What is supply chain agility?

In supply chain management, agility means being able to plan, respond, and monitor promptly in case of unexpected events. It means to instantly change the direction when required to rationalize SKUs, shorten planning cycles, and shift production lines.

The goal is to maintain a fluid, responsive, and informed supply chain that can easily navigate changes that may come its way- whether good or bad.

Successful supply chain agility depends on the following-

• Understanding the external factors that shape supply chain logistics, irrespective of how steady things are now.
• Integration of process workflows and more proactive technology to address the pain points in the value chain.
• Exploration of components of the value chain that are most affected by industry disruption.
• Ongoing analysis and monitoring of new processes, production cost savings, and cross-functional collaboration, continuing to tweak practices if required.

Dimensions of an agile supply chain

Alertness/Awareness

Organizations that are alert can forecast changes in the industry, competitor threats, growth opportunities, and upcoming disruptions. The more aware organizations are, the quicker they can respond to changes in demand and supply trends.

Accessibility

Companies cannot incorporate changes without access to information and tools. Alert businesses have access to specific industry data in relevant history logs that all stakeholders can easily analyze and share.

Decisiveness

If organizations are decisive, they can clearly and quickly translate any industry change in the accompanying information into action. The most decisive organizations have easy and unified change-of-command to lessen the number of points of contact required to make a quick decision.

Swiftness

Swift organizations implement their plans quickly. More quickly the changes are made, more cost-effective the entire supply chain becomes and this is profitable for businesses. 

Adaptability

Agile businesses have the power and the buy-in to modify the ongoing processes when new opportunities come. This can be done without disrupting the entire business. Those capable of adaptability understand that action plans can change anytime, even when they are commenced under a smooth data-backed cycle that fits a value chain need at the time.

Ways to increase supply chain agility

Use real-time data

Maintaining real-time inventory levels is crucial to success as it provides more visibility into operations that can help companies in making informed decisions and can be proactive in implementing changes across the supply chain. For instance, the ability to view, track, and manage inventory levels across the supply chain in real-time can give a business insight into how to optimize inventory to keep costs low as well as meet demand.

Spilt the inventory

Although the primary benefit of splitting the inventory across several fulfillment locations allows businesses to expand their consumer reach geographically, a secondary distribution center can help to avoid long fulfillment delays and can help businesses to continue to meet consumer expectations even if a warehouse has to shut down due to any unexpected event. Strategic inventory management principles help to plan this crucial element and makes the supply chain more agile.

Implement demand forecasting

By implementing demand forecasting tools, companies can anticipate demand fluctuations based on the past, patterns, and seasonality. Appropriate demand forecasting can help organizations to maintain healthy stock levels at all times, plan for flash sales and promotions to be done in future, and make sure that they have enough inventory for the busy holiday/festive season.

Set Stock Keeping Units (SKU) reorder points

To avoid delays and stock-outs, companies can use past sales data and inventory to determine when it is time to reorder inventory at the stock keeping unit level so that inventory can be restocked at the right time.  

Companies can also take into consideration future growth to understand how many units of SKU should be ordered. Many inventory management solutions are available in the market that can help in pulling up the data which is required by a business to determine an optimal reorder point. These solutions also include an automatic notification feature that can notify when inventories are running low.

Investing in warehouse technology (Warehouse Management System/WMS)

As businesses expand their supply chains, they will need to store inventory in several warehouses, which can be challenging and complex. To overcome this, companies need to have technology in place that controls and monitors daily operations within the warehouse.

Warehouse technology and automation will help businesses to ensure that inventory is received, picked, stored, packed, shipped, and replenished efficiently. Besides that, the right WMS also has the potential to improve consumer satisfaction.

Final Word

The COVID-19 pandemic has brought about the importance of supply chain agility even more than before. With the sudden scarcity of raw materials to changes in demand, stock-outs to shipping carriers being stretched beyond capacity, the world has seen it all. Therefore, it has become essential for businesses to increase their supply chain agility to thrive in such constantly changing scenarios while maintaining profitability.

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What is Material Requirement Planning (MRP)?

MRP is a standard supply planning process that helps businesses, predominantly product-based manufacturers, understand inventory requirements while balancing demand and supply. Businesses use Material Requirement Planning, a subset of supply chain management systems, to resourcefully manage inventory, schedule production and deliver the right products at optimal cost and on time.

Why is MRP important?

MRP helps businesses to know the requirement of inventory to meet the demand, optimize their inventory levels and production schedules. Without these insights, businesses have limited responsiveness and visibility which can result in-

• Ordering inventory in excess can increase the carrying costs and blocks up capital in inventory overhead that could have been used somewhere else.
• Failure to meet demand due to insufficient raw materials resulting in loss of sales, out-of-stocks, and canceled contracts.
• Delayed sub-assembly builds that result in decreased output and increased production cost, disruptions in the production cycle.

Thus, MRP is relevant in many industries from Life Sciences to CPG to create a balance between demand and supply.

How to get MRP right?

Ensure Data Accuracy

It is crucial to understand the validity of data inputs because if not done then MRP efforts get compromised because of poor quality data. Therefore, for MRP to generate accurate reports is to input accurate inventory information from the beginning.

Use Forecasting

Most MRP systems take into account open sales orders or forecasts to calculate demand. Forecasts can be production or sales forecast, either way, MRP uses this information to generate material requirements. The advantages are twofold; the first being businesses can approximate their material requirements further out than the time fence that applies to the sales orders. Second, besides material planning, it will not only help in a production scheduling standpoint but will also aid in the staffing requirements.

Better management of raw materials

For operations to stay on track, businesses need to manage raw materials properly. Excess of raw materials especially when they are perishable items or have limited shelf life can lead to waste and cost overruns.

MRP helps in identifying which raw materials will be in excess and how accurate orders can be created while eliminating waste.

Stay up-to-date

MRP is driven by the required dates of the expected demand. When it comes to open sales orders, open purchase orders or even open production orders staying up to date is a must. If not, MRP will indicate to order materials well in advance of when you actually need them to meet the immediate demand of past-due sales orders.

Monitoring Vendor Performance

Changing vendors is not easy, but monitoring their performance should be a core business practice. Conducting frequent audits and reviews of historical transactions between vendors is important. This is required to check how they are in terms of anticipated lead time vs. the actual lead time. Based on this information MRP can be improved quickly.

Understanding operations capacity

Understanding the various production constraints of the work centers of your business is a must. MRP should be able to create an anticipated production schedule based on factors like present supply and forecasted demand, and employees scheduled. However, it is also important that capacity and space is also taken into account. Manufacturing more inventory that can’t be shipped or stored is not an ideal scenario for most businesses.

Optimizing MRP is the key to running businesses efficiently

MRP systems enable businesses to plan and schedule production efficiently. It ensures that that materials move through the work order quickly and customer orders are fulfilled on time. An MRP system that is integrated across an organization not only eliminates manual processes but businesses have to spend less time on building production flows to understand when and where product availability is required.

However, just like any other Supply Chain process, MRP is as good as the data which is put into it. Therefore, the better the business understands and documents its processes, the better Material Requirement Planning system can serve them. Inputting correct inventory availability, subassembly completion time, lead-time from vendors, and waste calculations is a must. Businesses must run a robust MRP to achieve substantial operational and profitability gains.

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Global supply chain crisis in 2021 and the solutions for 2022

After the pandemic, the supply chain crisis had been the biggest story in the year gone by and the COVID induced lockdowns of 2020 fueled the crisis. Many supply chain challenges such as mismanaged inventory, aging shipping fleet, and the lack of accurate data had already been there for years but the coronavirus pandemic aggravated these issues further.

What happened in 2021?

COVID was just one part of the problem, the real-world supply chain workflows became global before the tools and platforms to manage said workflows were sufficiently available. The supply chains were designed for the lowest cost and efficiency but not resilience.

Furthermore, the business and economic environment became more challenging. For instance, in the UK and the rest of Europe due to Brexit led to supply chain pressures causing increase in red tape and cross-border checks. Broadly, the firms continue to grapple with a range of international business challenges ranging from building global management teams to fluctuating international exchange rates.

Besides that, the environmental impact of logistics and supply chain activities is now being understood more widely. So if the countries across the globe have to meet their commitments and emission targets they need to develop more sustainable supply chain practices.

Fixing the supply chain issues in 2022

It seems that the supply chain crisis is not going away, the port slowdowns are likely to persist as the new virus variants have led to strict monitoring, testing, and quarantine protocols at ports. This will lead to extended delays. Additionally, the work from home trend may continue longer and that can lead to a shortage in labor supply. Besides that, the semiconductor shortage will continue this year. Demand for goods that use chips will remain high and due to lead time to build new semiconductor factories, there will be a demand and supply gap in 2022, according to a Forbes report.

Considering the above facts, here are a few solutions that can help businesses to fix their supply chain challenges in 2022.

Switching to a de-globalized supply chain

Due to the ongoing disruptions, countries across the globe are trying to become less dependent on the notion that they should manufacture goods in countries with the lowest labor costs and ship them quickly to consumers.

Businesses are now looking to move to de-globalized or resilient supply chains. This means bringing back some manufacturing nearshore and alternate sites with flexibility to alter production lines and supply chains based on demand.

Investing in technologies to improve supply chain resilience

To boost productivity, companies are increasingly investing in new technologies. According to IDC, in a few years, companies will adopt technology that will reduce supply chain bottlenecks by 10%. Businesses will also invest in services and software that enhances productivity and use AI to do more with fewer workers.

With frameworks like robotics as a service and technology as a service, smaller companies can also benefit from supply chain automation and compete with larger enterprises. Significant innovation and seismic operational changes will hold the key to the future of supply chains.

Boost pay and increase opportunities for workers to improve productivity 

Given the difficulty of hiring workers and retaining them, businesses must look at boosting their pay and increasing opportunities for them to develop new skills and gain knowledge about the business.

Investing in people will support the work environment that will align with the company’s mission with the career goals of the workers. By retaining employees and boosting their skills, business operations will become more productive.

In conclusion

The pandemic has given businesses a chance to reinvent their supply chains. The focus is on building dynamic organizations that are flexible in operations and highly resilient to global disruptions.

Businesses have to be resilient and capable of adapting to major disruptions so that they can develop long-term solutions and strategies to complex challenges. Adoption of innovative and sustainable practices will be the key to fixing supply chain challenges in 2022 and beyond.

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The years 2020 and 2021 were hugely disruptive years. 72% of the companies experienced external disruptions to their manufacturing supply chain as per 3D Hub’s Supply Chain Resilience Report.

After years of globalization, trade disruptions such as US-China trade war, Brexit and the ongoing pandemic is prompting economies to reduce dependency on global integration and focus on themselves and their neighbors. Many manufacturers are trying to reduce their dependency on China as pandemic exposed the fragility of the supply chain network, be it due to factory lockdown, tariffs or logistics disruptions. However, global supply chain network revamping has to be followed carefully without hampering critical relationships.

Only 21 percent of the respondents in a recent survey done by Gartner indicated that they have a highly resilient network today; that means good visibility and the flexibility to shift sourcing, distribution, and manufacturing activities much faster. This advocates that growing resilience will be a primacy for many as they emerge from the ongoing crisis. According to this survey, more than half are going to be highly resilient in the next two to three years.

Diversifying sourcing – a vital step to build a resilient supply chain network

Last year, when the COVID crisis began in China, known to be the world’s factory the entire supply chain was disrupted across industries. Diversifying sourcing became an obvious way to mitigate risks in future.

However, to design a multi-sourcing strategy, it is essential that the supply chain leaders know their supplier network in-depth and should be able to classify suppliers not just by spend, but also by revenue impact in case of a disruptive event.

Diversification can be achieved by giving business to additional suppliers or working with a single supplier who can produce goods at several locations.

Predictably, the increasing interest in supply chain diversification brings to the fore the theme of re-shoring or near-shoring which goes arm-in-arm with a bigger focus on domestic markets. A Standard Chartered research indicated that 74% of US corporations and 84% of European companies are prioritizing their home regions as a source of growth.

All this calls for more production nearer to the home and to make supply chains less vulnerable. The organizations are now assessing their complete sourcing strategy and supply chain network design. This approach will ensure that the companies have multiple options and can determine the right balance between off-shore and near-shore manufacturing.

Multiple choice in the supply chain also means a wider opportunity to analyze cost, range of goods available, and location. Diversifying sourcing can also encourage competition among suppliers to drive down prices.

However, to diversify sourcing the suppliers also need to keep in mind certain factors to determine their supply chain network’s optimal resilience.

Vital Partners

While large enterprises might have resources to invest in a diversified network, their vital suppliers might not. Supply chain leaders will have to evaluate if their partners are weakened by the present conditions and are not able to support diversification strategy. In that case, they will have to look for more capable partners or slow down and may have to consider supportive actions.

More resilience involves more cost

An organization may choose to absorb the cost, or raise prices for its customers or share them with upstream suppliers. Similarly, the cost of not investing in resilience can also be high in terms of longer lead times, tariffs, negative impact on the brand, or decreased customer satisfaction.

National policies and incentives

Governments in many countries are now offering incentives to enterprises that move manufacturing closer to the end consumer or back. Bringing manufacturing back to the United States got a major push from politicians.

The crux

With the ongoing pandemic, there has been a heightened desire to shift production and sourcing out of China to other locations in Asia. Although this trend was going on for some time due to rising production costs in China but has strengthened by a sense of over-reliance.

However, shifting from China is easier said than done. A study from CBRE, a commercial real estate giant cited last year that while production costs in Vietnam were 30% lesser than in China, but the productivity was almost 20% lower and there were more quality issues. Industry experts suggest that there is more benefit in the ‘China plus one’ strategy for sourcing considering manufacturing capacity and sophistication in the Chinese industries.

All these things suggest that supply chains may be becoming more resilient by diversifying sourcing, but it’s not going to be that simple. The companies will have to still juggle with complexities and would need versatile and agile supply chain providers. 

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The general geopolitical trend towards nationalization, Brexit, the US-China trade war, and lately, the pandemic have changed the priorities of many supply chain frontrunners. They have to now balance operational efficiency and cost with more resilience.

Building a resilient supply chain

There is no hundred percent certain way to overcome the threats to supply chains like natural disasters, accidents, and international disruptions. The situation becomes even more complicated in case of a global pandemic or a terrorist attack. This is because the historical data does not include the use of predictive statistical tools to ensure that risks like these can be contained.

However, some organizations cope much better than others with both manifestation and prospect of indefinable risk. These organizations don’t have a common secret formula or even many of the same processes to deal with such situations, but they share an essential trait – resilience.

The concept of resilience is not new. The ability of an organization to successfully face the unforeseen has always been the essential element of success.

Achieving resilience

Supply chain resilience no longer means merely the ability to manage risks. In fact, the ability to manage risks means being better placed than the competitors to deal with it and even gain advantage from such disruptions.

Here are the three most important strategies to adopt to build resilience in your supply chain.

Diversify resources

Despite being the foremost step in alleviating risk, many organizations carry vital parts of their supply portfolios with one point of failure. Businesses need to reduce their dependence on sourcing from a single region, supplier, or country. During the Tsunami and Tohoku earthquake in 2011, the global automotive industry was crippled as the large concentration for automotive parts and accessories was manufactured in Japan. Even in the present situation, when the coronavirus first appeared in China and the ‘world’s factory’ went under lockdown, many industries and economies suffered. 

There has to be a simple yet effective strategy, which should be a combination of offshore and near-shore suppliers for every component. Broadly speaking, there is a need to develop a strategy where the regional supply chains are developed that can source and distribute products within a region. Besides that, the focus should also be on building redundancy so that if one region is disrupted, other region’s suppliers can step up.

Impact is broad, getting diversified can reduce risk because if you have a concentration of suppliers at high risk of financial default, then it is sensible to qualify alternative sources with a better financial footing.

Build reserves

The typical safety-stock calculations and inventory-optimization can disregard the element of fundamental risk. With the concept of eliminating single points of failure, it is crucial to carry exigency safety-stocks, especially for low-volume parts that might impact the availability of high-value features. Broadly speaking, a business needs to develop inventory plans to ensure supplies over a long projection by taking into account possible shortages during a disruption.

During the ongoing pandemic, approximately 5 million masks and 2000 respirators were released by the US Department of Defense from its stock reserves to help fight the crisis. Most of the time, these strategic reserves go unnoticed unless there is a crisis like this. The value of building strategic reserves has become increasingly clear over the last few years. These reserves can safeguard against the ‘black swan’ events that are rare but can cause a pragmatic threat to businesses.

Besides strategic reserves, there is also a need to build strategic relationships that can make a difference in the long run. The foundation of all businesses is built on relationships with your business partners, customers, and suppliers.

Sense, foresee and respond with agility

The best supply chain teams stay ahead in the market trends for their products, customers, the latest design practices, suppliers, and emerging technology trends. They utilize the content services that help them consolidate such sources of insight to forestall risks and opportunities and promptly take proactive actions even before their competitors. For instance, monitoring leading indicators of a supplier’s financial status to anticipate the risk of default.

Furthermore, businesses need to be mindful of single sources that could be formed from the ripple effect of other risks. For instance, obsolescence or default of one source within a two-fold-sourced component will create a single-source situation that will be high-risk.

To help organizations recognize market shifts early, and take pre-emptive actions, the sourcing platforms need to track inflection points in demand, trends, cost, lead time, the financial health of the supplier, and consolidation of suppliers across various commodities. 

To conclude, there will always be events that cannot be anticipated beforehand. However, the best performers build processes with upright learning cycles. The rewards for building a resilient supply chain are significant – the business will not only be able to withstand all kinds of disruptions but also increase its competitiveness.

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