Leagile Business Strategy - Zara

 

Lean and Agile are basic concepts used in all businesses. In the supply chain, these are often called strategies. Lean and agile are also related to pull and push strategy. Both strategies are working well in the deserved market though there was a need for both strategies in a single business, so, there comes the Leagile strategy.

The Leagile strategy is the combination of the lean and agile concepts. It works in the supply chain by positioning the decoupling point. To best suit the need for responding to a volatile demand downstream yet providing level scheduling upstream from the marketplace.

The Decoupling point is an important position in this Leagile supply chain. Because from the raw material to the decoupling point the company’s production will be working under a lean supply chain approach and at the decoupling point the company’s production will be an agile supply chain. The Decoupling point approach is one of the approaches in the Leagile strategy, which means it has another 2 approaches in the hand.

The next approach of the Leagile strategy is (Italian economist Vilfredo Pareto) Pareto’s 80:20 approach, which is personally my favourite approach of all. Pareto clarifies that every company has their famous or fast-moving product that may be 20% of their whole products. But mostly that fast-moving 20% products alone give nearly 80% of total revenue to the company. So, Pareto proposes the 80:20 approach, which means the company should produce their 20% fast-moving products on a demand forecasting basis (Lean Strategy) and the other 80% of the products on customer order (Agile Strategy). If the enterprises adopt this technique, it will be the greatest success in their life cycle.

The third approach of the Leagile strategy is Surge / Base Demand Separation, it is almost the same as Pareto’s 80:20 approach.

With this combined strategy, the company could get combined advantages of both Lean and Agile strategies. Leagile strategy will help enterprises to reduce inventory and waste that represents Agile and Lean advantages respectively.

Zara

For instance,

Zara, a Spanish apparel company, is a great example of a supply chain that is flexible. The company Zara is almost using the agile approach and also using some lean approaches. It operates to react swiftly to the changing needs of the customers. The postponement process appears within the process. The Commercial managers manage the production with their demand forecast number but the designs are prepared based on the real-time information captured from the retailers (shops) and/or from customers, the customers like fashion shows, university campuses, clubs, etc. Somewhat finished products will be made and stored in inventory with concern in inventory cost, then the final touch happens on the basis of current customer demand, so, it shows the agility of the business. It tries to eliminate waste by not producing a large volume, which describes the lean approach of Zara. The system is flexible enough in order to cope with sudden changes in demand, though the stock is maintained a little less than the demand keeping in line with the lean-approach.

posted by

Lokesh Venkatachalam