Lean: Developed in large part in the Toyota production system, Lean focuses on the

elimination of waste with a bias towards pulling goods through the system based
on demand. Lean is an approach that identifies the value inherent in specific
products, identifies the value stream for each product, supports the flow of value,
lets the customer pull value from the producer, and pursues perfection. It is through
this holistic, enterprise-wide approach to lean implementation that the theory
extends beyond functional strategy to a broader supply chain strategy employed by
the company.
Despite the focus on pull, however, the authors note lean is really a make-to-stock
system, reacting to demand signals that typically come from forecasts or next tier
distributors, rather than actual orders (e.g. Toyota). The demand horizons are
typically shorter than non-Lean systems, but the overall supply chain still relies on
finished goods inventory.
Agile: The agile systems focus is on flexible, efficient response to unique customer
demand. It uses a make-to-order (MTO) process for manufacturing and order
fulfillment. Instead of relying on speculative notions of what might be demanded,
the quantity of demand, and thelocation of that demand, agility employs a waitand-see approach to demand, not committing to products until demand becomes
known.
Agile systems are built around flexibility, emphasizing flexible lot sizes, quick
changeovers, and/or manufacturing products to specific customer orders. Agile
systems are often deployed in companies where there are very short product life
cycles (such as electronics) or very erratic demand. While Dells make-to-order
model is the most prominent, companies such as Taylor Made golf clubs have also
adopted the strategy.
Hybrid: Leagile is a hybrid of lean and agile systems. However, this can take one
of several approaches:
Using make-to-stock/lean strategies for high volume, stable demand products, and
make-to-order/agile for everything else
Have flexible production capacity to meet surges in demand or unexpected
requirements
Use of postponement strategies, where platform products are made to forecast,
and then final assembly and configuration done upon final customer order
The researchers note that Toyota itself uses a hybrid strategy for its Scion line of
cars, in which a base model is produced in Japan, but with the addition of many
customer options either at an operation near the port of Long Beach or at the dealer
based on a customers specific preferences.

Which System is Best?

The answer to that question, of course, is that it depends. To demonstrate the

truth of that statement, the researchers worked with a manufacturer of components
for the HVAC industry. The company currently employs a lean strategy,
manufacturing in Mexico and distributing from two U.S. distribution centers.
Based on actual operating data, the researchers then model what supply chain
performance would look like if either an agile or hybrid (postponement) strategy
was embraced. As always in this type of work, a number of assumptions were
necessary to create the model, but in this case they do not seem to make the
analysis too far removed from the real world, as is often the case.
The table below shows the projected costs for the company based on a simulation
run. As shown, it turns out the lean strategy the company was currently employing
did in fact result in the lowest total supply chain costs. In addition, as shown in a
separate chart in the article, the Lean/make-to-stock model also had the minimum
customer lead times by far.

Importantly though, the results can changed based on differences in key variables.
For example, as the value of finished goods and/or the carrying cost of inventory
rise, agile strategies become more attractive, and in this example become the
lowest total cost option in some cases. In no combination of finished goods cost or
carrying cost option, however, did a hybrid strategy become the optimal choice.
The authors note: The reason for this appears to be the manufacturing cost
premium associated with producing semi-finished assemblies and then
reintroducing them to the manufacturing process closer to the customer. In the
leagile model, a 25% manufacturing cost premium was charged for this two-stage
production.
Of course, this analysis was based on the specifics of one companys supply chain,
and cannot be generalized to the broader universe. Still, it does well highlight the
trade-offs involved, and provides a solid analytic framework. The researchers
comment, for example, that leagility might prove advantageous with products and
manufacturing scenarios where the manufacturing premium associated with
disjointed operations is minimal.
What are your thoughts on the researchers work here? Do you have a perspective
on when which of these strategies makes the most sense? What else needs to be
added to the analysis? Let us know your thoughts.