Logistics and Supply Chain Management, 4th Edition

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One of the biggest challenges facing organisations today is the need to respond

to ever increasing levels of volatility in demand. For a variety of reasons product

and technology life cycles are shortening, competitive pressures force more fre-

quent product changes and consumers demand greater variety than ever before.

To meet this challenge the organisation needs to focus its efforts upon achiev-

ing greater agility such that it can respond in shorter time-frames both in terms of

volume change and variety change. In other words it needs to be able to adjust

output quickly to match market demand and to switch rapidly from one variant to

another. To a truly agile business volatility of demand is not a problem; its proc-

esses and organisational structure as well as its supply chain relationships enable

it to cope with whatever demands are placed upon it.

Agility in the sense of the ability to match supply with demand is not necessar-

ily synonymous with ‘leanness’. Much has been written about lean manufacturing

– often with reference to the automobile industry.

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The lean approach to manu-

facturing seeks to minimise inventory of components and work-in-progress and

to move towards a ‘just-in-time’ environment wherever possible. However, while

‘leanness’ may be an element of ‘agility’ in certain circumstances, by itself it will

not enable the organisation to meet the precise needs of the customer more rap-

idly. Indeed it could be argued that, at least until recently, the automobile industry,

for all its leanness, is one of the least agile industries around. Webster’s Dictionary

makes the distinction clearly when it defines lean as ‘containing little fat’, whereas

agile is defined as ‘nimble’.

Agility has many dimensions and the concept applies as much to networks as

it does to individual companies. Indeed a key to agile response is the presence of

Creating the responsive

supply chain

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Product ‘push’ versus demand ‘pull’

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The Japanese philosophy

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The foundations of agility

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A routemap to responsiveness

agile partners upstream and downstream of the focal firm. Whilst organisations may

have internal processes that are capable of rapid response, their agility will still be

constrained if they face long replenishment lead times from suppliers, for example.

Agility, as we have said, is not synonymous with ‘leanness’ but it can build upon

it. Leanness in a sense is about doing more with less. It owes its origins to the

Toyota Production System (TPS) and its pre-occupation with the reduction or elimi-

nation of waste (muda).

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Lean manufacturing is characterised by ‘level schedules’,

i.e. a forward plan to ensure that the use of resources is optimised.

The backdrop against which lean thinking originated was the Japanese auto-

mobile industry of the 1970s. This was an industrial context typified by the volume

manufacture of relatively standard products (i.e. low levels of variety) and a focus

on achieving efficiencies in the use of resources and in maximising economies

of scale. In this type of situation, i.e. standard products and relatively predictable

demand, experience has shown that lean practices work well.

However, in market environments where demand is uncertain, the levels of vari-

ety are high and consequently volume per stock keeping unit (SKU) is low, then a

different response is required. Whilst efficiency is always desirable, in the context

of unpredictable demand it may have to take second place to ‘effectiveness’ as

the main priority for supply chain management. By effectiveness in this context is

meant the ability to respond rapidly to meet the precise needs of an often frag-

mented marketplace. In other words, rather than the emphasis being on producing

standard products for mass markets ahead of demand, the requirement becomes

one of producing multiple product variants (often customised) for much smaller

market segments in response to known demand.

Figure 5.1 reflects the different contexts in which the ‘lean’ and ‘agile’ para-

digms might work best.

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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LEAN

AGILE

Low High

Volume per variant

Variety/Variability

Low High

‘Agility’ is needed in

less predictable

environments where

the demand for variety

is high

‘Lean’ works best in

high volume, low

variety and predictable

environments

Figure 5.1 Agile or lean?