As global supply chains become increasingly complex and customer demand grows more volatile, companies across all industries are facing inventory challenges. To overcome these challenges, businesses must ensure they can provide continuous, uninterrupted supply. Why? Because interruptions to supply can have long-lasting effects. Inventory shortages often freeze operations and even cause shutdowns—costing companies their profits and public image.
To avoid potential shortages, many enterprises overstock. They order excess inventory in case of an emergency and pay the price of extra warehouse space. Unfortunately, this strategy effectively stalls functional capital and can actually hurt returns on equity and assets. For example, big box stores like Walmart and Target faced a glut of inventory after the pandemic. Products like air fryers, TVs, and kitchen appliances—which sold well during the pandemic—sat on shelves in 2022 because companies overestimated the shift in demand.
So, what can companies do?
Many companies are turning to agile supply chain processes. In a volatile supplier market driven by uncertainties and risks, companies are opting for systems that lead to more effective supply chain management—instead of simply stockpiling supplies. In this blog, we’ll discuss the characteristics of agile supply chains. Then, we’ll look at six crucial principles you should consider when developing an agile supply chain for your business.
What is Agile Supply Chain Management?
When describing an agile supply chain, it is helpful to compare it to the more traditional lean supply chain. Let’s look at the difference between lean supply chains and agile supply chains.
Lean supply chains and lean manufacturing primarily focus on trimming “fat”—or excess inventory and cost—wherever possible. This usually looks like manufacturing at a high volume while aiming for the lowest costs to add more value for customers. This type of supply chain management relies on predictability and consistency. The pandemic revealed the weaknesses that come with this type of lean, cost-optimized supply chain: it’s a lot harder to pivot when production is planned months and years in advance.
Agile supply chains, on the other hand, are characterized by flexibility and resiliency. This type of supply chain aims to report rapidly to unexpected changes while maintaining consistent customer service levels, service level agreements, liquidity, and cost structures. Instead of blindly planning ahead, agile supply chains rely on up-to-date data to ensure there is enough demand for products before manufacturing goods.
A key factor in creating agile supply chains is strong relationships with partners throughout the supply chain. Businesses alone cannot achieve an agile supply chain. Effective collaboration with partners allows businesses to share information and respond quickly when disruptions occur.
How to Create an Agile Supply Chain
Agile systems are dynamic and market sensitive. Responding to real demand efficiently, they equip enterprises with the tools to be resilient in the face of demand fluctuations and supplier disruptions. Agile supply chains do this by allocating and reallocating inventory when needed through reading and responding to real demand efficiently.
Thus, the ability to swiftly react to and mitigate supplier continuity risks—like extreme weather, factory fires, labor strikes, and geopolitical, market, and financial crises—is key to achieving supply chain agility. Here are some important design principles to consider when developing an agile supply chain:
#1 Manage Based on Data
The goal of agile systems is to manage supply chains that are information-based rather than inventory-based. To do this, businesses must invest in more dynamic “pull” models, instead of traditional “push” models. “Push” models for supply chain demand management are driven by a view of orders, shipments, and inventory.
On the flip side, “pull” models are consumer-centric and driven by real market trends and point-of-sale demand data. By investing in “pull” models, businesses can facilitate the forecasting and responsiveness needed to build more agile supply chains. Read more in Resilinc’s blog: Supply Chain Risk Management is a Data Problem.
#2 End-to-End Collaboration
Collaborate with carriers, suppliers, and logistics providers to understand better opportunities to improve business term flexibility, operational savings, demand, capacity, and business continuity planning. Specifically, leverage customer relationships to improve demand visibility and leverage supplier relationships to improve disruption visibility and time-to-recovery.
Advanced forms of collaboration incorporate process integration using automated systems and e-business solutions. Learn more in our blog: Why Supplier Collaboration is a Win-Win Strategy.
#3 Responsive Systems and Analytics
Develop responsive sales and operating plans to incorporate supply, demand, financial results, inventory, and customer service, based on a robust analytic capability. To achieve this, we recommend utilizing range forecasting, which establishes a range of uncertain yet potential outcomes.
This will give your company a better idea of how to respond when demand is on either end of the spectrum. Read more about setting up responsive analytics in Resilinc’s blog: 4 Ways to Develop a Demand-Responsive Supply Chain.
#4 Resilience and Risk Management
Incorporate capabilities for proactive supply and demand chain risk identification, quantification, and prioritization, as well as rapid incident and crisis response. This includes capabilities like 24/7 supply chain disruption sensing, monitoring, and impact analysis.
Resilinc’s supply chain disruption monitoring platform EventWatchAI can help your company detect potential disruptions that can affect you and your supply chain. Scanning over 104 million sources and sites worldwide, EventWatchAI identifies impacts in over 100 languages, 200 countries, and 50 event types to tailor alerts and suggest actions specific to your unique business. Learn more about EventWatchAI here.
#5 Design for Agility
Leverage “design for agility” or “design for resiliency” concepts. These concepts help identify and remediate product design decisions which can negatively impact product availability.
For example, choosing non-standard components that require single or sole sources limits the resilience and agility of your supply chain. Instead, look for products that have standard components that can be produced by different sources. Learn more in our blog: The Ultimate Guide to Supply Chain Resiliency.
#6 Process Ownership
Make sure you define sales and operations planning (S&OP) policies. Doing so ensures that accountable authorities are assigned to drive process changes and ongoing changes to management. In our blog, What is Operational Resilience? (And Why You Need to Prioritize It), we discuss the importance of getting your executive leadership involved in your journey toward resilience and agility.
Driving large-scale transformations like shifting to an agile supply chain requires the strong governance of a dedicated team—and doesn’t happen overnight.
Advantages of an Agile Supply Chain
Why take on the challenge of shifting to an agile supply chain? There are numerous benefits to developing a more agile supply chain: being more resilient to risk, responding faster to supply chain disruptions, and even gaining market share and competitive advantage over your competitors. Your entire company can benefit from increased visibility and real-time data—leading to more informed decision-making and strategizing for the future.
Why not start building a more agile supply chain today? Learn how Resilinc’s 24/7 supply chain disruption monitoring platform EventWatchAI can help you get started.