Leagility Defined for the Supply Chain

Leagility Defined for the Supply Chain

Two words, lean and agile, combine to make the word leagility. Supply chain managers need lean supply lines to eliminate waste and keep costs low. They also require agile supply chains to get the right amount of the product to the right place in order to satisfy the ever-changing nature of the marketplace. Traditional management recommended a lean supply chain for products with a stable demand, yet low profit margin. Conversely, products with a high profit margin and volatile demand should have an agile supply chain (Van der Vorst). Modern managers may benefit from studying hybrid supply chains that are both lean and agile.

Lean supply chains work best with products that sell in high volume and low variety (Christopher). The reason for this is clear when one considers a type of product meeting this criterion. Toilet paper sells in predictable volume and while there is some variety with this product, it is basically the same from brand to brand. The consumer is more likely to buy this product as a result of price rather than bells and whistles. A manager of a supply chain of toilet paper can use many tools to keep the logistics cost low. Sales of this product are likely to be tied to population size with little of no variation in sales…except in college towns where TP sales may be higher during rush week. This consistency allows managers to ship regular orders of the product. Consistency allows for long-range contracts with shippers, which is less expensive. Consistency also allows for optimization of the production line. Regular production allows a manager to operate factories at near capacity with the right mix of automation to minimize fixed and variable costs.

The drawback to a lean supply chain is the long lead-time required to adapt to a change in demand. If a hurricane suddenly formed off the coast of Florida, and consumers suddenly began buying up survival products, like toilet paper, it may take too long for a lean supply chain to adapt to the change in demand.

Agile supply chains are required for success in markets that are unpredictable where there is lots of variability in products (Christopher). A good example of this type of product is women’s clothing. This is a market where there is extreme variability in product lines and women’s fashions change with the weather. The unpredictable nature of this market place requires manufacturers to be flexible in order to adapt rapidly to the changes. The managers of this type of supply chain need to have rapid production lines capable of reconfiguring for changes in the product. They need to have rapid and flexible shipping to get the latest fashion to the consumer before the fad becomes a has-been. Also, the fashion industry requires guesswork for the amount of inventory to ship to merchants. If the manager can keep up with the latest fashion, demand for the product will be high, and the profit margin can cover some excesses in inventory.

An agile supply chain has the disadvantage of being wasteful. The relative inefficiency of this type of supply chain demands a higher profit margin to cover the costs of high inventory and shipping costs. If a competitor managed to produce the product for less, the agile supply chain may fail to be profitable in a price war.

Thus far, it is important to note the type of supply chain is driven by consumer demand. So it would seem that a lean supply chain is inconsistent with an agile supply chain and vice-versa. It would be nice to have the benefits of both methods, without