The visuals of empty store shelves during the pandemic continue to serve as an important reminder: The ability to quickly adjust supply chains to shifting market dynamics can determine a business’s overall health and impact on lives worldwide.
Whether it’s demand reduction; a bullwhip effect (the phenomenon by which a small increase in retail demand begets progressively larger demand disruptions up the supply chain, leading to the infamous toilet paper shortage); or a raw material shortage (leading to microchip scarcity), market deviations are unpredictable.
They can also be costly. Supply chain disruptions cost the average organization 45% of one year’s profits over a decade, according to research from 2020. Supply chain disruptions in the year leading up to May 2022 cost the average global organization 1.74% of its annual revenue, according to a survey by supply chain technology company Interos.
To keep up with changes and stay financially healthy, businesses need supply chains that can shift on a dime. They must be able to quickly adjust processes such as production and shipping by making decisions based on real-time data about demand, supply, inventory, and more.
They also need resources that allow for supply chain adjustments which keep customers satisfied amid disruption and teams able to seize new opportunities as they arise.
What is Supply Chain Agility?
Supply chain agility refers to an organization’s ability to smoothly respond to market changes. These changes are vast and intertwined, involving everything from changes in customer preferences to economic and market volatility, and competitor disruption, to name a few.
Supply chain agility isn’t adjusting the day-to-day operations and workflows to meet internal KPIs. But, improving manufacturing supply chain agility will prompt changing internal processes. Most of the time, it means adopting new technology, data management, and service agreements with vendors.
The goal is to maintain a responsive, fluid, and informed supply chain that can easily navigate any changes that may come their way – whether positive or negative.
Successful supply chain agility relies on:
- Understanding that external factors shape your supply chain Logistics regardless of how steady things are at this moment
- Exploring value chain components that are most affected by industry disruption
- Integrating more proactive technology and processes to address pain points in the value chain
- Ongoing monitoring and analysis of new processes, production cost savings, and cross-functional collaboration and continuing to adjust processes when needed.
Structural Agility Versus Operational Agility
There are two broad categories of supply chain agility: structural and operational.
Structural Agility
It refers to the ability to quickly realign procurement, inventory flows, and capacity usage across the supply chain. This requires oversight of raw materials and finished products as they move from suppliers to manufacturers to customers, as well as anticipating demand trends and supply disruptions at a granular level.
Automation and seamless data flows facilitate this kind of agility. With structural supply chain agility, organizations can scale production up or down by adjusting assets across their supply chain network. A large retailer, for example, might create structural agility by integrating their inventory management software with demand forecasting to create automated stock replenishment plans.
That way, the company can quickly respond to potential product shortages and prevent stockouts.
Operational Agility
It is the ability to optimize processes throughout the supply chain for a swift response to short-term, unexpected demand and supply shifts. This type of agility comes from real-time supply chain planning, vertically integrated manufacturing, and close relationships with suppliers.
For example, Tesla has a more vertically integrated supply chain than most other automakers, designing many parts and components in-house—making it less reliant on original equipment manufacturers for parts. Leveraging this vertical integration—as well as in-house software engineers, advanced automation, and direct ties with chip suppliers—Tesla redesigned their vehicles to circumvent the 2020 computer chip shortage.
This operational agility helped Tesla increase production by more than 80% in 2021 while many other carmakers waited on their suppliers, which were waiting on chip manufacturers.
The Five Dimensions of an Agile Supply Chain
Manufacturing environment, there are five key areas to focus on when it comes to minimizing uncertainty and owning a competitive supply chain.
Stage 1: Awareness/Alertness
Alert organizations can forecast industry changes, upcoming disruptions, competitor threats, and growth opportunities. The more aware and alert your organization is to these realities, the quicker you can respond to changes in product demand, supplier trends, materials procurement, customer feedback, market pricing, and many other issues.
Stage 2: Accessibility
Organizations can’t make changes without access to tools and information. After an alert business spots a pattern or a trend, they have access to the specific industry data in relevant historical logs that all the decision-makers can conveniently share and analyze together.
Stage 3: Decisiveness
If your organization is decisive, quickly translate any industry shift in the accompanying information into action. Your organization has leaders with the tools and the ability to execute and quickly implement changes to business processes and communicate how and why of the change with the downstream.
The most decisive companies are those that have unified or simplified change-of-command to reduce the number of touchpoints required to make a quick judgment call.
Step 4: Swiftness
Swift organizations Implement their action plans fast. There are few impediments when introducing any process changes to relevant value chain functions as well as limited communication silos or technologies to reconfigure.
The faster changes are made, the more cost-effective the entire supply chain becomes and that’s the more profitable your business. This aspect also proves the reality of your agile cycle up until this point all of the work has been data-driven and in preparation for implementation.
Stage 5: Flexibility and Adaptability
Agile organizations have the power and the buy-in to modify the ongoing processes when a new opportunity presents itself. It can be done without disrupting the entire business. Those proficient in adaptability and flexibility understand that action plans are bound to change, even when they are initiated under a smooth data back cycle that fits a value chain need at the time.
These organizations are not rigid seeking to adjust day-to-day operations based on fallacies of what worked in the past
Supply Chain Agility Strategies
These strategies are particularly helpful in boosting supply chain agility. With these strategies, companies don’t simply survive unexpected changes in supply, demand, and the market; they continue delivering products and generating revenue amid these changes.
Demand forecasting
Companies can create agile supply chains by investing in demand forecasting software that involves predictive analytics, the application of AI, statistics, and modelling techniques to analyze vast data sets.
Inventory management and demand planning software with predictive analytics produces more accurate forecasts for consumer demand as well as more general consumer behaviours and stock replenishment needs. With these forecasts, businesses can fine-tune manufacturing resources and inventory levels to meet demand, avoiding both stockouts and excess stock.
Synchronized production and scheduling
Production scheduling involves maximizing efficiency in the manufacturing process by synchronizing a company’s stock needs with its capacity in terms of machinery, labour, raw material lead times, and more. It involves carefully planning which orders to fulfil, in which sequence, to minimize machine downtime, waste, and delay in delivering finished goods.
Companies that have tightly synchronized their production and scheduling can adjust production schedules for quick responses to demand changes.
Real-time data
Companies with an agile supply chain communicate with their suppliers and partners in manufacturing, logistics, and distribution easily and often—ideally through a cloud-based supply chain management platform—and share real-time data throughout the network. This quality of data and type of connectivity allow all parties in the supply chain to proactively make decisions that affect them collectively.
Warehouse automation
Automating warehouse processes helps the supply chain react faster to changes in supply and demand. A cloud-based warehouse management system can automate order processing—which includes picking, packing, and shipping—while Internet of Things (IoT) technologies such as smart shelves and sensors automatically track inventory levels and movements. Meanwhile, autonomous mobile robots automate tasks such as order picking and unloading shipments.
Automating these types of warehouse processes might, for example, help a distributorship its average order 24 hours faster. That way, if demand suddenly spikes, the distributor can meet it while a competitor with slower, manual warehouse processes misses out on the revenue opportunity.
Third-party logistics
Companies can build supply chain agility by tapping into the resources of third-party logistics (3PL) providers, which offer outsourced warehousing, fulfilment, and transportation services.
FAQ: Supply Chain Agility
Why is an agile supply chain important?
An agile supply chain is important because it allows companies to respond to changes in supply and consumer demands and remain profitable in uncertain economic times. From a consumer’s perspective, agile supply chains promptly bring essential products to market at an affordable price, despite any production delays.
Why do businesses need agility?
Businesses need agility to adjust to unexpected external and internal changes and remain financially healthy. Without agility, a business can’t adapt to the challenges of the ever-evolving market and could become financially insolvent.
What are the 3 T’s of the agile supply chain?
Understanding the 3 Ts of highly effective supply chains provides a simple yet powerful framework that organisations can use to start building robust supply chain processes and structures. The 3 Ts are time, transparency and trust. Each is interrelated and dependent on the other.
Conclusion
Achieving agility in supply chain is crucial for businesses in today’s fast-paced and ever-changing market. By understanding what supply chain agility is and the five dimensions that contribute to it, businesses can develop effective strategies to enhance their agility.
This includes building strong partnerships with suppliers, implementing advanced technologies, optimizing inventory management, improving communication and collaboration within the supply chain network, and adopting a customer-centric approach. By prioritizing supply chain agility, businesses can better respond to disruptions, meet customer demands, and gain a competitive edge.
So, if you’re ready to take your supply chain to the next level, start implementing these strategies today with the help of Qodenext!
