We continue our discussion on supply chain agility today with guest blogger, Tom Turner, previous vice president of global logistics as Masco Corporation, supply chain instructor at UNC-Greensboro and current Clarkston Executive Alliance member. An honest appraisal of a supply chain’s agility can not only unlock opportunities for improvement, but also act as the foundation for an ongoing scorecard. In my last post, Creating a Supply Chain Agility Strategy, I talked about the importance of developing a supply chain strategy that is focused on the end consumer, and we will continue that conversation as we explore opportunities for agility. To assess agility, companies should begin with a network map that visually represents the entire supply chain, from end consumers to raw materials. This network view provides integration points that are present or missing. Each node is examined in terms of integration, management resources and information technology support. In assessing this network, I would like to highlight two measures: operations and information technology agility.
Operations agility (OA) is the ability to effectively leverage resources to produce a range of products and services that meet market demands. Organizations with operations agility provide products with a wide range of features, and cater mixes and volumes to various customer requirements. For consumer products companies, these capabilities enable them to produce needed products in a timely manner through setup time reduction, cellular manufacturing layouts, preventive maintenance, or quality improvement efforts. The key determinant of OA is a company’s ability to produce products in response to the demands of customers, often for retailers, but ultimately for the end consumer. At the plant level, operational agility is centered on machining, labor and materials, arrangement, and process routing flexibilities. These operating agility measures should include:
- Output volumes;
- Range of new products the company can develop each year;
- Capability to change output volumes;
- Capability to change the products and services mix;
- Ability to adjust manufacturing facilities and processes.
Measuring these operating capabilities will clearly show the agility of the company and identify means for improvement, particularly for fast moving consumer products with short product life cycles. After reviewing its network and assessing its operating agility, a leading Japanese apparel manufacturer found that producing high-fashion styles in Japan, where they could respond quickly to emerging fashion trends, more than offset the disadvantage of high labor costs. Thus, they produce basic styles in low-cost Chinese plants and fast moving, high fashion pieces in Japan. There are other strategies, including postponement, pack and hold consignment, near-shoring for domestic suppliers, carrier consolidation and cross-dock among many others. Furthermore, assessment allows companies to customize the agility strategy based on their business needs and current operations model.
Information Technology Agility
Information technology (IT) agility is a critical component for supporting supply chain agility, and represents the ability of the organization’s information system to adapt to changing circumstances, especially in situations of unexpected disorder. With the physical flow of products across different supply chain levels, relevant information should be transferred frequently and accurately to and from each involved party. IT affects system flexibility by changing or blurring the boundaries of an enterprise’s system internally and externally, reducing working time in the system and eliminating manual processes, and connecting different organization partners related to upstream suppliers and downstream distributors. The three measures of IT agility include system support of:
- Transportation and distribution management;
- Inventory management from raw materials to delivery;
- Internal and external data flow.
The information and communication tools that enable the integration of business activities across the supply chain are required to coordinate all business processes. These tools improve supplier flexibility, which in turn has a positive effect on profit, customer loyalty and responsiveness. Some barriers that prevent companies from establishing IT agility include: the failure to provide sufficient information sharing; the inability or unwillingness to provide infrastructure; or a lack of knowledge on how to implement technology to align with retailers and suppliers. Information technology is not complete without proper analytics to address technology enablers. This includes IT transformation strategies, productivity necessities, alignment with business strategy and shared services. These enablers ensure that IT is perfectly in tune with the supply chain to support agility versus being a bottleneck that prevents or severely limits responsiveness, which is often common with clumsy supply chains. In the next and final post on supply chain, I’ll discuss agility in execution.