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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

DECEMBER 2012
VOL 4, NO 8

Supply Chain Management, Iean Manufacturing, Agile Production, and

their Combination
Seyed Nima Seyedi
M.A Student, Department of Management. Islamic Azad University. Rasht. Iran
Abstract
Raw materials suppliers and parts manufacturers who themselves are also associated with the suppliers of
required raw materials, provide necessary raw materials and components for the organization which is
responsible to produce that product and after production, the organization brings customers to its product
through distribution channels, all individuals and organizations which work together to produce or offer a
product are called "supply chain loops".
As stated Fischer, it is essential to differentiate between durable goods which compete on price and special
products that emphasize rapid response. Hence, lean supply is combined the concepts of empowering flow and
elimination of undesirable changes with agile supply to meet the growing need to cover demand variability and
uncertainty in order to deal with above mentioned problems and they have developed a new approach known as
"Leagile" has been used by many successful global companies.
Keywords: SUPPLY CHAIN MANAGEMENT, LEAN SUPPLY CHAIN, AGILE

Introduction
The success and failure of supply chain in the market will be ultimately determined by final customer or
consumer. Delivering the right product at proper time and price to the consumer is not only the most important
factor for competitive success but also has the key role in the survival of a business entity. Therefore, in line
with establishing a new supply chain strategy, customer satisfaction and market recognition are vital and
essential elements in in this area. Only when market barriers have been identified, a unit can prepare, extract and
develop strategies to cover the needs of supply chain and indeed final customer.
Practices and ideas to improve performance of supply chain are designed to coordinate supply and demand, so,
they will be certainly led to lower costs and improve customer satisfaction simultaneously. This always requires
more and more reducing uncertainty to make possible accurate prediction of upstream demand. However,
sometimes completely removing uncertainty from the supply chain is impossible due to the nature and type of
product. If a product is quite fashion-dependent, given the nature of the product, its demand will be
unpredictable. Thus, specific supply chains which act in such circumstances should have a strategy that will give
them the ability to balance between supply and demand.
Companies which develop their business strategy with regard to uncertainty, they will see the result of their own
forethought in terms of the best performance versus their competitors with a reactive approach. Interestingly,
much of the uncertainty in the supply chain is caused and induced by the system itself, and also become more
intense by "bullwhip" effect. Uncertainty arising from the system itself is often resulted from strategies and
relationships which are involved in the system; therefore, they are under the direct control of system and
management and thus many their adverse result can be reduced by much effort. If this phase of responsibility is
well fulfilled, the supply chain will only face the challenge of uncertainty in the market which by itself makes
the situation much easier.
By passing over 30 years since Skinner introduced the theory of "balancing the mechanical design" to manage
the conflicting production parameters. No one can design a 500-seat passenger plane capable of landing on the
ship and breaking sound barrier; this case is similar to the production category. Variables such as cost, time,
technological constraints, customer satisfaction, etc. could affect on what management is sought to do.
"Production strategy" should be adopted by relative knowledge of these conflicts and the necessity of choosing
between competing criteria such as speed, efficiency, quality, cost, etc., or a combination of modes.
Planning and coordination to be efficient and effective of supply chain activities is called "supply chain
management" i.e. essential supply chain activities are carried out with the minimum cost and time.

Special and market products

In his famous paper (1997), Fischer considers very important and necessary the relationship between product
type, supply chain and predictability to ensure optimal approach when designing and developing a supply chain
strategy in order to better appropriateness of supply and demand. He divided products into two special (fashion)
and market (commodity) categories. Special products' life cycle is short, while there is high uncertainty in their
demand. Thus, the supply chain will be exposed to both shortage and aging (surplus of inventory) risks. An
example of specific products is fashionable clothes. A major challenge for the supply chain involved in such
products is to develop a strategy to improve the relevance of supply and demand as well as enable the company
to respond faster to the market needs. Market products such as canned foods are the main outputs of a
production unit. These products have long life cycles and demand stability; since they are established products

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

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in the market with a known consumption model. In this case, the main factor for survival and in fact main goal
is costs reduction(Motaghi,2006).
According to Hill (1993), there is a considerable difference between these two groups of products. from one
perspective, adequate factor of success in the market for specific products is "availability" and for market
products is "price". Quality and delivery time are the essential factors of presence in the market for both
products; while the price and availability are respectively required factors for specific products and market
products. The point which has been emphasized in is that supply chain should have an acceptable performance
on both necessary and sufficient competition and success factors.
Since these two product categories respond to two different market demands, they are naturally required to
apply various approaches. Only if product characteristics, market requirements and management challenges
have been identified, a strategy can be designed to ensure optimum performance of supply chain. This goal is
achieved through the development of strategies that reduce the uncertainty of the system and subsequently the
bullwhip effect.

Supply chain
The task of final assembly plant which is assembling parts in the form of a perfect product, is only constitutes
15% total production process. A challenge which final assembly companies have constantly faced is
coordinating the supply process so that orders are deliver to the final assembly line timely, with high quality and
low cost. In mass production system, the purchase or manufacturing is designed by the staff of the engineering
center, and then these companies provide these designs with suppliers. They also specify the number, quality
and delivery time, and then they ask suppliers to suggest their prices. Among all foreign and domestic
companies which have participated in the tender, a company that has offered the lowest price wins the tender.
Lean factory organizes various parts supplier companies at the levels with different functions and assigns
responsibilities to different companies in each level. The first responsibility of its suppliers is that act as
complementary parts of the product development team to develop new product. Lean factory also encourages
first-rank suppliers to consult with each other about improving the design processes. As each supplier often
specializes in one piece and in this respect isn't in competition with other suppliers, information transfer is very
simple and yet very useful for all(Motaghi,2006). Any first-rank supplier works with the second-rank supplier
and the task of making each component is given to these second-rank companies. These supplier companies are
almost independent and lean assembler is shared in a part of these companies' capital and acts as a banker of its
supplier groups and meets their financial needs with loan and if supplier companies need experts and managers,
it will borrow them its human resource(Stratton & Warburton,2003).
So, the advantage of using lean production for suppliers includes reduced inventories, increased cash flow,
quality improvement, marketing facilities etc. which all of these cases will decrease costs of supplier companies
increase prices and that is how their contract becomes a money making contract.

Supply chain challenges

Combination of internet access and computation power has basically changed choices available to manage
supply chains and results in more effective supply chains management. Companies and organizations which
effectively use these capabilities, they will improve and develop their supply chain as follows:
1. All supply chain members including suppliers and supplier to customer are connected to each other via
Internet and thereby access to information on inventory status, production capacity, order status and
customer demand will be facilitated.
2. Companies across the supply chain plan using shared information about supply chain which is based on
common decisions.
3. Decisions are made based on real time and using up date information on the status of the problems
occurred in the supply chain.
4. Revenue and profit are used as performance matrices for supply chain. It is noted that organizations
which in these competitive situation governing the global markets try to make changes in order to
exploit these capabilities will continue to survive and those which do not so, will be faced with extreme
conditions(Stratton & Warburton,2003).

Lean and agile supplies

The origin of just in time (JIT) management is referred to Toyota Production System (TPS) in order to eliminate
wastes and inconsistencies in the supply chain. Recently, lean production and thinking can be effectively
utilized to remove wastes to improve business performance. Emphasis on the elimination of loss and the waste
of resource factors is largely associated with lower inventory which is very clearly shown by analyzing the
"rock and ship" analysis. In this analysis, as the stock (water level) is reduced, sources of waste (rocks) appear
in the form of latency, poor quality conformity, prolonged preparations, unreliable processes etc. the removal of
these losses is caused to lower inventory without a negative effect on the flow of materials (ships). It has been

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proved that just in time production management simultaneously improves customer service and efficiency by
focusing on the material removal; As such the sources of change and uncertainty within the supply chain and
consequently the need for inventory to maintain the flow are reduced by decreasing preparation time, statistical
process control, and efficient integrated maintenance etc(Manson & Naylor &Towill,2000) .
An alternative to adjust the material flow is investment in the potential capacities. From the traditional or lean
view, it is denied due to conflict with the principles of intensive production; while with a little accuracy we
realize that the potential of resources is an implicit specification of cellular manufacturing and flexibility
requirements, in fact, safety capacity instead of buffer stock is considered one principle of the efficiency and
improvement in service sector. Actually, besides the above, it is necessary to deal with the instability of demand
to design a complete delivery system; agile supply which is based on quick response acts effectively in this case,
for this reason, it is mentioned as an option or alternative besides the lean supply to improve supply chain
strategies. Agile supply is known with certain and new products and instable demand. It is focused on the
delivery of a variety of products with an uncertain demand. In the distinctions between these two supply
categories are expressed.

Lean and agile supplies relationship

In far past, many organizations had chosen lean thinking to manage and improve their competitive position.
Later the agile manufacturing idea was also considered as an alternative for lean approach. In some
classification phases, agility was introduced a step after being lean. It can be meant that as soon as the lean
properties were obtained, an entity could make an effort and plan for agility. Following this process, Naylor
(1999) described these definitions about agile and lean supply:
Agile supply: using market knowledge and a virtual company concept in order to properly exploit profitable
opportunities in a fluctuated market.
Lean supply: development of a value stream to eliminate all wastes including time and also ensure a uniform
planning(Manson & Naylor &Towill,2000).
It should be noted, what is seen as waste in lean production may be a favorable factor in agile production. To
better explain it, we can point out McHugh (1995) who states "in lean production customer buys particular
products while in agile production customer reserves a capacity which must be answered in a short time in case
of demand". Given these explanations, market products are proportional to lean production and supply
conditions; because demand becomes rather predictable and requirements planning which is required for this
type of chain is possible. On the other hands, special products are more suitable for an agile environment in
which unstable demand has been accepted as a business risk. In such circumstances, a general and nonspecialized approach may not be appropriate. To solve these problems, lean and agile concepts with strategic
use of decoupling point concept can be combined within a single policy(Valmohanmadi, 2005).

Supply chain structure and decoupling point

One of the cases which is essential for the combination and integration of lean and agile supply is decoupling
point. Decoupling point makes separate a portion of supply chain which is involved in direct customer orders
from the part that operates based on planning. From another perspective, decoupling point is a point in which
strategic inventory as a reserve decoupling point changes between fluctuating customer orders and production.
Consideration of decoupling point is also related to postponement; i.e. decoupling point will help to increase the
efficiency and effectiveness in the supply chain. The level of this efficiency and effectiveness is increased by
making closer the decoupling point to the final customer. The postponement of product changing point reduces
the risk of dealing with deficiency and also excess inventory.

Minimizing uncertainty to maximize competitiveness

Despite the differences in the nature of lean, agile and combined supply systems, the bullwhip mechanism and
adverse outcomes are almost the same for all approaches. So, it has been used regardless the type of system.
Uncertainty is induced by the system that severely damages the strategy efficiency and effectiveness. By these
explanations, it is vital and necessary to decrease uncertainty induced by the system to receive the full benefits
of the strategy. Fortunately, removing the uncertainty resulted from the system is achieved largely through
material flow engineering. Towill (1999) has provided a series of administrative rules for smoothing the flow of
materials as follows:
1. Just make products that can be rapidly invoiced and delivered
2. In a period, only make parts or sections which are needed for production or assembly in the next step
3. Minimize processing time in the system i.e. reduction of all delivery times
4. Use the shortest planning period i.e. the lowest production rate that is able to manage effectively
5. Receive suppliers' shipments in small amounts and only when there is a need for processing or
assembly
6. Formation of products family and designing processes appropriate with value stream
7. Elimination of all process uncertainties

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8. Identifying documentation, simplifying them and optimization of supply chain

9. Making transparent all information flows
10. Use flexible, simple but reliable decision support systems
The supply chain's business processes should be integrated, in other words, all members of chain act as a part a
whole.
It is noteworthy that this set of rules is derived from a series of extensive simulation studies, industrial
experiences and observations.

Integration of lean and agile supplies from an administrative perspective

A methodology for localization of this concept is the application of Altshuller separation rules is consisted of
systems based on experimental concepts. To solve problems with this approach, contradictions and conflicts
should be clearly defined; i.e. the first step is to identify the parameters that are exposed to contrary needs
including thick but thin, long but short, hot but cold etc. and this balance is named as "physical contradictions".
To facilitate this part, separation and analysis can be divided into the following four areas:
Separation of opposite or contradictory spatial requirements
Separation in overall and partial subdivisions
Separation of opposite or contradictory temporal requirements
Separation based on conditions
Integration in the space: Skinner (1969) and the Hill (2000) discussed the need for separation of the
production requirements. In fact, they believed that product market packages competed in different ways and
separation of production lines was essential because of heterogeneous factors. Fischer (1997) emphasized the
identification of conflicting needs to design the supply chain in terms of forecasting. He stated that special and
new products are threatened by lost sales and dealing with deficiency, whereas these conditions are more
readily for market products. He clearly shows dealing with these conditions in terms of different supply
strategies.
Overall and subdivisions integration: The decoupling point theory uses the opportunity to postpone the final
design and reducing the effects of upstream changes (Hoekstra et al., 1991). According to this principle, plants
can postpone final product assembly as much as possible. HP is a staunch defender of this policy and postpones
the completion of the final product until the last positions of the supply network. For example, desk jet printers
are assembled in distribution centers according to customer orders. By adopting this policy, management kills
two birds with one stroke: Firstly, they sustain the upstream situation by the decoupling point; secondly, they
are also empowered to respond quickly to the downstream. This separation and decoupling requires a modular
design with the ability to fulfill the necessary and sufficient market expectations. The use of buffer stock (safety
stock) as a decoupling point during interconnected production and supply lines is caused to satisfy the upstream
demand with lean supply system; on the other hand, beyond the decoupling point, variable and unstable
downstream demand is responded by agile supply system through investing in confident capacities rather than
inventory.
Temporal integration: it is better to illustrate this section with a real and intuitive example: supplying
fashionable clothes is faced numerous problems like stochastic demand, short periods and long delivery times.
Sport Company, "Abrmir", produces fashionable skiing clothes; in October, it had begun to produce through a
traditional system without any feedback from production benefits until February. In this company, uncertainty
in demand was being led to a shortage or surplus inventory, since management tried to coordinate production
scheduling through inventory. To deal with this problem, after a series of engineering projects they concluded
that they must change the supply chain's mission from efficiency to the rapid response and practiced this idea.
Regarding this goal, they arranged production periods according to the occurrence of them. By doing so, they
were able to meet the demand upon receiving it in February. In fact, with separation of supply lines based on
time, Abrmir improved the balance between efficiency and responsiveness(Manson & Naylor &Towill,2000).
The focus of low time processes on efficiency and remaining orders focused on delivery speed has been a
strategic decision which will be used in many enterprises. In the first case, investment in safety stock is led to
efficiency of low time processes; while in the latter, Investing in safety capacity to respond quickly is caused to
supply agility in order to meet non-linear demand. Separation based on conditions: This rule is more general
than the previous three rules and involves parameters such as market winning, safety capacity and change.
Structurally, this approach applies winning criteria including price and delivery speed in the market or similarly
the rule of safety capacity for conflicts resolution. For example, the conflict between centralization and
decentralization will be removed by resource differentiation and using available capacity (cellular and
workshop structure) . Interestingly, in cellular production safety capacity is replaced by buffer stock.

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Conclusion
An effective supply chain can have a direct impact on stock prices of an organization. Although Iran's
prevailing business environment has relatively large differences compared with developed and advanced
industrial countries, given the efforts started in the industries to enhance productivity and increase non-oil
exports, it can be concluded that in high competitive global environment, organizations and institutions are
compelled to take steps, as soon as possible, in order to take advantage of this advanced technology in the
domestic and international trade.
Lean supply approach shows us the importance of reducing variation, improving flow and thus decreasing the
need for safety stock and capacity. However, by increasing market sensitivity to the fashion and consequently
demand uncertainty, supply chain is required strategic positioning of inventory and capacity to improve the
flow. To do so, a comprehensive and specialized view is required; in particular, the internal decisions induce
more fluctuations and waste than other factors. Investment in capacity rather than inventory to improve material
flow is actually same agile supply approach and in this area, the application of decoupling rules is an effective
way to reduce the effect of contrasts and contradictions. Finally, although agile and lean supply requirements are
in conflict with each other, the integration of these concepts will be possible by applying some modifications.

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