Big Data

How the Demand Chain will Change the Future of Agile and Lean Procurement

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The goal of any supply chain strategy is to meet the demands of customers and improve the overall competitiveness of a firm. There are numerous tactics employed to achieve a stronger supply chain strategy including the agile, lean, green and resilient styles of supply chain management. 

Each style of supply chain management provides certain benefits and certain disadvantages to a firm’s performance. That said, the traditional belief of deciding on one style of supply chain management over others may not necessarily be appropriate. 

In fact, there might be justification in using a combination of styles dubbed “leagile” (a combination of lean and agile supply chain management). The purpose of such a combination is to achieve the benefits of both market responsiveness and cost-effectiveness. 

This article will first begin with a brief definition of the terms used, followed by a discussion on leagile. The article will finish with an argument by Christopher and Ryals (2014) suggesting a move away from supply chains and toward a demand chain. 

Definitions

  • Agile is a classic theory within supply chain management and based on a supply chain’s ability to respond to market demand. In-fact, a high functioning agile supply chain is considered to be market responsive, rather than forecast driven (Christopher, 2000). 

A market-responsive supply chain goes beyond estimating future demand. Market-responsive supply chains focus on using IT to move customer information towards operations managers. Using IT has made marketing and supply chain operations move at a faster pace, essentially predicting trends and changes in market demand in almost real time (Christopher, 2000). 

  • Lean supply chains, on the other hand, are categorized by their ability to reduce inventory and waste. Lean supply chains focus on cutting out unnecessary business practices and wasting fewer resources while maintaining or improving delivery of their product to customers. 
  • Green supply chains focus on changing current supply chain operations into sustainable practices. Green supply chain management is environmentally progressive and involves green marketing, production, design and packaging initiatives.  Green supply chains are dedicated to improving sustainability, environmental responsibility and increasing corporate profits. 
  • A resilient supply chain is a supply chain strategy that focuses on overcoming problems.  The entire purpose of a resilient supply chain is to reduce shocks that can hurt the performance of an organization’s supply chain. 
  • Leagile is a relatively new concept that champions a combination of both lean and agile supply chain strategies. The desired outcome of a leagile strategy involves reducing waste, removing unnecessary business practices and improving market flexibility. 

The case for lean and agile demand chains 

The idea behind the demand chain is to flip the supply chain on its head. Rather than focusing on pushing production, the demand chain focuses on matching market demand. There’s a strategic shift for using IT to not only quickly analyze market information but to use new technology to reduce inventory size while matching customizable needs and demands. 

An example of new technology that can support an agile and lean demand chain is the 3D printer. 3D printing enables manufacturers to establish additive manufacturing. Essentially this means manufacturers are able to feed market data from retail locations and marketing teams straight to production and produce highly customizable and unique products. 

In the past, a highly customizable product was important to the success of an agile supply chain. However, customizable demand was also detrimental to the success of a lean supply chain. Combining new technology and Big Data (Christopher & Ryals, 2014), businesses are able to establish both lean and agile supply chain practices. Companies will find a new opportunity to develop their product and service offerings as one that is customer centric. 

Imagine for a second being a vitamins and health supplements retailer. You’ve just installed new POS software that automatically aggregates and collects customer purchase information at the time of purchase. All of your retail locations have software completing the same tasks. 

This immediate set of new customer information is compiled into new Big Data and relayed to your marketing team. The marketing team will be able to build decisions on market data and production using highly relevant information. 

Afterwards the marketing team creates a set of instructions for trending customer products. These instructions are sent to the retailer’s manufacturers that are using additive manufacturing. They are then able to quickly begin production. The essence of this demand chain is the market pull, and it triumphs using relevant market data. 

Demand chains, however, will require a dramatic initial investment that many companies cannot afford — the initial investment on a fleet of industrial 3D printers, new IT implemented across supply chain partners and the added costs of training create a high barrier to entry. Furthermore, acquiring the computer-assisted designs can be costly and difficult to create appropriately. 

Yet, these barriers to entry will not remain a permanent fixture against industries. Increasing global competition, heightened customer expectations and the dropping costs of 3D printers will open up the floor for new leaders in production. Murphy’s law has remained a strong theory within technology and is unlikely to change anytime soon. 

Technology will continue to get cheaper and smaller. Organizations that wish to survive in a faster and more competitive global supply chain will need to adapt. Organizations that wish to dominate the market will have to become early adopters of disruptive technology. 

Michael Fournier is the brand manager at Procurify. He focuses on bringing the most relevant topics regarding supply chain management and eProcurement to light. Find more of Michael’s work at blog.procurify.com.

 

  

 

 

 

 

 

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