Agile Supply Chain | Definition, Benefits & Strategies - Lesson

Agile Supply Chain Definition

In the world of business, the market runs by exchanges. The needs of the market create a demand and there is a supply that makes sure these needs are met. These exchanges of demand and supply are critical to the success of the market and the economy. The supply chain is the model that caters to these exchanges or market fluctuations. The supply chain model integrates all the processes involved in production from start to finish. It has five stages: (1) planning, (2) sourcing, (3) production, (4) delivering, and (5) returning.

Supply chain management involves managing money, information, and materials as they flow through the stages of the model. Thus, if the supply chain is managed efficiently, it can reduce costs and increase the profits and competitiveness of any business.

One example that stands out is the agile supply chain model. The agile supply chain definition describes a model that allows businesses and organizations to create smaller units to supply the goods for increased flexibility and response time to market demands. It targets two main goals: excellent flexibility and quick responsiveness. It is structured to respond to changes in customer demands quickly. This agile supply chain strategy is also a "pull" system where production can pause and wait for the market's demand before finishing the final product. The agile supply chain is a model that quickly responds to the demand rather than any forecast, which is the usual way in a non-agile supply chain.

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Agile Supply Chain Benefits

The advantages or benefits brought about by the agile supply chain model include the following:

Competitive Advantage

Its flexibility can change marketing strategies anytime and production will quickly follow the market's demands.
Quickly responding to changing customer needs increases customer satisfaction and promotes loyalty.
Creating a network among its suppliers promotes strong partnerships and collaboration.

Cost Efficiency

With an agile supply chain, there are fewer warehousing/inventory/holding costs.
The "pull" system reduced work-in-process inventory and bottlenecks in the production area.
The workers are always engaged and active, with no room for an idle time due to a work stoppage.
Strong relationships among its suppliers get discounts, loyalty perks, and rewards.

Reduced Waste

There are no forecast errors and overproduction.
Just-in-time production requires minimal time to hold the products in the company.
Minimal errors in the production line due to increased interaction and communication among workers.
Workers are constantly thinking of ways to improve and eliminate waste.

Agile Supply Chain Strategies and Process

Agile supply chain strategies work around the following four concepts:

Process alignment
Virtual integration
Shared chain responsibility
Market sensitivity

Process Alignment

In an agile supply chain, management relies on built partnerships with all stakeholders. Through process alignment, there is uniformity and connectivity with all the stakeholders participating in the organization. Whether using the same software/application or a system built to connect all the stakeholders, process alignment creates a unified team working together to produce or deliver the product/service efficiently.

An example of process alignment is co-management of inventory, where both seller and supplier manage the inventory. Another example is a company that allows collaboration in product design with its suppliers. Active participation of the stakeholders makes continuous improvement happen in the organization.

Virtual Integration

There is a free flow of communication in every agile supply chain. The physical distance is not a hindrance to this open communication. As demand from the market is being processed, virtual integration makes it possible for the business to respond quickly to the market's changing needs. Every department knows the process and each can step in and help. Every department also can correct mistakes and step in if needed. Virtual integration makes end-to-end visibility possible throughout the supply chain.

In an agile supply chain, there is shared responsibility among all stakeholders. There is no finger-pointing about who to blame when errors happen. Each department feels responsible for the outcome every step of the way. With such a frame of mind, the employees are working as a team and they all share the responsibility of producing a good outcome. While process alignment describes the technical aspect of an agile supply chain and how the stakeholders all focus in one direction, shared chain responsibility creates a culture of shared accountability and teamwork.

Market Sensitivity

One of the strengths of an agile supply chain is its fast response to market demand changes. The process can change at any stage and does not depend on forecasts based on previous data. Instead, the analysis of the previous information may be used to check on future market trends. Data that is utilized by agile supply chain is based on a "pull" system that is current and real-time information. Quick decisions are necessary and an agile supply chain trains the employees to have the capability to adapt to changes and make a smart calls.

The Agile Supply Chain Process: The four strategies mentioned are all part of the agile supply chain process:

The first step is the identification of the areas in need of change.
The company will determine if any part of the change may still be reused or recycled.
After the planning is done, this is communicated to all departments and stakeholders.
Process alignment is done through all the stakeholders to ensure one vision and direction to implement the needed change.
Test plan will be conducted after a specified amount of time to check on the implementation of the change.
Test results are analyzed if more changes are needed to refine the process.
Once no more changes are needed, the testing and refining are completed and the change is rolled out as a new process to be adopted in production.

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Agile Supply Chain Management Example

Lesson Summary

The agile supply chain is described as a model that follows a quicker and more efficient approach to producing and delivering goods and services. It boasts of its flexibility and quick responsiveness to allow businesses to adapt to market changes. The advantages of the agile supply chain are cost-efficiency, reduced waste, and a competitive edge in the market.

The agile supply chain strategy is also a "pull" system where production can pause and wait for the market's demand before finishing the final product. The driving force in this model is demand, which works best for in-house manufacturing businesses. There is minimal work-in-process inventory and no bottlenecks. The process starts with addressing a need for change and having all stakeholders actively participate in the planning and testing this plan to refine the required changes. With open communications, suggestions and feedback are received from customers. This will then be used to finalize the plan and keep the business continuously improving.

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Video Transcript

Agility in Business

Turn on the television any given Saturday or Sunday during the fall, and you'll see professional and collegiate football players going head to head on the gridiron. The few athletes who make a successful career out of playing the sport professionally exhibit several important characteristics. Among them is the idea of agility, or maintaining and controlling their bodies while moving quickly and nimbly in order to bust through the line and best their competition.

Agility in business is a similar concept. It means that companies have the ability to respond quickly, adapt to their environment, and maintain momentum while doing so. One area where agility is particularly important is in the supply chain, or the way products are produced and delivered. In fact, the concept is so important it has coined its own phrase: the agile supply chain.

An Agile Supply Chain?

You already know from the opening of the lesson that agility refers to speed and efficiency. An agile supply chain is focused on speed, cost efficiency, responsiveness, flexibility, and productivity in the production and delivery of goods.

Those are all good characteristics, right? Combined, they define what an agile supply chain is: a system of product distribution that is concerned with doing things quickly, saving costs, being responsive to the market and consumer demands, maintaining flexibility, and keeping productivity at all-time highs.

Agile supply chains rely on real-time data to help make decisions in day-to-day operations, as well as projected data in supply forecasts. Combined, it creates a more robust process that saves businesses and consumers money, eliminates waste of excess inventory, foresees potential shortages, and does it all quickly and productively. With agile supply chain, flexibility is key.

Agility in Action

One business that gets agile supply chain right is clothing and accessory retailer Zara. Founded in 1975 in Spain, the company is under the umbrella of Inditex, the world's largest apparel retailer. In mid-2017, the Zara brand was valued at more than $11 billion. A brand with that kind of power must be doing something right. You might say that the secret to Zara's success is really no secret at all: it's all in its agile supply chain.

Zara's strategy starts with its runway copycat designs, which it designs and sends to its stores all around the world within as little as 21 days. Once products are on store shelves, the attention turns to sales associates and store managers who interact with customers to gauge interest and ideas about everything from their design preferences to how they'd make existing products better.

Armed with that data, associates report back to Zara management, who adapts designs and builds on customer feedback to transform fashions, and then repeats the cycle of quickly creating and redistributing products back to its stores.

Zara's agility resides in its ability to take designs from concepts to store products in a few short weeks. If something isn't working, Zara isn't beholden to vast quantities of back stock; its system of customer feedback and design modifications (which they do themselves rather than outsource the work) allows them to work on manufacturing small lots to appeal to customer demands and desires. Similarly, if a product becomes wildly popular or a new trend pops up out of nowhere, Zara is equipped to create something and get it to its stores in no time at all. This approach, following an agile supply chain model, gives Zara a competitive advantage.

Lesson Summary

Agility in business is similar to the agility a football player needs on the field. It's the ability to change direction quickly and be flexible while staying focused and achieving the goal that's been set. An agile supply chain is a system of product distribution concerned with doing things quickly, saving costs, being responsive to market demands, maintaining flexibility, and keeping productivity high. Basically, agile supply chains combine speed and responsiveness for enhanced productivity while keeping costs low and eliminating excess.

Clothing and accessory retailer Zara uses an agile supply chain in its business model. The company focuses on taking runway concepts, designing them in house, producing them, and then delivering them to stores within a few short weeks. Once at the store, associates spend time talking with customers about their wants and needs and then report back to Zara's management. That data enables Zara to make modifications on existing products or turn new products around quickly, which gives them a competitive advantage.

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Agile Supply Chain | Definition, Benefits & Strategies - Lesson | Study.com (2024)