In this second article, we explore agile supply chains and then consider the potential of using lean and agile in combination, a hybrid solution.
Lean supply chains
Lean supply chain management is essentially about lowering the cost base and reducing waste as much as possible. Read more about this in Part 1.
Lean supply chains operate efficient manufacturing processes and have lower administrative costs. The benefits can be significant: reducing capital tied up in inventory, improved customer services, increased capacity and not wasting time in routine day-to-day operations, all leading to greater profitability.
Its detractors cite lack of flexibility and possible over-application as shortcomings. It also has the reputation of stifling innovation because it emphasises tightly defined process improvements. However, any initiative that involves eliminating waste to save money must work well for most organizations.
Agile supply chains
Where markets are dynamic and volatile, especially when selling direct to the consumer, adaptability and flexibility become critical factors. Agile means that your supply chain is responsive and can deal with sudden changes in market direction or the failure of a supplier. Innovative companies, especially those in e-commerce that have a requirement for speed-to-market, have the most need for agile supply chains. Companies with a mature agile approach postpone their final production until the level of demand is clear although they may part-manufacture components in preparation. Some level of short-term forecasting is useful but it is dependent on real-time sales data. An agile supply chain must its market information to keep inventory at the most efficient level.
Agile supply chains prioritize adaptability to market demand and are therefore quick to respond. They schedule production based on what the customer wants, not what it holds in stock. Fast-fashion is an ideal application as is demonstrated by Inditex, one of the largest fashion retailers in the world. It has a flexible supply chain that includes more than 1,700 suppliers across 50 countries. It is the holding company of Zara, a Spanish fashion designer and retailer. What contributes to its success is:
- Market sensitivity. Teams of retail and commercial specialists plan their products based on sales data collected on the fashion trends of target customers around the world.
- Postponement of production. Less than half their garments are sourced as finished products from low-cost producers. At least half are manufactured at short notice, mostly in Europe, depending on demand.
- Manufacturing activities including labour intensive finishing operations are accomplished by a network of 300 specially trained subcontractors.
Communications and information technology company Nokia committed to achieving agility in its supply chain when it decided to move its manufacturing away from its home base in Finland. The company aimed to refocus lower-value activities closer to component sources, thereby increasing supply chain responsiveness and streamlined logistics. “We are aligning our manufacturing strategy to increase competitiveness,” said Nokia spokesperson Mona Kokkonen. “We need to optimize our manufacturing operations so we can collaborate more closely with suppliers and be more responsive to customers’ needs.”
Other I.T. systems companies such as Cisco have a highly diverse and extensive supply chain that spans the globe. Cisco was able to increase their agility, resilience and ability to scale by implementing new business models, a single ERP instance, standardization and automation throughout the supply chain.
Can you have a hybrid supply chain?
Major multinational companies have multiple business divisions and locations that require different approaches to supply chain management. Kimberly Clark, owners of such brands as Kleenex and Huggies, is an example. Kimberly Clark uses a traditional lean supply chain methodology in its normal business but when a product promotion is planned, they need to be more responsive to customers and suppliers and implement a more agile, collaborative approach.
Zara has a supply chain that is not only agile and flexible but incorporates many lean characteristics into its processes, especially when overseeing the operations of its subcontractors.
Is lean or agile better for your business? Maybe it is not an either-or option.