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Building truly agile supply chains

Consumers want what they want, when they want it. That’s no secret, and it’s nothing new. But what they want, and how much of it, can change quickly. The status quo in a global economy can change quickly. If the last few years have taught us anything, it’s that change is constant, and it is everywhere. To stay on top of trends and be one step ahead of the competition, organizations need to build truly agile supply chains. These are chains that can respond quickly to sudden changes in supply and demand, reduce waste, and are flexible without forsaking cost-effectiveness and productivity. They figure out what customers want almost as quickly as the customers themselves do, and they have backup plans in case some problem rears up to disrupt them. Most importantly, they learn and adapt over time, knowing that the next big change is always right around the corner.

Agile Supply Chain Benefits

There are myriad benefits for businesses forging agile supply chains. For starters, they can boost operational efficiency and productivity while lowering inventory carrying costs and waste. They help build better relationships with suppliers by involving them in decisions and aligning goals throughout an entire network. They build better relationships with customers by delivering consistently without long lead times or unexpected delays. Getting the right goods to market fast engenders brand loyalty from customers. All that adds up to increased margins since companies with agile supply chains can take advantage of short profit windows and constantly evolve to changing customer tastes without having to dump excess and unwanted inventory.

Agile supply chains give companies visibility into every link in the chain, from raw materials to the finished product. Knowing where components are, in what quantity, and how long they’ll take to arrive empowers organizations to make adjustments on the fly.

“The increased visibility and shared chain responsibility enable all supply chain stakeholders to make continual efficiency improvements and, when necessary, outsource supply chain segments to cost-effective third-party logistics providers, resulting in lower costs,” advises Aavenir, which delivers SaaS products to customers globally on the ServiceNow platform.

With real-time data at their fingertips, organizations can foresee potential problems such as bottlenecks, and deal with them before they become major headaches. In an interview with BOSS, ServiceNow field CIO for manufacturing Rachel Trombetta detailed how a truck her husband bought took a year to arrive because a seat supplier went out of business. An agile supply chain with better visibility could have pivoted quickly to fulfill a customer’s need much sooner.

“If you had a way to interact with their suppliers and the suppliers told you and whoever is doing that supply chain, buying, and purchasing, ‘I can’t make this vehicle; this is going to impact cash. Let me reach out to the customer and find out if what the supplier has said is valuable or if it can be replaced with something else that would have improved the cycle time and their free cash flow.’”

Agile vs. Lean

There is certainly some overlap between lean and agile supply chains. Both seek to reduce inefficiencies and be cost-effective. Both are concerned with cutting waste and continuous improvement. Where they differ is in their perception of what long-term efficiency means. Lean supply chains strive to keep minimal inventory on hand (the just-in-time manufacturing model), as few suppliers as possible, and minimal redundancies.

While agile supply chains also strive to keep work-in-progress inventory low, they take advantage of information gleaned from AI and machine learning to be able to ramp up inventory quickly if necessary. The lean approach keeps costs down until that is, a disruption leads to a shortage of some item that breaks the whole chain. This is where agile supply chains’ focus on flexibility enables organizations to respond rapidly to sudden changes in ways lean systems can’t. With agile systems, there’s always a backup plan, even it creates redundancies and higher costs in the short term.

Organizations are realizing that focusing only on cost is a dangerous game to play, Institute for Supply Management chief product officer Susan Marty told BOSS, and that key revenue drivers are really what’s important even if they’re more expensive up front.

“Cost cannot be the only lever you pull. If it is, you’re probably going to create a little bit of chaos,” she said. “I think that’s also really opened up a different perspective about the goals and the KPIs that leaders have in supply chain.”

Thanks to better visibility provided by technologies such as AI and ML, lean and agile systems can mesh together much more harmoniously than they did in the past.

Setting Up the System

The benefits to organizations that set up agile supply chains are clear. It’s the going about establishing that agility that can be tricky. The first step is reviewing your current setup. What systems and processes do you have in place? How well do you understand the various links in your supply chain? Do you have comprehensive and accurate data, or is it all out of date and separated into silos?

If you need help organizing your data better so you can peer deeper into the inner workings of your supply chain, digital platforms like ServiceNow’s and DFreight’s can provide those solutions in real time. Now only does that lend visibility into the chain, it enables organizations to make accurate demand forecasts so they know how much to procure, how much inventory to keep on hand, and where key resources need to be allocated.

With a better understanding of what they’ll need and when, organizations can then find the right suppliers who can help them meet demand, making them full partners and fostering symbiotic relationships. Partners like Fastenal, with its proprietary managed inventory platform, can add needed agility to a supply chain.

These digital platforms also make it easier to manage inventory and communicate across the supply chain, moving contingency stocks quickly and seamlessly when there are sudden shifts in supply (such as materials shortages) or demand (such as a better-than-expected product launch).

This knowledge and these partnerships assist in the development of new systems and processes that are still efficient but also responsive to change. While those new processes should improve things, they shouldn’t be set in stone. Agile supply chains always have a backup plan, one they can implement without hesitation when the need arises. And they are constantly reassessing performance and making adjustments to keep getting better. Whatever the world throws at them, agile supply chains bounce back.