Supply Chain Flexibility, its Drivers and Sources
Inspired-Search | 24 August 2017
Written by: Annemieke Gelder
With the amount of innovation and digitalization around us, these are probably the most exciting times for Supply Chain professionals. In the next series we will discuss a couple of key Supply Chain trends and considerations for your strategic and organizational needs and to shape your next generation supply chain.
Supply Chain Flexibility, its Drivers and Sources
The many times I had my counterparts in planning or in the markets contacting me in great distress for the need of more products to be delivered ‘yesterday’ are countless. And how often did it happen that the product was not that urgent after all or even ending up as obsolete stocks! There have been numerous occasions of distress too: unplanned plant outages, West Coast port strikes and just last year Hanjin’s bankruptcy. These are all imperfect but real scenarios calling for flexibility to re-direct goods or its volumes.
Shortening product life cycles and product development times, drive the critical need for shorter supply chains and effectively shorter lead times for most manufacturers and shippers. They look for supply flexibility or agility; the speed and ability to react to any changes in the environment with limited penalty in time, effort, cost or performance.
Some have a greater need for flexibility than others; technology, telecom, automotive industries are subject to shorter product life cycles and the lack of responsiveness means a potential loss of sales. More industrial companies, processing and consuming large quantities of (bulk) commodities, need flexibility to respond to market price fluctuations impacting the bottom line. The supply and demand volatility being drivers for flexibility, the operating environment will see a different value for flexibility: top line impact, bottom line impact and the cost to maintain flexibility.
Drivers (model 1) are not per se downstream oriented and can originate from the manufacturing setup, such as production schedule uncertainty, capacity utilization or low component commonality. Other drivers can be seen upstream with the supplier base, such as limited sourcing flexibility resulting from long product qualifications or even limited responsiveness of the suppliers.
Model 1 – Flexibility Drivers
With the drivers for flexibility and the value in mind, how can such flexibility be established? This ‘flexibility need’ comes together with a need for transparency: to which extend information about supplies is available to parties across the supply chain.
Companies are looking for flexible sourcing options, as well as for internal enablers to achieve a higher degree of flexibility. The immediate decision makers (Operations), will need data to support any changes to the planning, and therefore need to establish close relationships with Sales & Marketing. A better understanding of the demand trends and gross margins of the market and channels will accommodate effective changes and deploy flexibility.
Model 2 – Flexibility Sources
Functions outside of operations are becoming more critical to deal with more focal customers who want to know where their product comes from, government and regulatory bodies who strive for more safe, environmental friendly and controlled business operations. CSR, finance, risk, legal & compliance are becoming more relevant in this equation and need to have close ties into the supply and manufacturing functions and vice versa (model 3).
More functions and the need for more data will lead inevitably to a more complex operating model and the risk of flexibility will even be harder to establish. This raises a concern: how can the day-to-day operation be run without too much disruption and exceptions, or better: how can one establish a flexible operating model by default?
Model 3 – The many stakeholders and enablers in the strategic flexibility landscape
To manage the drivers, companies will need to identify and prioritise the risk and need for flexibility based on value & impact and manage & monitor such risk. A good understanding of flexibility drivers will help to identify the most appropriate sources for flexibility and enablers, such as any systems, technologies, tools and operating models. Implementation is envisioned to both internal and external upstream and downstream partners.
Supply chain flexibility can then become a strategic requirement and not just a tactical or operational out-cry, with all internal and external stakeholders and activities aligned. The implementation of the flexibility enablers can then become a strategic pillar for the successful delivery and implementation of the strategy.
Reference is made to “Drivers and sources of supply flexibility: an exploratory study (E Mendonca Tachizawa & C. Gimenez, September 2005)”
Annemieke Gelder has over 16 years experience in end-to-end supply chains across different industries. She is a certified Procurement Professional (MCIPS), Project Manager (PMP) and holds a MSc Business Administration in Supply Chain of the Rotterdam School of Management. She recently set up www.supplydirection.com to channel her learnings and views on supply chain trends, as well help businesses shaping and improving their supply chains operations.
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