For me, a key function of the supply chain manager/engineer is to identify the risks his or her supply chain is exposed to, the potential impacts of those risks, and how to build resilience, and manage – even leverage– those risks if they manifest themselves. So, we will be doing a series of posts over time that identifies how those risks can best be classified, mitigated, and managed. This is the first in that series.
In order to reduce the fragility of a supply chain, we need to understand the disruptions to which it can be subjected. Being a graphical thinker, I tend to like to visualize these in matrix form, and the format I personally find most useful in this case is one devised by Dr. Joseph Fiksel. He uses the ubiquitous 2×2 format seen everywhere in business, with the X-axis in this case representing the abruptness of the change or disruption, and the Y-axis the magnitude.
Fiksel’s diagram depicts four types of change, analogous to those experienced in any environmental system, whether organic or manmade. In fact, it is illuminating to examine these strategies through the lens of the supply chain as a living organism. This is not as far fetched as it may at first seem. Consider that Merriam-Webster defines an organism as, “a complex structure of interdependent and subordinate elements whose relations and properties are largely determined by their function in the whole”[ii]. That seems like a reasonable definition of a supply chain to me. So, let’s take a look at Fiksel’s strategies from that perspective.
Natural Selection
Charles Darwin wrote, “…as natural selection acts by competition for resources, it adapts the inhabitants of each country only in relation to the degree of perfection of their associates”[iii]. Put in somewhat more contemporary terms, natural selection results from competition for resources, adapting the members of a given ecosystem against the effectiveness of other competitors in that ecosystem.
In nature, natural selection is a process – sometimes very gradual, sometimes relatively fast – composed of five basic components.
Variation: Within any population there are differences – variations – in traits between members. Some are larger, some smaller. Some have more color, some less. And there are variations in the amount and color of hair, physical strength and speed, height, etc.
Inheritance: It turns out that some of these traits are genetically heritable, being consistently passed along from one generation to the next, for example, dark skin coloration due to genetic melanin density. Other traits, however, are more a product of environment and as a result are not particularly inheritable, e.g., a dark skin color due to sun exposure and consequent tanning.
Resource Limitations: Most populations have the capacity to produce more offspring than the local resources will support. Therefore, resource limitations create limits on population growth.
Adaptation: Some members of the population will possess traits that are better suited to what Darwin referred to as, “the struggle for existence,” than others. What that really means is that the variation of traits will make certain individuals better suited for the battle for limited resources. When a heritable trait confers a benefit or advantage to its possessor in the struggle for resources and, hence survival, it is called an adaptation
Selection: Those individuals with better adapted traits will be able to produce more offspring with greater survivability than the lesser competitors in the population. Over time, this battle for resources will favor better adapted traits over others and, therefore, gradually increase the frequency of those traits in the population. This is selection.
The correlation between these aspects of these evolutionary components and the supply chain organism (which, due to my dislike of unnecessary typing, we will refer to as the SCO from now on) seems pretty intuitively clear and we shall expand on that as we move forward.
Steer and Adjust
In the low magnitude, low abruptness quadrant we address routine fluctuations and changes. These Fiksel represents with a low amplitude, regular sine wave. This is the seasonal migration of birds and other animals, the movement of the grazers and the hunter/gatherers following the easiest availability of resources. It is, also, the Commodity Manager adjusting to seasonality in demand and availability. It is the Buyer renegotiating contracts on commoditized items to take advantage of price and volume variations in the market. This is daily life in the ecosystem – any ecosystem.
Steer and Adjust is where business lives day-to-day. Naturally, we have plans and procedures in place to ensure our business operates as effectively as possible, but it is during times of routine operation we also need to be doing our continuous improvement. It is through continuous improvement that we derive variation, and it is through variation that we identify tools and methods that improve our ability to acquire resources or reduce our resource overhead. And as these advantages are tested and their benefit to the SCO is validated, they too can be codified in policy and procedure – either replacing less effective methods or adding greater breadth to our portfolio of capabilities and options to different situations. Once these new practices are proceduralized they are, in effect, inheritable, being passed down to each new iteration of the affected processes.
Adapt and Transform the Supply Chain
The next quadrant is the high magnitude, low abruptness quadrant. Here we see significant but gradual shifts in the operating environment: the growth of eCommerce and its related B2C logistics, offshoring/reshoring of suppliers, new markets, new competitors, etc. If left unaddressed, these can cause the gradual attrition of the organization’s competitive advantage and brand confidence. To address these concerns, supply chain managers and engineers need to keep a watchful eye on “drift’ in their supply chains utilizing tools such as trend analysis, predictive analytics, and scenario planning to recognize shifting paradigms.
But identifying these changes is quite often the easy part. Once recognized, adaptation and transformation become key. This is where those variations we discovered during the relatively quiet times of the Steer and Adjust period really come into play. If the SCO has developed a robust portfolio of capabilities and options, it will have an easier and more successful time adapting to the evolving environment having a richer range of pre-tested options to choose from in responding to these changes. If, on the other hand, it lacks depth in its collection of capabilities, the SCO will be forced to resort to rapid change management and process re-engineering. While these tools can be very effective when they occur in an organic and ongoing fashion, when forced by circumstances and urgent necessity, the SCO is often left scrambling after the elusive unicorn of business transformation in a last-ditch effort to secure its survival.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In Part 2, we will continue our discussion by looking at
Fiksel’s two quadrants dealing with abrupt disruption.
[i] Joseph Fiksel, Resilient by Design. Island Press, 2015
[ii] https://www.merriam-webster.com/dictionary/organism
[iii] Charles Darwin, On the Origin of Species, 1859