It is increasingly clear that the modern consumer is immensely digital, global and indeed influential, with access to products, services and companies at their fingertips, 24/7. This digital revolution has infinitely increased competition, consequently pushing companies to not only innovate products but also how they deliver those products to their consumers. Thanks to digitisation (and the ability to “go viral) modern consumerism is subject to a heightened sense of trending – with products suddenly, and aggressively peaking in demand – often most unexpectedly.
Consider for a moment the unbridled desire for Fidget Spinners that gripped the world in early 2017. The term first began trending on Google in January 2017, gripping tweens, teens and adults alike in a buying frenzy (accompanied by countless YouTube trickster videos and academic debates about the effectiveness of the toy). By April 2017, the toy accounted for as much as 17% of all the online toys sales globally, with Amazon reporting that the gadget claimed a 14% share of their top 10 consumed products during that month. At around the same time, retail stores moved to latch on to the trend, placing orders for tens of thousands of units which hit shelves by mid-May. Unfortunately, by then, the cool kids had already moved on, regaling the phenomenon to the dusty, forgotten bottom of most toy chests. Many retailers were left overstocked with products whose demand had been as fleeting as the wind.
In a world where demand is increasingly fickle, unexpected and short-lived, the ability of a supply chain to react flexibly and rapidly is paramount. This ability, however, does not often come cheaply raising the question of how to balance cost with dexterity, and even more so, is an organisations supply chain likely to require such dexterity? The answer to such challenges may lie in understanding the definition, benefits and differences between two types of supply chain approaches, namely lean or agile – as well as determining which is best suited to a particular organisation.
Lean Supply Chain
Lean methodology has its roots in manufacturing, borne out of the Toyota plant in Japan soon after the Second World War. The basic principles of Lean are to strive for perfection through continuous improvement and the elimination of waste (physical, time and movement) throughout a process. The method soon took hold beyond manufacturing, moving into the realm of supply chain to enable value creation by decreasing costs. Supply chains functioning according to Lean principles are ideally geared towards managing high volumes at lowered costs per units while being highly reliable and predictable. A truly Lean supply chain coordinates the activities of up-and-downstream partners in unison towards a common goal of eliminating any action or step that does not add value, often relying on robust preplanning completed months, if not years in advance.
There is no doubt that such a supply chain is well suited to products with minimal demand variability that is almost impervious to economic pressures or consumer trends. In most cases, such inelastic demand can be found in functional products, such as toilet paper or bread. A Lean supply chain continuously searches to eliminate anything that does not create value for consumers and relies on its ability to produce and deliver precisely according to demand. This method has long been sufficient, and still is for many; however, the need to be able to respond quickly to changes requires a supply chain to handle unpredictability
The Agile Supply Chain
From the mid-90’s onwards the concept of organisations being “ready- for-change” took hold, becoming encapsulated in the term ‘Agility’. From a business perspective, agility as a demand strategy allows a supply chain to be more responsive to volatile markets, while at the same time focussing on cost, speed and efficiency. Agile supply chains rely heavily on real-time data and use such to trigger the finalisation of products per demand. For example, a wait-and-see approach might mean product agnostic components are manufactured and sub-assembled, but final products are only completed once demand is known, typically post order. This type of supply chain is ideally suited to products with low volumes and high variability in terms of customisable components. Fashion is an excellent example of a product requiring agility, as organisations such as Zara have adopted agile supply chains to great success. While responsiveness within rapidly changing markets is essential, this option is not always a low-cost one.
A Hybrid, perhaps?
For many modern supply chains, there is a growing realisation that Agile and Lean can coexist within one system. Attributes such as waste elimination and value creation can very successfully operate in an environment geared to responsiveness. Organisations adopting a hybrid supply chain tend to utilise Lean methodology for more stable, established products, and the Agile methodology for new or seasonal products. Such hybrid or “Leagile” supply chains are ideal for so-called mass customisations, where smaller quantities of unique products are moved through the value chain, as well as for products with fluctuating demand that have long lead times. Hybrid supply chain strategy allows organisations to access the benefits of both methodologies, in others, being able to obtain flexibility and responsiveness, while remaining cost-effective.
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