For decades, efficiency used to be the leading approach to supply chain management. The main principle of lean supply chains was eliminating any part of the system that does not add “value.” For that, massive efforts are invested in reducing the “price per product,” eliminating excessive capacities, reducing the number of suppliers, producing in huge batches, and more. The primary objective is to achieve a highly efficient supply chain (to minimize costs), all while satisfying customers’ demanding requirements.
Let’s try to understand this better. For example, let’s take the need to minimize the “price per product.” Is it a product that costs us $1, with a retail price of $10 considered to be cheap? According to the old way, it is a reasonable price per product. But, what if I told you that product is going to sit on the shelf unsold for 6 months, or arrive on its expiration date? Is it still cheap?
Supply chains should not be “efficient.” They need to be “effective.” In other words, they will be effective if they are agile. Agility is the ability of an organization to respond rapidly to changes in demand, both in terms of volume, and in variety. Agility is the system’s ability to cope with unexpected changes, survive unprecedented threats of the business environment, and take advantage of changes as opportunities.
There is a need for a paradigm shift in supply chain management. The need for speed or, better said, agility is the key for any supply chain to deal with the rapidly changing demands downstream, as well as the upstream challenges that are piling up.