The modern supply chain grows increasingly complex with each passing day. The digitization, focusing on fundamentals and change, augmented reality, artificial intelligence, and many other factors are transforming how the supply chain functions. Once, the lean supply chain was considered to be the most effective form of manufacturing and supply chain management. However, a new concept in supply chain processes, the agile supply chain, is quickly growing to replace the often overused term.
Unfortunately, many supply chain entities do not understand or fail to grasp the full scope and concept of agility and how and it functions in relation and contrast to a lean supply chain. Let’s take a look at how the agile supply chain is quickly replacing the lean supply chain.
What Is the Agile Supply Chain?
The agile supply chain basically refers to the use of responsiveness, competency, flexibility, and quickness to manage how well a supply chain entity operates on a daily basis. Unlike the lean supply chain, the agile supply chain uses real-time data and updated information, as reported by Martin Christopher in Industrial Marketing Magazine, to leverage current operations and real-time data against demand forecast, which helps to improve the overall efficiency and productivity of the given entity.
Another key benefit of agility in the supply chain is focusing on avoiding potential shortages and eliminating excessively stocked inventory. In a sense, overstocking inventory was a typical response of lean concept. Since lean concept focuses on making processes more effective and efficient, many supply chain entities often ended up with a huge stock of merchandise. Unfortunately, changes in the economic market, consumer demand, and the growing customization of goods has led lost costs as inventory was incapable or became unwanted over time.
In a report by McKinsey & Company, up to 94 percent of companies that had implemented supply chain practices with other solutions, are able to deliver on time and in full, without keeping inventory in excess of 85 days. Similarly, companies that did not implement agile practices often had inventory levels remain in the warehouse for more than 108 eight days, and only 87 percent of deliveries were on-time. This does not even consider how many deliveries may not have been fulfilled, such as delays in shipping processes, customization, or errors in order picking processes.
How Is Agility Fundamentally Different From Lean Concepts?
The aforementioned information provides insight into how lean concepts in the supply chain differ from an agile supply chain. However, a true understanding of agility in the supply chain must address how lean concepts are applied to the agile supply chain.
For supply chain entities who has used or implemented lean concepts in supply change management, the company has removed extra costs along the way.
For example, the use of a computerized system to automatically generate orders and robotics to pick these orders would refer to leaving concepts in the supply chain.
However, the fallacy in the lean supply chain rests on the fact that this information that has garnered from that lean supply chain is not used to make a predictive, quantitative analysis of what will be needed in the future. As a result, the supply chain often has overstocking issues and is incapable of delivering a near perfect degree of visibility.
Additionally, the agile supply chain is able to adapt to rapidly changing environments, such as the economy, customization, trends, and customer demands, among many other factors. By making a supply chain able to respond to such issues immediately, supply chain entities can successfully navigate the turmoil that may arrive and present itself throughout the course of manufacturing, shipping, and the reverse logistics supply chain.
Why Does Agility Benefit of Supply Chain?
Agility practices enable the supply chain to change how processes operate. With the use of lean concepts, the supply chain may have improved the workflow of individual employees. Yet, as explained by GT Nexus and Kurt Salmon, implementing agile supply chain solutions with real-time data modular and raw material reserve formulations need to be placed close as possible to the end-product. Furthermore, agility allows supply chain partners to work together to produce the amount of product that is needed daily, not based on quarterly, monthly, or yearly forecasts. Essentially, agile solutions are a means of taking the lean supply chain and improving it to respond and foster supplier-to-customer-to-manufacturer relationships.
Agility also provides other benefits to the supply chain industry. By maintaining agility, supply chain entities can adapt to high variety, sudden changes in volume describes Martin Christopher. Unfortunately, this implies the supply chain may not be able to produce a high volume of goods if certain materials are available. As a result, supply chain entities who have implemented agile supply chain solutions understand that real-time data means the sudden change in demand could occur without warning, which could undermine the relationship between suppliers. Therefore, these entities have sought to find ways to still arrive at the same finished product, but at a customized result for each order.
For example, a supply chain entity in fashion or textile printing may not print the actual materials until those materials have already been ordered by a consumer. However, this implies the printing on the materials would not be able to take place until an order has been created, and subsequently, the printing processes would need to take place as close as possible to the area where the order would be fulfilled. Ultimately, this critical point in the agile supply chain goes back to breaking down organizational silos and rigid structures to better meet the demands on a local level.
Putting It All Together
Agility in the supply chain is rapidly changing how supply chain entities operate, but executives and supply chain management solutions’ providers need to understand how agility and lean concepts must work together to produce a more efficient, demand-driven supply chain. Failure to employ both agility and lean concepts in tandem could result in severe delays for a given supply chain entity. At Cerasis, we have emphasized the need to respond to real-time data through the use of smart systems, the Internet of Things, analytics, and an effective transportation management system. However, each of these factors in the agile supply chain pose serious implications for the future trends in this series of posts.