The secret behind agile and efficient supply chains

In the bustling coastal city of A Coruña in north-western Spain in the mid 1970s, fashion designer, Amancio Ortego opened a clothing store that featured “low-priced lookalike products of higher-end fashions”[1]. Today, Zara is a global household name with more than 2,200 stores in 94 markets and a market capitalisation of €95.167 billion euros[2].

Key to their success? A phenomenally efficient supply chain.

In the beginning, growth was relatively slow, with only nine stores across Spain in the first ten years. However, after investing in a state-of-the-art logistics centre and establishing a distribution system capable of reacting to shifting market trends extremely quickly[3], the humble Spanish brand exploded. Zara’s business model of shrinking the gap between fashion creation and customer took off around the world. So great was the disruption to the industry that the Zara model gave rise to a new term: fast fashion.

Powering a sophisticated supply chain

At the core of their successful strategy is the integration of various supply chain operations, seamlessly integrated and co-ordinated by a centralised IT infrastructure[4]. In their story lies an opportunity for operations, supply chain and logistics managers across industries.

McKinsey and Company observes that customer fickleness, increasing service demands, and economic volatility are making supply chain agility of paramount relevance for B2B and B2C businesses alike[5]. Too many businesses, they say, are not reaping or passing on the benefits of an agile supply chain, including seamless stock replenishment, same-day turnaround or customised delivery[6].

Agility, now more important than ever

We are living in a volatile world. If a company’s supply chain performance is mediocre in optimal conditions, what can we expect from a sudden and potentially dramatic shift in the external environment? COVID-19 is testing supply chains around the world as companies see unforeseen spikes in demand while managing disruptions to and shortages in supply. This is not the first time we have seen devastating disruption. Acts of terrorism, natural disasters and catastrophes caused by human error have a history of exposing the vulnerabilities in supply chains.

Take for instance the experiences of Nokia and Ericsson in 2000 when a manufacturing plant in New Mexico was destroyed[7]. The facility produced radio frequency chips, which were a key component in both companies’ products. With backup manufacturers at the ready, Nokia quickly implemented their contingency strategy, while Ericsson was forced to scale back production and delayed the launch of a major new product. Nokia stole market share from Ericsson because it had a more agile supply chain[8].

Technology enabling an agile supply chain

An agile supply chain responds speedily to sudden changes in demand or supply and adapts over time as market structures and strategies evolve[9]. Underpinning this system is real-time data that provides powerful insights that can be used to leverage current operations and align to the demand forecast, improving the overall efficiency productivity. The right technology is needed to collect data from potentially thousands of points along a supply chain, as well as having the necessary infrastructure and expertise to extract value from the data.

A fourth party logistics (4PL) provider enables its customers to take advantage of state-of-the-art technology without having to commit the capital investment. Not only is a 4PL driven by high-powered software, but highly-trained people make sense of the data and deliver tailored and comprehensive supply chain solutions to their customers. Specifically, just a few of the ways a 4PL can support efficiency and agility in supply chain include:

Increased visibility

Many companies are simply not aware of the vulnerability of their supply chain relationships. Fortunately, 4PL technology breaks down functional silos that might exist, dramatically improving end-to-end visibility across the supply chain. By curating all the data in one central repository, a 4PL maintains oversight and control over the entire supply network. They can then leverage real-time insights to predict shifts by geography and channel, which enables collaboration, fast response and optimisation.

Transparent reporting

To paraphrase legendary management icon, Peter Drucker, if you can’t measure it you can’t manage it. The transparency afforded by a 4PL’s technology also enables the measurement of key metrics such as punctuality, accuracy and damage rate, whilst allowing for generation of insights through ongoing trend analysis. Defining and measuring performance against strategic KPIs serves as the basis for driving long-term and ever-improving high performance.

Emerging technologies

The right logistics partner will know how to leverage the opportunities presented by advanced technologies including Internet of Things, artificial intelligence, robotics and 5G. For instance, by using digital twins it is possible to strengthen the supply base by analysing potential supply scenarios to assess the capacity of existing and alternative sources[10].

Action today will help protect tomorrow

As fast-fashion house Zara demonstrates, an integrated supply chain strategy provides the benefit of total visibility and control, which paves the way for efficiency and agility, and ultimately, competitive advantage. Through sophisticated technology and a specialist team, a 4PL offers businesses all the benefits of a responsive, continually improving supply chain without costly capital investment.

Perhaps now more than ever, the need to manage external volatility and internal vulnerability are top of mind for the industry. The current environment could be the catalyst needed for many companies to upgrade their supply chain model to enhance operations today and protect against potential disaster tomorrow.

Find out how to improve the efficiency and agility of your supply chain.