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In this article, we will discover what is supply chain agility and its use in the modern business environment.
What is a Supply chain?
In the modern-day business world, the term supply chain becomes more worthwhile as it includes all the activities, processes, and parties in the business environment. Based on the company, the final product or the service, the people who engaged in the supply chain describe the term supply chain in different manners. In general supply chain is a chain of interconnected activities which have the origin and the destination in order to produce a product or service, pass through several stages and finally reach the end user.
The supply chain connects several partners such as material suppliers, manufacturers, distributors, sellers and consumers through processes, functions, activities, and relationships with the purpose of producing products and services.
In a simple view, the supply chain seems just like a few people holding their hands together where they have designated the origin and the destination. From the origins, most of the time raw materials, end products or some supplies are passing that require to be taken towards the end consumer or the destination.
What is Supply Chain Agility?
Marketplaces are subjected to changes. With that, the demand and the supply vary based on the internal and external environmental changes of the business. Thus, in order to survive in the market, it needs to respond to continuous changes.
The concept agile is related to responsiveness. Supply chain agility is the ability to adjust fast and respond to changes in the market by altering the company’s strategies and resources. Responsiveness is necessary for a supply chain as when performing the supply chain activities there could be contingency situations.
Some contingency situations are, unpredicted drastic demand changes due to macroeconomic policy changes, unavailability of substitute products/ competitive products in the market and demand changes due to aggressive marketing campaigns. Hence, the parties involved in the supply chain need to react to the situation immediately.
Usually, the products of a supply chain are affected by the concept “VUCA”, which stands for volatility, uncertainty, complexity and ambiguity. The approach of agility focuses on how quickly a supplier reacts to the changes in customer demand arising, within the presence of the concept “VUCA” supply chain. Since every supply chain is subjected to volatility in the supply and demand forces, there can be uncertainty, complexity and ambiguity in the supply chain.
As a result, for all the mentioned forces, the supply chain has to react fast with the right approach. The strategies use in order to make sure that the market reacts to the supply and demand fluctuations come under agile supply chain management.
When a supply chain operates on a daily basis, quick responsiveness is essential with flexibility. For instance, suppliers should be able to supply as the demand arises through agile supply chain management.
Why Agility is Important
In the current business world companies are setting up long-term strategies. When planning for a long period of time, the probability of accuracy in demand forecasting is less. Hence, companies need to come up with strategies to minimize uncertainty as much as possible. Agile is a mechanism that tries to eliminate uncertainty. With the presence of the concept, it tries to eliminate uncertainty by acting on sudden changes.
How to Maintain an Agile Supply Chain
Since agility deals with real-time information, it is easy to respond quickly. With reference to the business world, customer perspective agile is better as if there is a change in the preference, the possibility to react to the change is high. This is due to the fact that most precisely this mechanism is going to deal with the customer side. Industries like apparel, smartphones, digital items and electronic items manufacturing are a few industries that practice the agile concept.
Apart from that partnering with the 3PL providers is also one of the ways to be agile in the supply chain. 3 PL providers are the ones who support the parent companies in managing their supply chains. Once a company is hand in hand with a 3PL provider, it facilitates the company to focus on its major business because the responsibility of the logistics arrangements is with the 3PL providers. Therefore, even if a sudden change happens within the supply chain it can respond to it without any discrepancy.
The industries like garments, food & beverages, and FMCG can apply another strategy named vendor-managed inventory (VMI) in order to respond to the fluctuation in the supply chain. Supplier manages the customer requirements of a particular product through VMI. On behalf of the customers or the buyers, the supplier or the seller maintains inventory and takes entire responsibility towards the inventories.
By applying VMI, the impact of the bullwhip effect can be reduced since the customer demand is properly identified by the supplier. VMI assures no stockouts, and on-time delivery as the inventory is managed by the supplier enabling to meet market demands.
Maintaining distribution centres is another key element in maintaining supply chain agility. Distribution centres are warehouses established in one or a few locations to cater to clustered customers fast. The number of distribution centres depends on the market coverage of the company and the accessibility from a distribution centre to the market. Since the distribution centres are closer to the market, it helps to cater for the demand through an agile supply chain.
The horizontal or vertical integration of the supply chain is too a strategy towards supply chain agility. The integrations allow a company to have more control over the supply chain enabling quick responsiveness to changes. However, integration carries a risk to the company as the company is responsible for the supply chain of integrated activities.
Importance of practising supply chain agility
The main rationale for having agility is to respond to unpredicted changes in the supply chain and to continue the supply chain performance smoothly.
The customer demand is less predictable. Since agile deals with real-time responsiveness customers are satisfied and able to provide customized products as per their requirements.
Having an agile supply chain, producers get the chance to make a broad range of products with a fast turnaround time. Considering all the above factors, it is clear that practising concept agility is significant for any company to function their supply chain smoothly without interruption within the volatility uncertainty, complexity and ambiguity in the supply chain.
Investment in the supply chain agility
Recently the majority of companies are more concerned with investing in agility to face adverse situations that can arise in the future while sizing the opportunities via quick responses. Further to survive in the industry competition and to face the rapid changes happening in the international supply chains, companies tend to invent the concepts like agility.
With the purpose of improving the agility of their supply chains, companies recently moved to work with information technology. The reason behind that is the use of information technology helps companies to forecast accurately using concepts like big data and advanced algorithms. Hence, predicting future changes is possible and it supports acting with agility within the supply chain.
Through information technology companies also can generate digital opinions regarding demand, supply and market volatility. Therefore, the accuracy of generated results will be much more accurate than the human-generated results due to the ability to predict and analyse the result within a long period of time. As it goes further high-end product manufacturing companies are now moving to deal with advanced robotics, and artificial intelligent devices in order to respond to the sudden changes in the business environment.
Implementing an enterprise resource planning system (ERP) is also a key to success in agility. With an enterprise resource planning system, the company can connect all the functions including procurement, production, and finance. Since it is an integration of all the activities, even a minor change in one department will be visible to others.
Apart from that establishing research and development units within the companies is also trendy. Together with such departments, the companies can support agility since it finds out new innovative methods to act faster during unexpected events while discovering new opportunities in the sudden environmental changes.
In conclusion, all supply chains are subjected to changes, and it is essential to have room for the changes and react accordingly. One of the strategies that can be responsive in the supply chain is called an agile supply chain.