Leagility – Combining Lean and Agile in your supply chain
“Lean thinking” embraces the elimination of waste in its various forms. Activities that consume resources but generate no redeeming value in the eyes of customers are wastes that must be eliminated in the “lean” paradigm.
Agility, on the other hand, emphasizes flexible, timely action in response to rapidly changing demand environments.
Though “lean” and “agile” strategies are often pitted as opposing paradigms, they share a common objective; meeting customer demands at the least total cost.
It is on the nature of that demand and the basis of meeting customer demands in which the two approaches differ.
Broadly 3 distinct hybrid strategies have been used:
1. Fast-moving products that make up the dominant 20% of the product line can be produced in a lean, make-to-stock manner given that demand is relatively stable for these items and that efficient replenishment is the appropriate objective. Meanwhile, the remaining 80% should be produced in an agile, less anticipatory manner, perhaps even employing make-to-order production to generate supply for only those items ordered when they are ordered.
2. Temporary capacity to meet the needs of peak demand. The base level of demand can be accommodated in a lean manner, using the company’s own resources to employ smooth production principles to maintain highly efficient operations. However, when demand spikes over the course of peak seasons or heavy promotion periods, outside capacity is procured to meet the heightened demands of these distinct time windows
3. Delaying the final form of a product until an order is received from customers dictating the quantity and qualities of the goods demanded. Lean operations in the production of generic, semi-finished product, and agile accommodation in the customization process.
There will be occasions when either a ‘pure’ agile or lean strategy might be appropriate for a supply chain. However there will often be situations where a combination of the two may be appropriate i.e. a hybrid strategy.
Hybrid supply chain strategies recognise that within a mixed portfolio of products and markets there will be some products where demand is stable and predictable and some where the converse is true.
Zara the Spanish fashion company provides a good example of this hybrid supply chain strategy
Approximately 40% of garments – those with the broadest and least transient appeal – are imported as finished goods from low-cost manufacturing centres in the Far East. The rest are produced by quick-response in Spain, using Zara’s own highly automated factories and a network of smaller contractors
Only those operations which enhance cost-efficiency through economies of scale are conducted in-house (such as dying, cutting, labelling and packaging). All other manufacturing activities, including the labour-intensive finishing stages are completed by networks of more than 300 small subcontractors, each specialising in one particular part of the production process or garment type. These subcontractors work exclusively for Zara’s parent, Inditex SA.
In return the companies receive the necessary technological, financial and logistical support required to achieve stringent time and quality targets. The system is flexible enough to cope with sudden changes in demand, though production is always kept at a level slightly below expected sales, to keep stock moving. Zara has opted for undersupply, viewing it as a lesser evil than holding slow-moving or obsolete stock.