In this article Kayla Matthews, Productivity Bytes talks about the agile methodology originated in software development but is now becoming prominent in the supply chain due to an option called agile procurement. This approach requires upending traditional methods, but it could pay off for the companies that adopt it.
The agile method of project management is well known in software development circles. It represents a stark departure from the traditional ways of doing things. Companies that use the agile method focus on continuous improvement, and they know this means being flexible enough to meet a customer’s needs as they arrive. Agile teams are highly reactive to events in context, and they collaborate frequently.
The agile methodology also involves daily standup meetings whereby people briefly inform their colleagues of their progress and any obstacles encountered. This approach means people quickly become aware of bottlenecks.
Although professionals began using the agile method in software development, it quickly spread to other sectors, including manufacturing. Business leaders have also become more interested in agile procurement.
Here’s a look at what that means, and 3 ways this new approach could change the supply chain:
1. Agile Procurement May Require Changing Vendors Mid-Process
Traditional procurement typically takes a fixed approach whereby vendors and customers sign contracts related to everything a customer will likely need for an entire project. The client secures all the required funding at once, then communicates with a vendor about requirements that may span months or years.
When a company uses agile procurement, however, the vendor-customer relationship is more fluid. A company may change vendors throughout the project if the results obtained indicate this is the best approach. That’s because creating an agile team for supply chain management focuses on improving the supplier output for the end-user. That party’s specifications may change throughout a project, and if they do, the vendor relationship may evolve as well.
Thus, agile procurement often means placing smaller orders while recognizing that the end user’s needs may shift during the project and require something a different supplier offers. The contract management aspect in agile procurement strays from the conventional method, too. Instead of working with long-term contracts, the agreements may be shorter but open to renewal depending on the end user’s needs.
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2. Agile Procurement May Enable Substantial Cost Savings
Successful supply chain managers realize they must pay attention to numerous pressures and challenges in the marketplace and respond to them as efficiently as possible. A 2019 report from The Hackett Group examined the growing use of digital technologies in today’s supply chains. The document clarified that economic slowdowns and geopolitical volatility are two aspects that facilitated the agile procurement trend, and more specifically, the push towards digitization.
The report also showed that taking a customer-centric approach to the supply chain business enables parties to generate 75% more savings compared to peer groups that did not decide to practice that foundational principle. Indeed, with agile methodology, the customer is king, and the emphasis on continual improvement is for their benefit.
But, as The Hackett Group’s data shows, prioritizing the customer in the way agile procurement requires could bring rewards for the businesses that do it, too. One excellent way to maximize cost savings is to depend on the data that often naturally arises from digitization. Procurement technology, such as machine learning software, can also reveal trends people may miss without that high-tech help.
A team using the agile method is collaborative, as well as action-oriented. Members usually decide how to proceed with a project by carefully studying the data and doing this often. So, if a supply chain has already decided to digitize its processes, the next logical step may be to explore how the agile method fits with supply chain needs. Paying frequent and close attention to the data determines what’s working and what isn’t, which could trigger overall savings.
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3. Agile Procurement Can Speed the Time to Market
Another benefit of small and agile procurement processes is that practicing them can shorten the time to market, thereby making a company more competitive. Traditional procurement usually gives decision-making power to one person or a few in a single department. Agile procurement, on the other hand, advocates creating a cross-functional team comprised of stakeholders who have different perspectives across the business.
Those parties have varied perspectives of the business, and they may see things others miss. Depending on a procurement team to make collective decisions can shorten the time to market. That’s because a team allows various viewpoints from people who are all committed to driving value for the end user and the organization.
If only one person or a few people from a single department make procurement decisions, it’s much harder — and often impossible — for the decision-makers to have a holistic view of the company and understand what it needs to address a client’s needs. The multi-department team approach advised by agile procurement allows for more visibility.
Then, this visibility allows the supply chain company to see existing barriers that restrict entering a new market or excelling in existing ones. Responding efficiently to this issue also enables a supply chain entity to assure its customers that it is well-positioned to notice market fluctuations and act accordingly.
Agile Procurement Requires Ongoing Efforts
As this overview shows, companies that want to thrive in this new age of small, agile procurement must be willing to do things differently and adhere to a new process. Getting this kind of procurement right takes time. It also means employees at all levels have to adapt and show an open mind to the agile methodology as it applies to the supply chain.
Besides the time-related investments, company leaders must strongly consider how procurement technology — including digital, smart tools — could aid in doing things the agile way. Transitioning to the agile methodology cannot and should not happen quickly. But, committing to it over time can help supply chain companies succeed in challenging marketplaces.
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