The principle that an organisation can only succeed by doing key activities better than competitors or by doing completely different activities than competitors can be traced back to Selznick (1957). The same principle can be found in Porter’s (1996) theory that companies have to choose to perform activities differently or to perform different activities than competitors. This is in line with the earlier distinction that Porter (1985) made between the strategy of cost leadership (offering the same, or comparable products or services at a lower price) and that of product/service differentiation (offering products / services that customers cannot find elsewhere).
Fisher (1997) uses these principles to distinguish between physically efficient supply chains (able to respond to predictable demand efficiently at the lowest possible cost) and market responsive supply chains (able to respond quickly to unpredictable demand in order to minimise stock-outs, forced markdowns and obsolete inventory). Fisher (1997) further highlights the importance of considering the nature of the demand for a company’s product before devising an adequate supply chain strategy: physically efficient supply chains should focus on the delivery of functional (commodity) products, as they have stable, predictable demand and long life cycles, while market responsive supply chains
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should focus on the delivery of innovative (fashion) items, as their demand is unpredictable and their life cycles much shorter.
In the operations and supply chain management literature these two generic strategies are commonly phrased as ‘lean’ and ‘agile’. The origins of lean philosophy can be traced to the Toyota Production System. Essentially, a lean strategy aims for the lowest possible cost with efficient flows of materials that eliminate waste, minimise stocks, reduce lead times, use fewer resources, employ fewer people, remove duplicated effort and so on (Bicheno, 2004; Walters, 2007). Although this may seam a sensible approach, leanness can put too much emphasis on cost, takes a ‘product push’ approach and does not have the flexibility to deal with the rapidly changing conditions that characterise today’s markets (van Hoek, 2000). As an alternative, the agile strategy emphasises the importance of the customer and focuses on maintaining a good level of productivity under pressure of uncertainty (Helo, 2004) – mainly caused by increasing competition, more sophisticated customers, changing customer requirements, variable demand, unforeseen conditions, natural disasters, etc. (Walters, 2007). At its simplest, the lean paradigm is most powerful when the winning criterion is cost; however, when service and customer value enhancement are prime requirements for market winning then the likelihood is that agility will become the critical dimension (Christopher and Towill, 2001).
To further distinguish between the two strategies, based upon the existing literature at the time on lean thinking, agile manufacturing and supply chain management and pertinent case material, in their paper ‘Leagility: Integrating the Lean and Agile Manufacturing Paradigms in the Total Supply Chain’, Naylor et al. (1999) develop the framework illustrated in Figure 3.1., which presents some of the key characteristics of the agile and lean paradigms. The table indicates the prerequisite characteristics of the lean and agile paradigms, which have been classified as essential, desirable and arbitrary for a given paradigm to be successfully implemented. To highlight the role of flexibility in the context of both supply chain strategies, it should be noted that agile manufacturing calls for a high level of rapid reconfiguration and will eliminate as much waste as possible but does not emphasise the elimination of all waste as a prerequisite.
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Lean manufacturing states that all non-value adding activities, or muda, must be eliminated. The supply chain will be as flexible as possible but flexibility is not a prerequisite to be lean (Naylor et al., 1999).
While the ‘muda’ and ‘reconfiguration’ characteristics are similar for both paradigms, the issue of flexibility then leads to the differentiation highlighted by the latter two characteristics, namely ‘robustness’ and ‘smoothing demand’. Agile supply chains must be flexible, and hence robust, to changes or disturbances and will in fact exploit this capability to achieve competitive advantage. In contrast, lean systems aim to minimise internal and external variation as much as possible (Naylor et al., 1999).
Keyword Lean Agile
Use of market knowledge
Virtual Corporation / Value Stream / Integrated Supply Chain
Lead Time Compression
Eliminate Muda (Waste)
Rapid Reconfiguration
Robustness
Smooth Demand / Level Scheduling
= Essential, = Desirable, = Arbitrary
Figure 3.1. Rating the Importance of Different Characteristics of Leanness and Agility (Source: Naylor et al., 1999, p.109)
f Different Characteristics of Leanness and Agility
The issue of flexibility is further highlighted in Figure 3.2, which shows the two dimensions of product variety and production variability, linking to the concepts of mix flexibility (ability to cope with demand for product variety) and volume flexibility (ability to cope with demand for variability in production output levels) respectively (see, for example, Slack, 1987). While the figure has four quadrants, Naylor et al. (1999) highlight that the shading is a more important consideration. The darker areas on Figure 3.2. tend towards leanness and the lighter areas to agility. The dominant factor is whether there is a need for volume flexibility, hence where there is clear differentiation between agility and leanness. In contrast, as can be seen from the degree of shading in the y-axis,
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lean systems may cope with a fairly high degree of mix flexibility, allowing for variability in product variety.
Figure 3.2. Flexibility in Satisfying Demand for Variety of Products and Variability in Demand (Adapted from Naylor et al., 1999, p.112).
Demand
At first sight it may seem difficult to reconcile the aims of lean and agile strategies. One minimises costs, and sees customer service as a constraint; the other maximises customer service, and sees cost as a constraint (Walters, 2007). Naylor et al. (1999) highlighted how the best of both worlds could be achieved by the prudent integration of the two concepts in order to develop what they ultimately decided to call ‘leagility’. Using Hewlett Packard as an example, the concepts of decoupling and postponement were utilised as means through which the two different strategies could be combined.
- De-coupling advocates the idea of holding inventory in some generic or modular form and only completing the final assembly or configuration when the precise customer requirement is known (van Hoek, 1998; Christopher and Towill, 2001).
- By applying the concept of postponement, companies may utilise lean methods up to the de-coupling point and agile methods beyond it. A parallel concept to the ‘material’ de-coupling point described above is that of the “information” de-coupling point (Mason-Jones and Towill, 1999). This
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represents the furthest point upstream to which information on ‘real’ demand flows, i.e. information which has not been distorted by inventory policies such as re-order points and re-order quantities (van Hoek, 1998; Christopher and Towill, 2001).
As such, the processes upstream of the decoupling point may be characterised as lean and those downstream as agile. Thus, leagility enables cost effectiveness of the upstream chain and high levels of service in a volatile marketplace in the downstream chain.
Some further suggested methods by which lean and agile paradigms could be combined to provide affordable products within requisite time frames are presented in Figure 3.3.
Hybrid Strategies Appropriate market conditions and operating environment
Pareto 80:20
Using lean methods for the volume lines,
agile methods for the slow movers
High levels of variety; demand is non- proportionate across the range
De-coupling Point
The aim is to be lean up to the de- coupling
point and agile beyond it
Possibility of modular production or intermediate inventory; delayed final configuration or distribution
Surge / Base Demand Separation Managing the forecastable element of demand using lean principles; using agile principles for the less predictable element
Where base level of demand can confidently
be predicted from past experience and where
local manufacturing, small batch capacity is
available Fractal Manufacturing Partnerships
Allows the selected suppliers to perform design, manufacture and assembly operations in close proximity to the OEM
Where the cost of logistics is a major component of total cost and markets are volatile, these partnerships would minimise inventory levels for required service levels.
Figure 3.3 Practical Approaches to a Leagile Supply Chain (Source: Faisal et al., 2006, p.885)
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Other authors have further suggested the possibility of implementing, within a single company, a portfolio of supply chain strategies (Christopher and Towill, 2002), depending on the features of different business segments in which the company operates.