Lean Vs Agile Supply Chain

CREATING THE AGILE SUPPLY
CREATING
CHAIN

Martin Christopher

Agenda

The new rules of competition
Understanding the total supply chain costs
The ‘lean’ and ‘agile’ paradigms
Creating a responsive supply chain

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The new rules of competition

Competing through capabilities
Global over-capacity leads to downward pressure on
price
Concentration of buying power
Supplychains compete, not companies

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Nothing ever changes ........

“..... In 50 years between 1870 and 1920 the cost of
distributing necessities and luxuries has nearly
trebled, while production costs have gone down by
one-fifth.... What we are saving in production we are
losing in distribution.”

Ralph Borsodi
‘The Distribution Age’ 1929

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0
C s mr
u to eOutbound
Logistics

M rk tp ce
a e la

O tb u dT s
u o n ran it

Vehicle
Manufacturers

L ad g &D s a
o in
e p tch

V h le P d c n W
e ic
ro u tio
IP

Inbound
Logistics

O -s P rt (V )
n ite a
M

Ave rage

First Tier
Supplier

In o n T n it
b u d ra s

M axim um

F is e C m o e ts
in h d o p n n

120

A s m lyW
se b
IP

P -A se b W
re s m y IP

In h ueb ilt P
- o s u arts

100

B u h -o t P rts
ogt u a

R wm ria
a
ate l

Days of Inventory

Inventory profile of the Automotive Supply
Chain
(UK 1999 Figures, Volume Car Stock Levels
Distribution
& Retail

M inim um

80

60

40

20

Source: Holweg (2002)

Competing in turbulent markets
Product and technology life-cycles are shortening
Competitive pressure forcesmore frequent product
changes
High levels of variety and product proliferation increase
business risk
Supply chain ‘chaos’ created through self-imposed actions
Forecast-based management no longer viable : forecast for
capacity, execute against demand

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Agility : a definition

The ability to respond rapidly to unpredictable
changes in demand.
Agility is not a single companyconcept, it
extends from one end of the supply chain to the
other.

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Dictionary definitions

•

:

“having no surplus flesh or bulk”

•

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lean

agile

:

“quick in movement : nimble”

Agile or lean?
Hi
“Lean” works best in
high volume, low
variety and predictable
environments.

AGILE
Variety/
Variability

“Agility” is needed in
less predictableenvironments where
the demand for variety
is high.

LEAN

Lo
Lo

Hi
Volume

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Demand/supply characteristics determine supply
chain strategy
Long
lead-time

Plan &
execute
(lean)

Delayed
configuration
(postponement)

Supply
characteristics

Short
Lead-time

Continuous
replenishment

Predictable

React &
execute
(agile)

Unpredictable

Demandcharacteristics
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The pareto distribution

80%

% of
total
demand
Lean

• Make to forecast
• Low priority in
production schedule
• Focus on efficiency
• Seek economies of
scale

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20%

Agile

• Forecast for capacity,
execute to demand
• Make to order
• High priority in
production schedule
• Hold inventory in
generic form
% of products

Characterising demandthrough sales history
Demand

Surge

Base
Time

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Decoupling points and strategic inventory

Driven
By
Demand
Driven
By
Forecast

Plants
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Distribution
Centres

Warehouses

Depots

The de-coupling point
Lean

Agile

• Forecast at generic
level

• Demand driven
• Localised
Configuration

• Economic batch
quantities
• Maximise
efficienciescarsc

Strategic
Inventory

• Maximise
effectiveness

The lead-time gap
Procurement

Manufacturing

Delivery

Logistics Lead Time

Customer’s Order Cycle
Order Fulfilment

Lead-Time Gap
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Forecast error and lead-time

+
Forecast
Error

to

-

Lead-Time

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tn

Pathways to agility
Supply side

Internal

Demand side

•Strategic sourcing...