Are You Agile?
Markets shift. Can you respond? Trucks are late, and suppliers delay shipments, can you reliably deliver? If not, consider changing focus. ...build an agile value network.
To have a meaningful discussion, let's start with some definitions. Agility is the ability to deliver goods and services with the same cost, quality and levels of customer service despite demand and supply variability. It is different than responsiveness. A responsive supply chain is one with short cycles. Tightening cycles is not the same as designing for agility.
While most companies have a focus on "supply chain," and 70% of manufacturing and distribution companies have a supply chain organization, not all are focused on building value networks. Most, as shown in Figure 1, are more functional. While the supply chain group is often focused on improving internal operations, a group that is building value networks is intent on improving processes from the customer's customer to the supplier's supplier. The shift from inside-out to outside-in processes is a significant one. Building end-to-end processes requires a deliberate strategy.
Figure 1. State of Supply Chain Management
So, an agile value network is one that can adapt to absorb demand and supply volatility and deliver reliably on the business promise of cost, quality and customer service. As volatility increases in both demand and supply, this need is growing in importance. Agility requires design and a conscious choice to build new capabilities.
It is easier said than done. Where are we on this journey? Supply chains are more agile than they were five years ago, but the gap today is large. This is due to three primary shifts:
- Evolution of the Global Multinational. The interconnects of the supply chain to global operations requires greater reliability. The lanes are longer, and more variable.
- Rise of Demand and Supply Volatility. The lengthening of product profiles has increased the long tail of fulfillment, resulting in more variable and lumpier demand. For example, today in consumer products, the number of items increased 30% over the course of the last six years. In the same time frame, shipments rose 2%. Average sales per item fell 22%. Today, 50% of items only contribute 1% of sales.
- Design of Buffers. The supply chain has two primary buffers: inventory and manufacturing. As manufacturing is outsourced, inventory becomes the primary buffer. Additionally, as companies fully utilize their assets and improve ROA, inventory, as a buffer, increases. As a result, there needs to be a shift from just a focus on inventory levels to designing the form and function of inventory.
These three factors have driven major shifts. As a result, as shown in Figure 2, the gap is large. The difference--between what companies would like, and what they have today--is large.
Figure 2. Gap in Agility
Traditionally, agility has been improved by focusing on supply chain excecution (order management, warehouse management and transportation planning). Historically, transportation planning and Lean manufacturing improved agility (as shown in Figure 3). However, for most, these techniques have been fully utilized.
Agility must be designed and carefully implemented. Why? The agile supply chain is quite different from the traditional focus on the efficient supply chain. While the efficient supply chain minimizes costs, the agile supply chain drives a more balanced response in the face of volatility.
To do this, today, companies are building outside-in processes and using channel data to sense demand while building strong Sales and Operations Planning (S&OP) Processes. To do this well, companies need to drive alignment between the traditional supply chain functions to build value networks. This requires the development of influence skills and building an operating strategy to drive alignment. This is easier said than done; but, as shown in Figure 3, critically important.
Figure 3. Agility Techniques
What do you think? Any insights to share on building the agile supply chain? Is it important to you?
Image sourced from shutterstock
Founder at Supply Chain Insights
10 年Writing a report on this that I will post next week
Supply Chain - Solution Consulting and Customer Success
10 年I use it synonymously with decoupling point (push-pull boundary) which could be within the order, manufacturing or distribution process. Any defined point at which an allocation order, or updated instructions inform the downstream processes. Ideally this is against cycle-stock in process or in-transit, not safety stock. I'd probably consider safety stock/buffer stock as a buffer against variability and demand uncertainty, but not a "response buffer" in the context of designing agility into the normal "cycle-stock" process. There may be a formal definition within LSS, or other categorizations out there, but this is how I break it down.
Managing Applications Consultant at Capgemini USA
10 年'Response Buffers'...what are these? How is it different from safety stock?
Supply Chain - Solution Consulting and Customer Success
10 年...Regarding the Design of Buffers, I'd also expand on the distribution of inventory as a key element of Agility - things like being able to allocate inventory while in-transit, shifting consolidation and deconsolidation points, merge-in-transit, store as DC, etc. There are a lot of helpful concepts started here and I'm interested to see some clarity around Figure 3 and the distinction of Response Buffers and Agility Techniques. Agility should assume the shifting within and between these buffers and techniques, such as postponement within distribution or manufacturing; or within BTS, changing those stocking locations, and adding direct ship; also shifting modes and service strings to align with the product lifecycle and margin/service strategy. I'll have to keep thinking through this. Thanks again Lora. I look forward to your continued insights.
Supply Chain - Solution Consulting and Customer Success
10 年Thanks Lora for starting this much needed discussion. "Agility" has a lot of ambiguity and ubiquity in supply chain marketing, so some consensus, concrete examples and frameworks will serve us well. I think of "Responsiveness" as an ability (capability and means) of the people, processes and tools to sense and make changes while managing variability, disruptions and shifts in business goals. This could be measured in a "when did you know? what could you do about it?" framework. The range and success of the options available depend on the "Agility" of the Supply Chain, which I think of as the "designed-in" "state-of-being" of the physical network and processes across partners. This attribute and capability of Agility (the means) make it possible to be responsive, to make changes, while minimizing impacts to timelines, costs and service. In simplistic terms, Agility could be defined as "the ability to make changes quickly to meet specific goals, while minimizing negative impacts." The purpose, and how and why, will differ by industry and company. For example, we may not want to maintain costs and service at current levels, and agility is what helps make these shifts...