Flexibility management: the ultimate strategy.

The seventies was the decade of "Productivity," the eighties focused on "Total Quality Management, and the nineties belong to "Flexibility." Emphasis is being placed on restructuring, reengineering, and reinventing in order to make the company flexible enough to respond to the ever-increasing and changing needs of the customers. The dictionary defines flexibility as the "ability to be bent," or the "ability to change a state." From a business perspective, flexibility describes the company's ability to meet the needs of the market without excessive costs, time, organizational disruption, or loss of performance. Little is ever mentioned about flexibility at the acquisition, distribution/storage, financing, or other stages of an operation. In reality, there is an urgent need for flexibility at every stage of the value chain, as well as within each staff and specialist unit.

Need for flexibility

The need for flexibility originates with the customer, but the customer asks for variety, quality, competitive prices, and faster delivery only when there is a high level of competition in the marketplace. The reasons companies are motivated to be flexible include:

* As customers' incomes rise, they ask for better selection and higher quality products - customized products and services are needed;

* As competitors introduce new models, customers start switching supply sources, and companies are forced to make design changes quickly;

* When large customers reduce inventories, and their demand rates become volatile, then suppliers need to focus on volume flexibility;

* When importers or domestic competitors start offering multiple quality and price levels, the companies need more flexible product mixes;

* Sometimes, customers want fast delivery and are willing to pay premium prices, or competitors start offering fast deliveries, so companies need to be more flexible in deliveries;

* Since customer tastes change quickly, companies need to respond quickly and supply the new products/services, or at least offer a variety of items on a trial basis and identify hot items in a short time period; and

* When a company's products have become noncompetitive domestically and internationally, it must be flexible enough to move to a line of new products that are compatible with its existing capital and human resources.

It may be noted that each of the above external elements are causes beyond the control of any company. Further, none of these needs can be satisfied by the mass production strategy. Consequently, the American managers' love affair with large [TABULAR DATA FOR TABLE 1 OMITTED] production runs and economies of scale is a thing of the past, and is being replaced by their new passion - flexibility management.

The demand for flexibility needs to be viewed from two angles - size of the company, and the company's core activities. Table 1 shows the most significant implications for enhancing the company's flexibility as they impact cost, quality, and timeliness according to company size and type of activity.

Management levers (mechanisms)

To satisfy the need for various types of flexibility, there are three groups of levers or mechanisms.

1) The first group is referred to as levers for internal flexibility. Each of these levers remains under the control of management at all times. The salient levers in this group are listed in Table 2. In addition, we coded each lever for cross-referencing later in the paper. Each flexibility can be assessed on a quantitative measure and is called a hard lever (flexibility).

Table 2

Hard Levers

Flexibility Lever                           Code #

Planning/Scheduling Flexibility               #1
Sequencing Flexibility                        #2
Routing Flexibility                           #3
Labor Flexibility                             #4
Machine/Equipment Flexibility                 #5
Design/Development Flexibility                #6
Process/Technology Flexibility                #7
Raw Materials Flexibility                     #8
Transport/Shipping Flexibility                #9
Layout Flexibility                           #10
Expansion Flexibility                        #11
Financial Resources Flexibility              #12

2) The second group consists of levers for soft flexibilities. Each of these levers can enhance internal flexibility. In contrast to hard levers, they are never completely under management's control as each requires heightened participation and support of specialists and other employee groups. The levers constituting this group and their respective code numbers are in Table 3.

These flexibility levers cannot be measured on a hard (quantitative) scale, as was the case with the levers of the first group, therefore they are designated soft levers (flexibilities).

3) The third group of levers involves managerial manipulation of intangibles. Each of these levers can enhance one or more of the flexibilities either externally or internally. Again, their effectiveness cannot be measured on a hard scale, so they are called intangible levers (flexibilities). Table 4 shows the flexibility levers and codes.

There are many combinations of the 21 levers. Either a combination or a single lever can be identified to suit the unique situational needs of the company at any time. In the past, such combinations have been used by companies to achieve their goals of improved efficiency, higher quality, faster response, improved reliability, and higher ROIs.

Table 3

Soft Levers

Flexibility Lever                           Code #

Organizational Structure Flexibility         #13

Decision Making Flexibility                  #14

Job Design Flexibility                       #15

Employee's Willingness for
Change Flexibility                           #16

Managerial Perception
Change Flexibility                           #17

Flexibility lever stages

If we try to analyze the total chain of acquisition-processing-distribution functions, we would find that the companies need to use flexibility levers between stages and design flexibility mechanisms within each stage.

Table 4

Intangible Levers

Flexibility Lever                           Code #

Reputation Building Flexibility              #18

Flexibility in Enhancing Knowledge
and Experience Base                          #19

Flexibility in Identifying Undiscovered
and Unused Talents of Workforce              #20

Flexibility in Development of
Standing Agreements with Suppliers
and Customers                                #21

Flexibility at interface with suppliers - a company can work closely with its suppliers and achieve flexibility at this interface using a variety of the action items listed below. Also, each action item can be linked to a combination of one or more of the flexibility levers described in Tables 2, 3, and 4. The linkages beside each action item are:

* Push for shorter lead-times (#1)

* Use faster transport system (#9)

* Write short-term contracts with the suppliers who allow switching (#2, #21)

* Reduce the variety of parts in the design of the products (#6, #19)

* Reduce the supplier base (#19, #21)

* Streamline ordering, receiving and other paperwork (#1, #17)

* Be conscious of the requirements and limitations of your supplier (#8, #17, #19, #21)

* Let the demand be triggered by Kanbans only, for example, use JIT (#1, #2, #3)

Flexibility at the processes and in-between - managers can make use of a large variety of action items to enhance flexibility at the individual processes and in between processes. Those mechanisms and their linkages to a specific combination of flexibility levers are:

* Introduce group technology, cellular manufacturing, and JIT, if and when deemed effective (#7, #10, #12, #19)

* Analyze and, if necessary install CAD/CAM, robots, automated transfer mechanisms, and FMSs (#5, #7, #10, #12, #19)

* Use the latest methods of product development (#6, #9)

* Use specialized jigs and fixtures to obtain shorter setup times (#5, #6)

* Before replacing any equipment, assess whether upgrading and reprogramming will add to their flexibility (#5, #7, #12, #19)

* Change to lower cost inputs or substitutes (#7, #8)

* Use flexibility of machinery and equipment (#5, #11)

* After reducing setup times, focus on small lot sizes (#1, #2, #5)

* Use alternate routing, sequencing, and process combinations for each job (#2, #3)

* Use ergonomics to achieve the most flexible workstation designs (#6, #15, #16, #20)

* Assemble similar products on a single line, while making provision for its automation in the future, (#5, #7, #11, #19)

* Use external help for specialized tooling and automation (#5, #6)

* Use temporary labor to meet the peaks and valleys of demand (#4, #11, #13, #15, #16, #20)

* Use U-shaped layout when possible (#10, #19)

* Allow time for debugging newly installed technologies/processes, (#7, #14, #17, #19)

Flexibility at interface with customers - Multifarious customer demands are the primary reason for the focus on flexibility, but only a few actions are possible at this late stage. Actually, most flexibility is achieved either internally with a variety of equipment, methods, procedures, structures, and systems, or with certain collaborative and complementary arrangements with the suppliers or other companies in the industry. However, there are a few possible action items that can be implemented at this interface as well. Those action items and their translations into specific flexibility levers include:

* Use powerful information hook-up with customers (#11, #13, #18, #19, #21)

* Use fast shipping and delivery modes (#9, #13, #14)

* Get quick feedback from retailers and consumers (#13, #14, #18, #19, #21)

* Use flexible prices, basing them on actual domestic cost of production irrespective of place of production (#1, #13, #14)

* Use JIT mode of operations (#1, #2)

* Simplify and standardize communications with customers (#17, #18, #19, #21)

* Integrate forecasting, planning and control, with a total focus on customers (#1, #2)

Focus on people, structures, and information

Flexibility can be enhanced also by evaluating and/or making changes to:

* people and their work behaviors;

* organizational structures, methods, and procedures; and

* information systems.

Each of these three major constituents of the company overlaps each stage of operations as well as their interfaces. They can help or harm efforts towards flexibility, depending upon the situation.

People - due to their social motivation, emotional needs, and ability to feel, learn, and adapt, humans are the most flexible resource. All complex tasks must be performed by people, because only the narrow tasks are amenable to automation. It is human intelligence that translates into flexibility through a person's alertness and analytical ability. People can greatly add to the flexibility if they:

* are crosstrained;

* have only a few job classifications;

* are made responsible for preventive maintenance;

* are supervised by a technically trained and skilled leader;

* possess motivation, skill, and creativity;

* are free to organize into various sized groups as the workload changes;

* are allowed flexibility in their work arrangements by way of job sharing, telecommuting, and making use of technology such as computers, modems, and faxes; and

* are empowered, which requires a leap of faith by management.

Structures - organizational design can be effectively used also to promote flexibility at each stage. To be successful, the structure must be so molded that it can successfully attack ongoing problems. Team-based designs have been proven to enhance flexibility. Adhocratic structure, which uses modules and is disposable, works well for enhancing flexibility. The organizational design invariably interacts with all other resources; and the adhocratic structure dictates that employees have varied, non-repetitive, and challenging jobs; which in turn, requires discretion and judgment. Adhocracy can improve responsiveness to vendors, customers, and other constituents of the company. On the other hand, flexibility requires that relationships between a company and its external stakeholders (financial institutions, distribution networks, markets, and shareholders) are not only simplified, but company policies and procedures are clear and fully known to all. Of course, the decision-making function must always be at the lowest possible level.

Information - these days, information resources can provide great support to all the levers or action terms used to obtain flexibility. Fast collection, storage, and dissemination of information help companies quickly arrive at decisions. Support provided by decision models and software such as MRP, as well as scheduling rules, simulations, and databases, undoubtedly improves flexibility at each stage. To improve flexibility through information, companies must eliminate all redundant data and minimize the number of interface points in their information systems. Information systems can be very complex and costly, because they consist of advanced database management, communication networks, variety of end-use operating tools, data collection devices, and simulation packages.

However, it may be noted that so far, few companies have effectively used information systems for supplementing various internal/external flexibility levers.

Special considerations

Apart from the above-mentioned levers and action items, which have been successfully used for enhancing flexibility, researchers have identified several policies and strategies that can be used for augmenting flexibility in general. Those policies/strategies include:

* Develop alliances with other companies having complementary assets;

* Coordinate operations of subsidiaries closely and shift production between plants when beneficial;

* Locate the plant in a country with the most volatile rate of exchange, and then use scheduling flexibility and multi-period flexibility to fill worldwide orders;

* Use uncertainty of domestic markets to achieve flexibility of operations and investments;

* Simplify each type of requirement and attempt to make each input resource as flexible as possible;

* Be cautious about major investments in processes or in infrastructures. These investments are often long term, and may not always enhance overall flexibility;

* Achieve consistency between strategic and tactical objectives, while maintaining flexibility. Keep in mind that there should be consistency and congruence among tasks, system, and structure;

* Check for a balance between the current flexibility level and the level of external uncertainty. Keep track of the flexibility levels of your competitors;

* Use reengineering approach to attain the needed flexibility for internal processes, but never lose track of your continuous improvement program;

* Take advantage of the output flexibility in capital intensive industries when competing for business. With this flexibility, the companies can fight competition even when their profits are low;

* Promote integration among hardware, software, and people. Further, use a phased approach to flexibility, that is, first enhance flexibility of the stage that needs it most, then enhance flexibility of the next stage, and so on;

* Integrate various stages of operations within and across organizations, processes, information, and materials;

* Remember that the success in enhancing flexibility depends on clarity of goals; and

* Eliminate past practices of maintaining buffers in terms of inventories, excess capacity, and padded lead times.

Advantages of flexibility

Higher levels of flexibility invariably offer advantages under turbulent market conditions. With a large product differentiation, a company may be able to charge higher prices, or even monopoly prices. Flexibility can improve utilization and may provide substantial labor savings. In capital-intensive industries, or in volatile situations, the output flexibility can be of great help. Particularly in small companies, output flexibility provides the competitive edge. Flexibility can be substituted for costly resources such as excess inventories, oversize capacity, and specialization of tasks. Flexibility may also be utilized to fight obsolescence. Regarding intangible resources, flexibility offsets economies of scale, reduces redundancies and the need for multiple interface relationships. In a flexible factory, scale and scope always reinforce each other.

The merits of flexibility depend upon the option value of the operating flexibility under uncertainty. The first investment in flexibility must provide the largest value. In real life, it may be extremely difficult to assess the actual value of flexibility under uncertainties such as random labor markets, changing government policies, and nonstop special demands of customers and suppliers.

Flexibility shortens cycle times, provides labor savings, offers enhanced manufacturing capabilities, and greatly advances the readiness for future installation of flexible automation. Undoubtedly, flexibility minimizes daily fire fighting and the attendant chaos. Flexibility may also eliminate mediocre product quality, medium productivity, and poor quality inputs and infrastructures. When a process is less systematic, it requires more flexibility (for the given levels of variety and demand). However, managers constantly need to guard against the drive for flexibility turning into chaos.

Disadvantages of flexibility

If the changes for flexibility are needed at the downstream stages (processes), then their costs will be high. Because most of the costs are incurred early, they should be carded through the upstream and middle stages. Any delayed changes would be excessively costly.

At times, some companies may indulge in technology overkill in the name of flexibility. This may be wasteful expenditure for unneeded flexibility. On the other hand, along with the latest technologies, some managers may continue with obsolete planning and control practices and may not notice the prevailing unbalanced stages.

Companies that use excessive buffers to provide flexibility may inadvertently cause congestion and create competition for limited resources among internal sections (units). At times, these buffers may seem conducive to manufacturing flexibility and may create a need for higher buffers, but this can quickly turn into a vicious cycle.

Achieving flexibility can be expensive. Flexibility wars have been hurting some major international auto companies, particularly SAAB, Renault, Volvo, GM, and Ford. Flexibility does not always require special purpose, complex, and expensive machinery. Instead, smart managers often use simple tools, inexpensive robots, and modified infrastructures. However, to attain total flexibility, companies need to spend money on additional capability to change, the time necessary for change, and the cost of disruption. Here, both time and cost can be considered friction elements of flexibility. The tendency of human nature to dislike and resist change is a detriment to flexibility, however, it can be overcome through communication, team work, and creativity.

Conclusion

To achieve flexibility, companies need to make each stage in the acquisition processing distribution chain as flexible as possible. This can be accomplished by adding flexibility to each resource without spending too much money, while at the same time, attaining sufficient capability to satisfy all customer needs. From the operations point of view, flexibility may be considered a capstone program that mixes and matches features of the following programs that facilitate flexibility:

* Just-In-Time;

* Total Quality Management;

* Total Productivity Improvement;

* Total Productive Maintenance;

* Schedule Delivery Improvement;

* Reengineering; and

* Concurrent Engineering.

In addition, flexibility promotes the use of advanced technologies and the latest machinery, provided they remain cost effective. Flexibility places primary emphasis on simplicity, standardization, and creativity. It focuses on customer needs, not on adding resources.

A flexibility program should not look for big solutions, rather it should break big problems into workable subproblems. Flexibility dictates that managers must never become fascinated with complexity and advanced technologies. It requires rewarding employees who help reduce complexity and enhance the flexibility of existing resources.

To achieve the highest possible level of flexibility, companies must focus on the flexibility of their core processes. First, they must simplify these processes, then, automate them only when the additional costs become justifiable, and finally, make specific individuals accountable for the expected results of each process.

For further reading

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