Most of our customers in Jiga initially approach us when they become concerned about their supply chain agility, visibility, and resilience.
It’s no wonder in today’s world: if the recent disruptions caused by pandemics and wars taught us anything, it’s the fact that a supply chain that can react to sudden disruptions and changes in trading environments is far less likely to implode when confronted with sudden extreme pressures.
Admittedly, not every supply chain challenge is going to be as extreme as the Covid-19 pandemic and the ensuing worldwide lockdown. However, the fact remains that an agile supply chain has its enhanced ability to react to sudden changes in supply and demand.
This article will take you through what it means, how it works, and what you can do to improve your supply chain.
Definition of Agile Supply Chain Management
At its most basic level, an agile supply chain is one that emphasizes flexibility.
Agile supply chain management (SCM) is a supply chain wide reorganization around a new set of principles that emphasise the need for new structures, value chain configurations, communications and information systems and a whole new mindset when it comes to how a supply chain should operate.
This new supply chain management paradigm allows an organisation’s supply chain to operate without fixed configurations and static structures.
The obvious benefit of this is that it makes the supply chain less vulnerable to sudden changes, much like a flexible foundation makes a building less vulnerable to earthquakes.
However, in day to day operations, an agile supply chain has the flexibility to be centered around the rapidly changing customer demand.
The ability to react to sudden fluctuations in customer demand allows companies to reach the market first, be innovative, and to act as a market leader while their competitors struggle to realign more rigid supply chains.
Where Did Agile Originate?
The concept of agile methodology originated in the software development industry in response to the fact that too many software development projects were overrunning their deadlines.
In 2001, a group of software developers, known as the Agile Alliance, created and published the Manifesto for Agile Software Development.
The idea of a management paradigm that emphasised flexibility and allowed teams to adapt to required changes faster quickly spread to other industries.
Agile Supply Chain vs Lean Supply Chain
There is a fair amount of crossover between lean and agile supply chain management, but there are a few main differences between the two.
- An agile supply chain focuses on flexibility and the ability to handle changes in demand and sudden crises.
- A lean supply chain focuses on maximising savings by continuous improvement coupled with minimal redundancies.
As you can see, there is no reason why both ideas can’t be applied to the same supply chain.
The flexibility and applicability offered by agile methodologies often acts as an enabler for the constant improvements and low redundancies needed in a lean supply chain.
For example, a manufacturer might keep large amounts of raw materials on hand to prevent the line down cost of them running out.
This would make them more agile, but less lean, as it would increase inventory carrying costs.
By using the greater visibility enabled by an agile supply chain, the same manufacturer would be able to more accurately predict both demand and delivery time frames, removing the need for the redundant materials and making them both agile and lean.
Why Does Your Organisation Need an Agile Supply Chain?
The huge supply chain disruptions caused by the Covid-19 pandemic highlighted the fact that most supply chains are incredibly static.
As manufacturing centres in Asia closed down and shipping ground to a halt, most company’s supply chains went into freefall as they struggled to nearshore or desperately tried to onboard new suppliers.
Even outside of sudden global pandemics, the way that customers are influencing supply chain logistics is changing.
Companies like Amazon have grown exponentially based on their ability to provide unparalleled customer choice and rapid response delivery.
In turn, customers have come to expect companies to fulfil their demands, rather than simply making do with what has already been brought to market.
An agile supply chain allows companies to be both internally and externally flexible.
Internally, businesses are able to transform their supply chain when the need arises.
Externally, they are able to rapidly deliver on customer demand and take full advantage of short profit windows, giving them a significant competitive advantage.
Agile Supply Chain Strategies
The modern agile supply chain is based around four major component strategies, virtual integration, process alignment, shared chain responsibility, and market sensitivity.
Process Alignment means building functional technical partnerships with all stakeholders within the agile supply chain.
Rather than a race to the bottom for the lowest price, which generally puts vendors in a combative relationship with their suppliers, an agile supply chain looks to add value that isn’t simply cost-based by aligning all stakeholders in a singular direction.
One example of this might be co-managed inventory or vendor-managed inventory, in which both vendor and supplier are responsible for inventory management.
Another example might be collaborative product design and development, in which design departments collaborate with suppliers at all levels of product development to ensure that the end product is as easy to manufacture as possible.
The exact nature of the process alignment depends on the organization. However, the overriding principle is that supply chains are far more efficient, agile, and resilient when all stakeholders are pulling in the same direction.
As with all agile processes, the free flow of information and open and clear communication is vital.
Virtual integration allows information to move quickly amongst relevant departments, regardless of the physical distance between them.
As the demand from the market or end consumers increases, that demand information is collected, analyzed, and transmitted through collaborative planning that includes all departments within the organization who have the capacity to fulfill that demand.
Virtual integration across a supply chain also allows for faster exchanges of information between all key stakeholders.
This rapid flow of information creates end-to-end visibility throughout the supply chain, helping to identify capacity issues or potential bottlenecks.
In effect, virtual integration allows an organization’s supply chain to react rapidly to changing demands while quickly identifying and removing problems.
Shared Chain Responsibility
Shared chain responsibility feeds into the same idea as process alignment, but at a conceptual, rather than technical level.
Static supply chains are normally siloed affairs, with information and responsibility divided into individual segments and assessed by discrete sets of KPIs.
The downsides of this are obvious. It reduces overall visibility and turns every bottleneck and problem into a search for the one section of the supply chain that is to blame.
In an agile supply chain, the greater visibility and coordination afforded by process alignment allows all stakeholders in the supply chain to share the overall responsibility for the successful operation of that supply chain.
Operational efficiency is not judged by internal KPIs, but by metrics that measure each link in the supply chain’s contribution to the entirety of the process.
Where process alignment creates the technical infrastructure required for all parts of the supply chain to pull in the same direct, shared chain responsibility creates a culture of shared effort and group achievement and accountability.
As we’ve already mentioned, one of the primary benefits of agile SCM is the ability to quickly react to changes in market conditions and customer demand.
In traditional supply chains, the majority of forecasting is based on previous sales data, making them inherently backward-looking.
In order to take full advantage of the benefits of an agile supply chain, organizations also need to focus on data collection and analysis, which allows them the insight to predict future demand and market trends.
Data gathered from real-time point-of-sale systems allows companies to adopt demand-driven decision-making.
A combination of market sensitivity and an agile supply chain allows companies to understand how customer demand is changing and quickly adapt their supply chain to take advantage of that.
Application of Agility in Different Supply Chain Areas
Generally, supply chains can be rendered down into five areas in which agile methodologies can be easily applied. These areas are forecasting, production and scheduling, manufacturing, warehousing, and distribution.
As we’ve mentioned, the vast majority of companies focus on using information taken from previous cycles to make decisions on future production and to improve their inventory ordering and shipping schedules.
However, this assumes that similar patterns will be the only market drivers in the future. Basing supply chain action only on past data prevents companies from being truly agile and market reactive.
While planning is an important part of supply chain management, leveraging point of sale data allows companies to put in place an equal amount of demand-driven planning.
The combination of demand-driven planning and insights drawn from previous cycles allows companies to both forecast obvious spikes in demand while still remaining flexible, and well-informed, enough to adapt to changing customer needs.
Production and Scheduling
Synchronizing your production and scheduling with your demand-driven sales figures is vital to avoiding overstocking and out stocking.
Nearly 50% of small businesses still silo production and planning in different platforms or simply use different Excel spreadsheets.
This siloed approach conflicts with the virtual integration needed to operate an agile supply chain.
Instead, production and scheduling need to be connected, and driven by sales figures, in order to be truly optimized.
By connecting these three points, organizations can improve both their response time and their inventory control.
Manufacturing and Procurement
Firstly, it’s important to implement effective procurement processes and collaborate efficiently with your suppliers, making it easy for them to work with you. This, in turn, will improve your relationships with suppliers and contribute to increased visibility and better agility. If you have more visibility, you can react on time.
Many of our customers had the bad habit of using spreadsheets and emails to collaborate with suppliers. This was painful because it used to hurt their supplier relationships and limit visibility.
An agile supply chain also includes the ability to quickly and efficiently onboard new manufacturers to avoid delays or to take advantage of new demand-driven opportunities.
The ability to quickly select new manufacturing partners makes agile supply chains far more resistant, as it allows them to absorb sudden changes in demand or capacity.
Using the current pandemic as an example, the organizations that survived the economic and logistical fallout of the pandemic were those who were able to transition away from traditional overseas manufacturing operations and near-shore new manufacturing parameters with a quick and simple onboarding process.
Static warehousing and inventory management can lead to serious operational costs without generating any significant returns.
Because of seasonal changes and cyclical sales cycles, inventory can simply sit in warehouses doing nothing for large parts of the year, just so that it’s in place for a certain period of time.
Agile supply chain management can help to combat this problem by simply allowing companies to take on local manufacturing and logistics partners who can provide the goods and services in response to demand.
Rather than warehousing, for instance, Easter eggs, for a full year. An agile supply chain allows you to simply have the product manufactured in the local area just before demand predicted spikes, leading to significant savings on warehousing costs.
Rather than shouldering every aspect of the supply chain, incepting agile methodologies allows companies to source new and innovative solutions to traditional problems.
One example of this might be using third-party logistics (3PL) services as a cost effective alternative to managing logistics efforts such as transportation and distribution.
The 3PL logistics market has become increasingly specialized and competitive in recent years.
This means that, wherever your company has a logistical pain point, there is normally a specialized 3PL company that can take care of it for you.
Since the market is so competitive, there are often multiple 3PL suppliers offering cost-effective solutions, allowing companies the flexibility that is so important to maintaining an agile supply chain.
Benefits of an Agile Supply Chain
There are a huge range of benefits to an agile supply chain, including:
- Increased flexibility and demand-driven planning allow companies with an agile supply chain to react to changing customer demand. This gives businesses the ability to take advantage of short profit windows and bring products to market faster than their competitors.
- This same increased flexibility allows agile supply chains to be more responsive and resilient to sudden changes. Where the loss of a major manufacturing partner or a significant logistical bottleneck would cause significant delays in a static supply chain, an agile supply chain is able to quickly adapt to and overcome these issues.
- The virtual integration needed to operate an agile supply chain gives greater visibility over the entire supply chain, allowing organizations to anticipate and remove pain points before they can become an issue.
- The greater visibility and shared chain responsibility allow all stakeholders in the supply chain to make continuous efficiency improvements and, where required, outsource parts of the supply chain to cost effective 3PL suppliers, resulting in reduced costs.