Lean vs Agile Supply Chains in a Post-Pandemic World

The disruption caused by the COVID-19 pandemic has highlighted serious weaknesses in the global supply chain. In increasingly complex markets, business leaders are faced with the daunting task of overhauling supply chains that are no longer fit for purpose. And one important consideration is how to reconcile the tension between lean and agile operations.

The terms ‘lean’ and ‘agile’ are sometimes used interchangeably, but there are important distinctions to be made.

Lean strategies largely view supply chains as a cost-centre (as opposed to a source of value-creation) and focus on driving costs down. This approach centres around:

• supplying products to the end customer in the most efficient manner 
• minimising working capital or inventory
• producing and delivering ‘just in time’  

An agile strategy is about the ability to move quickly and easily in the face of disruption. This focuses on the ability to:

• respond to unforecasted customer demands
• course-correct production plans
• mitigate against dynamic financial costs (i.e. capital optimisation)

While lean has played a leading role in supply chain design up to this point, and still has its place, greater weight is being placed on agility and the ability to adapt to disruption and change.

The paradox of the lean supply chain

Keeping things lean keeps costs down, while agility can be seen as expensive. So it’s perhaps no surprise that lean has been the status quo. 
Unfortunately though, this has been one of the underlying weaknesses built into the global supply chain over many years. When challenged aggressively, by various disruptions like we’ve seen recently, this can cause the whole system to buckle.

While lean might be more cost-efficient in the good times, when supply chain issues arise it can become pretty costly. For example, in the past couple of years, numerous automotive factories had to close for weeks at a time while supply chain issues brought production to a halt. We’ve seen companies pay 10x more for components than their usual pricing agreement just to ensure continued operations.

Whether it was in lost sales, idle equipment and staff, or paying over the odds to acquire essential components, those that kept things ultra-lean have felt the pinch (to put it lightly) in the last couple of years.

While building agility into your operations may cost more upfront, when issues arise, companies with no agility will suffer more than those who can adapt to change.

Lean tactics have their place and aren’t to be abandoned - businesses will always want to reduce spend where they can. But a broader perspective is required to consider the true cost over time and in different scenarios.

Companies need to start shifting their mindsets from cost efficiency to cost effectiveness. From short term, to long term. From seeing supply chains not just as a cost-centre, but also a source of value-creation, especially in challenging times. When the stakes are high, this can be a true differentiator between those that grind to a halt, and those that stretch ahead.

It’s not either/or, it’s both/and

As the world becomes increasingly complex, the market is susceptible to more changes. And as we’ve seen recently, these things can really stack up against you. From the COVID-19 pandemic and the Suez canal incident, to the electrification of cars and the rollout of 5g, there are so many potential factors that can, and will, affect the global supply of electronics.

Our task now, rather than seeing lean and agile as opposites, is to think about them as dynamic and interrelated. The key to success is to find the right balance for your operations, to be less rigid and more fluid, while minimising costs between the two. As the world changes, so must we. By building in agility to otherwise lean operations we can be far more able to adapt to market conditions, and continue to produce and drive profit, while others languish behind, feeling the true cost of running too lean.

If you'd like to speak to an expert about your supply chain challenges, please get in touch. We'd love to chat to you.

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