How Agile and Lean coexist on Supply Platforms

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Is Agile methodology a CPO panacea?

Once again, let's refer to the 2021 Deloitte CPO Survey, which is called "Using agility to address changing chief procurement officer priorities."

The Deloitte suggested solution to multiple CPO challenges is agility. Personally, I get alerted when offered a uniform recipe for many problems. 

Don't you feel this prescription is somewhat simplified? 

E.g., the agile methodology doesn't address cost-saving, which is the no. 2 top CPO priority per this report. 

Lean does. 

Agile is one of the generic supply chain management strategies

Supply chain modeling starts from segmentation. It could be product-, customer-, supply,  geography-related, or a combination thereof. 

Actually, agile is one of four generic supply chain management strategies segmented by lead time and demand predictability:
  • Kanban - continuous replenishment;
  • Lean - fixed capacity and variable level of services;
  • Agile - fixed level of services and variable capacity;
  • Leagile - hybrid strategy based on a combination of lean and agile methodology, e.g., by managing baseload with lean techniques and addressing sudden demand spikes in an agile manner. 
Generic supply chain strategies (4 quadrants)

Lean supply aims to provide good quality products at low prices by focusing on waste removal. Therefore, the main attributes of Lean are cost and quality. 


By the way, some agile proponents claim innovation is the virtue of agility. In fact, it is the element of quality that results from the waste-free production system.


Agile supply aims to provide a quick and flexible response to varying customer needs by focusing on lead time and service level. The main attributes of Agile are speed and flexibility.


Therefore, suggesting an agile-only resolution to all CPO problems looks like an "all-meat-no-potatoes" recipe.

The supply chain strategy must consider demand characteristics

As per Fisher's classical work "What is the right supply chain for your product?", there are two basic types of products - functional and innovative.

Functional products are characterized by stable demand, long life cycles, low-profit margins, and low variety. 

Functional products are suited to lean supply with forecast-driven planning as their demand is relatively predictable. 

Innovative product attributes are volatile demand, short life cycles, high-profit margins, and remarkable variety.

Innovative products are suited to agile supply with demand-driven planning.

From supply chains to platforms  

The evolution of the supply chain started from a product-driven approach, then continued to be market-driven. 

In their present form, supply chains are increasingly customer-driven and subordinated to agility, sustainability, innovation, and cost drivers. 

Supply network and platform sketch
Most importantly, the supply chains transform into platforms with a central B2B platform instead of related links. It connects the demand and supply sides and orchestrates virtual business relationships in the cloud. 

The supply chain performs two functions per Fisher - a physical one (i.e., converting raw materials into finished products) and a market mediation.

A supply platform performs market mediation, i.e., ensures that the variety of products that reach the marketplace matches consumer demand.

The supply platform needs both agile and lean methodologies.

Functional products require efficient (lean) supply chains. Innovative products require responsive (agile) supply chains. 

Since supply platforms manage the mix of functional and innovative products, their critical ability is to easily switch between modes responding to particular demand characteristics.

Agile is just one of those modes, which the supply platform needs to employ dynamically based on given products, customers, lead times, capacities, etc. 

It offers excellent benefits and fits the modern business's lightspeed pace and enormous challenges, yet other strategies don't deserve to fall into oblivion.   


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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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Comments

  1. Solomon MccombsSeptember 20, 2022 at 5:54 PM

    Great tips regrading Supply chains. You provided the best information which helps us a lot. Thanks for sharing the wonderful information.

    ReplyDelete

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