The pandemic has provided a powerful reminder of just how unpredictable patterns of supply and demand can be. Customers across the business landscape now expect a rapid, demand-driven approach to order fulfilment. Paul Cooper, consulting director, explains why building agility into supply chains has never been more important.
1. Why is it important to focus on supply chain agility now?
During the pandemic, manufacturers across a range of sectors have experienced shocks across their supply chains – from sudden spikes in demand to it dropping to zero overnight. Even the most established consumer-driven companies have struggled to keep pace, leading to stock shortages; who can forget the weeks of empty supermarket shelves?
In recent years, the way in which customers interact with products and services has changed dramatically. While many retailers have been making use of omni-channels for some time, customers in the manufacturing sector are now expecting the same level of close-coupled service. This is forcing manufacturers to react by introducing seamless next-day order fulfilment, enabled by fully-integrated digital supply chains.
To successfully adapt to this new ‘demand-driven’ requirement, businesses must also harness sophisticated demand planning and inventory management tools, along with a highly flexible production and replenishment model. This will help them to strike a perfect balance between delivering a speedy and reliable customer service, while minimising inventory and optimising efficiency.
2. How can businesses make sure their supply chains remain agile on an ongoing basis?
A multiple sourcing strategy can help businesses to inject greater agility into their supply chain. This approach enables them to rapidly switch between suppliers, ensuring a continuous flow of goods in the event of supply chain disruption. For example, a business with suppliers in both China and India could switch between the two in response to the evolving global impact of the pandemic.
No matter how accurate a forecast is, it will never be 100% reliable…it’s primary purpose is part of the Sales and Operations Planning (S&OP) process to ‘condition’ the supply chain and allow the business to then execute and fulfil demand. To achieve true agility, a business needs a flexible supplier network, rapidly scalable and easily configurable operational footprint, all supported and bolstered by digital technology. In turn, this will enable a business to rapidly pivot its supply chain in response to real-time changes in customer demand and to effectively respond to macro shocks, such as Covid-19.
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3. Are there any challenges to overcome when building in agility?
An important step on the journey to an agile supply chain is the creation of a flexible operating model, capable of adjusting to new products, small batch sizes and rapid product changeovers. This requires suppliers, partners, manufacturing, distribution and logistics to work closely together, synchronised with customer demand.
To respond effectively to fast-changing customer demand, rapid decision-making is vital. To achieve this, the supply chain must be fully integrated, from customer to supplier, in order to share real-time demand signals and implement fast feedback loops. Data accuracy is key here, otherwise businesses are effectively flying blind. A number of emerging software tools can dramatically improve the accuracy of demand forecasting. Demand ‘sensing’ uses leading indicators and actual data direct from point-of-sale and other customer touch points, to get closer to the customer and detect “noise” on a daily basis, helping determine key customer buying patterns. With more accurate and real-time insight on customer demand, businesses can plan and schedule key activities in production and logistics, whilst at the same time minimising the cost of inventory.
4. What are the key strategic benefits of building in agility?
While increased supply chain agility can help to drive top-line growth, support the retention of customers and support growth of market share, it also has tangible structural and operational benefits.
Through a process of transformation, businesses can improve their management of complex and global supply chains. For example, this can enable them to share manufacturing assets and capacity with other geographies, collaborate with third-party manufacturers and logistics providers, and manage system-wide inventories and capacities.
Similarly, businesses with agile supply chains can better manage product line complexity – for example, allowing the product mix to flex, in line with changes in demand. Increased agility also enables businesses to respond to shorter product lifecycles, driving revenue growth through shorter lead times, a faster time to market and less inventory obsolescence in the supply chain.
Agile supply chains also support businesses in leveraging omni-channel distribution and sales channels, allowing on-time-in-full (OTIF) deliveries at the lowest possible cost.
5. What’s involved in building an agile supply chain?
When building agility into their supply chains, businesses must ensure that they are fully aligned with corporate strategy. This should include integration with customer-facing functions and KPIs that drive customer service. In order to mitigate shocks, supply chains should also be structured using flexible ‘glocal’ operating models, that consider a mixture of global and local solutions.
Steps should also be taken to enhance visibility of customer demand across the supply chain. Real-time data lies at the heart of a truly agile supply chain, feeding decisions such as what to produce, in what quantity, how to store it and when to deliver. For this reason, forecasting and demand planning must be able to effectively predict future demand.
Businesses should get as close to their customers as possible to understand demand patterns and condition the supply chain accordingly. For example, not every customer demands ‘next day delivery’. Understanding what customers really value will enable businesses to segment supply chains by customer need, and set them up to seamlessly deliver.
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