Fast, flexible, and competitive responses to market change.
Increasingly volatile and unpredictable variations in order volume and product mix have become the norm. Yet customers expect every order to be fulfilled on time every time and are no longer willing to wait for orders held up by stockouts. Covering demand peaks with higher inventory levels is a common way to prevent stock shortages, but that ties up cash and space, and increases the risk of losses due to obsolescence and damage.
An agile and responsive supply chain is able to shrink lead time, allowing companies to replenish stock faster, which means they can keep less on hand and still avoid shortages. In an agile supply chain, suppliers within it can respond to changes fast because manufacturing scheduling is more flexible and their agile suppliers can respond to their material requirements too.
An agile supply chain, according to Dr. Martin Christopher of the Cranfield School of Management, has four hallmarks:
Market sensitivity: The supply chain can sense and respond to actual demand rather than to a forecasted rate of consumption. In forecast-based systems, production scheduling, inventory levels and purchasing of materials are based on past sales data and demand estimates made weeks or months beforehand. Plans rarely match up with actual customer orders. In an agile supply chain, demand signals from the customer give early warning of actual orders. The supplier can change production scheduling accordingly and relay their new plans upstream to alert their own suppliers.
Virtual: Until recently, complicated inventory optimization algorithms drove each company's planning and manufacturing systems. Companies and suppliers ran on their own material supply and production systems that did not mesh well with each other. Now that supply chain partners can be connected in a virtual space and share real-time demand data, operations based on intrinsically distorted inventory predictions are no longer necessary. New IT solutions and the Internet make that possible. The benefit is more accurate planning and shorter lead times between supply chain partners, reducing waste and increasing profitability.
Integrated processes: Sharing operational and planning data effectively requires integrated supply chain systems and processes that seamlessly work together. People up and down the supply chain must also work collaboratively, sometimes even including joint product development. As processes and people integrate and collaborate, the whole can become greater than the sum of its parts.
Competitive networks: Linking many agile companies together tends to create a whole supply network with higher efficiency, faster speed and better customer satisfaction. Christopher says: "We are now entering the era of network competition where the prizes will go to those organizations who can better structure, co-ordinate and manage the relationships with their partners in a network committed to better, closer and more agile relationships with their final customers."
It is a long process to move past adversarial or impersonal supplier relationships and evolve into a fully integrated competitive network. As your competitors develop their agile supply networks, however, you need to forge ahead with yours.
Dr. Martin Christopher is Emeritus Professor of Marketing and Logistics and chairs the Advisory Board of the Centre for Logistics and Supply Chain Management at Cranfield University School of Management, Bedford, UK.
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