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Supply Chain Methodology: Lean vs. Agile Supply Chain

Agile Supply Chain
Archives, Global Logistics, Global Trade Daily, Warehousing

Supply Chain Methodology: Lean vs. Agile Supply Chain

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As for now, the consumer’s behavior and needs change every day under the economic alteration. So, the supply chains depend not only on on-demand and delivery. Shippers have to go on with the consumer’s needs and satisfy them.

The supply chain has to work according to the hesitations on the market. There are two types of customers in the contemporary market: digital and global. It means each potential customer has the access to each product of every company under the hand. Such a situation only exaggerates the competition between the manufacturers. It forces the companies not only to innovate the products but make a faster supply chain. The pace of delivery to the markets designates whose product will be bought.

More than that, the trends quickly pop up and disappear from the market. The companies need to maintain flexibility and adapt products under the demands. In order to cater to the changes, companies have two ways to work under the hesitation of the supply chains. They are well-known as the agile supply chain and lean supply chain.

Which direction is better for your business? How to designate it? Keep an eye on the main differences to find out.

What Is Lean Supply Chain?

The lean supply chain is dedicated to decreasing prices and waste. This system is oriented to fruitful and rational operations. As a rule, cooperation is going between the supplier and the company. The work under one agreement. 

In the lean supply chain, all are accessible, which has values for the customer. The other unnecessity elements are eliminated. Working with the lean supply chain suppliers take into consideration only those steps, which make the values of the products and services a lot higher.

This type works on the predictions of the needful products as well. There are no over-made goods, which customers do not need at all. It works with toilet products, for instance. Now, get into more details about the lean supply chain for your business. 

Manufacturing 

The lean supply chain is the perfect choice to control manufacturing. This type works on the predictions, which help to understand the demand of consumers in the future. As a result, companies make such products, which the buyers need. 

The producer of sports footwear Nike has around 700 factories in 42 countries of the world. This company uses the lean supply chain to decrease the waste of materials, increase the productivity of work and make a better profit. The high productivity of workers leads to the good quality of the goods and well reputation on the world market. 

Stocking

The other advantage of the lean supply chain is the minimizing of stocking space. As a lean supply chain works on the reduction of unnecessary products, it helps companies to decrease the expenses on warehousing. The world popular company H&M uses this strategy. They work only on the needs of potential clients, but without the storage of clothes.

How To Implement The Lean Supply Chain?

Like the other supply chains, lean needs time to show the results. First of all, the adoption of the system by the company plays a big role. Often, companies include all wastes in everyday activity and it’s normal for them. With the lean supply chain, people have to eradicate this strategy and turn out into the other one. 

The results of the lean supply chain will be visible:

-A significant place in the market

-Reducing the expenses on stocking and material

-The increasing capacity

-Better customer service

-Higher productivity

What Is The Agile Supply Chain?

The concept of the agile supply chain was found in early 1995. This strategy is more compatible with the hesitative market, as it is driven by the demand. Speed, Cost, and Efficiency are the basic factors of the agile supply chain. This chain works regarding the real situation and demand on the market, but not on the forecasts. 

There are four main components, which designate the work of this chain.

Virtual Incorporation

The agile supply chain has the target to satisfy the needs of the market and end consumer. To make it, different departments collect the information about the current situation, designate the lack or overwhelming of certain products. Via the virtual incorporation, the agile supply chain gets information about different kinds of problems and finds ways to improve them.

Strong Network Connections

Every single participant of the agile supply chain has an important role to reach success. The duties are equivalent, so everyone should complete the responsibilities. Hence, the success of the agile supply chain does not rely on one participant, but on all of them.

Responsive Market

The agile supply chain works with the current situation on the market. The departments every day collect the information about the situation on the market today because the information about yesterday is the old one.

 This supply chain is relying highly on the desires and thoughts of the clients. The demand of the client today designates what would be on the market tomorrow. Regarding all that, the voice of the consumer drives the agile supply chain. 

Key Features Of The Agile Supply Chain

For your information, the considered strategy is the most popular in the modern market world. The Agile supply chain has the most impressive impact on inventory management. Excess materials and the lack of certain inventory can be overcome using this strategy. 

As for now, companies use modern software to regulate inventory circulation. To operate the agile supply chain successfully, the availability of modern software is a necessity. The old versions and bad quality of technologies can lead to problems with the agile supply chain.

According to the information of the world-known and lead producer McKinsey & Company, around 94% of the companies, which have implemented the agile supply chain, complete the orders on time without keeping the inventory even for 85 days. For comparison, companies, which do not use the agile strategy, keep the inventory for more than 108 days.

What Are The Benefits Of Agile Supply Chain?

All in all, an agile supply chain is not only the type of strategies to keep on supply and demand. It is a new way to solve a lot of problems and confirm success. The agile supply chain is the way to increase operative deliveries in the changing environment. This strategy is behind the competition, as companies can use this kind of supply chain without the help of others. 

Effective agile supply chain brings the company possibility to:

-Streamline inventory

-Decrease expenses

-Create the anticipatable supply chain

-Complete new demand of the customers in a short period of time

-Fast producing

-Increase profit

What Is The Difference Between Lean And Agile Supply Chain?

Under the information above, it is clear what is the difference between the considered supply chains. However, there is one specific feature about the implementation of the lean supply chain in the agile one. 

Lean concepts allow reducing the number of expenses for the companies. For instance, the usage of computers allows making the order in a few minutes, which increases productivity. Despite this, the information, which is given in the result of the lean supply chain does not give predictions about the market’s needs in the future. As a result, this supply chain has problems with visibility, which can lead to overstocking. 

On the other hand, the agile supply chain can fastly get used to the changing environment, economy, individual reasons, tendencies, and other factors. It is easier to overcome the disorders and renew the process.

Hybrid Strategy

In some cases, the lean supply chain is the best, when in others the agile chain will fit very nicely. Besides, more and more companies find the implementation of both supply chains will satisfy their needs fully. A lot of modern powerful companies faced the regarded situation and tried to mix strategies.

To make it excellent, the companies made carefully the plan of how to implement the combined supply chain. It is especially difficult to cooperate with the moving parts.

A Spanish fashion designer Zara uses the mixed supply chain. The company makes all of its own strength. The subcontractors complete only the subsequent functions. As a result, Zara has not only a supply chain with lean characteristics but agile and flexible as well.

As Zara works inside the company, other producers use the hybrid sample, but work more with the subcontractors. They complete different production processes in different locations and parts of the world. However, in this case, the combination of lean and agile supply chains has a nice result.

It seems every company can find a separate way of combining different strategies. In the modern fastly changeable world companies are interested in using both strategies.

How To Choose The Better Supply Chain For The Company?

To take the right way in the system of supply chains, try to answer the next questions:

-What do you produce? Which kind of products do you want to sell?

-Designate the audience of consumers and their conduct.

-How is the demand for the product change? What are the reasons for changing? Build the forecasts for it.

-How fast do your market audience change?

-Which impact has the economy on your product, it’s the cost on the market and consumers?

-Which supply chain do your partners use?

Answering the questions above, it will be easier to decide what is better for a certain company to stay popular and produce demanding products on the market.

Final Thoughts

To sum up, both lean and agile chain supply are perfect choices for the entities. Each of these strategies is new and well-adapted. The benefits are visible and reachable in case you choose what is better for your manufacturers. The main difference is in the flexibility of reactions to the market changes.

The lean strategy is designed on cutting costs on producing a big amount of products with bad changeability. At the same time, the agile system offers to react to the changes with the small and configurable deliveries of goods. Keep in mind that a lean supply chain is more profitable and predictable, but the agile one is more adaptable and flexible.

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Egbert Feron is a freelance content writer and blogger, currently working at csgo-bets.org. He learns his entire life with curiosity and shares his knowledge with others in a simple and understandable way. Topics Egbert covers include technology, marketing, business, and lifestyle.

resilience
Archives, Global Trade Daily, Stories

The Importance of Supply Chain Resilience

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Acknowledging potential weaknesses in your supply chain before they are exposed by elements beyond your control is of critical value. With current events in mind, managing future supply chain disruptions will be an integral component of corporate strategy. Calling it Supply Chain Resilience, Supply Chain Disruption, or Business Continuity Management (from the ISO 22301 standard) does not affect the necessity of having strategies in place that may make the difference between following or leading in a disrupted economy, and even between surviving or folding.

To identify potential soft spots, a review should not be limited to a single product flow or single supply chain element. For any company, the next big disruption does not have to be a pandemic; it can be something minuscule on a global scale, yet have the same devastating effect on the ill-prepared in particular trade lanes or in a particular industry. Unpredictable is not a reason to be unprepared. Creating supply chain resilience is a holistic exercise that involves more than just a few savvy logistics people. HR, finance, compliance/legal (to name a few) are all stakeholders in a healthy case of business continuity management.

How then to build a strategy? Like any other strategy, the process seems logical: review, assess, and mitigate. In this particular case: 1) review your tradelanes, products, and materials flow by matching them against risk categories (i.e., labor, business risk, global trade, nature, and materials), 2) assess risks for each combination, and 3) mitigate risks by either changing behavior now or planning for alternate (sourcing) options should the anticipated risks become reality.

Trade Lanes and Risk Categories

The relevant components to review within the supply chain include the importing and exporting country or countries, the manufacturing locations, the finished goods, and the (raw) materials. Ideally, for finished goods and materials, the associated Harmonized System (HS) codes are made available. Scratch what does not apply and move to the following step where each of the ‘inputs’ is categorically reviewed.

As mentioned, this should not be an exercise limited to supply chain professionals. For example, labor risks can be associated with the likelihood of strikes, wage volatility, and the availability of appropriate labor resources—not necessarily areas that keep the supply chain brain occupied every day.

In a similar fashion, other resilience elements expand across different areas of expertise. Business risks relate to cybersecurity, corruption, counterfeit products, and the chance of entering into business with bad actors that are on (any of the) denied party lists.

Global trade accounts for the compliance requirements related to the shipment of goods (i.e., licenses, documentation, permits, etc.), associates the products with the various duties and taxes, and identifies if Free Trade Agreements(FTA) apply and how to qualify for preferential treatment.

Arguably the most unpredictable, but not the least expected risk to account for, is nature. It’s important to identify the various kinds of disasters that may hit: natural hazards, pandemics or epidemics, flooding, earthquakes, hurricanes, volcanic eruptions, landslides, or drought can all play parts.

Lastly, consider materials. Understanding the market comes with insights into scarcity, sourcing locations, and price fluctuations.

Risk Assessment

Risk assessments match the input with the risk categories. For example, how vulnerable is the manufacturing location when it comes to labor regulations, corruption, or flooding? Is there an FTA in place that could potentially lower the import duty burden? Where in the supply chain can a cyberattack be most expected? In short, some homework is in order to create a thorough risk profile.

For many components, the sources are readily available, such as the Corruption Index at transparency.org, labor statistics on Statista or NationMaster, or duty rate information from the various global trade content providers (or the WTO).

Building Resilience

As with cyber-security risks (PEN tests) or a regular laptop virus scan, supply chain risk assessments will point out the components that need immediate attention or, in this case, are a high priority for alternate sourcing or routing options. It’s then time to build that resilience.

Look for options by analyzing the market and tradelanes. Mine import and export data to identify alternative sources for goods and materials, even manufacturing locations. Map out alternative routes for products to get where they need to go. Document the reasonable options and share with as many people as possible—preparedness is, of course, an all-inclusive strategy.

Next and where possible: test run! Re-route shipments temporarily or source occasionally from a new supplier; in other words, make sure the alternative options are viable. In addition, communicate with external sources that would be part of continuity plans. Make them aware they are part of these plans; put people or suppliers on a retainer and try to agree on terms before disaster strikes so the projected costs can be anticipated better.

Lastly, keep those alternate plans up to date; otherwise, it may be too late to create and execute on alternate alternative plans.

lean supply chain
Archives, Global Logistics, Global Trade Daily

LEAN OR AGILE? FOR A COMPETITIVE ADVANTAGE IN THE SUPPLY CHAIN, THE ANSWER IS BOTH

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Maintaining competitive advantage in the global logistics playing field is no easy task. There are hundreds of companies striving to earn the loyalty and business of global and domestic clients and the competition is becoming more intense with each passing day. Thanks to technology, companies are now able to take a step back and truly evaluate what structures make the most sense to meet customer demands in unpredictable markets.

Technology offering features such as predictive analytics are enabling logistics leaders to employ proactive measures for even the most complex of disruptions. However, readily available technology does not prove successful without careful consideration of the right platform and what supply chain management structure will meet the needs for specific company goals and customer demands. Company A might require a lean approach, while company B requires characteristics of both lean and agile supply chain structures. Before diving into which one benefits the most, it’s important to understand the differences between the two. 

An agile supply chain structure focuses heavily on layered benefits including visibility, predictability, and speed in terms of reaction times. Lean supply chain focuses on the most cost-effective options, ultimately reducing costs and recovering what’s been spent. Both are extremely important and attainable, but the trick is finding the right balance between the two while recruiting the best partners fit to support meeting the needs of customers. This element is critical in maintaining competitive advantage and ultimately makes or breaks customer relationships. 

“Everyone is striving to find that balance between having an agile supply chain and a lean supply chain because logistics and transportation costs fall to the bottom line,” explains Matt Castle, vice president, Global Forwarding Products and Services at C.H. Robinson. “These costs need to be recovered at some point in time, regardless of what business you’re in. There’s always going to be a focus on ensuring a lean supply chain in terms of cost and the economy, as well as how to find that balance of also maintaining flexibility based on the needs of the business. Having that agility can be a major differentiator in delivering on customer expectations.”

Castle adds: “Another question to think about is how to approach diversification in your supplier base. There can obviously be restraints based on a particular importer or exporter in terms of where they’re sourcing or buying product and availability, but I recommend ensuring you have an outlet from a secondary supplier. It’s worth the front-end legwork from a planning perspective to ensure you have a multitude of choices.”

The advantages of agile supply chain go far beyond mastering efficiencies or recovering costs and requires taking a holistic look at all the moving parts of your business. Implementing this type of approach relies heavily on planning and thinking differently in approaching the management of customer expectations while ensuring your business can offer a level of flexibility your competitors can’t offer. 

“When I think about an agile supply chain, I think about having flexibility—the ability to adapt at a quick pace, speed and the ability to recover from a certain level of uncertainty,” Castle says. “I believe it’s important to collaborate with a company that has a diverse portfolio of services. This is so businesses are able to adjust quickly from an ocean service to an air service, from an intermodal to a truckload, or even breaking down at a warehouse facility, LTL or small parcel.

“Having a provider that can seamlessly move from one product to the next is extremely important. It’s also important to ensure you’re engaging with a provider that has a global footprint. There are different scenarios playing out in different countries, so your ability to have a presence that can engage a global environment is critical.”

Any business implementing an agile supply chain approach must ensure supporting providers and partners are a good fit. Choosing the right third-party logistics provider can determine just how quickly your business can recover from an unpredictable situation and continue operations. Uncertainties cannot be completely eliminated, but they can be managed in a way that your business and customer relations do not suffer with the right partner. Without this, an agile supply chain structure is limited. 

“When thinking about uncertainty in the supply chain, having a third-party logistics provider that’s multimodal or that offers a variety of products allows you to seamlessly move from one product to the next,” Castle advises. “That is one of the best defenses against being able to navigate any level of uncertainty–from speeding up or slowing down products. It comes back to having some level of a global presence, as it’s something a lot of importers and exporters are trying to navigate today.”

Technology is equally important when aligning operations with an agile approach. This also requires careful consideration of what works in terms of what kind of products and the regions associated with operations. The technology needs to provide a level of visibility that enables your business to react to a variety of disruptors–from weather to policy, disruptions can come in different forms and require proactive, quick solutions to mitigate additional risks. 

“Put simply, it’s a matter of having product available–whatever your business may be, to either sell or have within the production cycle so that you’re not ending up with a plant shutdown,” Castle says. “An agile supply chain creates an opportunity to deliver product on the shelf that a competitor isn’t able to.”

“For C.H. Robinson, Navisphere is our technology platform. Managing any kind of supply chain is about how you bring visibility to what’s happening with the movement of your goods. What’s changing in terms of expectations around technology is how do you start to weave different factors in so that it starts to align with more predictive elements.”

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Matt Castle is vice president of Air Freight Products and Services at C.H. Robinson. He joined C.H. Robinson in 1996 and has 25+ years of experience in the transportation industry. Castle is responsible for driving growth through global airfreight product. He received his degree in Aviation Administration and Management from the University of North Dakota.