Lean or agile supply chains: What’s best for you?

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In order to effectively manage supply chains and relationships with vendors, one needs to understand the environment business operates in.

During the late 1990s and early 2000s much time was given to supply chain management (SCM) debates.

Various arguments have revolved around which supply chain is best between lean and agile. Some supply chain experts have written extensively about the subject and attempted to draw parallels and distinctions between these two forms of supply chain management.

Decision, on whether to adopt lean or agile supply chains are based on two factors of predictability of demand and the rate of standardisation of products within a market.

Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion and logistics management. It requires co-ordination and collaboration with channel partners that include suppliers, intermediaries, third-party service providers, and customers. In essence SCM is aimed at achieving synchronisation of supply with demand.

The lean supply principle is based on lean production — the manufacturing philosophy of customer focus and efficiency of operation. The goal in SCM is on reducing lead time and costs associated with lead time through various methods.

It focuses on optimisation across supply chain partners and applies lean tools as well as leverage tools such as six sigma and total quality management.

The emphasis is on minimisation of inventory through various techniques. Lean supply is therefore suitable in situations where demand is highly predictable and products are mostly standard.

This is supported by many empirical examples, such as found in most automotive supply chains. Where stable conditions prevail and with it, all associated tools and techniques such as total quality, six sigma, business process re-engineering, etc, lean supply can be successfully engaged.

This will require long-term collaborative relationships will suppliers to ensure efficiency is maximised. Suppliers are expected to provide defect-free materials at the right time to meet customer requirements.

On the contrary, agile supply chains are required to quickly respond to supply chain new demands as the name suggests. This is necessary were predictability of demand is low and product standardisation is also low.

Demand for new products and new innovation is very high resulting in unpredictable order volumes. In order to meet customer demands, agile supply chains are focused on nippy lead times and rapid responses to customer needs.

For fashion industry and retail sector to survive, they have to settle in agile supply chains. Although the conditions are unstable, the focus on responsiveness, innovation and design is required. Although the philosophy is different from lean SCM, strong base of collaborative relationships is still a necessity.

There are instances where product standardisation is high, but demand is highly unpredictable and orders are fulfilled using existing stocks. In order to survive, companies operating in this environment would want to ensure they build stocks.

Businesses that deal with spare parts operate inventory-based SCM.

There are situations where the products demanded are non-standard and the predictability of such demand will be low. These type of supply chains are difficult to manage and most institutions use a wait-and-see or “postponement” strategy where finished goods are stored in readiness to fulfil demand as it has become known.

Understanding the distinction between lean and agile supply chains assists to help define the strategic contribution of the supply chain. It further assists to align supply-based activities with the operational goals and objectives of the organisation.

Definition of parameters of successful buyer-supplier relationships is possible. To enhance SCM activities, managers need to go further than theoretical distinction of lean and agile; they need to be able to design strategies that fit the theoretical distinctions.

•Nyasha Chizu is a fellow of CIPS and branch chairman of CIPS Zimbabwe writing in his personal capacity. Email: chizunyasha@yahoo.com