By Jonathan Webb, Forbes Contributor
Within the world of procurement and supply chain management, permanent and inflexible procedures abound. The main challenge for most buyers is the exercise of control. Supply chains are complex affairs, spanning borders and industries. For the most part, buyers aren’t entirely sure of the companies and links that comprise them, nor, sadly enough, their own commercial relationships with those in the chain.
As such, this has left the role of the supply chain manager as the policeman. He looks to gain visibility over the supply chain and create a framework through which purchasing decisions can be made. Like all good representatives of the judiciary, his primary tool is the rulebook. Purchasing decisions must be made in an agreed framework and in accordance with the procurement policy. Any maverick behaviour will be penalized.
Frameworks are an excellent means to enforce behavior but are limited in their capacity to generate agile or innovative actions.
In fact, these generations of buyers have built an inflexible and even brittle supply chain. They are slow to adapt to change and are frequently wrong-footed by sudden alterations in demand or supply.
Unfortunately, the world has grown more complex. Consumer demand is developing more fickle tastes, with shoppers expecting greater levels of customization and localization. On many occasions, consumers may not know what they want.
As such, companies develop greater skills in managing a supply base that can meet these needs. This essentially means replacing buyers’ previous role of a policeman, with a more agile, responsive function.
Here are four tips for building an agile supply chain.
- Build an agile team
Agile thinking has come from software developers. The agile method is an alternative project management technique that designs a process that is inherently more aligned to customer need. Previously, product developers would collect customer need and build a prototype that speaks to that stated need. Customer feedback was slow and many long, expensive processes produced ill-matching products.
Agile methods involve regular testing of products and ideas within the development phase. Teams assemble in ‘scrums’ which look to build products fast and test them quickly with customers. If they are ill-fitting, or buggy, then the scrum can return to the drawing board and rapidly redevelop refined versions.
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. Many successful companies – such as the Dutch bank ING – have recast their entire organizations in agile terms. This company divides into 13 ‘tribes’ which are further comprised of squads. All of these are focused on the achieving a fast output, not, as is the danger of many large companies, creating processes and frameworks.
- Reward efficiency – and tolerate failure
Experimentation is at the heart of agility. And the spirit to experiment only arises from those with the courage to risk failure. However, in most companies, to fail is to risk career prospects, so most choose to keep their heads down and rely on the comfort of their processes.
A rapid churn through ideas is needed to create an environment which is truly fast moving. Fearing failure, or managing the fall-out from a disastrous project is wasteful. It is better to encourage staff and suppliers to learn from mistakes, move on and focus on continuing the partnership forward, not looking to find the magic answer elsewhere. “Move fast and break things,” Mark Zuckerberg once famously said. “Unless you are breaking stuff, you are not moving fast enough.”
- Build agile supplier contracts
A flexible supply chain has historically required redundancy. That is, building multiple relationships with a range of suppliers to ensure the delivery of a required good. These are called ‘multisource’ supplier strategies. They are often used as a means to reduce risk in the supply chain. If one supplier fails, you can easily switch to your other previously identified alternatives.
Similar approaches can be used to create more flexible and responsive supply chains. Buyers are accustomed to leveraging their power to lower prices. However, this negotiating strength can also be deployed in order to achieve other benefits, such as an ability to flex to meet changing market needs. Buy-back contracts, zero-volume contracts or deeper relationships suppliers in the lower tiers can be structures through which agile supply can be constructed.
- Use smart contracts
We have seen elsewhere that large corporations are only beginning to realize the potential of the blockchain. The technology, which enables the use of bitcoin by creating a public ledger, is only starting to find real potential in company supply chains.
One of the most practical means by which it can do this is through the establishment of smart contracts. This is a contract which is enforced using digital technologies. As with many practical innovations flowing from the heady world of cryptocurrencies, the decentralized nature of the operations allows parties to verify the other parties fulfilment without the need for a third party.