October 2014 | Commentary | The Lean Supply Chain

A Lean and Agile Supply Chain: Not an Option, But a Necessity

Tags: Supply Chain Management, Lean

Paul A. Myerson is Professor of Practice in Supply Chain Management at Lehigh University and author of books on Lean for McGraw-Hill, and supply chain for Pearson, 610-758-1576

In today's global, dynamic economy, it is beneficial for companies to operate a supply chain that is both Lean and agile. Using Lean and agile in combination is known as having a hybrid supply chain strategy.

A hybrid supply chain strategy may be appropriate for a company attempting to become a "mass customizer"—producing progressively smaller batch sizes (sometimes as little as one item) specific to customers' sometimes unique needs.

A Lean supply chain focuses on adding value for customers, while identifying and eliminating waste—anything that doesn't add that value. Being agile and responsive, on the other hand, implies that your supply chain can handle unpredictability—and a constant stream of new, innovative products—with speed and flexibility.

An agile strategy uses a wait-and-see approach to customer demand by not committing to the final product until actual demand becomes known (also referred to as postponement). For example, this might involve the subassembly of components into modules in a lower-cost process, with final assembly done close to the point of demand in order to localize the product.

An agile supply chain must be responsive to actual demand, and capable of using information as a substitute (to some degree) for inventory through collaboration and integration with key customers and suppliers.

Either, Or, or Both

On some occasions, either an agile or a Lean strategy might be appropriate for a supply chain. But many companies will probably face situations where a hybrid strategy is a better fit. If so, they need to carefully plan and execute the combined strategy with excellence, which is often easier said than done because it involves a lot of moving parts. As in so many aspects of supply chain and operations management, there is more than one way to accomplish this goal.

One example of a company using a hybrid strategy in its supply chain is Zara, a Spanish fashion designer and retailer. Zara directly manufactures most of the products it designs and sells, and performs activities such as cutting, dying, labeling, and packaging in-house to gain economies of scale. A network of dedicated subcontractors performs other finishing operations that cannot be completed in-house.

As a result, Zara has a supply chain that is not only agile and flexible, but incorporates many Lean characteristics into its processes.

Some semiconductor manufacturers incorporate a hybrid strategy using a flexible manufacturing and distribution model. Subcontractors perform distinct manufacturing processes at separate physical locations. This hybrid approach taps a virtual network of manufacturing partners and requires responsive, flexible, and information-driven sourcing, manufacturing, and distribution functions—in many ways, the opposite of Zara's strategy of shifting processes in-house.

Many organizations can find some form of hybrid supply chain that works well for them. In today's ever-changing, volatile, and competitive global economy, it may often be in a company's best interest to operate a supply chain that is both Lean and agile.