Operational agility crucial in this turbulent market

Operational agility crucial in this turbulent market

During these turbulent times of raw material cost spikes, pandemic-impact-driven delays, and tight freight space/escalating container rates, which is more important: accurate forecasts or operational agility? I would argue that the answer is both; however, the balance needs to skew to agility. When you are dealing with multiple supply chain crises, meeting the needs of your key customers trumps all else. That said, more-frequently adjusted forecasts, which are proactively shared with your vendors, also play an important role.

Operational agility involves several key factors, including:

  • Prioritization — The Pareto Principle is still valid: 80 percent of your business comes from 20 percent of your customers. Therefore, it is imperative that everyone in your company knows who these key customers are, and that disruptions potentially impacting their deliveries are treated as a priority and corrective actions are made without hesitation. Not all of your customers need to be treated the same.

  • Visibility — The effective global supply chain practitioner knows when there is a disruption well before it is too late to act. There are milestone events that trigger an alert when missed. The factory is late on the quality control audit or freight booking, the carrier has not released the empty container, the transshipment failed, etc. — these need to be monitored for exceptions and your daily dashboard needs to include these until resolved. The onus is on you to then alert your factory or carrier regarding the importance of that shipment to you. Once you know what is really going on, the time to alert your key customer is now — yes, visibility extends to your customer if there is credibility and trust in your supply chain.

  • Power to execute — It is one thing to know there is a delay; it is yet another to have the power to act. Are you able to manipulate production scheduling to expedite certain lots to match your updated actual needs? Are you able to make the decision to upgrade a shipment from the lower-price named account contract to the costlier freight all kinds rates, or even pay an additional premium to ensure timely vessel space? Yes, these decisions do cost money that was not forecasted into the budget; however, these are necessary decisions.

If, by employing operational agility, you are thus able to maintain schedule integrity (in spite of the many operational challenges), it is absolutely acceptable to inform your key customers of the decisions made to protect their deliveries. Ultimately, you will be rewarded either with additional market share from these customers, or, when you raise your prices to cover these added costs, you would have already differentiated yourselves from your competition and earned the right to charge a bit more.

None of the aforementioned negates the need for forecasts; however, they must be adapted during these disruptive times. Forecasts need to adjust more frequently (e.g., monthly) and the added costs of operational agility should be factored into the cost budget.

Frequently adjusted volume forecasts play an increasingly important role during times of tight production capacity and limited vessel space. There is no better source for your order-volume forecast accuracy than your downstream end user. Likewise, the onus is on you to frequently provide your order forecasts to your factory suppliers and logistic vendors. The more proactive you are, the more these vendors will plan your needs into their own budgeting and thus protect you when decisions need to be made. By being proactive in this process, you will be seen as an aligned long-term partner and less as an expendable transactional customer.

In conclusion, when dealing with today’s dynamic challenges, employing operational agility to meet the needs of your key customers is essential. There will be additional costs to do so effectively and that can be factored into your cost budget. Your own forecasted production and vessel space needs need to be frequently updated and communicated to your vendors, so that they can plan to meet your needs.

Daniel Krassenstein, supply chain director for industrial packaging firm Procon Pacific, can be reached at daniel.krassenstein@outlook.com.