Supply chain management encompasses all the steps involved in delivering a product or service from production to the end consumer. The longer and more complex a global supply chain is, the greater the risk of disruption between the extraction of raw materials and the point of sale (POS). So how can companies set up to be as resilient as possible in order to respond to volatile consumer behavior and rapidly changing economic conditions? In our latest article on the blog, we discuss the Lean and Agile models for supply chain management and explain how companies can benefit from the advantages of both strategies with a hybrid approach.
Lean strategies in SCM – the advantages
The lean approach aims to make processes as lean and efficient as possible. The core idea is to eliminate unnecessary resources and activities in order to reduce costs and increase quality at the same time. Ideally, a lean supply chain produces large quantities of goods at low cost. This, however, requires reliability and predictability: production is sometimes planned months or years in advance instead of adapting to current market conditions. The lean model is therefore suitable for product types that are functional, durable and long-lasting – and have consistent, predictable demand.
The lean supply chain should avoid anything superfluous. The advantages of a lean strategy in SCM therefore include
- Cost efficiency,
- reduced inventories,
- effective use of resources,
- higher process speed,
- shorter throughput times
- and the minimization of bottlenecks.
However, one significant disadvantage of the lean approach is the fact that while companies work extremely efficiently, they can only react to unexpected fluctuations in demand or changes in the market to a limited extent. This is where agile strategies come into play.
Agile strategies in SCM – how companies benefit
Agile strategies originate in software development and are geared towards the adaptability and flexibility of the supply chain. The focus lies on the need to be able to react quickly to changes in the initial situation – thus, planning cycles are shorter and decisions can also be made in a decentralized manner. Technologies such as predictive analytics, forecasting algorithms or data analysis are often used to enable managers to make well-founded, real-time decisions.
An agile supply chain reacts directly to actual purchasing interest instead of forecasting it. The approach is suitable for product types that are trend-driven, short-lived and have a market-based, volatile demand. The advantages of an agile supply chain include
- Customer centricity,
- high adaptability,
- rapid market launch,
- transparency
- and risk reduction.
One disadvantage of an agile SCM approach, however, is the fact that prices for certain product groups can be driven up depending on current demand.
Lean or agile – which approach suits your company?
The choice of a suitable SCM strategy often depends on various factors, such as the industry in which a company operates and specific challenges in the supply chain. To find out which approach is best suited for your own supply chain management, the following questions can help:
- What type of products or services are offered and how strongly are they affected by fluctuations in demand?
- How well does the current supply chain work? Are there any bottlenecks, delays or delivery problems?
- How quickly can you respond to customer needs?
- How fierce is the competition and how quickly do market conditions change?
- Are there other areas in the company where the lean or agile principle is applied?
- What specific risks can be associated with the respective model for the company?
- What are the long-term goals of SCM and which approach supports these goals more efficiently?
Often, a single model is not the only option for a company – nor does it have to be. While the lean and agile approaches were once opposing philosophies, they now form a synergetic duo: in practice, managers can therefore also apply a hybrid model in their supply chain and benefit from a powerful symbiosis. This is also known as the “LeAgile” strategy. But how does this work in detail?
LeAgile: How the lean and agile supply chain can merge
The successful combination of lean and agile requires careful planning and the ability to react flexibly to changing conditions. First of all, companies should segment their products and services: By creating clear criteria and guidelines for classification into the Lean or Agile category, the respective specific requirements can also be assigned. Lean principles are ideal for products with stable demand patterns and low volatility in order to ensure efficient inventory management. These include just-in-time deliveries, minimizing waste and streamlining processes. In areas where demand is volatile and difficult to predict, the agile model pays off.
Due to the different handling of the classified products, the hybrid approach also requires differentiated warehousing and procurement strategies. In general, the development of a strong supplier network ensures a reliable supply of the required raw materials, components and services. Especially in critical cases, long-term partnerships should be established in order to maintain a stable supply. Alternative suppliers or flexible agreements in turn create the necessary leeway to be able to react to sudden interruptions or fluctuations in demand.
The networking of the supply chain and real-time data collection from various logistics partners, suppliers and customers in a single, standardized SCM platform is also crucial for the hybrid model that merges lean and agile. The introduction of IoT sensors and advanced data analytics enables companies to monitor and control processes in real time and create forecasts to counteract bottlenecks. Digital tools can be used to ensure that the entire network is transparent– managers can monitor wastage of resources, overstocks, but also fluctuations in demand and market changes and therefore benefit from faster responsiveness. Continuous monitoring of both the lean and agile components in the supply chain is essential in order to be able to adapt strategies if necessary.
Conclusion: Lean and agile – trategies for adaptive supply chains
Companies face complex challenges: They must be able to respond to changes and volatile consumer behavior in a timely manner, operate cost-efficiently and maintain a high quality of service at the same time. The hybrid model of lean and agile SCM is therefore ideal for achieving the leanest possible operations and a rapid response to customer needs. The synergetic combination of the two approaches can make the difference between standstill and success and create a supply chain that is not only profitable, but also extremely adaptable and customer-oriented. The future of SCM lies in the skillful balance between forecasting and real-time data, between efficiency and flexibility.