The Agile Supply Chain
Business Administration with Informatics
Faculty of Electrical Engineering
Kolade Abdul, Opamakinde.
“Turbulent and volatile markets are becoming the norm as life-cycles shorten and global economic and competitive forces create additional uncertainty. The risk attached to lengthy and slow-moving logistics ‘pipelines’ has become unsustainable, forcing organizations to look again at how their supply chains are structured and managed.” (Christopher, 2000).
Table of Contents
Table of Contents
Table of Contents 3
Understanding Both Processes 4
Agile supply chain. 4
Benefits of the Agile Supply Chain. 5
Disadvantage of the Agile Supply Chain. 6
The Lean Production. 6
Benefits of the Lean Production. 7
Disadvantages of the Lean Production. 7
The Agile Supply Chain Vs Lean Production 8
Agile or Lean Approach? 9
Growth development has been made more pertinent in the 21st century due to the unstable market conditions, this has made it necessary for more competitive strategies to be developed. Business, economics and the political environments are exposed now more than ever to unforeseen shocks. Businesses today are confronted by some strategic issues which varies from globalization to increasing powers of consumers and new rules of competition.
“Also, as a result of the recent economic meltdown, companies around the world are confronted by a perfect storm: frozen credit market and long global recession. Events are moving so rapidly that it is almost impossible to access the implication of the meltdown for the days ahead, let alone the years to come” (Njoroge, 2009)
The world is in the era of supply chain competition, where organization no longer acts in isolation as an independent entity, but as a supply chain to create value delivery systems that are more responsive to fast-changing markets, more consistent and reliable (Pandey, 2009). Seeking a solution to increase the responsiveness of supply chain in the current volatile market place has made the concept of agile supply chain popular, this process helps with flexibility and responsiveness.
Conversely, in a market that is more predictable and deals with high volume with minimal variety, lean production can be very effective in ensuring the maintenance of the competitive edge. This paper explores the similarities (if any) and the differences between both systems, putting them head to head.
Understanding Both Processes
Agile supply chain.
The agile supply chain basically refers to the use of responsiveness, competency, flexibility, and quickness to manage how well a supply chain entity operates on a daily basis. Unlike the lean supply chain, the agile supply chain uses real-time data and updated information, to leverage current operations and real-time data against demand forecast, which helps to improve the overall efficiency and productivity of the given entity (Robinson, 2016).
Agility is a supply chain-wide capability that embraces organizational structures, value chain configurations, information systems, logistics processes and in particular mindset and culture. A key characteristic of an agile supply chain is flexibility, which should be interpreted from two side of supply chain. From the inside of supply chain, such flexibility means configurations and structures are not fixed. They may transform quickly as the needs arises. From outside, i.e. from market and consumer perspective, the supply chain must deliver timely products and services; and deliver them at the beginning of the usually short profit widows; often to be innovative and to be the market leader (Conspecte, 2017).
Thus ‘agile supply chain’ is essentially a practical approach to managing supply networks and developing flexible capabilities to satisfy the fast-changing customer demand. It is about moving and transforming a supply chain that is structured around the focal company and its product categories to the one that is centered on end-consumers and their requirement (Conspecte, 2017).
The capabilities of an agile supply chain is created and measured from the ‘outside in’ as opposed to pushing product offerings into the market – the ‘inside out’. The strategic focus of an agile supply chain is a relentless pursuit of customer value in every part of its fabric. The operational planning of agile supply chain is focused on the capabilities for responsiveness and constantly in anticipation of unpredictable sudden changes in demand. Such capability building and customer attention cannot be achieved without a cost (Conspecte, 2017).
Benefits of the Agile Supply Chain.
The ‘agility’ and ‘responsiveness’ associated with the agile supply chain ensures the enhancement of the organization’s ability to change. Its main benefit is associated with the fact that its effective due to the ability to focus on the satisfaction of customers. The constant evolution of consumer needs in the current globalized world has ensured that a traditional manufacturing approach is not as effective adjusting to the trends which changes in the marketplace. Agile manufacturing can successfully do this in a quick manner.
“The length of trends is unpredictable. A new trend could appear in the time that it takes the traditional manufacturing process to shift to the previous trend it attempted to keep up with. The design of a modular product design will guarantee that the product is able to be tweaked and altered so that the final product will meet customer requirements without disrupting the manufacturing process as a whole. This ability will naturally improve customer satisfaction and keep them from other organizations that will fill their new requirements.” (Davis, 2017).
The agile supply chain is effective for mass customization also, adopting the agile supply chain practices by companies would ensure implementation of customization on an economically feasible scale. Other benefits include ability to operate with low inventory.
Disadvantage of the Agile Supply Chain.
Despite the positives and benefits of the agile manufacturing, there are certain disadvantages associated with the process too. The need for companies to constantly and consistently adapt to changing customer needs in the current business landscape has made it difficult for the efficient management of inventories. “If there is a large spike in demand to a new and popular product, it may be difficult to quickly respond since large inventory amounts are not included in this manufacturing system. For instance, the demand of a popular product in high demand could also experience a drastic drop. The result could leave an organization with unsold products. An organization could suffer in terms of financial cost and customer service. Since one of the main keys of agile manufacturing is knowledge culture, educating employees will be a significantly higher cost than it would be using a traditional manufacturing model. Your workforce will have to be highly skilled. New technology may need to be invested in when using a new modular product design. This can be difficult and of high cost. The increase in production downtime as well as maintenance, can be more complicated with the complexity of new technologies that may need to be invested in. The key to overcome these potential disadvantages is to have intensive management and planning required for the process to be smooth. This can be a difficult goal to achieve but it is possible with extensive and thorough research along with accurate planning that takes into consideration all the potential obstacles.” (Davis, 2017).
The Lean Production.
Lean production is a systematic manufacturing method used for eliminating waste within the manufacturing system. It takes into account the waste generated from uneven workloads and overburden and then reduces them in order to increase value and reduce costs. The word ‘lean’ in the term simply means no excess, so lean production can be translated simply into minimal waste manufacturing. (Techopedia, 2014)
Lean production is all about reducing waste, material waste, labor waste, time waste. The idea behind lean production is to relentlessly work on eliminating any form of waste from the manufacturing process. According to research conducted by the Lean Enterprise Research Centre (LERC), fully 60% of production activities in a typical manufacturing operation are waste – they add no value at all for the customer. This makes it pertinent for companies to embrace the lean manufacturing procedure.
“Lean concepts are mostly evolved from Japanese industries especially from Toyota. Lean Manufacturing is considered to be a waste reduction technique as suggested by many authors, but in practice lean manufacturing maximize the value of
the product through minimization of waste. Lean principles define the value of the product/service as perceived by the customer and then making the flow in-line with the customer pull and striving for perfection through continuous improvement to eliminate waste …” (R.Sundara, 2014). It has been proven to be transferrable and applicable to a wide variety of industries and services. “In practice, lean manufacturing is an operating philosophy that yields a number of long-term benefits that aren’t always obvious to those who are considering adopting it.” (Frigo, 2018).
Benefits of the Lean Production.
The most important benefit of lean production is that it prevents waste. This has its short and long-term benefit. Looking at the Toyota case study and how they successfully incorporated the lean production methods to increase efficiency, it is fair to say the lean production method is effective.
“The lean framework of engaging stakeholders in the co-creation of the company’s product-service strategy takes the guesswork out of strategic planning because it exposes ownership to other viewpoints that ultimately determine the company’s success. This is consistent with Return Driven Strategy, a framework for analyzing a business and prioritizing its plans so they are more executable and drive growth and profitability. A key tenet of this strategy is Map and Redesign Processes, a methodology for engaging all stakeholders—both internal and external—in clarifying, defining and achieving the organization’s purpose. This is particularly beneficial for small- to medium-size manufacturers (SMEs). Many SMEs are led by founders who make operating decisions based on their personal knowledge of customers, suppliers, employees and the market.” (Frigo, 2018).
Furthermore, the financial benefits can be huge too. “If the LEAN principles are properly set in the organization, the financial benefits are highly significant. A satisfied customer will make any business operate smoothly. The reduction in waste and defects adds additional money which should be set into quality improvement and the better product quality ensures higher profit. The money saved on product storage and inventory management adds additional cash flow in the company. However, less employees means additional training for workers but with clear work instructions and standardized work the job is easily and more eagerly performed. Managing satisfied workers is easily conducted and makes any business prosper on the long run.” (Thomas, 2015)
The business philosophy called lean manufacturing or production has proven highly successful mainly because it reduces costs, increases productivity, eliminate wastes. It also maintains high levels of quality, this makes it possible for a significant increase in profits.
Disadvantages of the Lean Production.
The single biggest criticism of lean manufacturing is that the constant focus on improvement and elimination of waste becomes an obsession and causes stress in the workforce. Lean makes the workplace too clinical and impersonal, with workers under relentless pressure to do better than before. While such pressures lead to workers stepping out of their comfort zone and assuming a sense of urgency, it also increases stress levels considerably, and high stress levels can have determinable effects on productivity and efficiency (Nayab, 2011).
Another major criticism of lean manufacturing is the over-focus on elimination of waste overriding other concerns. Lean strives to ensure productivity and efficiency primarily through cutting flab, but in the process, ignores other crucial parameters such as employee wellness, and corporate social responsibility. A company, for instance might recruit additional workers than necessary as part of its corporate social responsibility necessary to establish good relationships with local communities. Similarly, top management might need to spend an extensible amount of time to lobby and socialize with external agencies to secure orders and negotiate extensively. Lean does not cater to such unconventional requirements (Nayab, 2011).
Lean production can bring about supply problems, “Because only a small amount of inventory is kept on hand, lean manufacturing depends heavily on suppliers that can provide products for the manufacturing process dependably and without interruption. Problems like employee strikes, transportation delays and quality errors on the part of suppliers can create manufacturing holdups that can be fatal. Vendors may be unable or unwilling to supply parts or products on a tighter schedule or in smaller amounts. These needs can burden suppliers with unprofitable costs and create tensions that ultimately affect the manufacturing process and can cause frequent changes of suppliers, or even difficulties finding suppliers who can provide on the necessary schedule at all.” (Wood, 2017).
Other disadvantages of lean production include but not exclusive to high cost of implementation, lack of acceptance by employees, customer dissatisfaction problems due to unnecessary delays.
The Agile Supply Chain Vs Lean Production
It can be deduced from the previous chapter that these are two different strategies. While the agile supply chain has to do with responsiveness and speed of adaptation to change, lean production is essentially about cutting waste. “A lean supply chain is cost-conscious and efficient, but it won’t be able to respond to new demands quickly. On the other hand, an agile supply chain is highly adaptable, but it can become hard to control and predict.” (Next process, 2016).
Both agility and leanness demand high levels of product quality. They also require minimum total lead-times defined as the time taken from a customer raising a request for a product or service until it is delivered. Total lead-time has to be minimized to enable agility, as demand is highly volatile and thus difficult to forecast. If a supply chain has long end-to-end lead-time then it will not be able to respond quickly enough to exploit marketplace demand. Furthermore, effective engineering of cycle time reduction always leads to significant bottom line improvements in manufacturing costs and productivity (Towill, 1996). Today’s global market has made it necessary for companies to make everything distinctively as possible. With each passing day, commoditization (which essentially means the process by which goods that have economic values and are unique in terms of attribute end up becoming simple commodities in the eyes of the market), is reducing. “Markets are reorganizing from mass markets into highly fragmented niche markets.” (Bhatia, 2004).
Agile or Lean Approach?
How does a company decide on the best approach? While both has distinct functions, the ultimate goal is to be as efficient and as satisfactory to consumers as possible. The answer can be quite complex because the world over, intelligent supply chains use both lean and agile for their benefits. In today’s global economy, producers and consumers are mostly separated by millions of miles.
“Deciding whether to adopt a lean or agile supply chain strategy can often be as simple as determining a product’s appeal, via basic market research, and establishing a supply chain accordingly. However, the more successful supply chains come together when businesses take a broader view of the market, taking into account wider economic factors that may influence customer demand in the longer term.” (Guy, 2017).
According to Guy (2017), some questions are worth considering to help determine the right supply chain strategy. The questions are as follows;
• What goods are you producing? How consistent are these products’ sales throughout the industry?
• Who is your target audience? What is their consumer behavior?
• What is the demand for your product today? Will this demand change and fluctuate rapidly?
• How quickly does your target market change?
• How will fluctuations in the economy influence your product, your consumers, and spending habits?
• What does your supply chain look like?
• How do your supply chain partners operate?
The difference between lean and agile is the fluidity with response to the market. A lean supply chain focuses on cutting costs by producing high volumes of products with low variability. An agile supply chain focuses on responding to the market demand with smaller, customizable batches of items. Often a lean supply chain is more cost-effective and predictable, while an agile supply chain is more flexible and adaptable (Guy, 2017).
There is simply or correct answer to the lean vs. agile supply chain methodology debate, but it’s essential to understand the following: supply chain has one purpose and it’s to guarantee the customer’s happiness by making sure customers get their products or services on time, in the right quality and at the right price. “No individual would ever attempt to argue the truism that supply chains are a remarkably complex species at most of the time. While to answer the debate of lean vs. agile supply chain choice for an organization without additional business insights or data is not straightforward, the most likely answer is ‘use lean, but don’t ignore agile!’ Purism is rarely the answer, and the world’s most intelligent supply chain professionals realize the value of nuance.” (Ahmed, 2016).
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