One phrase that’s at the top of every supply chain executive’s wish list these days: “greater supply chain flexibility.” But what does that mean, especially to supply chain managers and their teams?
One part of the definition should include: the ability to respond more quickly to demand and opportunities. Nothing is constant in the everchanging business world except an always increasing pace of change and constant fluctuations in everything from commodity and oil prices to consumer demand and competitive threats. And when you’re in management, you also have to deal with the constant demand for a reduction in product lifecycles.
What does flexibility really mean?
Some experts break down the definition into two parts: micro and macro flexibility.
Micro flexibility refers to the speed at which your supply chain can detect and respond to issues and opportunities in the short term. Say a truck or ship is late, or demand surges abruptly, or a customer requires some type of special packaging or handling: how quickly and effectively can you manage these changes and needs?
Macro flexibility relates to the speed at which your company’s supply chain adapts and executes new strategies and programs in support of your company’s overall strategies or marketplace changes.
In other words, agility and adaptability are important.
So how can managers achieve better supply chain flexibility?
Be Proactive, Not Reactive
Companies tend to react to the uncertainty of the supply chain in four ways:
- Keeping safety stock to reduce the probability of inventory shortage.
- Setting capacity higher than average demand to avoid substantial shortages during peak periods.
- Maintaining multiple suppliers, which increases costs.
- Adding safety lead times to the actual cycle time .
But using these strategies may be counterproductive in the long term.
Instead, they will find greater flexibility in proactively redesigning products, processes, and their supply chain network and negotiating more effective relationships with trading partners. For example:
- Using common components
- Redesigning both shop floor and administrative processes
- Reducing facilities or centralizing stocks to fewer facilities to reduce risks
- Partnering with other firms to achieve consortium purchasing
- Negotiating or renegotiation supply contracts to alleviate minimum order quantities or to obtain a commitment from suppliers to supply materials or services in the case of a significant increase in demand
- Reducing lead time by redesigning procurement processes, changing supplier selection criteria from cost focus to speed focus, or developing suppliers for better lead time management.
- Identifying alternative routing or shipment modes
- Fostering better collaboration with supply chain partners
How do you define supply chain flexibility, agility and adaptability? How do you measure these supply chain attributes? Have you tried to become more flexible, and what has succeeded or failed for you? Please share your thoughts and comments below.