Uncertainty calls for an agile supply chain
July 16, 2020
The Brexit quagmire and the volatile trade war between the United States and China: two prime examples of the ongoing economic and geopolitical uncertainty facing modern businesses. As a result of this uncertainty, supply chain disruptions are becoming increasingly common. In conditions like these, businesses with agile supply chains that can respond swiftly to changing circumstances have a significant edge over the competition.
Responding to Brexit
The uncertainty surrounding Brexit has caused British car manufacturers to begin stockpiling cars in mainland Europe, while European pharmaceutical companies are doing the same with medicines in the UK. China has begun circumventing the US’s latest round of tariffs by continuing to manufacture components themselves but having the final products assembled in Turkey.
Thinking in scenarios
One way of making supply chains more flexible is to do as the Chinese manufacturers, British car makers, and European drug companies do and increase the number of locations you can choose from. Having multiple locations allows you to switch from Location A to Location B if Location A suddenly becomes unsuitable. Effective supply chain management means learning to think in terms of scenarios, such as designing and calculating different routes for the flow of goods. But, in the words of John Lennon, "life is what happens to you while you're busy making other plans,” so it’s not enough to simply have a few backup scenarios in mind.
Integrating agility in the supply chain
To be truly effective, the principles of agility must be integrated throughout the entire supply chain. When it comes to modern supply chain management, the key to success is understanding that change is the only constant. Nowadays, pharmaceutical companies have dedicated teams tasked with identifying changes and devising scenarios for responding to these changes quickly and efficiently. Some companies choose to work with external specialists, for example hiring tax advisors to help optimize the flow of goods in order to minimize taxes. Other companies prefer to set up permanent Strategic Reorientation departments.
The Triple-A supply chain
One useful model for designing agile supply chains is the “Triple-A Supply Chain” model devised by Prof. Hau Lee of Stanford University. The three A’s referenced in the model’s title stand for Agility, Adaptability and Alignment. According to Lee, an agile supply chain is necessary when there is a high degree of uncertainty in both the supply and the demand of a product. Using his model, businesses can determine which supply chain matches the current market dynamics.
When it comes to supply chain agility, the greatest challenge is learning to react swiftly to changes without overreacting. Overreacting can destabilize the supply chain, leading to something known as the “bullwhip effect” in which the response to a small change at the beginning of the supply chain leads to increasingly large supply fluctuations further along in the chain. Responding too slowly to a change in customer demand can also be risky, however. If increased demand turns out to be the beginning of a new trend, responding too late means missing out on revenue. Often, it’s only in hindsight that you can know whether or not you made the correct choice.
Ready to put what you’ve learned about supply chain agility into practice?
In our part-time Master of Operations and Supply Chain Management program, you’ll work with a variety of different models for responding to changing market conditions. Integrating agility into the supply chain will be a key theme throughout the entire master’s program. You’ll be able to put what you learn into practice immediately in your own organization’s supply chain.
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