The debate continues over the decision to develop a lean supply chain, an agile supply chain, or a hybrid model: leagile. Lean supply chain thinking was developed by Toyota to develop their production capabilities through constant innovation in resource reduction and utilisation. The ultimate goal of lean thinking is to eliminate waste.
To this end it is necessary to identify and eradicate the 3 M’s: Muda, Mura and Muri. Muda is work that absorbs resources but adds no value. Mura is the waste of unevenness or inconsistency leading to an erratic flow. Muri is to cause overburden, stretching resources beyond their limits.
Taiichi Ohno identified 7 wastes that absorb resources but adds no value.
- Transport: The unnecessary movement of materials and products
- Inventory: Excess stock held without reason
- Motion: The unnecessary movement of resources to conduct an activity
- Waiting: Interrupting the constant flow of material or information
- Overproduction: Making more than is required
- Over-processing: Conducting operations beyond the needs of the customer
- Defects: Poor quality leading to rejects and rework
Agile Supply chain
Agility is a business-wide capability that embraces organisational structures, information systems, logistics processes and, in particular, mindsets. A key characteristic of an agile supply chain is flexibility. Agility is the ability of an organisation to respond rapidly to changes in demand both in terms of volume and variety. The market conditions that require agility are characterised by volatile and unpredictable demand.
To be agile a supply chain must be able to read and respond to demand. This requires the organisation to move from a forecast driven environment where inventory is pushed through the supply chain to an order driven environment where inventory is pulled through the supply chain.
It would therefore make sense to determine which approach is most useful based on demand patterns and usage. A lean supply chain would benefit an environment where there are high volumes and predictable demand. An agile supply chain would benefit an environment where there is a wider range or variety of items in smaller volumes. But what if the organisation has a high variety and volumes are also high? This is where leagile fits in. A combination of reduction and response to enable the organisation to benefit from both scenarios.
Applying A Lean Supply Chain, Agile or Leagile
From a procurement perspective the application of lean, agile or leagile creates a number of strategic and tactical decisions to ensure that the approach is viable. These range from the overall strategic objective of the procurement and supply function, through types of relationship actions, to the supporting philosophy behind the approach.
In an environment of low variety and low volume the procurement and supply function must ensure that the flow of product and information is provided by a robust supply chain. That is to say that the supply chain must be sturdy and strong. Able to support the vigorous movement of goods to the customer but still being able to adapt to small changes in variety and volume. This would require either Early Buyer Involvement (EBI) or Early Supplier Involvement (ESI) depending on the changes. The philosophy would be based around holding stock Just In Case (JIC) based on lower volumes and lower costs.
In an environment that consists of high variety and low volume the emphasis for the procurement and supply function is to ensure it can satisfy demand in an agile manner. Monitoring and measuring changes in demand and proactively responding to requirements. This would require Early Supplier Involvement (ESI) providing the supplier with visibility of demand to allow forward planning. The philosophy behind this approach is that inventory would held Just In Information (JII) rather than physically until it is required enabling suppliers to respond to actual demand.
In an environment where there is high volume it will be necessary to reduce waste and reduce costs to develop a lean supply chain. Reviewing the activities within the supply chain and working with the customer to establish actual need. To achieve this the procurement function would implement Early Buyer Involvement (EBI) to ensure their expertise is used on a consultancy basis to advise the organisation on the best way to reduce waste. The philosophy would be to provide inventory Just In Time (JIT).
With high variety and high volume there will be a need for a collaborative approach to managing the supply chain and developing an optimal solution. Buyer and supplier involvement will be combined with other key stakeholders in the supply chain to create a leagile supply chain by adopting Early Supply Chain Involvement (ESCI) bringing together the expertise of buyers, suppliers and other stakeholders to achieve a lean and agile environment. The philosophy behind this would be to have inventory Just In Progress (JIP) using postponement opportunities to cut down on waste and still be able to respond to changes in demand.
If you want to find out about developing a lean, agile or leagile supply chain, you may be interested in a CIPS Diploma in Procurement and Supply. For more information about the procurement courses from The Oxford College of Procurement and Supply, get in touch with one of our course advisors on +44 (0)1865 515255 or email firstname.lastname@example.org.