These systems track operating system execution in real time and provide inventory, capacity and lead time data accurate to any moment.

These new management planning tools offer competitive advantages including lower costs and higher customer service levels through reductions in manufacturing cycle and data entry times, work-in-process inventory, lead time, and defect production, regardless of company size. For example, in a survey of discrete and batch process manufacturers, the Manufacturing Execution Systems Association reports an average cycle time reduction of 45 percent attributable to MES.

Intraorganizational cooperation strategies are emerging to enhance agility. Teamwork, employee empowerment, and an increased emphasis on employee education and training are strategies being used in order to promote agility. Various team types, including self-directed, cross-functional (multi-functional), process improvement and product development work teams are being used to promote agility. The distribution of decision-making authority through employee empowerment better enables firms to enrich customers through shorter response times. Firms are also investing more in employee education and training as they discover this has a greater impact on productivity increases than new capital.

Companies using teams, empowering employees and emphasizing employee education cite benefits including increased productivity, improved quality, greater employee morale, better customer service, quicker design to market and higher profitability. In its effort to meet continuous improvement goals and satisfy customers, Motorola spent approximately $150 million in 1995 on cross-functional team training, team support, team recognition rewards, employee empowerment and other programs. Citing a benefit that is partially attributed to its education and training commitment, Motorola has achieved a 139 percent increase in productivity per employee as measured by sales over the past five years.


External initiatives
Strategic practices that extend beyond the firm are being implemented, serving to integrate companies and improve performance through a supply chain. These external initiatives integrate materials, organizations and information, often through advances in technology. Where vertical integration and economies of scale were once important, various practices leading to supply chain performance improvements such as partnerships, outsourcing and schedule (information) sharing are now emerging.

Early supplier involvement (ESI) in product and process designs, training suppliers to perform a variety of activities such as vendor managed inventories, and virtual organizations with suppliers and even competitors are examples of new and emerging forms of partnerships. U.S. car manufacturers have achieved tremendous savings on labor, material and overhead costs while reducing cycle time and enhancing quality as a result of implementing ESI in the product development process. In exchange for a promise of exacting order fulfillment, Wal-Mart, in cooperation with its best performing suppliers, has given vendors the responsibility for managing warehouse inventories. The technological advances in computer networks and telecommunications have allowed companies, through a variety of contractual arrangements, to coordinate geographically and institutionally dispersed capabilities on various project activities which focus on new products or processes in a single virtual company. These emerging forms of partnerships enable faster responses to marketplace demands, cost reduction and quality improvements through the core competencies of the individual firms. Additionally, as the speed of technological change and global competition increase while product life cycles decrease, they spread the financial risk over a group of companies.

The emerging forms of partnerships are not limited to domestic operations. Internationally, instances of joint investment in research, products and distribution by Japanese companies and mostly American foreign counterparts have increased 26 percent in 1996. This is in addition to a 33 percent increase in these partnerships over the years 1993-1995.

Supply chain performance improvements are also being brought about through such practices as outsourcing, schedule sharing and postponement in product design. Outsourcing is gaining popularity because of its reported benefits: reduced manufacturing lead times and shorter customer order response times; lower financial risk through reductions in capital requirements; and greater opportunity for adding value through customization. The intent of schedule sharing between manufacturers and suppliers is to give suppliers the ability to create planned orders into the future for greater accuracy and faster customer response times. Postponement in the distribution channel allows products to be designed for last minute customization.

Companies are also using technology to improve supply channel performance by eliminating non-value adding activities such as materials handling. A current trend in information systems has firms moving from centralized mainframe computing to decentralized client/server computing. Smaller networked computers promote efficiency in logistical decisions by allowing access to the right information at the right place and the right time in the supply channel. For example, point-of-sales data collection enables firms to enrich customers with a faster response to changing customer demands.

Technology is being implemented in the supply chain to achieve reductions in costs and manufacturing cycle times in a variety of ways. Electronic systems utilizing electronic data interchange, radio frequency communications tools, bar coding, and electronic commerce reduce order entry time and order processing costs, eliminate paperwork, reduce purchase cycle, improve inventory accuracy and warehouse operations, and trim work-in-process inventory.


The weapon of the 1990s
In an economy that is becoming increasingly driven by new technologies, it is no longer possible for a company to seek out a static position with its products and process structures. The company must be routinely repositioned in the competitive niches that it occupies, adjusting its organizational structures, managerial practices, product and service offerings, business processes, personnel, technologies and marketing strategies to a dynamic marketplace.

Due to the increasing dynamism of the global market, the strategic advantage provided by agility has emerged as the most important competitive priority of the 1990s. The trend for the 1990s appears to be the integration of customer service with mass customization and rapid product delivery mechanisms. The ability to react rapidly to demand variability is becoming so critical in today's environment that it outshines all other competitive weapons. Facing increasing market dynamics such as a faster pace of product innovations, shrinking product life cycles, and more rapid imitative competition -- all in fiercely competitive global markets -- the firms that will prosper in the future will be the firms that are better able to achieve agility. This entails simultaneous delivery on all four competitive priorities of cost, quality, dependability and flexibility.

Strategic initiatives including business process reengineering, reducing manufacturing cycle and order response times, teamwork, employee empowerment, education and training, and supply channel performance improvements -- from partnerships, outsourcing, and information sharing -- contribute to the attainment of agility. Reported benefits from the array of strategic initiatives have included: lower costs, higher quality levels, shorter lead times, and greater customer satisfaction. If these benefits are possible with agility, indeed, it would seem agility is the competitive weapon of the 1990s.

[l] Goldman, Steven L., Roger N. Nagel and Kenneth Preiss. Agile Competitors and Virtual Organizations, Strategies for Enriching the Customer. New York: Von Nostrand Reinhold, 1995.

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