Business professionals talk about “agility” and “resilience” as if they are the same thing. They are not.
A company with an agile supply chain can react quickly to big increases or decreases in demand. An agile company is like a half back in football that can dart quickly to the left or the right depending upon the opening.
A resilient company has little or no debt. Even better, a resilient company is sitting on a lot of cash. A resilient company is like a boxer that can take hard punches and keep on battling.
I was talking to a supply chain vice president at an apparel company a few weeks ago. This company owned the brands, but they used contract manufacturing partners to produce the goods in China. They then sold their goods mostly in North America. The year before the pandemic, they had made a major acquisition and became highly leveraged. Then Covid-19 hit and much of their demand disappeared.
The company was forced into Chapter 19 bankruptcy. Before the pandemic, the company was much more focused on growth than profitability. After emerging from Chapter 19, the strategy changed. Achieving a sufficient margin on their sales and being able to service their debt became paramount.
This meant they needed to look for cost saving opportunities. Are there customers that might be willing to pick their goods up at the port so they don’t have to pay as much in transportation? Can they reduce the number of stock-keeping units they carry and spend less on inventory? Can they use a much higher proportion of 40-foot containers rather than 20 footers to move goods across the ocean? Can they encourage more customers to place orders before they manufacture the goods? They are looking for technology and new processes to support a lower cost supply chain.
Leverage is a perfectly acceptable business strategy. It can lead to companies growing much more quickly and achieving a high valuation much more quickly. But it is a strategy that carries risks.
During economic downturns, it is companies sitting on cash that can often find themselves with ripe opportunities. There are often companies that can be acquired for a fraction of what they would have cost pre-recession. And, as some competitors are forced to exit the market, they pick up market share.
Several companies have been written about that showed a high degree of agility during the pandemic – AGCO, BD, Cardinal Health, Dawn Foods, Hexion, Peet’s Coffee, Pure Storage, and others. Here are some of the processes, strategies, and technologies that allowed these companies to adjust quickly to significant changes in their demand patterns:
- A global supply chain – companies that had operations in China where the pandemic started got started preparing for Covid in other regions more quickly than companies.
- Dual sourcing – a supply chain should be designed so that no single points of failure.
- Robust demand forecasting – Demand forecasting breaks down during downturns. Demand solutions that make forecasts at a granular level, use machine learning, and use downstream data in their forecasts, have forecasts that can more quickly improve in reaction to the changed environment.
- Visibility to risks and logistics networks – supply chain collaboration network solutions based on real-time data are the key solutions here. Agile companies were able to anticipate when a nation was about to shut down and rush product out of that region before it got stranded.
- Companies with a robust sale & operations execution (S&OE) process – Supply chain organizations typically work around a planning time fence that separates longer term plans – matching project demand to supply over the coming months – and operational execution (S&OE) – making and delivering what is needed for customers in the next few days or weeks.
- Concurrent planning – These solutions are a key technology that supports mature S&OE processes. Concurrent planning links execution plans to the longer-term integrated business plan. As new short-term plans are created, the linkage to the revenue and profitability goals based on the initial IBP plan becomes instantly visible.
- Agile project processes – Agile involves continuously making smaller changes, more often, getting feedback, and then quickly adjusting based on the feedback. As companies needed to adjust their processes to new conditions, companies with agile processes adjusted more quickly.
- Strong relationships with key trading partners – the goal is to be a preferred partner with large suppliers, contract manufacturing partners, and core carriers.
Agility and leverage are linked. A company with an agile supply chain can start making money more quickly as demand shifts. But agility, by itself, is not enough to help a company survive a large downturn in demand. Resilience is a business strategy. Agility reflects supply chain design, processes, and technologies.