This is the final in a series of blog posts based on the applied research report “Meeting the Challenge of Supply Chain Agility” by the research team of Bruce Behn, Pradeep Charath, Paul Ditmann, and Dan Pellathy. The first article introduced agility and its benefits for businesses; the second addressed the challenges businesses face when considering agility; the third focused on making the business case for agility. Download the white paper.
Making a case for supply chain agility to internal stakeholders is important but not enough. Ultimately, greater agility requires external partners committed to enhancing network flexibility. That puts relationship building right at the center of supply chain agility work.
In this section, we will cover the following challenges managers face when working with external partners on agility:
- Building top leadership support for relationships that promote agility
- Developing a collaborative framework for working on agility
- Aligning partner incentives toward agility work
- Promoting a shared culture of agility
Building Top Leadership Support for Relationships That Promote Agility
Internal efforts to improve agility often depend on external partners. As one executive told us, “Just because we have buffer capacity, that doesn’t mean we have the infrastructure—suppliers, transportation, warehousing—to utilize it.” Collaborating with partners on supply chain agility brings several benefits, including:
- Shorter, more reliable supplier lead times
- Faster supplier recovery time/insurance of supply
- Enhanced supply chain visibility
- Faster decision-making
- Ability to quickly reconfigure networks during a disruption or when an opportunity arises
- Enhanced customer service with lower cost and inventory levels.
One of the more innovative and comprehensive approaches to engaging top leadership came from a company in the aerospace, defense, and security industry. The company organized a symposium where key vendors and top leadership could meet, discuss strategic priorities, and align on future projects. The event was a gamble, but it paid off.
In the first year, 400 hundred internal and external decision-makers attended. In three years, the symposium grew into the company’s biggest event, hosting around 1,400 people from across the supply chain. VPs, senior executives, and technical directors now meet with key partners to forge relationships. Participants share technical plans and develop agreements to pursue opportunities jointly. Most importantly, the event highlights supply chain management’s role in driving sales and shaping the company’s direction.
Connecting top leadership to key supply chain partners ensures your company captures near-term wins while building a foundation to pursue market opportunities as they arise. More broadly, top leadership must be encouraged to set clear expectations regarding collaboration around agility projects.
Developing a Collaborative Framework for Agility Work
Collaboration is a process for identifying and working on issues and opportunities with supply chain partners to increase overall supply chain value. Collaboration must occur around specific business objectives that benefit everyone involved.
Leading companies emphasize that partners must commit to aligning on project valuation, educating key leaders, and resourcing the analysis work as part of the process. Companies need to develop a collaborative framework that moves the relationship through the following stages:
- Stage One: Both parties recognize the potential value of collaboration, which requires supply chain sophistication on both sides. Senior executive support and encouragement are common in early collaborative relationships. Getting started also depends on acknowledging that collaboration will require time and effort.
- Stage Two: They develop a supply chain strategy, with collaboration as a core element. Partners work together to build trust so they can openly share information. Partners have a plan to sustain the collaboration efforts as people involved inevitably leave or change roles.
- Stage Three: Partners develop key performance indicators and jointly measure success. They agree to share the benefits from joint improvements equitably. In our experience, companies that reach stage three drive better fill rates and have lower inventories and costs, thus achieving higher economic profit.
The best collaborations have formal mechanisms for identifying, vetting, approving, and managing initiatives, like agility improvements. These mechanisms are often formally linked to performance management programs and supply chain partner compensation.
Aligning Partner Incentives Toward Agility Work
Companies often need clear incentives for partners to invest in agility. As one executive shared, “Our supply chains are now under intense pressure, and that pressure extends from suppliers to customers. Labor shortages are everywhere in the supply chain, most critically in warehousing and trucking. In this type of environment, strategic investments take a back seat.”
If companies want more agile relationships with their supply chain partners, they need to create mechanisms for monitoring and monetizing the benefits. At the same time, micro-managing suppliers to achieve short-term results kills innovation and strategic improvements.
A strong performance management program requires supply chain leaders to define the appropriate metrics for agility. Ideally, metrics are defined in collaboration with partners, beginning with discussing the future state the supply chain hopes to achieve. Metrics should track short-term, activity-based objectives alongside long-term, agility-focused improvements. Like your company’s managers, suppliers need to deliver day-to-day performance while investing toward a more agile future.
One place to start incentivizing agility is in supplier-customer contracts. Procurement managers must look beyond short-term cost savings and focus on long-term strategic investments by suppliers. Metrics for agility enhancement should be represented on the supplier scorecard and can be used to track progress toward strategic targets. Scorecards should contain straightforward metrics that reflect both contractual obligations and measure the relationship’s overall success.
To drive agility, include these KPIs on the supplier scorecard:
- Innovation and responsiveness
- Number of ideas and value of those ideas brought forward by a supply chain partner
- Innovative approaches to problems
- Strategic improvements (e.g., agility enhancements)
A strong performance management program should include a proactive, problem-solving framework as well as a dispute-resolution process. That means communicating performance data is crucial.
Good relationship management promotes free-flowing communication between operational groups, their managers, and company executives. Establishing a regular cadence of communications is essential to setting targeted priorities.
The best companies share results through a web portal when they become available and have formal face-to-face reviews at least quarterly. And the most successful partnerships have formal mechanisms (and informal protocols) for talking daily, weekly, monthly, quarterly, and annually.
Promoting a Shared Culture of Agility
Managers and leaders often assume that agility requires substantial capital outlays or significant financial risk. While building agility requires resources, and sometimes new investments make sense to bolster capabilities, promoting a shared culture of agility with suppliers is the best way to transform your supply chain.
This process entails:
- Developing organizing principles around which to collaborate. For agility work, these may include end-to-end decision-making and equitable distribution of risks and rewards. Supply chain leaders must work internally and jointly with partners to consistently reinforce organizing principles through communications, rewards, recognition, pay/benefits, promotions, assignment planning systems, and other mechanisms.
- Empowering employees to engage creatively with suppliers to find solutions. Leaders across the supply chain need to push decision-making to lower levels of the organization, encouraging people to make the call whenever possible. Leaders must also create a safe learning culture where suppliers are comfortable managing ambiguity.
- Moving beyond cross-functional to create cross-company problem-solving teams. To address agility challenges, leaders must work with supply partners to develop cross-company units that incorporate a range of functions. Teams should represent diverse perspectives and draw on information from supply chain partners.
- Integrating the end-to-end supply chain. Leaders must engage suppliers to map the end-to-end supply chain, and then begin integrating at key transition points. Throughout the integration process, leaders should focus on customer value as the foundation for collaborative decision-making.
- Driving reliability, predictability, and zero waste across the supply chain. Many companies add to environmental uncertainty through working relationships with suppliers that generate unnecessary variability. A typical supply chain entails many activities and transformations; a high level of reliability is needed to create predictable results.
Companies must also change how they engage partners to promote a shared culture of agility. One company we spoke to previously had buyer-supplier interactions that were transactional and focused on executing a service-level agreement. They missed a significant opportunity to build relationships and gather information. So leaders changed their approach. Every time a buyer picks up the phone today, they collect information by asking what suppliers are seeing, what’s coming up, and what the company needs to know. Recognizing that suppliers service multiple competitors, buyers leverage conversations to gain critical market intelligence. For instance, suppliers provide information on customer requirements and the overall level of competitor activity. Suppliers are also brought on to help craft sales proposals. In return, the company has established strategic partnerships to grow its business with key partners.
The key takeaway is that supply chain leaders can significantly enhance agility without asking for additional resources. Actions like educating leadership, developing collaborative frameworks, and aligning metrics and incentives to agility all help to transform your supply chain.
Conclusion
Too often, top leadership seeks responses to short-term problems. This approach almost guarantees that a company will continue to react to disasters instead of preparing for future opportunities. Supply chain agility flips the script on how companies operate in a dynamic environment. By focusing on a company’s ability to prepare for and quickly adjust to opportunities and threats, supply chain agility moves the concern from predicting a particular risk event to recalibrating supply chains to better incorporate change.
In the face of extraordinary disruptions, executives outside the supply chain have finally come to see agility as important to company success. Supply chain leaders need to capitalize on this grudging recognition by pushing for projects that will create more flexible, responsive networks.
To learn more about how your company can partner with us to explore advanced concepts in supply chain management, visit ASCC.
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