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LeanorAgile?ClarifyingthetwoProductDevelopmentModelsIntroduction

ForalongtimeLeanhasbeentheultimateendeavourinthemanufacturingindustryaimingtominimisecosts,maximiserevenue,andthusprofits:theholygrailofproduction(Womack&Jones,2003).More recentlyAgile has surfacedasanew formofproductdevelopment. It ishardformanufacturingfirmstoknowwhichonetoselectwhenplanningoperations;Woods(2010) likenedthe twoparadigmstooneanother.Thiscanhave implications for firmsthatmustsurviveinwhatareuncertaintimes(Glatzeletal,2009).ThisessaywilloutlinethetwoProductDevelopmentModels(PDM’s)andgiveanexampleofeachoneinpractice.Itwillthendefineattributesofthetwoparadigms,highlightanyareasofsimilarity,andidentifywhenthetwoparadigmsshouldbeselected.Leanmanufacturing

Lean developed after the Second World War from the need within Japan to manufacturegoodstorevivetheeconomyatatimewhenspaceandresourceswerescarce.EijiToyadaandTaiichiOhno(Toyota)developedtheToyotaProductionSystem(TPS),laterdubbedLeanbyWomack, which enabled them to manufacture vehicles with reduced input of labour,materials,floorspace,andtools(Womacketal,1990)bylookingatthewholevaluestreaminanefforttoreducewaste(muda)inproduction.Thiseffectiveproductionofgoodsmeantthatthequalityofeverypartwascrucial.Freedupresourcescouldbeusedtoincreasetheproductrange.TheydevelopedthefollowingfiveprinciplesthatarecoretoachievingLean:

1. Identifycustomersandspecifyvalue2. Identifyandmapthevaluestream3. Createflowbyeliminatingwaste4. Respondtocustomerpull5. Pursueperfection

Leanfirmsarecustomerfocused,identifythoseareasthatadd-valuetoaproduct(orservice)andreduceeverythingelsethatisconsideredwaste.Customersarenotwillingtopayfornon-value adding elements of a product (or service) and therefore firms should try to removewaste,thusgivingaleanercheaperproduct.Figure 1 shows an analysis of strengths,weaknesses, opportunities, and threats (SWOT) ofadoptingtheLeanparadigm.

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AnexampleLeanmanufacturing:NewBalance

ThefollowingisasummaryofMarchwinskicasestudy:“Forathleticshoecompany,thesoulof leanmanagement is problem solving” taken fromWomack’s leanwebsite (Marchwinski,2008),which looksatNewBalanceasanexampleLeanmanufacturing,and issupportedbyadditionalresearch.Marchwinski(2008)states“whenitbeganaLeantransformationin2003,NewBalance,wastheonlyathleticshoemanufacturerthatstillmakessomeproductsintheU.S.”NewBalancehas labourcosts thatareapproximately tentimesthatof itscompetitors thathave facilitiesbased outside the U.S. (Schlesinger, 2015). It has seen global revenue double since 2003(AppendixA).ThecompanyCEORobDeMartiniattributesthistoleanpracticeandwhichgivethem three main advantages: Innovation, Quality, and Understanding their consumers(Schlesinger,2015).NewBalance iscommitted toLeaneducationwith factorymanagersreceiving100hoursofLeantraining.TheyaimtoIdentifyproblemsbybusinessneeds,operatingatriageapproachtoproblemsolving.Thoseproblemsthatwouldreducethemostwasteandfreeupgreatestresourcesareprioritisedallowingthemtobere-allocatedalongtheproductionlinetorelievepressure. Before they adopted Lean, batchingwas a problem. Piles of stockwere scatteredaboutthefactorywaitingtobeprocessed.Theyeliminatedthisstockbuildupandadopteda

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one-pairflow,dealingwithonepairoftrainersatatime,whichensuredtheproductionlineranconsistently toavoidbacklogbuild-up.They improved lead times,whichmeanta lotoffactory floor spacebecameavailable.Their lean fulfillment systemenabled them toexpandproduction; introduce newwork lines in the newly available space and take advantage ofeconomiesofscale.Thefinalphaseinvolvedconnectingthebusinessandleanmanufacturingmodels.ThisLeanapproachmeanttheyhavebeenabletocutdownonwastageanddelivergoods quickly to the customer at a price that is competitive, even against those firms thatmanufactureoutsideoftheU.S.The companyhas incorporated lean thinking to its corephilosophy. It sharesknowledgeoflean with its customers and encourages them also to reduce waste. Within the U.S. theypromisecustomersinventoryturnaroundof24hours,competitorscantakeupto121daystoshipordersfromAsia.NewBalancekeepsapproximately22days(orlower)ofinventoryinstock,whichisvastlylowerthancompetitors(Marchwinski,2008).This example demonstrates the power of implementing Lean throughout a manufacturingcompany. Despite having inflated labour costs, often regarded as the largest cost ofproduction within manufacturing (Morris, 2015), by adopting Lean manufacturing NewBalancehasbeenable to reduce finances tiedup in stock, shorten lead times, and focusoncustomerdemands.Agilemanufacturing

Agileoriginatedinthesoftwareindustry,whichischaracterisedby“shortproductlifecyclesand rapid decision making” (Power, 2014). Gunasekaran (1998) defined an Agile firm ashaving“thecapabilitytosurviveandprosperinacompetitiveenvironmentofcontinuousandunpredictable change by reacting quickly and effectively to changing markets, driven bycustomer-designed products and services.” In his book “Agile Software Development”Cockburn (2007) highlighted the importance of the need for iterative and incrementaldevelopmenttoallowtheproducttoberepeatedlyadjustedtochangingmarketdemandsandtoovercomeinevitablemistakesthatwouldoccurduringdevelopment.The“AgileManifesto”(Cockburnetal,2001)setoutfourcorevaluesofAgile:

1. Individualsandinteractionsoverprocessesandtools.2. Workingsoftwareovercomprehensivedocumentation.3. Customercollaborationovercontractnegotiation.4. Respondingtochangeoverfollowingaplan.

In “Agile Manufacturing” (2001) Gunasekaran adapted the paradigm for manufacturing,drawing upon a large number of research papers into the area including a paper he had

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previouslyworkedonwithYusufetal.(1999)thatsummarisedthetenattributesofanAgileorganisation:

1. Integration2. Competence3. TeamBuilding4. Technology5. Quality6. Change7. Partnership8. Market9. Education10. Welfare

Gunasekaran noted that the “two most critical aspects… to achieve Agile manufacturingenvironment would be integration and flexibility” (Gunasekaran, 2001, pp.234). Throughadopting Agile as a PDM, firms create a product with as little waste as possible whileremainingflexibleenoughtoadapttochangesinthemarketandreflectconsumerdemands.Figure2showsasummaryofSWOTanalysisofadoptingtheAgileparadigm.

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AnexampleofAgilemanufacturing:ZaraandInditex

Zara(Inditex)isanexampleofamanufacturerthat“operatesinaveryagilefashion…Ithasembracedasetofmanagerialpractices thatareradicallydifferent fromthoseof traditionalmanagement and that enable it to operatemuchmore nimbly” (Denning, 2012a). This hasresultedinthebusinesstriplingrevenueintenyearstoover€18billionin2014(AppendixB+C).Thetwoarticles“RapidFireFullfilment”(Ferdowsetal,2004)and“InternalagilityatZara”(Denning,2012a)giveinsightintooperationsatZaraandthestrategyemployedacrossthecompany.Zara founder Amancio Ortega started out as a clothingmanufacturer and opened the firststorewhen a largewholesaler backed out of a deal that left all his finances tied up in theorder. He saw opening a store as away out of the situation. Zara now owns and controlsalmost all of its supply chain from initial product concept through to customer purchase;operatingonOrtega’sphilosophy“youneedtohavefivefingerstouchingthefactoryandfivetouching thecustomer” (Ferdowsetal,2004).This focusonboth thecustomerand factory(where goods are designed) illustrates how Zara listens to their customers and respondsquicklytomeettheirneeds.Storesandmanufacturing facilitiesare spacious toallow them to reactquickly to surges indemandandavoidtheneedtooutsourceadditionalproduction,keepingcontrolwithinZara.Store managers must adhere to a strict bi-weekly order routine, placed directly with thedesigners on the factory floor, which avoids filtering through layers of administration.Materials areoftenbought in their raw form,whichallow them tobedyedandadaptedasconsumertrendsshiftthroughouttheseason.Finishedproductsareshippedontheirhangerswithin days, items going from sewingmachine to sales rail in 24 hourswithin Europe (48hours in theU.S. and72hours toAsia). This kindof speed is rare in the clothing industry.Loyalcustomersfollowtheirtrendsandlooktosnap-upitemsassoonastheyarriveinstoretoavoidmissingout.The whole ethos at Inditex mirrors many of the “basic principles of Agile softwaredevelopment total focus on delighting the customer, working in self-organizing teams,coordinatingworkinshortcyclesdrivenbycustomerfeedback,valuesoftrustandopenness,and horizontal communications” (Denning, 2012b). Ortega has been able to break thetraditional clothes manufacturing model and adopt an Agile approach that enables thecompanytoplacecustomerneedsatthecentreofitsfocusandremainflexibletorespondtoshiftsinwhatisoftenperceivedtobeafickleindustry(Spinks,2014).

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ComparisonofAttributes

TheabovedescriptionsandcasestudiesofLeanandAgilegiveusaninsightintobothPDM’s.In order to define attributes of the two paradigms, highlight any areas of similarity, andidentifywhen the twoparadigmsshouldbe selectedwewilldrawuponresearch thathavecomparedthetwoPDM’s.Naylor et al. study “Leagility” (1999) demonstrated that both paradigms were neithermutually exclusive nor collectively exhaustive butwere in fact complimentarymodels andthat both should be considered when selecting a manufacturing strategy. They coined theterm“Leagile”,which isaportmanteauofLeanandAgile,suggestingfirmscoulddrawuponelementsofbothdependingonthesituationalneed.ThisworkprovidesacomparisonofLeanandAgileinmanufacturingandhighlightscommoncharacteristics.However,itshouldbenotedthatwhilesupportedwithcasestudiesitisnotacomprehensive study of the two paradigms due to the small number of firms studied andcomprehensiveresearchwasneeded.Ten years later Hallgren and Olhager published “Lean and agile manufacturing” (2009).Research was conducted across “211 plants from three industries and seven countries”(Hallgren&Olhager,2009).Thispaperexaminedbothinternalcompanydriversandexternalmarketforces.Ittestedanumberofhypothesestodeterminewhethertherewereanynotablesimilarities,anddifferences,betweenLeanandAgile.Thefindingsfromtheseanalysisshowthat,whilethetwodisplaysimilaritiesonthesurface,there is significant variation with regards to drivers and outcomes. The main distinctionbetween the two is in “performance outcomes related to cost and flexibility” (Hallgren &Olhager, 2009). Lean manufacturers strive to eliminate waste, thus are able to offer theirgoods at a lower price. In contrast Agile is best suited to firms that are looking to remainflexibleandresponsivetomarketforces,andthusareabletochargeapremiumforgoodsthatusequalityasameansofdifferentiation.While this is themostextensivestudy intoLeanandAgile todateamajor limitationof thisresearchisthescopeoftheresearch.Inordertogainconclusivedataamorecomprehensivestudyofmultiplefirmsthatarerepresentativeoftheglobalmanufacturingmarketisneeded.The research does, however, show similarities between Lean and Agile, and also areas ofdifferences. Figure 3 presents a comparison of the main attributes of the two PDM’s andhighlightsthoseareasthatarecommontobothparadigms.

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It isevidentthatthereareclosesimilaritiesbetweenthetwoparadigms,withfourcommonattributes: total supply chain management, customer focus, efficiency of resources, andresponsivenesstocustomerpullandmarketchanges. ForbothPDM’s the central focus is thecustomer.Greatconsideration isgiventocustomerpullsas firms looktominimisewaste inordertoreducecostsandinturnprice.The two PDM’s differ,with Lean focussing on eliminatingwaste and tomake the cheapestpossible product. Rigid management structures are followed with tight control overoperations.Agileontheotherhandis flexibleandlookstomeetdemandsforqualitywhilstminimising waste to reduce price. Customers are listened to and adjustments are madequicklytomeettheirneeds.Conclusion

Firmshavetocompetewithanincreasednumberofcompetitorsacrossmultiplemarketsandmustbeabletorespondtoshiftsinthemarketandchangesincustomerpulls.Smith(2008)suggests that with increased globalisation firms should look to “improve [their] ability tochange, to the point that [they] can out-change and thus out-innovate [their] competitors”.Leanfirmscompetethroughpricestrategiesdeliveringconsistencyofproductsthatreacttogeneralmarkettrends.Thosethatwanttocapturethelarger,mass,marketcandosothroughLean.Agilefirmscompetewithqualityasapointofdifferentiationlookingtoreactquicklytochanges incustomerdemands.Firmsthatwanttostayaheadof thecompetitiondosowithAgile,butdosoatahighercost.

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ReferencesCockburn,A.2007.AgileSoftwareDevelopment:TheCooperativeGame.(Seconded.).Boston,USA:PearsonEducationInc.Cockburn,A.2001.Agilemanifesto.org.[Online].[6December2015].Availablefrom:http://agilemanifesto.org/Denning,S.2012.Forbes.[Online].[9December2015].Availablefrom:http://www.forbes.com/sites/stevedenning/2012/09/20/when-will-us-firms-become-agile-part-2-internal-agility-at-zara/Denning,S.2012.Forbes.[Online].[9December2015].Availablefrom:http://www.forbes.com/sites/stevedenning/2012/09/24/how-manufacturing-can-learn-from-software-to-become-agile/Ferdows,K,Lewis,M&Machuca,J.2004.RapidFireFulfillment.HarvardBusinessReview.0411(1),pp.104-117.Glatzel,C,Helmcke,S&Wine,J.2009.Buildingaflexiblesupplychainforuncertaintimes.TheMcKinseyQuarterly.1(1),pp.1-5.Gunasekaran,A.1998.AgileManufacturing:enablersandanimplementationframework.InternationalJournalofProductionResearch.36(5),pp.1223-1247.Gunasekaran,A2001.AgileManufacturing:The21stCenturyCompetitiveStrategy.UK:Elsevier.Hallgren,M&Olhager,J.2009.Leanandagilemanufacturing:Externalandinternaldriversandperformanceoutcomes.InternationalJournalofOperations&ProductionManagement.29(10),pp.976-999.Marchwinski,C.2008.Leanorg.[Online].[10December2015].Availablefrom:http://www.lean.org/common/display/?o=812Morris,D.2015.Fortune.[Online].[9December2015].Availablefrom:http://fortune.com/2015/08/27/tech-manufacturing-relocation/Naylor,B,Naim,M&Berry,D.1999.Leagility:Integratingtheleanandagilemanufacturingparadigmsinthetotalsupplychain.InternationalJournalofProductionEconomics.62(1),pp.107-118.

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Newbalancecom.2015.Newbalancecom.[Online].[9December2015].Availablefrom:https://www.newbalance.com/on/demandware.static/Sites-newbalance_us2-Site/Sites-newbalance_us-Library/default/v1393572846066/pdf/NB_Annual_Sales.pdfPower,B.2014.HarvardBusinessReview.[Online].[5December2015].Availablefrom:https://hbr.org/2014/04/how-ge-applies-lean-startup-practices/Schlesinger,J.2015.CNBC.[Online].[9December2015].Availablefrom:http://www.cnbc.com/2015/06/09/new-balance-the-us-company-shaking-up-the-sneakernomics.htmlSmith,P.2008.Change:Embraceit,don'tdenyit.Research-TechnologyManagement.51(4),pp.34-40.Spinks,R.2014.TheGuardian.[Online].[9December2015].Availablefrom:http://www.theguardian.com/sustainable-business/sustainable-fashion-blog/2014/dec/11/fast-fashions-fickle-market-demands-manufacturers-closer-to-homeWomack,J&Jones,D(2003).LeanThinking:BanishWasteandCreateWealthinYourCorporation.GreatBritain:Simon&Schuster.Womack,J,Jones,D&Roos,D(1990).TheMachineThatChangedtheWorld.USA:Rawson&CollierMacmillan.Woods,D.2010.Forbes.[Online].[6December2015].Availablefrom:http://www.forbes.com/2010/01/11/software-lean-manufacturing-technology-cio-network-agile.htmlYusuf,Y,Sarhadi,M&Gunasekaran,A.1999.AgileManufacturing:TheDrivers,Concepts,andAttributes.InternationalJournalofProductionEconomics.62(1/2),pp.33-43.

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AppendicesAppendixANewBalanceFinancialResults1991-2012

Source:https://www.newbalance.com/on/demandware.static/Sites-newbalance_us2-Site/Sites-newbalance_us-Library/default/v1393572846066/pdf/NB_Annual_Sales.pdf

U.S. Annual Sales (in millions)* 1991 $95 1992 $95 1993 $104 1994 $130 1995 $151 1996 $201 1997 $265 1998 $346 1999 $550 2000 $750 2001 $813 2002 $935 2003 $918 2004 $1.08 billion 2005 $1.09 billion 2006 $1.078 billion 2007 $1.112 billion 2008 $1.078 billion 2009 $1.072 billion 2010 $1.08 billion 2011 $1.09 billion 2012 $1.18 billion Worldwide Sales (in millions)* 1991 $210 1992 $221 1993 $258 1994 $316 1995 $380 1996 $474 1997 $550 1998 $630 1999 $890 2000 $1.1 billion 2001 $1.16 billion 2002 $1.3 billion 2003 $1.3 billion 2004 $1.48 billion 2005 $1.55 billion 2006 $1.55 billion 2007 $1.63 billion 2008 $1.64 billion 2009 $1.65 billion 2010 $1.78 billion 2011 $2.04 billion 2012 $2.29 billion *includes estimated sales by joint ventures and distributors

### Updated 10/13

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AppendixBInditexAnnualReport2004

Source:http://www.inditex.com/documents/10279/18789/Grupo_INDITEX_informe_anual04.pdf/b8b53824-f2b7-4a2c-9a2f-8b0877cdf5b4

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AppendixCInditexAnnualReport2014

Source:http://www.inditex.com/documents/10279/18789/Inditex_Annual_Report_2014_web.pdf/a8323597-3932-4357-9f36-6458f55ac099