You are lean but are you agile?

Turbulent markets are becoming the norm as life cycles shorten and global economic and competitive forces create additional uncertainty. The risk attached to lengthy and slow-moving logistics 'pipelines' has become unsustainable. The importance of time as a competitive weapon has been recognized for some time but to become more responsive to the needs of the market requires more than speed. It also requires a high level of maneuverability, or agility.

A key characteristic of an agile organization is flexibility and agility should not be confused with leanness. Leanness is about doing more with less. While leanness may be an element of agility in certain circumstances, it will not by itself enable an organization to meet the precise needs of the customer more rapidly, particularly where demand is not very predictable.

To be truly agile a supply chain must possess a couple of distinguishing characteristics. Firstly the agile supplier must be market sensitive: it must be able to share data with buyers and suppliers to create, in effect, a virtual supply chain and this can be fully leveraged through process integration. Secondly, the agile organization positions itself as a partner in a network of businesses that become a supply chain to compete with other supply chains.

A major problem with most supply chains is their limited ability to gauge real demand. Because supply chains tend to be extended with multiple levels of inventory between the point of production and the final market place, they tend to be forecast driven rather than demand driven. It is important to recognize the point at which real demand can be felt in a supply chain, as distinct from management predictions. Once this point has been identified, the chal- lenge for supply chain management is to develop lean strategies upstream of this point, but agile strategies when it is real demand that needs to be met. So be lean and keep stock in the most suitable form and most appropriate quantities, but when the order hits, it is agility to meet that order that counts.

One of the keys to achieving agile response to fastchanging markets lies in the quality of supplier relationships. Often it is the lead-time of its suppliers that limits a manufacturer's ability to respond rapidly to customer requirements. Yet still many companies have not recognized the competitive advantage that can be derived from closer relationships with key suppliers. To seize the opportunity to achieve greater agility through closer supplier relationships, supplier base rationalization is inevitable. Agile companies identify a number of strategic suppliers with whom they can work as partners through linked systems and processes. A further prerequisite for the creation of a more agile supplier base is shared information. In particular, all parties need the most accurate possible information on demand downstream of where they are involved. Perhaps the most important requirement is excellent connections between the firm and its strategic suppliers, which means collaborative working relationships across the organizations at all levels. One of the biggest barriers to agility is that companies tend to become more complex as they grow and extend their marketing reach.

Complexity can be caused by the way in which organizational structures and management processes are designed. One of the benefits of the Business Process Reengineering movement has been that it stresses the need to reduce or eliminate the many activities that are inherent in traditional businesses that add no value. Breaking down functional roadblocks and re- grouping around value-creating processes will help reduce organizational complexity. A further aid to complexity reduction and hence enhanced agility will be the development of a human resource strategy of multi-skilling, which encourages cross-functional working. Team-based management is a highly effective means to achieve organizational agility.

Marketing management has not traditionally recognized the importance of logistics and supply chain management as a key element in gaining advantage in the marketplace. However, in today's more challenging business environment, where volatility and unpredictable demand becomes the norm, it is essential that the importance of agility be recognized. Leading companies are already implementing marketing strategies which are underpinned by a supply chain strategy designed with agility in mind. These are the organizations that will be best equipped for survival in today's uncertain markets.

Martin Christopher is professor of Marketing and Logistics at Cranfield School of Management, UK. This article is a précis of his paper "The Agile Supply Chain:Competing in Volatile Markets."