Agility in supply chain

For companies to succeed in today’s volatile world, it is imperative that their supply chains are agile in fulfilling the ever-changing consumer demand. While a lot has been written about agility, it’s time we define it in simple terms and list the specific actions required to improve it.

In my opinion, there are three dimensions on which companies need to work continuously to improve their agility.

1. Flow of value to consumers

Companies generate value through their products and services. The value thus generated should flow to consumers in a speedy manner without any loss. However, empirical evidence suggests that a lot of value is lost due to poor execution. Do we really know how much value is actually lost in the whole system?

It’s true that value loss is quite difficult to quantify, hence rarely measured in practice. I have seen firms struggle to put the measurement system in place before undertaking agility projects. In my opinion, if a company is starting on its agility journey, it’s not a must to put the measurement system in place on day one. What’s more important is to understand the factors which lead to loss in value and work on eliminating them.

Let me give you a few examples. One of the main factors for loss in value is sub-standard quality of products and services, which results in discounted products. We also see delays in material flow and excess inventory in warehouses. This leads to loss in freshness, a parameter very important to consumers but unfortunately, it’s not given much importance by FMCG companies. Supply chains which run on forecast often have inventory at wrong places leading to either additional freight or obsolescence. The biggest value loss, however, is non-availability of products at the time of purchase resulting in sales loss.

2. Flexibility

Fulfilling the twin objective of high availability and high freshness requires us to be flexible in the entire value chain from vendors to consumers. While flexibility is desired by all companies, this important parameter often remains only on paper in absence of specific action points. We must spell out the areas where flexibility will add definite value.

The function closest to consumers is logistics and distribution. It’s important to design the distribution network for inherent flexibility. We need flexibility in routes, vehicle capacities as well as number of vehicles plying on each lane. Rigidity in any of these parameters would result in sub-optimal customer service, loss in sales and poor freshness.

Agile companies run their production lines in an effective and flexible manner. Production schedules should accommodate frequent changes to align them to demand variations in a dynamic manner. Gone are the days when production plans used to be locked for the next 5 to 7 days. If demand signals warrant it, we should change the schedule on the same day or the very next day at least. We should also build flexibility in the production batch size to release useful production capacity and avoid excess inventory.

Similarly, vendors should be flexible in terms of their delivery schedule and batch quantity to synchronise their dispatches with demand fluctuations. Building this flexibility requires high level of cooperation and trust between the company and its vendors.

Improving flexibility is an ongoing process to help the organisation get more agile over time.

3. Fast response

Consumer demand for various products will continue to be dynamic and unpredictable. As new demand signals emerge on a daily basis, firms should capture the demand quickly and fulfil it in a speedy manner. This requires a superfast and concurrent response across the entire value chain.

If demand in a particular geography goes up steeply, how long does the firm take in rushing additional supplies through the relevant portion of the distribution network, stepping up production and getting more materials from its vendors? We must design the supply chain in such a manner that all these actions are undertaken simultaneously in a smooth manner without causing chaos in the system.

Whatever be the current response time for a company, it’s definitely possible to improve it in a systematic way.

These three dimensions must be improved on an ongoing basis for companies to improve their agility. The science of agility improvement is simple, but execution actually holds the key.

What’s holding you back on your agility journey? Start it today.