Volatility, Uncertainty, Complexity and Ambiguity.
This four word acronym, VUCA, is now perceived as a trendy, new abbreviation among corporate leaders that best describes the current state of today’s global business.
The statement is usually attributed to General Max Thurman, a distinguished and celebrated US-based military general who developed a style of strategy around this acronym. This has led its adoption in just military circles but corporate ones as well!
Contrary to popular assumption though, it is not complete anarchy out there. It is not even entirely new! All four of the challenges described in VUCA have always existed in decades past. The only reason why it may seem more intense now is that we live in a globalized, internet-enabled society that makes us far more aware of what is happening around the world.
One could further argue that the term “It’s a VUCA world” is not a call to chaos but a call to face these four challenges with a new brand of order. It is an order that is enabled in equal parts technology, strategy and leadership.
And as a first step, it is important to define what exactly each of the words in VUCA mean. They are surprisingly less synonymous with each other than at first glance. This little guide from the Harvard Business Review is a good start.
That said, supply chain leadership should be aware of even more specific approaches than the ones being mentioned.
We have elected to discuss each of these below in a slightly different order to allow us to create supply chain linkages more effectively.
•The state of having many parts and being difficult to understand or find an answer to
So many of us can identify with this one. Our global supply chains are so complex these days, and that complexity seems to be increasing not decreasing.
This complexity is driven by global economies, distance, geography, geo-political and socio-economic issues. That’s just the first layer!
The second one comprises of the number, type and size of suppliers. Then, we have the number, types and sizes of products.
Following that, we have levels of market segmentation and associated product customisation. You need to concern yourself with the quality of the portfolio, nature of product development and lead times, and the list goes on and on!
After all, we all know that it was never a mere matter of assembling Product X and then shipping it off to Buyer Y.
For a larger enterprise, it can be a significant task just simply understanding the supply chain. We now even have a whole science born of supply chain experts creating end-to-end process maps so that everyone understands the actual process that is occurring to source, buy, move, make, distribute, and sell our products,
So, what is the best way? Is complexity good or bad? Where to from here?
In the first instance, you need to make sure that you actually understand your supply chain inside and out. Yes, that’s the supply chain from every supplier to you because ultimately you are responsible and accountable.
Who is it in your organisation that knows most about your supply chain? How can you best leverage their knowledge? Do you need to restructure so that you have these experts in the right places to actually influence this complex beast?
Once you are certain you know these complexities inside out, you then need to ask yourself the critical question: Is this complexity in my supply chain adding value to my business or is it just adding unnecessary complication which is destroying value and needs to be simplified? Take care because the answer here will obviously have critical impact on your business!
Fortunately, there is a lot you can do to facilitate your next move. You can use better tools for collecting, and auditing the information you are getting from your SC. You can make sure you have specialists on hand to analyse and interpret this information. Either way, make it a goal to better define those areas that are adding value and those destroying value and indeed what’s needed to improve these situations.
You can then clearly define as much of your ideal state as possible, including any ‘simplified’ areas.You can then work out the best way to transition from your current state to future state.
You might need further assistance on this step as well. Make sure you use someone with an end-to-end perspective. Remember, the supply chain is a holistic ecosystem of connected parts. You cannot operate on one section and expect that it will not impact the rest in some way!
•The quality or state of being likely to change suddenly and unexpectedly
Well, who hasn’t experienced this in supply chain? One moment everything is going well and on track and the next we are faced with possible disaster and consequences that could take years to recover from if we are lucky!
The worst way to handle volatility is to deny that it exists in your supply chain. Even the most seemingly flawless networks have an Achilles heel that can be exploited by chance and circumstance.
Whether it is a storm blockading a crucial shipping route or the sustainability of a new material, volatility is actually just another term for the consequences of disruption. And as already explained numerous times, disruption is something that we can prepare for and is manageable.
Here’s where we advise that you don’t wait for someone or something else to disrupt you, here’s where you must self-disrupt!
Make the effort to identify where your SC is vulnerable and start there. Do you fear that a current source of raw materials might be expended at some time in the future? Find alternatives now. Are you certain that your current IT infrastructure is not vulnerable to cyber attacks? Beef up security and make sure personnel know what to do in the event that it does. Find a high potential high performer that needs some additional challenge and allocate to them the development of the step-by-step process that allows us to prepare and plan for disruption.
You may never be able to predict when or where, but you will find that the steps you construct will converge into a more general approach around what you and your team need to do, should bad things happen in your SC.
All right, so you hear about this relatively new technology or product, then feel inclined to integrate it for the long-term success of your organization. Still, it’s all new. There seems to be no set standards if it works or if it is profitable. How does one move forward?
Always remember that one supply chain’s ambiguity is another veteran’s day-to-day operations. Even if said industry veteran doesn’t exist, it could still exist in the very near future (and yes, this could even be you!)
The best way to move forward is to consistently experiment, use controls and measure vs standards in your experiments, so you can develop the fact basis that you need to move forward. Use whatever tools at your disposal to prototype new production methods and test markets. Pay attention to whatever new entry into the space is doing and if you can also learn from anothers’ experience. Ambiguity is not an excuse for inaction it’s a call for more information which once gained, step by step in a thoughtful manner will reap rewards.
• a situation in which something is not known, or something that is not known or certain.
We have all experienced uncertainty. When we apply for a new job for instance, we can be confident that we will get it. But in reality, we are uncertain until we hear the outcome of our interview.
Humans strive for certainty in their lives, with individual differences in the level of certainty each one of us needs. Our SCs are no different.
Often our SCs don’t behave the way we expected and so we try to take remedial action. Often times, this is done with no certainty that said remedial action will work! It’s often from experience that we know a certain issue is caused by something happening elsewhere in the supply chain, but we can never be 100% sure.
Sometimes, a singular, disruptive event comes and there are just no immediate facts on hand or in the foreseeable future to help guide supply chain decisions about it. Contrary to the word ‘uncertain,’ you are actually certain that this event is on the horizon. You just don’t know what it will exactly do once it comes. Will it have a large impact somewhere upstream of your SC? Will it forcibly diminish market demand?
It applies to a broad range of issues today, from escalating trade wars to the socio-economic impact of artificial intelligence. Closer to home, you also have the incorrect forecast for a product or set of products. You know you will either have too much or not enough and in the scenario of not having enough, will you lose clients. And even in the event that they will go elsewhere for competitive products, there is no sure telling that they will stay with your competitor or they will return because the competitive product was more expensive and of poorer quality after all!
In this specific case, increased visibility and communication between teams can be vital no matter what looms on the horizon. The solution on this one is a cross functional team, working to identify and potentially address areas of uncertainty in your organisation, starting with the forecast example above.
All in all, the VUCA world is not as chaotic as it looks if you are willing to use the new influx of information to put itself into order. (And as strange as it sounds, it is quite possible provided that you take more immediate action rather than just sit around and watch market events play out on the news or even closer to home.)