Supply Chain professionals play a key part in managing VUCA in the Supply Chain. VUCA - Volatility, Uncertainty, Complexity and Ambiguity are the challenges that professionals who manage supply chains and the key drivers that determine the effectiveness and efficiencies of supply chain, face today. What are the factors that are essential to combat these disruptive elements?
Though it may seem very obvious, one of the key risks in a supply chain is that of handling disruptions due to VUCA (Volatility, Uncertainty, Complexity and Ambiguity). Key sectors and industries have several ways to tackle this. I like to highlight and also draw a comparison from a few sectors from my own experiences – one of them is a discrete manufacturing process at Toyota that can be compared with the continuous process flow example from the Scotch Whisky supply chain. The operational synchronization of the supply chain takes importance in these two cases.
The other two examples are from the Telecom network environment and the pharma supply chain, where collaboration and preserving the integrity of the supply chain takes center stage. In all examples, there is one thing that stands out and that is, “Communication and collaboration at both levels, strategic and operational become the key driving factors in managing VUCA factors”,
For very unique, discrete manufacturing supply chains like those of Toyota, managing scheduled supplies can be a key part of managing contractual SLAs with key Keiretsu suppliers. Keiretsu is a Japanese word that indicates cross holding of businesses and is not only a supply chain risk reduction strategy but also enhances supplier competitiveness in terms of cost, quality and delivery. It is like a symbiotic relationship in which the OEM invests time and resources to develop the supplier capability to meet its requirements, whereas the supplier benefits by way of having "assured business" and hence can "never go wrong". It is this close collaboration that helps the supply chain to achieve reliability (on time in full), responsiveness (scheduled deliveries), agility (ability to dynamically adjust to demand), Just in Time Inventory and an optimum ROCE (Return on Capital Employed).
Keiretsu brings about not only strategic collaboration but also ensures operational collaborations that helps to reduce inventory, delayed differentiation and helps in last mile delivery. Toyota takes JIT (Just in time) to extremes for certain parts and components such as seats, for which Toyota maintains almost zero inventory. As per this system, the Keiretsu suppliers maintain their production line sequence just in line with the OEM (in this case Toyota) with a few minutes lag or difference. For example if there is a car needing a blue trim Seat at 11 AM, followed by a red trim seat at 11:03 AM, a yellow trim seat at 11:06 AM and so on, the seat supplier (a Keiretsu supplier in all probability) would have completed making those seats only a few minutes before assembly, or at max., a couple of hours ahead and despatched it a few minutes earlier, just before the expected time of assembly of that particular seat on the car. This whole process happens with such amazing precision that it has to be seen to be believed. Collaboration and communication are the underlying drivers behind such a robust supply chain.
We can draw a parallel here to the scotch whisky supply chain. The scotch whisky supply chain has a very long value chain and the key challenge is to forecast what customers' preferences will be 20 or 25 years later, particularly keeping in view that there are numerous SKUs and flavours. Sourcing professionals are tasked with not only getting the right ingredients (which is just 20% of the value they can add) but also have to ensure that they secure the right wood, 'casking', wood treatment and warehousing contracts (that add 80% value to the product). Thus, the Oak selection (for the casks), the drying lead times, heating of wood (toasting or charring etc) and warehousing techniques are all factors that influence the creation of the required flavour (developed internally, and not added) in the whisky. Due to the fairly long lead times, the elongated value creation timelines, and the uncertainties that affect the exact forecasting and response times to meet customer demands, some organizations have taken recourse to 3PL logistics providers to manage the value chain. This helps to increase forecasting accuracy, reduce inventory and provide greater agility. It is important to remember here that the Toyota example is a Discrete Manufacturing example whereas the scotch whisky example is a Continuous Flow Line process. However collaboration (that helps to communicate effectively and anticipate risks faster) between supply chain players is the only way to reduce VUCA risks in both cases.
Another example, but in the space of managing the Reverse Logistics Supply Chain that comes to mind, is in the Telecom Network Space. This was during an engagement with one of the largest Telecom Companies in the World. The power of collaboration for managing risks took central role in managing PICs or Plug-In-Cards. PICS is a unit of Telecom Network Infrastructure and is basically an electronic chip with surface mounted devices such as capacitors, transistors and resistors). The PICs value chain consists of Source, Return, Repair/Refurbish and Investment Recovery. The key pain point here was, apart from a highly fragmented spend and high number of suppliers, the reverse supply chain was dogged with an extremely slow inventory movement, low visibility of the flow of PICs and a very low Investment Recovery (or asset recovery) of 10% (only 10% of the PICs selected for a reverse auction could get sold). Every element of V-U-C-A was playing its part.
Based on a three weeks study of this value chain and interviews with key stakeholders, a detailed recommendation was made. 80% of these recommendations were implemented in short to medium term. Within 4 months of implementation of these recommendations, quite a few transformative changes began to be observed in the value chain, including reduction in number of suppliers (around 25%), increase in visibility (around 50%) and number of inventory turns and also a tremendous enhancement of the Investment Recovery (at least doubled).
But most importantly, creation of visibility to each player or entity in the value chain by way of creating a common platform for the players to communicate with each other was by far the most important value delivered. This yet again has reinforced my belief in CPFR (Collaborative Planning Forecasting and Replenishment) in Supply Chain Space to manage VUCA related risks.
Over the last few years, CPFR has evolved into what is called DDVN (a demand driven value network), as per Gartner. CPFR related to a liner supply chain with information moving in a sequential fashion in a supply chain, whereas DDVN, which is more like a lattice of functional elements of the supply chain, is more focused on creation of value. Another point in question is an example from the pharma sector.
The USDSCSA (US Drugs Supply Chain Security Act) is now focused on Supply Chain Integrity. Track and Trace, recall of products and delivering a pedigreed or authentic drug to the consumer are the key elements of integrity. The framework of rules governing integrity requires that all players across the supply chain, including manufacturers, packagers, logistics providers, the government agencies and distributors follow a serialization code on primary, secondary and tertiary packing to identify that the drug is authentic. This requires them to have a strategic collaboration. At a tactical level, usage of a common technology (like adoption of cloud based platform) and harmonization/standardization procedures (GS1 standards / GSDN – a system of interoperable codes to refer to across the supply chain players), can help in all players using a common language to bring about greater integrity, efficiency, agility and effectiveness of the supply chain. Keeping in view that the counterfeit drugs market is huge, estimated at around USD 200 Billion per annum, the onus is on all parties involved to deliver the right drugs to deserving consumers, and also ensure that the brand value of the proprietary drug manufacturers is preserved. At the same time, utilization of logistics facilities, such as bundling of different drugs from manufacturers and back-haul utilization of trucks can be achieved through greater strategic collaboration. One such great example is UCB and Baxter coming together in Europe to use cargo facilities to the maximum creating better load factor in trucking capacity.
There are several such examples of collaboration and communication that fuel the supply chains of various sectors across the world, that help to tackle VUCA risks.
Being at the forefront of value creation, supply chain professionals play a key part in managing VUCA related Supply Chain risks, be it developing SLAs for managing reliability, responsiveness and agility based metrics for supplier contracts, or delivering value by bringing about greater opportunities for collaboration and communication across the supply chain entities.