Supply Chain Management Lecture 9 –

Lean and Agile

Alexa Kirkaldy

Lecture 9 - Learning ObjectivesOn completion you will be able to:

• Distinguish the main principles and differences between lean and agile approaches to SCM

• Recognise the difference between push and pull strategies

• Understand what is meant by quick response and vendor managed inventory

Definition of Lean and Agile• Dictionary makes the distinction clearly when it defines lean

as “containing little fat” whereas agile is defined as “nimble”.• A convenient interpretation of both paradigms is due to Naylor

et al. (1999) as follows:

Agility means using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile marketplace.

Leanness means developing a value stream to eliminate all waste, including time, and to

enable a level schedule.

The Term ‘Lean’

• Originated from IMVP (International Motor Vehicle Programme) initiated by M.I.T. primary concern was Japanese competitiveness

advantages focussed on Toyota Production System produced the book ‘The Machine that Changed the

World’

What is Lean

• Lean is Doing more with less a philosophy for identifying and removing

waste across the whole business activities About adding, creating and re-inventing

value for customer and business and is customer driven

Lean Thinking: 4 Fundamental Principals

• Add value and eliminate waste

• Centre on people who directly adds value

• Flow value from demand

• Optimize across organizations

The Seven Wastes

Overproduction

UnnecessaryInventory

InappropriateProcessing

TransportingUnnecessary

Motion

Waiting Defects

Waste (Muda)Non value adding to product or service

Push vs. Pull

• Make or provide stock in anticipation of demand

• Driven by forecasts

• Necessary when lead-times are long

• Replenishment is based on customer demand

• Each unit places demand on supplier

• Desirable when lead-times are short

Push vs. Pull

Operator 1

Operator 2

Operator 3

Decoupling or buffer inventory

Decoupling or buffer inventory

Decoupling or buffer inventory

Decoupling or buffer inventory

Operator 1

Operator 2

Operator 3

Orders

Deliveries

Orders

Deliveries

Push system

Pull system

Agile - Quick Response• Originated in US textile and apparel industry• Takes total supply chain view of an industry

– Understand overall performance, causes of poor performance, opportunities for improvement

e.g. Mapped clothing chain- fibre to retailer: lead times, inventory, WIP 66 weeks total of which 55 weeks was waiting time

• Umbrella for information and logistics systems that combine to provide ‘the right product in the right place at the right time’ by using pull systems

• Led the fashion industry to make changes:– Compressed both development and production lead times

to improve responsiveness

Case study: Zara’s Agile Approach

Design

Sourcing & Manufacturin

g

Distribution

Retailing

http://hbsp.harvard.edu/multimedia/mm_cases/zara.html

An agile supply chain•Shared information on real demand

•Collaborative planning•End-to-end visibility

•Daily P.O.S. feedback•Capture emerging trends•Listen to consumers

•Co-managed inventory•Collaborative product

design•Synchronous supply

•Leverage partners’ capabilities•Focus on core competencies•Act as network orchestrator

Virtual

Network based

Processaligned

Marketsensitive

AgileSupplyChain

Creating an Agile Supply Chain

• Synchronize activities through shared information• Work smarter not harder• Partner with suppliers to reduce in-bound lead times• Reduce complexity• Postpone final configuration/assembly/distribution of

products• Manage processes not just functions• Use appropriate performance measures

Agile or Lean?

‘Agility’ is needed in less predictable environments where demand for variety is high

‘Lean’ works best in high volume, low variety, predictable environments

Adapted from Christopher M., Logistics & Supply Chain Management, Pearson, 4th edition, 2011, p 100

VolumeLow High

Agile

LeanLean but

limited profit?

Agile but hard to meet

volume?

Var

iety

/Va

riab

ility

Low

H

igh

Generic Supply Chain Strategies - Agile or Lean

LeanPlan &

optimize

AgileQuick

response

KanbanContinuous

replenishment (via VMI?)

HybridDe-couple through

postponement

Demand characteristicsPredictable Unpredictable

Su

pply

cha

ract

eris

tics

Sh

ort

Lo

ng

lea

d ti

me

s

lea

d ti

me

s

Christopher M., Logistics & Supply Chain Management, Pearson, 3rd edition, 2005, p 119

Comparison of Lean & Agile Supply Chains

Characteristic / Attribute

Lean Agile

Typical products Commodities Fashion goods

Order winners Price Availability

Profit margin Low High

Dominant costs Physical costs Marketing costs

Purchasing policy Buy materials Buy capacity

Sharing of information Desirable Essential

Forecasting Based on algorithms Based on collaboration

Partnerships Long-term, stable Clusters, fluid membership

Based on Harrison & van Hoek (2005) pp 188-189 citing Mason-Jones et al (1999)

Hybrid of Lean and Agile

Strategic inventory

• Forecast at generic level• Economic order quantities• Maximise efficiency

• Demand driven• Localized configuration• Maximize effectiveness

Christopher M., Logistics & Supply Chain Management, Pearson, 3rd edition, 2005, p 121

Lean/Agile Hybrid Vendor Managed Inventory

• Started with manual systems in 1970s• Customer no longer places orders on the supplier• Supplier takes responsibility for management and

replenishment of inventory• Customer shares Point of Sale (POS) data• Supplier tracks sales and inventory levels

• Inventory replaced by information• Customer gets higher reliability and availability• Supplier is able to reduce safety stock, improve capacity

management

What is JIT?

• Pull System• Agile – short lead-times responding to real demand• Lean - Waste has been removed from the process• Just in time (JIT) is a production / fulfilment strategy that

strives to improve a business return on investment by reducing in-process inventory and associated carrying costs.

• The business holds little stock and instead relies upon deliveries of raw materials and components to arrive exactly when they are needed. Deliveries are made in response to a signal (kanban).

The Responsive Business

Christopher M., Logistics & Supply Chain Management, Pearson, 3rd edition, 2005, p 138

Agile

“It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”

Charles Darwin

Lecture 9, Key Points• Lean seeks perfection by gradually reducing waste in four areas:

– Specifying value from the customer’s perspective– Identifying the value stream via time-based process mapping– Making the product flow through the supply chain via JIT principles– Using pull scheduling

• JIT and Lean have been applied via– Vendor Managed Inventory where suppliers take responsibility for monitoring

sales and inventory in the retailer’s process. Information replaces inventory and requires the integration of systems and standard procedures

– Quick response logistics takes a total supply chain view and aims to be responsive to market trends, rather than making the product in advance by compressing development and production lead times

Lecture 9, Key Points

• Agile supply chains align organisational structures, information systems and logistics processes to exploit profitable opportunities in volatile marketplaces.

• Lean supply chains support cost and quality order winners, whilst agile chains support service and availability. Lean chains place orders for production to move in a regular flow, whereas agile chains assign capacity to make products where demand can not be forecast.

For next TuesdayRead the case studies on lean practices • Ford and Toyota – one question• Agility in the Smart car supply chain – one question

Possible oral presentation questions• How are push and pull approaches used in this supply chain

or firm?• Which approaches are common in this industry, lean agile,

both?• Is there an opportunity for this firm/chain to become more

agile?• Is there an opportunity for this firm/chain to become leaner?• Is vendor-managed inventory common in this supply chain?