Did you know that only 22 percent of companies have a proactive supply chain network? Technology, market and economic conditions, and customer demand and expectations are constantly changing. That’s why in today’s fast-paced global economy, it’s more important than ever to make sure your supply chain is efficient and reliable.
In general, organizations have two methods that they can use to manage their supply chain: lean or agile supply chain management.
Let’s take a look at each of these supply chain management methods.
What is a lean supply chain?
Lean supply chain management is about reducing costs and lowering waste as much as possible. Anything that doesn’t add value for the end customer is eliminated. Managers make purchases on an as-needed or just-in-time basis to avoid any overproduction and unnecessary storage.
Generally, this method is important for organizations with high volumes of purchase orders since waste and costs can accumulate quickly. A lean supply chain usually works best for products with low variability purchase orders, such as food items and personal care items.
Tips for a lean supply chain
- Take note of your inventory. One of the keys to lean supply chain management is reducing the inventory you have on hand. You also need to make sure that your inventory systems are reporting accurate, real-time information.
- Coordination is key. Coordinate effectively with your suppliers, manufacturers, transportation and logistics, and head office to make sure the supply chain process moves as smoothly and efficiently as possible and to make sure there is as little waste as possible.
- Take advantage of technology. Having the right technology in place can help your supply chain stay lean. For example, install RFID technology for tracking inventory, GPS for tracking shipments, and a CRM system for broader organizational goals. Automation technology can also make your supply chain more efficient.
- Eliminate all waste in the supply chain. Waste includes things like unused storage space, a lot of excess inventory, excessive wait times, packaging, and energy.
What is an agile supply chain?
An agile supply chain is built to be highly flexible for the purpose of being able to quickly adapt to changing situations. This methodology is important for organizations that want to be able to adapt to unanticipated external economic changes, such as economic swings, changes in technology, or changes to customer demand.
Implementing an agile supply chain allows organizations to quickly adjust their sourcing, logistics, and sales. An agile supply chain typically works best for organizations that offer products with short life cycles or customizable elements. These organizations need to be able to quickly adapt to changing circumstances and trends.
Agile supply chain strategies
- Good supplier relationship management is the key to the success of an agile supply chain. You want to make sure that your suppliers are also flexible and adaptable to integrate into your supply chain. Trust and communication with suppliers is essential.
- Agile supply chains demand good processes – and processes are established by people. Having the right team in place is crucial in order to remain flexible and agile so you can meet market demands.
- Improve visibility across the organization so that people are prepared to react when change happens. Share knowledge, data, and insights information so everyone knows exactly what’s going on.
- Using the right supply chain software can give you data and insights into current market trends and your current operations so you can optimize your supply chain accordingly.
Agile vs lean supply: what’s the difference?
Let’s take a look at an example of the difference between lean and agile supply chain management.
Richard Wilding, professor of Supply Chain Strategy at the Cranfield School of Management in the UK, says if you have low volumes but high variability you need agility. He uses Kimberly-Clark, owner of such brands as Kleenex and Huggies, as an example.
When Kimberly-Clark has a product promotion they need market information so they can properly assess and meet demand for the products. They collaborate with customers, learn about their market forecast, and integrate with commercial teams to ensure that manufacturing has a “must-respond” mentality.
For products that aren’t on promotion, Kimberly-Clark can use a more traditional lean supply chain methodology, as many of their products are standardized, everyday products with low variability.
Here, we can see that in this case, when products are on promotion, Kimberly-Clark adopts a hybrid approach, combining elements of both lean and agile supply chain management.
Agile or lean? What should you choose?
As you can see, when it comes to supply chain management, there is no “one size fits all.” Both agile and lean supply chain management have their benefits. In today’s fast-paced, global market many organizations are choosing agile supply chains to keep up with ever-changing demand. However, whether you choose agile or lean supply chain management will depend on your type of business and your goals.
Most of the time, lean supply chains are more cost-effective and predictable while agile supply chains are more flexible and are able to react quickly to market changes. You need to consider your product, your customers and end-users, the market, and your partners and suppliers to determine which supply chain strategy works best for your business. Many organizations find that they need elements of both lean and agile methods and use a hybrid model of supply chain management.
By applying the correct supply chain management method to your operations, your organization will be able to save money and be able to easily adapt to rapid fluctuations.