Thursday, October 28, 2010

Supply Chain Strategy: Lean and Agile at the Same Time?

In the last two posts, I argued why lean and agile fail as supply chain strategies and why they are inadequate to drive a supply chain design by themselves. The fact is that most of the supply chains need to be lean and agile simultaneously. After all you cant have a lean supply chain that is cost-effective but is unable to react to any changes or an agile chain that is good at responding to changes but simply unsustainable financially.
Wal-Mart is a prime example: Their explicitly stated business strategy of low prices has driven them to consistently reduce their cost of operations through supply chain innovations. Wal-Mart’s supply chain is definitely among the most cost-efficient in the industry. However, it is also quite agile. Wal-Mart was the only major retailer to reorient their assortment with national colors and substantially increase their American flag-based merchandise after the 9/11 attacks in a very short time. Absence of any major clearance at their stores also points to an agile supply chain that can adapt itself quickly to changes, thereby avoiding overstocked stores and the need to discount merchandise to clear the shelves.
How can a supply chain be both lean and agile at the same time? A firm can regard both lean and agile strategies as process drivers for designing individual supply chain processes rather than as being all-encompassing strategies for developing a supply chain as a whole. In this context, they become the principles that practitioners can use to develop standard processes that leverage one of these attributes even as process exceptions leverages the other. For example, a firm may establish a store-based inventory policy using the lean principle to cover the supply lead-time from the primary warehouse to the store. While the lean design drives their standard replenishment to the store, the process to handle exceptions to manage stock-outs may leverage agile principles, allowing priority replenishments to the store from a set of alternate sources in order to avoid losing substantial sales revenues. The example of Wal-Mart illustrates the complementary use of lean and agile design principles in designing a supply chain that is highly effective – while Wal-Mart uses inventory optimization and transportation optimization processes to reduce the costs (lean), it also uses cross-docking to actively respond to the latest store demand (agile).
Therefore, the question of whether a supply chain should be lean or agile becomes rhetorical. Any large enterprise cannot have a rigidly designed supply chain that is either lean or agile. Both of these aspects of lean and agile are required in designing an effective supply chain to support the business.
Next, I will present the other two supply chain strategies that are routine mentioned: Postponement and Speculation. I will highlight once again, why they too, fall short of being supply chain strategies and why firms must refresh their thinking on supply chain strategies.
If you are looking for an alternate way to design effective supply chains, the answer does not lie in adopting theories in the hope of finding the right answer, but to build supply chain capabilities driven by your business strategy. To find this new approach to build effective supply chains, understand the supply chains sphere of influence, find out what drives your supply chain, and learn about the new design imperative to build supply chain capabilities to support your strategy.
This article is based on my book Supply Chain as Satretgic Asset: The Key to Reaching Business Goals. You can continue reading more on the subject in the book.

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© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chains? How they work, what they afford, and how to design one? Check out my books on Supply Chain Management at Amazon.

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