The Stream by River Logic

How Agile is Your Supply Chain?

July 7, 2016 | By River Logic

Supply chain agility is an increasingly important concept for businesses that wish to maintain or develop a competitive advantage, but many managers do not actually understand what agility means in regards to their supply chain. Even fewer are aware of the specific areas that they can improve in order to increase the agility of their own supply chain.

One issue that people face when dealing with supply chain agility is that there is no universally accepted definition of what this concept means. Generally speaking, agility in a supply chain will involve the same main components that agility addresses in other fields: speed and flexibility.

When dealing specifically with the agility of supply chains, there are three main areas that need to be addressed: awareness, decision making and flexibility.

Awareness

The first step towards an agile supply chain is developing the ability to detect and predict any changes or disruptions that will necessitate a change in current practices. These events may emerge from simple changes in supply and demand, or even from natural disasters or labor strikes.

In order to take advantage of opportunities or mitigate disruptive events, your business needs to have systems in place that allow their detection as early as possible. This means that advanced data-collection systems should be implemented in order to track supply, demand, costs, shipping speeds, on-time deliveries and more.

Something as simple as effective demand forecasting can have a significant impact on revenue. By anticipating changes in demand, the supply chain is able to allocate resources in the most efficient manner possible. If demand is expected to increase in certain areas, inventory can be allocated to that region so that the excess demand can be fulfilled. If demand is expected to fall, inventory levels can be decreased to limit overhead costs.

Going one step further, implementing demand shaping strategies can bring even more clarity into what is going on outside of simply forecasted demand needs.

Awareness doesn’t necessarily have to go hand-in-hand with the most advanced, sophisticated data analytics. Those who will be most successful in leverage available data to drive awareness are those that share data / insights across the supply chain and with other sectors of the business (sales, marketing, finance, etc).

Ideally, available data would be used for what-if analysis during regular meetings to plan for those situations that are both likely to occur and high risk (assuming resources are too constrained to plan for all or almost all risky situations). This ability relates directly to the second component of an agile supply chain: speed of decision making.

Making Fast, High-Quality Decisions

While increased awareness allows the business to address issues earlier rather than later, this is of no use if the business is not also prepared to act on this information as quickly as possible. When it comes to maximizing profits or minimizing losses, the speed with which new strategies are implemented is paramount.

Businesses can virtually eliminate the time it takes to make decisions by applying rules for real-time decision automation. In order to do this effectively, companies would need a combination of both predictive and prescriptive analytics.

Predictive analytics includes both predictive modeling and statistical analysis. Predictive modeling allows you to predict what will happen in the future, while statistical analysis will identify the reasons that events occur. These are important tools, but the real potential is unlocked when this data is combined with optimization (what we refer to as the true form of prescriptive).

Optimization assess all possible situations and prescribe a course of action based on the desired outputs (business objectives) and defined constraints. Once you have your output from running optimization, you can use that to define rules on which to run real-time decision making.

This is extremely powerful — it means that your business will be able to react immediately and effortlessly in the most optimal, feasible way possible. But beware of some of the “prescriptive” tools that are out on the market today. Oftentimes, they fail to incorporate business constraints and can leave you with a feasible or sub-optimal plan.

Incorporating some form of what-if with prescriptive (optimization) will ensure that your business has a plan for reacting optimally to the most risky situations. Likewise, it will also ensure that full advantage is taken of opportunities when they are present.

Flexibility

Having awareness and enabling fast decision making means very little if your supply chain is unable to adjust to desired changes in operating procedures. A flexible supply chain is able to rapidly adapt to changes in needs or strategy without suffering significant setbacks.

In general, flexibility in the supply chain will allow a business to account for changes in supply and demand while minimizing swings in expenses and revenue.

There are many ways that flexibility can be added to a supply chain. Materials can be dual sourced in order to avoid product shortages that affect the ability to fulfill demand. Employees can be trained in multiple areas, allowing greater labor availability for specific processes without the costs or time that the hiring process requires.

The ability to customize products can also be considered part of supply chain flexibility. Efficiently producing non-standard items is not easy, but it can be instrumental in attracting large clients with specific needs.

The possibilities for increasing flexibility are nearly endless, but determining what's right for your business will require an analysis of both the advantages and the expenses associated with each option on a forward-looking basis.

Final Thoughts

Supply chain agility is not something to be taken lightly. An agile supply chain allows businesses to limit losses while maximizing opportunities for profit. Significant competitive advantages can be developed from this.

While there is no standard approach to agility, the best course forward seems to be in increasing awareness and flexibility, while improving decision making abilities. Technology upgrades will be instrumental in making these advancements, but be wary of software offerings that promise too much while delivering too little.

Case Study: River Logic Cox Wood

You May Also Enjoy Reading
The 10 Must-Read Supply Chain Blogs for 2020…(Read More)
What is Supply Chain Management and Why is it Important?…(Read More)
10 Things About Omni Channel Supply Chain You May Not Have Known…(Read More)
    Topics

    Posts by Topic

      Supply Chain Brief