As the “new normal” emerges, we must become resilient. We are not there yet, because we have not understood the dynamics of risk. Risk is multidimensional and entails everyday volatility, uncertainty, complexity, and ambiguity [VUCA].
Volatility is not fluctuation; it is the speed and frequency of fluctuation. Uncertainty is not being clueless; it is the lack of predictability, making it impossible to define requirements. Complexity is not the same as complications; it is the multitude of variables and the blurring of responsibilities. Ambiguity is not confusion; it is the inability to get a read on what is happening. A global pandemic is an extreme manifestation of everyday risk. We cannot avoid risk. We must face it and become resilient.
RESILIENT SUPPLY CHAINS
There is a difference between Robust Supply Chains and Resilient Supply Chains [Sheffi, MIT]. Robust Supply Chains involve “lean thinking” focused on quality management, internal process controls, and supply chain velocity [input-throughput-output from supply to market]. The result is minimized capacity, lean processes, and an emphasis on efficiencies. It is a command-control operation driven by performance metrics and cost controls.
Resilient Supply Chains involve risk management, focused on VUCA risk in real time and the need to manage internal and external relationships along complex global supply chains. Resilient Supply Chains are capable of sustained responses to sudden changes, while accelerating and decelerating supply chain velocity to meet market demand and mitigate the impact of risk. Critical factors include critical thinking, scenario planning, and agile, flexible, effective [not just efficient] processes.
Global supply chains need to be resilient, not just robust.
Supply chains are internationally networked complex systems. No matter how domestic and local operations are, supply chains are global by nature and scope.
Global supply chains are an economic community of interacting organizations that produce goods and services of value to end-user customers, who are also stakeholders in that community. Each participant has a stake in the success of the whole system, while co-evolving their own capabilities within the system. The integrating factor is alignment, not command-control. Alignment enables each part to succeed by adding value to the total system.
Systems alignment is the first step towards building Resilient Supply Chains.
Flexibility and agility are the DNA of resilience. Flexibility is not synonymous with enabling internal organizational change to build better processes; flexibility is the foundation of successful customer service. The value proposition of global supply chains is customer satisfaction, not operational efficiencies. Global supply chains strategically sustain excellence by being customer engaged, that is, by focusing on people as the beneficiaries of the service.
There is no single approach to flexibility in global supply chains. Minimally, we must consider
- Capacity Flexibility – longer term arrangements with suppliers that feature reserve capacity throughout the system, allowing scalability when demand increases or risks occur, and delivering with assurance of supply.
- Physical Flexibility – work units that can be reconfigured and repurposed to produce different products on demand, along with the capacity to expand/scale operations and facilities.
- Design/Product Flexibility – the ability to redesign product inputs to achieve interchangeability of product configurations that support inter-operability strategies and reduce inventory redundancies and obsolescence.
- Lead-Time Flexibility – product replenishment and quick-time delivery strategies in response to demand shifts, customer preferences and the need to mitigate risk events.
- Network Design [ND] Flexibility – multiple responsive supply chains dedicated to different needs, customers, or risk events, including build-to-order, build-to-plan, build-to-stock, and build-to-spec supply chains.
- Logistics Flexibility – the ability to adjust routes to move goods, funds, or information between points, by providing choices for inventory deployment and modes of transport.
Where flexibility is an organizing principle, agility is action oriented. Agility is the ability to think and act in context with a sense of urgency. It requires contextual intelligence – the ability to change direction while keeping balance, strength, speed, with the focus on turning, moving, pivoting.
Agility is not a playbook. It assumes that needs are ever changing, contexts are dynamic, and organizations must meet and exceed expectations. In the face of risk, ordinary change is extraordinary, and the speed to respond critical. The agile leader pivots with a sense of immediacy.
Agility is a culture – the set of attitudes that include respect, collaboration, pride in ownership, a focus on value, and the ability to change. This mindset is necessary to deliver value [not just products or services] in the global community.
Global supply chains face the leadership challenge of developing an agile culture with the flexibility to adapt effectively to multiple “normal” conditions and to instances of VUCA abnormality. Only in this way can global supply chains be resilient. Flexibility and agility demand that leaders develop strategic thinking skills to support and sustain success at macro- and micro-economic, social, environmental, and personal levels. Strategic thinking skills are the focal point of contextual intelligence.
Contextual intelligence is an ethos [what we do], not a set of ideas [what we know]. It is personally complex – real/perceived, psychological/social, physical/metaphysical. It is contextually complex – involving geography, time, genders, roles, beliefs, politics, organizations, past, preferred future, and personal values. It is interpersonally complex – recognizing contextual variables in all stakeholders, including oneself.
Contextually intelligent leaders are prepared for the “what if”. They have agile mindsets, and they are dynamic decision makers. They know when and how to pivot. Pivoting is a skill they develop and hone.
Contextually intelligent leaders confront randomness [VUCA] head on. Randomness defies our pattern-finding instincts. It is the opposite of rational – it tells us that sometimes there are no structures or rules. Randomness unmasks the limits of planning, as well as command and control. There are situations we cannot predict, and control is an illusion.
Randomness brings us to the fringe where planning is no longer effective. Yet, at the fringe we discover opportunity, and that opens the door to innovation. Innovation is the foundation on which contextually intelligent leaders build resilience.
In the face of VUCA, leaders must make risk-informed [not risk-averse] decisions. They need to develop dynamic decision-making skills to gain insight into uncertainties, their probability, their impact, and their interdependencies. They need to weigh options that introduce greater flexibility into the organization. Dynamic decision-making is the critical skill needed to lead Resilient Supply Chains.
Dynamic decision-making pursues optional, not just optimal, decisions, based on experience, intuition, instinct, and common sense. It engages in “value analysis” aimed at maximizing performance across all variables. It is not about selecting the optimal or best alternative that benefits one stakeholder at the expense of others. It is about “what can we do collectively”, not about “what can you do for me”.
Confronting the “what if”, dynamic decision-making can manage risk. It holds multiple views [scenarios] as “possibilities” and “opportunities” and uses ranges of plausible probability. It analyzes vulnerability-and-response options rather than makes predict-then-act decisions. The reality is that the most adept dynamic decision makers are athletes engaged in team sports. They know when, where, and how to pivot. Pivoting is contextual; it requires an agile mindset; it is a skill; it is being resilient. That is how you lead Resilient Supply Chains.
During the pandemic, global supply chains were relatively successful despite bottlenecks. As demand increased, large companies scaled up, even as SMEs struggled. Yet even with hyper-demand, “change” was about doing the same things, but faster; it was not about becoming flexible and agile. At core, global supply chains remain robustly focused on inventory optimization and managing internal processes to reduce costs, but at hyper-speed.
Global supply chains might be “successful”, but they are not resilient. Volatility, uncertainty, complexity, and ambiguity are real, whatever the pandemic or war. We cannot predict the future, except that it will not be the same as the present. The key is not about being better prepared; it is about thinking strategically, leading contextually, and developing the capacity to analyze possible vulnerability-and-response options. It is about being resilient, not just successful.