More on Agile Supply Chains
February 13, 2012
Over the past couple of years, one persistent theme discussed by supply chain risk management expert Daniel Dumke is supply chain agility. Agility is a characteristic that many analysts indicate is an essential element of a world-class supply chain. Dumke, doctoral candidate, is one of my favorite bloggers because he specializes in presenting academic research that has been conducted on various supply chain subjects, with his primary focus being supply chain risk management. One study highlighted by Dumke was authored by Angappa Gunasekaran, Kee-hung Lai, and T.C. Edwin Cheng in which they assert that responsive supply chains are founded in Supply chain management (SCM) and agile manufacturing (AM) principles. [“Responsive supply chain: A competitive strategy in a networked economy,” Omega, Volume: 36, Issue: 4, 2008] Gunasekaran, Lai, and Cheng believe that responsive supply chains are agile, but that agility is tempered by cost considerations. A purely agile supply chain, they assert, focuses on “speed and flexibility” with little concern about the costs of attaining that agility.
Gunasekaran, Lai, and Cheng compare agility principles to lean supply principles across four goals (the first being cost). Responsive supply chains, they believe, address both agility and cost. The second goal addressed by Gunasekaran, Lai, and Cheng is strategic planning. They point out that lean principles lead to “fewer suppliers [and] outsourcing IT; whereas, agile principles lead to a focus on “core competencies, global outsourcing, [and] virtual enterprises.” It seems to me that they miss the most important strategic objective of agile supply chains — resilience. I’m surprised they didn’t mention resilience because that trait often creates tremendous tension with proponents of lean supply chains. They say that responsive supply chains are characterized by: “Supply management, strategic alliances, virtual enterprises, global outsourcing, and IT.”
The third objective examined by Gunasekaran, Lai, and Cheng is organizational structure. They assert that lean supply chains focus on “supplier development”; whereas, agile supply chains focus on virtual enterprises [and] partnership formation based on core competencies.” Responsive supply chains, on the other hand, focus on “virtual enterprise, supply chain integration, and IT.” The fact of that matter is that an organization can only be agile if it has excellent supply chain visibility. Therefore, supply chains must be structured to foster collaboration. Visibility can only be achieved through cooperation based on trust. Gunasekaran, Lai, and Cheng seem to ignore that fact or only credit it to responsive (i.e., integrated) supply chains. Another possibility is that they believe they included the topic of visibility under their final objective: knowledge and information technology.
Under that topic, they assert that lean supply chains focus on “supply chain integration [and] knowledge workers”; whereas agile supply chains focus on an “agile and knowledgeable workforce [and] enterprise resource planning systems.” Responsive supply chains, they assert, focus on “training and education to operate in a global environment [and on] ERP systems.” I believe that most supply analysts today would tell you that focusing on ERP systems is important, but sufficient. ERP systems are primarily transactional systems but they don’t provide a broad enough view of the business environment to make a supply chain either agile or responsive. Dumke reports that the authors’ framework for creating a responsive supply chain “consists of these major building blocks”:
- Strategic Planning
Focus on Strategic Alliances, global sourcing and Technology
- Virtual Enterprise
The framework is especially based on the concept of the Virtual Enterprise, where companies specialize their core competencies and focus on their network of supply and demand side partner companies. To achieve this planning processes have to be intensively IT supported.
- Knowledge and IT management
Automation and IT play a dominant role in the development of a physically distributed or virtual enterprise. The most important elements for IT support are: strategy formulation, tactical management, operations control and systems.
[“Foundation for a Responsive Supply Chain,” Supply Chain Risk Management, 13 September 2010]
I have to remind myself that this study was published in 2008. Since then a global economic downturn and numerous supply chain disruptions have caused many companies to rethink their supply chains and the principles they use to implement them. Although these three building blocks are probably still valid, the discussion surrounding them has probably changed.
As I noted earlier, proponents of agile supply chains are often at odds with proponents of lean supply chains. This tension is not new. Almost a dozen years ago, Martin Christopher, a professor of logistics at Cranfield University, and Denis R. Towil, a professor at Cardiff University, wrote, “Agility is business-wide capability that embraces organisational structures, information systems, logistics processes and, in particular, mindsets. A key characteristic of an agile organization is flexibility. … Agility should not be confused with ‘leanness.’ Lean is about doing more with less.” [“Supply chain migration from lean and functional to agile and customised,” Supply Chain Management: An International Journal, Volume 5 issue 4, 200] Concerning Christopher’s and Towil’s study, Dumke writes:
“Agile supply chains are a quite new concept which [emphasizes] a change in the corporate mindset to adjust to the constantly changing customer demand. … [The] result of an agile supply chain is its flexibility. It has to be separated from the lean supply chains or the lean manufacturing concept which focusses on reducing ‘fat’ (e.g., inventory, cost, …) wherever possible.” [“Agile Supply Chains,” Supply Chain Resilience Management, 15 April 2010]
He continues, “Agile Logistics are defined by the four basic elements” (as depicted in the following graphic).
“An agile supply chain can be divided into two parts: one where the products are pushed based on planning and forecast and one where products are pulled from the upstream within the supply chain based on the real customer demand. So one part of designing an agile supply chain is the decision about where to place the decoupling points. There can be two different decoupling points one for the information decoupling (up to where in the supply chain is the information about customer demand shared) and the placement of strategic inventory. … This is a very good article to explain the basics of agile supply chains. There are many followers building on this work.”
As Gunasekaran, Lai, and Cheng correctly point out, when structuring a supply chain there are always going to be compromises that have to be made. That means that a supply chain can’t be purely based on lean or agile principles. Rachel Mason-Jones, Ben Naylor, and Denis Towil make this point in a study entitled “Lean, agile or leagile? Matching your supply chain to the marketplace,” International Journal of Production Research, 2000] They wrote:
“Those companies [that] design business strategies that acknowledge the presence of uncertainty and provide mechanisms for pro-actively tackling it are rewarded by an opportunity to enable best practice ahead of competitors whose responses are purely reactive. The message here is that supply chains need to adopt a strategy that suits both their particular product and marketplace. This paper analyses the lean, agile and ‘leagile’ paradigms and their roles in tackling differing marketplace uncertainty scenarios. … ‘Leagile is the combination of the lean and agile paradigms within a total supply chain strategy by positioning the decoupling point so as to best suit the need for responding to a volatile demand downstream yet providing level scheduling upstream from the marketplace.’
“‘The decoupling point is the point in the material flow streams to which the customer’s order penetrates. It is here where order-driven and the forecast-driven activities meet. As a rule, the decoupling point coincides with an important stock point — in control terms a main stock point– from which the customer has to be supplied.’ …
“Why call it Leagile? First, because in a Leagile supply chain, Lean material flow is upstream of Agile material flow. Secondly, because to succeed as an Agile process it must be fully documented, understood and engineered. This is readily enabled by initially engineering a Lean process and then adapting it by removing specific constraints and capacity limitations, thus enabling Agility. Hence, Lean precedes Agile on two counts; geographically and temporally. … Leagile supply chains already exist in the real world. What is important is to recognize when the new paradigm is the best way forward for a particular supply chain so that it may be appropriately engineered from the outset.”
That is an interesting construct and point of view. My biggest take-away from these studies is that an organization must be cognizant that tensions are always going to exist between the desire to reduce costs and the requirement to be resilient. Having a “leagile” corporate mindset is probably the best way to reduce potential roadblocks that affect corporate alignment and potential internal conflicts.