Supply Chain Strategy: Lean vs Agile

Supply Chain Strategy: Lean and Agile

• Supply chain strategy defines material procurement, transportation, manufacturing, service creation, distribution, and follow-up service processes, determining if they are in-house or outsourced.
• Logistics and supply chain management (SCM) are cross-functional activities impacting all business divisions and functions.
• Two key logistics and SCM strategies are Lean and Agile.

Top-Down Perspective on Strategy

• Corporate strategy influences business unit strategies, which, in turn, drive functional strategies. This is a hierarchical approach.

A Holistic View of Logistics and SCM Strategy Formulation

• Supply chain strategy is foundational to overall strategic action.
• Logistics and SCM activities transcend individual functional divisions.
• Lean and Agile are key logistics/SCM strategies.

The Evolution of Production Strategies

• Production strategies have evolved from craft production to mass production (early 20th century), to Lean production (post-WWII), then Mass Customization (late 20th), Additive Manufacturing, and Servitization (21st century).
• Output volume and variety have changed significantly over time.

Lean Production

• Lean production emphasizes waste minimization through operational practices.
• A pull system (responding to consumer demand) is preferred over a push system (anticipating demand).
• Just-in-Time (JIT) inventory management aims to receive goods as close as possible to when needed.

The Seven Wastes (Muda)

• Lean production aims to eliminate seven types of waste: Overproduction, Waiting, Transportation, Inappropriate Processing, Unnecessary Inventory, Unnecessary Motion, and Defects.
• Recently, underutilization of resources has been added as an eighth type of waste.

The Seven Wastes (Muda) – Detailed Breakdown

• Overproduction: Producing more than is needed, leading to overstocking.
• Waiting: Inefficient process design; work-in-progress waits for resources (machines, operators).
• Transportation: Unnecessary physical movement of products; non-value adding. This is illustrated by the transportation of bananas or medicine, which merely moves them from point A to point B.
• Inappropriate Processing: Unnecessary or inefficient processing steps that do not add value to the product.
• Unnecessary Inventory: Holding excess inventory—holding inventory just in case is costly.
• Unnecessary Motion: Unnecessary movement of people or materials in the production process.
• Defects: Products with defects often lead to delays.
• Underutilization of Resources: Inefficient resource utilization, especially in service businesses.

Five Key Principles

• Identify value creation from the customer's perspective.
• Map the value stream (customer value creation process).
• Ensure efficient process flow with no waiting.
• Employ a pull system, responding to customer demand instead of anticipating it.
• Identify root causes and strive for perfection.

Lean Consumption

• Completely solving the customer's problem.
• Eliminating customer time waste.
• Providing exactly what the customer wants, where and when they want it.
• Continuously aggregating solutions to decrease customer inconvenience.

Agile Supply Chains

• Customer demand and product variety are unstable, making outsourcing, globalization, and technology improvements necessary.
• Enabled by mass customization.
• Agile supply chains are designed to manage volatility without problems through the structure, organizational processes, and supply chain relationships.

Mass Customization

• Customization postponement is central to mass customization.
• Customization is done as late as possible in the process.
• Packaging also often utilizes postponement.
• Different customers may have different packaging needs.
• Services, like fast food restaurants, often customize the final product as close to the point of purchase as possible.
• Decoupling point: The point at which a base product becomes a customized product.
• Stock-keeping units (SKUs) are different for mass customized products.

Comparison of Lean Supply with Agile Supply

• Lean supply focuses on commodities with stable demand; Agile supply focuses on volatile demand and fashion goods.
• Lean supply prioritizes price, physical costs, long-term contracts, and algorithmic forecasting; Agile prioritizes availability, marketability, immediate capacity assignment, and consultative forecasting.

Combined Logistics Strategies

• Lean, continuous replenishment is suitable for predictable demand and short lead times (e.g., retail clothing).
• Lean, plan, and execute applies to predictable demand with long lead times (e.g., Christmas trees).
• Agile, quick response is for short lead times with unpredictable demand (e.g., Zara).
• Leagile, postponement applies to situations with long lead times and unpredictable demand (e.g., computer keyboards).

The Leagile Supply Chain

• A combination of Lean and Agile strategies in a supply chain.
• Using Lean for standardized components and Agile for customized final assembly/products.

Critical Factors to Consider in Supply Chain Planning

• Focus on processes and flows of the entire supply chain.
• Develop agile and adaptive high-level objectives.
• Incorporate people, process, and technology.
• Understand that supply chain structure greatly impacts competition and success.

Explore the key elements of supply chain strategy, focusing on Lean and Agile methodologies. Understand how corporate strategy influences business unit strategies and the holistic view necessary for effective logistics and supply chain management. This quiz will delve into the evolution of production strategies and their impact on supply chain success.