Supply chain management plays a critical role in the success of many organizations. In production and manufacturing companies, this aspect is particularly important because it can influence lead times and the company’s responsiveness to customers’ needs. Luckily, a supply chain can be tailored to the needs of the business, thus making the production more efficient and assisting in addressing specific issues. In the two cases presented, companies have different needs and requirements with regard to supplying chain structure and management. A suitable strategy of supply chain management could help both organizations to improve production, thus enhancing their success in the market.
Lean and Agile Supply Chains
The present assignment focuses on two primary types of supply chains: lean and agile. Lean supply chains focus on minimizing waste and optimizing production to ensure short lead times and high quality of items (Bhamu & Sangwan 2014). This involves reducing or eliminating activities that do not add value to the manufacturing process (Carvalho, Azevedo & Cruz-Machado 2014). For example, lean supply chains are usually focused on producing a set number of product options from a limited number of materials (Jasti & Kodali 2015).
This is beneficial for manufacturers because it enables them to reduce the need for variation in production while ensuring the high quality of the end product. Lean supply chains also allow applying standardized quality assessment techniques, which contributes to the quality of the end product (Roh, Hong & Min 2014). Based on this overview, lean supply chains are more efficient but are only suitable for companies with limited product variability, such as Company B. They also assist in waste and lead time reduction, which are the critical issues faced by the organization.
Agile supply chains are often compared to lean structures due to the differences in focus, targets, and outcomes. As shown by Crandall, Crandall, and Chen (2014), agile supply chains focus on the customer’s requirements for delivery reliability and product variability. This allows agile supply chains to respond better to the customers’ needs while also reducing lead times and enhancing production capacity (Gligor, Esmark & Holcomb 2015).
Compared to lean supply chains, agile supply chains are more flexible, which enables product customization and the manufacturing of made-to-order products. Purvis, Golsing, and Naim (2014) also note that agile supply chains promote flexibility in both products and volume. Thus, an agile supply chain will be able to provide variable product volumes with variable characteristics to satisfy the demands of the customer.
Given that at least 50% of products manufactured by Company A require either partial or full customization, an agile supply chain would work best for this organization. It would also allow Company A to complete orders at short notice because agile supply chains can reduce the time required for customization by creating a flexible network of raw material suppliers (Ciccullo et al., 2018). Hence, this option would allow the company to address the key production issues and become more efficient.
Researchers note that it is also possible for companies to combine the features of agile and lean supply chains to maximize performance benefits. Purvis, Gosling, and Naim (2014) note that this practice involves either maintaining a flexible network of suppliers with set volumes of production or using a set number of vendors with flexible production volumes. This supply chain model has been influenced by recent developments in supply chain management discussed by Christopher and Ryals (2014).
The authors note that there is an increased tendency for modeling supply chains based on demand, and this requires both flexibility and waste reduction. As a result, demand chains are formed, which perform the same functions as supply chains, but with increased variability in terms of structure and focus (Christopher & Ryals 2014). The mixture of lean and agile frameworks used in demand chains could be beneficial for Company A since the organization still has a significant share of standard products produced in large volumes. Nevertheless, the implementation difficulties associated with mixed supply chains or demand chains mean that it would be more beneficial to switch to an agile supply chain instead.
Benefits and Pitfalls
Lean Supply Chains
Lean supply chains offer numerous benefits to companies due to their focus and features. First of all, lean supply chains help manufacturers and other organizations to control the costs by ensuring that the amount of raw materials supplied is minimally different from the demand in terms of products (Martínez-Jurado & Moyano-Fuentes 2014). This means that manufacturers produce less waste during operations, resulting in cost reduction and increased efficiency.
Secondly, research shows that lean supply chains are strongly linked to sustainability. According to Martínez-Jurado and Moyano-Fuentes (2014), increased production efficiency and reduced waste have a beneficial effect on sustainability. Moreover, the improved attention to item quality and larger production volumes minimize the need for additional production capacity spent on fixing mistakes. This means that the production process becomes leaner and requires fewer resources, contributing to sustainability. For example, Zara’s supply chain possesses the characteristic of a lean supply chain, including reduced waste (Myerson 2014). Given a large volume of production, this enables the company to benefit from economies of scale while remaining sustainable.
Incidentally, the increased quality of end products is another significant benefit of lean supply chains. By manufacturing standardized products from a set range of materials, producers can develop and implement a system for quality control and improvement, thus facilitating customer satisfaction and eliminating production errors (Govindan et al., 2015). This feature of lean supply chain strategies is the primary reason why they are used by many large manufacturers that are famous for product quality, including Samsung, Apple, and Lenovo (Degun 2014). The benefits of a lean supply chain are thus particularly relevant to companies focused on quality, cost, and waste reduction.
The primary pitfall of lean supply chains, however, is that they provide limited flexibility to manufacturers. As noted by Purvis, Gosling, and Naim (2014), lean supply chain strategies rely on the reduced variability of products and set production volumes for maximum efficiency. These features help to achieve waste reduction and quality control in lean supply chains. However, some lean supply chains still possess some degree of flexibility with regard to products. This can be achieved in the case of scheduled production changes, provided that the overall manufacturing capability of the company is high (Carvalho, Azevedo, & Cruz-Machado, 2014). Therefore, this drawback only influences manufacturing companies that need to provide customized products on short notice, such as Company A.
Agile Supply Chains
In contrast with lean supply chains, the benefits of agile supply chains rely mostly on the increased production flexibility. Purvis, Gosling, and Naim (2014) show that agile supply chains allow companies to produce variable products in variable volumes. This is an important advantage for companies that aim to respond to the customers’ needs. Using agile supply chain management strategies, they can fulfill the customer’s requirements within a short time frame, thus achieving a higher level of customer satisfaction with products and services (Carvalho, Azevedo, & Cruz-Machado, 2014).
The higher degree of flexibility and the focus on customer’s needs and requirements also allows companies using this type of supply chain to raise the price of products and achieve improved financial performance (Gligor, Esmark & Holcomb 2015). This is mainly because customizable products produced on short notice provide added value to the customer and thus cost more. For example, Nike is among the companies that benefit from an agile supply chain (Pratap 2018). This choice enables the company to produce customizable products that are sold at a higher price, which contributed to its profits.
Another essential benefit of agile supply chains is that they can contribute to sustainability by reducing the use of resources, including electricity and raw materials. Ciccullo et al. (2018) note that, despite the lack of research on agile and sustainable supply chains, the increased flexibility of this system allows addressing the excessive use of resources and reduce waste. Hence, agile supply chains are particularly beneficial for companies with a high degree of product and volume customization that wish to remain cost-effective and sustainable.
A significant drawback of agile supply chains is that it complicates specific production processes, including performance evaluations and quality assurance. Singh Patel, Samuel, and Sharma (2017) show that the increased variation in the suppliers of raw materials could lead to differences in quality among products, leading to complaints and customer dissatisfaction. Purvis, Gosling, and Naim (2014) also argue that agile supply chains require a more sophisticated approach to supply chain and operations management because they can increase the incidence of production errors and disruptions in operations. Therefore, agile supply chains require more attention from the management to ensure the high quality of products and prevent mistakes that affect customer satisfaction.
Company A would benefit from an agile supply chain and should implement it using four separate steps. First of all, it is necessary for the company to review its current suppliers for flexibility and pricing (Webb 2017). Given that the company experiences a lot of orders that have to be fulfilled on short notice and with a high degree of customization, it should evaluate the capacity of existing suppliers in terms of delivery times and variability. Eliminating suppliers that do not fit the requirements would assist in building an agile supply chain.
Secondly, the implementation process in Company A should involve reviewing the use of technology as part of the supply chain. According to Webb (2017), technologies can improve supply chain agility by easing the communication between customers, manufacturers, and suppliers. Thus, the company should review and implement digital tools available for enhancing communication. The third step in the implementation process would be improving the flexibility of the current manufacturing methods to ensure that they are capable of responding to changes in supply chain agility without increasing lead times. A flexible performance appraisal system can be applied at this step to review current operations.
Finally, Company A should consider raw material and product quality assessment to ensure that the new supply chain does not have a negative impact on quality. In particular, it would be beneficial for the company to appoint a responsible person who would perform random quality checks in accordance with a customized assessment guideline suitable for various products and materials (Siddhartha & Sachan 2016). This would enable the company to enhance customer satisfaction despite changes in supply chain management.
Based on the analysis, Company B should focus on implementing a lean supply chain with a focus on reducing waste and lead times. In order to achieve this, the company should first perform a review of its current supply chain to identify target areas for waste reduction (Crandall, Crandall & Chen 2014). For example, if the company has three or four suppliers providing similar raw materials, it should review their cost structures and reliability and choose one supplier to continue the collaboration. This step would allow the company to simplify its supply chain and eliminate waste, thus enhancing operations and supply chain management. Additionally, the company would benefit from considering its communication with vendors and the use of technology for excessive steps that can be eliminated.
Secondly, the company should reduce variability in terms of products and volumes where possible. This step is essential because it would help to establish a framework of quality assurance and reduce waste and lead times during production (Jasti & Kodali 2015). In order to do that, it would be useful for the organization to review its product range and limit customization options to a minimum. For instance, if customers often use the customization tool to order products in burgundy color, the company should consider replacing one of the less popular standard colors with it. This would allow reducing the product range without influencing profits and demand.
The third step in creating a lean supply chain is the implementation of suitable quality assurance and performance measurement systems. Bhamu and Sangwan (2014) state that performance evaluations and quality checks integration into the supply chain assist in reducing lead times and product variation, thus supporting the implementation of lean supply chains. Following these steps would help to transform the current supply chain into a lean one, thus helping Company B to address its key problems.
Successful Implementation Example
A particular example of a company that is famous for its effective supply chain is Wal-Mart. Wal-Mart is an American-based company that serves a variety of markets both nationally and globally, including the United Kingdom, Canada, India, and Japan (Nguyen 2017).
Wal-Mart sells a wide range of products and thus requires a robust supply chain to fulfill the customers’ demand. The company has decided to implement an agile supply chain, which allowed it to remain flexible in terms of product variability despite a high volume of sales. In order to realize this type of supply chain successfully, Wal-Mart used technological advancements, including automatic distribution centers (Nguyen 2017). The company also applies market analysis to coordinate its supply chain by forecasting and planning demand, which is particularly useful in the retail market (Nguyen 2017).
An essential part of agile supply chain management in Wal-Mart is the company’s direct collaboration with suppliers. By avoiding intermediaries, the company can ensure that the necessary materials and products are delivered without delays (Nguyen 2017). This also helps in managing product quality because any errors can be communicated to the supplier directly. Lastly, inventory management is a critical part of Wal-Mart’s agile supply chain. The use of modern computer technologies allowed Wal-Mart to record inventory information and share it with vendors to enable fast and efficient collaboration (Nguyen 2017). These techniques can also be used by Company A to assist it in agile supply chain implementation.
All in all, lean and agile supply chains have both advantages and disadvantages that make them beneficial for different types of companies. Research showed that agile supply chains are better suited for companies that provide customization options to customers and thus require more flexibility in terms of products and production volumes. Lean supply chains, on the contrary, limit flexibility to eliminate waste and increase production efficiency. In the chosen scenarios, Company A would benefit from an agile supply chain, whereas company B should use a lean supply chain. Using the recommendations provided in the paper and the example of other companies, both organizations can resolve their issues and build robust supply chains.
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