Lean vs Agile supply chain: Different strategies

Supply and customer demand continue to be a vital part of businesses' inventory management and broader supply chain strategies. Yet, looking at the bigger picture, your sourcing and procurement teams are dealing with a more significant range of market forces than ever before.

While these market forces create significant opportunities for your business, they also mean the adaptability and resilience of your supply chain must be increasingly robust.

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What are the practical challenges your supply chain faces?

As well as dealing with higher-level supply chain strategy challenges like assessing and dealing with supplier risk, how you manage your supply chain also needs to consider various other factors.

Typically, these include:

• Fluctuations across markets
• Maintaining customer satisfaction levels in a world where a different option is just a search engine query and a couple of clicks away.
• Optimising lead times and inventory levels of new products that quickly become popular but fade from consumer consciousness just as quickly.
• Ensuring your "just-in-time" supply chains are efficient if you're a high volume, low storage capacity business

Recently, the COVID-19 pandemic has become a new challenge, significantly causing disruptions in global supply chains.

When it comes to managing and optimising supply chain performance, you have two models you can look at: Lean supply chain and Agile supply chain.

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What is a Lean supply chain?

Lean supply chains are ideal if you need to create a high volume of products at a low cost. The primary goal of lean supply chain management is to produce the best value outcome for customers. Therefore, you create goods you can sell at the lowest possible price and remove anything not valuable to the end customer.

A lean strategy depends on reliability and predictability, allowing businesses to plan production and make orders months or even years in advance and develop partnerships with suppliers who can deliver what they need.

Being able to pre-plan to such a degree means you can:

• Order in high volume, often at a low cost
• Avoid overproduction due to the predictability of the market
• Enable direct suppliers to work with downstream suppliers to ensure things like availability of raw materials

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What type of businesses would benefit from a lean approach?

If you sell functional products with low market variability - think food, toiletries and, in some cases, clothing - then lean manufacturing and supply chain management would likely be the best strategy for your business.

Seasonal products would also fit into this category, although you may need to safeguard against market variability. For example, say you sell winter goods, but it is unseasonably warm one year. You would also need your supply chain strategy to adapt to market needs in this situation.

The potential for scenarios like this, as well as the increased likelihood of fluctuations in today's markets, mean that many businesses are moving away from a purely lean model and looking to be more adaptive.

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What is an Agile supply chain?

In contrast to lean supply chains, an agile supply chain strategy helps your business be more flexible and receptive to market fluctuations. Agile supply chain management depends heavily on the concept of postponement - waiting to see if the market firms up in a particular direction before making final decisions.

An agile approach means businesses respond directly to demand rather than forecasting, reducing or even entirely removing the risk of overproduction or not buying enough products to meet your customers' needs. At the same time, it could also lead to missed opportunities if a business with a lean approach reacted earlier and went ahead with production.

That's not to say there isn't any forecasting necessary. Many agile supply chains will create parts of a final product, but you won't order, and your suppliers won't make the final version until it's known what the market wants.

Strong supplier relationships and partnerships are vital to the success of agile supply chains. These help to drive efficiency and ensure the creation of products in good order to achieve your sales metrics.

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What type of businesses would benefit from an agile approach?

If your business sells anything that has a short lifecycle or is customisable, an agile supply chain will help you meet your customers' needs.

Fast fashion is an excellent example of this. Whereas fashion trends used to be purely seasonal, they can now be month-to-month or even week-to-week, thanks to the influence of platforms like Instagram. So if you sell t-shirts sporting the latest celebrity soundbite or funny hashtags and memes, you need an agile supply chain so you can create them on demand and get them into your shops, onto your website, and into your customers' wardrobes fast!

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Lean vs Agile, or is a hybrid supply chain management approach possible?

As with anything regarding your business, it's not about deciding whether a lean or agile supply chain is best. Instead, it's about choosing the best solution to meet your business needs and enable you to meet your customers' demands. We've already seen the pros, cons, and use cases for each in this guide, so you now have a starting point for making the right decision for your business.

While a 2015 McKinsey report found that an agile supply chain was more effective for most companies, that doesn't necessarily mean it's right for you.

Increasingly, businesses are turning to a hybrid supply chain management approach to capitalise on the benefits and minimise the potential drawbacks of both the agile and lean methodologies.

Hybrid supply chains are an evolution of agile supply chains that produce parts of products before ascertaining the final demand levels. A hybrid approach relies on forecasting and real-time data to help you make smarter decisions.

Here are two examples of how hybrid supply chains may work in practice:

• Toyota knows it's going to sell a specific volume of a particular model of a car each year. However, it doesn't know in what colours. Therefore, Toyota can create vehicles in its global factories to meet the volume demand (lean) but paint them on-demand (agile). If you've ever ordered a new car but had to wait weeks to get it in the colour you want, that's why!
• Zara knows how many t-shirts or hoodies it's going to sell during the summer, but again, it doesn't know in what colours. Therefore, Zara can get suppliers to produce t-shirts and hoodies at high volume and low cost (lean) and dye them when it knows what colours will be in demand during the season (agile).

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If you're still unsure, ask yourself these questions

Use the below as a checklist to help you decide the best supply chain management approach for your business. Match your answers to whether a lean, agile, or hybrid supply chain would work best.

• What do you produce and sell?
• How consistent are your sales throughout the year?
• Who is your audience, and how do they behave in terms of loyalty or being trend-driven?
• How quickly does your audience change?
• Will things you can't control, like fluctuations in the economy, a pandemic, or other market forces, directly impact your product, audience, and spending habits on your goods?
• What does your supply chain currently look like?
• How do your direct and downstream suppliers operate?