The costs and benefits of agile or continuous-flow supply chains

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Supply chain leader discussing the right supply chain model for the company.

While several supply chain models exist, any given company will choose just one that best fits its needs and goals. The models fall into two categories: responsiveness and efficiency. Of those approaches, the agile model is oriented to responsiveness, while continuous flow focuses on efficiency.

Here’s a comparison of the agile and continuous-flow supply chain models to help business professionals identify which paradigm will work most efficiently for their organizations.

What is the agile supply chain model?

With a focus on responsiveness, the agile supply chain model is ideal for companies that face considerable demand uncertainty and, as such, prioritize market mediation costs. These companies must adapt their supply chain operations to meet changing demands and market trends, and agility makes it possible to develop a flexible plan and tweak processes accordingly.

The agile supply chain model is more information-centric than inventory-centric, where business decisions of tomorrow are made based on fresh data from today’s consumer transactions. Agility requires manufacturing processes that can produce small batches, while still being capable of excess capacity. While the idea is to respond directly to demand, some forecasting is necessary for companies to plan for the future. Maintaining collaborative relationships with important customers and vendors can help suppliers predict fluctuations in capacity requirements, as they can gain information and feedback directly from the source. Such insight aids in scheduling as well as investment decision-making, striking a balance between frequently updated data and short-term projections.

The ideal companies for this method

Supply Chain Quarterly noted that this supply chain strategy is commonly used by companies that manufacture products based on unique customer specifications or customizations, as well as those that offer short lead time as a distinguishing value. Their products are trending or variable with market-based demands and have relatively short life cycles. Examples include fast-fashion companies, food and beverage suppliers, packaging providers, chemical specialties, and metal-machining services.

The costs

While the agile supply chain model allows companies to respond to changes and meet market demands quickly, it can make forecasting, resource planning, and production measurement challenging for management. This is because manufacturing based on demand is reliant on the market trends and consumer behaviors, meaning outcomes can be markedly unclear at times.

The benefits

The ability to meet unpredictable demands allows companies to rapidly respond to market changes and meet customer expectations. Such reactivity can minimize—and in some cases eliminate—surprises and disruptions across the supply chain network. Research from McKinsey & Company found that agile companies are top performers in labor and asset flexibility, risk management, and inventory placement. They can also offer high service levels despite having lower inventory levels.

What is the continuous-flow supply chain model?

Companies focused on securing the lowest possible costs and high relevance of asset utilization view end-to-end efficiency as a top priority. They have high demand stability that often doesn’t necessitate the same reactivity as companies with agile supply chain models.

As one of the approaches oriented to this kind of efficiency, the continuous-flow supply chain model aims to foster a consistent rhythm of product and information flow. It’s based on a make-to-stock decoupling point, whereby items are produced to meet predetermined stock levels. This continuous replenishment allows companies to stock facilities with the exact amount of inventory required to meet expected sales.

The ideal companies for this method

Well-suited for businesses with little variation in customer or market demand, the continuous-flow model is commonly adopted by mature industries. Supply Chain Quarterly highlighted the cement, steel, paper, commodities, and low-cost fashion industries as examples. The consistent replenishment system also works well for products with short shelf lives, such as dairy and bread.

The costs

The continuous-flow model requires considerable supply chain cooperation to work effectively and does not react well to irregular patterns in demand. Additionally, it is limited to a prescheduled order cycle, as a lead-time order cycle could generate demand peaks and disrupt the continuous flow of production.

The benefits

A continuous-replenishment system maintains high service levels and relatively low amounts of inventory, allowing companies to achieve total cost optimization. The just-in-time production approach can also create a system with the lowest possible waste and costs, as well as timely and accurate production. A well-designed continuous process can thus deliver highly consistent products with fewer variances and more reliable performance.

Learning about Supply Chain Management at the D’Amore-McKim School of Business

Pursuing an Online MBA degree in Supply Chain Management helps students understand the details and real-world applications of these supply chain models, as well as industry trends, best practices, and other supply chain management strategies.

The D’Amore-McKim Online MBA offers a Supply Chain Management concentration that provides students with strong foundational knowledge of operations and supply chain management concepts, techniques, and functions. This includes:

  • Sourcing and procurement
  • Manufacturing and service operations
  • Process design and control
  • Quality management
  • Capacity planning
  • Demand planning and forecasting
  • Inventory management
  • Transportation and distribution

Students who pursue the supply chain management concentration can further their understanding dedicated to this business focus.

The supply chain management concentration

Designed to cover supply chain management in more detail, the courses in this concentration help students advance their ability to maximize customer value and achieve a sustainable competitive advantage through savvy supply chain management.

The Logistics and Transportation Management course, for instance, provides students with a managerial perspective on transportation expenditures. The Strategic Sourcing course covers purchasing and pricing with a focus on the decision-making and problem-solving involved in this aspect of the supply chain framework. Other concentration-specific courses focus on sustainability, profitability, and international commerce. Upon completing the concentration, students should better understand how supply chain management applies to various business environments.

Students can apply the knowledge gained in these courses to executing sustainable and secure supply chains. As such, graduates from online supply chain management MBA programs often pursue positions such as international logistics manager, transportation manager, purchasing manager, director of supply chain management, or supply chain analyst.

If you’re interested in advancing your supply chain management skills and knowledge, visit the Online MBA program page at the D’Amore-McKim School of Business.

Recommended Readings:
Careers in supply chain management
About Northeastern’s Online MBA

Sources:
Supply chain strategies by Supply Chain Quarterly
How agile is your supply chain? by McKinsey & Company Operations
Future Supply Chains Enabled by Continuous Processing by Journal of Pharmaceutical Sciences
Agile manufacturing advantages and disadvantages by Planet Together
The 6 models of supply chains by Magaya
Strategies for better supply chain management in the current economy by Oracle
Northeastern University’s Online MBA Program