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The five dimensions of supply chain agility
The current business environment can be characterized by constant change, shorter product lifecycles, and increased demand uncertainty. As these conditions have become the norm, companies and researchers alike have turned to the concept of agility in their quest for a sustainable source of competitive advantage. Consequently, supply chain agility has emerged as the dominant competitive vehicle for organizations operating in such an uncertain and ever-changing business environment.
But what exactly is supply chain agility, and how can your company develop it? In essence, supply chain agility can be described as a company's ability to quickly adjust tactics and operations within its supply chain.
[Figure 1] Supply chain agility scoring spectrum Enlarge this image
One way to frame a discussion of supply chain agility is to draw from research on agility conducted in sports science and military science. Why these two areas? Similar to business organizations, athletes in team sports and military troops in combat must be agile in order to successfully cope with uncertainty and change. By examining examples and lessons from sports and military science, we can uncover the anatomy of agility and better understand how companies can develop this important capability.
A survey of recent research suggests that there are five dimensions of agility that are common not only to military and sports science but also to the supply chain world: alertness, accessibility, decisiveness, swiftness, and flexibility. Each dimension represents a capability that companies must develop to achieve the desired level of agility. They can further improve their supply chain agility by using a self-evaluation questionnaire based on these five dimensions to determine where they fall on the agility spectrum, whether corrective actions are needed, and where to make those corrections.
The first dimension of agility is alertness, defined as the ability to quickly detect changes, opportunities, and threats.
Both sports and military science consider alertness as a key agility component.1 In sports, agility describes a player's ability to quickly change his or her body direction, and alertness is an essential part of that capability. For example, the U.S. national protocol for the assessment of agility performance in team-sport athletes recognizes the role of alertness and suggests that the athletes' ability to move with agility during a game depends on factors such as visual processing, timing, reaction time, perception, and anticipation. 2
Military science also suggests that alertness is a key component of agility, as early awareness of threats allows for a quicker response to them. U.S. military strategist Col. John Boyd developed a concept called the OODA (observe, orient, decide, act) loop to describe how military forces should react to events in a combat setting. It has been suggested that creating an agile military force requires speeding up the OODA loop.3 The alertness dimension of agility is equivalent to the "observe" and "orient" stages of the loop and is a prerequisite to an agile response. Similarly, a pilot's ability to move agilely is dependent on his or her "situational awareness," or the perception of environmental elements with respect to time and space.4
The same principle applies to a business setting. Before a business can respond to changes in its environment, it must first identify those changes. Truly agile companies have developed a high level of alertness. The alertness dimension requires sensing emerging market trends, listening to customers, interchanging information with suppliers, monitoring demand, and sensing impending disruptions, be they natural or man-made disasters.
Working closely with alertness is the second dimension, accessibility. Accessibility is the ability to quickly access relevant data.
Military research considers the ability to provide an agile response to be contingent upon the accessibility of relevant information.5 Because of the dynamic aspects of combat, troops need to be able to quickly access information regarding the positions of both the enemy and of friendly forces in order to coordinate and execute their strategy.
Within sports science, agility tests indicate that high-performance players can initiate a change of direction before the opponent even releases the ball. Such highly skilled athletes are able to successfully predict the opponent's action before it is carried out.6 This is due to some players' ability to quickly recall information about the opponent and the sport itself.
Once a company has used its alertness capability to detect change, it must be able to speedily access relevant data in order to quickly decide how to act. Information access across the supply chain is a key requirement for supply chain agility. At a minimum, supply chain members need to share real-time demand, inventory, and production information. This is a challenge to achieve, since it encompasses data from dozens of sources, companies, regions, and time frames.
Most companies still do not have what Google calls "insane data accessibility" in real time, and therefore have limited levels of agility. Many still rely on their information technology (IT) department to provide reports that take time to produce and in many cases are limited to rigid formats. Instead, companies that want to be agile should provide access to real-time data to all associates who could benefit from quicker access to information.
Agile companies have invested significant resources in improving data accessibility within their supply chains. For example, Procter and Gamble (P&G) and Wal-Mart have found a way to use information technology to share data. P&G uses the GT Nexus platform to achieve real-time visibility into inventory flows across its global supply chain. To achieve a "single version of the truth," all supply chain partners are connected to the same cloud-based platform, getting access to a common, real-time data set, which includes status of orders, inventory, shipments, documents, and payments. Both companies can use this information to quickly make decisions to reduce inventories or move products so they are located close to the end consumer when that customer wants them.
Another example is General Electric (GE). With more than 500,000 suppliers in over 100 countries and a yearly spend of US $55 billion, GE understands the importance of accessibility. To increase its ability to collaborate quickly with suppliers, GE phased out its homegrown Global Supplier Library and replaced it with the easier-to-use Supplier Information Management software-as-a-service (SaaS) solution from Aravo. GE's objective was to achieve one common view of its huge supplier base and related data by uniting its sourcing empire within a central information repository with multilingual capabilities. The solution also has self-service functionality that allows each supplier to manage its own data. This solution provides all supply chain members with real-time access to relevant data. As such, it has allowed GE to experience superior levels of supply chain agility because every entity in its supply chain can quickly coordinate its actions with those of other members.
Sports science and military science research suggest that agility is dependent upon decisiveness, or the ability to make decisions resolutely using the available information.
Motor-learning researchers have managed to isolate athletes' decision-making time in order to evaluate its contribution to agility performance. Decision-making time is measured by the time elapsed between the moment a stimulus is presented to the player and the player's initiation of movement. Study results indicate that athletes who demonstrate proficient agility employ superior decision-making skills in response to their opponents' movements and body positions.7 In addition, as the complexity of the agility task increases, decision-making skills become more important. The increase in complexity affects an athlete's performance, as evidenced by the weak correlation between straight sprinting ability and the ability to perform complex agility tasks. The decision-making component of agility can help explain why straight sprinting performance (limited decision-making required) has little to do with agility performance.8
Military science research also recognizes the importance of decisiveness. The "decide" phase is one of the components of the OODA (observe, orient, decide, act) loop and is considered essential for agility. Military pilots receive intensive training to improve their decision-making skills because in combat, the speed of the decision-making process can compromise missions and make the difference between life and death.
Similarly, in the business realm it is not enough for companies to be able to quickly detect changes (alertness) and access relevant information (accessibility) within their supply chains. They also need to foster the ability to make resolute decisions on how to respond to changes (decisiveness).
As companies get larger and their supply chain networks expand, more functions and management layers become involved in decisions, leading to a slowdown in decision making. The example of Apple Inc. is instructive. Today Apple is a much-heralded example of supply chain agility, but that was not always the case. From 1985 to 1993, under former chief executive officer (CEO) John Sculley, Apple became increasingly bureaucratic. The company had multiple committees to drive various corporate initiatives. Fiefdoms with individual budgeting power and sometimes competing agendas emerged. As such, it became difficult for Apple to make resolute decisions to capitalize on its ability to detect opportunities in the market. When Steve Jobs returned to Apple as CEO, he helped to reduce decision-making time by eliminating about 4,000 middle managers.9
Once a decision has been made about how to respond to changes, agility is dependent on a company's swiftness, or the ability to implement decisions quickly.
Research on the effects of agility training on athletic performance indicates that agility is highly dependent on the athlete's speed of movement.10 Military research also acknowledges the importance of swiftness in facilitating agility by emphasizing the roles of speed of movement and speed of action.11
In fact, speed is at the very core of supply chain agility. If a company detects a change in its environment, accesses relevant data, and makes a resolute decision on how to act, but it does not have the ability to quickly implement the decision that has been made, then the agility cycle breaks.
Zara, the Spanish clothing retailer, is famous for its supply chain speed, which allows it to launch around 10,000 new designs each year. It is claimed that Zara only needs two to four weeks to turn a new clothing line around, compared to the six-month industry average.12 The retailer has garnered accolades for its ability to quickly deliver new clothes to stores. This capability of swiftly implementing decisions has allowed Zara to develop a level of supply chain agility that is unparalleled in the clothing industry.
Flexibility is the final dimension of agility. Within a supply chain context, flexibility can be described as a company's ability to modify its range of tactics and operations to the extent needed to implement its strategy.
A sports analogy can help to illustrate the critical role of flexibility in achieving supply chain agility. The flexibility of an athlete's joints controls the range of adjustments the athlete can perform. When the athlete exceeds her/his own range of motion, injury will occur. Similarly, a supply chain operates within a specific range, and the company's supply chain agility (that is, its ability to quickly adjust tactics and operations) is constrained by that range. For example, a supply chain cannot quickly produce more items than its suppliers' fixed manufacturing capacity allows.
A 2012 New York Times article described how Apple's supply chain agility allowed it to redesign the iPhone just weeks before the device was scheduled to be released. A little over one month before the iPhone was due on store shelves, Steve Jobs demanded that it include a new screen made of unscratchable glass. The challenge became to redesign that element of the phone and manufacture it quickly and cost effectively while maintaining the highest quality. To accomplish this feat, Apple capitalized on its suppliers' flexible operations, in particular that of the contract electronics manufacturer Foxconn. The Taiwanese multinational has a massive, walled campus in Shenzhen, China, called "Foxconn City," which includes 15 factories, covers 1.16 square miles, and has 230,000 employees, one-quarter of whom live in company barracks. According to Jennifer Rigoni, a former worldwide supply chain manager with Apple, Foxconn can hire 3,000 people overnight when needed. Thus, Apple was able to revamp the iPhone at the last minute with stunning agility because of its flexible Asian factories, which could quickly scale up and down as needed.13
How agile are you?
As we have seen, supply chain agility is manifested through a company's ability to quickly detect changes, opportunities, and threats (alertness); quickly access relevant data (accessibility); make resolute decisions about how to act (decisiveness); quickly implement those decisions (swiftness); and modify its range of supply chain tactics and operations to the extent needed to implement its strategy (flexibility).
Amazon offers an example of a company that aims to achieve agility through the five elements discussed in this article. In December 2013, the online retailer secured a patent for what it labeled "anticipatory shipping," which entails delivering products before customers click the "buy" button. The success of this method depends on the company being aware of any changes in customer behavior (alertness). It is based on anticipatory algorithms that take into account previous orders, product searches, wish lists, returns, shopping-cart contents, and even how long a prospective consumer's cursor hovers over specific products (accessibility).
Based on the algorithms, Amazon may decide to proactively box and ship products it expects customers in a specific area will eventually order (decisiveness). The packages would then wait at a fulfillment center close to the customer's location until the actual orders arrive. For large apartment buildings, the package might be speculatively shipped to a physical address where a large number of tenants reside. The patent indicates that Amazon might even fill out partial street addresses or postal codes to position items closer to customers, and subsequently complete the shipping labels while in transit (swiftness). When an order does not materialize, Amazon might consider offering discounts or converting unwanted deliveries into promotional gifts to build goodwill (flexibility).
These five dimensions are helpful not only for defining what supply chain agility is, but also for determining your own supply chain's level of agility. The self-evaluation questionnaire presented in Figure 1 can help you assess your company's maturity across each of the five dimensions. By answering the questions, you can gauge where the company falls on the supply chain agility spectrum, whether corrective actions are needed, and where (that is, across which dimension) such actions are needed.
An average score of 3 or lower on any dimension should be cause for concern. It indicates that your company needs to significantly improve the respective capability. This might require investments at the companywide level or at the supply chain level, depending on the specifics of the required improvements, which could, for example, include technology-, process-, and training-related improvements.
Scoring high on one dimension but low on another can be equally problematic. For instance, let's assume your company scores very high on the alertness dimension and low on accessibility. This means that the company is capable of quickly detecting changes in its environment but does not have the ability to quickly access relevant information to make informed decisions about how it should act in order to capitalize on those changes. For example, it might be doing a great job of identifying new market requirements or sales opportunities in different regions but lacks the ability to quickly access relevant data that would allow it to develop its supply chain to capitalize on the newly identified opportunities. Thus, excelling in one category but lacking in another will negatively impact supply chain agility.
For this reason, companies that desire a high degree of agility should aim for high scores across all five dimensions. However, they may have limited resources available to invest in enhancing their levels of supply chain agility. In those situations, a more balanced distribution of resources is recommended to ensure a high level of consistency among all five agility dimensions. A high score in one dimension and low score in another is of little value to the company, since the lowest score in a respective dimension will be the bottleneck that limits its overall level of supply chain agility.
But even if you scored well on all dimensions, don't become complacent. What represents a high level of agility today might not be sufficient to ensure a competitive advantage tomorrow.
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5. Sheffer, "Awareness Through Agility: Teenagers as a Model for Terrorist Development of Situational Awareness."
6. J.M. Sheppard, W.B. Young, T.L. Doyle, T.A. Sheppard, and R.U. Newton, "An evaluation of a new test of reactive agility and its relationship to sprint speed and change of direction speed," Journal of Science and Medicine in Sport 9, no. 4 (2006): 342-9.
7. R.J. Bradshaw, W.B. Young, A. Russell, and P. Burge, "Comparison of Offensive Agility Techniques in Australian Rules Football," Journal of Science and Medicine in Sport 14, no. 1 (2010): 65-69.
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9. S. Denning, "Is Apple Truly Agile?" Forbes, February 2012.
10. D. Farrow, W. Young, and L. Bruce, "The Development of a Test of Reactive Agility for Netball: A New Methodology," Journal of Science and Medicine in Sport 8 no. 1 (2005): 52-60.
11. Dekker, "Measuring the agility of networked military forces."
12. K. Girotra and S. Netessine, "How to Build Risk into Your Business Model," Harvard Business Review 89, no. 5 (2011): 101-105.
13. C. Duhigg and K. Bradsher, "Apple—How the U.S. lost out on the iPhone work," The New York Times, January 2012.
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