Lean vs Agile Supply Chain Principles

Blog ➔ Supply Chain ➔ Lean vs Agile

Optimizing the supply chain has become a top priority for nearly every business in the past two years. People have experienced disruptions in the supply chain worldwide. Suppliers and manufacturers are doing whatever they can to keep up with the rapid changes.

There are two different supply chain management strategies, both used to increase efficiency, provide better customer service, and increase profit margins. Agile supply chains and lean supply chains.

In this article, we’ll compare these two strategies, how they work, and which strategy will help your business build a more robust supply chain.

What is the difference between agile and lean supply chain?

An agile supply chain strategy focuses on responding quickly to customer demand and market changes, while a lean supply chain strategy is focused on reducing waste and streamlining processes.

Businesses that have an agile supply chain carry fewer goods that allow them to customize orders, or quickly implement product changes. A lean supply chain reduces manufacturing costs by producing high volumes of products with low variability.

Agile supply chains focus on flexibility, while lean supply chains focus on predictability.

Principles from both of these supply chain management strategies are designed to help businesses improve their supply chain, and serve their customers better. A 100% agile or 100% lean supply chain comes with downsides, so a hybrid approach is usually the best option.

What is a lean supply chain?

A lean supply chain is a strategy that focuses on mass production of goods, with the goal of reducing costs and increasing reliability.

Manufacturing is planned out months, or even years in advance. This is done to reduce costs as much as possible. Increasing volume is one of the easiest methods to reduce costs. The cost per part decreases as volume increases.

A lean supply chain is ideal for businesses and industries that are easily predictable. When consumer demands are changing, or technology and design is changing, a lean supply chain is slower to respond.

How do you build a lean supply chain?

When building a lean supply chain, planning and optimizing processes is the highest priority. Because a lean supply chain aims to reduce waste and increase volume, using data to make decisions and forecast demand.

The first step in developing a lean supply chain would be to review current supply chain processes. Look for opportunities to cut wasted resources and improve overall efficiency. Once the areas of improvement are identified, you can start forming a plan of action.

Modern supply chain technology can also help companies build a lean supply chain. Automating orders, confirmations, and day-to-day operations helps reduce wasted resources.

After implementing changes in supply chain processes, you need to track performance. Supply chains often have many moving parts. Tracking supply chain KPIs will help your business continue to make improvements.

What are the benefits of a lean supply chain?

Reduces the cost of goods
Reduces transportation costs
Reduces manufacturing waste
Provides stability and predictability

What is an agile supply chain?

An agile supply chain is a strategy designed to help businesses react to changes quickly and efficiently. Agile supply chains offer greater flexibility, and make it easy to respond to changing customer and industry needs.

Unlike lean principles, an agile supply chain waits to see what the market wants and needs before manufacturing. This is effective in industries that offer customization, or products that have shorter life cycles. One example of this is the electronics industry. Every year, phones, cameras, TVs, and laptops are updated with new parts. The electronics manufacturers want to implement the new technology as quickly as possible. And once the latest version is announced, the previous model becomes virtually obsolete. These businesses can’t be stuck with tons of outdated inventory, so they use a more agile supply chain.

These principles are also used when it’s more difficult to predict long-term demand. The fashion industry also relies on an agile supply chain. Brands need to get products from the runway to shelves as quickly as possible, and customer demands are difficult to predict.

The opposite might be a food and beverage company. The groceries you buy typically remain the same. The potatoes you’re buying today aren’t changing like the shirts and shoes.

How do you create an agile supply chain?

Agile supply chains need to be flexible and responsive. Similarly to building a lean supply chain, an agile supply chain starts with planning, and reviewing the current processes.

Supply chains involve sever different parties–raw material supplier, manufacturers, transportation, local distributors, and customers. Building strong relationships with suppliers and customers is essential. Better communication within your supply chain helps meet changing demands.

Having the latest data also increases agility. An agile supply chain is responding to changes more often. Quick access to data helps companies with demand forecasting so they can respond intelligently and increase product availability.

As changes are implemented into the supply chain, monitoring performance and ongoing improvements help keep the supply chain agile and adaptive.

What are the benefits of an agile supply chain?

Reduces inventory carrying costs
Responds faster to changing demands
Better ability to implement order updates
Improved collaboration within the supply chain
Increased visibility and control of the supply chain

How should you optimize your supply chain?

Every business is unique, and requires a unique approach.

But, in general, businesses are moving away from a lean supply chain in favor of a more agile supply chain. In the past, the focus has been to provide stability and low prices. Today, there’s a greater focus on speed and meeting changing demands.

A hybrid approach is the best option for most businesses, but future supply chains will be more agile and dynamic than the traditional approach.

If you’re looking for a reliable supply chain management solution, reach out to our team to learn more about how we can help as a manufacturing partner.