When we talk about supply chain management strategies, there are two key approaches to understand. Lean and agile supply chains are often pitted against each other as an either-or option. There are pros and cons to each, and you’re expected to pick one that’s the closest fit for what your business needs.
But there isn’t a one-size-fits-all approach to supply management. While there are certainly similarities in how procurement, production, and distribution work for each company, it’s also a very individual process. Some companies find that a very lean system works best. Others need the flexibility provided by an agile approach to supply management. Even more companies find that their needs fall somewhere in between the two options. Most companies benefit from a hybrid approach to supply chain management that brings in the benefits of both lean and agile strategies.
Technology, market and economic conditions, and customer demand and expectations are constantly changing. That’s why in today’s fast-paced global economy, it’s more important than ever to make sure your supply chain is efficient and reliable.
A Lean supply chain focuses on adding value for customers, while identifying and eliminating waste—anything that doesn’t add that value. Being agile and responsive, on the other hand, implies that your supply chain can handle unpredictability—and a constant stream of new, innovative products—with speed and flexibility.
An agile strategy uses a wait-and-see approach to customer demand by not committing to the final product until actual demand becomes known (also referred to as postponement). For example, this might involve the subassembly of components into modules in a lower-cost process, with final assembly done close to the point of demand in order to localize the product.
In general, organizations have two methods that they can use to manage their supply chain: lean or agile supply chain management.
What is a lean supply chain?
Lean supply chain management is about reducing costs and lowering waste as much as possible. Anything that doesn’t add value for the end customer is eliminated. Managers make purchases on an as-needed or just-in-time basis to avoid any overproduction and unnecessary storage.
Generally, this method is important for organizations with high volumes of purchase orders since waste and costs can accumulate quickly. A lean supply chain usually works best for products with low variability purchase orders, such as food items and personal care items.
What is an agile supply chain?
An agile supply chain is built to be highly flexible for the purpose of being able to quickly adapt to changing situations. This methodology is important for organizations that want to be able to adapt to unanticipated external economic changes, such as economic swings, changes in technology, or changes to customer demand.
Implementing an agile supply chain allows organizations to quickly adjust their sourcing, logistics, and sales. An agile supply chain typically works best for organizations that offer products with short life cycles or customizable elements. These organizations need to be able to quickly adapt to changing circumstances and trends.
Two Different Strategies:
Lean supply chain management is all about reducing costs and waste. This method is focused on efficient, streamlined operation. Typically, the supplier has one point of contact across the entire company and one contract governing their relationship. They offer the same price to all a company’s locations.
In a lean approach, anything in the process that doesn’t add value for customers is eliminated. When implementing a lean supply chain, you’re constantly looking for ways to remove layers of waste and only take steps that add value to a product or service.
Lean strategies rely on forecasting to predict how much inventory will be needed to meet demand. In some lean supply chains, products are made on an as-needed basis so there’s no unnecessary overproduction. The lean approach is best in markets that don’t vary a whole lot. Functional and necessary items like toiletries fit in this category.
Agile supply chain management prioritizes adaptability. It’s for organizations that want to quickly adapt to changing situations. This method makes it easier to adjust sourcing, logistics, and sales in response to factors including economic swings, technology changes, and customer demand.
Typically, an agile supply system waits to see what the market demand is before finishing production. Short-term forecasts help companies stay responsive, but a key aspect of agile supply chains is that they respond to demand as it happens. This approach is useful when producing fast-changing and customizable items like fashion wear.
An agile supply chain typically results in short order lead times. It’s also quick to respond to customers. And when something unexpected happens, such as a regular supplier not being able to fill an order, the system enables flexibility. You can also respond more quickly to new market opportunities with an agile supply chain.
Let’s take a look at an example of the difference between lean and agile supply chain management.
Richard Wilding, professor of Supply Chain Strategy at the Cranfield School of Management in the UK, says if you have low volumes but high variability you need agility. He uses Kimberly-Clark, owner of such brands as Kleenex and Huggies, as an example.
When Kimberly-Clark has a product promotion, they need market information so they can properly assess and meet demand for the products. They collaborate with customers, learn about their market forecast, and integrate with commercial teams to ensure that manufacturing has a “must-respond” mentality.
For products that aren’t on promotion, Kimberly-Clark can use a more traditional lean supply chain methodology, as many of their products are standardized, everyday products with low variability.
Here, we can see that in this case, when products are on promotion, Kimberly-Clark adopts a hybrid approach, combining elements of both lean and agile supply chain management.
Agile or lean? What should you choose?
As you can see as well as mentioned in the beginning , when it comes to supply chain management, there is no “one size fits all.” Both agile and lean supply chain management have their benefits. In today’s fast-paced, global market many organizations are choosing agile supply chains to keep up with ever-changing demand.
However, whether you choose agile or lean supply chain management will depend on your type of business and your goals. Most of the time, lean supply chains are more cost-effective and predictable while agile supply chains are more flexible and can react quickly to market changes. You need to consider your product, your customers and end-users, the market, and your partners and suppliers to determine which supply chain strategy works best for your business. Many organizations find that they need elements of both lean and agile methods and use a hybrid model of supply chain management.
By applying the correct supply chain management method to your operations, your organization will be able to save money and be able to easily adapt to rapid fluctuations.
On some occasions, either an agile or a Lean strategy might be appropriate for a supply chain. But many companies will probably face situations where a hybrid strategy is a better fit. If so, they need to carefully plan and execute the combined strategy with excellence, which is often easier said than done because it involves a lot of moving parts. As in so many aspects of supply chain and operations management, there is more than one way to accomplish this goal.
One example of a company using a hybrid strategy in its supply chain is Zara, a Spanish fashion designer and retailer. Zara directly manufactures most of the products it designs and sells, and performs activities such as cutting, dying, labeling, and packaging in-house to gain economies of scale. A network of dedicated subcontractors performs other finishing operations that cannot be completed in-house.
As a result, Zara has a supply chain that is not only agile and flexible but incorporates many Lean characteristics into its processes.
Some semiconductor manufacturers incorporate a hybrid strategy using a flexible manufacturing and distribution model. Subcontractors perform distinct manufacturing processes at separate physical locations. This hybrid approach taps a virtual network of manufacturing partners and requires responsive, flexible, and information-driven sourcing, manufacturing, and distribution functions—in many ways, the opposite of Zara’s strategy of shifting processes in-house.
Many organizations can find some form of hybrid supply chain that works well for them. In today’s ever-changing, volatile, and competitive global economy, it may often be in a company’s best interest to operate a supply chain that is both Lean and agile.