ReThinking Supply Chain Structure: Lean, Agile, or “Leagile”?
Category: Rebuilding the Supply Chain • Oct 21, 2020
Following the creation of the Toyota Production System and the work of James Womack, Ph.D., to make the term “lean production” known worldwide in the 1990s, most manufacturers had adopted the core concept: maximize customer value while minimizing waste.
According to the Lean Enterprise Institute, which Womack founded, “Lean thinking changes the focus of management from optimizing separate technologies, assets, and vertical departments to optimizing the flow of products and services through entire value streams that flow horizontally across technologies, assets, and departments to customers.
“Eliminating waste along entire value streams, instead of at isolated points, creates processes that need less human effort, less space, less capital, and less time to make products and services at far less cost and with much fewer defects, compared with traditional business systems. Companies can respond to changing customer desires with wide variety, high quality, low cost, and very fast throughput times. Also, information management becomes much simpler and more accurate.”
Agility for Flexibility
The concept of agility originated with flexible manufacturing systems and the use of automation to enable rapid change and faster response to changes in product mix or value, according to Martin Christopher, Emeritus Professor of Marketing and Logistics at Cranfield School of Management, Cranfield University.
In an article for Industrial Marketing Management (Volume 29, Issue 1, January 2000), Christopher states that “Agility should not be confused with ‘leanness’… Agility is a business-wide capability that embraces organizational structures, information systems, logistics processes, and mindsets. A key characteristic of an agile organization is flexibility.”
Christopher, known for his 1992 book Logistics & Supply Chain Management, says,
“The agile supply chain is market sensitive… [it] is capable of reading and responding to real demand. [However], because supply chains tend to be extended with multiple levels of inventory between the point of production and the final marketplace, they tend to be forecast driven rather than demand driven.”
Leagile–the Hybrid Model
To determine the most suitable model for an organization, consider that agile manufacturing works well where demand is volatile or in lower volumes; lean manufacturing works well when demand is stable, and volumes are higher. Of course, some companies have a product portfolio mix that combines predictable and unstable product demand and variability, indicating a hybrid approach would work best.
Christopher believes that “The challenge to supply chain management is to seek to develop ‘lean’ strategies up to [a] decoupling point but ‘agile’ strategies beyond that point. In other words, by using generic or modular inventory to postpone the final commitment, it should be possible to achieve volume-oriented economies of scale through product standardization.”
He goes on to note that there are actually two decoupling points. The first is “the ‘material’ decoupling point where strategic inventory is held in as generic a form as possible. This point ideally should lie as far downstream in the supply chain and as close to the final marketplace as possible. The second decoupling point is the ‘information’ decoupling point. The idea here is that this should lie as far as possible upstream in the supply chain – it is in effect the furthest point to which information on real final demand penetrates.”
The Oxford College of Procurement & Supply offers an excellent and concise article summarizing the lean, agile, and leagile approaches.
COVID and Beyond
As for life when the pandemic subsides, the manufacturing technology industry is now seeking supply chain strategies that are resilient yet agile. Agility will enable companies to better respond as demand rebounds and to adapt to as-yet-unknown customer preferences.
To help organizations determine a supply chain strategy moving forward, Kearney, a $1 billion+ Chicago-based management consulting firm with expertise in multiple manufacturing sectors, recently developed a resilience stress test. The test helps companies predict future supply chain stress points by evaluating their exposure based on eight metrics: suppliers, geography, inbound transportation, manufacturing, outbound distribution, product platforms, planning, and financial and working capital.
“A resilient supply chain is one that would continue to operate in spite of external shocks to meet volume spikes, adjust product offerings, respond to channel shifts, repurpose capacity, and anticipate disruptions while knowing the full implications and tradeoffs between cost, performance, and speed to market,” says Suketu Gandhi, Partner and Leader for Digital Supply Chain at Kearney, according to a June 29, 2020, article in Supply Chain Management Review Magazine.
Understanding which tradeoffs to make between cost, performance, and speed to market ultimately makes the difference between a company that will rise above the competition or get beaten. Right now, industry is in a race to rethink its supply chains. Visit IMTS.com/supplychain for additional content.
Rebuilding the Supply Chain
Whether you are an advanced manufacturer, job shop owner, or OEM, you are in the midst of your own supply chain challenges, uncertainties, and questions. In an extraordinary effort to support you, AMT and IMTS are dedicating signiﬁcant staff and ﬁnancial resources to help you rethink, reengage, and reestablish supply chains. Visit www.IMTS.com/SupplyChain to learn more!
Have you helped an OEM or manufacturer source closer to production? Share your experience at IMTS.com/stories.