Oct 5, 2020 | 3 min read

Digital Industry Insight #34

Balancing Speed & Risk - The Quest for Supply Chain Agility

What is agility and why is it important for a supply chain? Agility means being able to move quickly and nimbly with resourcefulness.

An agile supply chain can create competitive advantage, while enabling a business to recover from disruptions and adapt to rapid changes in the market. Having an agile supply chain can enable businesses to quickly ramp up or scale down production, launch new products ahead of the competition, change the destination of products rapidly, incorporate changes to products based on market feedback, and discontinue products with minimum negative financial impact. The benefit of having an agile supply chains is the ability to quickly respond to market changes, while ameliorating negative financial impact. 

The need for agility in the supply chain has been no more apparent than in the wake of COVID-19 pandemic disruption, which resulted in wild swings in demand for different products. According to analysis by McKinsey, variation in demand for consumer products was most prominent. In March 2020, Nielsen data indicated a 76% increase in household supplies like laundry and paper products but a 36% drop in cell phone accessories. The Metapack Home Delivery Volume Index saw a 60% increase in parcel demand between March and June 2020. Given the data anomalies from broad demand swings and continuing uncertainty based on lingering pandemic impact, future prediction of demand patterns based on historical data become increasingly challenging, so the value of agility becomes even greater.

Supply chain agility is about speed, how to respond rapidly to external changes in the market environment, customer preferences, competitive dynamics and other forces. The challenge comes in squaring traditional sales and operations planning, (which typically take place within established cadences, organizational structures, networks of suppliers and logistics providers) with the need to accommodate rapid changes in supply/demand, supplier availability, geographic preferences and logistical constraints. These are a few of the challenges that businesses face:

  • How to create the ability to quickly switch suppliers given differences in pricing, contract terms, product quality, lead time and the supplier’s own constraints?
  • How to balance the need to operate at maximum efficiency on a day-to-day basis, while keeping flexibility on hand to respond quickly to unforeseen disruption?
  • How to embrace the principles of an agile supply chain throughout the organization so that sales, management and operations can proceed with their own mandates while preserving the ability to change course quickly and with minimum financial impact?

To solve for supply chain agility, traditional approach to sales and operational planning needs to evolve to include continuous mid-cycle adjustments, which will enable the business to achieve an acceptable balance of efficiency, flexibility, cost management and risk containment. 

 

Want to hear more about the latest trends in Supply Chain?

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