Supply Chain Agility: A Complete Introductory Guide

by Vector | Dec 25, 2020 11:52:00 AM

Supply-Chain-Agility"Only supply chains that are agile, adaptable, and aligned provide companies with sustainable competitive advantage."Hau L. Lee, "The Triple-A Supply Chain," Harvard Business Review, 2004

Supply chain agility: what does it mean? Let's cover the basics first. Dictionary.com defines the word agility first in terms of physicality by calling it, "the power of moving quickly and easily; nimbleness." It then defines agility as an attribute of one's mind in terms of "the ability to think and draw conclusions quickly; intellectual acuity."

But there's a third definition that we'll discuss today. We're talking about supply chain agility. Like physical or mental agility, companies with supply chain agility exhibit a certain quickness, ease, and intelligence. According to Lee's famous Harvard Business Review article from 2004, having an agile supply chain is one of the three core tenets that sustain a company's competitive advantage. 

In this article, we'll investigate supply chain agility. First of all, what does that term really mean? Further, what are the core benefits and theoretical tradeoffs of supply chain agility? Next, we'll look at ways to achieve supply chain agility in the real world. And finally, we'll look at whether Lee's "Triple-A" hypothesis from 2004 still provides sustainable competitive advantage in the face of today's supply chain challenges.

After all, the world has changed drastically since the freewheelin' days of the early aughts. But on the other hand, there's the old saying, "The more things change, the more things stay the same."

The Definition of Supply Chain Agility

"Great supply chains are agile. They react speedily to sudden changes in demand or supply."—Hau L. Lee, 2004

Supply chain agility is the smooth, quick, and nimble response to a shock or disruption to supply or demand.

Another way of putting it, according to Redwood Logistics, is, "The agile supply chain focuses on flexibility and receptiveness. It responds quickly to changes in demand, customer preference, and industry. It’s made to handle unpredictability in the market."

In other words, supply chain agility is like Achilles on the battlefield. It easily reacts to whatever is thrown at it. 

The Patron Saint of Supply Chain Agility: Achilles

Speaking of 2004, when I think of agility in general, for some reason I picture Achilles (played by Brad Pitt) in the 2004 movie Troy. According to Greek myth, Achilles faces off against a giant in a duel that decides the entire battle between the two armies. Spoiler alert: Achilles defeats the giant, and it's because of his incredible agility.

The giant is a massive, towering hulk of a figure. Meanwhile, Achilles is smaller, but he's more athletic and agile. Indeed, with complete confidence, Achilles runs straight at the giant. He easily dodges a couple of spears. And then, with perfect timing, Achilles leaps and twists in midair. He looks like a basketball player taking flight.

But instead of a ball, Achilles' sword goes straight into the target...and with deadly accuracy. The giant staggers and falls. Let us all be so efficient. And also—let us never forget we may have an Achilles' heel!

What Are the Key Attributes of an Agile Supply Chain?

An agile supply chain allows a company to produce less inventory. And less inventory means less capital is gathering dust stored on shelves in warehouses. An agile supply chain is identifiable based on the following attributes, and it depends on how you answer the following questions:

  1. Speed: How quickly does a supply chain bring goods to market?
  2. Productivity: What is the overall throughput of a supply chain?
  3. Responsiveness: How quickly does a supply chain respond to demand, trends, or market movements?
  4. Flexibility: Is the infrastructure in place to make rapid adaptations?
  5. Cost Effectiveness: Are the supply chain solutions cost effective?
  6. Visibility: What tools are people and teams using across the supply chain to achieve agility?

What's at Stake With Supply Chain Agility?

Depending on your industry, maybe everything. Quickness and agility are vital attributes of the contemporary supply chain. This is because customer needs, wants, and trends can change relatively quickly.

For example, let's think about footwear trends. When consumers have capital to spend, tastes and the desire for options create a lightning rate of turnover for shoe manufacturers to contend with.

Footwear supply chains require agility to service the vast number of sub-niches. For starters, one customer might wear a size six and a half, and another customer might wear a size 10. Next, how many different categories of footwear are there? Within each category of shoe, you'll find numerous options, sub-niches, and color combinations. All these options need the support of an agile supply chain. As you can imagine, an agile supply chain still involves forecasting. But the forecasting remains more fluid and open to real-time data.

Missing out on the next big thing is bad for business. Being out of stock is bad for business. Getting blindsided by the next once-in-a-lifetime event is bad for business. In short, supply chain agility helps you avoid the things that are bad for business. How does it all work?

Contingency Strategies to Make Your Supply Chain More Agile

"Never let a crisis go to waste."—Winston Churchill

There's clearly an opportunity for the logistics industry to learn valuable lessons from the COVID-19 pandemic. The greater logistics industry is full of niches, yet it all works together. That means it's possible to improve agility up and down the supply chain. Here are strategies for how to make a supply chain more agile to avoid disruption.

  • Contingency strategies: Companies should consider developing backup plans to help avoid long or uncertain lead times. That can mean establishing two sources for raw material, sub-components, or product. For example, the price you're quoted for a sub-component part might be more expensive from a local supplier compared to an overseas supplier. But consider the cost of a supply chain disruption at the "black swan" level—in other words, a disruption that is unlikely but potentially serious. It might make sense to use a local supplier and an overseas supplier. Sure, you might pay a premium to buy local in the short term. But your risk mitigation portfolio will be more robust. Beware the Achilles' heel!
  • Creating a safety stock: This is a time-honored way for businesses to react to a spike in demand or disruption to supply. Think like a prepper. Keep a safety stock in reserve. Yes, it costs more up front. It also costs more to carry inventory. Yes, you run the risk of items becoming obsolete. So be wise about which safety stock you keep. Maybe it's just raw material to help mitigate the risk of a future tariff or natural disaster.
  • Visibility: As the supply chain gets more complex, a collaborative environment between suppliers, customers, and warehouses can create a more agile supply chain. Something as simple as establishing a system that uses advanced shipping notices (ASNs) can improve real-time reactivity and agility every day.

Modified Technology Strategies

This is a big one. Technology drives supply chain agility. Indeed, the two previous strategies would be easier to deploy with superior data analytics. Tech provides a measurable impact on agility in these areas:

  • e-Signature: Switching to electronic signatures for BOLs and other digitized paperwork is a double-hitter. It lessens the risk of spreading germs, and it increases the rapidity of checkins and checkouts for drivers. Apps are already on the market with this technology, with the prime example being Vector.
  • Paperless: In general, getting away from paper and using digitized document software creates a more agile supply chain.
  • Warehouse optimization: Tech helps you allocate resources and programs in order to use assets, space, time, and personnel better.
  • Optimized (and alternative) routing for drivers: This will make you agile today. Many tools use real-time GPS and traffic data to help drivers avoid costly bottlenecks and slowdown events.
  • Driver workflow tools: Someone once said, "You are what you do every day." Little bottlenecks might seem like the nature of the business, but I assure you, there's a better way. Your agile future could lay within reach with a simple digitized process improvement tool such as Vector.
  • Big Data and AI: The supply chain is evolving in several ways in order to become more agile. Big data and even artificial intelligence will continue to remove friction from certain stops along the way.
  • Blockchain and smart contracts: Another significant upgrade in agility could come in the form of blockchain. When blockchain integrates with bills of lading, the smart contracts of the former will bolster the latter. When the entire supply chain shares the common visibility blockchain can provide, the result will be a systemwide gain in efficiency.

Keep the Customers Happy

Lack of supply chain agility can result in unhappy customers, decreased market share, reduced profits, lower stock price, and overall underperformance of business. In other words, when your customer is unhappy, they tend to not stay your customer. If you can't keep up on the basketball court, you're washed up. If you can't keep up on the battlefield? Well, you get the idea!

The key concept is that the Henry Ford days are long gone. Yes, Ford invented the assembly line and revolutionized manufacturing. But he also said, "You can have any color car you want, as long as it's black." His assembly line wasn't agile. But over time, customer demand for options drove—and continues to drive—innovation.

So, let's craft our future by learning from our past. And let's all raise a glass to Achilles (patron saint of supply chain agility). Be quick, be efficient—and slay giants!

This post was written by Brian Deines. Brian believes that every day is a referendum on a brand’s relevance, and he’s excited to bring that kind of thinking to the world of modern manufacturing and logistics. He deploys a full-stack of business development, sales, and marketing tools built through years of work in the logistics, packaging, and tier-1 part supply industries serving a customer base comprised of Fortune 1000 OEMs.

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