Importance Of Lean And Agile Principles In Supply Chain

Lean principles stem from the lean philosophy established by Toyota in the 1950s. Lean manufacturing is a methodology of systematically removing non-value-added activities from the process of producing goods. Anything that does not contribute to value-addition to a customer or product is referred to as waste. The lean principles seek to have a lean supply chain that has little costs and quick lead times.

Lean principles are many and they differ according to the type of setup. Here are some of the basic principles that are appropriate for any organization.

Value

Find out what the customer needs price he would like to pay.

Value stream

Trace the overall sequence of events and operations that result in product delivery to a customer, starting with raw materials

Flow

Ensure that the value flow is continuous and uninterrupted with no stoppages or bottlenecks.

Pull

Deliver no more than an order quantity of specified size and grade to arrive by the date desired by the customer.

Perfection

The supply chain must be regularly monitored, evaluated, improved, and defective eliminated.Companies can see visible benefits when they implement lean principles. Below are the prime advantages of applying lean principles to the supply chain:

Reduced inventory

Producing and supplying customers only with what they need helps in lowering cost and risk because there are fewer costs/risks involved with storage handling and transportation of excess inventory.

Reduced waste

The wasteful resources such as time, space, and materials are eliminated by eliminating any non-value-adding activities and processes in the supply chain to improve effectiveness and efficiency.

Increased quality

By concentrating on the customer’s value and satisfaction, the supply chain ensures that the products or services match the customers’ requirements or specify the product qualities, thus improving quality and reliability.

Increased customer loyalty

By delivering the right products and services at the right time, place, and price, the supply chain can increase customer satisfaction and retention, which leads to more repeat purchases and referrals.

The agile software development methodology, which was first introduced in 2000, is where agile principles draw their basis from. Agile software development involves a process that results in delivering products made using modern approaches with fast-evolving customer demands and tastes. In general, agile principles lead to a supple and perceptive supply chain that is able to change along with the volatile nature of markets.

Agile principles help organizations to be flexible to changes. Some of the key agile principles are briefly discussed below.

Customer collaboration

Engage the clients in the whole value-added system for designing all the way through deliveries so as to get the customer’s feedback.

Change embrace

Anticipate changes in customers’ requirements, market conditions, technology, and competition and adapt your supply chain.

Speed delivery

Quickly provide the customers with small-unit or batch sizes of goods and services to satisfy their needs.

Team empowerment

Give your teams the capability to decide, proffer solutions and creativity, and give them appropriate equipment, materials, and support.

Continuous improvement

Measure and evaluate supply chain performance, look out and learn, experiment and improve.

The benefits of applying agile principles to the supply chain are evident in many organizations. Here are some of them.

Increased flexibility

This gives an opportunity to deal with the swings and surprises and also create advantages through emerging risks.

Increased responsiveness

Customized options and a variety of choices are offered to the customers through the provision of products and services at a short interval that matches their needs.

Increased innovation

This collaboration can involve the supply chain team with the customers. It will also enable the supply chain to develop innovative ideas, solutions, and products that are differentiating and add more value to the marketplace.

Increased competitiveness

The Supply Chain can make this gain by giving the more flexibility, responding, and innovating, which will help it to achieve a high level of competition and more market share and profits.

Supply chain management is lean and agile, as it incorporates these two different but complementary approaches. They differ individually in terms of advantages and disadvantages, and depending on the case, we select them. As such, we do not have to decide on one or the other but rather find the optimal combinations and proportions that can serve them together.

The choice of lean or agile depends on various factors, such as:

Customer demand

Lean is most suitable to minimize cost and waste while increasing efficiency and quality if the customer demand is stable and predictable. Agile is a better approach for the market where customer demand is variable and erratic. It offers flexibility of operation, more diversity, and customized products/ services depending on the customers’ demands.

Product type

Lean becomes an option in the case of functional and essential product categories. It can provide goods at reasonable prices but with perfect quality, meeting customers’ necessities and aspirations. Agile processes will work best if the product type is innovative and fashionable, for example, electronics or clothes, that are delivered often and faster with more worth and added quality.

Market environment

In a market that is stable and where there is certainty, lean is more appropriate than traditional methods in order to optimize the supply chain performance and productivity and ultimately achieve operational excellence. Agile will be a better option because this allows the supply chain to be flexible enough to conform to varying circumstances in a volatile and unpredictable market environment so that competitive advantage can be attained.

A hybrid supply chain strategy integrates and combines agile and lean principles and ensures value creation while cutting costs at the same time.

Some of the ways to combine agile and lean principles are:

Segment the supply chain

Discriminate between the segments of the supply chain through customer demand, commodities’ types, and business setting, then leaner or agile strategies. For instance, adopt lean management techniques for the steady and predictable portions of the business and apply agile approaches for the fluctuating and uncertain parts of the business.

Align the supply chain processes

Align the supply chain processes in all the business operations across the segments, integrating them to facilitate a seamless interaction. Take a single approach, like dealing directly with the suppliers and selling to a selected number of customers at a fixed rate.

Prioritize the customer value

Delivering customer value and satisfaction, balancing the trade-offs of cost vs. quality, speed vs. variety. This means listening and acting on customer feedback as well as data analysis to give customers the most value-added products and services.

Lean and agile principles are the cornerstone of an optimized and future-ready supply chain. With time, organizations continue to become competitive and there is a high demand for knowledgeable professionals, who are proficient in current supply chain analytics and management.

Given the new dynamics in supply chain management, it is important that we continue to invest in our education. IIM Mumbai’s Executive Certificate Program in Supply Chain Analytics and Management is a stepping stone for professionals who aspire to lead with competence, ensuring that they are prepared to steer their organizations toward success in an age characterized by effectiveness and adaptability. Join this innovative program that will take your supply chain to the future and make you a star in the world of supply chain excellence.