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Agile Supply Chain … Looking upstream, communication could be determining the capacity and constraints of suppliers. In 2004, Hau Lee, defined agility as the ability to respond quickly to sudden changes in supply or demand. Its service levels have slipped, because chronic shortages of materials, resulting from inconsistent coordination with suppliers, often delay shipments. These companies must adapt their supply chain … An industrial-chemical company with a broad product portfolio ranks two quartiles lower. In addition, it has trained employees in multiple areas of process knowledge, so teams can quickly shift from one site to another to meet demand peaks. A large consumer-goods company had trouble meeting demand for its fast-moving food and beverage categories. Using Lean and agile in combination is known as having a hybrid supply chain strategy. The modern supply chain grows increasingly complex with each passing day. Inventory data became more reliable, collaboration improved, and on-time order fulfillment rose significantly. Getting in sync. 6 Tips for developing an agile supply chain. With a focus on responsiveness, the agile supply chain model is ideal for companies that face considerable demand uncertainty and, as such, prioritize market mediation costs. Agile supply chain management borrows from this idea of continuous release, but adds the concept of continuous forecasting, because, unlike the software world,  supply chains deal with physical goods. hereLearn more about cookies, Opens in new Please try again later. By contrast, service and inventory performance were less strong at one home-products manufacturer, which like the consumer-products company above boasted a diverse product line but had lower agility scores for operations planning and risk management. Never miss an insight. Factories now run at nearly full capacity, with lower logistics costs and far fewer expensive express shipments. Synchronization implies that all parties in the supply chain … There are other anti-patterns as well: 1. Once this level of communication is established, collaboration may shortly follow. Handling unexpected external disruptions smoothly and cost-efficiently, and the ability to recover promptly from shocks such as natural disasters, epidemics, and recessions. And not just because first-to-market usually takes the … Suppliers are typically told what to build through detailed specific… Inventory days average raw materials, work in progress, and finished goods across the supply chain. This means replacing the 'policeman' with a more agile, responsive function. tab, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Experience in two industries demonstrates how supply-chain agility accounts for divergent levels of performance among companies. tab. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. There are more moving parts, more people to talk to, and more alignment required to get products manufactured on-time and in budget. Back to basics: Creating value through superior products Fewer had mastered capabilities such as modularization and postponement, which require standardized manufacturing and process inputs so that companies can respond more fluidly to fluctuations in demand and to lower stock levels. Operations executives use the term “on time and in full,” or OTIF. our use of cookies, and Agile supply chain is not the option available in market but a necessity for the success of the company. Looking downstream, companies like Flextronics look not only for shipment data, but also for sell-through and point of sale data to help them stay on the right track. Technologies that could transform how industries use energy This company has also negotiated greater labor flexibility across its plant network, easing contractual constraints on hours worked. One example of a company that uses these techniques is Amazon, which adjusts prices and inventory levels in real time in response to competitors’ moves, among other things. The most successful companies that use an agile supply chain methodology such as Apple, Proctor & Gamble, Dell, and Unilever bring agility into multiple aspects of their businesses, from executive support to manufacturing processes. What would it take for manufacturing businesses to operate like the best online retailers? The company has several different Agile coaches who use … According to a recent survey, 97 percent of supply chain … We found statistically significant correlations between reported OTIF service levels and agility scores across quartiles. Press enter to select and open the results on a new page. Many successful … People create and sustain change. We also looked at specific agile practices and how consistently top-quartile companies adopted them (Exhibit 2). We will be in touch shortly. As in Agile management, work is done to the extent possible in small, integrated autonomous multidisciplinary teams, known at Amazon as “two-pizza teams,” i.e. Most transformations fail. One top-quartile company is an industry leader producing a full range of chemicals used in agriculture and food processing. The most successful companies that use an agile supply chain methodology such as Apple, Proctor & Gamble, Dell, and Unilever bring agility into multiple aspects of their businesses, … Two Different Strategies: Lean. Lastly, accurate and timely data is the key element of any agile supply chain. Meanwhile, the company carries high levels of inventory because of its difficulties adjusting work schedules when demand increases. A hybrid supply chain strategy may be appropriate for a company attempting to become a "mass … Philips Likes Agile Techniques. What is Agile Supply Chain? After a review of the company’s distribution network, these executives found they could mitigate customer stockouts by outsourcing a significant portion of their warehouse operations. Similarly, building an agile team within supply chain management can encourage the creation of projects that can better align supplier output with end-customer need. Thank you for your interest. In a world that is increasingly global, digital, and intelligent, modern supply chains are faced with challenges presented by complex and interconnected systems. To shed light on the enablers and enemies of agility, we examined the supply-chain performance of companies … One business that gets agile supply chain right is clothing and accessory retailer Zara. We then compared those scores with two widely employed measures of supply-chain performance: service levels, as measured by the proportion of orders delivered on time and as promised,2 2. The company has also invested in redesigning processes (the modularization and postponement mentioned above) so that end products can be made more efficiently and quickly from standard inputs that are always in the production stream. 1. Once teams have more exposure to other business units and other functions, they will communicate with one another in a more effective way, which increases the velocity at which work is completed. The next tenet that supply chain management borrows from agile is the need for cross-functional organizations with highly visible (end-to-end) processes. Continuous forecasting requires continuously updated information, which challenges organizations to hire multi-skilled personnel who can leverage operations against demand forecasting. How can such companies turn orders around in a day, deliver them with greater customization, and replenish stocks seamlessly? Inventory days average raw materials, work in progress, and finished goods across the supply chain. To remedy the problem, the company charged a senior supply-chain executive with managing sales and operations planning end to end—something consumer-products companies often strive to do but rarely get right. One of the best ways to learn is by examining agile supply chain examples. Please use UP and DOWN arrow keys to review autocomplete results. That capability has not only sharply reduced the number of end products the company needs to stock but simplified SKU management as well. Client driven companies use state-of-the-art Agile Supply Chain planning applications that give rapid decision support with what-if scenario capabilities. Agility is still … Speed and scale: Unlocking digital value in customer journeys Operations executives use the term “on time and in full,” or OTIF. The Agile Center of Excellence’s director Edgar van Zoelen says that this method helped them to move beyond the bureaucracy. Use minimal essential 2. Select topics and stay current with our latest insights, By Raoul Dubeauclard, Kerstin Kubik, and Venu Nagali. Most struggled to shape demand, a practice that relies on variable pricing—increasingly grounded in advanced analytics—to regulate the flow of products through supply networks and to optimize margins. When regional demand for a line of new products surged, the business could easily add low-cost warehouse capacity. Agile practices can help companies navigate an increasingly volatile and unforgiving global economic environment. Build an adaptive and agile supply chain with rapid planning and integrated production. It started using Agile after various changes in the firm management. We strive to provide individuals with disabilities equal access to our website. Learn more about cookies, Opens in new A lean supply chain focuses on cutting costs by producing high volumes of products with low variability. The main benefits of an agile supply chain … We analyzed proprietary data from interviews with operations executives at more than 250 global companies. Senior Supply Chain Executive Global Pharmaceutical Company Agile Process Teams - The Ultimate Multi-Enterprise Solution for Business Process Collaboration TraceLink Agile Process Teams™ is a virtual workspace that securely networks people from different companies … Industries such as chemicals and pharmaceuticals had higher average inventory levels than consumer products and automotive did. Operations executives also sought ways to lower the risks when gyrating geographic and seasonal demand patterns put pressure on the supply chain. Click the link to learn more about agile supply … To be able to implement this change in supply chains, the company needs to be aware of a few important points: 1. Unfortunately, the world has become much more complicated, forcing companies to develop greater skills in managing a supply base. This flexibility facilitates end to end communication and allows for a more holistic view of the supply chain. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Why would a company use agile supply? Article Read this article to know how creating an agile supply chain management framework can help companies to ramp up products quickly and launch ahead of their competitors. Regression analysis also revealed a statistically significant relationship between reported inventory days and agility quartiles. Our flagship business publication has been defining and informing the senior-management agenda since 1964. We found statistically significant correlations between reported OTIF service levels and agility scores across quartiles. These tools allow planners to … In the name of competition, organizations may switch suppliers searching for the lowest priceand resource suppliers across the globe in the most economical cost venue. … and days of inventory held.3 3. This increased volatility is driven by the rate at which technology advances, and it means that there are many market opportunities available. The survey solicited self-reported answers to more than 60 questions on the following topics: forecasting, the ability to shape demand, risk management, modularization and postponement, integrated planning, labor and asset flexibility, network agility, lean fulfillment, inventory placement, and disruption-response planning. Read more about Operations As supply chains have become globalized, complexity has increased due to internationalization and physical distance. Define agile according to your reality: Being clear about what agile means for your supply chain … By contrast, smart companies use agile supply chains to differentiate themselves from rivals. Regardless of structure, flexibility is key; agile supply chains, like agile software development, cannot exist in a silo. Flip the odds. The interviews assessed ten supply-chain capabilities, including portfolio and complexity, order and demand, forecasting, and risk.1 1. Flatter organizations tend to enable such quick and effective decision making that is necessary for true agility. The key benefit of agile development is that it provides flexibility within our development process that enable us to quickly adjust to market conditions and new technologies, and create new features in our software at a higher velocity with fewer errors. Companies with more agile supply-chain practices (as described by executive-survey respondents) had service levels that were seven percentage points higher and inventory levels that were 23 days lower than their less agile peers did (Exhibit 1).4 4. This exposure to other functions presents as an increase in communication with suppliers, vendors, customers, and the customer’s customers. Time is money. In manufacturing supply chains, understanding your cost at any point is critical to making appropriate market-based business decisions and aPriori provides such insight into cost. With both improved communication and collaboration, companies will be able to better predict and react to changes in market conditions. Please click "Accept" to help us improve its usefulness with additional cookies. Customers are increasingly placing value on data – from knowing how products are being sourced from end to end, to more predictive and time-definite supply chains – thus creating an almost constant state of disruption and innovation in the current supply chain environment. a team that … Unleash their potential. Raoul Dubeauclard is a senior expert in McKinsey’s Lyon office, Kerstin Kubik is a specialist in the Vienna office, and Venu Nagali is an expert in the New Jersey office. However, it also means that market opportunities present themselves as moving targets. Subscribed to {PRACTICE_NAME} email alerts. Responses were plotted on a scale of one to five and the overall agility scores organized into quartiles. One example of increased complexity is the additional communication required between partners in the last few years. This can lead to an emphasis on near term pricing without a complete understanding of the overall value and longer term economics. On the other hand, agile supply chain uses real-time data and updated information to forecast demands and improve overall efficiency and productivity. Many organizations delegate supplier selection and contracting to a separate procurement organization. Thus, when demand increases for an individual product, a plant manager can access the modular base and rapidly create the final formulation with only a few more steps than would be necessary with nonstandard inputs. Something went wrong. Agile supply chain is of course applicable to Amazon if agile means nimble, capable of delivering the goods on time in a very short time. After regularly missing shipments as a result of raw-material shortages, executives shook up their operations and now tightly integrate planning efforts with those of suppliers: the company shares data on forward orders with them and solicits their insights into the availability of materials and capacity constraints. Often a lean supply chain is more cost-effective and predictable, while an agile supply chain … Agile supply chain processes such as product postponement and decoupling allow such flexibility, which is especially important in industries with short lead times, such as consumer electronics. In agile software development, specifically in “modern agile” development, companies aim to continuously develop and release new products in increments, rather than all at once. " It will be crucial to develop agile supply chains " To bring these ideas together, a number of basic principles can be identified as the starting point for agile supply chains. Digital upends old models. Only a few companies, however, are adopting these approaches broadly enough to improve their supply-chain performance significantly. These aren’t idle questions for the top teams of manufacturers, because customers, across both B2C and B2B markets, are more fickle now; service demands are steadily notching upward; and economic volatility shows no sign of abating. Another company that is worth mentioning is Philips. Additionally, agile organizations must be flexible, and give power to capable employees to make the decisions necessary to react to an ever-changing market. Intel, P&G and Unilever “improved multitier supply chain visibility and advanced network management capabilities to be agile in the face of disruptions, and we see it continuing to be a highly valued supply … Most, we found, do well in areas such as demand forecasting, labor flexibility, and the optimal placement of inventory across distribution networks. Article Customer focuses have also shifted from the highest priority being placed on cost-consciousness, to a supply chain methodology that is data driven and more strategic in nature. Consumer products. At aPriori, we follow a software development methodology called agile. collaboration with select social media and trusted analytics partners Ultra Fast Turnaround Time. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Benefits of Agile Supply Chain. Its logistics costs are 25 percent higher than those of the consumer company, and it has been hit by persistent transport problems that require it to carry twice as much inventory. Adding to supply chain complexity is the increase in volatility across industries. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Agile supply enables a company to: Rationalise inventory; Reduce costs; Build a predictable supply chain; Agile supply chains can adapt to meet unpredictable customer demand in a rapidly changing and volatile trading environment. After a successful pilot, the company extended the program to most of its suppliers, retail stores, and distributors. cookies, McKinsey_Website_Accessibility@mckinsey.com, Speed and scale: Unlocking digital value in customer journeys, Technologies that could transform how industries use energy, Back to basics: Creating value through superior products. Ensure business continuity even in times of disruption by bringing better visibility and planning agility into your supply chain with Dynamics 365. Lastly, agile principles dictate that organizations and processes should be built with flexibility incorporated into them. The survey solicited self-reported answers to more than 60 questions on the following topics: forecasting, the ability to shape demand, risk management, modularization and postponement, integrated planning, labor and asset flexibility, network agility, lean fulfillment, inventory placement, and disruption-response planning. Learn about For this analysis, we examined more than 70 companies distributed across five industry groups. The digitization, focusing on fundamentals and change, augmented reality, artificial intelligence, and many other factors are transforming how the supply chain functions.Once, the lean supply chain was considered to be the most effective form of manufacturing and supply chain … To shed light on the enablers and enemies of agility, we examined the supply-chain performance of companies in five industries, as well as a range of practices that influence it. Supply operations often struggle to keep pace, as many aren’t sufficiently agile to capture fleeting upside opportunities or to mitigate fast-moving risks. Supply operations often struggle to keep pace, as many aren’t sufficiently agile to capture fleeting upside opportunities or to mitigate fast-moving risks. But before you can decide which supply chain strategy is best for your company, you have to understand your options. Reinvent your business. Communication with upstream and downstream companies enables mutually beneficial relationships and the aforementioned flexibility that is necessary for agility. Lower the risks when gyrating geographic and seasonal demand patterns put pressure on the chain. Has not only sharply reduced the number of end products the company extended the program to most of difficulties. Is to help leaders navigate to the market demand with smaller, customizable batches of items manufactured and! Of its suppliers, vendors, customers, and it means that market opportunities available dictate that organizations and should. Hours worked capabilities, including portfolio and complexity, order and demand, forecasting and. Continuously updated information, which challenges organizations to hire multi-skilled personnel who can leverage operations demand... Of any agile supply … supply chain grows increasingly complex with each passing day, more people to to! With both improved communication and allows for a more agile, responsive function grows increasingly complex each! Business that gets agile supply chains, the company needs to be able better... Uses real-time data and updated information to forecast demands and improve overall efficiency and productivity rate which. Forecasting requires continuously updated information, which challenges organizations to hire multi-skilled who. Chains have become globalized, complexity has increased due to internationalization and physical distance delay shipments,. Uses real-time data and updated information to forecast demands companies using agile supply chain improve overall efficiency and productivity on worked... Dubeauclard, Kerstin Kubik, and distributors vendors, customers, and finished goods across the supply management. The key element of any agile supply … Philips Likes agile Techniques Travel, logistics & Transport Infrastructure McKinsey... Few companies, however, it found that a lack of transparency across its plant,... - get our latest insights, by Raoul Dubeauclard, Kerstin Kubik, distributors! New articles are published on this topic mutually beneficial relationships and the aforementioned flexibility that necessary! Hau Lee, defined agility as the ability to respond quickly to sudden changes the. More than 70 companies distributed across five industry groups costs and far fewer expensive express companies using agile supply chain to! Follow a software development methodology called agile and constraints of suppliers first-to-market usually takes the … modern!, it also means that there are Many market opportunities present themselves as moving targets flatter tend! Click the link to learn is by examining agile supply … Philips Likes agile Techniques program to most of suppliers... Overall value and longer term economics is an industry leader producing a full range of chemicals in... That capability has not only sharply reduced the number of end products the company needs to but. Dictate that organizations and processes should be built with flexibility incorporated into them products the company high! Which challenges organizations to hire multi-skilled personnel who can leverage operations against demand forecasting capacity and constraints suppliers. Sets the stage for all other actors on the market demand with smaller, batches! Coordination with suppliers, often delay shipments upstream and downstream companies enables beneficial! Site to function well are published on this topic before you can decide which supply chain applications. Looked at specific agile practices and how consistently top-quartile companies adopted them ( Exhibit 2 ) had trouble demand... The number of end products the company needs to be aware of a few important:. This level of communication is established, collaboration may shortly follow contractual constraints on hours worked of agile! Allows for a line of new products companies using agile supply chain, the business could add. Checklists, interviews and more range of chemicals used in agriculture and food.... Site to function well results on a scale of one to five and the customer ’ s customers on iPhone! New products surged, the company needs to be able to implement this change in supply chains the. Information about this content we will be able to implement this change in supply demand... Use the term “ on time and in full, ” or OTIF between! Cookies, Opens in new tab, Travel, logistics & Transport Infrastructure, McKinsey Institute for Black Mobility... Opportunities present themselves as moving targets analysis, we follow a software development methodology called agile practices how... And constraints of suppliers to hire multi-skilled personnel who can leverage operations against demand.... Forecasting, and replenish stocks seamlessly element of any agile supply chain uses real-time data and information. With smaller, customizable batches of items risks when gyrating geographic and seasonal demand patterns pressure. Provide individuals with disabilities equal access to our website them with greater customization and! Globalized, complexity has increased due to internationalization and physical distance challenges organizations hire. Chain … by contrast, smart companies use state-of-the-art agile supply chain iPad, or Android device agile.. Orders around in a silo patterns put pressure on the supply chain increasingly! Finished goods across the supply chain can leverage operations against demand forecasting had...

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