Agile Supply Chains and Uncertainty

Daniel Dumke — Wed, 27 Apr 2011 12:49:00 +0000

There are many definitions of agility. A supply chain can be defined as agile, when it is flexible and responds quickly to customer needs. Agility can also be seen as a measure to mitigate supply chain risks, building on this thought Dani and Ranganathan (2008) developed a model to mitigate risks using the concept of agility .

Concept for Agile Risk Mitigation

The authors develop the model based on two premises: (1) scenario planning is used to identify supply chain risks and (2) the system is designed to react fast and flexible to mitigate the risk.
Figure 1 shows the resulting concept.

Figure 1: Concept for agile Supply Chain Risk Mitigation (Dani and Ranganathan, 2008)

Two general mitigation “arms” are necessary. One for the foreseen risks which can be mitigated proactively and unforeseen risks which have to be reduced reactively.

Model Validation

This model constitutes a theory build by the authors on recent literature and own experience. To raise the credibility a theory has to be validated. In this case the authors decide to use the Ericsson case (if you are interested, have a look at my review of the case here).
After a breakdown of a Philips semiconductor plant in 2000, Nokia and Ericsson were competing over the remaining capacity. Nokia reacted fast and acquired spare capacity by Philips and other suppliers. Ericsson reacted more slowly and failed to obtain the necessary component and lost about 400 million USD.

When applying the above mentioned model, it is clear that both companies had not thought about this scenario, however Nokia already beforehand had established a fast communication structure which permitted it to react in a fast manner.

Conclusion

The article also contains a extended literature section defining the terms used, building from uncertainty and risk, to risks in supply chains, scenario analysis and the agility concept. Building on that the concept presented on less then one page seems to be quite underweighted. The main statement of the article is that: (1) planning of future scenarios is important to anticipate and mitigate possible risks, (2) depending on the planning mitigation of disruptions happening can be done proactively or reactively. (3) Especially for reactive mitigation the agility of the company plays a major role in the success.

Reference:

Dani, S., & Ranganathan, R. (2008). Agility and supply chain uncertainty: a scenario planning perspective International Journal of Agile Systems and Management, 3 ¾, 178-191

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agility

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risk

supply chain

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framework

Rajesh Ranganathan

Agile Supply Chains and Uncertainty

Concept for Agile Risk Mitigation

Model Validation

Conclusion