Digital Economy Dispatch #09426th June 2022

The New Rules of Supply Chain Resilience  or, In Praise of Waste

I am not a good traveller. I really don’t do well on long car journeys or waiting for trains. And even worse is my fear of flying. You would think that after all this time, and over a million and a half miles flown with American Airlines alone, that I would be able to cope. But I can’t.

It is not actually the flying part that is the issue. I have no concerns there. But it is all the worry about things that can go wrong from purchasing my ticket, waiting in the airport, losing my passport, enduring flight delays, missing my luggage, and a hundred other things. When you put it all together, I wonder how any trip happens at all.

Of course, most of the time it works. All the pieces fit together, and I am able to make my way safely and efficiently form one part of the world to another. But it is a completely different picture when faced with a disruption (such as bad weather, a broken airplane, or an IT software failure). Then, the fragility in the system becomes all too obvious.

So, what do I do to address these fears? I invest a lot of time, money, and effort to show up at airports far too early, avoid checking baggage, buy plenty of travel insurance, and recently I even booked and paid for 2 different flights just to make sure I made it home on one of them. As far as travel is concerned, I definitely favour a “Just-in-Case” approach.

In contrast, a good friend of mine always arrives at airports at the last minute, scrambling to find his ticket and passport. He laughs when he hears that I have already been at the airport for 2 hours to make sure I got through the security line. His view is that if you don’t miss the occasional flight, then you must be spending far too long in airports. He is perfect example of a “Just-in-Time” traveller.

Ensuring Resilience

My travel concerns provide a very direct analogy of what we are witnessing today as organizations address the disruption to their product and service supply chains. They are being challenged to rethink “Just-in-Time” approaches in favour of supporting a variety of “Just-in-Case” scenarios to ensure business continuity.

The uncertainties and unpredictabilities of the past 2 years have played havoc with long-term programmes to drive costs down in supply chains, create efficiencies through schemes such as zero inventory management, and reduce partner and supplier networks to a minimum. After years of emphasizing the need to be lean and mean, in effect, they are now looking to insert waste into the system.

As a recent article in The Economist confirms, there are several important activities now underway. The first is over ordering to building up inventory to meet forecast demand. To ensure supply of key items, a stockbuilding cycle has taken place. This additional expense is viewed as essential to ensure supply to customers who may leave to find others who can fulfil their needs. Yet, it comes with a cost. Not just directly in terms of goods that must be ordered, stored, managed, and shipped. But also in negative market responses when inventories become too far ahead of demand; as recently reported by big retailers such as Walmart, Target, and Costco.

The second involves redesigning supply chains with more agility and resilience. As widely reported, the world’s supply chain is adjusting to a new set of concerns and a recalibration of a variety of risks. In a post-Covid world facing the twin shocks of war in Ukraine and a global recession, supply chains are being redefined to cope with the knock-on effects, from concerns about local taxes and regulations to geopolitical shifts in the priorities for national self-reliance. This is leading to costly activities to support continuation of supply and volatility in patterns of demand. This is resulting in actions such as extending local partner networks, moving production from offshore to onshore, and introducing greater vertical integration across products and services.

Beyond Inventory Management

All these activities will continue as organizations rethink the supply and demand equation in a world that for many in leadership roles is unlike anything they have experienced in their careers. But it is important not to forget that the detailed logistics and operational concerns of supply chain management represent only one aspect of this unprecedented change. As we have seen, the approach to resilience requires a much more holistic approach.

Building resilience in these difficult times involves substantial change and brings enormous stress to those involved. We have witnessed many times that substantive culture change faces a common order of failure, often in the following sequence:

• The people break. Additional stress due to implementing change is common with any new way of working. This affects existing culture and values and results in strong pushback from disoriented individuals.

• The tools break. Most business processes are not targeted at rapid delivery cycles and extensive experimentation in creating new products and services. Tooling can severely inhibit agile ways of operating if not aligned with supply chain practices.

• The governance breaks. The measures and metrics used to govern assume a traditional view of supply chain management. Adjustments are required to provide a balance between governed progress and the need for fast adaptation.

• The customer breaks. Any rapid shifts in demand requires more frequent feedback from customers and other stakeholders. Getting the input needed to adapt is essential. Yet many consumer-supplier relationships do not readily support such interactions, and when introduced, place added pressure on fragile customer relationships.

• The financial controls break. Funding cycles are frequently based on driving supply chain efficiencies. In more agile delivery cycles, progress may be less directly measured, with flexibility required to continue funding activities with different risk profiles delivering functionality in small slices.

• The organizational structure breaks. Eventually the organization’s management structure becomes stressed when empowered teams interact directly with consumers in rapid iterations and supply chain adjustments. The command-and-control view of decision-making can be directly at odds with the shifting priority-based delivery model of agile ways of working.

Rethinking supply chain management can bring substantial change to large established organizations. The fall out is inevitable and predictable. Yet too few organizations seem to be ready to deal with the short- and long-term implications across all aspects of their business. Building support to manage these tensions is essential.

Meeting the Needs

In the current environment, managing for volatility and unpredictability has become an essential element of every digital strategy. This is most clearly seen in how you address supply and demand. For many it means rebalancing your approach from “Just-in-Time” to “Just-in-Case”. Does your organization understand why adding waste into your strategy may be a key to success?

Digital Economy Tidbits

“AI is invisible – that’s part of the problem,” says Wendy Hall. Link.

Are we now seeing a new stage in the adoption of digital technologies such as AI where they are becoming so ubiquitous that they are disappearing below the surface? An interesting article and interview with Dame Wendy Hall in the New Statesman. Definitely worth a read.

There is a significant perception problem surrounding AI, says Wendy Hall, acting chair of the UK’s AI Council. “In the media, AI is often [depicted as] a ‘terminator’-type robot, that’s male and aggressive,” she tells Spotlight. “But a lot of AI is digital. You don’t see it, it just works, and that’s part of the problem – it’s invisible.”

Value Creation in the Metaverse. Link.

Lots of discussion about the Metaverse and its implications. But it is interesting to see McKinsey ask the key question – where is the value?

A useful overview of some of the key issues, and a report that you can download.