Pearson on Excellence: Dynamic Operations—The flexible future of supply chain management

Dynamic operations—supply chain networks that respond quickly and smoothly to changing business conditions—sounds like something every company should desire. Who wouldn’t want a supply chain whose processes, people, capital assets, technology, and data are always positioned to surmount the primary challenges of the day?

The reality, however, is that few organizations are able to change as fast as the world around them; and a primary reason is inflexible supply chains. Due partly to their ceaseless quest for integration, many companies are currently burdened by arthritic supply chains—unable to flex without pain. And in this era of “permanent volatility”—that includes endless onslaughts of political, environmental, commercial, technological, and financial turmoil—rigid supply chains are increasingly untenable. The antidote is dynamic operations.

In this five-part series, we examine dynamic operations’ core components—capabilities that work together to give companies the speed and flexibility they need to accommodate supply chain disruptions and anomalies. The core benefits are twofold: minimizing the downsides of disruptive events and capturing the opportunities that those events often engender.

The dynamic operations concept
Think of dynamic operations as groups or nodes of supply chain networks that, in response to changing circumstances, reorient themselves without upending a company’s desired cost/service balance. When a disruptive situation arises (supply interruptions, financial chaos, market shifts, etc.), processes at any node on the supply chain can be modified quickly.

A loose analogy might be a guitar whose pegs allow the musician to design custom tunings that make a difficult song easier to play. With a guitar, the timbre of one or many strings can be changed. With dynamic operations, a company can do the same thing: effectively retuning its supply chain by leveraging the flexibility it has built in to every node.

Consider the actual case of a consumer goods manufacturer with 40 production facilities worldwide. The company’s markets and product lines were changing rapidly and company executives knew they needed to rationalize manufacturing. However, they also recognized that fewer plants could mean higher risk—compromised response and lead times and potentially higher per-plant operating expenses.

The solution was to create a more dynamic supply chain: fewer facilities (reduced from 40 to 23) but greater manufacturing breadth at each plant. To make this happen, the company used advanced analytics, scenario planning and insightful network design to create a unique “tradeoff curve.”

Via the curve, the company was able to determine the precise cost of adding relative levels of flexibility and that, by raising per-plant investments only slightly, it could increase supply-chain-wide resilience significantly and give each plant more ability to produce the products and quantities dictated by market conditions at any given moment. Basically, the organization got a lot more bang for only a few more bucks.

Dynamic operations components
Four distinctive capabilities work together to give companies the dynamic operations they need to rapidly identify and accommodate an endless stream of supply chain disruptions and anomalies:

Insight to action: sensing, capturing and analyzing external and internal data, and turning it into usable business intelligence. In effect, companies use information to improve their ability to react swiftly to both threats and opportunities—buffering risk while exploiting risk’s upside.

Adaptable structure: creating products, processes, and systems that are easily modified in response to changing conditions. The best and clearest example may be flexible manufacturing: the ability to respond quickly to currency fluctuations, supply disruptions, and sudden demand shifts by altering manufacturing volumes, mixes, and venues.

Flexible innovation: making design and development processes less rigid by reducing changeover times; increasing interchangeability; designing products that embrace multi-channel networks and technology; and structuring ways to smoothly and rapidly rebalance order management, production, and warehousing in response to shifting conditions.

Agile execution: rapidly adjusting supply chain actions by dialing capacity up and down, improving collaboration, formulating supplier contingency plans, and implementing advanced technology such as predictive analytics. The mantra is “flexible resource allocation,” made possible by centralized operations, low-touch (highly automated) processes, cross-trained personnel, solid supplier contingency plans, and an elastic infrastructure that emphasizes outsourcing, vendor-managed inventories, and rent-rather-than-buy philosophies.

Details on each of these capabilities, along with illustrative case studies, will appear in our February through May editorials in Logistics Management.