Application of leagile approach to evaluate supply chain performance

October 19, 2024

In today’s volatile and fast-moving business landscape, supply chains must be both efficient and adaptable to stay competitive. The Leagile approach—a hybrid of lean and agile methodologies—has emerged as a powerful strategy for companies seeking to optimize supply chain performance. By blending the cost-efficiency of lean practices with the flexibility of agile systems, the leagile approach offers a comprehensive framework for managing supply chains in uncertain environments.

In this edition of SCM Explorer, we’ll explore the application of the leagile approach in evaluating supply chain performance and why it’s becoming a critical tool for supply chain managers worldwide.

What Is the Leagile Approach?

The leagile approach fuses two foundational supply chain strategies:

• Lean: Aimed at eliminating waste and maximizing efficiency, lean practices are ideal for stable environments where predictability reigns.
• Agile: Focused on responsiveness and adaptability, agile practices enable quick reactions to changing market demands and unforeseen disruptions.

By integrating lean and agile principles, the leagile approach allows different segments of the supply chain to operate under the most suitable framework. Typically, lean is applied to upstream processes like production and procurement, while agile principles govern downstream operations such as distribution and customer delivery.

Why Is the Leagile Approach So Effective?

The complexity and unpredictability of today’s global supply chains demand a versatile approach that balances cost-efficiency with the ability to respond rapidly to market shifts. A purely lean supply chain may struggle to cope with unexpected disruptions, while an agile-only model may lack the efficiency needed for consistent performance.

Here’s why the leagile model is increasingly preferred:

• Cost-Efficiency Meets Flexibility: Leagile provides the best of both worlds. It reduces costs by applying lean principles to stable parts of the supply chain while using agile strategies in areas that need to quickly adapt to fluctuating demands. During the early stages of the COVID-19 pandemic, companies that employed leagile approaches were able to keep operating costs low while scaling quickly to meet surges in online shopping.
• Tailored to Each Segment: Not every part of the supply chain faces the same challenges. Leagile ensures that businesses can apply the most appropriate approach—lean where efficiency matters most, and agile where rapid responses are crucial.
• Enhanced Risk Management: By allowing companies to be both cost-conscious and responsive, the leagile approach helps mitigate risk across the supply chain. In times of disruption, companies can rely on agility, while lean principles keep overall operations running efficiently.

Evaluating Supply Chain Performance with Leagile

To assess the effectiveness of a leagile supply chain, companies must focus on several critical performance metrics such as lead time, inventory management, cost control, and customer satisfaction. Below, we outline how leagile principles enhance each of these areas:

1. Lead Time Management

• Lean application: In stable production environments, reducing lead time ensures smooth and efficient operations, preventing bottlenecks.
• Agile application: During unpredictable demand surges, agile strategies ensure quick adjustments to lead times, enabling faster responses to customer needs. This is especially vital in humanitarian supply chains, where rapid deliveries can be lifesaving.

2. Inventory Optimization

• Lean focus: By maintaining minimal inventory levels, companies can reduce holding costs and improve efficiency.
• Agile focus: Agility allows the supply chain to quickly adjust inventory levels in response to changing market conditions, ensuring that companies are not caught off guard. For instance, humanitarian organizations like the World Food Programme (WFP) apply agile strategies to manage emergency inventories, delivering supplies efficiently to disaster-stricken regions.

3. Cost Efficiency

• Lean: Lean practices are key to maintaining cost efficiency by eliminating non-value-adding activities and streamlining processes.
• Agile: While agile strategies may involve higher operational costs—such as expedited shipping or flexible labor—these costs are often outweighed by the benefits of meeting sudden demand spikes, preventing more significant losses down the line.

4. Customer Satisfaction

• Lean aspect: Lean ensures consistent product quality and on-time delivery, which directly enhances customer satisfaction.
• Agile aspect: The ability to quickly adapt to customer needs, particularly during market shifts, helps maintain strong customer relationships and brand loyalty.

Real-World Applications: Leagile in Action

Several organizations, particularly those in high-risk or unpredictable sectors, have embraced the leagile approach to manage their supply chains more effectively:

• International Federation of Red Cross and Red Crescent Societies (IFRC): During the 2023 earthquake response in Turkey, the IFRC utilized leagile principles to manage emergency inventory levels efficiently while rapidly adjusting their supply chain to meet the changing demands of the crisis.
• UNICEF: For the distribution of COVID-19 vaccines, UNICEF applied leagile strategies, maintaining lean warehouse operations while leveraging agile systems to distribute vaccines to regions with rapidly shifting demand patterns.
• Maersk Line: Maersk has long used leagile principles to streamline its global shipping operations, balancing cost efficiency (lean) with responsiveness to international trade fluctuations (agile). This approach helped Maersk navigate the uncertainties of the pandemic with agility and resilience.

Key Metrics for Evaluating Leagile Supply Chains

For companies to evaluate the success of a leagile supply chain, specific metrics must be tracked, ensuring both efficiency and adaptability. Some of the key performance indicators (KPIs) include:

• Order Fulfillment Lead Time: How quickly can the company fulfill orders, especially in times of fluctuating demand?
• Inventory Turnover Ratio: Is the company maintaining optimal inventory levels to manage both costs and demand?
• On-Time Delivery Performance: Can the supply chain maintain flexibility without compromising delivery deadlines?
• Cost Per Unit: Is the company managing to keep production and operational costs low while staying responsive to changes?
• Customer Satisfaction Rate: Are customers satisfied with the company's ability to meet their evolving needs?

Global research agencies like Gartner consistently highlight the leagile approach as a key reason companies ranked in their top 25 supply chains are among the most resilient and efficient.

Looking Ahead: The Future of Supply Chain Performance with Leagile

In an era where supply chain disruptions are becoming more frequent and more complex, the leagile approach offers a balanced, adaptable, and efficient framework for success. Supply chain leaders must consider integrating leagile principles into their operational strategy not only to enhance performance today but to future-proof their operations against tomorrow’s uncertainties.

As companies face increasing pressure to both cut costs and respond to dynamic market needs, those that adopt leagile principles are better positioned to stay ahead of their competition and maintain resilient, agile supply chains that are both efficient and adaptable.

Start exploring how leagile can enhance your supply chain strategy and elevate performance across your operations.

Further Reading and Resources:

For those interested in exploring the application of the leagile approach within humanitarian supply chains, the following resources offer valuable insights and case studies:

• The Leagile Supply Chain in Humanitarian Logistics: (https://www.bing.com/search?pc=OA1&q=Leagile%20in%20Humanitarian%20Supply%20Chains%20site%3A.org ) Leagile in Humanitarian Supply Chains This article delves into the unique challenges of implementing leagile principles in humanitarian contexts, offering examples from global organizations that balance cost efficiency and flexibility during crisis response.
• IFRC Supply Chain Strategy: (https://www.icrc.org/en/publication/4317-humanitarian-logistics-supply-chain-management ) International Federation of Red Cross and Red Crescent Societies (IFRC) Reports The IFRC's strategy focuses on agile and lean practices to ensure the timely and effective distribution of aid. Their approach during major crises, like the 2023 earthquake response in Turkey, is a model for applying leagile strategies in unpredictable environments.
• WFP Emergency Logistics Operations: World Food Programme (WFP) Logistics Reports WFP, the leading humanitarian organization fighting hunger, integrates leagile approaches in its supply chain. This resource covers how the WFP manages its global logistics, from maintaining lean inventories to rapidly scaling operations in response to emergencies.
• UNICEF Supply Chain for Health Emergencies: (https://www.unicef.org/supply/humanitarian-supply-chain-and-logistics-consultation-and-expert-sharing-forum ) UNICEF Supply Division: COVID-19 Vaccine Distribution Learn how UNICEF applied agile supply chain methodologies to respond to the rapid and evolving demand for COVID-19 vaccines. The combination of lean processes and agile adaptability helped them navigate the complexities of global health logistics.
• The Logistics Cluster: (https://www.help-logistics.org/fileadmin/user_upload/Dateien_HELP/documents/report/State_of_Logistics_Report__March_2024.pdf ) Logistics Cluster Publications The Logistics Cluster, led by WFP, supports humanitarian organizations by coordinating logistics services in crises. This resource offers reports and case studies showcasing how agile and lean practices are utilized to enhance collaboration and efficiency in global disaster response.
• Annual State of Logistics in Humanitarian Aid: (https://www.help-logistics.org/fileadmin/user_upload/Dateien_HELP/documents/report/HELP_Global_Survey_Report_No1_2022-03.pdf ) Humanitarian Logistics Association (HLA) Reports The HLA provides annual reports on the state of logistics in the humanitarian sector. These reports give an overview of supply chain trends and how organizations are increasingly adopting leagile strategies to manage the growing complexities of disaster response.

For those working in or studying humanitarian logistics, understanding and implementing leagile strategies can be a game-changer. Whether it's managing lean inventories or scaling operations rapidly during a crisis, the leagile model offers a balanced and practical approach. Staying informed and learning from the best practices of key organizations will help drive continuous improvements in this vital sector.

Thank you for exploring this topic with SCM Explorer. Stay tuned for more insights into the ever-evolving world of supply chain management!

About SCM Explorer

SCM Explorer is a dedicated newsletter designed to offer insights, trends, and innovations within the realm of Supply Chain Management (SCM). Focused on professionals, academics, and enthusiasts alike, the newsletter dives into key strategies, emerging technologies, and best practices that are shaping the global supply chain landscape.

Each edition of SCM Explorer covers a broad range of SCM-related topics, from inventory management and logistics optimization to the latest challenges in global supply chains. Through case studies, interviews with industry leaders, and reviews of key reports, the newsletter offers practical insights and strategic advice for improving supply chain performance.

Best Regards,

Editor

SCM Explorer