How to Improve Your Supply Chain through Agile Methods

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Improve Your Supply Chain through Agile Methods

Author : Rodrigo Mereles

Agility is the ability of a supply chain to respond quickly to changing market and customer demands and is considered a competitive advantage in today’s business world. The need for agility has traditionally been associated with supply chains in high-tech industry products. However, traditional industries face similar challenges in terms of speed, flexibility, increased diversity and product customization.

Due to the uncertainties arising from a turbulent and dynamic market and the competitive forces of competition, an organization needs agility in its supply chain as a competitive advantage, providing a high capacity to respond to the needs of consumers. Product and technology lifecycles are getting shorter, competitive pressures are forcing more frequent product changes, and consumers are demanding more variety than ever before. To respond to this challenge, organizations must focus their efforts on achieving greater agility that can respond in shorter timeframes, both in terms of volume and variety of changes. For a truly agile business, the organizational structure, internal and external processes with partners in the supply chain must be ready to meet any demands placed on it.

The big challenge is to radically change the mass production (make-to-stock) to the concept of agile supply chain by order (built-to-order), with the help of flexible systems, new strategies, and the internet. The huge payoff comes in the form of lower costs along the agile supply chain. Mass customization will really happen when supply chains are able to identify the individual, volatile and unpredictable needs of their customers and meet them in the shortest possible time at prices compatible with the mass production system. When there is a complex demand forecast and a growing need for customization, companies find it difficult to keep up with the market fluctuation of all processes from demand generation and supply chain management to maintenance and customer management.

 

Understanding Agile Supply Chain Methods

Agile methods, like postponement tools, aligned with lean manufacturing, form hybrid strategies to meet this volatility.

 

The Postponement Principle

The Postponement principle consists of postponing the final configuration of products and/or services as much as possible in the value chain, in extreme cases transferring manufacturing activities to the distribution channel and/or the final consumer. Such agility will only be possible thanks to the advent of production methods that allow the displacement of final manufacturing operations to smaller locations closer to the consumer, that is, within the Outbound chain or in the stores themselves.

 

Lean Manufacturing Approach

The lean supply chain focuses on eliminating waste. Lean concepts work well in isolation when demand is relatively stable and predictable or the volatility and variety of SKUs is low. When demand becomes volatile and requirements for customer variety are high, a level of agility is important through agile development in the supply chain. Thus, lean and agile frameworks are complementary and necessary strategies in highly competitive supply chains capable of winning in an environment of volatility and cost awareness.

 

Characteristics of an Agile Organization

A key characteristic of an agile organization is flexibility. Flexible manufacturing is not limited to automation that allows for quick transitions and greater responsiveness to product or volume changes. Flexibility means using market knowledge and a virtual company to explore profitable opportunities in a volatile market.

It is increasingly clear that changing conditions in the global market seek a much more agile response from the organization and its partners in the supply chain. The idea in the past was that marketing success was based on strong brands and innovative technologies. Today brands and innovation are still critical, but they are not enough. Instead, the winning combination is strong brands and innovative technologies backed by an agile supply chain that can respond more quickly to changing demand. Competitive advantage is gained when the organization can consistently satisfy customer demands with greater accuracy and in a faster manner than competitors. It is no longer a competition between rival companies, but supply chain versus supply chain. With this, the market leadership prospect will certainly be reinforced.

Technically speaking, agile methodologies have their origins in time-based competition and rapid cycle innovation, based on some common practices with Lean Thinking, complete integration of business components (people, technology and other elements of the business and other organizations), and supply chain flexibility with a common goal of strategic alignment. Agile methods encompass organizational structures, information systems, logistical processes, and mindsets. PSbyM has a systemic agility approach seeking a cultural, managerial, intellectual and operational change in the supply chain.

Agile enterprise is a fast-moving, flexible and robust business. It is capable of rapid adaptation in response to structural changes and unforeseen and unpredictable events, market opportunities, and customer needs. It is a company founded on processes and structures that facilitate speed, adaptation and robustness, and that provides a coordinated enterprise that can achieve competitive performance in a highly dynamic and unpredictable business environment that is inadequate to current business practices

A single company may not be able to respond quickly to changing market needs. The agility of an organization is a paradox, as an agile company must be lean, flexible and able to respond quickly to changing situations; even if it is recognized that a single company will not have all the resources to satisfy all the opportunities. Thus, agility depends on a vast supply chain capable of aligning organizational structures, information systems, logistical processes, and in particular, the mindset objectives.

 

Traditional Supply Chains vs Agile Supply Chains

There is a fundamental difference between the traditional approach to sourcing products to emerging markets and the new agile approach to a supply chain. The traditional approach is based on optimizing production, handling, and transport by calculating batches of economic quantities. It is essentially a push system where products are produced ahead of demand, usually with a forecast, and then placed in the local market to await orders. The agile model suggests that the supply chain becomes a demand chain. In other words, everything that is transported, handled or produced should ideally be in response to known customer demands. The supply chain tends to focus on creating efficiencies in terms of the flow of material from source to user. On the other hand, demand chain is more focused on effectiveness, in the sense that it intends to be driven by the market, responding to market needs more quickly. The key to this transformation – from supply chain to demand chain – is agility.

The summary table below shows the biggest difference between the traditional model and the agile supply chain management model:

traditional-vs-agile-approach-supply-chain

The agile supply chain has a strong impact on competitiveness, as it allows the mobilization of global resources to monitor changes in the evolution of technologies and materials, as well as monitor market development and customer expectations.

Agile supply chains enables an organization to react quickly and more effectively to marketplace volatility and other uncertainties, allowing companies to establish a superior competitive position. Organizations with proper agile supply chain management are more market sensitive, better capable of synchronizing supply with demand, and able to achieve shorter cycle times. We know supply chain agility directly impacts a company’s ability to produce innovative products and deliver them to their customers.

Agile methodology, postponement tools and lean manufacturing might be combined for greater effect, forming hybrid strategies to meet the market’s volatility, responsiveness to changing priorities and demands and reduction of time to market. Leadership needs to understand how market conditions and the wider operating environment demand hybrid strategies which are context specific. Agility is a business-wide capability that embraces organizational structures, information systems, logistics processes and in particular, mindsets.

Markets today are increasingly volatile and hence less predictable and so the need for a more agile response has grown. Are you ready to build agility into your supply chain? Contact Performance Solutions by Milliken today to get started.