Leagility in supply chain design: meaning and applications

Leagility

Supply Chain Design and Leagility

Leagility with regard to the supply chain may simply be defined as the ability of a supply chain design to maintain a balance of lean and agile supply chain practices during the course of productivity. Critical to this concept is the notion that a supplier must maintain a lean production schedule up to the decoupling point, followed by an agile one that responds and takes advantage of volatile market conditions thereafter.

A supply chain would have to take advantage of volatile markets with high demand for products that may or may not be stable in the long-term, after the decoupling point in production. Up until this point in time organizations would focus more on lean supply chain practices, which would include a reduction or minimization of waste.

Associated with lean productivity include short lead times and JIT delivery, something that is evident in the food industry, as described in the article by Beach, Vorst, Dijk & Beulens (2001). While leagility in the supply chain may result in high profits over time, it is not necessarily suited for all organizations, such as the food industry, where flexibility of production is not necessarily an option. Because the supply chain in the food industry requires use of perishable items, a lean more than agile or balanced supply chain design is more often appropriate. These ideas and more are explored below.

Leagility Defined

Leagility has been explored from many different perspectives. It is characterized by utilization of volatile market conditions to maximize profits in different settings. Leagility employs the use of flexible production standards to create an environment that is both lean and then agile in nature.

Naylor, et. al (1997) defines leagility with regard to the supply chain as "Combining agility and leanness in one supply chain via the strategic use of a decoupling point" (Jones, 2004). Agility in this sense would refer to the utilization of market information to investigate and use profitable opportunities when the market is less than stable. The goal of a supplier would be to develop a value stream with the intent of eliminating any useless or non-essential components including overuse of time.

In general in the market place the demand for any given product is volatile. Business have an obligation to tackle this head on and exploit it in a manner that profits them.

Beach, Vorst, Dijk & Beulens (2001) examine the concept of supply chain design and leagility with regard to high demand uncertainty as mentioned above in an environment that is generally not flexible. The authors suggest that the opportunities for a leagility supply chain within the poultry industry are limited, meaning that opportunities to maximize the ability and leanness of the supply chain are limited due to extreme high demand uncertainty. However, regardless of the market conditions it is best for an industry to work in a manner that maximizes and if possible exploits the market situation and even demand uncertainty when possible.

In the article Fisher is cited as suggesting that the nature of the demand for a produce "should be carefully considered before a supply chain strategy is devised" (Beach, et. al, 2001). Products according to Fisher may be divided according to whether or not they satisfy basic needs and thus fulfill a predictable demand over a long life cycle, or whether they are innovative and more profitable with higher profit margins. Innovative products however generally result in an unpredictable demand and potentially short life cycle. Supply chains should thus be designed in the case where products are innovated on agility and leanness to minimize extraneous costs associated with production (Beach, et. al, 2001).

Simply defined, leagility is a process whereby the supplier works to utilize lean or cost minimizing strategies up to the decoupling point, or the point in production where "the real demand penetrates upstream in a supply chain" (Beach, et. al, 2001).

After this point a corporation can focus on agility, or its ability to exploit profitable opportunities when a market is volatile and unpredictable. So one might assume that prior to the agility point, a company is working in a fairly straightforward environment where demand is relatively stable and profit margins are low. After the decoupling point however it is more likely that profit margins will rise if a company is willing to gamble and use the volatile marketplace associated with innovation and versatility to its advantage.

In the early steps a supply chain design should therefore aspire to be smooth and level minded. Leagility with regard to the supply chain is simply a combination of techniques designed both to exploit a volatile marketplace but also to take advantage of a lean one where profit margins are relatively low but demand is relatively high.

In the article analyzed, food markets in particularly are examined with regard to supply chain design. There are according to the authors, a number of food products that "can be characterized as functional products with volatile and unpredictable demand" (Beach, et. al, 2001). Thus demand uncertainty may allow for production flexibility. However, food products by nature are not very "innovative." As the author points out, because by nature the products are generally functional in nature and the food supply chain is relatively inflexible and uses perishable goods, the usefulness of a concept such as leagility is somewhat limited. There is not period in which demand will be certain. This is beneficial and would suggest that leagility is possible in the industry.

However, production options are limited with regard to food products that are perishable (Beach, et. al, 2003). The profit margins of these items generally tend to stay low, because of their functionality. Investments that a supplier might make into innovative techniques may or may not be paid back (Beach, et. al, 2001) thus one may assume that a supplier has more at stake and less to gain in this type of environment.

A key characteristic of an 'agile' organization according to the article is one that allows great flexibility. Thus the supply chain would demonstrate characteristics including being market sensitive, using information technology "to share data between buyers and suppliers," use process integration and collaborative working between suppliers and buyers and be networked based (Beach, et. al, 2001).

A lean company would might have zero inventories and capitalize on a JIT approach to supply and demand (Beach, et. al, 2001). Customer responsiveness of course is the goal of both of these principles.

Conclusions/Analysis

Leagility is thus a balance of lean and agile supply chain management processes. In an environment that is highly volatile and where demand is flexible, this concept may be applied almost universally. However there are some environments where establishing a supply chain design based on the foundations of the "leagility" principle may not be appropriate, as is the case with the perishable food industry.