Pandemic Highlights Need for Agile Supply Chains

Stephen DeAngelis

April 30, 2020

Food sector and supply chain professionals have been rightfully praised for their efforts to ensure essential goods are available to a locked-down population. Frank Morris (@FrankNewsman) explains, “Fast-moving viruses come with a cruel twist. They tend to hammer hardest at people on the front lines of defense, making the rest of us that much more vulnerable. Truckers, warehouse workers and cargo handlers, all in a vast network, find themselves one endless day after the next getting food, medicine and, yes, toilet paper to customers. The complex supply logistics of our 21st-century world face a gathering storm even as reliance on those supply chains becomes more critical in the worst public health crisis in generations.”[1] That gathering storm has highlighted a level of rigidity in historical supply chains. Jennifer Smith (@jensmithWSJ) reports, “Images of empty supermarket shelves — while farmers dump milk and other foodstuffs — are delivering a stark lesson in the challenges of shifting goods from commercial to consumer supply chains as the coronavirus pandemic shakes up demand.”[2] According to Tim Kraft, an assistant professor of operations and supply chain management in NC State’s Poole College of Management, the pandemic highlights the need for agile supply chains.[3] He explains, “Agility refers to the ability to react to sudden changes in demand. It is a lesson supply chain managers across all industries are currently experiencing as they work to meet unforeseen spikes in demand while simultaneously dealing with shortages in supply created by COVID-19.”

The need for agile supply chains

Smith notes, “The rapid shutdown of much of the U.S. economy delivered unprecedented shocks to the largely separate systems that supply businesses and consumers. Both rely on vetted networks of producers and distributors and other middlemen to deliver goods in ways that are tailored to specific markets.” We are learning that pivoting those networks is not as easy as some might have supposed. Nallan Suresh, a professor of operations management and strategy at the University at Buffalo School of Management, told Smith, “All those contracts produce lots of rigidity. You’re not able to easily shift supplies from one channel to another.” Smith goes to explain creating agility between channels (i.e., between commercial and consumer channels) “would require expensive investment with little promise of a payoff over the long term.” Nevertheless, Steve Mitchell, sales director at Delta Impact, argues, “The problem with many companies’ efforts is that they stick too rigidly to a system of operation that they’ve been committed to for years.”[4] He suggests a couple of reasons supply chains should become more agile. They are:

  • Readiness for change. Agility requires a willingness to change as circumstances change. Mitchell writes, “When new technology is introduced that makes working processes more streamlined and efficient, it’s important to be prepared to adopt these technologies to avoid being left behind by competitors. One of the key pieces of tech currently on people’s minds when it comes to supply chains is artificial intelligence. AI’s current form is limited, but one can already forecast the uses it will have once it becomes more advanced. These include gathering comprehensive data, performing predictive analytics, and undertaking a range of administrative tasks that are susceptible to human error, and take attention away from strategic decision-making.” Analysts from Consultancy.eu agree. They write, “The advent of advanced digital technologies is transforming supply chains globally. New ways to harness data and automation are enabling organizations to extract greater efficiencies, drive top-line growth, reduce risk, act with increased agility, and gain greater control and visibility of the end-to-end supply chain.”[5]
  • Protection against threats. Mitchell notes threats can come from many directions, with cybersecurity threats high on the list. The novel coronavirus pandemic was a threat from an unexpected direction. Mitchell writes, “That’s another reason why it’s important to remain flexible in supply-chain management.”

Mitchell also recommends a single-supplier strategy; however, numerous crises, including the coronavirus pandemic, have demonstrated such a strategy can be risky. According to Kraft, supply chain professionals should consider a supply chain concept developed by Stanford’s Hau Lee in the early 2000s. He called that concept “Triple-A Supply Chains.” According to Kraft, “[Lee] observed that having a fast and cost-effective supply chain did not necessarily lead to a competitive advantage. In fact, many companies with fast and cost-effective supply chains saw their competitive position deteriorate over time.” Although that sounds counterintuitive, Lee insists agility (one of the three A’s in the Triple-A concept) is more important than efficiency or speed. The other two A’s are: Adaptability and Alignment. Kraft explains, “Adaptability reflects the ability of a supply chain to adjust to a changing marketplace. … Alignment occurs when the interests of retailers, suppliers and manufacturers in the supply chain are aligned such that their individual decision-making helps to optimize the supply chain’s performance.” Cognitive technology solutions, like the Enterra Supply Chain Intelligence System™, can help stakeholders optimize operations and make supply chains more agile, adaptable, and aligned.

Fostering agile supply chains

Most experts agree supply chains lacking visibility have no chance of becoming more agile. Sara Pearson Specter explains, “Attaining the benefits of a more agile supply chain — one that deftly responds to unforeseen events within its network, enhances customer service and optimizes operations for significant cost savings — hinges on the ability to see what’s up with all of its moving parts.”[6] Tobias Grabler, COO of Topo Solutions, agrees that agility begins with “having access to information.”[7] He states, “Agility comes down to two main things: the ability to anticipate and the ability to act fast. Once a disadvantageous situation is reality, it is about how fast you can switch from your old production setup to a less costly one, without jeopardizing your product quality and compliance that can harm your brand image.” Cognitive technologies can help provide better visibility, creating a smarter and more agile supply chain. Consultancy.eu analysts suggest a few of the benefits that can be gained using smart, agile supply chains. They include:

  • Enhanced visibility and transparency. Consultancy analysts note, “Data from digital systems reduces errors by removing data collection and manual reporting processes. Data visualization and analytics are enabling supply chain leaders to make effective decisions on managing inventory, reducing overall cost and lead time. They also improve risk management by helping organizations identify and address risks earlier, and support the sustainability agenda by enabling organizations to trace materials back to their source.”
  • Cost reduction. According to the analysts, “Improved visibility of supply and monitoring of process status is enabling reductions in inventory, improving the balance between supply with demand, and enabling predictive maintenance and real-time process interventions. In combination, this is supporting greater asset utilization and end-to-end cost reduction.”
  • Enhanced customer focus and service. According to the analysts, “Data from smart supply chains helps organizations understand how customers buy and use their products and services. This greater intimacy can be a springboard for developing new offerings that meet customer needs and preferences, opening up new revenue streams.”
  • Support for agile and dynamic operating models. “In fast-changing markets,” they note, “organizations must stay agile to compete successfully. That includes being able to adapt their operating models to respond to new demands, and to identify and seize new opportunities.”
  • Performance improvements. According to the analysts, “Performance improvements stem from a combination of cost reductions, quality improvements and increased capacity for growth. Digital technologies in the supply chain can help deliver all of these.”

Kraft notes collaboration is also required to make supply chains more agile. “With COVID-19,” he writes, “we are seeing unprecedented collaboration among companies, to an extent typically reserved for states of dire need such as times of war. Collaboration in supply chains is not something that comes easily, nor can companies turn it on like flipping a switch. It takes time to build trust and working relationships with upstream suppliers. While the current crisis is pushing stakeholders in supply chains to work together, the collaborations that will be most successful in reacting to the crisis are the ones where cooperative, working relationships already exist.” Evolution has taught us that the species most likely to survive are those proving to be most adaptable. Supply chains are likely to prove the same principle, with agile and adaptable supply chains faring better than rigid ones.

Footnotes
[1] Frank Morris, “The Coronavirus Pandemic May Be Loosening Links In The Supply Chain,” NPR, 27 March 2020.
[2] Jennifer Smith, “Divided Supply Chains Are Challenging Producers, Retailers,” The Wall Street Journal, 15 April 2020.
[3] Tim Kraft, “COVID-19 Highlights the Importance of Agility for Supply Chains,” NC State News, 6 April 2020.
[4] Steve Mitchell, “Three Good Arguments for a Flexible Supply Chain,” Supply Chain Brain, 25 October 2019.
[5] Staff, “Smart digital supply chains can drive efficiency and agility,” Consultancy.eu, 5 March 2020.
[6] Sara Pearson Specter, “Supply Chain Agility Starts With Visibility,” MHI Solutions, February 2020.
[7] Tobias Grabler, “Supply Chain Agility Starts With Visibility,” Sourcing Journal, 20 September 2019.