Optimizing your supply chain to better suit the unique needs of your business is a wise move, and one that leads to higher efficiencies, an improved customer experience, and greater competitive advantage. However, many companies face challenges in determining if they would be better off striving for a lean and simplified supply chain or if they should opt for a supply chain that is more flexible and dynamic.
This is not an easy question to answer, and each company will inevitably reach a different conclusion that is somewhere on the spectrum between the two. Most businesses quickly realize that a blend of the two approaches is the best way to go, picking and choosing logistics elements from each supply chain strategy that provide the greatest benefits for their future success.
To understand what the best balance of lean and flexibility will be for your business, it’s important to take a look at the benefits and limitations of each approach. Then you can adjust your supply chain strategy accordingly to leverage the elements that best fit the demands of your market, the needs of your customers, and your competitive situation.
Benefits of a Lean Supply Chain
By definition, a lean supply chain will provide the most cost-effective approach to ensuring that your products are moved efficiently and consistently throughout your supply chain. It achieves this by determining the minimum resources needed to achieve each task along the path in the supply chain, without making sacrifices that would negatively impact quality or other critical aspects of your business.
Lean focuses on reducing waste, improving speed, maximizing floor space utilization, and continually building greater value in to the entire supply chain. The benefits that a lean supply chain can bring to a company are numerous, such as lower operating costs and reduced overhead. Employee productivity, improved quality, shorter lead times, and reduced waste generation are additional benefits that come from a lean approach to supply chain management.
By leveraging a lean supply chain, businesses can help improve their bottom line and redirect resources in to other aspects of their operations such as product development, marketing, manufacturing, and many others. Lean supply chains can be a significant advantage in markets where competition is fierce and profit margins are challenging.
Limitations of a Lean Supply Chain
While the benefits of a lean supply chain are certainly appealing for many businesses, it’s important to also understand the limitations that a lean supply chain carries. Specifically, lean supply chains work best when the flow of products through the system are predictable and consistent. This is because the processes are optimized for maximum efficiency based on a certain level of throughput, and if the throughput changes, the efficiencies will change along with it.
In the event that the flow of products suddenly decreases, which can occur for a wide range of reasons including seasonal trends and competitive activity, then there is potential for a lean operation to experience underutilized resources. Excess warehouse space and less-than-truckload (LTL) shipments are just a couple of examples of how this can occur.
Contrarily, if the flow of products experiences an unexpected surge, there may not be enough capacity in the supply chain to effectively handle the increased volumes. This can result in a spike in operating costs stemming from overtime hours, additional transportation costs, temporary warehousing, and many other factors.
Benefits of a Flexible Supply Chain
For companies who face unpredictable markets, or for those businesses that are experiencing rapid growth, the limitations of a lean supply chain can hinder their ability to effectively meet demand. In these types of instances, establishing a flexible and dynamic supply chain can be the better approach.
Flexible supply chains are far more effective at dealing with the ebbs and flows of seasonal industries, as well as changing demand due to new advancements in product technologies, and rapid expansion in to new and emerging markets.
This is accomplished by leveraging a wide range of dynamic resources such as shared warehousing, LTL and same-day transportation, and many other 3PL logistics services.
By having the ability to add or subtract supply chain resources at any time, companies who take a flexible approach are able to adjust quickly to the needs of the market. In many industries, this nimble logistics method can be a substantial competitive advantage, especially when time-to-market is of critical importance.
Limitations of a Flexible Supply Chain
It’s clear that many companies are best suited to flexible supply chains, but there are still some factors at play that can be a challenge for businesses that are not prepared for them. For example, because flexible supply chains often rely on third-party logistics providers, they require a certain level of trust to be placed on those 3PL firms to provide a customer experience that lives up to the brand promises. For this reason, companies using flexible supply chain strategies need to choose their 3PL partners carefully.
In addition, the costs associated with temporary warehousing and transportation resources will likely be slightly higher than what would be seen with dedicated resources that have been optimized with a lean approach. Although they do carry the added advantage of only being an expense when they are actually needed, for companies that require them often these additional costs can add up.
Which Approach is Right for Your Business?
So, which method is the best choice for your business? Well, the answer of course is ‘it depends’. The reality is that every company will need to incorporate elements of both in to their logistics strategy. Although your needs may sway more to one approach than the other, there are benefits to be gained by using both where it makes the most sense.
You may choose to invest in a very lean approach to your warehousing, inventory management, and order fulfilment operations, while simultaneously taking advantage of flexible transportation resources to get products where they need to be quickly.
On the other hand, perhaps the best approach would be a combination of shared and dedicated warehousing capacity that your transportation fleet can move between during the peaks and valleys of your seasonal sales cycles.
Whatever solution your company decides to go with, it’s absolutely essential to partner with 3PL logistics providers that have the expertise and experience to help your business succeed.
To learn more about how you can incorporate lean or flexible supply chain strategies in to your business, contact the team of logistics experts here at SCI.
We’d be glad to assist you and answer any questions you may have.