Recommended
Recommended
More Related Content
Similar to Lean or Agile? Clarifying the Two Product Development Models
Similar to Lean or Agile? Clarifying the Two Product Development Models (18)
Recently uploaded
Recently uploaded (20)
Lean or Agile? Clarifying the Two Product Development Models
- 1. 18th Dec 2015 1 Lean or Agile? Clarifying the two Product Development Models Introduction For a long time Lean has been the ultimate endeavour in the manufacturing industry aiming to minimise costs, maximise revenue, and thus profits: the holy grail of production (Womack & Jones, 2003). More recently Agile has surfaced as a new form of product development. It is hard for manufacturing firms to know which one to select when planning operations; Woods (2010) likened the two paradigms to one another. This can have implications for firms that must survive in what are uncertain times (Glatzel et al, 2009). This essay will outline the two Product Development Models (PDM’s) and give an example of each one in practice. It will then define attributes of the two paradigms, highlight any areas of similarity, and identify when the two paradigms should be selected. Lean manufacturing Lean developed after the Second World War from the need within Japan to manufacture goods to revive the economy at a time when space and resources were scarce. Eiji Toyada and Taiichi Ohno (Toyota) developed the Toyota Production System (TPS), later dubbed Lean by Womack, which enabled them to manufacture vehicles with reduced input of labour, materials, floor space, and tools (Womack et al, 1990) by looking at the whole value stream in an effort to reduce waste (muda) in production. This effective production of goods meant that the quality of every part was crucial. Freed up resources could be used to increase the product range. They developed the following five principles that are core to achieving Lean: 1. Identify customers and specify value 2. Identify and map the value stream 3. Create flow by eliminating waste 4. Respond to customer pull 5. Pursue perfection Lean firms are customer focused, identify those areas that add-value to a product (or service) and reduce everything else that is considered waste. Customers are not willing to pay for non- value adding elements of a product (or service) and therefore firms should try to remove waste, thus giving a leaner cheaper product. Figure 1 shows an analysis of strengths, weaknesses, opportunities, and threats (SWOT) of adopting the Lean paradigm.
- 2. 18th Dec 2015 2 An example Lean manufacturing: New Balance The following is a summary of Marchwinski case study: “For athletic shoe company, the soul of lean management is problem solving” taken from Womack’s lean website (Marchwinski, 2008), which looks at New Balance as an example Lean manufacturing, and is supported by additional research. Marchwinski (2008) states “when it began a Lean transformation in 2003, New Balance, was the only athletic shoe manufacturer that still makes some products in the U.S.” New Balance has labour costs that are approximately ten times that of its competitors that have facilities based outside the U.S. (Schlesinger, 2015). It has seen global revenue double since 2003 (Appendix A). The company CEO Rob DeMartini attributes this to lean practice and which give them three main advantages: Innovation, Quality, and Understanding their consumers (Schlesinger, 2015). New Balance is committed to Lean education with factory managers receiving 100 hours of Lean training. They aim to Identify problems by business needs, operating a triage approach to problem solving. Those problems that would reduce the most waste and free up greatest resources are prioritised allowing them to be re-allocated along the production line to relieve pressure. Before they adopted Lean, batching was a problem. Piles of stock were scattered about the factory waiting to be processed. They eliminated this stock build up and adopted a
- 3. 18th Dec 2015 3 one-pair flow, dealing with one pair of trainers at a time, which ensured the production line ran consistently to avoid backlog build-up. They improved lead times, which meant a lot of factory floor space became available. Their lean fulfillment system enabled them to expand production; introduce new work lines in the newly available space and take advantage of economies of scale. The final phase involved connecting the business and lean manufacturing models. This Lean approach meant they have been able to cut down on wastage and deliver goods quickly to the customer at a price that is competitive, even against those firms that manufacture outside of the U.S. The company has incorporated lean thinking to its core philosophy. It shares knowledge of lean with its customers and encourages them also to reduce waste. Within the U.S. they promise customers inventory turnaround of 24 hours, competitors can take up to 121 days to ship orders from Asia. New Balance keeps approximately 22 days (or lower) of inventory in stock, which is vastly lower than competitors (Marchwinski, 2008). This example demonstrates the power of implementing Lean throughout a manufacturing company. Despite having inflated labour costs, often regarded as the largest cost of production within manufacturing (Morris, 2015), by adopting Lean manufacturing New Balance has been able to reduce finances tied up in stock, shorten lead times, and focus on customer demands. Agile manufacturing Agile originated in the software industry, which is characterised by “short product lifecycles and rapid decision making” (Power, 2014). Gunasekaran (1998) defined an Agile firm as having “the capability to survive and prosper in a competitive environment of continuous and unpredictable change by reacting quickly and effectively to changing markets, driven by customer-designed products and services.” In his book “Agile Software Development” Cockburn (2007) highlighted the importance of the need for iterative and incremental development to allow the product to be repeatedly adjusted to changing market demands and to overcome inevitable mistakes that would occur during development. The “Agile Manifesto” (Cockburn et al, 2001) set out four core values of Agile: 1. Individuals and interactions over processes and tools. 2. Working software over comprehensive documentation. 3. Customer collaboration over contract negotiation. 4. Responding to change over following a plan. In “Agile Manufacturing” (2001) Gunasekaran adapted the paradigm for manufacturing, drawing upon a large number of research papers into the area including a paper he had
- 4. 18th Dec 2015 4 previously worked on with Yusuf et al. (1999) that summarised the ten attributes of an Agile organisation: 1. Integration 2. Competence 3. Team Building 4. Technology 5. Quality 6. Change 7. Partnership 8. Market 9. Education 10. Welfare Gunasekaran noted that the “two most critical aspects… to achieve Agile manufacturing environment would be integration and flexibility” (Gunasekaran, 2001, pp.234). Through adopting Agile as a PDM, firms create a product with as little waste as possible while remaining flexible enough to adapt to changes in the market and reflect consumer demands. Figure 2 shows a summary of SWOT analysis of adopting the Agile paradigm.
- 5. 18th Dec 2015 5 An example of Agile manufacturing: Zara and Inditex Zara (Inditex) is an example of a manufacturer that “operates in a very agile fashion… It has embraced a set of managerial practices that are radically different from those of traditional management and that enable it to operate much more nimbly” (Denning, 2012a). This has resulted in the business tripling revenue in ten years to over €18 billion in 2014 (Appendix B+C). The two articles “Rapid Fire Fullfilment” (Ferdows et al, 2004) and “Internal agility at Zara” (Denning, 2012a) give insight into operations at Zara and the strategy employed across the company. Zara founder Amancio Ortega started out as a clothing manufacturer and opened the first store when a large wholesaler backed out of a deal that left all his finances tied up in the order. He saw opening a store as a way out of the situation. Zara now owns and controls almost all of its supply chain from initial product concept through to customer purchase; operating on Ortega’s philosophy “you need to have five fingers touching the factory and five touching the customer” (Ferdows et al, 2004). This focus on both the customer and factory (where goods are designed) illustrates how Zara listens to their customers and responds quickly to meet their needs. Stores and manufacturing facilities are spacious to allow them to react quickly to surges in demand and avoid the need to outsource additional production, keeping control within Zara. Store managers must adhere to a strict bi-weekly order routine, placed directly with the designers on the factory floor, which avoids filtering through layers of administration. Materials are often bought in their raw form, which allow them to be dyed and adapted as consumer trends shift throughout the season. Finished products are shipped on their hangers within days, items going from sewing machine to sales rail in 24 hours within Europe (48 hours in the U.S. and 72 hours to Asia). This kind of speed is rare in the clothing industry. Loyal customers follow their trends and look to snap-up items as soon as they arrive in store to avoid missing out. The whole ethos at Inditex mirrors many of the “basic principles of Agile software development total focus on delighting the customer, working in self-organizing teams, coordinating work in short cycles driven by customer feedback, values of trust and openness, and horizontal communications” (Denning, 2012b). Ortega has been able to break the traditional clothes manufacturing model and adopt an Agile approach that enables the company to place customer needs at the centre of its focus and remain flexible to respond to shifts in what is often perceived to be a fickle industry (Spinks, 2014).
- 6. 18th Dec 2015 6 Comparison of Attributes The above descriptions and case studies of Lean and Agile give us an insight into both PDM’s. In order to define attributes of the two paradigms, highlight any areas of similarity, and identify when the two paradigms should be selected we will draw upon research that have compared the two PDM’s. Naylor et al. study “Leagility” (1999) demonstrated that both paradigms were neither mutually exclusive nor collectively exhaustive but were in fact complimentary models and that both should be considered when selecting a manufacturing strategy. They coined the term “Leagile”, which is a portmanteau of Lean and Agile, suggesting firms could draw upon elements of both depending on the situational need. This work provides a comparison of Lean and Agile in manufacturing and highlights common characteristics. However, it should be noted that while supported with case studies it is not a comprehensive study of the two paradigms due to the small number of firms studied and comprehensive research was needed. Ten years later Hallgren and Olhager published “Lean and agile manufacturing” (2009). Research was conducted across “211 plants from three industries and seven countries” (Hallgren & Olhager, 2009). This paper examined both internal company drivers and external market forces. It tested a number of hypotheses to determine whether there were any notable similarities, and differences, between Lean and Agile. The findings from these analysis show that, while the two display similarities on the surface, there is significant variation with regards to drivers and outcomes. The main distinction between the two is in “performance outcomes related to cost and flexibility” (Hallgren & Olhager, 2009). Lean manufacturers strive to eliminate waste, thus are able to offer their goods at a lower price. In contrast Agile is best suited to firms that are looking to remain flexible and responsive to market forces, and thus are able to charge a premium for goods that use quality as a means of differentiation. While this is the most extensive study into Lean and Agile to date a major limitation of this research is the scope of the research. In order to gain conclusive data a more comprehensive study of multiple firms that are representative of the global manufacturing market is needed. The research does, however, show similarities between Lean and Agile, and also areas of differences. Figure 3 presents a comparison of the main attributes of the two PDM’s and highlights those areas that are common to both paradigms.
- 7. 18th Dec 2015 7 It is evident that there are close similarities between the two paradigms, with four common attributes: total supply chain management, customer focus, efficiency of resources, and responsiveness to customer pull and market changes. For both PDM’s the central focus is the customer. Great consideration is given to customer pulls as firms look to minimise waste in order to reduce costs and in turn price. The two PDM’s differ, with Lean focussing on eliminating waste and to make the cheapest possible product. Rigid management structures are followed with tight control over operations. Agile on the other hand is flexible and looks to meet demands for quality whilst minimising waste to reduce price. Customers are listened to and adjustments are made quickly to meet their needs. Conclusion Firms have to compete with an increased number of competitors across multiple markets and must be able to respond to shifts in the market and changes in customer pulls. Smith (2008) suggests that with increased globalisation firms should look to “improve [their] ability to change, to the point that [they] can out-change and thus out-innovate [their] competitors”. Lean firms compete through price strategies delivering consistency of products that react to general market trends. Those that want to capture the larger, mass, market can do so through Lean. Agile firms compete with quality as a point of differentiation looking to react quickly to changes in customer demands. Firms that want to stay ahead of the competition do so with Agile, but do so at a higher cost.
- 10. 18th Dec 2015 10 Appendices Appendix A New Balance Financial Results 1991-2012 Source: https://www.newbalance.com/on/demandware.static/Sites-newbalance_us2-Site/Sites- newbalance_us-Library/default/v1393572846066/pdf/NB_Annual_Sales.pdf U.S. Annual Sales (in millions)* 1991 $95 1992 $95 1993 $104 1994 $130 1995 $151 1996 $201 1997 $265 1998 $346 1999 $550 2000 $750 2001 $813 2002 $935 2003 $918 2004 $1.08 billion 2005 $1.09 billion 2006 $1.078 billion 2007 $1.112 billion 2008 $1.078 billion 2009 $1.072 billion 2010 $1.08 billion 2011 $1.09 billion 2012 $1.18 billion Worldwide Sales (in millions)* 1991 $210 1992 $221 1993 $258 1994 $316 1995 $380 1996 $474 1997 $550 1998 $630 1999 $890 2000 $1.1 billion 2001 $1.16 billion 2002 $1.3 billion 2003 $1.3 billion 2004 $1.48 billion 2005 $1.55 billion 2006 $1.55 billion 2007 $1.63 billion 2008 $1.64 billion 2009 $1.65 billion 2010 $1.78 billion 2011 $2.04 billion 2012 $2.29 billion *includes estimated sales by joint ventures and distributors ### Updated 10/13