Over the past few years, industry professionals have debated whether the modern supply chain should be Lean or Agile. This is a great question, and one that can have a huge impact on how your supply chain operates. The abundant information on this topic can cause you to question your operations and strive to put a label on your methodology. The answer to the Lean/Agile question reveals quite a bit about your supply chain approach.
Let’s take a look at the characteristics of these two models:
|TYPE OF PRODUCTS||Functional||Innovative|
|DEMAND FOR PRODUCTS||Predictable, accurate forecasts||Volatile, difficult to forecast|
|PROFIT MARGIN||Low||Medium to high|
|INVENTORY||Stocked with finished goods||Stock compenents that can be easily converted to finished goods|
|SUPPLY CHAIN FOCUS||Cost Reduction||Customer satisfaction|
A Closer Look at Lean
A brief history of Lean: Although the foundations of Lean came about with the American industrial revolution and Henry Ford’s assembly line, the practice as we know it today stems from the Toyota Production System. The Lean Enterprise Institute describes the principles in five steps:
Lean is an ongoing process—a mindset that must permeate your company to wring the most value from everything you do. Every Lean program is different, because it’s a reflection of a company’s unique culture and operations. Lean never stops. It means you have Kaizen teams and use tools such as 5S and 5 Whys consistently as part of a continuous improvement program.
In a well-managed Lean environment, these principles logically lead you to pursue an Agile approach when it is best suited to your supply chain and products. Unfortunately, over the years many companies have merged the traditional purchasing approach of “buy big to save big” with cherry-picked Lean principles and branded it “Lean.” This has resulted in supply chains with long tails but cheap input prices, as companies stuff their supply chains and warehouses with low-cost items, tying up capital and warehouse space.
A Closer Look at Agile
The Agile supply chain has emerged in the past several years, partially as a response to the immediate gratification attitude that is fed by e-commerce. Customers are willing to pay extra for something unique, especially if they can have it quickly, before the market is flooded.
One of the key enablers of the Agile supply chain is that it is “digitized” and makes extensive use of real-time information to improve end-to-end visibility and tie into customer demand more closely. When demand is realized, the company configures the components into finished goods specific to the demand. This allows the supply chain to produce customized/near-customized products according to actual demand, instead of parking finished goods on a shelf in the warehouse per a forecast. This last-minute customization is known as postponement and is a huge factor in the higher margin and shorter lifecycle of the product.
Let’s look at this in practical terms. Forbes posted a good article late last year on the subject of Agile supply chains, listing the four components as:
The Best of Both Worlds
Agile is rightfully the next phase of Lean, with a little marketing razzle dazzle. Lean has evolved over the years, and technology has been a great catalyst. The Agile supply chain today is a Lean supply chain that leverages technology more effectively.
Zara: Lean and Agile in Motion
One master of both Lean and Agile is the fast fashion company Zara. Although not a 4SIGHT customer, Zara and its supply chain prowess have been written about extensively by publications such as Forbes, Inbound Logistics, and Business Insider. Zara eschews the forecasts that dominate clothing suppliers. Instead, they carry minimal stock at the start of a fashion season and stay “plugged in” to their customers via the web and store managers.
When a style catches fire after a fashion show, Zara leans on their tightly held vertical supply chain to manufacture (using Lean principles) the hot item to meet actual demand and rush it to the stores with short interval shipments. The result is hot items are in stores as the fashion wave builds, and customers are willing to pay more to ride the fashion wave. Zara shifts production when demand for an item slows, so at the end of the season they are left with very little surplus inventory.
By contrast, Zara’s competitors start the season with warehouses loaded with items expected to be big sellers. When items fizzle, the company is forced to unload the surplus at a heavy discount. But if demand surges beyond the forecast, the demand may outstrip the supply, resulting in lost opportunity sales. The pre-built forecast inventory becomes an albatross around their neck because matching forecast to actual demand can be extremely difficult.
Translating Theory Into Practice for Your Business
If the prospect of an Agile/Lean supply chain has you chomping at the bit, then your operations today are probably not as optimized as they could be, and you likely could benefit from a rigorous continuous improvement program. Perhaps you need a fresh set of eyes to uncover the hidden impediments preventing your operations from being truly effective. Habits and staid processes can blind you to the possibilities right under your nose, simply because “That’s how things work here.”
4SIGHT provides a neutral expert analysis of your operations to ensure you have an effective continuous improvement program that leverages Lean and Agile principles. Our goal is to help you stay at the forefront of supply chain excellence. Get in touch to learn more.