Chapter 3 Combining Lean Thinking and Agile Thinking
3.2 Practical ways to combine the lean think and agile thinking
As the debates mentioned above, there are a number of common elements between the lean and agile paradigms. Provided the whole concept is fully thought through and properly managed, lean and agile businesses can co-exist, even when on the same site and with some limited rotation of personnel (Aitken, 2000). Here are three proven ways in which the paradigms have been brought together to provide available and affordable products for the end customer.
3.2.1 The Pareto curve approach
Many companies manufacturing or distributing a range of products will find that the Pareto Law will apply and can be exploited to determine supply strategy.
Typically an analysis of the business will show that the 80/20 (or similar) rule holds (Koch, 1997). In other words, 80 per cent of total volume will be generated from just 20 per cent of the total product line. The way in which these 20 per cent are managed should probably be quite different from the way the remaining 80 per cent are managed. For example it could be argued that the top 20 per cent of products by volume are likely to be more predictable and hence they lend
themselves to lean principles of manufacturing and distribution. The slow moving 80 per cent, on the other hand, will typically be less predictable and will require a more agile mode of management. Figure 3- 6 suggests one generic way in which supply chain strategies may be devised for the predictable 20 per cent and the more volatile 80 per cent of products.
Figure 3- 6 The Pareto distribution (Source: Christopher and Towill, 2001)
3.2.2 The decoupling point approach
A further marrying of the lean and agile paradigms can be achieved through the creation of a “decoupling point” using what may be termed strategic
inventory. Here the idea is to hold inventory in some generic or modular form and only complete the final assembly or configuration when the precise customer requirement is known.
An example is the customized PC (Christopher and Towill, 2000). As shown in Figure 3- 7, by utilizing the concept of postponement, companies may utilize
lean methods up to the decoupling point and agile methods beyond it. Companies such as Hewlett-Packard have successfully employed such strategies to enable products to be localized much closer in time to actual demand (Feitzinger and Lee, 1997). However, as Pagh and Cooper (1998) have pointed out, satisfying customer demand may require particular combinations of postponed manufacture and postponed logistics.
Figure 3- 7 The decoupling point (Source: Christopher and Towill, 2001)
The use of the decoupling point can facilitate the use of both lean and agile principles in a single “Leagile” supply chain strategy (Naylor et al., 1999).
Strategic stock is held as a buffer between the fluctuations of customer demand and the smoothed schedule that is making to forecast. The organizations
downstream from the decoupling point are optimized for agility i.e. for responsiveness to customer demand, whereas those upstream can focus on maintaining the decoupling stock levels (or make to forecast) and are therefore able to focus on lean, low-cost manufacture. The use of a decoupling point and the resultant leagile strategy is illustrated in Figure 3- 8.
Figure 3- 8 Leagile supply chain strategy (Source: Mason-Jones and Towill, 1998)
3.2.3 The surge/base demand separation approach
The third hybrid strategies that have been employed with success are based upon separating demand patterns into “base” and “surge” elements (Gattorna and Walters, 1996). Figure 3- 9 highlights this distinction together with one possible level scheduling solution where capacity demands are smoothed by intelligent switching of “base” production. Base demand can be forecast on the basis of past history whereby surge demand typically cannot. Further, base demand can be met through classic lean procedures to achieve economies of scale, whereas surge demand is provided for through more flexible, and probably higher cost, processes.
Strategies such as these are increasingly being employed in the fashion industry where the base demand can be sourced in low cost countries and the surge demand “topped up” locally nearer to the market. Even though the unit cost of manufacture in local markets will be higher than sourcing in low cost locations, the supply chain advantage can be considerable. Alternatively, arrangements can be made for dealing with both “base” and “surge” demands either by separation
in space (via separate production lines) or in time (by using slack periods to produce base stock). This contrasts with the lean concept of “level scheduling”.
Well-documented companies employing such strategies include Zara
(Christopher, 1998), Benetton (Zuccaro, 1998), and National Bicycle (Fisher et al, 1994). What is particularly important is to relate the strategy throughout the whole supply chain to the needs of the end customer in terms of both affordability and availability.
Figure 3- 9 Responding to combinations of "base" and "surge" demands (Source: Christopher and Towill, 2001)
Whilst these three strategies are complementary rather than mutually
exclusive, it is likely that each may work better in certain conditions. A suggested set of appropriate conditions for the application of the three hybrid strategies is presented in Table 3- 1.
The three lean/agile hybrid strategies described above confirm that the real focus of supply chain re-engineering should be on seeking ways in which the appropriate combination of lean and agile strategies can be achieved.
Table 3- 1 A contingency approach to supply chain strategy choice
Hybrid strategies Appropriate market conditions and operating environment Pareto/80:20
Using lean methods for the volume lines, agile methods for the slow movers
High levels of variety, demand is non-proportionate across the range
Decoupling point
The aim is to be lean up to the decoupling point and agile beyond it
Possibility of modular production or intermediate inventory; delayed final configuration or distribution Surge/base demand separation
Managing the forecastable element of demand using lean principles; using agile principles for the predictable element
Where base level of demand can confidently be predicted from past experience and where local
manufacturing, small batch capacity is available
(Source: Christopher and Towill, 2001)