The case for a more agile supply chain

Recent years have seen global supply chains face growing challenges, placing them under unprecedented strain. Agile supply chains are how businesses can meet these challenges; here’s why.

Even a cursory look at the headlines we’ve seen since 2020 reveals a ‘perfect storm’ of challenges to global supply chains. The COVID-19 pandemic directly resulted in unpredictable shifts in demand, labor shortages, and bottlenecks in manufacturing and distribution.

More recently, the war in Ukraine and the sanctions on Russia have placed limitations on both the overland rail and air freight routes from China to Europe and increased the strain on Northern European ports that were already congested before the war.

All of this has created a challenging environment for any business whose supply chains span the globe, with average global shipping rates having more than quadrupled since 2019. And if that wasn’t enough, international businesses are faced with the enormous disruptive possibilities of both ongoing climate change and the strong likelihood of growing geopolitical competition between the US and China.

In the face of this complex series of interlocking threats, organizations must now put a premium on baking resilience into their supply chains. One of the best ways to achieve this is to build agile supply chains.

What is an agile supply chain?

Agile supply chain management prioritizes flexibility, adaptability and the ability to respond rapidly to changes in supply and demand in an unpredictably dynamic environment. It is based on principles that minimize vulnerability to external factors and reduce the likelihood of serious supply chain disruptions resulting from the proverbial ‘black swan’ (or ‘gray swan’) event.

Every agile strategy is unique, but they are all based on a small number of core practices. These include leveraging real-time data to both make the best decisions possible at any given moment and make forecasts of the future with as much confidence as possible, building a broad roster of contingency/backup vendors, and the inventive use of innovative inventory management solutions.

One important thing to bear in mind is that despite the fact lean and agile supply chain management strategies are often confused, the two ideas are distinct from each other.

Agile vs lean supply chain management

Lean supply chain management prioritizes efficiency over all other factors, both in terms of cost and service level. This can often come at the expense of resilience against external threats.

The classic strategies for achieving a lean supply chain include minimizing waste and redundancies through practices such as:

• Reducing contingency stockpiles
• Avoiding overproduction
• Keeping the supplier base small and avoiding duplication
• Streamlining supply chain and distribution processes

These are all clearly cost-effective strategies, but they come at the cost of a reduced ability to respond flexibly to changes in the market, whether long-term threats like climate change or short-term shocks like COVID-19. They can also result in decreased service levels due to stock-outs or delayed delivery, causing difficulties keeping up with evolving customer demands.

Resilient supply chain management is on the other end of the scale. It revolves around principles of risk-averseness and preparation but comes at an additional cost. Neither strategy is perfect, and both have strengths and weaknesses – some businesses may find that different areas of their activity require different approaches, which could lead them to develop hybrid strategies.

Agile supply chain management has a more significant overlap with resilient supply chain models than lean ones. Although agility implies lightness, which is more in line with lean principles, agile principles are more based on redundancy and forward planning.

Four components of an agile supply chain strategy

Demand forecasting

This is key to ensuring that an agile supply chain is always able to meet demand. Accurate forecasting is based on careful analysis of the various elements that affect a business’s supply chain functions, from simple variables like seasonal demand to more complex cash flow forecasting based on many variables. This allows stock to be managed in appropriate proportion to demand, capacity to be managed efficiently, and resources to be deployed where they are most needed.

Flexible inventory management

This is where inventory levels are managed in such a way that even when supply chains are under severe strain, they may bend but they do not break. In practice, this often means holding safety stocks as contingencies in case of abrupt shifts in demand like shortages of material or labor, or the severing of other links in the supply chain. Doing this successfully requires an analytical approach, combining prediction of demand and optimization of inventory distribution to ‘bake in’ flexibility.

Digital centralized workflows

To achieve flexible inventory management, it is critical to be able to communicate without friction between different nodes in the supply chain. Smooth gathering and sharing of data, surfaced via a user-friendly supply chain management platform, will enable stakeholders to better plan and monitor the transport of products and information between various points of the chain. Consolidating from internal, downstream and upstream sources can create a single source of truth that could prevent supply chain problems from becoming supply chain crises.

Robust supplier management strategy

This entails baking in ‘fail safes’ to supply chains in case of disruption – most notably by embracing back-up or redundancy manufacturing suppliers who will be able to take up the slack in case others are disrupted or otherwise cut off. This often involves full onboarding and treating each contingency supplier as a full participant, not as a ‘spare’ that would require extra work to onboard in case of a crisis.

What are the benefits of agile supply chains?

At this point, we hope the benefits of agile supply chains are becoming increasingly clear, but let’s close with a brief breakdown of the key benefits the agile strategy offers:

• Protection against supply chain disruption: Whether it’s the loss of a single supplier due to market forces or a catastrophic event affecting the entire chain, agile supply chains can adjust rapidly to accommodate any disruptions.
• Increased capacity to react to changes in supply and demand: If recent years have taught us anything, it’s that supply and demand are more than capable of radically shifting overnight in ways that are hard to predict and prepare for. Specific scenario planning for these shock events is difficult, but agile supply chains are flexible enough to respond dynamically to these challenges.
• Greater visibility over the entire supply chain: This is a benefit that does not just cover contingency planning; leveraging analytics data via a seamless and centralized digital platform enables businesses to achieve far greater visibility over their entire supply chains and as such make better decisions on how they allocate their resources.

To find out more about how you can take steps towards making your supply chain more agile to prepare for the future, contact a Taulia sales representative today