Traditionally, there have been two primary supply chain models – lean and agile – used by organisations, explained Dr Heather Skipworth, Associate Professor of Logistics and Supply Chain at Cranfield University, at the beginning of her presentation at IMHX in September. Yet, both have been subject to challenges in recent years, as geopolitical events and COVID-19 have subjected organisations to myriad unforeseen forms of high- and low-level risk events.
For several decades, many companies have been ‘leaning out’ their supply chains – a process that many in logistics will be familiar with. This has involved minimising waste and maximising flows, with the focus of productivity and quality of process control. Keeping stock and inventory levels low by utilising ‘pull scheduling’ based on actual customer demand enables a reduction in waste and costs throughout the operation.
However, as Skipworth detailed, a lean model also lends itself to increased risk (demonstrated regularly over the few years), as it relies on a stable model of demand. It provides little buffer in inventories and capacity to respond to variances in demand and doesn’t support a responsive operational strategy.
Agile supply chains, on the other hand, are the antithesis of the lean model, whereby organisations aim to respond to short term changes in demand or supply quickly in order to handle disruptions more smoothly. Rather than a focus on reducing waste, agile systems will promote the flow of information and develop collaborative relationships with suppliers and customers, building in inventory buffers and contingency plans to deal with crises.
Skipworth used the example of fashion retailer, Zara, to demonstrate an agile supply chain network. Rather than the usual four fashion collections on rotation each year that most fashion retailers work by, Zara has 13, requiring a change every four weeks. It does this via several methods, such as ensuring all stores are digitally connected to HQ, hiring more designers, sourcing textiles from a global network and investing heavily in automated production systems.
While such a method enables the organisation to put the customer first and a focus on speed and flexibility, an agile method’s chief drawback is the cost, and may not work for every industry. It’s simply more expensive to run in this way, explained Skipworth, as more capacity and planning is required to enable flexibility.
Bi-modal supply chains: the best of both worlds?
As the name suggests, bi-modal supply chains utilise both these methods. The important thing to note, said Skipworth, is that a bi-modal chain enables the use of agility – but only when it is needed. The ability to use both in your supply chain at the same time can increase efficiency by reducing inventories, while improving responsiveness and customer service.
Again, there are two methods to doing this, according to Skipworth – a segmented approach, or a decoupling approach.
An example of a segmented approach is where lean and agile supply chains are applied to different groups of products. For those products where demand variability is high, agility would be a more appropriate method, while for those products that have a consistently stable demand and operate in a more predictable environment, a lean approach could be taken.
The decoupling approach, meanwhile, uses lean and agile methods at different stages of the supply chain – Skipworth pointed out that organisations must carefully assess where the process crosses from lean to agile (the customer order decoupling point). The rationale behind this approach is essentially to retain the product in a neutral and non-committal status as long as possible in the manufacturing and distribution – ideal for where demand is unpredictable and requires a short customer order fulfilment time.
The decoupling point can take place anywhere throughout the supply chain, explained Skipworth – even at the point of retail. For instance, DIY retailers may mix paints for customers in the retail store using one base paint pot, but a series of dyes. Rather than manufacturing every combination of paint colour they can think of, the organisation needs only to have the base paint and dyes ready, and can decouple the process into its agility stage when customisation is required (e.g. at the retailer).
Skipworth summarised: “Bi-modal supply chains combine lean and agile approaches simultaneously and enables a efficiency and responsiveness/resilience. It’s important to remember, logistics is not just about cost – senior management need to understand how improving supply chain management can provide a competitive advantage in the market.”