Agile Supply Chain: A Guide

As markets have become more dynamic and companies contend with shorter product cycles and volatile demand patterns, an agile supply chain is increasingly important. Without agility, supply operations often struggle to keep pace, as many aren’t sufficiently agile to capture fleeting upside opportunities or to mitigate fast-moving risks.

Why is Agility Important?

Supply chain agility refers to how quickly and efficiently an ecommerce supply chain can react to changes in the market and customer demand. It also relates to the ability to anticipate, resist, and bounce back from unexpected, disruptive events.

An agile supply chain is imperative in a time when customer loyalty is no longer a given. During the COVID-19 pandemic, for example, 77% of US consumers changed stores, brands, or the way they shop. Much of that change was driven by necessity. People went online when they couldn’t access their regular stores, and two-thirds said that lack of availability was the primary reason for switching brands. Without a doubt, the big winners of the crisis were companies that could keep products flowing to their customers in a difficult operating environment.

An example of agile supply chain win during the pandemic’s early stages is from sportswear giant Nike. Nike accelerated a supply chain technology program that used radio frequency identification (RFID) technology to track products flowing through outsourced manufacturing operations. The company also used predictive-demand analytics to minimize the impact of store closures across China. By rerouting inventory from in-store to digital-sales channels and acting early to minimize excess inventory buildup across its network, Nike was able to limit sales declines in the region to just five percent. Over the same period, major competitors suffered much more significant drops in sales.

Agile Supply Chain Example

Supply chains have always been vulnerable to disruption, but it’s preparedness and agility which keeps organizations afloat. An example of an agile supply chain is Toyota, which in 2011, suffered six months of reduced production following the devastating Tohoku earthquake and tsunami. But the carmaker revamped its production strategy, regionalized supply chains, and addressed supplier vulnerabilities. When another major earthquake hit Japan in April 2016, Toyota was able to resume production after just two weeks.

What is an Agile Supply Chain?

The term “agile supply chain” at its core is the capability of an organization and its supply chain partners to ‘adapt and respond’ to the changes in its business environment, whether they are opportunities or threats, expected or unexpected, in a timely manner.

An agile supply chain represents the enterprise’s readiness to meet changes in the face of increasing demand volatility. That nimbleness results in better customer response time and ultimately, competitive advantage.

An agile supply chain is especially useful for companies that manufacture products under unique specifications for each customer or a “make to order” process. This is typically seen in industries that are characterized by unpredictable demand. But for all manufacturers, it’s all about enabling visibility of the supply chain from end-to-end.

Elements of an Agile Supply Chain

The four key elements of a resilient and agile supply chain include:

• Demand forecasting
• Flexible inventory management
• Digital centralized workflows
• Robust supplier management strategy

How to Create an Agile Supply Chain in Six Steps

You’ve read about all the basics of an agile supply chain, but how do you create one? Here are six steps.

1. Risk assessment

The first step to building a resilient and agile supply chain is to identify and assess the potential sources of disruption, their likelihood, and their impact. This involves mapping the supply chain network, analyzing the dependencies and vulnerabilities, and evaluating the capabilities and capacities of suppliers, partners, and customers. A risk assessment can help you prioritize the most critical and exposed areas and develop mitigation and contingency plans.

2. Visibility and collaboration

The second element of a resilient and agile supply chain is to have visibility and collaboration across the entire network. This means having real-time data and information on the status, location, and movement of inventory, orders, and shipments, as well as the availability and performance of suppliers, partners, and customers. Visibility and collaboration can help you monitor and anticipate changes, communicate, and coordinate actions, and optimize resources and decisions.

3. Flexibility and diversification

The third element of a resilient and agile supply chain is to have flexibility and diversification in the design and operation of the network. This means having multiple options and alternatives for sourcing, production, distribution, and delivery, as well as the ability to switch or adjust them quickly and efficiently. Flexibility and diversification can help you reduce the dependence and exposure to single points of failure, leverage the comparative advantages and synergies of different locations and partners, and meet the changing needs and preferences of customers.

4. Innovation and learning

The fourth element of a resilient and agile supply chain is to have innovation and learning as part of the culture and strategy of the network. This means having a continuous improvement mindset, a willingness to experiment and adopt new technologies and practices, and a feedback loop to capture and share the lessons learned from disruptions and successes. Innovation and learning can help you enhance the efficiency and effectiveness of the supply chain, create value and differentiation for customers, and prepare for future challenges and opportunities.

5. Sustainability and responsibility

The fifth element of a resilient and agile supply chain is to have sustainability and responsibility as part of the vision and values of the network. This means having a commitment to minimize the environmental and social impacts of the supply chain, to comply with the ethical and legal standards of the industry and the society, and to contribute to the well-being and development of the stakeholders and the communities. Sustainability and responsibility can help you build trust and reputation, foster loyalty, and engagement, and create a positive impact on the world.

6. Leadership and governance

The sixth element of a resilient and agile supply chain is to have leadership and governance as part of the structure and function of the network. This means having a clear vision and direction, a coherent and aligned strategy, a strong and supportive culture, and an effective and accountable organization. Leadership and governance can help you mobilize and empower the people, resources, and capabilities of the supply chain, coordinate and align the actions and objectives of the network and monitor and evaluate the performance and outcomes of the supply chain.

Difference Between a Lean and an Agile Supply Chain

You’ve heard about lean supply chain management for your entire career. What is the difference between the lean supply chains you’ve heard about and an agile supply chain? The difference between lean and agile is the fluidity with the response to the market. A lean supply chain focuses on cutting costs by producing high volumes of products with low variability. An agile supply chain focuses on responding to the market demand with smaller, customizable batches of items. Often a lean supply chain is more cost-effective and predictable, while an agile supply chain is more flexible and adaptable.

The Benefits of Agile Supply Chain Management

An agile supply chain allows companies to better control the production of goods and materials for customer demand and prioritize resources for significant orders. There are a huge range of benefits to an agile supply chain, including:

• Increased flexibility and demand-driven planning allows 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.
• Increased flexibility allows agile supply chains to be more responsive and resilient to sudden changes.
• Agile supply chains can help reduce costs by reducing waste and improving efficiency.
• Agile supply chains can help improve customer satisfaction by providing faster delivery times and better-quality products.

Modernizing IT Systems is Key

Modernizing IT systems can make supply chains more resilient and efficient. However, despite the advantages that modern supply-chain-planning IT systems offer, an overwhelming majority of enterprises still use manual or outdated methods. Close to three-quarters of supply-chain functions rely on the simplest method: spreadsheets.

According to Deloitte, rapidly advancing technologies such as cloud computing, 5G, the industrial Internet of Things, and artificial intelligence are driving the digitization of supply chains, increasingly leveraging information over assets. Organizations seeking to up their agility quotient often run aground because of an inability to share information easily and quickly across the organization. This same constraint is even more challenging when sharing information across entities in the extended supply chain. That’s why agile supply chains monitor the timeliness of information and the percentage of data where they have real-time—or even better, right-time—visibility and access. They also focus on the richness and integrity of this information as agile supply chain excellence is driven by accurate data and enriched signals.

Whether you’re looking to build on existing automation capabilities in your agile supply chain, level up your AI insights, or you’re just starting your transformation journey, Velosio can help.