With the growth of digital technology and the rapid increases in globalization, markets have become more prone to flux than ever. Regardless of the industry your firm operates within, being able to react to constantly changing demand will give you the power to capitalize on opportunities and control challenges. A flexible supply chain is key to your firm's ability to make these changes with expediency. Just like an athlete who is not stretching, a firm that is not building its supply chain to flex will find itself hurting.
The four questions below will help you assess whether or not your supply chain is up to the challenge of today's markets.
What is the time frame from placing a purchase order to receiving the product?
Increasing the velocity of your supply chain by minimizing order-to-delivery lead time will allow your firm to make the most of whatever it encounters. This metric is also a perfect first indicator for the flexibility your supply chain maintains.
No matter how accurate the models for demand forecasting you have created are, they cannot be relied on as a crystal ball. Anything from natural economic cycles to inclement weather can throw off your predictions. Demand forecasting is only a planning tool; it does not allow you to react. Decreasing your lead time gives you a superior ability to respond to the dynamism of today’s markets.
Churchill once said that, "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
Increasing the velocity of your response time gives you the ability to be far more optimistic. If your operation experiences a boom in demand, being able to quickly increase the availability of your product will allow you to capitalize on the situation, making every sale possible. As difficulties arise and demand recedes, a quick response to keep inventories from piling up will allow you to reduce any costs from a bust.
What are your capacity constraints?
Imagining a best case scenario of an explosion in demand, could your supply chain quickly increase its production? The constraints that might slow you down in this situation might be holding you back more than you think.
Scaling your production to reduce cost through increased manufacturing efficiency should always be a goal of your supply chain management. However, bottlenecks preventing you from immediately increasing your production might also be stopping you from scaling effectively.
Don't let scaling be held back! Reaching economies of scale is one of the most far reaching beneficial objectives your supply chain might have. It creates a win/win scenario for all the companies in your value stream and can keep your product competitive in a saturated market space.
By defining and working out the capacity constraints you currently face, you will give yourself greatly increased ability to respond to tomorrows changes in demand. At the same time, you might allow your firm to scale more efficiently and begin experiencing the wonder of reduced costs sooner.
If you stopped operations tomorrow, what is your liability?
Building a flexible supply chain isn't entirely about making the most of tomorrow. It's also about creating a system that will be able to take a punch or two and keep going. By knowing what you are liable for if your operations have to stop tomorrow, you'll discover where your greatest fixed costs lie.
The gravity of fixed costs are easy to downplay if you are adequately covering them today. But when disaster strikes, their formidability becomes quite clear.
Assessing the worst case of what might happen if your operations are forced to cease will give you a strong case for what costs must be reduced today. You won't just be finding savings in these areas, you'll be creating a business that can survive lean years more easily.
What is stopping you from having two suppliers today?
Any number of factors could prompt you to rely on a sole source supplier. But simply settling for the situation will not solve the problems it creates
What is the honest reason that you don't have a secondary supplier already in place? What underlying assumptions need to be challenged?
A more thorough analysis of your bill of materials will help you know exactly what options you have. In the same vein, evaluating the unique capabilities required to manufacture your product equipment could give you deeper insight into your constraints.
Regardless of what is causing you to deal with a sole source supplier, don’t resign yourself to the position! Investing the time and money into solving a sole source supplier issue before disaster strikes will be far less expensive than your entire supply chain being disrupted not to mention the cost benefits today from creating competition.
Today’s markets are dynamic and risky. Or that’s one way to look at it. The other is that today’s markets are set for firms with the right skill sets to make bold moves and capitalize on the current wave of innovation.
If you can thoroughly work through the questions above, you will create a supply chain that can, “float like a butterfly and sting like a bee.” Regardless of what changes the market brings, you’ll be increasing your company’s ability to respond.
Your firm doubtlessly has the potential to deliver a knockout punch. Don’t let supply chain rigidity come between you and victory!