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Two words, lean and agile, combine to make the word liability. Supply chain managers need lean supply lines to eliminate waste and keep costs low. They also require agile supply chains to get the right amount of the product to the right place in order to satisfy the ever-changing nature of the marketplace. Traditional management recommended a lean supply chain for products with a stable demand, yet low profit margin.
Conversely, products with a high profit margin and volatile demand should have an agile supply chain (Van der Vast). Modern managers may benefit from studying hybrid supply chains that are both lean and agile. Lean supply chains work best with products that sell in high volume and low variety (Christopher). The reason for this is clear when one considers a type of product meeting this criterion. Toilet paper sells in predictable volume and while there is some variety with this product, it is basically the same from brand to brand.
The consumer is more likely to buy this product as a result of price rather than bells and whistles. A manager of a supply chain of toilet paper can use many tools to keep the logistics cost low. Sales of this product are likely to be tied to population size with little of no variation in sales... except in college towns where TP sales may be higher during rush week. This consistency allows managers to ship regular orders of the product.
Consistency allows for long-range contracts with shippers, which is less expensive. Consistency also allows for optimization of the production line. Regular production allows a manager to operate factories at near capacity with the right mix of automation to minimize fixed and variable costs. The drawback to a lean supply chain is the long lead-time required to adapt to a change in demand. If a hurricane suddenly formed off the coast of Florida, and consumers suddenly began buying up survival products, like toilet paper, it may take too long for a lean supply chain to adapt to the change in demand. Agile supply chains are required for success in markets that are unpredictable where there is lots of variability in products (Christopher).
A good example of this type of product is women's clothing. This is a market where there is extreme variability in product lines and women's fashions change with the weather. The unpredictable nature of this market place requires manufacturers to be flexible in order to adapt rapidly to the changes. The managers of this type of supply chain need to have rapid production lines capable of reconfiguring for changes in the product. They need to have rapid and flexible shipping to get the latest fashion to the consumer before the fad becomes a has-been. Also, the fashion industry requires guesswork for the amount of inventory to ship to merchants.
If the manager can keep up with the latest fashion, demand for the product will be high, and the profit margin can cover some excesses in inventory. An agile supply chain has the disadvantage of being wasteful. The relative inefficiency of this type of supply chain demands a higher profit margin to cover the costs of high inventory and shipping costs. If a competitor managed to produce the product for less, the agile supply chain may fail to be profitable in a price war. Thus far, it is important to note the type of supply chain is driven by consumer demand. So it would seem that a lean supply chain is inconsistent with an agile supply chain and vice-versa.
It would be nice to have the benefits of both methods, without the drawbacks; in essence combining the two words... lean and agile... to form the league supply chain. A central notion to the league supply chain is the idea of the decoupling point. This point is where the supply chain goes from the customer in an agile fashion to the decoupling point where the supply chain takes on more lean characteristics (Mason-Jones).
The decoupling point can be located anywhere between the customer and the supply of raw materials (Figure 1). In the case of toilet paper sales, the decoupling point can be pushed down to very near the customer. Demand is regular (excuse the pun) so the manager can easily forecast production. One only needs to be agile enough to cover minor fluctuations.
Perhaps the manager can increase stock in Florida around hurricane season or in college towns around the start of school. One may be able to determine the reaction time to higher demand and adjust inventories at distribution centers or warehouses for a three-day stockpile as an example. Supply chain managers for women's fashions may be able to place the decoupling point closer to the factories if they take advantage of new technologies like the internet. Predictable yet smaller supplies could be sent to retailers while holding on to inventory neat the top of the supply chain.
With proper marketing and shipping strategies, the clothing manufacturer could profit from the agile nature of the electronic marketplace, while saving money by leaning down the supply chain to retailers. For the food industry, selling perishable products, like fresh poultry, poses a greater challenge to the supply chain manager. The decoupling point must be close enough to the consumer so as not to cause the expiration of food fit for consumption, yet agile enough to meet the changes in the marketplace. One way to begin solving this problem is to calculate the predictable sales of the perishable product. In the same fashion one calculates fixed costs verses variable costs in accounting, one could determine the 'fixed's ales component and design lean strategies to meet the predictable demand. The 'variable' demand could be dealt with separately.
The variable aspect of selling a perishable product requires daily attention to demand from the retailers, warehouses, and distribution centers.
Free research essays on topics related to: toilet paper, supply chain, distribution centers, variable costs, profit margin
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